<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DECTRON INTERNATIONALE INC.
(Name of small business issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
CANADA 1711 N/A
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
NESS LAKDAWALA, PRESIDENT
4300 POIRIER BLVD.
MONTREAL, QUEBEC H4R 2C5
(514) 334-9609
(Address and telephone number of principal executive offices and principal place
of business)
------------------------------
ARTHUR S. MARCUS, ESQ.
GERSTEN, SAVAGE, KAPLOWITZ &
FREDERICKS, LLP
101 EAST 52ND STREET
NEW YORK, NEW YORK 10022
(212) 752-9700
(Name, address and telephone number of agent for service)
------------------------------
Copies to:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. GREGORY SICHENZIA, ESQ.
Arthur S. Marcus, Esq. Richard A. Friedman, Esq.
GERSTEN, SAVAGE, KAPLOWITZ SICHENZIA, ROSS & FRIEDMAN LLP
& FREDERICKS, LLP 135 West 50th Street
101 East 52nd Street, 9th floor New York, New York 10020
New York, New York 10022 (212) 664-1200
(212) 752-9700 (212) 664-7329 (fax)
(212) 752-9713 (fax)
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement. If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. If delivery of
the prospectus is expected to be made pursuant to Rule 434, please check the
following box. If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [x]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE MAXIMUM REGISTRATION
SECURITIES BEING REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, no par value....................... 1,150,000(2) $8.00 $9,200,000 $2,714
Common Stock Purchase Warrants................... 1,150,000(3) $.125 $143,750 $42.41
Common Stock issuable upon exercise of
Warrants....................................... 1,150,000(4) $9.20 $10,580,000 $3,121.10
Underwriters' Warrants........................... 100,000 $.001 $100 (5)
Common Stock Issuable on Exercise of
Underwriters' Warrants......................... 100,000 $9.20 $920,000 $271.40
Warrants Issuable upon Exercise of Underwriters'
Warrants....................................... 100,000 $.14375 $14,375 $4.24
Common Stock Issuable on Exercise of the Warrants
in the Underwriter's Warrant................... 100,000(4) $9.20 $920,000 $271.40
Total:..................................... $6,424.55
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) Includes up to 150,000 shares of Common Stock issuable upon exercise of the
Underwriters' over- allotment option.
(3) Includes up to 150,000 Warrants issuable upon exercise of the Underwriters'
over-allotment option.
(4) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional shares of Common Stock issuable as a
result of any future anti-dilution adjustments in accordance with the terms
of the Warrants.
(5) No fee due pursuant to Rule 457(g).
<PAGE>
SUBJECT TO COMPLETION, DATED JULY , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
DECTRON INTERNATIONALE INC.
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
DECTRON INTERNATIONALE INC. (the "Company") is hereby offering (the
"Offering"), separately and not as units, 1,000,000 shares of the Company's
common stock, no par value (the "Common Stock"), and 1,000,000 redeemable Common
Stock purchase warrants (the "Warrants"). The Common Stock and the Warrants will
be offered through J.P. Turner & Company., L.L.C. and Klein Maus and Shire
Incorporated ("Underwriters"). The Common Stock and the Warrants offered hereby
will be separately tradeable immediately upon issuance and may be purchased
separately. Each of the Warrants entitles the registered holder thereof to
purchase one share of Common Stock at a price of $9.20 per share, subject to
adjustment in certain circumstances, at any time during the four year period
commencing , 1999 and ending on , 2003 [five years from the
effective date]. The Warrants are subject to redemption by the Company at $.125
per Warrant at any time commencing , 1999 [one year from the effective
date] (or sooner with the consent of J.P. Turner & Company, LLC.) on not less
than 30 days prior written notice to the holders of the Warrants, provided the
last sale price of the Common Stock has been at least $16.00 for 30 consecutive
trading days ending on the third day prior to the date on which the Company
gives notice of redemption. The Warrants will be exercisable until the close of
business on the day immediately preceding the date fixed for redemption.
Prior to the Offering, there has been no public market for the Common Stock
and Warrants and no assurance can be given that any such market will develop
upon completion of the Offering. The Company is applying for quotation of the
Common Stock and Warrants on The Nasdaq National Market under the symbols
"DECTF" and "DECTWF," respectively, and listing on the Boston Stock Exchange
under the symbols "DEC" and "DECW," respectively. The initial public offering
price of the Common Stock and the Warrants and the exercise price and other
terms of the Warrants have been determined by negotiation between the Company
and the Underwriters (for which J.P. Turner & Company, L.L.C. is the
"Representative") and do not necessarily bear any relation to the Company's
earnings, assets, book value, net worth or any other recognized criteria of
value. See "Underwriting."
AN INVESTMENT IN THE SHARES OF COMMON STOCK AND WARRANTS OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" COMMENCING ON PAGE 7 AND DILUTION ON PAGE 14.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $8.00 $.80 $7.20
Per Warrant.............................................. $.125 $.0125 $.1125
Total(3)................................................. $8,125,000 $812,500 $7,312,500
</TABLE>
(1) Does not include additional compensation payable to the Underwriters,
consisting of (i) a non-accountable expense allowance ("Non-Accountable
Expense Allowance") equal to 3% of the gross offering proceeds, or $243,750
($280,312.50 if the Underwriters' Over-Allotment Option is exercised in
full), of which $35,000 has been paid to date, (ii) warrants to be sold to
the Underwriters (the "Underwriters' Warrants") to purchase up to 100,000
shares of the Common Stock and 100,000 Warrants, and (iii) a $96,000
consulting fee payable to the Representative upon the Closing of this
Offering. In addition, the Company also agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriters, but
before deducting the Underwriters' Non-Accountable Expense Allowance, or the
other expenses of the Offering, estimated at $773,350 payable by the
Company. See "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable for 45 days
after the date the Securities and Exchange Commission declares the Company's
registration statement effective (the "Effective Date") to purchase up to an
additional 150,000 shares of Common Stock and 150,000 Warrants solely for
the purpose of covering over-allotments, if any (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $9,343,750, $934,375 and $8,409,375. See "Underwriting."
The Shares and Warrants are being offered by the Underwriters on a "firm
commitment" basis, when, as and if delivered to and accepted by the
Underwriters, subject to prior sale, and other conditions and legal matters. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and to
reject orders, in whole or in part, for the purchase of any of the securities
offered notwithstanding tender by check or otherwise. It is expected that
delivery of the certificates representing the Shares and Warrants will be made
against payment therefor at the offices of J.P. Turner & Company, L.L.C., 3340
Peachtree Road, Suite 450, Atlanta, Georgia 30326.
J.P. TURNER & COMPANY, L.L.C. KLEIN MAUS AND SHIRE INCORPORATED
, 1998
<PAGE>
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS AND TO MAKE AVAILABLE QUARTERLY REPORTS
FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM
FINANCIAL STATEMENTS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and its officers, directors and auditors are residents of Canada
and consequently substantially all of the assets of the Company are or may be
located outside the United States. As a result, service of process may be
effected upon the Company through the offices of Gersten, Savage, Kaplowitz &
Fredericks, LLP in New York, but it may be difficult for investors to effect
service of process within the United States upon non-resident officers and
directors, or to enforce against them judgments obtained in the United States
courts predicated upon the civil liability provision of the Securities Act of
1933, as amended ("Securities Act") or state securities laws. The Company
believes that a judgment of a United States court predicated solely upon civil
liability under the Securities Act would probably be enforceable in Canada if
the United States court in which the judgment was obtained had a basis for
jurisdiction in the matter that was recognized by a Canadian court for such
purposes. However, there is substantial doubt whether an action could be brought
in Canada in the first instance on the basis of liability predicated solely upon
such laws. If investors have questions with regard to these issues, they should
seek the advice of their individual counsel. The Company has also been informed
by its Canadian legal counsel Shaffer & Associates that, pursuant to the
Currency Act (Canada), a judgment by a court in any Province of Canada may only
be awarded in Canadian currency. However, a court in the Province of Quebec may
give effect to the manner of conversion to Canadian currency of an amount in a
foreign currency, where such manner of conversion is provided for in an
obligation enforceable in Quebec.
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars, but has
provided the financial data in this Prospectus in United States dollars with its
audit conducted in accordance with generally accepted accounting principles in
the United States of America. All references to dollar amounts in this
Prospectus, unless otherwise indicated, are in United States dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the
i
<PAGE>
exchange rates on the last day of each month during such periods. On July 15,
1998, the exchange rate was Cdn$1.00 per US$0.67349.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
RATE AT END OF PERIOD...................................... $ 0.7576 $ 0.7143 $ 0.7353 $ 0.7299 $ 0.6991
AVERAGE RATE DURING PERIOD................................. 0.7752 0.7299 0.7299 0.7353 0.7223
HIGH....................................................... 0.7416 0.7092 0.7009 0.7212 0.6945
LOW........................................................ 0.8065 0.7642 0.7533 0.7526 0.7493
</TABLE>
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements regarding the plans and
objectives of management for future operations. The forward-looking statements
included herein are based on current expectations and assumptions that involve
numerous risks and uncertainties. Although management believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION, INCLUDING FINANCIAL STATEMENTS AND NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO
READ THIS PROSPECTUS IN ITS ENTIRETY AND CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER THE HEADING "RISK FACTORS." AS USED HEREIN, UNLESS OTHERWISE
INDICATED OR THE CONTEXT OTHERWISE REQUIRES, THE TERM THE "COMPANY" REFERS TO
DECTRON INTERNATIONALE, INC. ("DECTRON INTERNATIONALE"), ITS WHOLLY-OWNED
SUBSIDIARY DECTRON INC. ("DECTRON"), AND DECTRON'S WHOLLY-OWNED SUBSIDIARIES
FIBER MOBILE LTD. ("KLAASCO"), REFPLUS INC. ("REFPLUS"), THERMOPLUS AIR INC.
("THERMOPLUS") AND DECTRON USA, INC. ("DECTRON USA"). THIS CORPORATE STRUCTURE,
AS DISCUSSED IN MORE DETAIL BELOW, GIVES EFFECT TO A CORPORATE RESTRUCTURING
(THE "RESTRUCTURING") THAT WAS COMPLETED IMMEDIATELY PRIOR TO THE DATE OF THIS
PROSPECTUS. SEE "BACKGROUND" AND "BUSINESS-- CORPORATE RESTRUCTURING." UNLESS
OTHERWISE INDICATED, ALL DOLLAR AMOUNTS ARE STATED IN UNITED STATES DOLLARS. SEE
"EXCHANGE RATE DATA."
THE COMPANY
The Company, which is located primarily in and around Montreal, Quebec,
Canada, is comprised of several separate operating subsidiaries that together
manufacture and supply an extensive array of products for the dehumidification,
refrigeration, air conditioning and indoor air quality ("IAQ") markets. The
products manufactured and supplied include mechanical dehumidifiers and energy
recovery systems through Dectron, and refrigeration and air conditioning systems
through RefPlus and ThermoPlus. ThermoPlus has also just recently introduced a
new line of air filtration products. Klaasco is responsible for producing the
bulk of the Company's special steel enclosures, electrical control panels, and
other steel products. However, each of the Company's manufacturing subsidiaries
has the capability of doing its own sheet metal work, and, except for Klaasco,
the ability to produce its own heat transfer coils.
Management believes that it has structured the Company in such a way that,
other than with respect to the raw materials required to make the components for
its products and certain specialty products, the Company is not dependent on
outside suppliers for fabricated parts for its products. The Company has
invested significant resources in its manufacturing equipment and as a result
the Company can manufacture the most important components for any of its
fabricated products, regardless of whether the product is standard or a custom
design.
DECTRON
Dectron, the largest of the subsidiaries, was incorporated in 1977 to
develop, manufacture and market standard and custom design dehumidification
equipment. After extensive research and development, Dectron introduced a line
of indoor pool and commercial dehumidifiers under its DRY-O-TRON-TM- trademark.
The product line has experienced tremendous success in North America and as a
result has allowed the Company to become, in the opinion of management, the
leader in North America's indoor pool dehumidification business. Management
believes that the Company is now one of North America's leading manufacturers of
dehumidification and closed looped energy recyclers.
Dectron's standard products are now primarily manufactured by ThermoPlus. As
a result, Dectron focuses its own manufacturing operations on the manufacture of
its customized dehumidification systems. Management believes that the customized
product market is where the Company's competitive advantage is most evident.
Ordinarily, with a customized product, it is often very difficult to commit to
an aggressive delivery date for the finished product. However, since the Company
manufactures most of the component parts in-house, it is able to commit to an
aggressive delivery schedule. The Company has taken the necessary steps to align
itself with several suppliers of its raw materials so that it is not dependent
on any one supplier. In addition, the Company keeps in storage a sufficient
inventory of raw material to supply its immediate needs. Some of the Company's
customized product customers include Celebration City, Walt Disney World in
Florida and the Goodwill Games which were held in Atlanta, Georgia.
1
<PAGE>
Dectron, through its subsidiary Dectron USA, operates a sales office in the
United States which is located in Roswell, Georgia. This office supports the
efforts of Dectron's network of trained manufacturer's representatives who sell
Dectron's products throughout the United States. Dectron also has sales
representatives throughout Canada and overseas. The Company invites its
independent sales representatives and their technicians to be trained and
certified by Dectron's own technical staff at no cost to the attendees at a
training school run by the Company. Management uses the training school to both
market its products and demonstrate to potential buyers, first hand, the
technical excellence its employees have to offer as a service to its customers.
Management believes that customer service and technical expertise are a large
part of what sets the Company apart from its competitors. The Company also
markets its products in trade magazines, through industry associations and by
attending trade shows where it displays and demonstrates many of its products.
REFPLUS
Refplus was incorporated in 1993 to manufacture high quality modular
commercial and industrial refrigeration and air conditioning equipment for
commercial and special applications. Its products include refrigeration systems,
condensers, coils, walk-in storage coolers and freezers. In addition, RefPlus
manufactures all of the heat transfer coils used by Dectron. RefPlus' primary
customers are supermarkets and convenience or grocery stores. RefPlus' product
line, which has recently been revamped and is now designed around
hydrofluorocarbon refrigerants ("HFC"), features high quality products intended
to meet the needs of a broad range of customers. See "Industry Overview."
Since inception, RefPlus has manufactured some complex refrigeration systems
for application in fruit storage facilities, industrial baking facilities and
blast chillers for meat processing plants. Management believes that the
Company's RefPlus product lines offer an excellent opportunity for future
expansion. See "Expansion Plans."
RefPlus has a small network of sales representatives in Canada, however, the
majority of its sales are conducted through a network of independent
wholesalers.
THERMOPLUS
In 1987, Keepkool Transfert de Chaleur Inc. ("Keepkool"), the former parent
company of Thermoplus, purchased the manufacturing facilities of York
International in St-Jerome, Quebec. Keepkool was owned by a group of investors
active in the heating, ventilation and air-conditioning ("HVAC") industry, which
group included Ness Lakdawala, the Company's President and Chief Executive
Officer. The Company acquired Thermoplus from Keepkool as part of the
Restructuring. See "Business-- Corporate Restructuring." Since inception,
Thermoplus has introduced and sold a variety of' HVAC product lines through a
network of Canadian wholesalers. In 1995, ThermoPlus introduced specialized
product lines in the field of dehumidification and specialized air conditioning.
ThermoPlus' present product lines include dehumidification equipment, water
source air conditioners and heat pumps, portable or mobile air conditioning
equipment, industrial air handlers and air to fluid heat exchangers. These
product lines are sold through a network of Canadian wholesalers and HVAC
representatives. Although ThermoPlus' products are sold throughout North
America, with some exports outside of North America, the majority of its
revenues are derived from sales to Dectron and Refplus. Management believes that
it is capable of increasing both sales and manufacturing output of Thermoplus.
See "Expansion Plans."
In keeping with the Company's strategic plan to expand into the IAQ market
segment, Thermoplus has recently introduced a new engineered line of IAQ air
filtration products.
2
<PAGE>
KLAASCO
Klaasco, which was acquired by the Company in 1989, has been manufacturing a
wide range of metal products for more than 20 years. Most of its product demand
has been special enclosures, electrical control panels, control room consols,
shelters and busbars. Although most of Klaasco's products are manufactured for
Dectron, Inc., it does manufacture some metal products for sales outside of the
Company.
Management believes that the acquisition of Klaasco was an important
strategic decision and it has given the Company the quality assurance, product
control and a significantly greater ability to meet aggressive delivery
deadlines.
EXPANSION PLANS
The Company has grown from a single product and single market company
(Dectron) into a group of companies that cover a full range of humidity control,
IAQ control, energy recycling and refrigeration products with production
potential for both custom engineered and mass produced products. Management
believes that the introduction of a complete line of products to penetrate all
segments of the IAQ market will put the Company in the unique position of being
one of the only fully integrated companies of its kind. Management expects that
with a strong sales and marketing strategy to promote these and other subsequent
new products, the Company will experience a period of substantial growth,
although there can be no assurance thereof. The Company plans to continuously
inform its current and new targeted customers about its products through
technical seminars, product exhibitions and publication of major events in
industry journals.
The Company intends to strengthen its position in the United States by
establishing multiple regional sales and distribution offices. Management
believes that the Company's active presence in the United States with Dectron
products will allow it to closely track the performance of the Company's
products in the market and will help solidify alternate distribution networks
for its RefPlus products., although there can be no assurance thereof.
Management also intends to aggressively pursue other international markets,
starting with South America, followed by the Caribbean and Mexico.
There is an increased public movement to encourage healthy environments in
all public places. HVAC experts agree that the biggest challenge and key to
avoiding "sick building syndrome" is to introduce outside air and to filter and
remove humidity from said air. The Company has developed a product line of
"Make-Up Air Dehumidifiers" that management believes can solve what it perceives
as the two main problems in IAQ: moisture and humidity. The Company's products
are capable of bringing the required amounts of outdoor air into public areas
while at the same time dehumidifying the air, thus addressing the problems of
moisture and humidity. The present need for specialized IAQ equipment in North
America represents a market estimated by management to be in the multi-million
dollar range, in which only a limited number of companies have presently taken
the lead. Management believes, although there can be no assurance thereof, that
with the Company's team of engineering and design specialists, it can be on the
leading edge as a manufacturer and supplier of specialized IAQ equipment into
the next century.
3
<PAGE>
CORPORATE STRUCTURE
The Company was incorporated on March 3, 1998 to become the holding company
for Dectron and its operating subsidiaries RefPlus, ThermoPlus, Dectron USA and
Klaasco. As of the date of this Prospectus, the Company's corporate structure is
as follows:
<TABLE>
<S> <C> <C> <C>
Dectron Internationale Inc.
Dectron Inc.
RefPlus Inc. Thermoplus Air Inc. Dectron USA, Inc. Fibre Mobile Ltd.
(Klaasco)
</TABLE>
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.............. 1,000,000 shares of Common Stock
Warrants Offered.................. 1,000,000 Warrants. Each Warrant entitles the holder to
purchase one share of C ommon Stock. See "Description of
Securities."
Offering Prices................... $8.00 per share of Common Stock
$0.125 per Warrant
Common Stock Outstanding
Prior to the Offering(1)........ 1,750,000
After the Offering(1)(2)........ 2,750,000
Warrants Outstanding:
Prior to the Offering........... 0
After the Offering(2)........... 1,000,000
Terms of Warrants:
Exercise Price.................. The exercise price is $9.20 per share, subject to
adjustment in certain circumstances
Exercise Period................. The Warrants are exercisable for a period of four years
commencing on , 1999 and expiring on
, 2003.
Redemption........................ The Warrants are redeemable by the Company, commencing
, 1999 (or sooner with the consent of the
Representative), at a redemption price of $.125 per
Warrant on not less than 30 days written notice, provided
that the last sale price per share of Common Stock, for
30 consecutive trading days ending on the third business
day prior to the date of the redemption notice, is at
least $16.00, subject to adjustment for certain events.
See "Description of Securities --Warrants."
Risk Factor....................... The securities offered hereby involve a high degree of
risk and immediate substantial dilution to public
investors. See "Risk Factors" and "Dilution."
Use of Proceeds................... The net proceeds of the Offering will be used primarily
for research and development, repayment of certain
indebtedness, acquisition of additional personnel, sales
and marketing and for working capital and general
corporate purposes, including possible acquisitions. See
"Use of Proceeds."
Proposed NASDAQ Symbols(3)........ Common Stock: DECTF
Warrants: DECTWF
Proposed BSE Symbols(3)........... Common Stock: DEC
Warrants: DECW
</TABLE>
- ------------------------
(1) Does not include (i) up to 200,000 shares of Common Stock issuable upon
exercise of the Underwriters' Warrants and the Warrants contained therein,
and (ii) an aggregate of 500,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the
Company's 1998 Stock Option Plan (the "Plan"), none of which have been
granted. See "Management-Stock Option Plan."
(2) Assumes no exercise of the Over-Allotment Option or Underwriters' Warrants
or the exercise of the Warrants offered hereby.
(3) The proposed Nasdaq and Boston Stock Exchange symbols do not imply that a
liquid and active market will develop or be sustained for the Common Stock
or Warrants upon completion of the Offering.
5
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
The following summary financial information has been derived from the
financial statements of the Company. The summary financial information set forth
below is qualified by and should be read in conjunction with the financial
statements, including the notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
STATEMENT OF OPERATIONS DATA:
Sales.............................................................................. $ 12,712,413 $ 16,370,849
Gross profit....................................................................... 4,234,128 5,593,489
Income from operations............................................................. 1,324,058 1,556,322
Net income......................................................................... 696,778 863,331
Earnings per share................................................................. 0.40 0.49
Number of Shares assumed for calculation........................................... 1,750,000 1,750,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
------------- --------------
BALANCE SHEET DATA:
Working capital.................................................................... $ 1,422,574 $ 6,977,270
Total assets....................................................................... 11,496,573 17,484,969
Long-term debt..................................................................... 2,339,534 1,892,654
Total liabilities.................................................................. 9,039,175 8,405,120
Stockholders' equity............................................................... 2,457,498 9,079,849
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale by the Company of the 1,000,000 shares of
Common Stock and 1,000,000 Warrants offered hereby and the application of
the net proceeds therefrom. Also reflects results of the Restructuring (as
such term is hereinafter defined) with the assumption of additional debt of
$702,975 (or Cdn$1,149,050 less Cdn$125,000 already reflected in the
combined financial statements contained elsewhere in this Prospectus) plus
the repayment in part of said debt in the amount of $400,000. In addition,
the "as adjusted" number reflects additional goodwill of $433,700. See "Use
of Proceeds" and "Business--Corporate Restructuring."
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE, INVOLVE A
HIGH DEGREE OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER, ALONG WITH OTHER MATTERS REFERRED TO HEREIN, THE FOLLOWING
RISK FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
UNCERTAINTY OF MARKET ACCEPTANCE. The business segments in which the
Company competes are extremely competitive. Although the Company seeks to
establish its products as the preferred solution for IAQ problems, demand and
market acceptance for newly introduced products and services, such as
ThermoPlus' new Air Filtration and Purification product line, is subject to a
high level of uncertainty. The Company has not yet commenced significant
marketing activities relating to its new product lines. Potential customers may
elect to utilize other products which they believe to be more efficient or have
other advantages over the Company's products, or may otherwise be reluctant to
purchase the Company's products. Achieving market acceptance for the Company's
products will require substantial marketing efforts and expenditure of
significant funds to create awareness and demand by potential consumers as to
the perceived benefits and distinctive characteristics of the Company's
products. There can be no assurance that the Company will have available funds
or other resources necessary to achieve such acceptance. See "Use of Proceeds"
and "Business -- Sales and Marketing."
RISKS RELATED TO PROPOSED EXPANSION; RISKS RELATING TO FOREIGN
OPERATIONS. The Company intends to pursue a strategy of expansion through
acquisitions of existing companies engaged in businesses related to the
Company's operations and expansion of its current business into new territories.
Successful expansion of the Company's operations will be dependent on the
Company's ability to, among other things, (i) achieve significant market
acceptance for its products, (ii) hire and retain skilled management, marketing,
technical, engineering and other personnel, (iii) establish an effective sales
organization and enter into satisfactory marketing arrangements, secure adequate
sources of supply on a timely basis and on commercially reasonable terms,
especially with respect to the Company IAQ products for which the Company does
not currently have the capacity to manufacture all material parts, and (iv)
successfully manage growth (including monitoring operations, controlling costs
and maintaining effective quality controls). As of the date hereof, the Company
has no agreements, understandings or commitments and is not engaged in any
negotiations with any acquisition candidates. Investors in this Offering will
not have an opportunity to evaluate the specific merits or risks of any
potential acquisition. In addition, to the extent that the Company enters any
new foreign markets, as is currently contemplated, the Company will be subject
to all of the risks inherent with foreign trade, including trade restrictions,
export duties and tariffs, fluctuations in foreign currencies and international
political, regulatory and economic developments affecting foreign trade. There
can be no assurance that the Company will be able to successfully expand its
operations. See "Expansion Plans."
COMPETITION The industries in which the Company competes are all highly
competitive. The Company competes against a number of local, regional and
national manufacturers in each of its business segments, many of which have been
in existence longer than the Company and some of which have substantially
greater financial resources than the Company. The Company believes that
competition from new entrants, especially in the IAQ markets will come, if at
all, from large corporations which may be able to compete with the Company on
the basis of price and as a result may have a material adverse affect on the
results of operations of the Company. In addition, there can be no assurance
that other companies will not develop new or enhanced products that are either
more effective than the Company's or would render the Company's products
non-competitive or obsolete.
7
<PAGE>
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the
experience of its management in the continuing development of its retail
operations. The loss of the services of certain of these individuals,
particularly Ness Lakdawala, President, Chairman and Chief Executive Officer of
the Company, and Reinhold Kittler, Executive Vice President of the Company,
would have a material adverse effect on the Company's business. The Company
intends to obtain key-man life insurance in the amount of $1,000,000 on the
lives of each of Mr. Lakdawala and Mr. Kittler, although there can be assurance
thereof, with the Company as the named in each case beneficiary. The Company's
future success will depend in part on its ability to attract and retain
qualified personnel to manage the development and future growth of the Company.
There can be no assurance that it will be successful in attracting and retaining
such personnel. The failure to recruit additional key personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONTINUED CONTROL BY MANAGEMENT. Upon completion of this Offering,
management of the Company will beneficially own approximately 62% of the
Company's outstanding Common Stock. The Company's stockholders do not have the
right to cumulative voting in the election of directors. Accordingly, present
stockholders will be in a position to exert control over the business and
operations of the Company, including the election of all directors of the
Company. See "Principal Stockholders."
DEPENDENCE UPON THIRD-PARTY SUPPLIERS. Although the Company is not
dependent on any one supplier, the Company is dependent on the ability of its
third-party suppliers to supply the Company's raw materials as well as certain
specific component parts. Failure by the Company's third-party suppliers to meet
the Company's requirements could have a material adverse effect on the Company.
There can be no assurance that the Company's third-party suppliers will dedicate
sufficient resources to meet the Company's scheduled delivery requirements or
that the Company's suppliers will have sufficient resources to satisfy the
Company's requirements during any period of sustained demand. Failure of
manufacturers or suppliers to supply, or delays in supplying, the Company with
raw materials or certain components, or allocations in the supply of certain
high demand raw components could materially adversely affect the Company's
operations and ability to meet its own delivery schedules on a timely and
competitive basis.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds two
United States patents, both related to its swimming pool dehumidifier, and two
Canadian patents, one related to its swimming pool dehumidifier and the other
relating to the method and apparatus for controlling heat rejection in a
refrigeration system. The Company also has trademark protection in both the
United States and Canada for the names Dectron-TM- and DRY-O-TRON-TM-. The
Company may apply for additional patents relating to other aspects of its
products. There can be no assurance as to the breadth or degree of protection
which existing or future patents or trademarks, if any, may afford the Company,
that any patent or trademark applications will result in issued patents or
trademarks, that the Company's patents or trademarks will be upheld, if
challenged, or that competitors will not develop similar or superior methods or
products outside the protection of any patent issued to the Company. Although
the Company believes that its patent and trademarks and the Company's products
do not and will not infringe patents or trademarks or violate the proprietary
rights of others, it is possible that the Company's existing patent or trademark
rights may not be valid or that infringement of existing or future patents,
trademarks or proprietary rights may occur. In the event the Company's products
infringe patents or proprietary rights of others, the Company may be required to
modify the design of its products, change the name of its products or obtain a
license for certain technology. There can be no assurance that the Company will
be able to do so in a timely manner, upon acceptable terms and conditions, or at
all. Failure to do any of the foregoing could have a material adverse effect
upon the Company. In addition, there can be no assurance that the Company will
have the financial or other resources necessary to enforce or defend a patent or
trademark infringement or proprietary rights violation action which may be
brought against it. Moreover, if the Company's products infringe patents,
trademarks or proprietary rights of others, the Company could, under certain
circumstances, become liable for damages, which also could have a material
adverse effect on the Company.
8
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate and
substantial dilution to investors. Purchasers of Common Stock in the Offering
will incur an immediate dilution of $4.87 per share (assuming no value is
ascribed to the Warrants) in the net tangible book value of their investment
from the initial public offering price, which dilution amounts to approximately
61% of the initial public offering price per share of Common Stock. Investors in
the Offering will pay $8.00 per share, as compared with an average cash price of
$1.18 per share of Common Stock paid by existing stockholders.
CURRENCY FLUCTUATIONS. Although the Company's financial statements included
herein are prepared in U.S. dollars, fluctuations in exchange rates between
Canadian and United States dollars may have a material adverse effect upon the
Company's results of operations. The impact of future exchange rate fluctuations
on the Company's results of operations cannot be accurately predicted. To date,
the Company has not sought to hedge the risks associated with fluctuation in
exchange rates and does not have a policy relating to hedging. There can be no
assurance that any hedging techniques that might be implemented by the Company
in the future would be successful or that the Company's results of operations
will not be materially adversely affected by exchange rate fluctuations.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS. The Company
and its officers, directors and auditors are residents of Canada and
substantially all of the assets of the Company are or may be located outside the
United States. As a result, it may be difficult for investors to effect service
of process within the United States upon non-resident officers and directors, or
to enforce against them judgments obtained in the United States courts
predicated upon the civil liability provision of the Securities Act or state
securities laws. The Company believes that a judgment of a United States court
predicated solely upon civil liability under the Securities Act would probably
be enforceable in Canada if the United States court in which the judgment was
obtained had a basis for jurisdiction in the matter that was recognized by a
Canadian court for such purposes, although there can be no assurance thereof.
However, there is substantial doubt whether an action could be brought in Canada
in the first instance on the basis of liability predicated solely upon such
laws.
INVESTMENT CANADA ACT. The Investment Canada Act is a Federal Canadian
statute which regulates the acquisition or control of existing Canadian
businesses and the establishment of new Canadian businesses by an entity that is
a "non-Canadian," as that term is defined in the Investment Canada Act.
The Company believes that it is not currently a "non-Canadian" for purposes
of the Investment Canada Act. If the Company were to become a "non-Canadian" in
the future, acquisitions of control of Canadian businesses by the Company would
become subject to the Investment Canada Act. Generally, the direct acquisition
by a "non-Canadian" of an existing Canadian business with gross assets of
$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of $168 million for 1996 for "NAFTA investors" as defined under the
Investment Canada Act.
Indirect acquisitions of existing Canadian businesses (with gross assets
over certain threshold levels), as well as acquisitions of businesses related to
Canada's cultural heritage or national identity (regardless of the value of
assets involved), may also be reviewable under the Investment Canada Act. In
addition, acquisitions of control of existing investments to establish new,
unrelated businesses are not generally reviewable but do require that a notice
of the investment be given under the Investment Canada Act. An investment in a
new business that is related to the "non-Canadian's" existing business in Canada
is not notifiable under the Investment Canada Act unless such investment relates
to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments may not be implemented
prior to the Minister determining that the investment is likely to be of "net
benefit to Canada" based on the criteria set out in the Investment Canada Act.
9
<PAGE>
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS. This Prospectus contains
certain forward-looking statements, including among others (i) anticipated
trends in the Company's financial condition and results of operations, and (ii)
the Company's business strategy for managing and expanding its operations. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to other risks described elsewhere in this "Risk Factors" discussion,
important factors to consider in evaluating such forward-looking statements
include (i) changes in external competitive market factors or in the Company's
internal budgeting process which might impact trends in the Company's results of
operations; (ii) unanticipated working capital or other cash requirements; (iii)
changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the industries in which it operates;
and (iv) various competitive factors that may prevent the Company from competing
successfully in the marketplace. In light of these risks and uncertainties, many
of which are described in greater detail elsewhere in this "Risk Factors"
discussion, there can be no assurance that the events predicted in
forward-looking statements contained in this Prospectus will, in fact,
transpire.
