<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1998
REGISTRATION STATEMENT NO. 333-59285
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
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.
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- --------------------------------------------------------------------------------
<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) $6.00 $6,900,000 $2,034.04
Common Stock Purchase Warrants................... 1,150,000(3) $.125 $143,750 $42.41
Common Stock issuable upon exercise of
Warrants....................................... 1,150,000(4) $9.00 $10,350,000 $3,051.05
Underwriters' Warrants........................... 100,000 $.001 $100 (5)
Common Stock Issuable on Exercise of
Underwriters' Warrants......................... 100,000 $9.00 $900,000 $265.31
Warrants Issuable upon Exercise of Underwriters'
Warrants....................................... 100,000 $.1875 $18,750 $5.53
Common Stock Issuable on Exercise of the Warrants
in the Underwriter's Warrant................... 100,000(4) $9.90 $990,000 $292.08
Total:..................................... $5,690.42(6)
</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).
(6) $6,544.39 previously paid.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 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
[LOGO]
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 $9.00 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 $12.00 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 SmallCap Market under the symbols
"DECTF" and "DECWF," 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 8 AND DILUTION ON PAGE 15.
--------------------------
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................................................ $6.00 $.60 $5.40
Per Warrant.............................................. $.125 $.0125 $.1125
Total(3)................................................. $6,125,000 $612,500 $5,512,500
</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 $183,750
($211,312.50 if the Underwriters' Over-Allotment Option is exercised in
full), of which $50,000 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 $713,350 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 $7,043,750, $704,375 and $6,339,375 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 August 25,
1998, the exchange rate was Cdn$1.00 per US$.6413
<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:
[LOGO]
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) in exchange for 62,500 shares of the
Company's Common Stock and Cdn$102,503; (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) in exchange for 194,621 shares of the Company's Common Stock
and Cdn$423,738, and (iii) the Company acquired all of the issued and
outstanding securities of Dectron in exchange for 1,492,879 shares of the
Company's Common Stock. The shares of Dectron, Inc. were owned by 159653 Canada,
Inc. which was a holding company beneficially owned by Mr. Lakdawala. The
Refplus and Thermoplus' parent company's loans payable represent the repayment
of loans made to such companies. In connection with the Restructuring, the
Company issued 1,750,000 shares of Common Stock and promissory notes in the
aggregate amount of Cdn$1,149,050. 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 1,674,059 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 (in 12 equal
installments) commencing three months after the Closing of this Offering,
without interest, out of the Company's cash flow.
4
<PAGE>
Mr. Lakdawala and his affiliates received their 1,674,059 shares of the
Company for contributing their interest in the Company's subsidiaries.
Specifically, Mr. Lakdawala's affiliate received 1,492,879 shares in exchange
for 100% of 159653 Canada Inc., which owned 100% of Dectron, Inc. prior to the
Restructuring; 156,808 shares for a portion of their shares of KeepKool Transfer
de Chaleur Inc. ("KeepKool") which represented 86% of KeepKool (KeepKool owned
94% of Thermoplus Air, Inc. prior to the Restructuring); and 24,372 shares for
his shares of 3294242 Canada Inc. which represented 61% of 3294242 (3294242
owned 49.99% of Refplus, Inc. prior to the Restructuring). Dectron Inc. owned
50.01% of Refplus Inc. prior to the Restructuring. The two promissory notes
totaling Cdn$592,000 were issued to Mr. Lakdawala and his affiliates in exchange
for Cdn$222,000 of debt owed to Mr. Lakdalawa by KeepKool and Cdn$370,000 for a
portion of his shares of KeepKool.
5
<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 Common Stock. See "Description of
Securities."
Offering Prices................... $6.00 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 $9.00 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 $12.00, 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: DECWF
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 650,000 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.
6
<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>
SIX MONTHS ENDED JULY 31,
(UNAUDITED) YEAR ENDED JANUARY 31,
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
------------ ------------ ------------- -------------
STATEMENT OF OPERATIONS DATA:
Sales.................................................. $ 7,688,062 $ 9,902,591 $ 12,712,413 $ 16,370,849
Gross profit........................................... 2,430,565 3,098,911 4,234,128 5,593,489
Income from operations................................. 796,149 1,102,897 1,324,058 1,556,322
Net income............................................. 450,089 607,352 696,778 863,331
Earnings per share..................................... 0.26 0.35 0.40 0.49
Number of Shares assumed for calculation............... 1,750,000 1,750,000 1,750,000 1,750,000
</TABLE>
<TABLE>
<CAPTION>
AT JULY 31, 1998
-----------------------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................... $ 1,411,664 $ 5,336,973
Total assets....................................................................... 12,879,534 16,899,473
Long-term debt..................................................................... 2,037,155 1,709,608
Total liabilities.................................................................. 9,915,957 9,390,851
Stockholders' equity............................................................... 2,963,577 7,508,622
</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
$688,079 (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 $94,630. See "Use
of Proceeds" and "Business--Corporate Restructuring."
7
<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.
8
<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.
9
<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 $3.31 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
55% of the initial public offering price per share of Common Stock. Investors in
the Offering will pay $6.00 per share, as compared with an average cash price of
$1.49 per share of Common Stock paid by existing stockholders.
BROAD DISCRETION OVER USE OF PROCEEDS; UNSPECIFIED
ACQUISITIONS. Approximately 48% of the net proceeds of this Offering will be
applied to working capital and general corporate purposes. Accordingly,
management of the Company will have broad discretion over the use of the
proceeds. Although the Company may utilize a portion (not to exceed $2,295,324
or 48%) of the net proceeds for potential acquisitions of complementary
businesses as of the date hereof, the Company has not identified any particular
targets. Stockholders of the Company may have no opportunity to approve
specified acquisitions or to review the financial condition of any potential
target. Moreover, there can be no assurance that any such acquisition
opportunities will become available on terms acceptable to the Company. See "Use
of Proceeds."
CONTINUING INFLUENCE OF UNDERWRITERS. The Underwriters may be able to exert
continuing influence on the Company in light of the fact that they have the
right to (i) appoint two board members or advisors for a three year period; (ii)
receive four year warrants to purchase up to 100,000 shares and 100,000
warrants; (iii) exercise their registration rights; (iv) act as financial
consultant to the Company for a two year period whereby it will receive a
$96,000 fee and shall provide advisory services related to mergers and
acquisitions, corporate finance and other matters and will be entitled to a
finder's fee if it acts as an investment banker on certain transactions. In
addition, 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, options or
other rights to purchase Common Stock, without the prior consent of the
Representative, subject to certain exceptions. As a result of the above rights
and/or restrictions the Underwriters may have significant control over certain
activities of the Company.
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 MAY HINDER POTENTIAL CHANGE OF CONTROL. 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.
10
<PAGE>
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.
The existence of the Investment Canada Act may discourage, delay or prevent a
change of control of the Company.
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 1,674,059 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
11
<PAGE>
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 Representative.
However, such period shall be extended to 36 months for any officer or director
whose total compensation is in excess of $100,000 per year, or who owns more
than 5% of the Company's outstanding Common Stock. Following the 18 month or 36
month period as applicable, 20% of the securities covered by each lock-up
agreement will be released by the Representative annually for a period of five
years. 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."
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 2,150,000 shares of Common
Stock unissued but reserved for issuance pursuant to (i) the Company's 1998
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
12
<PAGE>
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 SmallCap Market upon the Effective Date. The Commission has recently
approved new rules imposing criteria for listing of securities on the Nasdaq
SmallCap Market, including standards for maintenance of such listing. In order
to qualify for initial quotation of securities on the Nasdaq SmallCap Market, an
issuer, among other things, must have at least $4,000,000 in net tangible
assets, $4,000,000 in market value of the public float and a minimum bid price
of $4.00 per share. For continued listing, an issuer, among other things, must
have $2,000,000 in net tangible assets, $1,000,000 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 SmallCap Market's maintenance criteria in the
future, its Common Stock and Warrants may be delisted from the Nasdaq SmallCap
Market. In such event, 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 .
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance requirements for the Nasdaq SmallCap Market and its Common Stock
falls below the minimum bid price of $5.00 per share for the initial quotation,
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
13
<PAGE>
of the Company's Common Stock shall have been at least $12.00 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
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.
14
<PAGE>
DILUTION
At July 31, 1998, the Company had a net tangible book value of approximately
$2,609,543 or $1.49 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 $4,799,150) from the sale of the Shares
and Warrants offered hereby, the pro forma net tangible book value of the
Company at July 31, 1998 would be $7,408,693 or $2.69 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 $3.31 per share or 55%. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share of Common Stock............................... $ 6.00
Net tangible book value per share before the Offering(1)...................... $ 1.49
Increased attributable to new investors(1).................................... $ 1.20
---------
Pro forma net tangible book value per share after the Offering(1)............. $ 2.69
---------
Dilution to new investors(1).................................................. $ 3.31
---------
---------
</TABLE>
The following table summarizes as of July 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% $ 2,607,500 30% $ 1.49
New Investors................... 1,000,000 36% $ 6,000,000 70% $ 6.00
------------ --- ------------- ---
Total........................... 2,750,000 100% $ 8,607,500 100%
------------ --- ------------- ---
------------ --- ------------- ---
</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.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at July
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>
JULY 31, 1998
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
------------ --------------
Long-term debt, less current maturities(1).......................................... $ 2,037,155 $ 1,709,608
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 6,479,740
Foreign currency transaction adjustment........................................... (196,650) (196,650)
Retained earnings............................................................... 1,225,532 1,225,532
Total shareholders' equity...................................................... 2,963,577 7,508,622
------------ --------------
Total capitalization............................................................ $ 5,000,732 $ 9,218,230
------------ --------------
------------ --------------
</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 650,000 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."
16
<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 $6.00 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
$4,799,150. 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 12.50%
Repayment of Indebtedness(2)...................................... $ 473,841 9.87
Buyout of Minority Interest(3).................................... $ 400,000 8.33
Sales and Marketing............................................... $ 300,000 6.25
Research and Development(4)....................................... $ 740,000 15.42
Working Capital and General Corporate Purposes(5)................. $ 2,285,309 47.63
Total............................................................. $ 4,799,150 100.00%
</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 $343,055 to the
National Bank of Canada as payment in full of four ($66,692, $201,183,
$27,558 and $47,622) bank term loans, which bank loans bear interest at
prime (6.5%) plus 1%, 1%, 1.75% and 1.75%, respectively, and are repayable
between February 2000 and April 2002 and (ii) repayment of an aggregate of
approximately $130,786 to Caisse Populaire Desjardins as repayment in full
of two ($42,806 and $87,980) bank term loans, which bank loans bear interest
at prime plus 1% and 1.75%, respectively, and are repayable in February 1999
and September 2000.
(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 and
salaries for a research and development department that the Company intends
to put together following the Offering.
(5) The net proceeds allocated to working capital include funds for general
corporate purposes including the employment of additional personnel to
support its anticipated growth and strategic acquisitions in furtherance of
the Company's expansion plans. Since the Company can not be certain as to
its growth rate and personnel needs to sustain such growth, the Company can
not determine the exact amount of the net proceeds allocated to working
capital that it will need for such purpose. Since, the Company is not
currently in negotiations with any acquisition candidates the exact amount
that will be expended as part of the Company's acquisition strategy can not
be determined. Any acquisitions that the Company makes will be of businesses
that are complimentary or related to the Company's business.
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.
17
<PAGE>
Any additional net proceeds realized from the exercise of the Over-Allotment
Option (up to approximately $799,312) 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.
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.
18
<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
SIX MONTHS ENDED JULY 31, 1998 COMPARED TO SIX MONTHS ENDED JULY 31, 1997
Revenues for the six months ended July 31, 1998 were $9,902,591, a 28.8%
increase over prior year revenues of $7,688,062. Gross profit for the period
increased by approximately $668,346 to $3,098,911 over the same period. This
represents a decrease in gross profit percentage of 0.32% from 31.61% to 31.29%,
expressed in relation to sales.
Selling and marketing expenses increased by $103,635 in the six months ended
July 31, 1998 from $1,041,004 to $1,144,639. This increase mainly reflects the
costs of additional personnel and marketing expenses necessitated by sales
growth. However, selling and marketing expenses as a percentage of revenues
declined from 13.5% to 11.6%.
19
<PAGE>
General & administrative expenses of $613,206 were 30.3% higher than prior
year, reflecting increased spending to support sales growth. However, as a
percentage of revenues they remained relatively constant at approximately 6.1%.
Interest expense for the period has increased by approximately $49,679 to
$164,564, due to extended financing requirements necessary to sustain sales
growth.
Income before taxes was $938,333, an increase of $257,069 over the prior
year. This increase in income is a direct result of continued sales growth.
Provision for income taxes increased to $330,981 from $231,175. This
increase is attributable to increased profits.
As a result of the above factors, the Company's net income increased from
$450,089 to $607,352, an increase of 34.9%.
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 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%.
20
<PAGE>
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. The extraordinary item results
from Thermoplus Air's filing of a proposal under the provisions of the
Bankruptcy Act which gave full payment to secured creditors who filed a proof of
claim. The transaction resulted in a one-time forgiveness of debt. The total
trade payables of $1,261,226 were settled for $175,910. The debts resulted from
overstocking inventory and certain sales practices that the Company's management
believes have since been corrected. In January 1995, a new management team was
installed which sought to correct such problems and refinanced its bank debt.
The new management did not have the necessary cash flow to pay off such trade
payables and thus fund the proposal. 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.
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
21
<PAGE>
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.
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
22
<PAGE>
in the amount of $509,115. Net cash flow generated after all activities was
negative in the amount of $64,999.