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK. The Company's
Certificate of Incorporation authorizes the issuance of an unlimited number of
shares of "blank check" preferred stock, with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, and is prohibited from doing so for a period of 24 months from
the Effective Date, there can be no assurance that the Company will not do so in
the future. See "Description of Securities -- Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 2,750,000 shares of Common Stock of
the Company to be outstanding upon completion of this Offering, 1,750,000 shares
shall be "restricted securities," of which 1,693,044 are owned by "affiliates"
of the Company, as those terms are defined in Rule 144 promulgated under the
Securities Act. Absent registration under the Securities Act, the sale of such
shares is subject to Rule 144, as promulgated under the Securities Act. All of
the "restricted securities" will be eligible for resale under Rule 144. In
general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least one year is
permitted to sell in a brokerage transaction, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or, if the Common Stock is quoted on The
Nasdaq Stock Market or a stock exchange, the average weekly trading volume
during the four calendar weeks preceding the sale. Rule 144 also permits a
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least two years to sell such shares
without regard to any of the volume limitations described above. Holders of all
of such shares of Common Stock are affiliates of the Company. All of the
Company's officers and directors who are stockholders have agreed not to sell or
otherwise dispose of any of their shares of Common Stock now owned or issuable
upon the exercise of any option for a period of 18 months from the Effective
Date, without the prior written consent of the Underwriter. Thereafter, 20% of
the securities covered by each lock-up agreement will become free from the
lock-up restriction, with the last securities to become unrestricted 78 months
after the Effective Date. No prediction can be made as to the effect, if any,
that sales of shares of Common Stock or the availability of such shares for sale
will have on the market prices of the Company's Common Stock prevailing from
time to time. The possibility that substantial amounts of Common Stock may be
sold under Rule 144 into the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital in the future through the sale of equity securities. See "Shares
Eligible for Future Sale."
10
<PAGE>
EFFECT OF ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS AND OPTIONS;
POSSIBLE ISSUANCE OF ADDITIONAL COMMON STOCK AND OPTIONS. Immediately after the
Offering assuming the Underwriters' Over-Allotment Option is not exercised, the
Company will have an aggregate of 2,750,000 shares of Common Stock outstanding,
an unlimited number of shares of Common Stock authorized but unissued and not
reserved for specific purposes and an additional 2,000,000 shares of Common
Stock unissued but reserved for issuance pursuant to (i) the Company's 1997
Stock Option Plan, (ii) exercise of the Warrants, (iii) exercise of the
Over-Allotment Option and the Warrants underlying the Over-Allotment Option, and
(iv) exercise of the Underwriters' Warrants and the Warrants included therein.
All of such shares may be issued without any action or approval of the Company's
stockholders. Although there are no present plans, agreements, commitments or
undertakings with respect to the issuance of additional shares or securities
convertible into any such shares by the Company, any shares issued would further
dilute the percentage ownership of the Company held by the public stockholders.
The Company has agreed with the Underwriter that, except for the issuances
disclosed in or contemplated by this Prospectus and issuances in connection with
any merger or acquisition of another entity by the Company, it will not issue
any securities without the Underwriters' consent, including but not limited to
any shares of Common Stock, for a period of 24 months following the Effective
Date, without the prior written consent of the Underwriter. See "Underwriting."
The exercise of warrants or options and the sale of the underlying shares of
Common Stock (or even the potential of such exercise or sale) may have a
depressive effect on the market price of the Company's securities. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of outstanding warrants and options
can be expected to exercise them, to the extent they are able, at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the warrants and
options. See "Management--Stock Option Plan," "Description of Securities" and
"Underwriting."
NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been declared
or paid on the Common Stock, and the Company does not anticipate declaring or
paying any dividends in the foreseeable future, but rather intends to reinvest
profits, if any, in its business. Investors should, therefore, be aware that it
is unlikely that any dividends will be paid on the Common Stock in the
foreseeable future. See "Dividend Policy."
NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
COMMON STOCK FROM NASDAQ NATIONAL MARKET SYSTEM. Prior to this Offering, there
has been no established public trading market for the Company's Common Stock and
Warrants and there is no assurance that a public trading market for the
Company's Common Stock and Warrants will develop after the completion of this
Offering. If a trading market does in fact develop for the Common Stock and
Warrants offered hereby, there can be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market upon the Effective Date. The Commission has recently
approved new rules imposing criteria for listing of securities on the Nasdaq
National Market, including standards for maintenance of such listing. In order
to qualify for initial quotation of securities on the Nasdaq National Market, an
issuer, among other things, must have at least $6,000,000 in net tangible
assets, $8,000,000 in market value of the public float and a minimum bid price
of $5.00 per share. For continued listing, an issuer, among other things, must
have $4,000,000 in net tangible assets, $5,000,000 in market value of securities
in the public float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the Nasdaq National Market's maintenance criteria in the
future, its Common Stock and Warrants may be delisted from the Nasdaq National
Market. In such event, the Company would seek to list its securities on The
Nasdaq SmallCap Market, however, if it was unsuccessful, trading, if any, in the
Company's Common Stock and Warrants, would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or The OTC Bulletin
Board. As a consequence of such delisting, an investor would likely find it more
difficult to dispose of, or to obtain quotations as to, the price of the
Company's Common Stock .
11
<PAGE>
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance requirements for the Nasdaq National Market and its Common Stock
falls below the minimum bid price of $5.00 per share for the initial quotation,
the Company would seek to list its securities on The Nasdaq SmallCap Market. If
it was unsuccessful, trading would be conducted on the "pink sheets" or The OTC
Bulletin Board. In the absence of the Common Stock being quoted on Nasdaq, or
listed on an exchange, trading in the Common Stock would be covered by Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), if the Common Stock is a "penny stock." Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's Common Stock and Warrants were to become subject to the
regulations applicable to penny stocks, the ability of broker-dealers to sell
the Common Stock and Warrants and the ability of purchasers in this Offering to
sell their Common Stock and Warrants in the secondary market would be limited,
thereby severely affecting the market liquidity of the Common Stock and
Warrants. There is no assurance that trading in the Common Stock and Warrants
will not be subject to these or other regulations that would adversely affect
the market for such securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of $.125 per Warrant (the
"Redemption Price"), commencing one year after the date of this Prospectus and
prior to their expiration on the fifth anniversary of the date of this
Prospectus provided that (i) prior notice of not less than 30 days is given to
the Warrantholders, (ii) the last sale price of the Company's Common Stock shall
have been at least $16.00 per share for a period not less than 30 consecutive
days trading period ending on the third day prior to the date on which the
notice of redemption is given. Warrantholders shall have exercise rights until
the close of the business day preceding the date fixed for redemption. Notice of
redemption of the Warrants could force the holders to exercise the Warrants at
the current market price when they might otherwise wish to hold them, or to
accept the Redemption Price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act,
covering underlying shares of Common Stock is current and such shares have been
qualified for sale, or there is an exemption from applicable qualification
requirements, under the securities laws of the state of residence of the
Warrantholder. Although the Company does not presently intend to do so, the
Company reserves the right to call the Warrants for redemption whether or not a
current prospectus is in effect or such underlying shares are not, or cannot be,
registered in the applicable states. Such restrictions could have the effect of
preventing certain Warrantholders from liquidating their Warrants. See
"Description of Securities--Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Warrantholders have the right to exercise the Warrants for the
purchase of shares of Common Stock only if a current prospectus which will
permit the purchase and sale of the Common Stock underlying the Warrants is then
effective, but there can be no assurance that the Company will be able to keep
effective such a Prospectus. Although the Company intends to seek to qualify for
sale the shares of Common Stock underlying the Warrants in those states in which
the Securities are to be offered, no assurance can be given that such
12
<PAGE>
qualification will occur. In addition, purchasers may buy Warrants in the
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company would
be unable to issue shares of Common Stock to those persons desiring to exercise
their Warrants unless and until the shares of Common Stock could be registered
or qualified for sale in the jurisdictions in which such purchasers reside, or
an exemption to such qualification exists or is granted in such jurisdiction.
The Warrants may lose or be of no value if a prospectus covering the shares of
Common Stock issuable upon the exercise thereof is not kept current or if such
underlying shares of Common Stock are not, or cannot be, registered in the
applicable states. See "Description of Securities--Warrants."
RELATIONSHIP OF REPRESENTATIVE TO TRADING. The Representative may act as a
broker or dealer with respect to the purchase or sale of the Common Stock and
the Warrants in the over-the-counter market where each is expected to trade. The
Representative also has the right to act as the Company's exclusive agent in
connection with any future solicitation of Warrantholders to exercise their
Warrants. Regulation M, which was recently adopted to replace Rule 10b-6, under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may
prohibit the Representative from engaging in any market-making activities with
regard to the Company's securities for a period of up to five business days (or
such other applicable period as Regulation M may provide) prior to any
solicitation by the Representative of the exercise of Warrants until the later
of the termination of such solicitation activity or the termination (by waiver
or otherwise) of any right that the Representative may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, the
Representative and any soliciting broker/dealer may be unable to provide a
market for the Company's securities during certain periods while the Warrants
are exercisable. Any temporary cessation of such market-making activities could
have an adverse effect on the market price of the Company's securities.
YEAR 2000 UNCERTAINTIES. Recently, national attention has focused on the
potential problems and costs resulting from computer programs being written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 2000 complaint, there can be no assurance until the year 2000 that all
systems will function adequately then. If they do not, the result could be a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
13
<PAGE>
DILUTION
At January 31, 1998, the Company had a net tangible book value of
approximately $2,062,471 or $1.18 per share based on 1,750,000 shares of Common
Stock outstanding. The net tangible book value per share represents the amount
of the Company's total assets less total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt of the
net proceeds (estimated to be approximately $6,539,150) from the sale of the
Shares and Warrants offered hereby, the pro forma net tangible book value of the
Company at January 31, 1998 would be $8,601,621 or $3.13 per share of Common
Stock. This would result in dilution to the public investors (i.e. the
difference between the estimated initial public Offering price per share of
Common Stock and the net tangible book value thereof after giving effect to this
Offering) of approximately $4.87 per share. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share of Common Stock............................... $ 8.00
Net tangible book value per share before the Offering(1)...................... $ 1.18
Increased attributable to new investors(1).................................... $ 1.95
---------
Pro forma net tangible book value per share after the Offering(1)............. $ 3.13
---------
Dilution to new investors(1).................................................. $ 4.87
---------
---------
</TABLE>
The following table summarizes as of January 31, 1998 the differences
between the existing stockholders and new investors with respect to the number
of shares of Common Stock purchased from the Company, and the total
consideration and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF AGGREGATE PERCENTAGE OF AVERAGE
PURCHASED(1) TOTAL SHARES OF CONSIDERATION TOTAL CONSIDERATION PRICE PER SHARE
------------ --------------- ------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 1,750,000 64% $ 2,065,000 21% $ 1.18
New Investors................... 1,000,000 36% $ 8,000,000 79% $ 8.00
------------ --- ------------- ---
Total........................... 2,750,000 100% $ 10,060,000 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
- ------------------------
(1) This information does not include: (i) 1,000,000 shares of Common Stock
issuable upon exercise of the Warrants offered hereby; (ii) up to an
additional 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' Over-Allotment Option and the underlying Warrants; (iii)
500,000 shares that may be issued under the Company's Stock Option Plan; and
(iv) 200,000 Shares issuable upon the exercise of the Underwriters' Warrants
and the Warrants included therein.
14
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
January 31, 1998, and (ii) "As Adjusted" to reflect the issuance and sale of the
1,000,000 Shares and 1,000,000 Warrants offered hereby. The information below
should be read in conjunction with the other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
------------ --------------
Long-term debt, less current maturities............................................. $ 2,339,534 $ 1,892,654
Shareholders' equity:
Capital Stock, unlimited shares authorized: 1,750,000 issued and outstanding (2);
and 2,750,000 issued and outstanding as adjusted (2)(3); Preferred Stock,
unlimited authorized, none outstanding............................................ 1,934,695 8,557,046
Foreign currency transaction adjustment........................................... (95,377) (95,377)
Retained earnings............................................................... 618,180 618,180
Total shareholders' equity...................................................... 2,457,498 9,079,849
------------ --------------
Total capitalization............................................................ $ 4,797,032 $ 10,972,503
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(1) Some of the Company's assets are pledged to secure this indebtedness. See
"Management's Discussion and analysis of Financial Conditions and Results of
Operations. See Note 9 to "Notes to Consolidated Financial Statements".
(2) Does not include 500,000 shares of Common Stock provided for issuance under
the Stock Option Plan.
(3) Assumes no exercise of the Warrants, the Underwriters' Warrants or the
Underwriters' Over-Allotment Option.
(4) Gives effect to the Restructuring. See "Business--Corporate Restructuring."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Shares
and Warrants offered by the Company at a public offering price of $8.00 per
share of Common Stock and $.125 per Warrant, after deducting underwriting
commissions and offering expenses to be paid by the Company, is estimated to be
$6,539,150. The Company expects to apply the net proceeds of the Offering as
follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Implementation of Expansion Plans(1).............................. $ 600,000 9.18%
Repayment of Indebtedness(2)...................................... $ 584,454 6.12
Buyout of Minority Interest(3).................................... $ 400,000 8.93
Sales and Marketing............................................... $ 300,000 4.59
Research and Development(4)....................................... $ 240,000 3.67
Working Capital and General Corporate Purposes(5)................. $ 4,414,696 67.51
Total............................................................. $ 6,539,150 100.00%
</TABLE>
- ------------------------
(1) Represents anticipated expenses of hiring additional technical and
operations personnel and establishing regional sales and distribution
offices in connection with the Company's expansion plans.
(2) Represents (i) repayment of an aggregate of approximately $428,096 to the
National Bank of Canada as payment in full of four bank term loans, and (ii)
repayment of an aggregate of approximately $156,358 to Caisse Populaire
Desjardins as repayment in full of two bank term loans.
(3) Represents the estimated U.S. dollars needed to pay approximately
Cdn$557,050 of indebtedness incurred in connection with the Restructuring,
none of which is being paid to executive officers, directors or principal
stockholders of the Company. See "Business - Corporate Restructuring."
(4) Represents anticipated expenses in connection with the Company's development
of patents for the purpose of improving the Company's line of products.
(5) The net proceeds allocated to working capital include funds for general
corporate purposes including the employment of additional personnel, and
strategic acquisitions in furtherance of the Company's expansion plans. The
Company is not currently in negotiations with any acquisition candidates.
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the Offering based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business operations
or unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company.
Any additional net proceeds realized from the exercise of the Over-Allotment
Option (up to approximately $1,060,312) will be added to the Company's working
capital.
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or other short-term
interest-bearing investments.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements for
a period of at least 12 months from the completion of this Offering. In the
event that the Company acquires or introduces any additional product lines, such
funds will be derived from the funds currently allocated to working capital or
from revenues generated from the Company's operations.
16
<PAGE>
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE PRECEDING
SELECTED FINANCIAL DATA AND THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES
THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS. THE FORWARD-LOOKING STATEMENTS
INCLUDED HEREIN ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT INVOLVE
NUMEROUS RISKS AND UNCERTAINTIES. ALTHOUGH MANAGEMENT BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE
THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE.
IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING
STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE
OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED. ALL DOLLAR AMOUNTS BELOW
ARE STATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
GENERAL
The Company has been in operation since June 1977 and has grown from a
single product and single market company into a group of companies that cover a
full range of humidity control, IAQ control, energy recycling and refrigeration
products which are marketed in Canada, the United States and overseas. The
Company secures its contracts through a network of representatives. The Company
is not dependent upon any major customer for a significant portion of its
revenues.
The Company's goal is to aggressively seek a leading position in the IAQ
market. Management believes that no firm in North America has the strength of
the Company, not to mention the reputation, expertise, market presence and
manufacturing capabilities. The Company intends to devote significant efforts to
the development of equipment for the IAQ market. Management anticipates,
although there can be no assurance thereof, that the IAQ market will have
enormous future growth, as this relatively new area of engineering is forecasted
to grow extremely rapidly. The Company believes that there is a need in the
North American market for specialized IAQ equipment, which management believes
represents a tremendous opportunity for the Company. The Company expects a
period of substantial growth which will be supported by a strong marketing
strategy to promote these and other subsequent new products.
The Company plans to expand its operations by acquiring other companies, by
expanding its product line and broadening its sales territory. Although specific
acquisition candidates have not been identified, the Company expects that a
portion of any acquisition price will be paid with shares of the Company's
Common Stock, and a portion may be paid with the proceeds of this Offering. See
"Use of Proceeds."
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, 1998 ("FISCAL 1998") COMPARED TO FISCAL ENDED
JANUARY 31, 1997
("FISCAL 1997")
Revenues for the year ended January 31, 1998 were $16,370,849, a 28.8%
increase over prior year revenues of $12,712,413. This increase was in part due
to expansion of the Company's manufacturing facilities and increased production
planning and scheduling.
Gross Profit increased by $1,359,361 to $5,593,489 over the prior year. This
represents an increase of 0.86%, expressed in relation to sales. Compared to the
increase in sales of 28.8%, the gross profit increased by 32.1% due to a
reduction in cost of sales.
Selling and marketing expenses increased $939,210 in Fiscal 1998.
Approximately $486,100 of this increase is a result of a change in the Company's
invoicing policy. To insure timely collection of receivables, the end user is
now invoiced and commissions are paid to the Company's representatives. The
remaining
18
<PAGE>
increase of $453,110 for this period reflects the costs of additional personnel
and marketing expenses necessitated by sales growth. As a percentage of
revenues, selling and marketing expenses increased from 10.5% to 13.9%.
General and administrative expenses increased by $48,442 from $1,287,971 to
$1,304,014. As a percentage of revenues, general and administrative expenses
decreased from 10.1% to 7.9%. The percentage decrease is a result of fixed costs
and expenses; while the dollar increase is a result of annual salary increases.
Interest expenses decreased by $46,816 from $334,493 to $287,677. As a
percentage of revenue a diminution of 0.87%. This change reflects the Company's
decision to refinance operating and terms loans, and negotiate a substantially
improved banking facility with the National Bank of Canada in the second half of
Fiscal 1998.
Income before income taxes was $1,268,645, an increase of $279,080 over the
comparative period but relative to sales, remained at the same level in both
years (7.8%).
Income tax expenses as a percentage of taxable income increased to 32.0% for
Fiscal 1998 from 22.6% for Fiscal 1997. Tax expenses increased by $181,617
because of the increase in taxable income and non-deductible items.
As a result of the above factors, the Company's net income increased from
$696,778 to $863,331, an increase of 23.9%.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1996
Revenues for the year ended January 31, 1997 were $12,712,413, a 51.8%
increase over prior year revenues of $8,375,015. A major part of this increase
in revenue is due to the first time consolidation of Refplus' revenues following
the Company's acquisition of a controlling interest. The remaining difference
(12%) is due to more efficient use of manufacturing facilities permitting the
Company to service more customers. Part of the increase in revenues is
attributable to servicing a new segment of the market with IAQ products. Part of
the increase is also due to the decline of the Canadian dollar.
Gross profit for the period increased by $2,030,547 to $4,234,128 over the
same period. This represents an increase of 7.0%, expressed in relation to
sales. Comparative to the increase in sales of 51.8%, the gross profit increased
by 92.1% due to economies of scale and better use of the Company's resources.
Selling and marketing expenses increased $292,427 in Fiscal 1997. The
increase for this period mainly reflects the costs of additional personnel and
marketing expenses necessitated by sales growth. As a percentage of revenues,
selling and marketing expenses decreased from 12.4% to 10.5%.
General and administrative expenses increased by $418,926 from $869,045 to
$1,287,971. As a percentage of revenues, general and administrative decreased
from 10.4% to 10.1%. The increase is due in part to increased expenses
($236,926) and additional personnel ($182,000).
Interest expenses increased by $42,430 from $292,063 to $334,493, due to
extended financing requirements necessary to sustain sales growth, but as a
percentage of revenue, it diminished by 0.85%.
Income before income taxes, including extraordinary items, was $989,565, an
increase of $154,914 over the comparative year. As a percentage of sales, income
before taxes was 7.8% in 1997 compared to 10.0% in the prior year.
Income tax expenses as a percentage of taxable income increased to 22.6% for
1997 from 13.0% for 1996. Tax expense increased by $115,543 because of the
increase in taxable income and non-deductible items.
19
<PAGE>
As a result of the above factors, the Company's net income decreased to
$696,778 from $726,397 a decrease of 4.1%.
LIQUIDITY AND CAPITAL RESOURCES
In Fiscal 1998, the Company generated a positive cash flow from operating
activities of $65,181. In Fiscal 1997, the Company generated a negative cash
flow from operating activities of $148,440.
The principal source of cash was from net income of $863,331, non-cash items
in the amount of $461,100, and an increase in accounts payable of $309,169. Net
income increased principally because of increased revenues. Non-cash items
increased due to investment in capital assets. Payables increased because of the
increased volume of business. The principal use of cash was for an increase in
inventory of $1,311,838 and an increase in accounts receivable of $385,013. Both
inventory and accounts receivable increased as a result of the increase in the
volume of business. In addition, the Company had implemented a new stocking
program. The most popular DRY-O-TRON-C- models are built for stock and are
available for quick delivery. Cash flow from investing activities was reduced by
$1,785,383 as a result of the purchase of one of the Company's manufacturing
facilities in the amount of $785,520, and production equipment in the amount of
$574,921. Financing activities provided net cash flow in the amount of
$1,585,868. The principal source of cash flow from financing came from advances
of bank indebtedness in the amount of $1,527,996 and advances from long term
debt in the amount of $453,346. The principal use of cash flow from financing is
repayment of a bank loan payable in the amount of $320,320. Net cash flow
generated after all activities was nil.
In November 1997, the Company renewed a secured credit arrangement with
National Bank of Canada. This new facility included an aggregate credit line of
Cdn$5,400,000 of which Cdn$2,700,000 can be financed through bankers
acceptances. The amount available to the Company is equal to 75% of the
"eligible accounts receivable" as defined in the Line of Credit Agreement, plus
50% of the inventory values, net of work in process, up to a maximum advance
against inventory of approximately Cdn$1,750,000. The Company's borrowings under
the line of credit bear interest at Canadian prime plus 1/2% (1% for Thermoplus)
which at January 31, 1998 amounted to 6.0%. Interest on any borrowings is
payable monthly. The Company is in full compliance with all of the banking
covenants (including financial covenants and ratios) and is required to report
to its bankers on a monthly basis. The Company finances its operations mainly
through the use of bankers acceptances bearing an average lending rate of prime.
All borrowings are collateralized by the assets of the Company.
In November 1997, the Company acquired one of its leased manufacturing
facilities, financing was as follows:
1) The Company secured a five-year financing in the amount of
Cdn$700,000 through the Immigrant Investors Program at a rate of 5.21%. The
Immigrant Investors Program is a program in Canada through which persons
seeking Canadian citizenship pool monies for investment in companies that
meet established criteria. Interest is paid monthly and the Company is
committed to make monthly payments of Cdn$3,900 in a sinking fund which is
given as security against the immigrant loan. Said capital repayment will be
applied to the outstanding balance which is due in November 2002. The
Company's intention is to renegotiate a new investor loan at that point in
time.
2) The Company negotiated a balance of sale in the amount of
Cdn$350,000 payable semi-annually (Cdn$58,888 per payment) without interest
due October 2000.
3) The Company also secured an additional amount of Cdn$150,000 from
National Bank of Canada at a fixed rate of 7.99% maturing in December 2002.
In November 1997, the Company also renegotiated, at more favorable
conditions, a loan originally obtained through a "Company Assistance Program".
The Company obtained a term loan in the amount of Cdn$121,000 bearing interest
at prime plus 1% maturing in April 2002.
20
<PAGE>
In November 1997, the Company also renegotiated a "Small Business Loan" and
a bank term loan with a new term loan in the amount of Cdn$365,000 bearing
average interest at the bank prime rate plus 1% per annum maturing in April
2002.
In Fiscal 1997, the principal source of cash was from net income of
$696,778, and from non-cash items in the amount of $289,256. Non-cash items
increased slightly due to investments in capital assets. The principal use of
cash was the increase in inventory of $895,202 and the increase in accounts
receivable of $527,956. Also accounts receivable increased because of the
increase in the volume of business. Inventory increased because of the increase
in volume and the purchase of inventory required to fill orders early in Fiscal
1998. Cash flow from investing activities was reduced by $609,003 mainly as a
result of the purchase of production equipment in the amount of $417,365.
Financing activities provided cash flow in the amount of $803,507. The principal
sources of cash flow from financing come from advances from loan payable in the
amount of $626,401, minority interest in the amount of $380,886 and advances
from bank indebtedness in the amount of $242,223. The principal use of cash flow
from investing was redemption of Class A shares in the amount of $509,115. Net
cash flow generated after all activities was negative in the amount of $64,999.
The Company will receive net proceeds of this Offering in an amount
estimated to be $6,539,150. The Company believes that the net proceeds of the
Offering, coupled with income from operations will fulfill the Company's working
capital needs for at least the next 12 months. The Company intends to use
approximately $600,000 for implementation of its expansion plans, and an
additional $300,000 for sales and marketing. The Company also intends to retire
approximately $584,454 of its long term debt and also use approximately $240,000
to expand its research and development program. It is the Company's intention to
utilize a portion of the net proceeds to aggressively seek synergistic
acquisitions. In addition, the Company intends to use approximately $400,000 of
the Offering proceeds to pay certain debts incurred in connection with the
Restructuring, and to pay Mr. Lakdawala and his affiliates an aggregate of
Cdn$592,000 in equal monthly payments, commencing three months after the
Effective Date, without interest, out of the Company's cash flow. See
"Business--Corporate Restructuring." As the Company continues to grow, bank
borrowings, other debt placements and equity offerings may be considered, in
part or in combination, as the situation warrants.
YEAR 2000
Many computer systems used today may be unable to interpret data correctly
after December 31, 1999, because they allow only two digits to indicate the year
in a date. The Company is engaged in assessing this Year 2000 issue as it
relates to its business. This project, along with developing and implementing
solutions to the Year 2000 issue is continuing. Management currently anticipates
that the project will be substantially completed before the end of calendar year
1998 and will not have a material impact on the Company's financial result or
position.
FOREIGN EXCHANGE
The Company is a Canadian company with U.S. sales amounting to approximately
65% of its total sales while the majority of the Company's expenses are incurred
in Canadian dollars. Due to the relatively high proportion of sales in U.S.
dollars, the Company's results could be adversely affected by upward variations
in the value of the Canadian dollar. As of January 31, 1998, the Company does
not have a formal foreign exchange policy in effect. However, the Company uses
forward foreign exchange contracts to hedge cross-border transactions
denominated in U.S. dollars. Typically, these contracts have maturities of less
than 12 months. These forward contracts are executed with creditworthy
institutions and are purely for hedging purposes and not speculation.
21
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of financial
condition and Results of Operations and certain sections of this Prospectus are
forward-looking. These may be identified by the use of forward-looking words or
phrases such as "believe", "expects", "anticipate", "should", "estimated" and
"potential", among others. These forward-looking statements are based on the
Company's reasonable current expectations. The Company notes that a variety of
factors could cause the Company's actual results and experiences to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements.
22
<PAGE>
BUSINESS
GENERAL
THE COMPANY
The Company is located primarily in and around Montreal, Quebec, Canada.
Through its four operating subsidiaries, Dectron, Refplus, Thermoplus and
Klaasco, the Company manufactures and supplies an array of products for the
dehumidification, refrigeration, air conditioning and indoor air quality ("IAQ")
markets. The products manufactured and supplied include mechanical dehumidifiers
and energy recovery systems through Dectron, and refrigeration and air
conditioning systems through RefPlus and ThermoPlus. ThermoPlus has also
recently introduced a new line of air filtration products. Klaasco is
responsible for producing the bulk of the Company's special steel enclosures,
electrical control panels, and other steel products. However, each of the
Company's manufacturing subsidiaries have the capability of doing its own sheet
metal work.
Management believes that it has structured the Company in such a way that,
other than with respect to the raw materials required to make the components for
its products and certain specialty products, the Company is not dependent on
outside suppliers for fabricated parts for its products. The Company has
invested significant resources in its manufacturing equipment and as a result
the Company can manufacture the most important components for any of its
fabricated products, regardless of whether the product is standard or a custom
design.
DECTRON
Dectron, the largest of the subsidiaries, was incorporated in 1977 to
develop, manufacture and market standard and custom design dehumidification
equipment. After extensive research and development, Dectron introduced a line
of indoor pool and commercial dehumidifiers under its DRY-O-TRON-TM- trademark.
The product line has experienced tremendous success in North America and as a
result has allowed the Company to become, in the opinion of management, the
leader in North America's indoor pool dehumidification business. Management
believes that the Company is now one of North America's leading manufacturers of
dehumidification and closed looped energy recyclers.
Dectron's standard products are now primarily manufactured by ThermoPlus. As
a result, Dectron focuses its own manufacturing operations on the manufacture of
its customized dehumidification systems. Management believes that the customized
product market is where the Company's competitive advantage is most evident.
Ordinarily, with a customized product, it is often very difficult to commit to
an aggressive delivery date for the finished product. However, since the Company
manufactures many of the component parts in-house, it is able to commit to an
aggressive delivery schedule. The Company has taken the necessary steps to align
itself with several suppliers of its raw materials so that it is not dependent
on any one supplier. In addition, the Company keeps in storage a sufficient
inventory of raw material to supply its immediate needs. Some of the Company's
customized product customers include Celebration City, Walt Disney World in
Florida and the Goodwill Games which were held in Atlanta, Georgia.
Dectron, through its subsidiary Dectron USA, operates a sales office in the
United States which is located in Roswell, Georgia. This office supports the
efforts of Dectron's network of trained manufacturer's representatives who sell
Dectron's products throughout the United States. Dectron also has sales
representatives throughout Canada and overseas. The Company also invites its
independent sales representatives and their technicians to be trained and
certified by Dectron's own technical staff at no cost to the attendees at a
training school run by the Company. Management uses the training school to both
market its products and demonstrate to potential buyers, first hand, the
technical excellence its employees have to offer as a service to its customers.
Management believes that customer service and technical expertise are a large
part of what sets the Company apart from its competitors. The Company also
markets
23
<PAGE>
its products in trade magazines, through industry associations and by attending
trade shows where it displays and demonstrates many of its products.
REFPLUS
Refplus was incorporated in 1993 to manufacture high quality modular
commercial and industrial refrigeration and air conditioning equipment for
commercial and special applications. Its products include refrigeration systems,
condensers, coils, walk-in storage coolers and freezers. In addition, RefPlus
manufactures all of the heat transfer coils used by Dectron. RefPlus' primary
customers are supermarkets and convenience or grocery stores. RefPlus' product
line, which has recently been revamped and is now designed around
hydrofluorocarbon refrigerants ("HFC"), features high quality products intended
to meet the needs of a broad range of customers. See "Industry Overview."
Since inception, RefPlus has manufactured some complex products for
application in fruit storage facilities, industrial baking facilities and blast
chillers for meat processing plants. Management believes that the Company's
RefPlus product lines offer an excellent opportunity for future expansion. See
"Expansion Plans."
RefPlus has a small network of sales representatives in Canada, however, the
majority of its sales are conducted through a network of independent
wholesalers.
THERMOPLUS
In 1987, Keepkool Transfer de Chaleur Inc. ("Keepkool"), the former parent
company of Thermoplus, purchased the manufacturing facilities of York
International in St-Jerome, Quebec. Keepkool was owned by a group of investors
active in the heating, ventilation and air-conditioning ("HVAC") industry, which
group included Ness Lakdawala, the Company's President and CEO, to manufacture
air conditioning systems. Since inception, Thermoplus has introduced and sold a
variety of' HVAC product lines through a network of Canadian wholesalers. In
1995, ThermoPlus' introduced specialized product lines in the field of
dehumidification and specialized air conditioning.
ThermoPlus' present product lines include dehumidification equipment, water
source air conditioners and heat pumps, portable or mobile air conditioning
equipment, industrial air handlers and air to fluid heat exchangers. These
product lines are sold through a network of Canadian wholesalers and HVAC
representatives. Although ThermoPlus' products are sold throughout North
America, with some exports outside of North America, the majority of its
revenues are derived from sales to Dectron. Management believes that ThermoPlus'
product lines have growth potential, estimating that the present potential for
growth in both sales and manufacturing output is roughly 3 times its present
output. See "Expansion Plans."
In keeping with the Company's strategic plan to expand into the IAQ market
segment, Thermoplus has recently introduced a new engineered line of IAQ air
filtration products.
KLAASCO
Klaasco, which was acquired by the Company in 1989, has been manufacturing
in-house a wide range of metal products for more than 20 years. Most of its
product demand has been special enclosures, electrical control panels, control
room consols, shelters and busbars. Although most of Klaasco's products are
manufactured for Dectron, Inc., it does manufacture some metal products for
sales outside of the Company.
Management believes that the acquisition of Klaasco was an important
strategic decision and it has given the Company the quality assurance, product
control and a significantly greater ability to meet aggressive delivery
deadlines.
24
<PAGE>
OVERVIEW OF IAQ INDUSTRY; PRODUCT APPLICATIONS
The Company is aware of an increased public movement to encourage healthy
environments in all public places and the resulting market potential for its
products. For example, the hazards of second hand smoke have led to the ban of
cigarette smoking in most public areas. The public's demands have also been
focused on finding engineered solutions to ensure a healthy and comfortable
environment in schools and in the workplace. The theme has become much wider in
scope and has gained recognition as IAQ.
The American Society of Heating, Refrigeration and Air Conditioning
Engineers ("ASHRAE") is the organization that sets ventilation standards in the
heating, refrigeration and air-conditioning industries for the United States and
Canada. ASHRAE has revised and re-drafted virtually all of the previous
ventilation standards with the objective to meet the public demand for healthier
indoor environments and to eliminate potential health hazards such as the much
publicized "Sick Building Syndrome." These standards are found in Article
62-1989R "Standard for Acceptable Ventilation Rates" ("62-1989R") and have
gained the acceptance and support of many important and related institutions
such as the International Society for Indoor Air Quality ("ISIAQ") and other
worldwide environmental associations.
Management believes that the standards in 62-1989R will have a far reaching
effect on the fresh air requirements for all new and existing public buildings
in Canada and the USA. These standards specify, among other things, that 5 to 20
cubic feet per minute (CFM) per person of fresh air should be introduced into
all public places. The exact amount depends on the level of activity and the
capacity of the space in question.
As a result, a new market has been created by these new fresh air
requirements. HVAC experts agree that the biggest challenge and key to avoid
"Sick Building Syndrome" is to introduce fresh air and to remove humidity from
said air. Moisture and humidity has been identified as one of the main causes of
health hazards such as Legionnaire's Disease.
Heightened IAQ awareness has created a niche market for new product
development. The Company has developed a product line of "Make-Up Air
Dehumidifiers" that management believes can solve what it perceives as the two
main problems in IAQ: moisture and humidity. The Company's products are capable
of bringing the required amounts of outdoor air into public areas while at the
same time dehumidifying the air, thus addressing the problems of moisture and
humidity.
The Company's engineers have designed its products for the IAQ market with a
reversible Water Source Heat Pump, a commonly used heating system that can be
easily connected to the popular water loop systems found today in almost every
building in every major North American city. Management believes that the
Company's Make-Up Air Dehumidifiers represent the most economical solution to
meet the new standards for healthy buildings. Management believes that its
Make-Up Air Dehumidifiers have the potential to become one of the Company's most
important and fastest growing product lines, along with its swimming pool
dehumidifiers.
In addition, the Company intends to aggressively market ThermoPlus' new Air
Filtration & Purification product line which management believes offers a
comprehensive solution to IAQ in industrial and non-industrial applications.
The Company's goal is to aggressively expand into the IAQ market, while
continuing to maintain and expand the individual markets currently served by the
Company.
EXPANSION PLANS
The Company has grown from a single product and single market company
(Dectron) into a group of companies that cover a full range of humidity control,
IAQ control, energy recycling and refrigeration products, and has production
potential for both custom engineered and mass produced products. Management
believes that the introduction of a complete line of products to penetrate all
segments of the IAQ
25
<PAGE>
market will put the Company in the unique position of being one of the only
fully integrated companies of its kind. Management expects that with a strong
sales and marketing strategy to promote these and other subsequent products, the
Company will experience a period of substantial growth, although there can be no
assurance thereof. The Company plans to continuously inform its current and new
targeted customers about its products through technical seminars, product
exhibitions and publication of major events in industry journals.
The Company intends to strengthen its position in the United States by
establishing multiple regional sales and distribution offices. Management
believes that the Company's active presence in the United States with Dectron
products will allow it to closely track the performance of the Company's
products in the market and will help solidify alternate distribution networks
for its RefPlus product. Management also intends to aggressively pursue other
international markets, starting with South America, followed by the Caribbean
and Mexico.
The present need for specialized IAQ equipment in North America represents a
market, estimated by management to be in the multi-million dollar range, in
which only a limited number of companies have presently taken the lead.
Management believes that with the Company's team of engineering and design
specialists, it can be on the leading edge as a manufacturer and supplier of
specialized IAQ equipment into the next century.
BUSINESS STRATEGY
The Company's objective is to become North America's leading supplier of
dehumidification, refrigeration and other IAQ products, and to develop a strong
international sales network. As the Company intensifies its marketing efforts,
the Company will continue to attempt to increase its market share for its
various products. Management intends to place special emphasis in the short term
on its RefPlus products in the United States to address the need for HFC
refrigeration, and on ThermoPlus' Make-Up Air and Air Filtration & Purification
products for the IAQ market.
SALES AND MARKETING
The Company's current sales and marketing efforts take place at the
subsidiary level, with each subsidiary taking its own approach with respect to
its products.
Dectron markets its products on several levels. Nationally, Dectron markets
its products directly through trade magazines and industry associations, as well
as by attending and demonstrating its products at numerous trade shows
throughout North America. Regionally, Dectron markets its products through
non-employee sales representatives who enjoy exclusive rights to their
respective sales regions. At present, Dectron has approximately 120 regional
representatives throughout North America, and expects to add more in 1998.
Internationally, Dectron has sales coverage in England, Portugal, Israel, Kuwait
and Taiwan. Management believes that while the international markets provide
tremendous growth opportunities for the Company, it is important to first
develop a strong support network.
ThermoPlus' advertising and marketing is limited because the majority of its
revenues are derived from sales made to Dectron and Refplus. ThermoPlus
primarily sells its products through wholesalers in Canada, and through
manufacturing representatives, one based in Canada and the other based in the
United States. However, the Company recently began marketing ThermoPlus'
products, including its newly introduced Air Filtration & Purification product
line for the IAQ market, through Dectron's sales representatives.
RefPlus' marketing and advertising is currently done almost exclusively
through trade magazines. Most of its sales are through wholesalers and original
equipment manufacturers. Generally, RefPlus does not sell directly to the end
user. Its sales force currently consists of service personnel who are based at
the Company's headquarters, outside sales people based in Canada and in the
United States, and two sales
26
<PAGE>
agencies covering Canada and the United States with approximately 22
representatives. Management believes that with the phasing out of
hydrochlorofluorocarbons ("HCFC") refrigeration products and the legislative
push towards HFC refrigeration products (like RefPlus products), RefPlus'
product line is well suited for an aggressive growth commitment.
Klaasco does not currently market a significant amount of its products to
outside purchasers. The majority of Klaasco's revenues are derived from sales to
Dectron.
CORPORATE RESTRUCTURING
Immediately prior to the effective date of the Registration Statement of
which this Prospectus forms a part, the Company restructured its corporate
structure ("Restructuring"). In order to complete the Restructuring, (i)
Dectron, which prior to the Restructuring owned a majority interest in Refplus,
acquired the minority interests in Refplus, which included both common stock and
preferred stock (and assumed Refplus' loan payables of approximately
Cdn$125,000, which amount is reflected in the combined financial statements
which are contained/set forth elsewhere in this Prospectus and is included in
the Cdn$1,149,050 number mentioned below); (ii) Dectron acquired all of the
outstanding securities of Thermoplus, which included both Common Stock and
preferred stock, and assumed Thermoplus' parent company's loan payables
(approximately Cdn$497,000, which amount is included in the Cdn$1,149,050 number
mentioned below), and (iii) the Company acquired all of the issued and
outstanding securities of Dectron. The Refplus and Thermoplus loans payable
represent the repayment of loans made to such companies by their shareholders.
In connection with the Restructuring, the Company issued 1,750,000 shares of
Common Stock and promissory notes in the aggregate amount of Cdn$1,049,050. Of
this amount, Cdn$557,050 (or approximately U.S.$400,000) will be repaid out of
the proceeds of this Offering. See "Use of Proceeds." Of these amounts, an
aggregate amount of 1,693,044 shares of Common Stock and promissory notes in the
aggregate amount of Cdn$592,000 were issued to Ness Lakdawala, the Company's
President, and his affiliates. The Cdn$592,000 payable to Mr. Lakdawala and his
affiliates will be paid monthly commencing three months after the Closing of
this Offering, without interest, out of the Company's cash flow.
COMPETITION
The industries in which the Company competes are highly competitive. The
Company competes against a number of local, regional and national manufacturers
in each of its business segments, many of which have been in existence longer
than the Company and some of which have substantially greater financial
resources than the Company. The Company competes on various basis, including
price, quality and ability to meet delivery schedules. Dectron competes with,
among others, DesertAire and Engineered Air, and Refplus and Thermoplus compete
with, among others, Cancoil and Keeprite. The Company believes that competition
from new entrants, especially in the IAQ markets will come, if at all, from
large corporations which may be able to compete with the Company on the basis of
price, and as a result may have a material adverse affect on the results of
operations of the Company. In addition, there can be no assurance that other
companies will not develop new or enhanced products that are either more
effective than the Company's products, or would render its products
non-competitive or obsolete.
PROPERTIES
The Company maintains its executive office at leased premises located at
4300 Poirier Blvd., Montreal, Quebec H4R 2C5. This lease expires January 31,
2000, but may be renewed for an additional five years. The Company also has six
additional manufacturing facilities, of which four are leased, two are owned,
and all are located in or near Montreal, Quebec. Of the four leased facilities,
three of the leases expire on January 31, 2000, but may be renewed for an
additional five years, and the other lease expires on August 31, 1998, but may
be renewed for an additional year. The Company also leases, for a monthly rent
of $2,324, a 4,000 square foot sales and training facility in Roswell, Georgia.
The Company's facilities have an aggregate of approximately 170,000 square feet.
The Company pays an aggregate of approximately
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<PAGE>
$16,700 rent per month. The Company believes that suitable additional space will
be available in the future on commercially reasonable terms.
The Company is seeking International Quality Standard ISO-9001 certification
for its Dectron facility and International Quality Standard ISO-9002
certification for its Thermoplus facility. ISO 9001 and ISO 9002 require the
facility to meet certain stringent requirements established in Europe but
adopted throughout the world which ensure that facilities' manufacturing
processes, equipment and associated quality control systems will satisfy
specific customer requirements. Management believes that ISO certification will
benefit the Company in the markets in which it competes. There is no assurance
that ISO certification will be obtained in the near future, if at all.
EMPLOYEES
As of June 1, 1998, the Company (including the Subsidiaries) employed a
total of approximately 247 full-time employees, four of which are in executive
positions, 25 of whom are engaged in engineering and research and development,
12 of whom are engaged in sales and related services, 29 of whom are in
administration, and the remainder of which are in production. Of the Company's
employees, 36 employees, all of which are at Thermoplus, are represented by an
in-house union. Certain terms of their employment are part of a collective
bargaining agreement which expires in 2001. Management considers its relations
with its employees to be satisfactory.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors and key personnel of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ness Lakdawala....................................... 64 President, Chief Executive Officer and
Chairman
Reinhold Kittler..................................... 60 Executive Vice President and Director
Mauro Parissi........................................ 32 Chief Financial Officer, Secretary and Director
Leena Lakdawala...................................... 30 Executive Vice President and Director
Michel Lecompte...................................... 48 Vice President of Operations of Refplus Inc.
Dave Lucas........................................... 38 Vice President of Dectron Inc
Ralph Kittler........................................ 33 Vice President of Sales, Dectron Inc.
Roshan Katrak........................................ 54 Director and Vice President of Human
Relations
Guy Houle............................................ 58 Director
</TABLE>
NESS LAKDAWALA has been President, Chief Executive Officer and Chairman of
the Company since its inception and has been President and Chief Executive
Officer of Dectron Inc. since 1994. Prior to joining Dectron Inc., Mr. Lakdawala
was President of Blanchard Ness Limited, a company which he founded in 1976.
From 1987-1988, Mr. Lakdawala was Chairman of the Heating Refrigeration Air
Conditioning Institute of Canada. Mr. Lakdawala has also served as the Governor
of the American Society of Heating, Refrigeration and Air Conditioning
Engineers, Inc. ("ASHRAE"), the organization that sets ventilation standards in
Canada and the United States. Mr. Lakdawala is currently a member of ASHRAE and
the Refrigeration Service Engineers Society.
REINHOLD KITTLER has been Executive Vice President and Director of the
Company since its inception and, since 1994, has been the Chairman of Dectron
Inc. From 1985 to 1993, Mr. Kittler was President of Dectron Inc. He currently
teaches refrigeration engineering at Vanier College in Montreal, Quebec. Mr.
Kittler has contributed extensively to the ASHRAE Handbook. Mr. Kittler is a
member of numerous industry related societies, including the Order of Engineers
of Quebec (since 1973), the International Institute of Ammonia Refrigeration
(since 1992), the Air Conditioning and Refrigeration Institute (since 1996), the
Refrigeration Services Engineers Society (since 1979) and ASHRAE (since 1974).
Mr. Kittler is frequently a guest speaker at industry related symposiums.
MAURO PARISSI, C.A. has been Chief Financial Officer, Secretary and Director
of the Company since its inception and has been Controller of Dectron Inc. since
1996. From 1995-1996, Mr. Parissi was an auditor with the firm of Mizgala & Cie.
From 1990-1995, Mr. Parissi was an auditor with the firm of Hart, David Lloyd,
F.C.A., C.I.P. Mr. Parissi is currently a member of The Canadian Institute of
Chartered Accountants and The Order of Chartered Accountants of Quebec. Mr.
Parissi received his graduate diploma in Public Accountancy from McGill
University in 1995.
LEENA LAKDAWALA has been Executive Vice President and a Director of the
Company since its inception, and Vice President of Production and Administration
for Dectron since 1994. She is currently a member of the Heating Refrigeration
and Air Conditioning Institute. Mrs. Lakdawala received her B.A from Concordia
University in 1993.
MICHEL LECOMPTE has been Vice President of Operations of the Company since
its inception and President of Refplus Inc. since 1994. From 1977-1994, Mr.
Lecompte was with Blanchard Ness as both Chief Engineer and Estimator. Mr.
Lecompte was involved in estimating commercial and industrial HVAC systems as
well as updating operating and maintenance procedures to improve existing
equipment
29
<PAGE>
efficiency. Mr. Lecompte also provided technical guidance to construction
departments and identified, evaluated and resolved problems. Mr. Lecompte is a
member of ASHRAE and is a voting member of ASHRAE's Technical Committee which
establishes worldwide acceptance of HVAC standards. In addition, Mr. Lecompte
conducts many HVAC seminars focusing on refrigeration and heat recovery. Mr.
Lecompte is also a member of the Refrigeration Service Engineers Society.
DAVE LUCAS has been Vice President of Dectron Inc. since 1996. From
1993-1996, Mr. Lucas was a management consultant for the Federal Cooperative
Housing Stabilization Fund, where he managed loan portfolios and provided
management consulting services. From 1991--1993, Mr. Lucas was Director of
Marketing for Dectron Inc. He received his Bachelor of Science in Engineering
Physics from Queen's University in Kingston Ontario in 1981, and his MBA from
the University of Western Ontario in 1988.
RALPH KITTLER has been Vice President of Sales of Dectron Inc. since 1993.
Prior thereto, he was National Sales Manager of Dectron Inc. Mr. Kittler is a
member of the ASHRAE committee responsible for large building air conditioning
applications and has been credited as an ASHRAE Handbook editor. Mr. Kittler
received his Bachelor of Science in Mechanical Engineering in 1989 from Lakehead
University in Thunder Bay Ontario.
ROSHAN KATRAK has been Vice President of Human Relations of the Company
since its inception and of Dectron Inc. since 1994. From 1976 to 1994, she was a
Director of Blanchard Ness Limited, and from 1987 to present has been Vice
President of Human Relations for Thermoplus. Mrs. Katrak received her Honors
Degree in Psychology in 1964.
GUY HOULE has been a Director of the Company since its inception. He is
currently a partner in the intellectual property firm of Swabey Ogilvy Renault
of Montreal, Quebec. He is also the President of Homart Ventures Inc., a product
development consulting company. Mr. Houle specializes in the field of technology
transfer and intellectual property licensing and has written articles and given
lectures on this topic. From 1984 to 1991 he was a member of the board of the
Licensing Executives Society (USA and Canada), Inc. ("LES"), during which time
he also served as vice-president, treasurer and member of the executive
committee and chairman of the audit committee. Mr. Houle is a member of several
professional associations, including the Institute of Electrical and Electronics
Engineers, Licensing Executives Society, Patent and Trademark Institute of
Canada, Institute of Electrical and Electronic Engineers and International
Association of Intellectual Property Practitioners.
The term of office of each Director is until the next annual meeting of
stockholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive officers
hold office until their successors are chosen and qualified, subject to earlier
removal by the Board of Directors. With respect to the Company's management
described above, Ness Lakdawala and Roshan Katrak are husband and wife and their
daughter is Leena Lakdawala, and Reinhold and Ralph Kittler are father and son.
For the period of three years after the Effective Date, the Underwriters
shall have the right to designate two nominees to the Company's Board of
Directors. See "Underwriting."
COMMITTEES OF THE BOARD
Within 90 days from the date of this Prospectus, the Company's Board of
Directors will have an Audit Committee, comprised of Ness Lakdawala and two
independent directors, and a Compensation Committee, comprised of Ness Lakdawala
and two independent directors.
COMPENSATION OF DIRECTORS
The Company has not paid compensation to any director for acting in such
capacity. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last three fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION
- ---------------------------------------------------------------------- --------- ---------- ------ -------------------
<S> <C> <C> <C> <C>
Ness Lakdawala, President,............................................ $ 140,647 0 0
Chief Executive Officer 1998 $ 65,655 0 0
and Director(2) 1997 1996 $ 36,568 0 0
</TABLE>
- ------------------------
(1) Represents the aggregate salaries paid to Mr. Lakdawala during the fiscal
years presented by Dectron, Refplus and Thermoplus.
(2) In addition, Ness Lakdawala's wife received annual compensation of $40,054,
$32,227 and $30,563 for the years ended January 31, 1998, 1997 and 1996,
respectively, for serving as Vice President of Human Relations of Dectron,
Inc.
EMPLOYMENT AGREEMENTS
The Company does not currently have employment agreements with any its
officers. However, prior to the Effective Date, the Company intends to enter
into an employment agreement with Ness Lakdawala. The Company has no current
plans to enter into employment agreements with any other officers.
STOCK OPTION PLAN
The Plan will be administered by the compensation committee or the Board of
Directors, who determine among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
the options and the option exercise price.
The Plan is effective for a period of ten years, expiring in 2008. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. The Plan
is designed to enable management to attract and retain qualified and competent
directors, employees, consultants and independent contractors. Options granted
under the Plan may be exercisable for up to ten years, and shall be at an
exercise price all as determined by the Board. Options are non-transferable
except by the laws of descent and distribution or a change in control of the
Company, as defined in the Plan, and are exercisable only by the participant
during his or her lifetime. Change in control includes (i) the sale of
substantially all of the assets of the Company and merger or consolidation with
another Company, or (ii) a majority of the Board changes other than by election
by the stockholders pursuant to Board solicitation or by vacancies filled by the
Board caused by death or resignation of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant three months
to exercise, except for termination for cause which results in immediate
termination of the option.
The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of
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<PAGE>
Canada (the "ITA"). The ITA requires that the exercise price of all future
options will be at least 85% of the fair market value of the Common Stock on the
date of grant of the options. A benefit equal to the amount by which the fair
market value of the shares at the time the employee acquires them exceeds the
total of the amount paid for the shares or the amount paid for the right to
acquire the shares shall be deemed to be received by the employee in the year
the shares are acquired pursuant to paragraph 7(1) of the ITA. Where the
exercise price of the option is equal to the fair market value of the shares at
the time the option is granted, paragraph 110(1)(d) of the ITA allows a
deduction from income equal to one quarter of the benefit as calculated above.
If the exercise price of the option is less than the fair market value at the
time it is granted, no deduction under paragraph 110(1)(d) is permitted. Options
granted to any non-employees, whether directors or consultants or otherwise will
confer a tax benefit in contemplation of the person becoming a stockholder
pursuant to subsection 15(1) of the ITA.
Options may not be transferred by an optionee other than by will or the laws
of descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only by the optionee.
Options under the Plan must be issued within ten years from the effective
date of the Plan.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
The Plan may be terminated or amended at any time by the Board of Directors,
except that the number of shares of Common Stock reserved for issuance upon the
exercise of options granted under the Plan may not be increased without the
consent of the stockholders of the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the Offering and the transactions contemplated
thereby, with respect to the beneficial ownership of the Common Stock by (i)
each person known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each executive officer and director of
the Company and (iii) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
NUMBER OF SHARES OF --------------------------
COMMON STOCK BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING(4)
- ---------------------------------------------------------------------- ------------------- ----------- -------------
<S> <C> <C> <C>
Ness Lakdawala(2)..................................................... 1,693,044 96.75% 61.57%
Roshan Katrak(3)...................................................... 1,693,044 96.75 61.57
Reinhold Kittler...................................................... 0 * *
Mauro Parissi......................................................... 0 * *
Guy Houle............................................................. 0 * *
All Officers and Directors as a group(2)(3)........................... 1,693,044 96.75% 61.57%
</TABLE>
- ------------------------
* represents less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company.
(2) Represents (i) 32,671 shares of Common Stock directly owned, (ii) 50,951
shares of Common Stock owned by Roshan Katrak, Mr. Lakdawala's wife, (iii)
52,263 shares of Common Stock owned by Roshaness Inc., a company owned by
Mr. Lakdawala, and (iv) 1,557,159 owned by 3103-7195 Quebec Inc., a company
owned by Mr. Lakdawala's spouse and children.
(3) Represents (i) 50,951 shares of Common Stock directly owned, (ii) 32,671
shares of Common Stock owned by Ness Lakdawala, Ms. Katrak's husband, (iii)
52,263 shares of Common Stock owned by Roshaness Inc., a Company owned by
Ness Lakdawala, and (iv) 1,557,159 shares owned by 3103-7195 Quebec Inc., a
company owned by Mrs. Katrak and her children.
(4) Does not give effect to (i) the exercise of the Warrants, (ii) the exercise
of the Underwriters' Over-Allotment Option, and (iii) the exercise of the
Underwriters' Warrants and the Warrants contained therein.
33
<PAGE>
CERTAIN TRANSACTIONS
The Company leases its St. Hubert, Quebec manufacturing facility from Roshan
Katrak, the Company's Vice President of Human Relations and the wife of Ness
Lakdawala, the Company's President, Chairman and CEO, for a monthly rent of
$3,094 per month. The Company believes that the lease was made on terms no less
favorable than could be obtained from unaffiliated third parties.
The Company leases its Montreal, Quebec manufacturing facilities from
Roshaness Inc., a company owned by Ness Lakdawala,for a monthly rent of $3,220
per month. The Company believes that the lease was made on terms no less
favorable than could be obtained from unaffiliated third parties.
The Company leases two commercial trucks from Investiness Inc., a company
owned equally by Ness Lakdawala's children, for an aggregate monthly lease
payment of Cdn$691.60. Upon expiration of both of these leases in 2000,
ownership of the trucks will transfer from Investiness Inc. to the Company. The
Company believes that these leases were made on terms no less favorable than
could be obtained from unaffiliated third parties.
The Company leases certain computer hardware from Investiness Inc. for a
monthly lease of Cdn$980.21. Upon expiration of the lease, ownership of the
computer hardware will transfer from Investiness Inc. to the Company. The
Company believes that the lease was made on terms no less favorable than could
be obtained from unaffiliated third parties.
Immediately prior to the effective date of the Registration Statement of
which this Prospectus forms a part, the Company restructured its corporate
structure ("Restructuring"). In order to complete the Restructuring, (i)
Dectron, which prior to the Restructuring owned a majority interest in Refplus,
acquired the minority interests in Refplus, which included both common stock and
preferred stock (and assumed Refplus' loan payables of approximately
Cdn$125,000, which amount is reflected in the combined financial statements
elsewhere in this Prospectus and is included in the Cdn$1,149,050 number
mentioned below), then (ii) Dectron acquired all of the outstanding securities
of Thermoplus, which included both Common Stock and preferred stock, and assumed
Thermoplus' parent company's loan payables (approximately Cdn$497,000, which
amount is included in the Cdn$1,149,050 number mentioned below), then (iii) the
Company acquired all of the issued and outstanding securities of Dectron. The
Refplus and Thermoplus loans payable represent the repayment of loans made to
such companies by their shareholders. In connection with the Restructuring, the
Company issued 1,750,000 shares of Common Stock and promissory notes in the
aggregate amount of Cdn$1,049,050. Of this amount, Cdn$557,050 (or approximately
U.S.$400,000) will be repaid out of the proceeds of this Offering. Of these
amounts, an aggregate amount of 1,693,044 shares of Common Stock and promissory
notes in the aggregate amount of Cdn$592,000 were issued to Ness Lakdawala, the
Company's President, and his affiliates. The Cdn$592,000 payable to Mr.
Lakdawala and his affiliates will be paid monthly commencing three months after
the Closing of this Offering, without interest, out of the Company's cash flow.
34
<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consist of an unlimited
number of shares of Common Stock, without par value, and an unlimited number of
shares of Preferred Stock, without par value per share. The following
descriptions contain all material terms and features of the Securities of the
Company, are qualified in all respects by reference to the Articles of
Incorporation and Bylaws of the Company, copies of which are filed as Exhibits
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue an unlimited number of shares of Common
Stock, without par value per share, of which as of the date of this Prospectus,
1,750,000 shares of Common Stock are outstanding, not including the Shares
offered herein. All outstanding Shares of common stock are, and all shares of
Common Stock to be outstanding upon the closing of this Offering will be validly
authorized and issued, fully paid, and non-assessable.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of Common
Stock are entitled to receive ratably dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining, if any, after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities.
WARRANTS
Each Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of $9.20 per share, subject to adjustment in certain
circumstances, for a period of four years commencing on , 1999.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Representative and Continental Stock Transfer
& Trust Company, the warrant agent, and will be evidenced by warrant
certificates in registered form.
The exercise price of the Warrants and the number and kind of Common Stock
or other securities and property issuable upon the exercise of the Warrants are
subject to adjustment in certain circumstances, including a stock split of,
stock dividend on, or a subdivision, combination or capitalization of the Common
Stock and for any issuance of Common Stock for less than the lesser of the
market price of a share of Common Stock or the exercise price of the Warrants.
Additionally, an adjustment will be made upon the sale of all or substantially
all of the assets of the Company in order to enable holders of Warrants to
purchase the kind and number of shares or other securities or property
(including cash) receivable in such event by a holder of the number of shares of
Common Stock that might otherwise have been purchased upon exercise of the
Warrants.
The Warrants do not confer upon the holder any voting or other rights of a
stockholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Warrants may be exercised upon surrender of the warrant certificate
evidencing those Warrants on or prior to the respective expiration date (or
earlier redemption date) of the Warrants at the offices of the warrant agent,
with the form of "Election to Purchase" on the reverse side of the warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check payable to the order of the warrant
agent) for the number of the Warrants being exercised.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt from
35
<PAGE>
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so. See "Risk Factors--Current Prospectus and State Blue
Sky Registration Required to Exercise Warrants."
No fractional shares will be issued upon exercise of the Warrants. However,
if a holder of a Warrant exercises all Warrants then owned of record, the
Company will pay to that holder, in lieu of the issuance of any fractional share
which would be otherwise issuable, an amount in cash equal to such fractional
interest based on the market value of the Common Stock on the last trading day
prior to the exercise date.
The Warrants are redeemable by the Company commencing , 1999 (or
sooner with the consent of the Representative) at a redemption price of $0.125
per Warrant on not less than 30 days written notice, provided that the last sale
price per share of Common Stock, for 20 consecutive trading days ending on the
third business day prior to the date of redemption notice, is at least $16.00
(subject to adjustment for certain events). The Warrants shall be exercisable
until the close of the business day preceding the date fixed for redemption. In
addition, subject to the rules of the NASD, the Company has agreed to engage the
Representative as its exclusive warrant solicitation agents, in connection with
which the Representative would be entitled to a 5% fee upon exercise of the
Warrants. See "Underwriting."
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of an
unlimited number of shares of Preferred Stock with designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion, or other rights
that could adversely affect the rights of the holders of the Common Stock.
Although the Company has no present intention to issue any shares of its
Preferred Stock, there can be no assurance that it will not do so in the future.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and warrant agent for the Common Stock is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004.
TAX ASPECTS OF THE OFFERING
INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK OR WARRANTS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX CODE AS WELL AS TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAX JURISDICTION.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS -- PERSONS RESIDENT IN CANADA
NO DISCLOSURE IS OR IS DEEMED TO BE MADE IN THE PROSPECTUS AS TO INCOME TAX
CONSEQUENCES APPLICABLE TO A RESIDENT OF CANADA AS TO ACQUIRING, HOLDING
CONVERTING OR DISPOSING OF COMMON STOCK OR WARRANTS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS--PERSONS NOT RESIDENT IN CANADA
In the opinion of Shaffer & Associates, special Canadian counsel to the
Company, the following are the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) and the regulations thereunder
(collectively, the "Canadian Act"), the administrative practices of Revenue
Canada, Customs, Excise & Taxation and proposed amendments to the Canadian Act
and the regulations thereunder publicly announced by the Minister of Finance
prior to the date hereof generally applicable to acquiring, holding and
disposing of Common Stock and Warrants. There is no assurance that any proposed
amendments to the Tax Act or the regulations thereunder will be enacted as
proposed, if at all. It is assumed that at all material times the Common Stock
and Warrants will be listed on NASDAQ, or some
36
<PAGE>
other Canadian or foreign stock exchange. Currently, neither NASDAQ nor any
other foreign stock exchange is prescribed for the purpose of section 115 of the
Canadian Act. Comment is restricted to prospective investors (each an
"Investor") who for the purposes of the Canadian Act are not resident in Canada,
hold all such Common Stock and Warrants and will hold all Common Stock acquired
on exercise thereof, solely as capital property, who deal at arm's length with
the Company and whose warrants and Common Stock will not at any material time
constitute "taxable Canadian property" for the purpose of the Canadian Act.
Generally, neither a share of Common Stock, nor a Warrant will constitute
"taxable Canadian property" of an Investor provided, among other things, that
the Company is a public company in that at least one class of its shares are
listed on a prescribed stock exchange in Canada. However, the Ministry of
Finance proposes that after April 26, 1995 shares listed on certain U.S. stock
exchanges, including NASDAQ, will not be "taxable Canadian property" provided
either that the Investor did not hold such security as capital property used in
carrying on a business in Canada, or that neither the Investor nor persons with
whom the Investor did not deal at arm's length alone or together owned 25% or
more of the issued shares of any class of the Company at any time in the five
years immediately preceding a disposition of the Common Stock or Warrants. For
the purposes, a right or option to acquire a share, including on exercise of a
Warrant, is considered to be equivalent to a share.
This opinion does not take in account any provincial or foreign income tax
legislation or considerations nor does it take into account or anticipate any
changes in law or administrative practice including by way of judicial decision
or legislative action.
This opinion is of a general nature and is not, and should not be construed
as, advice to any particular Investor as to Canadian Tax consequences applicable
to the Investor. Each Investor is urged to consult with the Investor's legal
profession advisors regarding tax and other legal consequences applicable to the
Investor's particular circumstances.
EXERCISE OF WARRANT
An Investor will not incur liability of Canadian tax upon exercise of a
Warrant. The cost to the Investor of Common Stock acquired on exercise of a
Warrant will equal the adjusted cost base of the Warrant so exercised, plus any
amount paid by the Investor to exercise the Warrant.