The Company's net increase in cash flow from operations for the six months
ended July 31, 1998 was $153,581, an increase of $591,239, or 135% over the
prior year. Cash flows used in investing activities during the six months ended
July 31, 1998 were $632,425 compared to an inflow of $145,954 for the previous
year. This was due to the Company's acquisition of capital equipment. Net cash
provided from financing activities for the six months ended July 31, 1998 was
$447,159 compared to $422,431 for the six months ended July 31, 1997. The source
of financing was bank indebtedness used for working capital purposes.
The Company will receive net proceeds of this Offering in an amount
estimated to be $4,799,150. 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. The Company also intends to pay Mr. Lakdawala and his affiliates
an aggregate of Cdn$592,000 in 12 equal monthly payments of Cdn$49,333,
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. The Company does not believe that the costs of implementing its Year
2000 compliance will be material.
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.
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.
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<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
24
<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.
25
<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
26
<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
27
<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.
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.
PATENTS AND TRADEMARKS
The Company has two United States and two Canadian patents. The patents
expire between 2000 and 2011. Three of the patents relate to swimming pool
dehumidifiers and the other relates to the Method and Apparatus for Controlling
Heat Rejection in a Refrigeration System.
The Company has trademarked the Dectron and Dry-O-Tron names in both the
United States and Canada. The trademarks come up for renewal between 2000 and
2010.
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. The two owned manufacturing
facilities are located in Montreal and Boucherville, Quebec. The facilities are
in good condition and do not require any significant capital expenditures. The
Company maintains property insurance on the two owned manufacturing facilities
in an amount that it believes to be sufficient. 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 $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.
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<PAGE>
EMPLOYEES
As of August 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.
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<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
30
<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. At this time, the Underwriters have not designated their nominees.
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.
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<PAGE>
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.
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,............................................ 1998 $ 140,647 0 0
Chief Executive Officer 1997 $ 65,655 0 0
and Director(2) 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 Company has adopted a Stock Option Plan pursuant to which 650,000 shares
of Common Stock are reserved for issuance, none of which are currently issued or
understanding.
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 five 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 five 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
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<PAGE>
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 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 five 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.
33
<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)..................................................... 1,674,059 95.66% 60.87%
Roshan Katrak(3)...................................................... 1,674,059 95.66 60.87
Reinhold Kittler...................................................... 0 * *
Mauro Parissi......................................................... 0 * *
Guy Houle............................................................. 0 * *
All Officers and Directors as a group(2)(3)........................... 1,674,059 95.66% 60.87%
</TABLE>
- ------------------------
* represents less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company.
(2) Represents (i) 43,561 shares of Common Stock directly owned, (ii) 67,395
shares of Common Stock owned by Roshan Katrak, Mr. Lakdawala's wife, (iii)
69,684 shares of Common Stock owned by Roshaness Inc., a company owned by
Mr. Lakdawala, and (iv) 1,492,879 owned by 3103-7195 Quebec Inc., a company
owned by Mr. Lakdawala's spouse and children.
(3) Represents (i) 67,395 shares of Common Stock directly owned, (ii) 43,561
shares of Common Stock owned by Ness Lakdawala, Ms. Katrak's husband, (iii)
69,684 shares of Common Stock owned by Roshaness Inc., a Company owned by
Ness Lakdawala, and (iv) 1,492,879 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.
34
<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. Mr. Ness
Lakdawala may be deemed to be the promoter of the Company.
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
which are contained/set forth elsewhere in this Prospectus and is included in
the Cdn$1,149,050 number mentioned below) in exchange for 62,500 shares of the
Company's Common Stock and Cdn$102,503; (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) in exchange for 194,621 shares of the Company's Common Stock
and Cdn$423,738, and (iii) the Company acquired all of the issued and
outstanding securities of Dectron in exchange for 1,492,879 shares of the
Company's Common Stock. The shares of Dectron, Inc. were owned by 159,653
Canada, Inc. which was a holding company beneficially owned by Mr. Lakdawala.
The Refplus and Thermoplus' parent company loans payable represent the repayment
of loans made to such companies. In connection with the Restructuring, the
Company issued 1,750,000 shares of Common Stock and promissory notes in the
aggregate amount of Cdn$1,149,050. 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 1,674,059 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 (in 12 equal
installments) commencing three months after the Closing of this Offering,
without interest, out of the Company's cash flow.
35
<PAGE>
Mr. Lakdawala and his affiliates received their 1,674,059 shares of the
Company for contributing their interest in the Company's subsidiaries.
Specifically, Mr. Lakdawala's affiliate received 1,492,879 shares in exchange
for 100% of 159653 Canada Inc., which owned 100% of Dectron, Inc. prior to the
Restructuring; 156,808 shares for a portion of their shares of KeepKool Transfer
de Chaleur Inc. ("KeepKool") which represented 86% of KeepKool (KeepKool owned
94% of Thermoplus Air, Inc. prior to the Restructuring); and 24,372 share for
his shares of 3294242 Canada Inc. which represented 61% of 3294242 (3294242
owned 49.99% of Refplus, Inc. prior to the Restructuring). Dectron Inc. owned
50.01% of Refplus Inc. prior to the Restructuring. The two promissory notes
totaling Cdn$592,000 were issued to Mr. Lakdawala and his affiliates in exchange
for Cdn$222,000 of debt owed to Mr. Lakdalawa by KeepKool and Cdn$370,000 for a
portion of his shares of KeepKool.
The terms of the Restructuring were negotiated between Mr. Lakdawala and the
other owners of the minority interest in Refplus and Thermoplus. Mr. Lakdawala
and his affiliates held a majority interest in Thermoplus prior to the
Restructuring. The Company owned a majority interest in Refplus prior to the
Restructuring and Mr. Lakdawala owned a majority of the 49.99% interest in
Refplus purchased by the Company in the Restructuring. The value was arrived at
based on negotiations between the Company and the Sellers (other than Mr.
Lakdawala and his affiliates). The Company did not have two independent
disinterested directors to ratify the transactions. There can be no assurance
that such transaction was on terms no less favorable than the Company could have
obtained from other third parties. Any interested transactions currently pending
must be approved by the Company's sole independent director, until such time as
another independent director is appointed to the Board.
All future material transactions, including any loans, between the Company
and its officers, directors, principal stockholders or affiliates of any of them
have been and will be on terms no less favorable to the Company than those that
can be obtained from unaffiliated third parties, and will be approved in advance
by a majority of the independent and disinterested directors who had access, at
the Company's expense, to the Company's or independent legal counsel.
36
<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 $9.00 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
37
<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 $12.00
(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 and
Warrants 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 by Shaffer & Associates that at all material
times the Common Stock and Warrants will be listed
38
<PAGE>
on NASDAQ, or some other Canadian or foreign stock exchange. 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. It is Shaffer & Associate's
opinion that 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. 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).
39
<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 650,000 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. However, such period
shall be extended to 36 months for any officer or director whose total
compensation is in excess of $100,000 per year, or who owns more than 5% of the
Company's outstanding Common Stock. Following the 18 month or 36 month period as
applicable, 20% of the securities covered by such lock-up agreement will be
released by the Representative annually for a period of five years. 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.