DIVIDENDS ON COMMON STOCK
An Investor will be liable to pay Canadian withholding tax equal to 25% (or
such lesser rate as may be provided under an applicable tax treaty) of the gross
amount of any dividend actually or deemed to have been paid or credited to the
Investor on the Investor's Common Stock. An Investor who is a resident of the
United States for purposes of the Canada-U.S. Income Tax Convention is subject
to a lesser tax of 15% of the gross amount of any dividend actually or deemed to
have been paid or credited to the Investor on the investor's Common Stock if the
Investor holds less than 10% of the voting stock of the Company, or 5% if the
Investor holds 10% or more of the voting stock of the Company. The Company will
be required to withhold the tax from the gross amount of the dividend, and to
remit the tax to the Receiver General of Canada for the account of the Investor.
Investors who are entitled to reduced withholding tax under an applicable treaty
must provide appropriate evidence of that entitlement satisfactory to the
Company.
DISPOSING OF COMMON STOCK
An Investor will not incur liability for Canadian tax upon disposing of
Common Stock except where the Common Stock is redeemed or repurchased by the
Company, in which case a dividend could be deemed to result (see Dividends on
Common Stock above).
37
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 2,750,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 500,000 shares upon the exercise of options eligible for grant under
the Plan, none of which have been granted. Of the shares to be issued and
outstanding after this Offering, the 1,000,000 Shares offered hereby (plus any
additional Shares sold upon exercise of the Over-Allotment Option) will be
freely tradeable without restriction or further registration under the Act,
except for any shares purchased or held by an "affiliate" of the Company (in
general, a person who has a control relationship with the Company) which will be
subject to the limitations of Rule 144 adopted under the Act ("Rule 144"). The
remaining 1,750,000 shares of Common Stock are "restricted securities" as that
term is defined under Rule 144, and may not be sold unless registered under the
Act or exempted therefrom. None of the 1,750,000 restricted shares are currently
eligible to be sold in accordance with the exemptive provisions and the volume
limitations of Rule 144. All officers and directors who own shares of Common
Stock have agreed with the Representative not to offer, sell or otherwise
dispose of their shares until 18 months from the Effective Date without the
consent of the Representative, except pursuant to gifts or pledges in which the
donee or pledgee agrees to be bound by such restrictions. Thereafter, 20% of the
securities covered by each lock-up agreement will become free from the lock-up
restriction, with the last securities to become unrestricted 78 months after the
Effective Date. These agreements are enforceable only by the parties thereto,
and are subject to rescission or amendment at any time without approval of other
stockholders.
Sales of the Company's Common Stock by certain of the present stockholders
in the future, under Rule 144, may have a depressive effect on the price of the
Company's Common Stock.
RESTRICTIONS ON SALE IN CANADA
None of the securities including the Common Stock, the Warrants, or the
Common Stock issuable upon or exercise of the Warrants (together, the
"Securities") has been qualified for sale in any of the provinces of Canada or
to any person who is a resident in any of the provinces of Canada.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
each of the Underwriters named below, for whom J.P. Turner & Company, LLC is
acting as Representative, has severally agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriters, on a firm commitment basis,
the respective number of shares of Common Stock and Warrants set forth below
opposite each such Underwriter's name:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES NUMBER OF WARRANT
- --------------------------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
J.P. Turner & Company, LLC................................................. 500,000 500,000
Klein, Maus and Shire Incorporated......................................... 500,000 500,000
Total...................................................................... 1,000,000 1,000,000
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Shares and Warrants to the public at the public offering prices set forth on the
cover page of this Prospectus and that they may allow to selected dealers who
are members of the NASD, concessions of not in excess of $ per Share and
$ per Warrant, of which not more than $. per Share and $
per Warrant may be re-allowed to certain other dealers who are members of the
NASD. After the initial public offering, the public offering prices, concessions
and reallowances may be changed.
The Underwriting Agreement further provides that the Underwriters will
receive a non-accountable expense allowance of 3% of the aggregate public
offering price of the Shares and Warrants sold hereunder (including any Shares
or Warrants sold pursuant to the Over-Allotment Option), which allowance amounts
to $243,750 (or $280,312.50 if the Over-Allotment Option is exercised in full),
of which $35,000 has been paid to date.
The Company has granted to the Underwriters the Over-Allotment Option, which
is exercisable for a period of 45 days after the Closing, to purchase up to an
aggregate 150,000 additional shares and 150,000 additional Warrants (up to 15%
of the shares being offered hereby) at the public offering price, less
underwriting discounts and commissions, solely to cover over-allotments, if any.
The Representative has informed the Company that the Underwriters will not
make sales of the Shares and Warrants offered by this Prospectus to accounts
over which they exercise discretionary authority.
The Company has agreed to sell to the Underwriters for a nominal
consideration, an Underwriters' Warrant to purchase up to 100,000 Shares and
100,000 Warrants, exclusive of the Over-Allotment Option. The Underwriters'
Warrant will be nonexercisable for one year after the date of this Prospectus.
Thereafter, for a period of four years, the Underwriters' Warrants will be
exercisable to purchase Common Stock at $9.20 per Share and to purchase Warrants
at $.144 per Warrant (115% of the initial public offering price), and the
Warrants contained in the Underwriters' Warrants will be exercisable to purchase
Common Stock at $9.20 per Share. The Company has agreed to file, during the four
year period beginning one year from the Effective Date of this Prospectus, on
one occasion at the Company's cost, at the request of the holders of at least
80% of the Underwriters' Warrants and the underlying securities, and to use its
best efforts to cause to become effective, a post-effective amendment to the
Registration Statement or a new registration statement under the Securities Act,
as required to permit the public sale of Common Stock issued or issuable upon
exercise of the Underwriters' Warrants, as well as the Common Stock issuable
upon the Warrants contained in the Underwriters' Warrants. In addition, the
Company has agreed to give advance notice to holders of the Underwriters'
Warrants of its intention to file certain registration statements commencing one
year and ending four years after the Effective Date, and in such case, holders
of such Underwriters' Warrants or underlying shares of Common Stock shall have
the right to require the Company to include all or part of such shares of Common
Stock underlying such Underwriters' Warrants in such registration statement at
the Company's expense.
39
<PAGE>
For the life of the Underwriters' Warrants, the holders thereof are given,
at nominal costs, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriters'
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Warrants.
The Company has agreed that upon closing of this Offering, the Underwriters
shall have the right to designate an aggregate of two advisors to the Company's
Board of Directors or, in lieu thereof, to designate an aggregate of two
nominees to the Company's Board of Directors for a period of three years from
the Effective Date. In addition, the Company will utilize its best efforts to
obtain votes in favor of such nominees.
The Company has agreed to retain the Underwriters as the Company's financial
consultants for a period of two years to commence on the closing of this
Offering, at a monthly fee of $4,000, or an aggregate of $96,000, all of which
shall be payable in advance on the closing of the Offering. Pursuant to this
agreement, the Underwriters shall provide advisory services related to merger
and acquisition activity, corporate finance and other matters.
The public offering price of the Shares and Warrants offered hereby has been
determined by negotiation between the Company and the Representative. Factors
considered in determining the offering price of the Shares and Warrants offered
hereby included the business in which the Company is engaged, the Company's
financial condition, an assessment of the Company's management, the general
condition of the securities markets and the demand for similar securities of
comparable companies.
The Company has agreed, for a period of two years from the date of this
Prospectus, not to issue any shares of Common Stock, Warrants or any options or
other rights to purchase Common Stock without the prior written consent of the
Representative. Notwithstanding the foregoing, the Company may issue up to
500,000 shares upon exercise or conversion of any options under the 1998 Stock
Option Plan whether or not currently outstanding. In addition, each of the
Company's shareholders who is an officer or director has agreed not to publicly
sell or otherwise dispose of any of their Common Stock for a period of 18 months
following the Effective Date without the consent of the Representative, which
consent would be subject to the nature of the market for the Company's
securities, the volume and price of the Common Stock, and the operations and
financial condition of the Company. However, after the first 18 month period,
20% of the securities subject to each lock up agreement will be released by the
representative annually, with the last 20% of the securities to be released
after 78 months.
In connection with this Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing their respective market prices. The
Underwriters also may create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from the Company, and in such case
may purchase shares of Common Stock or Warrants in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position by
exercising the Over-Allotment Option. In addition, the Underwriters may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of other Underwriters, the selling concession with respect to shares
of Common Stock or Warrants that are distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock or Warrants at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken they may be
discontinued at any time.
40
<PAGE>
Commencing one year after the date of this Prospectus, the Company will pay
the Underwriters a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date; (ii) the
exercise of the Warrant was solicited by a member of the NASD; (iii) the Warrant
was not held in a discretionary account; (iv) the disclosure of compensation
arrangements was made both at the time of this Offering and at the time of
exercise of the Warrant; (v) the solicitation of the exercise of the Warrant was
not a violation of Regulation M promulgated under the Exchange Act; (vi) the
Underwriters provide bona fide services in connection with solicitation of the
Warrant and (vii) the Warrant holder designates in writing which broker-dealer
made the solicitation. The Underwriters and any other soliciting broker-dealers
may be prohibited from engaging in any market-making activities or solicited
brokerage activities with regard to the Company's securities during the periods
prescribed by Regulation M, five business days (or other applicable period as
Regulation M may provide) before the solicitation of the exercise of any Warrant
until the later of the termination of such solicitation activity or the
termination of any right the Underwriters and any other soliciting broker/dealer
may have to receive a fee for the solicitation of the exercise of the Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
The foregoing is a summary of the material terms of the Underwriting
Agreement, the Underwriters' Warrant and the Financial Consulting Agreement.
Reference is made to the copies of the Underwriting Agreement, the Underwriters'
Warrant and the Financial Consulting Agreement, which are filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Stock offered herein, will be passed upon for the
Company by Shaffer & Associates, 4150 Sherbrooke West, 3rd Floor, Montreal,
Quebec H3Z 1C2 (Canada). Certain legal matters in connection with the Offering
will be passed upon for the Company by its United States counsel, Gersten,
Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York, New York
10022. Certain legal matters will be passed upon for the Underwriters by
Sichenzia, Ross & Friedman, LLP, 135 West 50th Street, New York, New York 10020.
EXPERTS
The financial statements of the Company for each of the two fiscal years in
the periods ended January 31, 1998 and 1997, appearing in this Prospectus and
Registration Statement have been audited by Schwartz, Levitsky, Feldman,
Chartered Accountants, as set forth in its report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as an expert in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Common Stock and Warrants offered hereby. This
Prospectus omits certain information contained in the Registration Statement and
the exhibits thereto, and references are made to the Registration Statement and
the exhibits thereto for further information with respect to the Company and the
Common Stock and Warrants offered hereby. Statements contained herein concerning
the provisions of any documents are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. The Registration Statement, including exhibits and schedules
filed therewith, may be
41
<PAGE>
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois upon payment of the prescribed fees. Electronic registration statements
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Exchange Act.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Bylaws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defense of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially successful on the merits in his or her
defense of the action and he or she acted honestly and in good faith with a view
to the best interests of the Company, and if a criminal or administrative action
that is enforced by a monetary penalty, such person had reasonable grounds to
believe his or her conduct was lawful.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Underwriters pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses,
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or by the Underwriters in connection
with the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
42
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
COMBINED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1998 AND JANUARY 31, 1997
TOGETHER WITH AUDITORS REPORT
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
COMBINED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1998 AND JANUARY 31, 1997
TOGETHER WITH AUDITORS REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................... F-2
Combined Balance Sheets........................................................... F-3-F-4
Combined Statements of Income..................................................... F-5
Combined Statements of Cash Flow.................................................. F-6-F-7
Notes to Combined Financial Statements............................................ F-8-F-20
</TABLE>
F-1
<PAGE>
SCHWARTZ LEVITSKY FELDMAN
COMPTABLES AGREES, SENC
CHARTERED ACCOUNTANTS
MONTREAL, TORONTO, OTTAWA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
159653 Canada Inc. and Thermoplus Air Inc.
We have audited the accompanying combined balance sheets of 159653 Canada
Inc. and Thermoplus Air Inc. (incorporated in Canada) as at January 31, 1998 and
1997 and the related combined statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended January 31,
1998. These combined financial statements are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly , in all material respects, the financial position of 159653 Canada Inc.
and Thermoplus Air Inc. as at January 31, 1998 and 1997 and the combined results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1998, in conformity with generally accepted accounting
principles in the United States of America.
Montreal, Quebec
April 22, 1998 Chartered Accountants
1980, rue Sherbrooke Ouest, 1D(e) etage
Montreal (Quebec) H3H 1E8
Tel: 514 937 6392
Fax: 514 933 9710
F-2
<PAGE>
159653 CANADA INC. AND THERMOPLUS AIR INC.
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ -----------
<S> <C> <C>
$ $
ASSETS
Accounts receivable (note 2)......................................................... 3,043,829 2,658,816
Grant receivable..................................................................... -- 25,019
Inventory (note 3)................................................................... 3,817,448 2,505,610
Income taxes receivable.............................................................. -- 99,139
Loans receivable (note 4)............................................................ 87,306 --
Prepaid expenses and sundry assets................................................... 292,931 176,030
------------ -----------
Total current assets................................................................... 7,241,514 5,464,614
Sinking funds........................................................................ 8,038 --
Loans receivable (note 4)............................................................ 91,508 116,675
Property, plant and equipment (note 5)............................................... 4,111,085 3,109,047
Goodwill (note 6).................................................................... 44,528 54,133
------------ -----------
Total assets........................................................................... 11,496,673 8,744,469
------------ -----------
------------ -----------
</TABLE>
APPROVED ON BEHALF OF THE BOARD
- ------------------------------------ Director
- ------------------------------------ Director
F-3
<PAGE>
159653 CANADA INC. AND THERMOPLUS AIR INC.
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ -----------
<S> <C> <C>
$ $
LIABILITIES
Bank indebtedness (note 7)........................................................... 3,099,185 1,571,189
Accounts payable and accrued expenses (note 8)....................................... 1,964,280 1,655,111
Income taxes payable................................................................. 200,502 --
Current portion of long-term debt (note 9)........................................... 427,116 406,080
Deferred revenue (note 12)........................................................... 127,857 114,235
------------ -----------
Total current liabilities.............................................................. 5,818,940 3,746,615
Long-term debt (note 9).............................................................. 1,564,384 1,132,074
Due to director (note 10)............................................................ 67,345 97,341
Other loans payable (note 11)........................................................ 355,336 675,656
Deferred revenue (note 12)........................................................... 470,058 373,401
Deferred income taxes................................................................ 410,643 575,230
------------ -----------
8,686,706 6,600,317
------------ -----------
Minority interest in equity consolidated entity........................................ 352,469 380,886
------------ -----------
Commitments and Contingencies (note 16)
STOCKHOLDERS' EQUITY
Capital Stock (note 13).............................................................. 1,934,695 1,934,695
Retained Earnings (Deficit).......................................................... 618,180 (245,151)
Cumulative Translation Adjustments................................................... (95,377) 73,722
------------ -----------
Total stockholders' equity............................................................. 2,457,498 1,763,266
------------ -----------
Total liabilities and stockholders' equity............................................. 11,496,673 8,744,469
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
159653 CANADA INC. AND THERMOPLUS AIR INC.
COMBINED STATEMENTS OF INCOME
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
$ $ $
Net sales................................................................ 16,370,849 12,712,413 8,375,015
Cost of sales............................................................ 10,777,360 8,478,285 6,171,434
------------ ------------ -----------
Gross profit............................................................. 5,593,489 4,234,128 2,203,581
------------ ------------ -----------
Operating expenses
Selling................................................................ 2,272,053 1,332,843 1,040,416
General and administrative............................................. 1,304,014 1,287,971 869,045
Depreciation and amortization.......................................... 461,100 289,256 252,722
Interest expense....................................................... 287,677 334,493 292,063
------------ ------------ -----------
4,324,844 3,244,563 2,454,246
------------ ------------ -----------
Income (loss) before income taxes and extraordinary item and minority
interest............................................................... 1,268,645 989,565 (250,665)
Income taxes (note 14)................................................... 405,314 223,697 108,254
------------ ------------ -----------
Income (loss) before extraordinary item and minority interest............ 863,331 765,868 (358,919)
Extraordinary item (note 15)........................................... -- -- 1,085,316
------------ ------------ -----------
Income before minority interest.......................................... 863,331 765,868 726,397
Minority interest in earnings of consolidated entity................... -- 69,090 --
------------ ------------ -----------
Net income............................................................... 863,331 696,778 726,397
------------ ------------ -----------
------------ ------------ -----------
Net income per weighted average common stock............................. 0.4933 0.3982 0.4151
------------ ------------ -----------
------------ ------------ -----------
Weighted average number of common stock outstanding...................... 1,750,000 1,750,000 1,750,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
F-5
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
$ $ $
Cash flows from operating activities:
Net income.............................................................. 863,331 696,778 726,397
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization........................................... 461,100 289,256 252,722
Loss on disposal of capital assets...................................... -- 6,000 --
Minority interest in earnings of consolidated entity.................... -- 69,090 --
(Increase) decrease in accounts receivable.............................. (385,013) (527,956) (532,189)
(Increase) decrease in inventory........................................ (1,311,838) (895,202) 1,823
(Increase) decrease in income taxes receivable.......................... 299,641 171,087 (36,907)
(Increase) decrease in prepaid expenses and sundry assets............... (116,901) (69,866) 7,973
Increase (decrease) in accounts payable and accrued expenses............ 309,169 12,074 (302,987)
Increase (decrease) in deferred income taxes............................ (164,587) 8,640 54,418
Increase (decrease) in deferred revenue................................. 110,279 91,749 88,537
----------- ----------- -----------
Net cash (used in) provided by operating activities....................... 65,181 (148,350) 259,787
----------- ----------- -----------
Cash flows from investing activities:
Purchase of capital assets.............................................. (1,978,811) (556,323) (195,213)
Proceeds from disposal of capital assets................................ 233,428 7,467 --
Acquisition of Goodwill................................................. -- (60,147) --
----------- ----------- -----------
Net cash used in investing activities..................................... (1,745,383) (609,003) (195,213)
----------- ----------- -----------
Cash flow from financing activities:
Minority interest in equity consolidated entity......................... -- 311,796 --
Sinking funds........................................................... (8,038) -- --
Grant receivable........................................................ 25,019 (25,019) --
(Advances to) repayments from directors................................. (29,996) 118,732 (200,626)
(Advances to) repayments from corporate shareholders.................... (110,089) -- (280,256)
(Advances to) repayments from loan receivable........................... 47,950 -- --
Advances from (repayment of) long-term debt............................. 453,346 (30,606) 399,963
Advances from (repayment of) loan payable............................... (320,320) 626,406 13,238
Advances (repayments) of bank indebtedness.............................. 1,527,996 242,223 43,158
Redemption of Class A shares............................................ -- (509,115) --
----------- ----------- -----------
Net cash flow (used in) provided by financing activities.................. 1,585,868 734,417 (24,523)
----------- ----------- -----------
Effect of foreign currency exchange rate changes.......................... 94,334 (42,063) (92,001)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents...................... Nil (64,999) (51,950)
Beginning of period/year................................................ Nil 64,999 116,949
----------- ----------- -----------
End of period/year...................................................... Nil Nil 64,999
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information
Cash paid (received) during the year
Interest................................................................ 317,784 279,004 306,273
----------- ----------- -----------
----------- ----------- -----------
Income taxes............................................................ 358,315 116,460 (126,004)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-6
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
----------------------- RETAINED TRANSLATION
NUMBER AMOUNT EARNINGS ADJUSTMENTS
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
$ $ $
Balance (deficit) January 31, 1995............................... 91,292 1,934,713 (1,159,229) 45,108
Foreign currency translation..................................... -- -- -- 25
Net income for the year.......................................... -- -- 726,397 --
----------- ---------- ----------- -----------
Balance January 31, 1996......................................... 91,292 1,934,713 (432,832) 45,133
Foreign currency translation..................................... 28,589
Net income for the year.......................................... -- -- 696,778
Redemption of shares over stated capital......................... (25) (18) (509,697) --
----------- ---------- ----------- -----------
Balance January 31, 1997......................................... 91,267 1,934,695 (245,151) 73,722
Foreign currency translation..................................... (169,099)
Net income for the year.......................................... -- -- 863,331
----------- ---------- ----------- -----------
Balance January 31, 1998......................................... 91,267 1,934,695 618,180 (95,377)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
F-7
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF COMBINED FINANCIAL STATEMENTS PRESENTATION
A) BASIS OF PRESENTATION
These financial statements combine the accounts of an affiliated company,
Thermoplus Air Inc., and the consolidated financial statements of 159653 Canada
Inc., comprised of its wholly-owned subsidiary Dectron Inc. and Dectron's
wholly-owned subsidiaries, Fiber Mobile Ltd., Dectron U.S.A. Inc. and its
majority interest in Refplus Inc. All material intercompany accounts and
transactions have been eliminated.
B) PRINCIPAL ACTIVITIES
The companies 159653 Canada Inc., Dectron Inc., Ref Plus Inc., Thermoplus
Air Inc., Dectron U.S.A. Inc. and Fibermobile Ltd. were incorporated in Canada
on December 21, 1987, June 7, 1977, September 15, 1993, March 6, 1991, May 23,
1994, June 30, 1988 respectively.
The companies are principally engaged in the production of dehumidification,
refrigeration, indoor air quality (IAQ) ventilation and air conditioning systems
in Canada and its distribution in Canada and the United States of America The
activity of 159653 Canada Inc. is immaterial in the aggregate, as its only
activity is to hold the investment in Dectron Inc.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
any other highly liquid investments purchased with a maturity of three months or
less. The carrying amounts approximates fair value because of the short maturity
of these instruments.
D) OTHER CURRENT FINANCIAL INSTRUMENTS
The carrying amount of the companies' accounts receivables and payables
approximates fair value because of the short maturity of these instruments.
E) LONG-TERM FINANCIAL INSTRUMENTS
The fair value of each of the companies' long-term financial assets and debt
instruments is based on the amount of future cash flows associates with each
instrument discounted using an estimate of what the companies' current borrowing
rate for similar instruments of comparable maturity would be.
F) INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined on
the first-in, first-out basis.
F-8
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF COMBINED FINANCIAL STATEMENTS PRESENTATION (CONTINUED)
G) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are amortized on the
basis over their estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Building 5% Declining balance
Machinery and equipment 10% Straight line or 20% declining
balance
Furniture and fixtures 10% Straight line or 20% declining
balance
Computers 15% Straight line or 30% declining
balance
Leasehold improvements 20% Straight line
Automobile 30% Straight line
Moulds and dies 20% Straight line
Equipment under capital lease 30% Declining balance
</TABLE>
Amortization for assets acquired during the year are recorded at one half of
the indicated rates which approximates when they were put into use.
H) GOODWILL
Goodwill is the excess of cost over the value of net assets acquired. It is
amortized on the straight line basis over ten years.
I) INCOME TAXES
The company accounts for income taxes under the provisions of statement of
financial accounting standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements and tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statements bases of assets and
liabilities.
J) DEFERRED REVENUE
The company has sold extended warranty contracts covering a period of four
years beyond the one year basic guarantee. The deferred revenue is recognized as
income over the four year period on a straight line basis commencing one year
from the sale of the contracts.
K) The company maintains its books and records in Canadian dollars. Foreign
currency translations are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect on
the transaction dates. Transactions gains and losses are included in the
determination of earnings for the year/period.
The translation of the combined financial statements from Canadian dollars
("CDN $") to United States dollars is performed for the convenience of the
reader. Balance sheet accounts are translated using closing exchange rates in
effect at the balance sheet date and income and expense accounts are translated
F-9
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF COMBINED FINANCIAL STATEMENTS PRESENTATION (CONTINUED)
using an average exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could have been, or
could be, converted in United States dollars at the rates on the respective
dates and or at any other certain rates. Adjustments resulting from the
translation are included in the cumulative translation adjustments in
stockholders' equity.
L) NET INCOME PER WEIGHTED AVERAGE COMMON STOCK
Net income per common stock is computed by dividing net income for the year
by the weighted average number of common stock outstanding during the year.
M) USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that effect certain
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the combined financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
N) GOVERNMENT ASSISTANCE AND INVESTMENT TAX CREDITS
Government assistance and investment tax credits are recorded on the accrual
basis and are accounted for as a reduction of related current or capital
expenditures.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ ------------
<S> <C> <C>
$ $
Accounts receivable............................................... 3,105,239 2,701,546
Less: Allowance for doubtful accounts............................. 61,410 42,730
------------ ------------
Accounts receivable--net.......................................... 3,043,829 2,658,816
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
3. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ ------------
<S> <C> <C>
$ $
Raw materials..................................................... 2,247,631 1,580,976
Work-in-process................................................... 580,112 413,486
Finished goods.................................................... 989,705 511,148
------------ ------------
3,817,448 2,505,610
------------ ------------
------------ ------------
</TABLE>
4. LOANS RECEIVABLE
Loans receivable consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
Loan receivable--private company (secured).......................... 63,467 111,417
Loan receivable--corporate shareholders (unsecured)................. 115,347 5,258
----------- -----------
178,814 116,675
Current portion..................................................... 87,306 --
----------- -----------
91,508 116,675
----------- -----------
----------- -----------
</TABLE>
These loans are non-interest bearing with no specific terms of repayment
except for the current portion of which is expected to be repaid prior to
January 31, 1999 and the balance is not expected to be received prior than
February 1, 1999.
F-11
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ ------------
<S> <C> <C>
$ $
Land.............................................................. 238,733 380,956
Building.......................................................... 1,732,386 946,866
Machinery and manufacturing equipment............................. 2,983,063 2,408,142
Furniture and fixtures............................................ 322,367 311,007
Computers......................................................... 529,722 498,861
Automobile........................................................ 15,181 6,045
Leasehold improvements............................................ 340,833 403,283
Equipment under capital lease..................................... 52,139 20,879
------------ ------------
Cost.............................................................. 6,214,424 4,976,039
------------ ------------
Less accumulated depreciation and amortization:
Building.......................................................... 174,779 139,016
Machinery and manufacturing equipment............................. 1,005,575 827,241
Furniture and fixtures............................................ 234,100 227,853
Computers......................................................... 381,279 347,886
Automobile........................................................ 2,087 6,045
Leasehold improvement............................................. 287,696 308,762
Equipment under capital lease..................................... 17,823 10,189
------------ ------------
2,103,339 1,866,992
------------ ------------
Net............................................................... 4,111,085 3,109,047
------------ ------------
------------ ------------
</TABLE>
6. GOODWILL
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
Cost................................................................ $ 55,660 $ 60,148
Less: Accumulated amortization...................................... 11,132 6,015
----------- -----------
Net................................................................. 44,528 54,133
----------- -----------
----------- -----------
</TABLE>
F-12
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
7. BANK INDEBTEDNESS
The bank loan bears interest at the banks prime lending rate plus 1/2% per
annum (prime plus 1 1/2% at January 31, 1997) with interest payable monthly.
The bank indebtedness is secured by a general assignment of book debts,
pledge of inventory under Section 427 of the Bank Act of Canada, general
security agreements providing a first floating charge over all assets.
$4,122,000 secured by all assets of the company including a first ranking
security in the amount of $3,435,000 on the proceeds of all risks insurance on
the property.
The company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of prime.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
Accounts payable and accrued expenses are comprised of the following:
Trade payable.................................................................... 1,285,294 1,015,118
Accrued expenses................................................................. 678,986 639,993
----------- -----------
1,964,280 1,655,111
----------- -----------
----------- -----------
</TABLE>
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ ------------
<C> <S> <C> <C>
$ $
a) Balance of sale secured by land and building plus rent, present and future on
the building, without interest, repayable in semi-annual repayment of
$40,078 due April and October. Maturing October 2000....................... 240,451 --
b) Immigration loan secured by a first ranking universal hypothec on the
universality of the property, moveable and immovable, present and future
and corporeal and incorporeal, bearing interest at 5.21% per annum due on
November 2002.............................................................. 480,901 --
c) Bank term loan bearing interest at prime plus 1% per annum repayable in
monthly capital repayment of $1,540. Maturing April 2002................... 78,509 --
d) Bank loan, bearing interest bank prime rate plus 1% repayable in monthly
instalments of $5,224 and a last instalment of $5,229 plus interest.
Maturing on November 1, 2001............................................... 240,308 --
------------ ------------
Balance carried forward...................................................... 1,040,169 --
Balance brought forward...................................................... 1,040,169 --
</TABLE>
F-13
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
9. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ ------------
$ $
<C> <S> <C> <C>
e) Loan secured by providing land and a personal guarantee from a director as
collateral bearing interest at prime plus 1% repayable by monthly capital
repayments of $1,374....................................................... 52,706 74,773
f) The loan from Societe Developpement Industriel du Quebec bearing interest at
a rate approximately prime plus 1.50% which is deferred and capitalized for
the minimum of either 12 months or when the accumulated interest is greater
than 10% of the loan advance, repayable in annual payments commencing June
30, 1997 at a rate of 15% of the prior year's net income to a maximum of
$34,350 per annum.......................................................... 113,983 160,293
g) Bank term loan secured by machinery and equipment bearing interest at prime
plus 1.75% repayable in monthly capital repayment of $2,863. Maturing May
2000....................................................................... 45,800 86,612
h) Small business loan payable, secured by machinery and equipment, repayable in
monthly instalments of $2,542 plus interest at prime plus 1.75%. Maturing
February 2000.............................................................. 63,479 105,642
i) Small business investment loan secured by a hypothec on specific equipment
plus a personal guarantee from a director of the company bearing interest
at prime plus 1.75% repayable by monthly capital instalments of $2,046..... 103,652 136,313
j) Bank term loan secured by a first ranking universal hypothec on the
universality of the property, moveable and immoveable, present and future
and corporeal and incorporeal, bearing interest at 7.99% per annum
repayable in monthly capital repayments of $574 plus a final repayment of
$69,205 in December 2002................................................... 102,477 --
------------ ------------
Balance carried forward...................................................... 1,522,266 563,633
Balance brought forward...................................................... 1,522,266 563,633
k) Loan secured by a universal hypothec on land and building, plus floating
charge on all other assets bearing interest at prime plus 4% repayable by
monthly capital repayment of $1,718........................................ 147,705 180,030
l) Loan secured by a first and fixed mortgage charge on the land and building
and a floating charge on all other assets, bearing interest at 9 1/2%
repayable by monthly capital repayments of $6,870.......................... 274,801 378,619
m) Bank term loan secured by equipment bearing interest at prime plus 1.75%
repayable by monthly capital repayments of $3,094 repaid during the year... -- 151,572
n) Bank term loan secured by equipment bearing interest at prime plus 2%
repayable by monthly capital repayments of $3,772 repaid during the year... -- 170,750
</TABLE>
F-14
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
9. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
------------ ------------
$ $
<C> <S> <C> <C>
o) Loan payable secured by Fonds D'Aide Aux Entreprise bearing interest at
10.50% repayable in 60 monthly instalments once accumulated interest
reaches 30% of loan repaid during the year................................. -- 89,829
p) Other........................................................................ 46,728 3,721
------------ ------------
1,991,500 1,538,154
Less: Current portion........................................................ 427,116 406,080
------------ ------------
1,564,384 1,132,074
------------ ------------
------------ ------------
</TABLE>
Future principal payment obligations are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
1998................................................................ -- 406,080
1999................................................................ 427,116 406,852
2000................................................................ 404,707 327,212
2001................................................................ 356,286 247,442
2002................................................................ 172,159 77,420
2003................................................................ 586,577 73,148
Subsequent to 2003.................................................. 44,655 --
----------- -----------
1,991,500 1,538,154
----------- -----------
----------- -----------
</TABLE>
10. DUE TO DIRECTOR
The amount due to director is unsecured, non-interest bearing and is due on
April 15, 2002.
11. OTHER LOANS PAYABLE
These loans payable are non-interest bearing and are not expected to be
repaid prior to February 1, 1999. An amount of $268,911 owed to a private
company is due on April 15, 2002.
12. DEFERRED REVENUE
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
Deferred revenue.................................................... 597,915 487,636
Current portion..................................................... 127,857 114,235
----------- -----------
470,058 373,401
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
12. DEFERRED REVENUE (CONTINUED)
Deferred revenue will be recognized as income as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
1998................................................................ -- 114,235
1999................................................................ 127,857 130,751
2000................................................................ 184,327 113,976
2001................................................................ 136,482 84,976
2002................................................................ 98,277 43,695
2003................................................................ 50,972 --
----------- -----------
597,915 487,636
----------- -----------
----------- -----------
</TABLE>
13. CAPITAL STOCK
a) Authorized
159653 Canada Inc.:
Authorized
An unlimited number of the following classes of shares without par value:
Class F preference shares, 1% monthly non-cumulative, non-voting,
redeemable at the paid up amount
Class E preference shares, 1% monthly non-cumulative, voting, redeemable
and retractable at the paid up amount
Class D preference shares, 1% monthly non-cumulative, non-voting,
redeemable and retractable at the paid up amount
Class C preference shares, 1% monthly non-cumulative, voting, redeemable
at the paid up amount
Class B common shares, non-voting
Class A common shares, voting
Thermoplus Air Inc.:
An unlimited number of the following classes of shares without par value:
Class F preference shares, 10% non-cumulative dividend, non-voting,
redeemable at the paid up amount
Class E preference shares, 10% non-cumulative dividend, voting,
redeemable and retractable at the paid up amount
F-16
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
13. CAPITAL STOCK (CONTINUED)
Class D preference shares 10% non-cumulative dividend, non-voting,
redeemable and retractable at the paid up amount
Class C preference shares, 10% non-cumulative dividend, voting,
redeemable at the paid up amount
Class B preference shares, non-cumulative dividend, voting
Class A common shares
b) Issued
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<C> <S> <C> <C>
$ $
Thermoplus Air Inc.
91,242 Class A common shares.................................................. 1,934,525 1,934,525
159653 Canada Inc.
1,571,000 Class D shares......................................................... 152 152
25 Class A shares......................................................... 18 18
----------- -----------
1,934,695 1,934,695
----------- -----------
----------- -----------
</TABLE>
c) Weighted Averaged Number of Common Shares
For the purpose of determining earnings per shares the weighted average
number of common shares has been presented on a pro-forma basis, giving effect
to the following subsequent event:
In March 1998, a newly incorporated holding company, Dectron Internationale
Inc. (the Registrant) has planned an initial public offering and the
shareholders of the companies will transfer all the outstanding shares of the
companies to the Registrant in exchange for 1,750,000 common shares of that
company. The transfer will be done in anticipation of an eventual initial public
offering. Accordingly, the total weighted average number of common shares on a
pro-forma basis is 1,750,000 common shares.
F-17
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
14. INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<C> <S> <C> <C> <C>
$ $ $
a) Current........................................................... 531,383 250,284 90,024
Deferred.......................................................... (126,069) (26,587) 18,230
----------- ----------- -----------
405,314 223,697 108,254
----------- ----------- -----------
----------- ----------- -----------
b) Current income taxes consists of amount calculated at basic
combined federal and provincial rates........................... 568,446 363,090 (91,974)
Increase (decrease) resulting from:
Application of losses carried forward from prior year............. (20,224) (43,808) --
Small business deduction.......................................... (22,984) (23,495) (23,382)
Manufacturing and processing...................................... (72,051) (37,955) --
Timing differences................................................ 84,267 (7,548) 207,312
Other............................................................. (6,071) -- (1,932)
----------- ----------- -----------
531,383 250,284 90,024
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
c) Deferred income taxes represent the tax benefits derived from timing
differences between amortization of plant and equipment and recognition of
warranty revenue charged to operations and amounts deducted from taxable income.
15. EXTRAORDINARY ITEM
During the 1996 fiscal year, the company Thermoplus Air Inc. filed a
proposal to its creditors under the provision of the Bankruptcy and Insolvency
Act which gave full payment to secured creditors who filed a proof of claim. The
transaction resulted in a one time forgiveness of debt (net of deferred income
taxes of $42,569) in the amount of $1,085,316. The total debts were settled for
$175,910.
Income taxes on the forgiveness and the amounts written off during 1996
amounted to nil due to the application of losses carried forward from prior
years.
F-18
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
16. COMMITMENTS
a) The company is committed to payments under operating leases for its
premises totalling $192,097. Annual payments for the next three years are as
follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
$ $
1998................................................................ -- 183,710
1999................................................................ 85,810 183,710
2000................................................................ 73,037 120,150
2001................................................................ 33,250 --
----------- -----------
192,097 487,570
----------- -----------
----------- -----------
</TABLE>
b) The company is committed to make monthly payments of $2,680 in a sinking
fund which is given as security against the immigration loan. The annual
payments for the next five years are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 32,160
2000............................................................... 32,160
2001............................................................... 32,160
2002............................................................... 32,160
2003............................................................... 32,160
</TABLE>
17. SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Sales to major customers................................................. 4,600,526 1,793,786 1,824,320
------------ ------------ -----------
------------ ------------ -----------
% of total sales......................................................... 28.10 14.11 21.78
------------ ------------ -----------
------------ ------------ -----------
The breakdown of sales by geographic area is as follows:
Canada................................................................. 5,698,411 5,003,503 2,148,159
United States of America............................................... 10,672,438 7,708,910 6,226,856
------------ ------------ -----------
------------ ------------ -----------
16,730,849 12,712,413 8,375,015
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
18. ACQUISITION
On February 1, 1996 the company acquired a 50.01% interest in Refplus Inc.
for $371,195. The acquisition has been accounted for by the purchase method and
the results of operations at Refplus Inc. from February 1, 1996 have been
included in the combined financial statements.
F-19
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
18. ACQUISITION (CONTINUED)
The allocation of purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets.................................................. $1,766,117
Capital assets.................................................. 331,298
Deferred costs.................................................. 155,834
Goodwill........................................................ 60,147
Liabilities..................................................... (1,630,405)
Minority interest............................................... (311,796)
---------
Total acquisition cost.......................................... $ 371,195
---------
---------
</TABLE>
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY COMMON STOCK SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
The Offering................................... 5
Summary Combined Financial Information......... 6
Risk Factors................................... 7
Dilution....................................... 14
Capitalization................................. 15
Use of Proceeds................................ 16
Dividend Policy................................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 18
Business....................................... 23
Management..................................... 29
Principal Stockholders......................... 33
Certain Transactions........................... 34
Description of Securities...................... 35
Tax Aspects of the Offering.................... 36
Shares Eligible for Future Sale................ 38
Underwriting................................... 39
Legal Matters.................................. 41
Experts........................................ 41
Additional Information......................... 41
Indemnification of Securities Act
Liabilities.................................. 42
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMPANY'S SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
DECTRON
INTERNATIONALE INC.
1,000,000 SHARES OF COMMON STOCK
1,000,000 COMMON STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
J.P. TURNER & COMPANY, LLC
KLEIN MAUS AND SHIRE INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company provide that the Company shall indemnify directors
and officers of the Company. The pertinent section of Canadian law is set forth
below in full. In addition, upon effectiveness of this registration statement,
management intends to obtain officers and directors liability insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Canadian Business Corporation Act provides as follows:
(1) INDEMNIFICATION OF DIRECTORS--A corporation may indemnify a director
or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
stockholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is a party by reason of being or having been a director or
officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she has reasonable grounds
for believing that his or her conduct was lawful.
(2) INDEMNIFICATION--A corporation may, with the approval of the court,
indemnify a person referred to in subsection (1) in respect of an action by
or behalf of the corporation or body corporate to procure a judgment in its
favor, to which the person is made a party by reason of being or having been
a director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by the person in connection
with such action if he or she fulfills the conditions set out in clauses
(1)(a) and (b).
(3) INDEMNIFICATION--Despite anything in this section, a person referred
to in subsection (1) is entitled to indemnity from the corporation in
respect of all costs, charges and expenses reasonably incurred by him in
connection with the defense of any civil, criminal or administrative action
or proceeding to which he or she is made a party by reason of being or
having been a director or officer of the corporation or body corporate, if
the person seeking indemnity;
(a) was substantially successful on the merits in his or her defense
of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE--A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the
corporation, except where the liability relates to the person's failure
to act honestly and in good faith with a view to the best interests of
the corporation; or
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates
II-1
<PAGE>
to the person's failure to act honestly and in good faith with a view to
the best interests of the body corporate.
(5) APPLICATION TO COURT--A Corporation or a person referred to in
subsection 91 may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) INDEMNIFICATION--Upon application under subsection (5), the court
may order notice to be given to any interested person and such person is
entitled to appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 6,424.55
NASD Filing Fee................................................ 2,700.00
Nasdaq Listing Fees*........................................... 15,000.00
Financial Advisory Fees........................................ 96,000.00
Printing Engraving Expenses*................................... 50,000.00
Legal Fees and Expenses*....................................... 138,500.00
Accounting Fees and Expenses*.................................. 120,000.00
Blue Sky Fees and Expenses*.................................... 70,000.00
Non-Accountable Expense Allowance.............................. 243,750.00
Transfer Agent and Registrar Fees and Expenses*................ 2,500.00
Miscellaneous*................................................. 28,425.45
----------
Total.......................................................... $773,350.00
----------
----------
</TABLE>
- ------------------------
* estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has issued shares of its unregistered
securities only in connection with the Restructuring, as described below.
Immediately prior to the effective date of the Registration Statement of
which this Prospectus forms a part, the Company restructured its corporate
structure ("Restructuring"). In order to complete the Restructuring, (i)
Dectron, which prior to the Restructuring owned a majority interest in Refplus,
acquired the minority interests in Refplus, which included both common stock and
preferred stock (and assumed Refplus' loan payables of approximately
Cdn$125,000, which amount is reflected in the combined financial statements
elsewhere in this Prospectus and is included in the Cdn$1,149,050 number
mentioned below), then (ii) Dectron acquired all of the outstanding securities
of Thermoplus, which included both Common Stock and preferred stock, and assumed
Thermoplus' parent company's loan payables (approximately Cdn$497,000, which
amount is included in the Cdn$1,149,050 number mentioned below), then (iii) the
Company acquired all of the issued and outstanding securities of Dectron. The
Refplus and Thermoplus loans payable represent the repayment of loans made to
such companies by their shareholders. In connection with the Restructuring, the
Company issued 1,750,000 shares of Common Stock and promissory notes in the
aggregate amount of Cdn$1,049,050. Of this amount, Cdn$557,050 (or approximately
U.S.$400,000) will be repaid out of the proceeds of this Offering. Of these
amounts, an aggregate amount of 1,693,044 shares of Common Stock and promissory
notes in the aggregate amount of Cdn$592,000 were issued to Ness Lakdawala, the
Company's President, and his affiliates.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
**3.1 Bylaws of Registrant
*3.2 Articles of Incorporation
*4.1 Form of Underwriters' Warrant
*4.2 Form of Public Warrant Agreement
**4.3 Specimen Common Stock Certificate
**4.4 Specimen Warrant Certificate
**5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
*10.1 Form of Financial Consulting Agreement
**10.2 1998 Stock Option Plan
**10.3 Lease of Company's Executive offices, 4300 Poirier Blvd., Montreal Quebec H4R-2C5
**10.4 Form of Employment Agreement with Ness Lakdawala
*10.5 Form of Shareholder's Restructuring Agreement
*21.1 List of Subsidiaries
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors
**23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (incorporated into Exhibit
5.1)
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law, contract arrangements,
statute, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i)To include any
Prospectus required by section 10(a)(3) of the Act; (ii)To reflect in the
Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; (iii)To include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of
such securities at that time shall be deemed to be the initial bona fide
Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
II-3
<PAGE>
(4) For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this registration
Statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h),
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(5) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide Offering of
those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Province of
Ontario, Canada on July 16, 1998.
DECTRON INTERNATIONALE INC.
BY: /S/ NESS LAKDAWALA
-----------------------------------------
Ness Lakdawala
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of DECTRON INTERNATIONALE INC.
hereby severally constitute and appoint Ness Lakdawala, our true and lawful
attorney-in-fact and agent with full power of substitution for us and in our
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ NESS LAKDAWALA President, Chief Executive July 16, 1998
---------------------------- Officer and Chairman
Ness Lakdawala
/s/ REINHOLD KITTLER Executive Vice President July 16, 1998
---------------------------- and Director
Reinhold Kittler
/s/ ROSHAN KATRAK Vice President of Human July 16, 1998
---------------------------- Relations and Director
Roshan Katrak
/s/ MARURO PARISSI Chief Financial Officer, July 16, 1998
---------------------------- Secretary and Director
Mauro Parissi
/s/ GUY HOULE Director July 16, 1998
----------------------------
Guy Houle
/s/ LEENA LAKDAWALA Executive Vice President July 16, 1998
---------------------------- and Director
Leena Lakdawala
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
**3.1 The Company's By-Laws
*3.2 Articles of Incorporation
*4.1 Form of Underwriters' Warrant
*4.2 Form of Public Warrant Agreement
**4.3 Specimen of Warrant Certificate
**4.4 Specimen Common Stock Certificate
**5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
*10.1 Form of Financial Consulting Agreement
**10.2 1998 Stock Option Plan
**10.3 Lease of Company's Executive Offices at 4300 Poirier Blvd., Montreal, Quebec
H4R-2C5
**10.4 Form of Employment Agreement with Ness Lakdawala
*10.5 Form of Shareholders' Restructuring Agreement
*21.1 List of Subsidiaries
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors
**23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (incorporated into
Exhibit 5.1)
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-6
<PAGE>
Exhibit 1.1
DECTRON INTERNATIONALE INC.
1,000,000 Shares of Common Stock and
1,000,000 Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
September , 1998
J.P. Turner & Co., L.L.C.
3340 Peachtree Road, Suite 450
Atlanta, Georgia 30326
Klein Maus and Shire Incorporated
110 Wall Street
New York, New York 10005
Dear Sirs:
Dectron Internationale Inc., a Quebec, Canada corporation and its
subsidiaries which include Dectron, Inc. ("Dectron, Inc."), Fibre Mobile Limited
("Klasco"), Refplus, Inc. (Refplus"), Thermoplus Air, Inc. ("Thermoplus"), and
Dectron USA, Inc. ("Dectron USA"), (collectively the "Company"), hereby confirms
its agreement with J.P. Turner & Co., L.L.C. (the "Representative"), and Klein
Maus and Shire Incorporated ("KMS" and collectively with the Representative, the
"Underwriters") as follows:
1. Description of the Securities.
The Company proposes to issue and sell to the Underwriters 1,000,000 shares
of common stock, no par value per share (the "Common Stock"), and 1,000,000
redeemable Common Stock purchase warrants (the "Warrants," and collectively with
the Common Stock, the "Securities") in the amounts set forth on Schedule A
hereto. Each Warrant shall entitle to the holder to purchase one share of Common
Stock for $9.20, subject to adjustment. The Company proposes to grant to the
Underwriters an option to purchase up to 150,000 additional shares of Common
Stock and up to an additional 150,000 Warrants (the "Additional Securities").
The offering of Securities and Additional Securities contemplated hereby may
sometimes be referred to as the "Offering."
(a) The Warrants.
<PAGE>
The Warrants are exercisable from one year from the effective date of the
Registration Statement, as defined in Paragraph 2(a) (the "Effective Date"),
until expiration four years thereafter, subject to prior redemption by the
Company. The Warrants will be exercisable at $9.20 per share and expire on
September [ ], 2003. The shares of Common Stock issuable upon the exercise of
the Warrants are hereinafter referred to as the "Warrant Shares."
The Warrants will be redeemable at a price of $.125 per Warrant, commencing
12 months after the Effective Date ( or earlier with the consent of the
Representative) and prior to their expiration upon written notice given within
30 days after 30 consecutive business days ending on the third day prior to the
date the notice of redemption is given during which the Common Stock maintains a
per share closing bid price (or closing sales price if listed on an exchange or
on a reporting system that provides last sales prices) at least equal to 174% of
the then current Warrant exercise price (initially $16.00 per share, subject to
adjustment), subject to the right of the holder to exercise his purchase rights
thereunder until redemption.
(b) Underwriters' Securities.
The Company will sell to the Underwriters, for $10.00, a warrant to
purchase an amount equal to ten percent 10% of the Common Stock and Warrants
sold in this Offering excluding the Additional Securities (a maximum of 100,000
shares of Common Stock and Warrants) (the" Underwriters' Warrants," and
collectively with the Securities underlying the Underwriters' Warrants, the
"Underwriters' Securities"). The Warrants underlying the Underwriters' Warrants
shall be exercisable at a price of $9.20 per share of Common Stock and $.14375
per Warrant. The Underwriters' Securities shall be non-exercisable and
non-transferable (other than to (i) officers of the Underwriters, and (ii)
members of the selling group and their officers or partners) for a period of 12
months following the Effective Date. Thereafter, they are exercisable and
transferable for a period of four years. If the Underwriters' Securities are not
exercised during their term, they shall, by their terms, automatically expire.
The Underwriters' Securities shall be registered for sale to the public and
shall be included in the Registration Statement filed in connection with the
Offering.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission"), a registration statement on Form SB-2 (File No. 333- ),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities under the Securities Act of 1933 (the "Act"). The
Company will file further amendments to said registration statement in the form
to be delivered to you and will not, before the registration statement becomes
effective, file any other amendment thereto to which you shall have objected in
writing after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, exhibits and
2
<PAGE>
all other documents filed as a part thereof or incorporated therein), is
hereinafter called the "Registration Statement", and the prospectus, in the form
filed with the Commission pursuant to Rule 424(b) of the General Rules and
Regulations of the Commission under the Act (the "Regulations") or, if no such
filing is made, the definitive prospectus used in the Offering, is hereinafter
called the "Prospectus." The Company has delivered to you copies of each
Preliminary Prospectus as filed with the Commission and has consented to the use
of such copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and has not
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, subject to the provisions set forth below and to except as such
untrue statement or omission has been cured in the a subsequent preliminary
prospectus or in the final prospectus.
(c) When the Registration Statement becomes effective under the Act
and at all times subsequent thereto including the Closing Date (hereinafter
defined) and the Option Closing Date (hereinafter defined) and for such longer
periods as in the opinion of counsel for the Underwriters, a Prospectus is
required to be delivered in connection with the sale of the Securities by the
Underwriters, the Registration Statement and Prospectus, and any amendment
thereof or supplement thereto, will contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations,
and will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by you, or by any of the Selling Shareholders, for use in connection
with the preparation of the Registration Statement or Prospectus, or in any
amendment thereof or supplement thereto. It is understood that the statements
set forth under the heading "Underwriting" in the Prospectus with respect to (i)
the amounts of the selling concession and reallowance; (ii) the identity of
counsel to the Underwriters under the heading "Legal Matters"; and (iii) the
information concerning the NASD affiliation of the Underwriters, constitute the
only information supplied by you for use in the Registration Statement or
Prospectus.
(d) The Company and its subsidiaries are, and at the Closing Date and
the Option Closing Date will be, corporations duly organized, validly existing
and in good standing under the laws of the state of their incorporation. The
Company is duly qualified or licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing, except those jurisdictions in which the failure to so qualify would
not have a material adverse effect. The
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Company has all requisite corporate powers and authority, and except as set
forth in the Registration Statement the Company and its employees have all
material and necessary authorizations, approvals, orders, licenses, certificates
and permits of and from all governmental regulatory officials and bodies to own
or lease the Company's properties and conduct its business as described in the
Prospectus and the Company is doing business and has been doing business during
the period described in the Registration Statement in compliance with all such
material authorizations, approvals, orders, licenses, certificates and permits
and all material federal, state and local laws, rules and regulations concerning
the business in which the Company is engaged. The disclosures in the
Registration Statement concerning the effects of federal, state and local
regulation on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact.
The Company has all corporate power and authority to enter into this Agreement
and carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and executed
by the Company. The Securities (including the Common Stock and the Warrants),
the Warrant Shares, the Underwriters' Warrants to be issued and sold by the
Company pursuant to this Agreement, the Securities issuable upon exercise of the
Underwriters' Warrants and payment therefor, and the Common Stock and Warrant
Shares underlying such Underwriters' Warrants, have been duly authorized (and,
in the case of the Common Stock and the Warrant Shares, have been duly reserved
for issuance) and, when issued and paid for in accordance with this Agreement
(and, in the case of the Warrant Shares, upon exercise of the Warrants and
payment to the Company of the exercise price therefor), the Common Stock and
Warrant Shares will be validly issued, fully paid and non-assessable; the Common
Stock, Warrants, Warrant Shares, Underwriters' Warrants, Additional Securities
and Underwriters' Warrants Shares are not and will not be subject to the
preemptive rights of any stockholder of the Company and conform and at all times
up to and including their issuance will conform in all material respects to all
statements with regard thereto contained in the Registration Statement and
Prospectus; and all corporate action required to be taken for the authorization,
issuance and sale of the Common Stock, Warrants, Warrant Shares and
Underwriters' Warrants has been taken, and this Agreement constitutes a valid
and binding obligation of the Company, enforceable in accordance with its terms,
to issue and sell, upon exercise in accordance with the terms thereof, the
number and kind of securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation, as amended, or bylaws of the Company or of any
evidence of indebtedness, lease, contract or other agreement or instrument to
which the Company is a party or by which the Company or any of its properties is
bound, or under any applicable law, rule, regulation, judgment, order or decree
of any government, professional advisory body, administrative agency or court,
domestic or foreign, having jurisdiction over the Company or its properties, or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the properties or assets of the Company; and no consent, approval,
authorization or order
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of any court or governmental or other regulatory agency or body is required for
the consummation by the Company of the transactions on its part herein
contemplated, except as such as may be required under the Act or under state
securities or blue sky laws, except where a breach, violation or failure to
obtain such consent would not have a material adverse effect upon the business
or operation of the Company.
(g) Subsequent to the date hereof, and prior to the Closing Date and
the Option Closing Date, the Company will not issue or acquire any equity
securities except that the Company may make short-term investments as
contemplated in the "Use of Proceeds" section of the Prospectus. Except as
described in the Registration Statement, the Company does not have, and at the
Closing Date and at the Option Closing Date will not have, outstanding any
options to purchase or rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell
shares of its Preferred Stock, Common Stock or any such options, warrants,
convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the Company is
not, and at the Closing Date and at the Option Closing Date will not be, in
violation or breach of, or default in, the due performance and observance of any
term, covenant or condition of any indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company is subject, which violations, breaches,
default or defaults, singularly or in the aggregate, would have a material
adverse effect on the Company. The Company has not and will not have taken any
action in material violation of the provisions of the Articles of Incorporation,
as amended, or the Bylaws of the Company or any statute or any order, rule or
regulation of any court or regulatory authority or governmental body having
jurisdiction over or application to the Company, its business or properties.
(j) The Company has, and at the Closing Date and at the Option Closing
Date will have, good and marketable title to all properties and assets described
in the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances, claims, security interests, restrictions and defects of any
material nature whatsoever, except such as are described or referred to in the
Prospectus and liens for taxes not yet due and payable. All of the material
leases and subleases under which the Company is the lessor or sublessor of
properties or assets or under which the Company holds properties or assets as
lessee as described in the Prospectus are, and will on the Closing Date and the
Option Closing Date be, in full force and effect, and except as described in the
Prospectus, the Company is not and will not be in default in respect to any of
the terms or provisions of any of
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such leases or subleases (which would have a material adverse effect on the
business, business prospects or operations of the Company taken as a whole), and
no claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continue
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus, and the Company
owns or leases all such properties as are necessary to its operations as now
conducted and, except as otherwise stated in the Prospectus, as proposed to be
conducted set forth in the Prospectus (which would have a material adverse
effect on the business, business prospects or operations of the Company taken as
a whole).
(k) The authorized, issued and outstanding capital stock of the
Company as of June 31, 1998 and as of the date of the Prospectus is as set forth
in the Prospectus under "Capitalization"; the shares of issued and outstanding
capital stock of the Company set forth thereunder have been duly authorized,
validly issued and are fully paid and non-assessable; except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been granted or
entered into by the Company; and the Common Stock, the Warrants and all such
options and warrants conform in all material respects, to all statements
relating thereto contained in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not own or
control any capital stock or securities of, or have any proprietary interest in,
or otherwise participate in any other corporation, partnership, joint venture,
firm, association or business organization; provided, however, that this
provision shall not be applicable to the investment, if any, of the net proceeds
from the sale of the Securities sold by the Company in certificates of deposits,
savings deposits, short-term obligations of the United States Government, money
market instruments or other short-term investments.
(m) Schwartz Levitsky Feldman, who have given their reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money; or (ii) entered into any transaction other than in the
ordinary course of business; or (iii) declared or paid any dividend or made any
other distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending or to
the knowledge of the Company threatened against, or involving the properties or
business of the Company which might materially adversely affect the value,
assets or the operation of the properties
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or the business of the Company, except as referred to in the Prospectus.
Further, except as referred to in the Prospectus, there are no pending actions,
suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race, nor is the Company
charged with or, to its knowledge, under investigation with respect to any
violation of any statutes or regulations of any regulatory authority having
jurisdiction over its business or operations, and no labor disturbances by the
employees of the Company exist or, to the knowledge of the Company, have been
threatened.
(p) The Company has, and at the Closing Date and at the Option Closing
Date will have, filed all necessary federal, state and foreign income and
franchise tax returns or has requested extensions thereof (except in any case
where the failure to so file would not have a material adverse effect on the
Company), and has paid all taxes which it believes in good faith were required
to be paid by it except for any such tax that currently is being contested in
good faith or as described in the Prospectus.
(q) The Company has not at any time (i) made any contribution to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date and on the Option Closing Date, all transfer
or other taxes, if any (other than income tax) which are required to be paid,
and are due and payable, in connection with the sale and transfer of the
Securities by the Company to the Underwriters will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such taxes
will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company which are
of a character required to be described in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(u) The Company will apply the net proceeds from the sale of the
Securities sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
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(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specified authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorizations; and (4) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Except as set forth in the Prospectus, no holder of any securities
of the Company has the right to require registration of any securities because
of the filing or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not have
taken, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock or the Warrants
to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for services in
the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
(z) No right of first refusal exists with respect to any sale of
securities by the Company.
(aa) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to Underwriters was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
3. Covenants of the Company.
The Company covenants and agrees that:
(a) It will deliver to the Representative, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to each of the Underwriters, and each of
the Selected Dealers (as hereinafter defined) without charge, as many copies as
have been requested of each Preliminary Prospectus heretofore filed with the
Commission in accordance with and pursuant to the Commission's Rule 430 under
the Act and will deliver to the Underwriters and to others whose names and
addresses are furnished by the Underwriters or a Selected Dealer, without
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charge, on the Effective Date of the Registration Statement, and thereafter from
time to time during such reasonable period as you may request if, in the opinion
of counsel for the Underwriters, the Prospectus is required by law to be
delivered in connection with sales by the Underwriters or a dealer, as many
copies of the Prospectus (and, in the event of any amendment of or supplement to
the Prospectus, of such amended or supplemented Prospectus) as the Underwriters
may request for the purposes contemplated by the Act. The Company will take all
necessary actions to furnish to whomever directed by the Underwriters, when and
as requested by the Underwriters, all necessary documents, exhibits,
information, applications, instruments and papers as may be reasonably required
or, in the opinion of counsel to the Underwriters desirable, in order to permit
or facilitate the sale of the Securities.
(c) The Company has authorized the Underwriters to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriters, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriters and all dealers to whom any of such Securities may be sold by the
Underwriters or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the Securities
and for such longer period as you may request if the Prospectus is required
under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Securities by the Underwriters or the
Selected Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the Representative immediately,
and confirm the notice in writing: (i) when the Registration Statement or any
post-effective amendment thereto becomes effective; (ii) of the issuance by the
Commission of any stop order or of the initiation, or to the best of the
Company's knowledge, the threatening, of any proceedings for that purpose; (iii)
the suspension of the qualification of the Securities and the Underwriters'
Warrants, or underlying securities, for offering or sale in any jurisdiction or
of the initiating, or to the best of the Company's knowledge the threatening, of
any proceeding for that purpose; and (iv) of the receipt of any comments from
the Commission. If the Commission shall enter a stop order at any time, the
Company will make every reasonable effort to obtain the lifting of such order at
the earliest possible moment.
(e) During the time when a prospectus is required to be delivered
under the Act, the Company will comply with all requirements imposed upon it by
the Act and the Securities Exchange Act of 1934 (the "Exchange Act"), as now and
hereafter amended and by the Regulations, as from time to time in force, as
necessary to permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and the Prospectus. If at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or counsel for the Underwriters, the Prospectus as then amended
or supplemented includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
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statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify you promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act and will furnish to you copies thereof.
(f) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time the Registration Statement becomes effective, to qualify
the Securities for offering and sale under the securities laws or blue sky laws
of such jurisdictions as you may reasonably designate. In each jurisdiction
where such qualification shall be effected, the Company will, unless you agree
that such action is not at the time necessary or advisable, file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction.
(g) The Company will make generally available to its security holders,
as soon as practicable, but in no event later than the first day of the
fifteenth full calendar month following the Effective Date of the Registration
Statement, an earnings statement of the Company, which will be in reasonable
detail but which need not be audited, covering a period of at least twelve
months beginning after the Effective Date of the Registration Statement, which
earnings statements shall satisfy the requirements of Section 11(a) of the Act
and the Regulations as then in effect. The Company may discharge this obligation
in accordance with Rule 158 of the Regulations.
(h) During the period of five years commencing on the Effective Date
of the Registration Statement, the Company will furnish to its stockholders an
annual report (including financial statements audited by its independent public
accountants), in reasonable detail, and, at its expense, furnish each of the
Underwriters (i) within the time frame of the jurisdiction of the Company's
domicile and as otherwise required by the federal securities laws, a
consolidated balance sheet of the Company and its consolidated subsidiaries and
a separate balance sheet of each subsidiary of the Company the accounts of which
are not included in such consolidated balance sheet as of the end of such fiscal
year, and consolidated statements of operations, stockholder's equity and cash
flows of the Company and its consolidated subsidiaries and separate statements
of operations, stockholder's equity and cash flows of each of the subsidiaries
of the Company the accounts of which are not included in such consolidated
statements, for the fiscal year then ended all in reasonable detail and all
certified by independent accountants (within the meaning of the Act and the
Regulations), (ii) only at such time that the Company becomes subject to the
filing of such, within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, similar balance sheets as of the end of such
fiscal quarter and similar statements of operations, stockholder's equity and
cash flows for the fiscal quarter then ended, all in reasonable detail, and
subject to year end adjustment, all certified by the Company's principal
financial officer or the Company's principal accounting officer as having been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, (iii) as soon as available, each report furnished to or
filed with the Commission or any securities exchange and each report and
financial statement furnished to the Company's shareholders generally and (iv)
as soon as available, such other material as the Representative may from time to
time reasonably request regarding the financial condition and
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operations of the Company. Other than the annual report, the filing of such
reports and other material with the Commissions shall be deemed furnishing the
same to its stockholders.
(i) Prior to the Closing Date or the Option Closing Date, the Company
will not issue, directly or indirectly, without your prior written consent and
that of counsel for the Representative, any press release or other public
announcement or hold any press conference with respect to the Company or its
activities with respect to this Offering.
(j) The Company will deliver to you prior to filing, any amendment or
supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date of the Registration Statement and will not file any
such amendment or supplement to which you shall reasonably object after being
furnished such copy.
(k) During the period of 120 days commencing on the date hereof, the
Company will not at any time take, directly or indirectly, any action designed
to, or which will constitute or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Securities to
facilitate the sale or resale of any of the Securities.
(l) The Company will apply the net proceeds from the Offering received
by it in the manner set forth under "Use of Proceeds" in the Prospectus.
(m) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Securities or any
amendment or supplement to the Prospectus relating to the offering of the
Securities subsequent to the Effective Date of the Registration Statement, such
counsel, such accountants, such officers and directors, respectively, will, at
the time of such filing or at such subsequent time as you shall specify, so long
as securities being registered by such amendment or supplement are being
underwritten by the Underwriters, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in said Paragraph 9, as
you may reasonably request, or, if any such opinion or letter or certificate
cannot be furnished by reason of the fact that such counsel or such accountants
or any such officer or director believes that the same would be inaccurate, such
counsel or such accountants or such officer or director will furnish an accurate
opinion or letter or certificate with respect to the same subject matter.
(n) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement in all material respects.
(o) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants and issuable upon exercise of the
Underwriters' Warrants (including the underlying securities) outstanding from
time to time.
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(p) Following the Effective Date and from time to time thereafter, so
long as the Warrants are outstanding, the Company will timely prepare and file
at its sole cost and expense one or more post-effective amendments to the
Registration Statement or a new registration statement as required by law as
will permit Warrant holders to be furnished with a current prospectus in the
event Warrants are exercised, and to use its best efforts and due diligence to
have same be declared effective. The Company will deliver a draft of each such
post-effective amendment or new registration statement to the Underwriter at
least ten days prior to the filing of such post-effective amendment or
registration statement.