40
<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 $183,750 (or $211,312.50 if the Over-Allotment Option is exercised in full),
of which $50,000 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 $9.00 per Share and to purchase Warrants
at $.1875 per Warrant (150% of the initial public offering price), and the
Warrants contained in the Underwriters' Warrants will be exercisable to purchase
Common Stock at $9.90 per Share (165% above the public offering price of the
Common Stock). 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.
41
<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, such period shall be extended to 36
months for any officer or director whose total compensation is in excess of
$100,000 per year, or who owns 5% or more of the Company's outstanding Common
Stock. Following the 18 month or 36 month period, as applicable, 20% of the
securities subject to each lock up agreement will be released by the
representative annually for a period of five (5) years.
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. 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.
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
42
<PAGE>
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 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
43
<PAGE>
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.
44
<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>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
$ $ $ $
ASSETS
Cash..................................................... 19,325 17,739 28,155 52,001
Accounts receivable (note 2)............................. 4,330,661 3,795,317 3,043,829 2,658,816
Grant receivable......................................... -- -- -- 25,019
Inventory (note 3)....................................... 3,369,057 2,956,325 3,817,448 2,505,610
Income taxes receivable.................................. -- -- -- 99,139
Loans receivable (note 4)................................ 84,055 -- 87,306 --
Prepaid expenses and sundry assets....................... 560,102 322,511 292,931 176,030
------------ ------------ ------------ -----------
Total current assets....................................... 8,363,200 7,091,892 7,269,669 5,516,615
Sinking funds............................................ 20,636 -- 8,038 --
Loans receivable (note 4)................................ 88,098 142,533 91,508 116,675
Property, plant and equipment (note 5)................... 4,367,408 2,997,416 4,111,085 3,109,047
Goodwill (note 6)........................................ 40,192 49,965 44,528 54,133
------------ ------------ ------------ -----------
Total assets............................................... 12,879,534 10,281,806 11,524,828 8,796,470
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
F-3
<PAGE>
159653 CANADA INC. AND THERMOPLUS AIR INC.
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
$ $ $ $
LIABILITIES
Bank indebtedness (note 7).................................. 3,880,579 2,552,877 3,127,340 1,623,190
Accounts payable and accrued expenses (note 8).............. 2,389,276 2,117,869 1,964,280 1,655,111
Income taxes payable........................................ 153,980 126,308 200,502 --
Current portion of long-term debt (note 9).................. 411,211 396,858 427,116 406,080
Deferred revenue (note 12).................................. 116,490 127,781 127,857 114,235
------------ ------------ ------------ -----------
Total current liabilities..................................... 6,951,536 5,321,693 5,847,095 3,798,616
Long-term debt (note 9)..................................... 1,290,870 969,029 1,564,384 1,132,074
Due to director (note 10)................................... 64,837 90,895 67,345 97,341
Other loans payable (note 11)............................... 342,104 385,098 355,336 675,656
Deferred revenue (note 12).................................. 531,914 407,766 470,058 373,401
Deferred income taxes....................................... 395,352 562,168 410,643 575,230
------------ ------------ ------------ -----------
9,576,613 7,736,649 8,714,861 6,652,318
------------ ------------ ------------ -----------
Minority interest in equity consolidated entity............... 339,344 372,237 352,469 380,886
------------ ------------ ------------ -----------
Commitments and Contingencies (note 16)
STOCKHOLDERS' EQUITY
Capital Stock (note 13)..................................... 1,934,695 1,934,695 1,934,695 1,934,695
Retained Earnings (Deficit)................................. 1,225,532 204,937 618,180 (245,151)
Cumulative Translation Adjustments.......................... (196,650) 33,288 (95,377) 73,722
------------ ------------ ------------ -----------
Total stockholders' equity.................................... 2,963,577 2,172,920 2,457,498 1,763,266
------------ ------------ ------------ -----------
Total liabilities and stockholders' equity.................... 12,879,534 10,281,806 11,524,828 8,796,470
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</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
SIX MONTHS ENDED JULY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997 1996
----------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
<CAPTION>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 9,902,591 7,688,062 16,370,849 12,712,413 8,375,015
Cost of sales...................................... 6,803,680 5,257,497 10,777,360 8,478,285 6,171,434
----------- ------------- ------------ ------------ -----------
Gross profit....................................... 3,098,911 2,430,565 5,593,489 4,234,128 2,203,581
----------- ------------- ------------ ------------ -----------
Operating expenses
Selling.......................................... 1,144,639 1,041,004 2,272,053 1,332,843 1,040,416
General and administrative....................... 613,206 470,516 1,304,014 1,287,971 869,045
Depreciation and amortization.................... 238,169 122,896 461,100 289,256 252,722
Interest expense................................. 164,564 114,885 287,677 334,493 292,063
----------- ------------- ------------ ------------ -----------
2,160,578 1,749,301 4,324,844 3,244,563 2,454,246
----------- ------------- ------------ ------------ -----------
Income (loss) before income taxes and extraordinary
item and minority interest....................... 938,333 681,264 1,268,645 989,565 (250,665)
Income taxes (note 14)............................. 330,981 231,175 405,314 223,697 108,254
----------- ------------- ------------ ------------ -----------
Income (loss) before extraordinary item and
minority interest................................ 607,352 450,089 863,331 765,868 (358,919)
Extraordinary item (note 15)..................... -- -- -- -- 1,085,316
----------- ------------- ------------ ------------ -----------
Income before minority interest.................... 607,352 450,089 863,331 765,868 726,397
Minority interest in earnings of consolidated
entity......................................... -- -- -- 69,090 --
----------- ------------- ------------ ------------ -----------
Net income......................................... 607,352 450,089 863,331 696,778 726,397
----------- ------------- ------------ ------------ -----------
----------- ------------- ------------ ------------ -----------
Net income per weighted average common stock....... 0.35 0.26 0.49 0.40 0.42
----------- ------------- ------------ ------------ -----------
----------- ------------- ------------ ------------ -----------
Weighted average number of common stock
outstanding...................................... 1,750,000 1,750,000 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>
SIX MONTHS ENDED JULY
31, YEAR YEAR YEAR
------------------------ ENDED ENDED ENDED
1997 JANUARY 31, JANUARY 31, JANUARY 31,
1998 ----------- 1998 1997 1996
----------- $ ----------- ----------- -----------
$ (UNAUDITED) $ $ $
(UNAUDITED) (NOTE 2)
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. 607,352 450,089 863,331 696,778 726,397
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization............... 238,169 122,896 461,100 289,256 252,722
Loss on disposal of capital assets.......... -- 6,000 --
Minority interest in earnings of
consolidated entity....................... -- 69,090 --
(Increase) decrease in accounts
receivable................................ (1,286,832) (1,136,501) (385,013) (527,956) (532,189)
(Increase) decrease in inventory............ 448,391 (450,715) (1,311,838) (895,202) 1,823
(Increase) decrease in income taxes
receivable................................ (46,522) 225,447 299,641 171,087 (36,907)
(Increase) decrease in prepaid expenses and
sundry assets............................. (267,171) (146,481) (116,901) (69,866) 7,973
Increase (decrease) in accounts payable and
accrued expenses.......................... 424,996 462,758 309,169 12,074 (302,987)
Increase (decrease) in deferred income
taxes..................................... (15,291) (13,062) (164,587) 8,640 54,418
Increase (decrease) in deferred revenue..... 50,489 47,911 110,279 91,749 88,537
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities.................................. 153,581 (437,658) 65,181 (148,350) 259,787
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment... (632,425) (87,474) (1,978,811) (556,323) (195,213)
Proceeds from disposal of property, plant
and equipment............................. -- 233,428 233,428 7,467 --
Acquisition of Goodwill..................... -- -- -- (60,147) --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (632,425) 145,954 (1,745,383) (609,003) (195,213)
----------- ----------- ----------- ----------- -----------
</TABLE>
F-6
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY
31, YEAR YEAR YEAR
------------------------ ENDED ENDED ENDED
1997 JANUARY 31, JANUARY 31, JANUARY 31,
1998 ----------- 1998 1997 1996
----------- ----------- ----------- -----------
$
$ (UNAUDITED) $ $ $
(UNAUDITED) (NOTE 2)
(NOTE 1)
Cash flow from financing activities:
<S> <C> <C> <C> <C> <C>
Minority interest in equity consolidated
entity.................................... -- 311,796 --
Sinking funds............................... (12,598) (8,038) -- --
Grant receivable............................ (25,019) 25,019 (25,019) --
(Advances to) repayments from directors..... 2,508 6,446 (29,996) 118,732 (200,626)
(Advances to) repayments from corporate
shareholders.............................. -- -- (110,089) -- (280,256)
(Advances to) repayments from loan
receivable................................ 6,661 (25,858) 47,950 -- --
Advances from (repayment of) long-term
debt...................................... (289,419) (172,267) 453,346 (30,606) 399,963
Advances from (repayment of) loan payable... (13,232) (290,558) (320,320) 626,406 13,238
Advances (repayments) of bank
indebtedness.............................. 753,239 929,687 1,504,150 294,224 43,158
Redemption of Class A shares................ -- -- -- (509,115) --
----------- ----------- ----------- ----------- -----------
Net cash flow (used in) provided by financing
activities.................................. 447,159 422,431 1,562,022 786,418 (24,523)
----------- ----------- ----------- ----------- -----------
Effect of foreign currency exchange rate
changes..................................... 22,855 (164,989) 94,334 (42,063) (92,001)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. (8,830) (34,262) (23,846) (12,998) (51,950)
Beginning of period/year.................... 28,155 52,001 52,001 64,999 116,949
----------- ----------- ----------- ----------- -----------
End of period/year.......................... 19,325 17,739 28,155 52,001 64,999
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosure of cash flow
information
Cash paid (received) during the year
Interest.................................... 127,505 107,508 317,784 279,004 306,273
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income taxes................................ 110,000 95,000 358,315 116,460 (126,004)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
F-7
<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)
Foreign Currency translation................................. -- -- -- (101,273)
Net Income for the period.................................... -- -- 607,352 --
---------- ---------- ----------- -----------
Balance July 31, 1998........................................ 91,267 1,934,695 1,225,532 (196,650)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
F-8
<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
The financial statements for the six months ended July 31, 1998 and 1997 are
unaudited. The interim results are not necessarily indicative of the results for
any future period. In the opinion of management, the data in the financial
statements reflects all adjustments necessary for a fair presentation of the
results of the interim period disclosed. All adjustments are of a normal and
recurring nature.
B) COMBINED FINANCIAL STATEMENTS
These financial statements combine the accounts of an affiliated company,
which is under common control, 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.
C) 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.
D) 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.
E) 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.
F) 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 associated with each
instrument, discounted using an estimate of what the companies' current
borrowing rate for similar instruments of comparable maturity would be.
G) INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined on
the first-in, first-out basis.
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)
H) 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.
I) 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.
J) 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.
K) 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.
L) 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-10
<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.
M) 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.
N) 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.
O) 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>
JULY 31,
1997 JANUARY 31, JANUARY 31,
------------ 1998 1997
JULY 31, $ ------------ ------------
1998 (UNAUDITED) $ $
------------ (NOTE 1)
$
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Accounts receivable.................. 4,388,381 3,837,077 3,105,239 2,701,546
Less: Allowance for doubtful
accounts........................... 57,720 41,760 61,410 42,730
------------ ------------ ------------ ------------
Accounts receivable--net............. 4,330,661 3,795,317 3,043,829 2,658,816
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-11
<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>
JULY 31,
1997 JANUARY 31, JANUARY 31,
------------ 1998 1997
JULY 31, $ ------------ ------------
1998 (UNAUDITED) $ $
------------ (NOTE 1)
$
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Raw materials........................ 1,983,630 1,865,365 2,247,631 1,580,976
Work-in-process...................... 511,972 487,865 580,112 413,486
Finished goods....................... 873,455 603,095 989,705 511,148
------------ ------------ ------------ ------------
3,369,057 2,956,325 3,817,448 2,505,610
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
4. LOANS RECEIVABLE
Loans receivable consists of the following:
<TABLE>
<CAPTION>
JULY 31,
1997 JANUARY 31, JANUARY 31,
------------ 1998 1997
JULY 31, $ ----------- -----------
1998 (UNAUDITED) $ $
------------ (NOTE 1)
$
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Loan receivable--private company
(secured)............................. 61,102 108,886 63,467 111,417
Loan receivable--corporate shareholders
(unsecured)........................... 111,051 33,647 115,347 5,258
------------ ------------ ----------- -----------
172,153 142,533 178,814 116,675
Current portion......................... 84,055 -- 87,306 --
------------ ------------ ----------- -----------
88,098 142,533 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-12
<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>
JULY 31,
1997 JANUARY 31, JANUARY 31,
------------ 1998 1997
JULY 31, $ ------------ ------------
1998 (UNAUDITED) $ $
------------ (NOTE 1)
$
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Land........................................... 229,843 141,478 238,733 380,956
Building....................................... 1,679,076 925,363 1,732,386 946,866
Machinery and manufacturing equipment.......... 3,385,973 2,585,182 2,983,063 2,408,142
Furniture and fixtures......................... 338,446 325,900 322,367 311,007
Computers...................................... 615,104 535,360 529,722 498,861
Automobile..................................... 26,851 5,907 15,181 6,045
Leasehold improvements......................... 340,140 410,839 340,833 403,283
Equipment under capital lease.................. -- 20,405 52,139 20,879
------------ ------------ ------------ ------------
Cost........................................... 6,615,433 4,950,434 6,214,424 4,976,039
------------ ------------ ------------ ------------
Less accumulated depreciation and amortization:
Building....................................... 195,488 145,498 174,779 139,016
Machinery and manufacturing equipment.......... 1,106,564 882,206 1,005,575 827,241
Furniture and fixtures......................... 237,181 231,909 234,100 227,853
Computers...................................... 413,313 361,731 381,279 347,886
Automobile..................................... 7,435 5,907 2,087 6,045
Leasehold improvement.......................... 288,044 314,205 287,696 308,762
Equipment under capital lease.................. -- 11,562 17,823 10,189
------------ ------------ ------------ ------------
2,248,025 1,953,018 2,103,339 1,866,992
------------ ------------ ------------ ------------
Net............................................ 4,367,408 2,997,416 4,111,085 3,109,047
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
6. GOODWILL
<TABLE>
<CAPTION>
JULY 31,
1997 JANUARY 31, JANUARY 31,
----------- 1998 1997
JULY 31, $ ----------- -----------
1998 (UNAUDITED) $ $
----------- (NOTE 1)
$
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Cost............................................... $ 53,588 $ 58,782 $ 55,660 $ 60,148
Less: Accumulated amortization..................... 13,396 8,817 11,132 6,015
----------- ----------- ----------- -----------
Net................................................ 40,192 49,965 44,528 54,133
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-13
<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. An amount
of $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>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Accounts payable and accrued expenses are comprised of
the following:
Trade payable......................................... 1,624,708 1,385,792 1,285,294 1,015,118
Accrued expenses...................................... 764,568 732,077 678,986 639,993
----------- ----------- ----------- -----------
2,389,276 2,117,869 1,964,280 1,655,111
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<C> <S> <C> <C> <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......................... 192,913 -- 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.......................................... 462,994 -- 480,901 --
------------ ------------
Balance Carried Forward......................... 655,907 -- 721,352 --
</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>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<C> <S> <C> <C> <C> <C>
--------- --------- --------- ---------
Balance Brought Forward................ 655,907 -- 721,352 --
c) Bank term loan bearing interest at
prime plus 1% per annum repayable in
monthly capital repayment of $1,540.
Maturing April 2002.................. 66,692 -- 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......... 201,183 -- 240,308 --
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................. 42,806 64,368 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................................ 109,739 149,716 113,983 160,293
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............................. 27,558 66,507 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............... 47,622 84,452 63,479 105,642
--------- --------- --------- ---------
Balance Carried Forward................ 1,151,507 365,043 1,316,137 427,320
--------- --------- --------- ---------
</TABLE>
F-15
<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>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<C> <S> <C> <C> <C> <C>
Balance Brought Forward................ 1,151,507 365,043 1,316,137 427,320
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................ 87,980 107,308 103,652 136,313
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................................. 95,347 -- 102,477 --
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............................... 132,284 170,500 147,705 180,030
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................. 224,883 348,255 274,801 378,619
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............................. -- 129,991 -- 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............................. -- 145,106 -- 170,750
--------- --------- --------- ---------
Balance Carried Forward................ 1,692,001 1,266,203 1,944,772 1,444,604
--------- --------- --------- ---------
</TABLE>
F-16
<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>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<C> <S> <C> <C> <C> <C>
Balance Brought Forward................ 1,692,001 1,266,203 1,944,772 1,444,604
o) Loan payable secured by Fonds D'Alde
Aux Entreprise bearing interest at
10.50% repayable in 60 monthly
instalments once accumulated interest
reaches 30% of loan repaid during the
year................................. -- 87,789 -- 89,829
p) Other.................................. 10,080 11,895 46,728 3,721
--------- --------- --------- ---------
1,702,081 1,365,887 1,991,500 1,538,154
Less: Current portion.................. 411,211 396,858 427,116 406,080
--------- --------- --------- ---------
1,290,870 969,029 1,564,384 1,132,074
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Future principal payment obligations are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<C> <S> <C> <C> <C> <C>
1998............................................ -- 396,858 -- 406,080
1999............................................ 411,211 397,613 427,116 406,852
2000............................................ 389,637 319,782 404,707 327,212
2001............................................ 343,019 241,823 356,286 247,442
2002............................................ 165,748 9,811 172,159 77,420
2003............................................ 392,466 -- 586,577 73,148
Subsequent to 2003.............................. -- -- 44,655 --
------------ ------------ ------------ ------------
1,702,081 1,365,887 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.
F-17
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
12. DEFERRED REVENUE
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
Deferred revenue............................................. 648,404 535,447 597,915 487,636
Current portion.............................................. 116,490 127,781 127,857 114,235
----------- ----------- ----------- -----------
531,914 407,766 470,058 373,401
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Deferred revenue will be recognized as income as follows:
1998......................................................... -- 127,781 -- 114,235
1999......................................................... 116,490 112,387 127,857 130,751
2000......................................................... 123,096 89,742 184,327 113,976
2001......................................................... 177,463 42,703 136,482 84,976
2002......................................................... 131,400 163,934 98,277 43,698
2003......................................................... 99,955 -- 50,972 --
----------- ----------- ----------- -----------
648,404 535,547 597,915 487,636
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
13. CAPITAL STOCK
a) Authorized
159653 Canada Inc.:
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
F-18
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
13. CAPITAL STOCK (CONTINUED)
Class E preference shares, 10% non-cumulative dividend, voting,
redeemable and retractable at the paid up amount
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>
JULY 31, JULY 31, JANUARY 31, JANUARY 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
$ $ $ $
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
<C> <S> <C> <C> <C> <C>
Thermoplus Air Inc.
91,242 Class A common shares...................... 1,934,525 1,934,525 1,934,525 1,934,525
159653 Canada Inc.
1,571,000 Class D shares............................. 152 152 152 152
25 Class A shares............................. 18 18 18 18
----------- ----------- ----------- -----------
1,934,695 1,934,695 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-19
<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.
d) The income tax provision for the six months period ended July 31, 1998
and 1997 have been estimated at the basic combined Federal and provincial rates.
15. EXTRAORDINARY ITEM
During the 1996 fiscal year, the new management of the company Thermoplus
Air Inc. decided to file a proposal under Bankruptcy and Insolvency Act to
finalize the Company's restructuring plan. They were able to fulfill their
obligation taken under the proposal and received a "Certificate of Full
Performance" certifying the compliance. 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.
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-20
<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 $32,160 per year:
17. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY
31, YEAR ENDED JANUARY 31,
------------------------ ----------------------------------------
1997 1998 1997 1996
1998 ----------- ------------ ------------ ------------
----------- $ $ $ $
$ (UNAUDITED)
(UNAUDITED) (NOTE 1)
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Breakdown of sales by geographic area is as
follows:
Canada.................................. 3,641,207 2,768,302 5,698,411 5,003,503 2,148,159
United States of America................ 6,261,384 4,919,760 10,672,438 7,708,910 6,226,856
----------- ----------- ------------ ------------ ------------
9,902,591 7,688,062 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.