(q) Following the Effective Date and from time to time thereafter so
long as any of the Warrants remain outstanding, the Company will timely deliver
and supply to its warrant agent sufficient copies of the Company's current
Prospectus, as will enable such Warrant Agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
(r) So long as any of the Warrants remain outstanding, the Company
shall continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to the Representative in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto (it being understood that Schwartz Levitsky Feldman is acceptable to the
Representative). During the same period, the Company shall employ the services
of a law firm(s) acceptable to the Representative in connection with all legal
work of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto.
(s) So long as any of the Warrants remain outstanding, the Company
shall continue to appoint a Warrant Agent for the Warrants, who shall be
reasonably acceptable to the Representative.
(t) The Company agrees that it will, upon the Effective Date, for a
period of no less than three (3) years or so long as the Warrants remain
outstanding, engage two designees of the Underwriters as advisors (the
"Advisors") to its Board of Directors or at the option of the Underwriters,
elect two designees of the Underwriters as Directors, where such Advisors or
Directors shall attend meetings of the Board, receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors and will receive the same compensation as other Directors. Such
Advisors or Directors shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging, and transportation. The Company further agrees that, during
said three (3) year period, it shall schedule no less than four (4) formal and
"in person" meetings of its Board of Directors in each such year. Further,
during such three (3) year period, the Company shall give notice to the
Representative with respect to any proposed acquisitions, mergers,
reorganizations or other similar transactions.
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The Company agrees to indemnify and hold the Underwriters and such Advisor
or Director harmless against any and all claims, actions, damages, costs and
expenses, and judgments arising solely out of the attendance and participation
of your designee at any such meeting described herein. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it agrees, if possible, to include the Underwriters'
designees as an insured under such policy.
(u) Upon the Closing Date, the Company shall have entered into an
agreement with the Underwriters in form reasonably satisfactory to the
Underwriters (the "Consulting Agreement"), pursuant to which the Underwriters
will be retained as management and financial consultants and will be paid a fee
of $4,000 a month for a term of twenty-four months, all of which shall be paid
upon the Closing Date. The Company shall also retain a second public relations
firm at additional cost, which firm shall be acceptable to the Underwriters'. If
the Company does not employ such second firm on or before the Effective Date,
the Underwriters' reserve the right to choose such second firm for the Company.
The Consulting Agreement shall further provide that during the term of such
agreement, in the event that you (i) introduce, negotiate or arrange on the
Company's behalf a non-public equity financing or (ii) arrange on the Company's
behalf a non-public debt financing or (iii) arrange for or assist the Company at
the Company's request with the purchase or sale of assets, or for a merger
acquisition or joint venture for the Company, then the Company will compensate
you (based on the Transaction Value, as defined below) for such services in an
amount equal to:
5% on the first $1,000,000 of the Transaction Value;
4% on the amount from $1,000,001 to $2,000,000; 3% on
the amount from $2,000,001 to $3,000,000; 2% on the
amount from $3,000,000 to $4,000,000; 1% on the
amount from $4,000,000 to $5,000, 000, and 1% on the
amount in excess of $5,000,000.
If the Company identifies and negotiates its own acquisitions without the
assistance of the Underwriters', the Underwriters' will not be entitled to the
above referenced compensation.
"Transaction Value" shall mean the aggregate value of all cash, securities
and other property (i) paid to the Company, its affiliates or their shareholders
in connection with any transaction referred to above involving any investment in
or acquisition of the Company or any affiliates (or the assets of either), (ii)
paid by the Company or any affiliate in any such transaction involving an
investment in or acquisition of another party or its equity holdings by the
Company or any affiliate, or (iii) paid or contributed by the Company or an
affiliate and by the other party or parties in the event of any such transaction
involving a merger, consolidation joint venture or similar joint enterprise or
undertaking. The value of any such securities shall be the fair market value
thereof as determined by mutual agreement of the Company and the Underwriters or
by independent appraiser jointly selected by the Company and the Underwriters.
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(v) The Company's Common Stock and Warrants shall be listed on the
Nasdaq National Market ("NMS") or Nasdaq SmallCap Market ("Nasdaq") and the
Boston Stock Exchange ("BSE") not later than the Effective Date. Prior to the
Effective Date, the Company will make all filings required, including
registration under the Exchange Act, to obtain the listing of the Common Stock
and Warrants on Nasdaq and will effect and use its best efforts to maintain such
listing (unless the Company is acquired) for at least five years from the date
of this Agreement.
(w) The Company will apply for listing in Standard and Poor's
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in such publications for at least five years from the
Closing Date.
(x) Except as contemplated in the Registration Statement, no person
who is currently an officer or director of the Company nor any stockholder,
warrant holder or option holder of the Company shall, without your written
consent, offer for sale, pledge, contract to sell, or sell or otherwise
dispose of directly or indirectly, any shares of the Common Stock of the
Company owned by such stockholder (including shares issuable upon exercise of
existing options and shares saleable pursuant to Rule 144 under the Act), on
the date of this Agreement for a period of eighteen months from the Closing
Date. The Company has caused Arnold Unger and Renee Unger, its principal
stockholders and any other Unger family interests and other presently
existing stockholders (excluding the Bridge Investors), to deliver to you, on
or before the date of this Agreement, an agreement to this effect, in form
and substance reasonably satisfactory to the Representative and to counsel
for the Representative.
(y) The Company will not, without the prior written consent of the
Representative, issue or sell, or contract to sell or otherwise dispose of any
of its securities, except sales of the Securities (and the Warrant Shares)
pursuant to this Agreement and except for the issuance of options to purchase up
to 10% of the Company's Common Stock outstanding immediately after the Closing
Date, which may be granted under the Company's stock option plan, outstanding
warrants and other shares issuable upon the exercise or conversion of currently
outstanding securities, or as otherwise described in the Prospectus, for a
period of one year from the Effective Date. The Company agrees not to file any
registration statement on Form S-8 for a period of one year from the Effective
Date, without the prior written approval of the Representative.
(z) For so long as any of the Warrants remain outstanding, the Company
shall maintain key person life insurance payable to the Company on the lives of
Renee Unger, President of the Company, and Arnold Unger, Chief Executive Officer
of the Company, in the amounts of Cdn$240,000 respectively, unless their
employment with the Company is earlier terminated. In such event, the Company
will obtain a comparable policies on the lives of their successors for the
balance of such period.
(aa) The Company will use its best efforts to obtain, as soon after
the Closing Date as is reasonably possible, liability insurance covering its
officers and directors.
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(bb) The Company agrees that any conflict of interest arising between
a member of the Company's Board of Directors and the Company in connection with
such Director's dealing with, or obligations to, the Company, shall be resolved
by a vote of the majority of the independent members of the Board of Directors.
4. Sale, Purchase and Delivery of Securities; Closing Date.
(a) The Company agrees to sell to the Underwriters, and the
Underwriters, on the basis of the warranties, representations and agreements of
the Company herein, and subject to the terms and conditions herein, agree to
purchase, severally and not jointly, the Securities from the Company at a price
of $8.00 per share of Common Stock and $.125 per Warrant, less an underwriting
discount of ten percent (10%) of the offering price for each security. The
Underwriter may allow a concession not exceeding $.[ ] per share of Common Stock
and $0 per Warrant to Selected Dealers who are members of the National
Association of Securities Dealers, Inc ("NASD"), and to certain foreign dealers,
and such dealers may reallow to NASD members and to certain foreign dealers a
concession not exceeding $.[ ] per share of Common Stock and $0 per Warrant.
(b) Delivery of the Securities and payment therefor shall be made at
10:00 A.M., New York time on the Closing Date, as hereinafter defined, at the
offices of the Representative or such other location as may be agreed upon by
you and the Company. Delivery of certificates for the Common Stock and Warrants
(in definitive form and registered in such names and in such denominations as
you shall request by written notice to the Company delivered at least four
business days' prior to the Closing Date), shall be made to you for the account
of the Underwriters against payment of the purchase price therefor by certified
or bank check or wire transfer payable in New York Clearing House funds to the
order of the Company. The Company will make such certificates available for
inspection at least two business days prior to the Closing Date at such place as
you shall designate.
(c) The "Closing Date" shall be September [ ], 1998, or such other
date not later than the fifth business day following the effective date of the
Registration Statement as you shall determine and advise the Company by at least
three full business days' notice, confirmed in writing.
(d) The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Securities by the Company to the Underwriters
shall be borne by the Company. The Company will pay and hold the Underwriters,
and any subsequent holder of the Securities, harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which may be payable or determined to be
payable in connection with the original issuance or sale to the Underwriters of
the Securities or any portions thereof.
5. Sale, Purchase and Delivery of Additional Securities; Option Closing
Date.
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(a) The Company agrees to sell to the Underwriters, and upon the basis
of the representations, warranties and agreements of the Company herein
contained, subject to the satisfaction of all the terms and conditions of this
Agreement, the Underwriters shall have the option (the "Option") to purchase the
Additional Securities from the Company, at the same price per Security as set
forth in Paragraph 4(a) above. Additional Securities may be purchased solely for
the purpose of covering over-allotments made in connection with the distribution
and sale of the Securities.
(b) The Option to purchase all or part of the Additional Securities
covered thereby is exercisable by you at any time and from time to time before
the expiration of a period of 45 calendar days from the date of the Effective
Date of the Registration Statement (the "Option Period") by written notice to
the Company setting forth the number of Additional Securities for which the
Option is being exercised, the name or names in which the certificates for such
Additional Securities are to be registered and the denominations of such
certificates. Upon each exercise of the Option, the Company shall sell to the
Underwriters the aggregate number of Additional Securities specified in the
notice exercising such Option.
(c) Delivery of the Additional Securities with respect to which
Options shall have been exercised and payment therefor shall be made at 10:00
A.M., New York time on the Option Closing Date, as hereinafter defined, at the
offices of the Representative or at such other locations as may be agreed upon
by you and the Company. Delivery of certificates for Additional Securities shall
be made to you for the account of the Underwriters against payment of the
purchase price therefor by certified or bank check or wire transfer in New York
Clearing House Funds to the order of the Company. The Company will make
certificates for Additional Securities to be purchased at the Option Closing
Date available for inspection at least two business days prior to such Option
Closing Date at such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than five
business days after the end of the Option Period as you shall determine and
advise the Company by at least three full business days' notice, unless some
other time is agreed upon between you and the Company.
(e) The obligations of the Underwriters to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to compliance
as of such date with all the conditions specified in Paragraph 2 herein and the
delivery to you of opinions, certificates and letters, each dated such Option
Closing Date, substantially similar in scope to those specified in Paragraph 9
herein.
(f) The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Additional Securities by the Company to the
Underwriters shall be borne by the Company. The Company will pay and hold the
Underwriters, and any subsequent holder of Additional Securities, harmless from
any and all liabilities with respect to or resulting from any failure or delay
in paying federal and state stamp taxes, if any, which may be payable or
determined
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<PAGE>
to be payable in connection with the original issuance or sale to the
Underwriters of the Additional Securities or any portion thereof.
6. Warrant Solicitation Fee.
The Company agrees to pay the Underwriters a fee of five percent (5%) of the
aggregate exercise price of the Warrants if: (i) the market price of the Common
Stock is greater than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrants are solicited by a member of the
NASD; (iii) the Warrants are not held in a discretionary account; (iv) the
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of the exercise of the Warrant; and (v) the
solicitation of the Warrant is not in violation of Regulation M promulgated
under the Exchange Act. The Company agrees not to solicit the exercise of any
Warrants other than through the Underwriters and will not authorize any other
dealer to engage in such solicitation without the prior written consent of the
Representative which will not be unreasonably withheld. The Warrant solicitation
fee will not be paid in a non-solicited transaction. No Warrant solicitation by
the Underwriters will occur for a period of 12 months from the Effective Date.
7. Representations and Warranties of the Underwriters.
The Underwriters represent and warrant to the Company that:
(a) The Underwriters are each members in good standing of the National
Association of Securities Dealers, Inc., and have complied with all NASD
requirements concerning net capital and compensation to be received in
connection with the Offering.
(b) To the Underwriters' knowledge, there are no claims for services
in the nature of a finder's origination fee with respect to the sale of the
Securities hereunder to which the Company is, or may become, obligated to pay.
8. Payment of Expenses.
(a) The Company will pay and bear all costs, fees, taxes and expenses
incident to and in connection with: (i) the issuance, offer, sale and delivery
of the Securities, including all expenses and fees incident to the preparation,
printing, filing and mailing (including the payment of postage with respect to
such mailing) of the Registration Statement (including all exhibits thereto),
each Preliminary Prospectus, the Prospectus, and amendments and post-effective
amendments thereof and supplements thereto, and this Agreement and related
documents, Preliminary and Final Blue Sky Memoranda, including the cost of
preparing and copying all copies thereof in quantities deemed necessary by the
Underwriters; (ii) the printing, engraving, issuance and delivery of the Common
Stock, Warrants, Warrant Shares, Additional Securities, Underwriters' Warrants
and the securities underlying the Underwriters' Warrant, including any transfer
or other taxes payable thereon in connection with the original issuance thereof;
(iii) the qualification of the
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Common Stock and Warrants under the state or foreign securities or "Blue Sky"
laws selected by the Underwriters and the Company, and disbursements and
reasonable fees of counsel for the Underwriters in connection therewith (in the
amount of $35,000) plus the filing fees for such states; (iv) fees and
disbursements of counsel and accountants for the Company; (v) other expenses and
disbursements incurred on behalf of the Company; (vi) the filing fees payable to
the Commission and the National Association of Securities Dealers, Inc.
("NASD"); (vii) any listing of the Common Stock and Warrants on a securities
exchange or on Nasdaq.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 8(a) above, the Company shall reimburse you at closing
for expenses incurred by you in connection with the Offering (for which you need
not make any accounting), in the amount of 3% of the price to the public of the
Securities and Additional Securities sold in the Offering. This 3%
non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters. As of the date hereof, $50,000
has been advanced by the Company to the Underwriters with respect to such
non-accountable expense allowance.
(c) In the event that the Company does not or cannot, for any reason
whatsoever other than a default by the Underwriters, expeditiously proceed with
the Offering, or if any of the representations, warranties or covenants
contained in this Agreement are not materially correct or cannot be complied
with by the Company, or business prospects or obligations of the Company are
adversely affected and the Company does not commence or continue with the
Offering at any time or terminates the proposed transaction prior to the Closing
Date, the Company shall reimburse the Underwriters on an accountable basis for
all out-of-pocket expenses actually incurred in connection with the
Underwriting, this Agreement and all of the transactions hereby contemplated,
including, without limitation, your legal fees and expenses, up to an aggregate
total of $100,000 less such sums which have already been paid.
9. Conditions of Underwriters' Obligations.
The obligations of the Underwriters to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
and to the performance by the Company of its covenants and agreements hereunder
and under each certificate, opinion and document contemplated hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York time, on the date following the date of this Agreement,
or such later date and time as shall be consented to in writing by you and, on
or prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement or the qualification or registration of the
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<PAGE>
Securities under the securities laws of any jurisdiction shall have been issued
and no proceedings for that purpose shall have been instituted or shall be
pending or to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission or any such authorities of any jurisdiction and
any request on the part of the Commission or any such authorities for additional
information shall have been complied with to the reasonable satisfaction of the
Commission or such authorities and counsel to the Underwriters and after the
date hereof no amendment or supplement shall have been filed to the Registration
Statement or Prospectus without your prior consent.
(b) The Registration Statement or the Prospectus or any amendment
thereof or supplement thereto shall not contain an untrue statement of a fact
which is material, or omit to state a fact which is material and is required to
be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Date, there shall be no litigation instituted against the
Company or any of its officers or directors and between such dates there shall
be no proceeding instituted or, to the Company's knowledge, threatened against
the Company or any of its officers or directors before or by any federal, state
or county commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or proceeding an
unfavorable ruling, decision or finding would have a material adverse effect on
the Company or its business, business prospects or properties, or have a
material adverse effect on the financial condition or results of operation of
the Company.
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct in all material
respects at the Closing Date as if made at the Closing Date, and all covenants
and agreements contained herein and in each such certificate and document to be
performed on the part of the Company, and all conditions contained herein and in
each such certificate and document to be fulfilled or complied with by the
Company at or prior to the Closing Date shall be fulfilled or complied with.
(e) At the Closing Date, you shall have received the opinion of
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the Company,
dated as of such Closing Date, addressed to the Underwriters and in form and
substance satisfactory to counsel to the Underwriters, to the effect that:
(i) The Registration Statement was declared effective under the
Act on October 9, 1997; to the best of our knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or are pending, threatened or
contemplated under the Act or applicable state securities laws;
(ii) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or
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<PAGE>
omitted therefrom, as to which we express no opinion), comply as to form in all
material respects with the requirements of the Act and Regulations and the
conditions for use of a registration statement on Form SB-2 have been satisfied
by the Company;
(iii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
To the best of our knowledge, none of the material provisions
of the contracts or instruments described above violates any existing applicable
law, rule or regulation or judgment, order or decree known to us of any United
States governmental agency or court having jurisdiction over the Company or any
of its assets or businesses;
(vi) To the best of our knowledge, except as set forth in the
Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act;
(v) We have participated in reviews and discussions in connection
with the preparation of the Registration Statement and the Prospectus. Although
we are not passing upon and do not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, no facts came to our attention which lead us to believe that (A) the
Registration Statement (except as to the financial statements and other
financial data contained therein, as to which we express no opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which we express no opinion) contains any untrue
statement or a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(f) At the Closing Date, you shall have received the opinion of [NAME
OF CANADIAN LAW FIRM] , special counsel to the Company with respect to Canadian
law, dated as of such Closing Date, addressed to the Underwriters and in form
and substance satisfactory to counsel to the Underwriters, to the effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Province of Ontario, Canada, with
full corporate power and authority, and all licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business as described in the
20
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Registration Statement. The Company is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company;
(ii) The Company has full corporate power and authority to
execute, deliver and perform the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriters' Warrants and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Underwriters' Warrants by the Company, the consummation by the
Company of the transactions therein contemplated and the compliance by the
Company with the terms of the Underwriting Agreement, the Consulting Agreement,
the Warrant Agreements and the Underwriters' Warrants have been duly authorized
by all necessary corporate action, and each of the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriters' Warrant has
been duly executed and delivered by the Company. Each of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreements and the
Underwriters' Warrants is a valid and binding obligation of the Company,
enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions and the contribution provisions
set forth in the Underwriting Agreement may be limited by the federal securities
laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriters'
Warrants by the Company, the consummation by the Company of the transactions
therein contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriters' Warrants do not, and will not, with or without the giving of
notice or the lapse of time, or both, (A) result in a violation of the Articles
of Incorporation, as the same may be amended, or by-laws of the Company, (B) to
the best of our knowledge, result in a breach of, or conflict with, any terms or
provisions of or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to, any indenture, mortgage, note, contract, commitment or
other material agreement or instrument to which the Company is a party or by
which the Company or any of its properties or assets are or may be bound or
affected, except where any of the foregoing would not result in a material
adverse effect upon the Company's business or operations; (C) to the best of our
knowledge, violate any existing applicable law, rule or regulation or judgment,
order or decree known to us of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
business; or (D) to the best of our knowledge, have any effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company to own or lease and operate its properties and to conduct its
business or the ability of the Company to make use thereof;
21
<PAGE>
(iv) No authorization, approval, consent or license of any
Canadian governmental or regulatory body, agency or instrumentality is required
in connection with the conduct of the business of the Company as described in
the Prospectus, except with respect to compliance with government environmental
rules and regulations relating to the use of chemicals and other hazardous
materials in the Company's production process;
(v) The Company has obtained, or is in the process of obtaining,
all licenses, permits and other governmental authorizations necessary to conduct
its business as described in the Prospectus, and such licenses, permits and
other governmental authorizations obtained are in full force and effect, and the
Company is in all material respects complying therewith;
(vi) To the best of our knowledge, no authorization, approval,
consent, order, registration, license or permit of any court or governmental
agency or body (other than under the Act, the Regulations and applicable state
securities or Blue Sky laws) is required for the valid authorization, issuance,
sale and delivery of the Securities, the Additional Securities, the Common
Stock, the Warrants, the Warrant Shares, or the Underwriters' Warrants, and the
consummation by the Company of the transactions contemplated by the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement or the Underwriters'
Warrants;
(vii) The outstanding Common Stock and Warrants have been duly
authorized and validly issued. The outstanding Common stock is fully paid an
nonassessable. To the best of our knowledge, none of the outstanding Common
Stock has been issued in violation of the preemptive rights of any shareholder
of the Company. None of the holders of the outstanding Common Stock is subject
to personal liability solely by reason of being such a holder. The authorized
Common Stock conforms to the description thereof contained in the Registration
Statement and Prospectus.
(viii) The issuance and sale of the Securities, the Additional
Securities, the Common Stock, the Warrants, the Warrant Shares and the
Underwriters' Warrants have been duly authorized and when issued will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. Neither
the Securities, the Additional Securities, nor the Common Stock are subject to
preemptive rights of any stockholder of the Company. The certificates
representing the Securities are in proper legal form;
(ix) The issuance and sale of the Warrant Shares and the
Underwriters' Warrants have been duly authorized and, when paid for, issued and
delivered pursuant to the terms of the Underwriters' Agreement or the
Underwriters' Warrants, as the case may be, the Warrants, the Warrant Shares and
the Underwriters' Warrants will constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, to issue and sell the
Warrants, the Warrant Shares and/or Underwriters' Warrants. All corporate action
required to be taken for the authorization, issuance and sale of the securities
has been duly, validly and sufficiently
22
<PAGE>
taken. The Common Stock and the Warrants have been duly authorized by the
Company to be offered in the form of the Securities. The Warrants, the
Warrant Shares and the Underwriters' Warrants conform to the descriptions
thereof contained in the Registration Statement and Prospectus;
(x) The Underwriters have acquired good title to the
Securities, free and clear of all liens, encumbrances, equities, security
interests and claims;
(xi) Assuming that the Underwriters exercise the over-allotment
option to purchase the Additional Securities and make payments therefor in
accordance with the terms of the Underwriting Agreement, upon delivery of the
Additional Securities to the Underwriters thereunder, the Underwriters will
acquire good title to the Additional Securities, free and clear of any liens,
encumbrances, equities, security interests and claims;
(xii) To the best of our knowledge, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company or
involving its properties or business, other than as described in the Prospectus,
such description being accurate, and other than litigation incident to the kind
of business conducted by the Company which, individually and in the aggregate,
is not material, and, except as otherwise disclosed in the Prospectus and the
Registration Statement, the Company has complied with all federal and state
laws, statutes and regulations concerning its business;
(xiii) Such counsel is familiar with all contracts or other
agreements entered into by the Company with other Canadian companies, entities,
banking institutions or individuals referred to in the Registration Statement
and Prospectus, including the employment agreements with Renee Unger, its
President and Arnold Unger, its Chief Executive Officer (collectively, the
"Canadian Agreements"), and all such Canadian Agreements are valid, binding and
enforceable under Canadian law, and to the knowledge of such counsel, the
Company is not in default under any of the Canadian Agreements;
(xiv) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
(xv) The Company is not in violation of or in default under its
Articles of Incorporation or by-laws, or to the knowledge of such counsel, in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement or
instrument to which the Company is a party or by which it or any of its
properties may
23
<PAGE>
be bound, or in violation of any material order, rule, regulation, writ,
injunction or decree of any government or governmental instrumentality or court;
and
(xvi) We have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to our attention which lead us to believe
that (A) the Registration Statement (except as to the financial statements and
other financial data contained therein, as to which we express no opinion), on
the Effective Date, contained any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which we express no opinion) contains any untrue
statement or a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(g) On or prior to the Closing Date, counsel for the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraphs (e) and (f) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(h) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the ordinary
course of business, entered into by the Company from the latest date as of which
the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is material to the Company, which is either (x)
required to be disclosed in the Prospectus or Registration Statement and is not
so disclosed, or (y) likely to have material adverse effect on the Company's
business or financial condition;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness, except as
described in the Prospectus;
(iv) No material amount of the assets of the Company shall have
been pledged, mortgaged or otherwise encumbered, except as set forth in the
Registration Statement and Prospectus;
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<PAGE>
(v) No action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
operations, prospects or financial condition or income of the Company, taken as
a whole, except as set forth in the Registration Statement and Prospectus; and
(vi) No stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's knowledge,
threatened by the Commission.
(vii) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document contemplated
under this Agreement to be delivered to you was, when originally made and is at
the time such certificate is dated, true and correct in all material respects.
(i) Concurrently with the execution and delivery of this Agreement and
at the Closing Date, you shall have received a certificate of the Company signed
by the Chief Executive Officer of the Company and the principal financial
officer of the Company, dated as of the Closing Date, to the effect that the
conditions set forth in subparagraph (h) above have been satisfied and that, as
of the Closing Date, the representations and warranties of the Company set forth
in Paragraph 2 herein and the statements in the Registration Statement and
Prospectus were and are true and correct. Any certificate signed by any officer
of the Company and delivered to you or for counsel for the Underwriters shall be
deemed a representation and warranty by the Company to the Underwriters as to
the statements made therein.
(j) At the time this Agreement is executed, and at the Closing Date,
you shall have received a letter, addressed to the Underwriters and in form and
substance satisfactory in all respects to you and counsel for the Underwriters,
and including estimates of the Company's revenues and results of operations for
the period ending at the end of the month immediately preceding the Effective
Date and results of the comparable period during the prior fiscal year, from
Schwartz Levitsky Feldman, dated as of the date of this Agreement and as of the
Closing Date.
(k) All proceedings taken in connection with the authorization,
issuance or sale of the Common Stock, Warrants, Warrant Shares, Additional
Securities, the Underwriters' Warrants and the Underwriters' Warrants Shares as
herein contemplated shall be satisfactory in form and substance to you and to
counsel to the Underwriters, and the Underwriters shall have received from such
counsel an opinion, dated as the Closing Date with respect to such of these
proceedings as you may reasonably require.
(l) The Company shall have furnished to you such certificates,
additional to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at the Closing
Date, of any statement in the Registration Statement
25
<PAGE>
or the Prospectus, as to the accuracy, at the Closing Date, of the
representations and warranties of the Company herein and in each certificate and
document contemplated under this Agreement to be delivered to you, as to the
performance by the Company of its obligations hereunder and under each such
certificate and document or as to the fulfillment of the conditions concurrent
and precedent to your obligations hereunder.
(m) The obligation of the Underwriters to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
and to the satisfaction on and as of the Option Closing Date of the conditions
set forth herein.
(n) On the Closing Date there shall have been duly tendered to you for
your account the appropriate number of shares of Common Stock and Warrants
constituting the Securities.
10. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriters and each person, if any, who
controls the Underwriters ("controlling person") within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, liabilities, claims, damages, actions and expenses or liability, joint
or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may become subject under the
Act, the Exchange Act or under any other statute or at common law or otherwise
or under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any Preliminary Prospectus or the Prospectus (as from
time to time amended and supplemented); in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
the Warrant Shares of the Company issued or issuable upon exercise of the
Warrants, or Underwriters' Warrant Shares upon exercise of the Underwriters'
Warrants; or in any application or other document or written communication (in
this Paragraph 10 collectively called "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock, Warrants, Warrant Shares,
Additional Securities, Underwriters' Warrants and Underwriters' Warrant Shares
(including the Shares issuable upon exercise of the Warrants underlying the
Underwriters' Warrants) under the securities laws thereof or filed with the
Commission or any securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon or in conformity with written information
furnished to the Company with respect to the Underwriters or to the Selling
Shareholders, by or on behalf of the Underwriters or the Selling Shareholders
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment or
26
<PAGE>
supplement thereof, or in application, as the case may be. Notwithstanding the
foregoing, the Company shall have no liability under this Paragraph 10(a) if any
such untrue statement or omission made in a Preliminary Prospectus, is cured in
the Prospectus and the Underwriters failed to deliver to the person or persons
alleging the liability upon which indemnification is being sought, at or prior
to the written confirmation of such sale, a copy of the Prospectus. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriters agree to indemnify and hold harmless the Company
and each of the officers and directors of the Company who have signed the
Registration Statement and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
Underwriters in Paragraph 10(a), but only with respect to any untrue statement
or alleged untrue statement of any material fact contained in or any omission or
alleged omission to state a material fact required to be stated in any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made solely in reliance upon, and in conformity
with, written information furnished to the Company by you specifically expressly
for use in the preparation of such Preliminary Prospectus, the Registration
Statement or Prospectus directly relating to the transactions effected by the
Underwriters in connection with this Offering. This indemnity agreement will be
in addition to any liability which the Underwriters may otherwise have.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Paragraph 10(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another party
pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the
defense of the action, including the employment and fees of counsel (reasonably
satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action. If the Indemnitor
shall have employed counsel to have charge of the defense or shall previously
have assumed the defense of any such action or claim, the Indemnitor shall not
thereafter be liable to any Indemnitee in investigating, preparing or defending
any such action or claim. Each Indemnitee shall promptly notify the Indemnitor
of the commencement of any litigation or proceedings against the Indemnitee in
connection with the issue and sale of the Common Stock, Warrants, Warrants
Shares, Additional Securities, Underwriters' Securities or in connection with
the Registration Statement or Prospectus.
(d) In order to provide for just and equitable contribution under the
Act in any case in which: (i) the Underwriters make a claim for indemnification
pursuant to Paragraph 10 hereof, but it is judicially determined (by the entry
of a final judgment or decree by a court of
27
<PAGE>
competent jurisdiction and the time to appeal has expired or the last right of
appeal has been denied) that such indemnification may not be enforced in such
case notwithstanding the fact that this Paragraph 10 provides for
indemnification of such case; or (ii) contribution under the Act may be required
on the part of the Underwriters in circumstances for which indemnification is
provided under this Paragraph 10, then, and in each such case, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after any contribution from others) in
such proportion so that the Underwriters are responsible for the portion
represented by dividing the total compensation received by the Underwriters
herein by the total purchase price of all Securities sold in the public offering
and the Company is responsible for the remaining portion; provided, that in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. As used in this Paragraph 10, the term
"Underwriters" includes any officer, director, or other person who controls the
Underwriters within the meaning of Section 15 of the Act, and the word "Company"
includes any officer, director or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriters and
each person who controls the Underwriters shall be entitled to contribution from
the Company to the full extent permitted by law. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement.
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability it may have to any
other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any party,
and such party notifies a contributing party or his or its representative of the
commencement thereof within the aforesaid fifteen (15) days, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of
any claim, action or proceeding effected by such party seeking contribution
without the written consent of such contributing party. The indemnification
provisions contained in this Paragraph 10 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
28
<PAGE>
11. Representations, Warranties, Agreements to Survive Delivery.
The respective indemnity and contribution agreements by the Underwriters and
the Company contained in Paragraph 10 hereof, and the covenants, representations
and warranties of the Company and the Underwriters set forth in this Agreement,
shall remain operative and in full force and effect for a period of one (1) year
regardless of (i) any investigation made by the Underwriters or on its behalf or
by or on behalf of any person who controls the Underwriters, or by the Company
or any controlling person of the Company or any director or any officer of the
Company, (ii) acceptance of any of the Securities and payment therefor, or (iii)
any termination of this Agreement, and shall survive the delivery of the
Securities; and any successor of the Underwriters or the Company, or of any
person who controls you or the Company or any other indemnified party, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Underwriters and the Company contained in this Paragraph 11 shall be in
addition to any liability which the Underwriters and the Company may otherwise
have.
12. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become upon execution by all parties hereto.
It is anticipated that the Agreement be executed on or about 10:00 A.M., New
York time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Representative by
notifying the Company at any time on or before the Closing Date, if (i) material
governmental restrictions have been imposed on trading in securities generally
(not in force and effect on the date hereof) ; (ii) trading in securities on the
New York Stock Exchange, the American Stock Exchange, or in the over-the-counter
market shall have been suspended or limited; (iii) a banking moratorium has been
declared by Federal or New York State authorities; (iv) an outbreak of
international hostilities or other national or international calamity or crisis
or change in economic or political conditions shall have occurred; (v) the
Company shall have sustained a loss material or substantial to the Company,
whether or not insured, taken as a whole by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act, or from any
labor dispute or court or government action, order or decree; (vi) a pending or
threatened legal or governmental proceeding or action relating generally to the
Company's business, or a notification having been received by the Company of the
threat of any such proceeding or action, which could materially adversely affect
the Company; (vii) except as contemplated by the Prospectus, the Company is
merged or consolidated into or acquired by another company or group or there
exists a binding legal commitment for the foregoing or any other material change
of ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body or federal or state agency or other
authority of any act, rule or regulation, measure, or the adoption of any
orders, rules or regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is
reasonably believed likely by the Underwriter to have a material impact on the
business, financial
29
<PAGE>
condition or financial statements of the Company or the market for the
securities offered pursuant to the Prospectus; (ix) any adverse change in the
financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement, or (x) any material adverse change
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the earnings, business prospects or
general condition of the Company, financial or otherwise, whether or not arising
in the ordinary course of business.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Paragraph 12, the Company shall
be notified promptly by you by telephone or facsimile, confirmed by letter.
(d) If this Agreement shall not become effective by reason of an
election of the Representative pursuant to this Paragraph 12 or if this
Agreement shall not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any material undertaking, or
to satisfy any material condition of this Agreement by it to be performed or
satisfied, the sole liability of the Company to the Underwriters, in addition to
the obligations assumed by the Company pursuant to Paragraph 8 herein, will be
to reimburse the Underwriters for the following: (i) Blue Sky counsel fees and
expenses to the extent set forth in Paragraph 8(a)(iv); (ii) Blue Sky filing
fees; and (iii) such reasonable out-of-pocket expenses of the Underwriters
(including the fees and disbursements of their counsel), to the extent set forth
in Paragraph 8(c), in connection with this Agreement and the proposed offering
of the Securities, but in no event to exceed the sum of $100,000 less such
amounts already paid.
Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Paragraph 8 and 10 hereof
shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
13. Notices.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriters, shall be mailed,
delivered or telegraphed and confirmed to the Representative at J. P. Turner &
Co., L.L.P., 3340 Peachtree Road, Atlanta, Georgia 30326, Attention: Patrick
Power, with a copy thereof to Gregory Sichenzia, Esq., Sichenzia, Ross &
Friedman L.L.P. 135 West 50th Street, 20th Floor, New York, New York 10020, and,
if sent to the Company, shall be mailed, delivered or telegraphed and confirmed
to the Company at 4300 Poirier Blvd, Montreal Quebec Canada, H4R 2C5, Attention:
Ness Lakdawala, Chief Executive Officer, with a copy thereof to Gersten, Savage,
Kaplowitz & Fredericks LLP 101 East 52nd Street, New York, New York 10022,
Attention: Arthur S. Marcus.
14. Parties.
30
<PAGE>
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriters, the Company and the controlling persons, directors and
officers referred to in Paragraph 10 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
15. Construction.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia and shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company and
you relating to the sale of any of the Securities.
16. Jurisdiction and Venue.
The Company agrees that the courts of the State of Georgia shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the District of Georgia which includes the city of Atlanta.
17. Counterparts.
This agreement may be executed in counterparts.
31
<PAGE>
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
DECTRON INTERNATIONALE INC.
By:
----------------------------------------
Ness Lakdawala, Chief Executive Officer
Accepted as of the date first above written:
J.P. TURNER & CO., LLC.
By:
-----------------------------------------
KLEIN MAUS AND SHIRE INCORPORATED
By:
------------------------------------------
32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Number of
Shares to be Warrants to
Underwriter Purchased be Purchased
- ----------- ----------- ------------
<S> <C> <C>
J.P. Turner & Company, LLC 500,000 500,000
Klein Maus and Shire Incorporated 500,000 500,000
Total: 1,000,000 1,000,000
---------- -----------
---------- -----------
</TABLE>
33
<PAGE>
Exhibit 3.2
FORM 1
ARTICLES OF INCORPORATION
(SECTION 6)
1. Name of Corporation: Dectron Internationale Inc.
2. The place in Canada where the registered office is to be situated:
Metropolitan Region of Montreal
-------------------------------------------------------------------------
3. The classes and any maximum number of shares that the corporation is
authorized to issue: Schedule A annexed hereto is incorporated in this
form ---------------------------------------------------
-------------------------------------------------------------------------
4. Restrictions, if any, on share transfers: NIL
--------------------------------
5. Number (or minimum and maximum number) of directors: minimum three (3) to
maximum ten (10)
-------------------------------------------------------------------------
6. Restrictions, if any, on business the corporation may carry on: NIL
----------
7. Other provisions, if any: Schedule B annexed hereto is incorporated in
this for
-------------------------------------------------------------------------
8. Incorporators
<TABLE>
<CAPTION>
Name(s) Address (include postal code) Signature
<S> <C> <C>
Wendy Wrathall 44 2nd Avenue
St. Pierre, Quebec H8R 1L6
</TABLE>
<PAGE>
SCHEDULE A
WITH RESPECT TO THE
SHARE CAPITAL OF
DECTRON INTERNATIONALE INC.
Subject to the provisions of the Canada Business Corporation Act (R.S.C.
1985, c. C-44) (the "Act"), the rights, privileges, restrictions and
conditions attached to the two (2) classes of shares making up the share
capital of the Corporation shall be as provided below.
1. AUTHORIZED SHARE CAPITAL
The Corporation shall be authorized to issue two (2) classes of
shares, namely Common shares and Preferred shares.
The shares of the Common Class and Preferred Class shall be without
par value and may be issued in an unlimited number and for a consideration,
added to the stated capital account maintained for these shares, which shall
also be unlimited.
2. RIGHTS ATTACHING TO SHARES
The rights, privileges, restrictions and conditions attaching to
the shares making up the authorized share capital of the Corporation shall be
as provided below.
(I) COMMON SHARES:
A) VOTING RIGHTS
Each Common share shall entitle the holder thereof to receive notice of
any meeting of the shareholders of the Corporation, to attend such meetings
and to vote thereat. Each share shall entitle the holder thereof to one (1)
vote.
B) DECLARATION OF DIVIDENDS
Subject to the rights and privileges conferred on other classes of
shares as well as to the limitations set out in section 42 of the Act, each
Common share shall entitle the holder thereof to receive such dividends as
are declared by the board of directors of the Corporation. The amount as
well as the date, the time and the terms or manner of payment of the dividend
shall be left to the entire discretion of the board of directors.
C) LIQUIDATION, DISSOLUTION OR OTHER DISTRIBUTION OF ASSETS
Subject to the rights of holders of shares of any class ranking prior to
the Common shares, if for any reason, and, in particular, in the event of a
dissolution or a voluntary or involuntary winding-up or liquidation of the
Corporation, there is a distribution, in whole or in part, of the property or
assets of the Corporation to the holders of its shares, the repayment in
respect of the shares and the distribution of the remaining property shall
entitle each Common shareholder thereof
<PAGE>
the right to share in the remaining property of the Corporation,
proportionally to the number of shares held by each such holder.
(II) PREFERRED SHARES:
The rights, privileges, restrictions and conditions attaching to the
Preferred shares of the Corporation as a class are as follows:
(1) Preferred Shares may at any time or from time to time be approved for
issuance and be issued by the board of directors in one or more series.
Prior to the issue of the shares of any such class or series, the board of
directors shall, subject to the limitations set out below, fix the number
of shares in, and determined the designation, rights, privileges,
restrictions and conditions attaching to the shares of such class or series
including, without limitations:
(a) The rate, amount or method of calculation of dividneds, if any, and
whether the same are subject to adjustments;
(b) whether such dividends are cumulative, partly cumulative or
non-cumulative;
(c) the dates, manner and currency of payments of dividends and the
dates from which dividends accrue or become payable;
(d) if redeemable, retractable or purchasable, the redemption,
retraction, or purchase prices and the terms and conditions of
redemption, retractions or purchase, with or without provision for
sinking or similar funds;
(e) any conversion, exchange or reclassification rights; and
(f) the right to receive notice of meetings of shareholders, to attend
and the right to vote thereat as well as any voting preferences;
(g) any other rights, privileges, restrictions and conditions not
inconsistent with these provisions;
The whole being subject to the receipt by the Director under the Canada
Business Corporations Act of articles of amendment designating and
fixing the number of Preferred Shares in such class or series and
setting forth the rights, privileges, restrictions and conditions
attaching to such series of Preferred Shares and the issue by the
Director of a certificate of amendment with respect to the articles of
amendment so filed.
(2) The Preferred Shares of each series shall, with respect to the
payment of dividneds and the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation, whether among
its shareholders for the purpose of winding-up its affairs, rank and be
entitled to a preference over the Common Shares and the shares of any
other class ranking junior to the Preferred Shares.
<PAGE>
(3) The holders of a class or of a series of the Corporation are not
entitled to vote separately as a class or series and are not entitled to
dissent, upon a proposal to amend the Articles to:
(a) increase or decrease any maximum number of authorized shares of such
class or series, or increase any maximum number of authorized shares
of a class or series having rights or privileges equal or superior to
the shares of such class or series;
(b) effect an exchange, reclassification or cancellation of the shares of
such class or series; or
(c) subject to the exceptions contained in the Act, create a new class or
series of shares equal or superior to the shares of such class or
series.
(4) The holders of Preferred Shares shall not, as such, have any
pre-emptive right to subscribe for, purchase or receive any part of any
issue of securities of the Corporation now or hereafter authorized.
(III) AMENDMENTS SUBJECT TO CONFIRMATION BY ARTICLES OF
AMENDMENT:
Subject to confirmation by articles of amendment and the issue of a
certificate of amendment, the board of directors of the Corporation may, at
any time or times or from time to time, adopt a resolution or resolutions
whereby the terms hereof and of the foregoing paragraphs may be altered,
amended or repealed or the application thereof suspended in any particular
case and changes made in the rights, privileges, restrictions and conditions
attached to the shares of the Corporation, but no such resolution shall have
any force or effect until after it has been sanctioned by the vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) in value of
the voting shares then outstanding and of at least sixty-six and two-thirds
percent (66-2/3%) in value of shares of each class affected by such
amendment, in each case voting separately as a class at a meeting or meetings
specially called for such purposes.
<PAGE>
SCHEDULE B
PERTAINING TO
OTHER PROVISIONS OF
DECTRON INTERNATIONALE INC.
In addition to the powers conferred by the articles, and without restricting
the generality of the powers conferred upon the directors by section 189 of
the Canada Business Corporation Act, R.S.C. 1985, c. C-44 (the "Act"), the
directors, if they see fit, and without having to obtain the authorization of
the shareholders, may:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation;
(c) Give a guarantee on behalf of the Corporation to secure the
performance of an obligation of any person, subject to it being
established that the Corporation is or will be able to pay its
liabilities as they become due and that the realizable value of
its assets will not be less than the aggregate of its
liabilities and of its stated capital;
(d) grant a hypothec or a mortgage, even a floating hypothec or
charge, on a universality of property, movable or immovable,
present, or future, corporeal or incorporeal, of the Corporation;
and
(e) delegate one (1) or more of the above-mentioned powers to a
director, to an Executive Committee, to a committee of the Board
of Directors or to an officer of the Corporation.
<PAGE>
Exhibit 4.1
DECTRON INTERNATIONALE INC.
n Quebec, Canada corporation
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Warrant Agent
and
J.P. TURNER & CO., L.L.C.
and
KLEIN MAUS AND SHIRE INCORPORATED
WARRANT AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
------- ----
<S> <C>
1. Definitions...................................................................................1
2. Warrants and Issuance of Warrant Certificates.................................................2
3. Form and Execution of Warrant Certificates....................................................3
4. Exercise......................................................................................4
5. Reservation of Shares; Listing; Payment of Taxes; etc.........................................5
6. Exchange and Registration of Transfer.........................................................5
7. Loss or Mutilation............................................................................6
8. Redemption....................................................................................6
9. Adjustment of Exercise Price and Number of Shares of Common Stock or Warrants.................7
10. Fractional Warrants and Fractional Shares...................................................13
11. Warrant Holders Not Deemed Stockholders.....................................................13
12. Rights of Action............................................................................13
13. Agreement of Warrant Holders................................................................14
14. Cancellation of Warrant Certificates........................................................14
15. Concerning the Warrant Agent................................................................14
16. Modification of Agreement...................................................................16
17. Notices.....................................................................................16
18. Governing Law...............................................................................16
19. Binding Effect..............................................................................16
20. Termination.................................................................................16
21. Counterparts................................................................................17
</TABLE>
i
<PAGE>
WARRANT AGREEMENT
-----------------
AGREEMENT, dated as of September , 1998, by and among DECTRON
INTERNATIONALE INC., a Quebec, Canada corporation (the "Company"), CONTINENTAL
STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant Agent (the
"Warrant Agent"), J.P. TURNER & CO., L.L.C., a Georgia corporation ("J.P.
TURNER"), and KLEIN MAUS AND SHIRE INCORPORATED, a New York corporation ("KMS")
(collectively J.P. Turner and KMS referred to as the "Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering pursuant to a
registration statement (the "Registration Statement") on Form SB-2 declared
effective by the Securities and Exchange Commission on [ ] 1998, of up
to 1,000,000 shares of common stock, no par value, (the "Common Stock") and
1,000,000 Common Stock purchase warrants (the "Warrants") (and up to 150,000
additional shares of Common Stock and 150,000 additional Warrants covered by
an over-allotment option granted by the Company to the Underwriter), pursuant
to an underwriting agreement (the "Underwriting Agreement") dated [ ],
1998 between the Company and the Underwriter, the issuance to the Underwriter
or its designees of warrants to purchase up to an aggregate of 100,000
additional shares of Common Stock and/or 100,000 Warrants, dated as of
[ ], 1998 (the "Underwriter's Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized, which has the
right to participate in the distribution of earnings and assets of the
Company without limit as to amount or percentage, which at the date hereof
consists of [ ]shares of Common Stock, no par value per share.
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(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located on the date hereof at 2 Broadway,
19th Floor, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Warrant Agent, of an amount in lawful money of the United States of America
equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as to each
Warrant, [ ], 1999 or earlier with the prior written consent of the
Underwriter.
(e) "Purchase Price" shall mean the price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price
shall be $[ ] per share, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof, and subject to the Company's
right to reduce the Purchase Price upon notice to all Warrant Holders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $.125 per Warrant, subject to adjustment from time
to time pursuant to the provisions of Section 9.
(g) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean, with respect to
each Warrant, 5:00 p.m. (Eastern time) on [ ], 2003, or the Redemption
Date as defined in Section 8, whichever is earlier; provided that if such
date shall in the State of New York be a holiday or a day on which banks are
authorized to close, then 5:00 p.m. (Eastern time) on the next following day
which in the State of New York is not a holiday nor a day on which banks are
authorized to close. Upon notice to all Warrant Holders, the Company shall
have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1) share
of Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or
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a Vice President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing up to an aggregate of
[ ] shares of Common Stock, subject to adjustment as described herein,
upon the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except to (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the
Underwriter's Warrant; (vi) those issued to the investors who provided bridge
loans to the Company as a result of the automatic conversion of the Bridge
Warrants; and (vi) at the option of the Company, in such form as may be approved
by its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon exercise of the
Warrants or the Redemption Price therefor made pursuant to Section 9.
(e) Pursuant to the terms of the Underwriter's Warrant, the
Underwriter and its designees may purchase up to an aggregate of 100,000 shares
of Common Stock and/or 100,000 Warrants.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A, and may have such letters, numbers or other
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement or
as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by mutual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
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ceased to be such officer of the Company. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as otherwise
provided by Section 4(a).
SECTION 4. Exercise
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder upon exercise
thereof as of the close of business on the Exercise Date. As soon as practicable
on or after the Exercise Date, the Warrant Agent shall deposit the proceeds
received from the exercise of a Warrant and shall notify the Company in writing
of the exercise of the Warrants. Promptly following, and in any event within
five (5) days after the date of such notice from the Warrant Agent, the Warrant
Agent, on behalf of the Company, shall cause to be issued and delivered by the
Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a Warrant Certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of J.P Turner or such
other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant to the Company or as the Company may direct in
writing.
(b) If, on the Exercise Date in respect of the exercise of any
Warrant at any time on or after the first anniversary of the date hereof (i) the
market price of the Company's Common Stock is greater than the then Purchase
Price of the Warrant, (ii) the exercise of the Warrant was solicited by a member
of the National Association of Securities Dealers, Inc. ("NASD"), (iii) the
Warrant was not held in a discretionary account, (iv) disclosure of compensation
arrangements was made both at the time of the original offering and at the time
of exercise; and (v) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 (as such rule or any successor rule as may be in effect
as of such time of exercise) promulgated under the Securities Exchange Act of
1934, then the Warrant Agent, simultaneously with the distribution of proceeds
to the Company received upon exercise of the Warrant(s) so exercised shall, on
behalf of the Company, pay from the proceeds received upon exercise of the
Warrant(s), a fee of five percent (5%) of the Purchase Price to the Underwriter
(of which a percentage may be reallowed to the dealer who solicited the
exercise, which dealer may also be the Underwriters). Within five days after the
exercise, the Warrant Agent shall send to the Underwriter a copy of the reverse
side of each Warrant exercised. The Underwriter shall reimburse the Warrant
Agent, upon request, for its reasonable expenses relating to compliance with
this Section 4(b). In addition, the Underwriter and the Company may at any time
during business hours, examine the records of the Warrant Agent, including its
ledger of original Warrant certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of the Underwriter and the
Company.
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SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants shall, at the time of delivery, be duly and validly
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof (other than those which the Company shall
promptly pay or discharge) and that upon issuance such shares shall be listed on
each national securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable effort to obtain appropriate approvals or registrations under state
"blue sky" securities laws with respect to any such securities. However,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise of
the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requiring the same had paid to the Warrant Agent
the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock required upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants, unless the Warrant Agent
and the Transfer Agent are the same entity.
SECTION 6. Exchange and Registration of Transfer
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
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Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Underwriter, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly offered with
shares of Common Stock pursuant to the Underwriting Agreement, may be purchased
separately for the shares and will be transferable separately from the Common
Stock immediately.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption
(a) Commencing 12 months from the effective date of the
Registration Statement (or earlier, with the prior written consent of the
Underwriter) on not less than thirty (30) days prior written notice, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.125 per Warrant, provided the closing bid price of the Company's Common Stock
on The Nasdaq Stock Market, or the last sale price, if listed on the Nasdaq
National Market or a national exchange, as reported by the
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National Quotation Bureau, Incorporated has been at least 174% of the then
exercise price of the Warrant to be called, for a period of 30 consecutive
trading days ending on the third day prior to the day on which notice is given
during the period in which the Warrants are exercisable. Any redemption in part
shall be made pro rata to all Warrant holders. The redemption notice shall be
mailed to the holders of the Warrants at their respective addresses appearing in
the Warrant register. Holders of the Warrants will have exercise rights until
the close of business on the date fixed for redemption.
(b) In case the Company shall desire to exercise its right to
so redeem the Warrants, it shall request the Warrant Agent, or the Underwriter,
if the date fixed for redemption is on or after the first anniversary of the
date hereof, to mail a notice of redemption to each of the Registered Holders of
the Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth (30th) day before the date fixed for redemption, at their last address
as shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, (iv) that
Underwriters will assist each Registered Holder of a Warrant in connection with
the exercise thereof (if J.P Turner has conducted, or caused to be conducted,
the mailing) and (v) that the right to exercise the Warrant shall terminate at
5:00 p.m. (Eastern time) on the business day immediately preceding the date
fixed for redemption shall be the Redemption Date. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or of the Secretary or an Assistant Secretary of J.P. Turner
or the Company that notice of redemption has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant that has been called for
redemption shall terminate at 5:00 p.m. (Eastern time) on the business day
immediately preceding the Redemption Date. On and after the Redemption Date,
Holders of the redeemed Warrants shall have no further rights except to receive,
upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the date fixed for
redemption and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g), in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the current Purchase Price or issue any shares of Common Stock as a stock
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dividend to the holders of Common Stock, or subdivides or combines the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"Change or Shares"), then, and thereafter upon each further Change of Shares,
the applicable Purchase Price in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of Shares
and (b) the number of shares of Common Stock which the aggregate consideration
received by the Company upon such sale, issuance, subdivision or combination
(determined in accordance with subsection f(vi) below) could have purchased at
the then current Purchase Price, and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such Change of
Shares.
Upon each adjustment of the applicable Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable upon
the exercise of each Warrant shall (subject to the provisions contained in
Section 9(b)) be such number of shares (calculated to the nearest tenth)
purchasable at the applicable Purchase Price immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
applicable Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the applicable Purchase Price in effect
immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
applicable Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of adjusting the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
Upon each such adjustment of the number of Warrants, the Redemption Price in
effect immediately prior to such adjustment also shall be adjusted by
multiplying such Redemption Price by a fraction, the numerator of which shall be
the Purchase Price in effect immediately after such adjustment and the
denominator of which shall be the Purchase Price in effect immediately prior to
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10, the
number of additional Warrants, if any, to which such Holder shall be entitled as
a result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a
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Warrant then outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that might have been purchased
upon exercise of such Warrant, immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 9. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(f), continue to express the applicable Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
thereunder and the Redemption Price therefor as were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
applicable Purchase Price as so adjusted, (ii) the number of shares of Common
Stock purchasable upon exercise of each Warrant after such adjustment, and, if
the Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to the Underwriter and to each
registered holder of Warrants at his last address as it shall appear on the
registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock outstanding at
any given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No Adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least $0.05
in such price; provided that any adjustments which by reason of this clause (ii)
are not required to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together with
any
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adjustment(s) so carried forward, shall require an increase or decrease of at
least $0.05 in the Purchase Price then in effect hereunder.
(iii)In case of (1) the sale by the Company solely for
cash of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or exchangeable
for Common Stock without the payment of any further consideration other than
cash, if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants or options
shall consist solely of cash, whether or not such rights, warrants or options,
or the right to convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the then current Purchase Price
immediately prior to the date of the issuance or sale of such rights, warrants
or options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed
to have been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company solely for cash
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the then Purchase Price immediately prior to the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(v) If the exercise or purchase price provided for in
any right, warrant or option referred to in clause (iii) above, or the rate at
which any Convertible Securities referred to in clause (iii) or (iv) above are
convertible into or exchangeable for Common Stock, shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have been obtained (1) had the
adjustments made upon the issuance or sale of such rights, warrants, options or
Convertible Securities been
10
<PAGE>
made upon the basis of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received therefor)
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities, (2) had adjustments been made on the
basis of the Purchase Price as adjusted under clause (1) for all transactions
(which would have affected such adjusted Purchase Price) made after the issuance
or sale of such rights, warrants, options or Convertible Securities, and (3) had
any such rights, warrants, options or Convertible Securities then still
outstanding been originally issued or sold at the time of such change. On the
expiration of any such right, warrant or option or the termination of any such
right to convert or exchange any such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such Purchase Price as
would have been obtained (a) had the adjustments made upon the issuance or sale
of such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities and (b) had adjustments been made on the basis of
the Purchase Price as adjusted under clause (a) for all transactions (which
would have affected such adjusted Purchase Price) made after the issuance or
sale of such rights, warrants, options or Convertible Securities.
(vi) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however:
(i) upon the grant or exercise of any other options
which may hereafter be granted or exercised under any employee benefit plan of
the Company as described in the Registration Statement; or
(ii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the Warrants
underlying the Underwriter's Warrants; or
(iii) upon the sale of any shares of Common Stock in
the public offering pursuant to the Registration Statement, including, without
limitation, shares sold upon the exercise of any over-allotment option granted
to the Underwriter in connection with such offering; or
(iv) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, outstanding on the date of the original sale of the Warrants;
(v) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities outstanding on the date of
the original sale of the Warrants, whether or not any adjustment in the Purchase
Price was made or required to be made upon the issuance or sale of such
Convertible Securities; or
11
<PAGE>
(vi) upon any amendment to or change in the terms of
any rights or warrants to subscribe for or purchase, or options for the purchase
of, Common Stock or Convertible Securities or in the terms of any Convertible
Securities, including, but not limited to, any extension of any expiration date
of any such right, warrant or option, any change in any exercise or purchase
price provided for in any such right, warrant or option, any extension of any
date through which any Convertible Securities are convertible into or
exchangeable for Common Stock or any change in the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
rights, warrants, options or Convertible Securities issued or sold after the
close of business on the date of the original issuance of the Units (i) for
which an adjustment in the Purchase Price then in effect was theretofore made or
required to be made, upon the issuance or sale thereof, or (ii) for which such
an adjustment would have been required had the exercise or purchase price of
such rights, warrants or options at the time of the issuance or sale thereof or
the rate of conversion or exchange of such Convertible Securities, at the time
of the sale of such Convertible Securities, or the issuance or sale of rights or
warrants to subscribe for or purchase, or options for the purchase of, such
Convertible Securities, been the price or rate as changed, in which case the
provisions of Section 9(f)(v) hereof shall be applicable if, but only if, the
exercise or purchase price thereof, as changed, or the rate of conversion or
exchange thereof, as changed, consists solely of cash or requires the payment of
additional consideration, if any, consisting solely of cash or requires the
payment of additional consideration, if any, consisting solely of cash and the
Company did not receive any consideration other than cash, if any, in connection
with such change).
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issuance of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issuance of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each of the then
Registered Holders of the Warrants all of such rights, warrants or options to
which each such holder would have been entitled if, on the date of determination
of stockholders entitled to the rights, warrants or options being granted by the
Company, such holder were the holder of record of the number of whole shares of
Common Stock then issuable upon exercise (assuming, for purposes of this Section
9(j), that the exercise of Warrants is permissible during
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<PAGE>
periods prior to the Initial Warrant Exercise Date) of his Warrants. Such grant
by the Company to the holders of the Warrants shall be in lieu of any adjustment
which otherwise might be called for pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company shall nevertheless not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market, the current value shall be
the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of the Warrant, or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of the Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificates and
this Agreement.
13
<PAGE>
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split-up, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make many representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company or for the Underwriter) and shall incur
no liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
14
<PAGE>
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.
In the event of a dispute under this Agreement between the Company and
the Underwriter regarding proceeds received by the Warrant Agent from the
exercise of the Warrants, the Warrant Agent shall have the right, but not the
obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court shall be a bank or trust company having a capital
and surplus as shown by its last published report to its stockholders, of not
less than Ten Million ($10,000,000.00) Dollars, or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
15
<PAGE>
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions of
Section 4(b), the Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; or (ii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders of Warrant Certificates
representing not less than 50% of the Warrants then outstanding; and provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 4300 Poirier Blvd. Montreal Quebec Canada H4R 2C5,
Attention: Ness Lakdawala, or at such other address as may have been furnished
to the Warrant Agreement in writing by the Company; if to the Warrant Agent, at
Continental Stock Transfer & Trust Company, 2 Broadway, 19th Floor, New York,
New York 10004; if to J.P. Turner & Co., LLP, at 3340 Peachtree Road, Suite 450,
Atlanta, Georgia 30326, Attention: President.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and the Underwriter, and
their respective successors and assigns, and the holders from time to time of
the Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants of such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
16
<PAGE>
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed as of the date first above written.
DECTRON INTERNATIONALE INC.
By:
---------------------------------------
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
---------------------------------------
Authorized Officer
J.P. TURNER & CO., L.L.P.
By:
---------------------------------------
Authorized Officer
KLEIN MAUS AND SHIRE INCORPORATED
By:
---------------------------------------
Authorized Officer
17
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ( ) Warrants
-------- -----
VOID AFTER 2003
--------
REDEEMABLE WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
DECTRON INTERNATIONALE INC.
This certifies that FOR VALUE RECEIVED _______________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
no par value, of Dectron International Inc., a Canadian corporation (the
"Company"), at any time between [ ], 1999 (or earlier with the prior
written consent of J.P Turner & Co., LLP and Klein Maus and Shire
Incorporated and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of
Continental Stock Transfer & Trust Company as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $9.20 per share (the
"Purchase Price") in lawful money of the United States of America in cash or
by official bank or certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"),
dated as of [ ], 1998, by and among the Company, the Warrant Agent,
J.P. Turner & Co., and Klein Maus and Shire Incorporated.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Eastern time) on
[ ], 2003, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall be 5:00 p.m.
(Eastern time) the next day which in the State of New York is not a holiday
nor a day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts
18
<PAGE>
to cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing [ ] , 1999 (or earlier, with the prior written
consent of J.P. Turner & Co., LLP. and Klein Maus and Shire Incorporated),
this Warrant may be redeemed at the option of the Company, at a Redemption
Price of $0.10 per Warrant, provided the closing bid price of the Company's
Common Stock on the Nasdaq SmallCap Market as reported by the National
Quotation Bureau, Incorporated (or the last sale price, if quoted on a
national securities exchange) exceeds 174% of the then exercise price of the
Warrant to be called for a period of 30 consecutive trading days ending on
the third day prior to the day on which notice is given during the period in
which the Warrants are exercisable. Notice of redemption shall be given not
later than the thirtieth (30th) day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to this
Warrant except to receive the $0.10 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of five percent (5%) of the
Purchase Price upon certain conditions as specified in the Warrant Agreement
upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
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<PAGE>
Dated:
--------------- DECTRON INTERNATIONALE, INC.
By:
- ------------------------- ---------------------------------
Chairman
By:
- ------------------------- ---------------------------------
Secretary
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
--------------------------------------
Authorized Officer
20
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ (________________) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------------------
-------------------------------
-------------------------------
-------------------------------
[please print or type name and address]
and be delivered to
-------------------------------
-------------------------------
-------------------------------
-------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by Sharpe
Capital, Inc. or Aegis Capital Corp.
--------------------------------
21
<PAGE>
Name of NASD Member if other than J.P Turner & Co.,
LLP or Klein Maus and Shire
Dated:
------------------------- --------------------------------
Signature
--------------------------------
Street Address
--------------------------------
City, State and Zip Code
--------------------------------
Taxpayer ID Number
Signature Guaranteed:
--------------------------------
22
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
---------------------------------
---------------------------------
---------------------------------
---------------------------------
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated:
------------------------- --------------------------------
Signature Guaranteed:
--------------------------------
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
23
<PAGE>
Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR TRANSFER IS IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS.
NOT EXERCISABLE PRIOR TO SEPTEMBER [ ], 1998. VOID AFTER 5:00 P.M.,
NEW YORK TIME, SEPTEMBER[ ], 2003.
UW-002 One Hundred Thousand (100,000) WARRANTS
UNDERWRITER'S WARRANT
Dated: October 9, 1997
THIS CERTIFIES THAT in consideration of $10.00 duly paid J.P. Turner & Co.,
LLC., ("J.P. Turner"), and Klein Maus and Shire Incorporated ("KMS")
(collectively J.P. Turner and KMS are referred to as the "Underwriter") or its
registered assigns (_____________ being such a registered assign, a "Holder") is
the owner of this Warrant (the "Underwriter's Warrant") to purchase from DECTRON
INTERNATIONALE INC., a Quebec, Canada corporation (the "Company"), during the
period and at the prices hereinafter specified, up to 100,000 shares (the
"Shares"), of the Company's common stock, no par value per share (the "Common
Stock") and up to 100,000 Common Stock purchase warrants (the "Warrants" and
collectively the Warrants and the Shares are hereinafter referred to as the
"Securities"). This Underwriter's Warrant is issued pursuant to an Underwriting
Agreement dated September, [ ] 1998, between the Company and the Underwriter in
connection with a public offering (the "Public Offering") through the
Underwriter of (i) 1,000,000 shares of Common Stock and 1,000,000 Warrants and
(ii) pursuant to the Underwriter's Over Allotment Option (the "Over-Allotment
Option") up to an additional 150,000 shares of Common Stock and 150,000 Warrants
(the "Public Securities"). The Shares and Warrants issuable pursuant to the
Underwriter's Warrant shall have the same terms and conditions as the shares of
Common Stock and the Warrants making up the Public Securities, as described
under the caption
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"Description of Securities" in the Company's Registration Statement on Form
SB-2, File No. 333-[ ], as amended, (the "Registration Statement"), except that
the Holder shall have registration rights under the Securities Act of 1933 (the
"Act"), for the Underwriter's Warrant, the Shares and Warrants.
1. The rights represented by this Underwriter's Warrant shall be
exercisable at the prices and during the period specified below, upon the terms
and subject to the conditions set forth herein:
(a) During the period from the date hereof to September [ ], 1999, 12
months from the effective date of the Registration Statement (the
"Effective Date") inclusive, the Holder shall have no right to
purchase any Securities hereunder.