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-21
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
19. PROFORMA INFORMATION
The proforma unaudited consolidated balance sheet as at July 31, 1998 for
Dectron Internationale Inc. giving retroactive effect to the acquisitions
referred to in note 13(c) as follows:
a) Dectron Internationale Inc.
Proforma Consolidated Balance Sheet
As at July 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Assets
Cash............................................................. $ 19,325
Accounts receivable.............................................. 4,330,661
Inventory........................................................ 3,369,057
Prepaid expenses and sundry assets............................... 560,102
----------
Total current assets............................................... 8,279,145
Sinking fund..................................................... 20,636
Loan receivable (note c)......................................... 113,196
Property, plant and equipment.................................... 4,367,408
Goodwill (note d)................................................ 134,822
----------
Total assets....................................................... $12,915,207
----------
----------
Liabilities
Bank indebtedness................................................ $3,880,579
Accounts payable (note c)........................................ 2,406,411
Income taxes payable............................................. 153,980
Current portion of long term debt................................ 411,211
Deferred revenue................................................. 116,490
----------
Total current liabilities.......................................... 6,968,671
Long term debt................................................... 1,290,870
Due to shareholders (note f)..................................... 348,072
Due to director.................................................. 64,837
Other loan payable (note g)...................................... 690,176
Deferred revenue................................................. 531,914
Deferred income taxes............................................ 395,352
----------
10,289,892
Stockholders' Equity
Capital stock (note h)........................................... 1,596,433
Retained earnings................................................ 1,225,532
Cumulative translation adjustments............................... (196,650)
----------
2,625,315
----------
$12,915,207
----------
----------
</TABLE>
F-22
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
19. PROFORMA INFORMATION (CONTINUED)
b) Notes to the Proforma consolidated balance sheet
July 31, 1998
(Unaudited)
BASIS OF PRESENTATION
The proforma consolidated balance sheet reflects the acquisition of
the minority interest by Dectron Inc. in Refplus Inc. and the 100%
acquisition of Thermoplus Air Inc. The acquisition will be accounted
for by the purchase method. All material Inter-company accounts and
transactions have been eliminated.
The proforma consolidated statement of Income and consolidated
statement of cash flow is not presented because there is no impact on
the earnings of the company and earnings per share.
The following notes to the proforma consolidated balance sheet are
only on items which are significantly changed from the audited
combined balance sheet.
c) Loans receivable
Loans receivable consists of the following:
<TABLE>
<S> <C>
Loan receivable--private company (secured)........................ $ 61,100
Loan receivable--corporate shareholders (unsecured)............... 52,096
---------
$ 113,196
---------
---------
</TABLE>
These loans are non interest bearing with no specific terms of
repayment and is not expected to be received prior to February 1,
1999
d) Goodwill
<TABLE>
<S> <C>
Cost.................................................................. $ 145,539
Less: accumulated amortization........................................ 10,717
---------
$ 134,822
---------
---------
</TABLE>
e) Accounts payable and accrued expenses
Accounts payable and accrued expenses are comprised of the following:
<TABLE>
<S> <C>
Trade payable................................................... $1,641,843
Accrued expenses................................................ 764,568
---------
2,406,411
---------
---------
</TABLE>
f) Due to shareholders
Due to shareholders are non interest bearing and are payable
approximately 90 days subsequent to the proceeds received from the
initial public offering except for the principal
F-23
<PAGE>
159653 CANADA INC. AND
THERMOPLUS AIR INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
19. PROFORMA INFORMATION (CONTINUED)
shareholder which is payable by 12 equal consecutive monthly payments
of $20,393 beginning approximately 90 days subsequent to the proceeds
from the initial public offering.
g) Other loans payable
These loans are non interest bearing and are repayable approximately
90 days subsequent to having received the proceeds from the initial
public offering except for an amount of $136,009 which is repayable
by 12 equal consecutive monthly payments of $11,833 each beginning
approximately 90 days subsequent to the proceeds received from the
initial public offering. An amount of $258,897 owed to a private
company is not due prior to April 15, 2002.
h) Capital Stock
The company, Dectron Internationale Inc., is authorized to issue an
unlimited number of preferred and common shares without par value.
Issued
<TABLE>
<S> <C>
1,750,000 Common shares......................................... $1,596,433
---------
---------
</TABLE>
20. SUPPLEMENTAL INFORMATION
The registrant Dectron Internationale Inc., was incorporated on March 30,
1998. As at the incorporation date and as at July 31, 1998 the company had no
assets or liabilities. As per the corporate restructure the company will own all
of the issued and outstanding shares of Dectron Inc., the operating company.
F-24
<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................................... 6
Summary Combined Financial Information......... 7
Risk Factors................................... 8
Dilution....................................... 15
Capitalization................................. 16
Use of Proceeds................................ 17
Dividend Policy................................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 24
Management..................................... 30
Principal Stockholders......................... 34
Certain Transactions........................... 35
Description of Securities...................... 37
Tax Aspects of the Offering.................... 38
Shares Eligible for Future Sale................ 40
Underwriting................................... 41
Legal Matters.................................. 43
Experts........................................ 43
Additional Information......................... 43
Indemnification of Securities Act
Liabilities.................................. 44
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.
[LOGO]
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.............................. 183,750.00
Transfer Agent and Registrar Fees and Expenses*................ 2,500.00
Miscellaneous*................................................. 28,425.45
----------
Total.......................................................... $713,350.00
----------
----------
</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. The
shares issued in the Restructuring were issued without registration pursuant to
Section 4(2) of the Securities Act of 1933 as they were issued to a very limited
group in a private transaction without the involvement of an underwriter.
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
II-2
<PAGE>
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.
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
*8.1 Opinion of Shaffer & Associates
**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 Klaasco Lease
*10.5 Refplus Lease
*10.6 Thermoplus Lease
*10.7 Fibor Mobile Ltd. Lease
**10.8 Form of Employment Agreement with Ness Lakdawala
**10.9 Form of Shareholder's Restructuring Agreement
**10.10 Form of Lock Up 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.
** Previously filed.
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
II-3
<PAGE>
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.
(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 Amendment No. 2 to 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 September 11, 1998.
DECTRON INTERNATIONALE INC.
BY: /S/ NESS LAKDAWALA
-----------------------------------------
Ness Lakdawala
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ NESS LAKDAWALA President, Chief Executive September 11, 1998
---------------------------- Officer and Chairman
Ness Lakdawala
* Executive Vice President September 11, 1998
---------------------------- and Director
Reinhold Kittler
* Vice President of Human September 11, 1998
---------------------------- Relations and Director
Roshan Katrak
/s/ MAURO PARISSI Chief Financial Officer, September 11, 1998
---------------------------- Secretary and Director
Mauro Parissi
* Director September 11, 1998
----------------------------
Guy Houle
* Executive Vice President September 11, 1998
---------------------------- and Director
Leena Lakdawala
* By Power of Attorney
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
*8.1 Opinion of Shaffer & Associates
**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 Klaasco Lease
*10.5 Refplus Lease
*10.6 Thermoplus Lease
*10.7 Fibor Mobile Ltd. Lease
**10.8 Form of Employment Agreement with Ness Lakdawala
**10.9 Form of Shareholders' Restructuring Agreement
**10.10 Form of Lock Up 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.
** Previously filed.
<PAGE>
Exhibit 3.1
BY-LAWS OF
DECTRON INTERNATIONALE INC.
(Corporation incorporated under the Canada Business Corporations Act)
BY-LAW NUMBER 1: GENERAL BY-LAWS
PART I COMMON RULES "Register"
"registration procedure"
Section 1. GENERAL PROVISIONS "Regulations"
"representative"
1. Contractual nature "reserved powers"
"special meeting"
A. SCOPE OF APPLICATION "unanimous shareholder agreement"
6. Definitions in the Act or in the
2. Part I Regulations
3. Part II
4. Part III C. INTERPRETATION
B. DEFINITIONS 7. Rules of interpretation
8. Discretion
5. Definitions in the by-laws 9. Precedence
"Act" 10. Headings
"An Act respecting the legal 11. Time limits
publicity of sole
proprietorships" Section 2. CORPORATION
"articles"
"auditor" A. REGISTERED OFFICE AND
"body corporate" ESTABLISHMENT
"by-laws"
"contracts, documents or 12. Place and address of registered
instruments in writing" office
"declaration deposited in the 13. Change of address and of place
Register" 14. Establishment
"Director" 15. Applicable legislation
"director" 16. Notices to the Corporation
"Inspector General"
"juridical or business day" B. SEAL AND OTHER MEANS OF
"meeting of the IDENTIFICATION OF THE
shareholders" CORPORATION
"non-juridical day or
holiday" 17. Form and contents of seal
"officer" 18. Logo
"person" 19. Facsimile of the seal
"record date" 20. Safekeeping of the seal
21. Safekeeping of the facsimile
<PAGE>
22. Use of the seal 50. Gifts infer nyos
23. Use of the facsimile 51. By-laws
24. Validity 52. Banking or finance
25. Name 53. Financial year
54. Approval by shareholders
C. BOOKS AND REGISTERS
C. MEETINGS OF THE BOARD OF
26. Corporate Records Book DIRECTORS
27. Minutes and resolutions
28. Safekeeping 55. Calling of meetings
29. Accounting records 56. First directors' resolutions
30. Examination of books, 57. Regular meetings
registers and documents 58. Annual meeting
31. Non-certified copies of 59. Emergency meeting
documents 60. Waiver of notice
32. Disclosure of information to 61. Place of meetings
shareholders 62. Quorum
63. Canadian majority
PART II CORPORATION WITH 64. President and Secretary
MORE THAN ONE 65. Procedure
DIRECTOR AND/OR 67. Dissent
SHAREHOLDER 68. Meeting by way of technical means
69. Resolutions in lieu of meetings
Section 1. REPRESENTATION OF THE 70. Adjournment
CORPORATION 71. Validity
33. Representative bodies D. OFFICERS AND REPRESENTATIVES
A. DIRECTORS 72. Mandataries or agents
73. Appointment
34. Mandatary or agent 74. Cumulative duties
35. Number 75. Term of office
36. Qualifications 76. Remuneration
37. Election 77. Powers
38. Acceptance of office 78. Duties
39. Term of office 79. Chairman of the Board of
40. De facto directors Directors
41. Notices to directors 80. President of the Corporation
42. Remuneration and expenses 81. Vice-President
43. Conflict of interest 82. Treasurer
44. Resignation 83. Secretary
45. Removal from office 84. General Manager
46. End of term of office 85. Posting of security bond
47. Vacancies 86. Conflict of interest
87. Signing of documents
B. POWERS OF THE DIRECTORS 88. Signing of declarations to be
deposited in the Register
48. General rule 89. Mechanically-reproduced signature
49. Duties 90. Proxy holder of the Corporation
<PAGE>
91. Legal or other proceedings Section 2. SHAREHOLDERS
92. Prima facie evidence of by
law A. SECURITIES
93. De facto of ricers or
representatives 117. Allotment and issue of securities
94. Resignation 118. Commission
95. Removal from office 119. Joint shareholders
96. End of term of office 120. New shareholder
E. EXECUTIVE COMMITTEE B. SECURITY CERTIFICATES
AND OTHER COMMITTEES
121. Right to a certificate
97. Appointment 122. Signing of certificates
98. Qualifications 123. Additional signatures
99. Powers 124. Joint holders
100. Meetings 125. Full copy of text
101. Remuneration 126. Fractional securities
102. Compensation 127. Evidence
103. Other committees 128. Replacement of certificates
104. Dissent
105. Removal from office and C. TRANSFER OF SECURITIES
replacement
106. End of term of office 129. Securities' and transfer
registers
130. Transfer agents
F. DIVISIONS 131. Transfers of securities
132. Lien on a security
107. Creation 133. Enforcement of a lien
108. Management 134. Registration of transfers
135. Deceased shareholder
G. PROTECTION OF THE 136. Effect of registration
DIRECTORS, OF THE
OFFICERS AND OF THE D. DIVIDENDS
REPRESENTATIVES
137. Declaration and payment
109. Exclusion of liability 138. Payment
vis-a-vis the Corporation 139. Unclaimed dividend
and third parties 140. Joint shareholders
110. Right to compensation 141. Set-off
111. Legal action by third party
112. Legal action by the E. NOTICES AND INFORMATION TO
Corporation SHAREHOLDERS
113. Liability insurance
114. Compensation after end of 142. Notices to shareholders
term of office 143. Addresses of shareholders
115. Determination of conditions 144. Untraceable shareholder
precedent to compensation 145. Notice of record date
116. Place of action
<PAGE>
F. MEETINGS OF THE 1. AUDITOR OR ACCOUNTANT
SHAREHOLDERS
175. Appointment of auditor
146. Annual meetings 176. Remuneration of auditor
147. Special meetings 177. Independence of auditor
148. Calling by shareholders 178. Removal of auditor
149. Meetings in the Province of 179. Opposition by auditor
Quebec 180. End of term of auditor
150. Meetings outside the 181. Accountant
Province of Quebec 182. End of term of accountant
151. Notice of meeting 183. Audit Committee
152. Notice to the auditor 184. Duty of Audit Committee
153. Contents of notice 185. Meetings of Audit Committee
154. Waiver of notice
155. Irregularities PART III CORPORATION WITH SOLE
156. Persons entitled to attend a DIRECTOR OR SOLE SHARE
meeting HOLDER
157. Quorum
158. Adjournment Section 1. REPRESENTATION OF THE
159. Chairman and secretary CORPORATION
160. Procedure
161. Resolutions in lieu of
meetings 186. Representative bodies
G. RIGHT OF SHAREHOLDERS