(b) Between [ ], 1999 and [ ], 2003, four years from the effective
date (the "Expiration Date") inclusive, the Holder shall have the
option to purchase the Shares and the Warrants hereunder at a
price of $[9.20] per Share and $[ ] per Warrant, respectively, the
purchase price of the Shares and the Warrants being [ ]% above the
public offering prices of the Public Securities, subject to
adjustment as provided in paragraph 8 hereof.
(c) After the Expiration Date, the Holder shall have no right to
purchase any Securities hereunder and this Underwriter's Warrant
shall expire at 5:00 P.M. on such date.
2. (a) The rights represented by this Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of this Underwriter's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of Securities specified in the above-mentioned purchase
form together with applicable stock transfer taxes, if any; and (iii) delivery
to the Company of a duly executed agreement signed by the person(s) designated
in the purchase form to the effect that such person(s) agree(s) to be bound by
the provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. This Underwriter's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Underwriter's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for the Securities
shall be issuable upon such exercise shall become the holder or holders of
record of such Securities at that time and date. Certificates representing the
Securities so purchased shall be delivered to the Holder within a reasonable
time, not exceeding ten (10) days, after the rights represented by this
Underwriter's Warrant shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) of paragraph 2, the Holder may elect to exercise this
Underwriter's Warrant in whole or in part by
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receiving Shares and/or Warrants equal to the value (as determined below) of
this Underwriter's Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holder a
number of Shares and/or Warrants computed using the following formula:
<TABLE>
<S> <C> <C>
X = Y(A-B)
-----------
A
Where: X = the number of Shares and/or Warrants to be issued to the Holder;
- -----
Y = the number of Shares and/or Warrants to be exercised under this
Underwriter's Warrant;
A = the current fair market value of one share of Common Stock
and/or one Warrant (calculated as described below); and
B = the Share Exercise Price and/or the Warrant Exercise Price, as
the case may be.
</TABLE>
As used herein, the current fair market value of one share of Common Stock
shall mean the greater of (x) the average of the closing prices of the Company's
Common Stock sold on all securities exchanges on which the Common Stock may at
the time be listed and the NASDAQ National Market, or, if there have been no
sales on any such exchange or the NASDAQ National Market on such day, the
average of the highest bid and lowest asked price on such day on The Nasdaq
Stock Market or otherwise in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization (the "Market Price"), on the trading day immediately preceding the
date notice of exercise of this Underwriter's Warrant is given or (y) the
average of the Market Price per share of Common Stock for the five trading days
immediately preceding the date notice of exercise of this Underwriter's Warrant
is given. If on any date for which the Market Price per share of Common Stock is
to be determined the Common Stock is not listed on any securities exchange or
quoted on the NASDAQ National Market or on The Nasdaq Stock Market or otherwise
in the over-the-counter market, the Market Price per share of Common Stock shall
be the highest price per share which the Company could then obtain from a
willing buyer (not a current employee or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in good
faith by the Board of Directors of the Company, unless prior to such date the
Company has become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the
Market Price per share of Common Stock shall be deemed to be the value received
by the holders of the Company's Common Stock for each share thereof pursuant to
the Company's acquisition.
The current fair market value of one Warrant shall be determined in a like
manner, with reference to the prices per Warrant.
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3. The Underwriter's Warrant shall not be transferred, sold, assigned,
pledged or hypothecated (other than by will or pursuant to the laws of
descent and distribution) for a period of one year commencing on [ ],
1998, except that it may be transferred to successors of the Holder, and may
be assigned in whole or in part to any person who is an officer, director,
shareholder, employee or partner of the Underwriter or to any member of the
selling group and/or the officers, directors, shareholders, employees or
partners thereof during such period. Any such assignment shall be effected by
the Holder by (i) executing the form of assignment at the end hereof and (ii)
surrendering this Underwriter's Warrant for cancellation, together with the
duly executed form of assignment, at the office or agency of the Company
referred to in paragraph 2 hereof, accompanied by a certificate (signed by a
duly authorized officer, agent, member or other representative, as the case
may be, of the Holder), stating that each transferee is a permitted
transferee under this paragraph 3; whereupon the Company shall issue, in the
name or names specified by the Holder a new Underwriter's Warrant or
Underwriter's Warrants of like tenor and representing in the aggregate rights
to purchase the same number of Securities as are purchasable hereunder.
4. The Company covenants and agrees that all Shares issuable upon
exercise of this Underwriter's Warrants and all Common Stock issuable upon
exercise of the Warrants underlying this Underwriter's Warrants (the "Warrant
Shares") will, upon issuance thereof and receipt by the Company of payment of
the purchase price therefor in accordance with the terms hereof, be duly and
validly issued, fully paid and nonassessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that
during the period within which the Underwriter's Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of its Common Stock to provide for the exercise of the Underwriter's
Warrant and the Warrants included therein.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights as stockholders of the Company.
6. (a)(i) During the period of seven years from the Effective Date the
Company shall advise the Holder, whether the Holder holds this Underwriter's
Warrant or has exercised this Underwriter's Warrant and holds Shares, Warrants
or Warrant Shares, by written notice at least thirty days prior to the filing of
any post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act,
covering any securities of the Company, for its own account or for the account
of others, except for any registration statement filed on Form S-4 or S-8
(including a Form S-3 related to a Form S-8) and will, for a period of seven
years from the Effective Date, upon the request of the Holder made during such
seven year period, and subject to subparagraph 6(a)(ii), include in any such
post-effective amendment or new registration statement such information as may
be required to permit a public offering of this Underwriter's Warrant, the
Shares, the Warrant Shares and the Warrants (collectively, the "Registerable
Securities"); provided that this paragraph 6(a) shall not apply to any
registration statement filed pursuant to paragraph 6(b) hereof; and provided,
further, that, notwithstanding the foregoing, the Holder shall have no right to
include any Registerable Securities in any new registra-
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tion statement or post-effective amendment thereto unless as of the effective
date thereof, the Registration Statement (as it may hereafter be amended or
supplemented) or any new registration statement under which the Registerable
Securities are registered shall have ceased to be effective or as the
prospectus contained therein shall have ceased to be current. The Company
shall supply prospectuses and such other documents as the Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registerable Securities, use its best efforts to register
and qualify any of the Registerable Securities for sale in such states as the
Holder designates, and do any and all other acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registerable Securities, all at no expense to the
Holder or the Underwriter, and furnish indemnification in the manner provided
in paragraph 7 hereof; provided, that, without limiting the foregoing, the
Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction. The Holder shall furnish information
and indemnification as set forth in Paragraph 7. The Company shall continue
to advise the Holders of the Registerable Securities of its intention to file
a registration statement or amendment pursuant to this Paragraph 5(a) until
the earliest of (i) seven years from the Effective Date; (ii) such time as
all of the Registerable Securities have been registered and publicly sold
under the Act; or (iii) such time as in the opinion of legal counsel to the
Company, which counsel shall be reasonably acceptable to the Holder, the
Registerable Securities may be offered and sold by the holders thereof
without being registered under the Act and any applicable state securities
laws and such securities, upon receipt by the purchasers thereof pursuant to
such sale, will not constitute "restricted securities" as such term is
defined in Rule 144 under the Act.
(ii) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to subparagraph
6(a)(i). If the underwriters or managing underwriter thereof determines that a
limitation of the number of shares to be underwritten is required, the
underwriter may exclude some or all of the Registerable Securities from such
registration (the "Excluded Registerable Securities"); provided, however, that
no other security-holder may include any such securities in such Registration
Statement if any of the Registerable Securities have been excluded from such
registration; and further provided that the Company will file a new Registration
Statement covering the Excluded Registerable Securities, at the Company's
expense, within six months after the completion of such underwritten offering.
(b) On any one occasion only, if any 50.1% Holder (as defined
below) shall give notice to the Company at any time during the three year period
beginning one year from the Effective Date to the effect that such Holder
desires to register under the Act any or all of the Registerable Securities,
under such circumstances that a public distribution (within the meaning of the
Act) of any such Registerable Securities will be involved (and the Registration
Statement or any new registration statement under which such Registerable
Securities are registered shall have ceased to be effective or the Prospectus
contained therein shall have ceased to be current), then the Company will
promptly, but no later than 60 days after receipt of such notice at the
Company's option , file a post-effective amendment to the current Registration
Statement or a new registration statement pursuant
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to the Act, so that such designated Registerable Securities may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective as
provided herein (including the taking of such steps as are necessary to obtain
the removal of any stop order), provided, that such 50.1% Holder shall furnish
the Company with appropriate information in connection therewith as the Company
may reasonably request in writing. Inclusive of this demand right shall be that
the 50.1% Holder may, at its option, request the filing of a post-effective
amendment to the current Registration Statement or a new registration statement
under the Act, inclusive of the right granted by subparagraph 6(a) on one
occasion only during the six-year period beginning one year from the effective
date of the Registra tion Statement (the "Effective Date"). The 50.1% Holder
may, at its option, request the registration of the Underwriter's Warrant and/or
any of the securities underlying the Underwriter's Warrant in a registration
statement made by the Company as contemplated by subparagraph 6(a) or in
connection with a request made pursuant to this subparagraph 6(b) prior to
acquisition of the shares of Common Stock and/or Redeemable Warrants issuable
upon exercise of the Underwriter's Warrant. The 50.1% Holder may, at its option,
request such post-effective amendment or new registration statement during the
described period with respect to the Underwriter's Warrant, or separately as to
the Common Stock and/or Warrants issuable upon the exercise of the Underwriter's
Warrant, and such registration rights may be exercised by the 50.1% Holder prior
to or subsequent to the exercise of this Underwriter's Warrant.
Within ten days after receiving any such notice pursuant to this
subparagraph 6(b), the Company shall give notice to any other Holder of the
Underwriter's Warrant or Registerable Securities, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the Registerable Securities held by the other
Holder, provided that they shall furnish the Company with such appropriate
information (relating to the intentions of such Holder) in connection therewith
as the Company shall reasonably request in writing. All costs and expenses of
the post-effective amendment or new registration statement shall be borne by the
Company, except that the Holder(s) shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the Registerable
Securities sold by them. The Company will maintain such registration statement
or post-effective amendment current under the Act for a period of at least nine
months (and for up to an additional three months if requested by the Holder(s))
from the effective date thereof. The Company shall provide the Holder(s) with
(x) prospectuses, in such quantities as the Holder(s) may request in order to
facilitate the public sale or other disposition of the Registerable Securities,
(y) use its best efforts to register and qualify any of the Registerable
Securities for sale in such states as Holder(s) designate (z), indemnification
in the manner provided in paragraph 7 hereof. The Company shall also deliver
promptly to the Holder, if requested, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit the Holder to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss
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the business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times as the Holder shall
reasonably request.
(c) The term "50.1% Holder" as used in this paragraph 6 shall
mean the Holder(s) of at least 50.1% of this Underwriter's Warrant, the Shares,
Warrants or Warrant Shares and shall include any owner or combination of owners
of such securities, which ownership shall be calculated by determining the
number of Shares held by such owner or owners as well as the number of shares of
Common Stock then issuable upon exercise of the Underwriter's Warrant and the
Warrants.
(d) If at any time prior to the effectiveness of the
registration statement filed in connection with an offering pursuant to this
paragraph 6(b) the 50.1% Holder shall determine not to proceed with the
registration, upon notice to the Company and the payment to the Company by the
50.1% Holder of the Company's expenses, if any, theretofore incurred in
connection with the registration statement, the 50.1% Holder may terminate its
participation in the offering, and the registration statement previously filed
shall not be counted against the number of demand registrations permitted under
this paragraph 6(b).
(e) Notwithstanding the foregoing, if the Company shall
furnish to such 50.1% Holder a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its stockholders for a
registration statement to be filed in the near future containing the disclosure
of material information required to be included therein by reason of the federal
securities laws, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period during which such
disclosure would be seriously detrimental, provided that this period will not
exceed 30 days and provided further, that the Company shall not defer its
obligation in this matter more than once in any 12 month period.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such Holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and will
reimburse the Distributing Holder and such controlling
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person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case, to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made (i) in such
registration statement, such preliminary prospectus, such final prospectus or
such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof or (ii) made in any preliminary
prospectus, but corrected in the final prospectus, as amended or supplemented.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed such
registration statement and such amend ments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in such
registration statement or any preliminary prospectus, or final prospectus
constituting a part thereof, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, such preliminary prospectus, such final prospectus
or such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of
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investigation.
8. (a) The Share Exercise Price in effect at any time and the number
and kind of securities purchasable upon the exercise of the Underwriter's
Warrant shall be subject to adjustment from time to time upon the happening of
certain events hereinafter described; provided, however, that no adjustment
shall be required in respect of the shares issuable upon exercise of the
Warrants.
(i) (x) If after the date hereof the Company shall subdivide or
combine the outstanding shares of Common Stock, the Share Exercise Price shall
forthwith be proportionately deceased in the case of subdivision or increased in
the case of combination. (y) In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in the case of any consolidation of the Company with, or merger
of the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holder shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consideration, merger, sale or
conveyance as if the Holder were the owner of the shares of Common Stock
underlying the Underwriters' Warrant immediately prior to any such events (but
not the Warrant Shares) at a price equal to the product of (A) the number of
shares issuable upon exercise of the Underwriters' Warrant (but not the Warrant
Shares) and (B) the Share Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holder had exercised the Underwriters' Warrant. (z) If
after the date hereof and prior to the exercise and expiration of the
Underwriters' Warrant the Company shall declare a dividend (other than a
dividend consisting solely of shares of Common Stock or a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to the holders of Common Stock any monies, assets, property, rights,
evidences of indebtedness, securities (other than such a cash dividend or
distribution or dividend consisting solely of shares of Common Stock), whether
issued by the Company or by another person or entity, or any other thing of
value, the Holders of the unexercised Underwriters' Warrant shall thereafter be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise thereof, to receive, upon the exercise of such
Underwriters' Warrant, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Holders were the owners of the shares of Common Stock underlying the
Underwriters' Warrant (but not the Warrant Shares). As the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Paragraph 8 (a)(i)(z).
(ii) Whenever the Share Exercise Price is adjusted pursuant to
subparagraph 8(a)(i), or the Warrant Exercise Price is adjusted pursuant to
paragraph 8(b), the
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number of shares of Common Stock or Warrants, as the case may be, issuable upon
exercise of this Underwriter's Warrant shall simultaneously be adjusted to the
nearest full whole number by multiply ing the number of shares of Common Stock
or Warrants, as the case may be, issuable upon exercise of this Underwriter's
Warrant by the Share Exercise Price or Warrant Exercise Price, as the case may
be, in effect on the date hereof and dividing the product so obtained by the
Share Exercise Price or Warrant Exercise Price, as adjusted.
(iii) Notwithstanding anything to the contrary no adjustment in the
Share Exercise Price or Warrant Exercise Price shall be required (a) in the
event of the sale of the Company's securities in a future bona fide underwritten
public offering; or (b) if the amount of such adjustment shall be less than five
cents ($0.05) in the Share Exercise Price; provided, however, that any
adjustments which by reason of this subparagraph (iii)(b) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this paragraph
8(a) shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Anything in this Section 8(a) to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make such changes in the Share Exercise Price or Warrant Exercise Price, in
addition to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock or Warrants, or any subdivision, reclassification or combination
thereof, hereafter made by the Company shall not result in any federal income
tax liability to the holders of Common Stock or securities convertible into
Common Stock (including the Warrants issuable upon exercise of the Underwriter's
Warrant).
(iv) Whenever the Exercise Prices are adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Prices
and the adjusted number of shares of Common Stock, Warrants or other securities
purchasable upon exercise of the Underwriter's Warrant to be mailed to the
Holder, at the addresses listed on the books of the Company, and shall cause a
certified copy thereof to be mailed to the Company's transfer agent, if any. The
Company may retain a firm of independent certified public accountants selected
by the Board of Directors (who may be the regular accountants employed by the
Company) to make any computation required by this paragraph 8, and a certificate
signed by such firm shall be conclusive evidence of the correctness of such
adjustment.
(v) If after the date hereof, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holder shall become entitled
to receive any securities of the Company, other than Common Stock and the
Warrants, the exercise price and number of such other securities so receivable
upon exercise of the Underwriter's Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in subparagraphs 8(a),
inclusive of this paragraph (v).
8. (b) In the event of an adjustment in the Share Exercise Price and the
number of Shares of Common Stock issuable upon the exercise of the Underwriter's
Warrant, pursuant to
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paragraph 8(a), then there shall be a proportional adjustment in the Warrant
Exercise Price and the number of Warrants issuable upon the exercise of the
Underwriter's Warrant.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York.
IN WITNESS WHEREOF, DECTRON INTERNATIONALE INC. has caused this
Underwriter's Warrant to be signed by its duly authorized officers, and this
Underwriter's Warrant to be dated as of the date first above written.
DECTRON INTERNATIONALE INC.
By:
--------------------------
Name:
Title:
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PURCHASE FORM
(To be signed only upon exercise of Underwriter's Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, Shares of DECTRON INTERNATIONALE INC., no par
value per share, and/or Common Stock Purchase Warrants to purchase one (1) share
of Common Stock, and herewith makes payment of $ therefor (or hereby surrenders
and delivers that portion of the Underwriter's Warrant having equivalent value
(as determined in accordance with the provisions of subparagraph (d) of
paragraph 2 of the Underwriter's Warrant)), and requests that the certificates
for shares of Common Stock and/or Warrants be issued in the name(s) of, and
delivered to , whose address(es) is (are):
Dated: , 19
-------------------- ---
------------------------------
Signature
------------------------------
(Print name under signature)
(Signature must conform in all
respects to the name of Holder as
specified on the face of the
Underwriter's Warrant).
-------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
11
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant)
FOR VALUE RECEIVED
------------------------------------------------
hereby sells, assigns and transfers unto
------------------------------
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint __________________Attorney, to
transfer the within Warrant on the books of DECTRON INTERNATIONALE INC., with
full power of substitution.
Dated:
-----------------------
------------------------------
Signature
------------------------------
(Print name under signature)
(Signature must conform in all
respects to the name of Holder as
specified on the face of the
Underwriter's Warrant).
-------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
12
<PAGE>
Exhibit 10.1
CONSULTING AGREEMENT
September , 1998
Dectron Internationale, Inc.
4300 Porier Blvd.
Montreal, Quebec
Canada H4R 2C5
Attention: Ness Lakdawala, CEO
Gentlemen:
This will confirm the arrangements, terms and conditions pursuant
to which J.P. Turner & Co., LLC. ("J.P. Turner"), and Klein Maus and Shire
Incorporated ("KMS") (J.P. Turner and KMS collectively referred to as the
"Consultants") have been retained to serve as consultants and advisors to
Dectron Internationale Inc., a , Quebec, Canada corporation (the "Company"),
on a non-exclusive basis for the term set forth in Section 2 below. The
undersigned hereby agree to the following terms and conditions:
1. Duties of Consultant.
(a) Consulting Services. Consultants will provide such financial
consulting services and advice pertaining to the Company's business affairs
as the Company may from time to time reasonably request. Without limiting
the generality of the foregoing, Consultants will assist the Company in
developing, studying and evaluating financing, merger and acquisition
proposals, prepare reports and studies thereon when advisable, and assist in
negotiations and discussions pertaining thereto.
(b) Financing. Consultants will assist and represent the Company
in obtaining both short and long-term financing, when so requested by the
Company. The Consultants will be entitled to additional compensation under
such terms as may be agreed to by the parties.
(c) Wall Street Liaison. Consultants will, when appropriate,
arrange meetings between representatives of the Company and individuals and
financial institutions in the investment community, such as security
analysts, portfolio managers and market makers.
The services described in this Section 1 shall be rendered by
Consultants without any direct supervision by the Company and at such time
and place and in such manner (whether by conference, telephone, letter or
otherwise) as Consultants may determine.
2. Term.
This Agreement shall continue for a period of twenty-four months
from the date hereof (the "Term").
<PAGE>
3. Compensation.
(a) As compensation for Consultants' services hereunder, the
Company shall pay to Consultants the sum of $96,000 (an aggregate of three
thousand ($4,000) dollars per month), all of which shall be due and payable
as of the date hereof.
4. Mergers and Acquisitions.
In the event that Consultants (i) introduce, negotiate or arrange
on the Company's behalf a non-public equity financing or (ii) arrange on the
Company's behalf a non-public debt financing or (iii) arrange for or assist
the Company at the Company's request with the purchase or sale of assets, or
for a merger acquisition or joint venture for the Company, then the Company
will compensate the Consultants (based on the Transaction Value, as defined
below) for such services in an amount equal to:
5% on the first $1,000,000 of the Transaction Value;
4% on the amount from $1,000,001 to $2,000,000;
3% on the amount from $2,000,001 to $3,000,000;
2% on the amount from $3,000,000 to $4,000,000;
1% on the amount from $4,000,000 to $5,000, 000, and
1% on the amount in excess of $5,000,000.
If the Company identifies and negotiates its own acquisitions
without the assistance of the Consultants', the Consultants will not be
entitled to the above referenced compensation.
"Transaction Value" shall mean the aggregate value of all cash,
securities and other property (i) paid to the Company, its affiliates or
their shareholders in connection with any transaction referred to above
involving any investment in or acquisition of the Company or any affiliates
(or the assets of either), (ii) paid by the Company or any affiliate in any
such transaction involving an investment in or acquisition of another party
or its equity holdings by the Company or any affiliate, or (iii) paid or
contributed by the Company or an affiliate and by the other party or parties
in the event of any such transaction involving a merger, consolidation joint
venture or similar joint enterprise or undertaking. The value of any such
securities shall be the fair market value thereof as determined by mutual
agreement of the Company and the Consultants or by independent appraiser
jointly selected by the Company and the Consultants.
5. Relationship. Nothing herein shall constitute Consultants as
employees or agents of the Company, except to such extent as might
hereinafter be agreed upon for a particular purpose. Except as might
hereinafter be expressly agreed, Consultants shall not have the authority to
obligate or commit the Company in any manner whatsoever.
6. Confidentiality. Except in the course of the performance of its
duties hereunder, Consultants agree that they shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of this Agreement unless and until such information
becomes generally known.
2
<PAGE>
7. Assignment and Termination. This Agreement shall not be assignable
by any party except to successors to all or substantially all of the business
of either party for any reason whatsoever without the prior written consent
of the other party, which consent may be arbitrarily withheld by the party
whose consent is required.
Very truly yours,
J.P. Turner & Co., LLC.
By:
------------------------------
Klein Maus and Shire Incorporated
By:
------------------------------
AGREED AND ACCEPTED:
Dectron Internationale, Inc.
By:
-----------------------------
Ness Lakdawala, CEO
3
<PAGE>
Exhibit 10.5
MEMORANDUM OF AGREEMENT ENTERED INTO AT THE CITY OF MONTREAL, PROVINCE OF
QUEBEC, THIS _____ DAY OF ______________, 1998.
BY AND BETWEEN: ____________________________________________,
executive of the City of ___________________,
Province of ________________, therein
domiciled and residing at
__________________________________.
(hereinafter referred to as the "VENDOR")
PARTY OF THE FIRST PART
AND: DECTRON INTERNATIONAL INC., a corporation,
duly incorporated according to Law, having
its head office and principal place of
business at 4300 Poirier Blvd., in the City
of Montreal, Province of Quebec,
thereinacting and represented by Ness
Lakdawala duly authorized hereto as he so
declares.
(hereinafter referred to as the "PURCHASER")
PARTY OF THE SECOND PART
THIS AGREEMENT WITNESSTH AS FOLLOWS:
SECTION 1: DEFINITIONS
In this AGREEMENT, the following capitalized words and terms shall
have the following means:
1.1 "ACT" means collectively, the Income Tax Act of Canada ("I.T.A.") and the
Quebec Tax Act ("Q.T.A."), unless otherwise indicated;
1.2 "AGREEMENT" means the present agreement inclusive of all schedules and
exhibits attached hereto as well as other supporting documentation and the
phrase "by these presents", "in virtue of the presents", "to these
presents" and such other similar phrases when used in this agreement shall
be deemed (unless otherwise indicated) as a reference to the entire
agreement rather than a particular provision hereof;
1.3 "COMPANY" shall means DECTRON INC., that being the corporate entity which
prior to these presents issued to the VENDOR, the SHARES which are by these
presents being transferred to the PURCHASE by the VENDOR;
<PAGE>
1.4 "PURCHASER" shall mean DECTRON INTERNATIONAL INC., and PURCHASER warrants
being a duly incorporated company having the authority and power to these
presents of unlimited number of Common and Preferred shares;
1.5 "PURCHASE PRICE" shall mean the consideration to be given by the PURCHASER
in exchange for the SHARES to be transferred to the PURCHASER, which the
parties declare by these presents as reflecting the real fair market value
thereof as reasonably and justly determined by the parties upon
consultation with the auditors of the COMPANY. Any consideration to be
given in payment of the PURCHASE PRICE shall be contemplated in Canadian
Funds only.
1.6 "SHARES" shall mean ________________________________________, and warrants
being a CANADIAN citizen and having the full power, authority and capacity
to transfer the SHARES and generally to enter into this AGREEMENT.
1.7 "VENDOR" shall mean _______________________________________, and warrants
being a CANADIAN citizen and having the full power, authority and capacity
to transfer the SHARES and generally to enter into this AGREEMENT.
SECTION 2: SALES
The VENDOR hereby sells to the PURCHASER hereto present and
accepting, the SHARES for the price and consideration and upon the terms and
conditions hereinafter set forth.
SECTION 3: PURCHASE PRICE
The PURCHASE PRICE for the SHARES is _______________________ dollars
($________________) which sum shall be payable by the issuance and allotment to
the VENDOR of ________________________ (_________) Class "_________" shares and
the sum of __________________________________ dollars ($_______) shall be
credited to the stated capital account of the PURCHASER. The said Class "___"
shares may be redeemed or purchased for the sum of
_______________________________ dollars ($_________) per share.
SECTION 4: REPRESENTATIONS AND WARRANTIES
All representations and warranties as contained in these presents
shall survive the execution of this AGREEMENT and shall continue to remain in
full force and effect.
SECTION 5: EXECUTION OF FURTHER DOCUMENTS
The VENDOR will, from time to time, at the purchaser's request and
without further consideration, execute such further instruments of conveyance
and take such other actions as the
<PAGE>
PURCHASER may reasonably require to convey and transfer more effectively to the
PURCHASER the Shares. The VENDOR will furthermore sign all documents and do all
things necessary to give effect to these presents.
SECTION 6: ELECTIONS
The parties hereto undertake and agree to avail themselves of the
rights granted them to make all appropriate elections within the prescribed time
periods and in prescribed from under the provisions of the ACT and without
limiting the generality of the foregoing, the parties hereto shall jointly elect
under Section 85 I.T.A. and Section 518 Q.T.A. that for the ends of these
presents the parties have elected the sum of ___________________________________
dollars ($____________) representing the agreed transfer price, for the VENDOR
of the SHARES herein sold.
SECTION 7: ADJUSTMENT
7.1 The parties by these presents do hereby reaffirm that the PURCHASE
PRICE was intended to represent and is the fair market value of the SHARES.
7.2 In consequence thereof, the parties hereto agree that should the
Federal and/or Provincial taxation authorities for tax purposes either of the
parties to the AGREEMENT on the basis that the SHARES were of a value different
than the PURCHASE PRICE or should the taxation authorities establish the value
of the SHARES in any other manner, the parties may concur with the taxation
authorities determination of the value of the SHARES in which case the PURCHASE
PRICE shall be automatically adjusted retroactive to the date of these presents
NUNC PRO TUNC to conform with the assessment as made by the taxation
authorities. IF the parties do not agree with the value of the SHARES as
established by the taxation authorities, the PURCHASE PRICE shall be adjusted to
equal the amount as determined by the final judgement of the competent Court.
Upon adjustment in accordance with the provisions of the present
Section:
(a) if the adjusted value of the SHARES is greater than the PURCHASE
PRICE (the difference thereof being hereinafter referred to as the
"INCREASE"), the total consideration for which the Class "______"
shares were issued as well as its redemption price shall be deemed
to have been retroactively increased NUNC PRO TUNC by an amount
equal to the INCREASE;
(b) if the adjusted value of the SHARES is less than the PURCHASE PRICE
(the difference thereof being hereinafter referred to as the
"DECREASE") then in such case:
[i] if the consideration for which the Class "_________" shares
were issued is greater than the DECREASE< the total
consideration for which the said deemed to have been reduced
retroactively NUNC PRO TUNC by the amount equal to the
DECREASE, or
<PAGE>
[ii] if the consideration which the Class "_______" shares were
issued is less than the DECREASE or if there no longer
remains Class "_______" shares then in such case:
(1) the total consideration for which the remaining Class
"____" shares had been issued as well as the redemption
value thereof shall be deemed to have been reduced
retroactively NUNC PRO TUNC by an amount equal to the
total consideration for which these shares have been
issued, and
(2) the VENDOR shall issue to the PURCHASER a promissory
note for an amount equal to the DECREASE less the
amount of the reduction as calculated in Sub-Section
7(b)[ii](1) hereinabove, the said promissory note shall
be payable on demand and shall bear interest at the
rate as foreseen in the ACT and/or of the regulation
thereof.
(c) the paid-up capital as maintained for the said Class "______" shares
shall not be adjusted.
SECTION 8: GENERAL PROVISIONS
8.1 This AGREEMENT shall enure to the benefit of and be binding upon the
parties hereto, their respective heirs, legatees, executors, legal
representatives, successors and assigns.
8.2 This AGREEMENT shall be governed by and construed in accordance with
the Laws of the Province of the Quebec and the applicable Laws of Canada.
8.3 Any notice or other communication to be given pursuant to these
presents shall be in writing and may be hand delivered, by letter of facsimile
or sent by registered mail, postage prepaid and notice will be deemed to have
been given on the date of the hand-delivery, on the date indicated on the
transmission slip if sent by facsimile or on the earlier of the date of actual
delivery by the postal authorities or three (3) business days after the date of
mailing.
For the purpose hereof, the address of the VENDOR and PURCHASER are
the addresses as set forth in these presents or such other address as either
party may from time to time notify the other party of.
8.4 Unless otherwise expressed in these presents, any word herein
containing the singular number will include the plural, any word import any
gender will include the masculine, feminine and neuter genders ; any word
importing a person will include a corporation, a partnership and other entity;
and vice-versa.
8.5 Every provision of this AGREEMENT is and will be independent of the
other and the event that any part of this AGREEMENT is declared invalid, illegal
or unenforceable, the
<PAGE>
remaining provisions will be unaffected by such declaration and will remain
valid, binding and enforceable.
8.6 This AGREEMENT sets for the entire AGREEMENT and understanding
between the parties with respect to the subject matter hereof and supersedes all
prior negotiations and discussions. No party shall be bound by any conditions,
representations and warranties with respect to the subject matter hereof other
than those contained in these presents.
8.7 The parties hereto agree that they will from time to time execute
and deliver such other documents and perform such acts and sign such instruments
as may be necessary or desirable in order to give full effect to these presents
including without restriction the provisions of signatures int he minute book of
the Company as well as attending at the offices of the Company's attorney to
execute and deliver such documents as may be necessary.
8.8 Failure by either party to take action against the other shall not
affect their respective rights to require full performance of this AGREEMENT at
any time thereafter. The waiver by either party of the breach of any provision
of this AGREEMENT by the other party shall not operate or be construed as a
waiver of any subsequent breach by such party.
8.9 The parties have requested that this AGREEMENT and any related
documents be drafted in English. Les parties aux presents ont exige que ce
contrat at les documents y afferents soient rediges en anglais.
<PAGE>
IN WITNESS WHEREOF, the parties have signed on the date and at the place first
hereinabove mentioned.
PARTY OF THE FIRST PART
______________________________ ______________________________
WITNESS
______________________________
WITNESS
PARTY OF THE SECOND PART
DECTRON INTERNATIONAL INC.
______________________________ Per:___________________________
WITNESS NESS LAKDAWALA
______________________________
WITNESS
<PAGE>
Exhibit 21.1
List of Subsidiaries
Dectron Inc.
Refplus Inc.
Thermoplus Air Inc.
Fiber Mobile Ltd.
Dectron USA, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF SCHWARTZ LEVITSKY FELDMAN
The Undersigned, Schwartz Levitsky Feldman, Chartered Accountants hereby
consents to the use of our name and the use of our opinion dated April 22, 1998
for Dectron Internationale Inc. (the "Company") as filed with its Registration
Statement on Form SB-2 being filed by the Company.
Date: July 17, 1998
<TABLE>
<S> <C>
Schwartz Levitsky Feldman, Chartered
Accountants
/s/ Schwartz Levitsky Feldman
---------------------------------------------
</TABLE>
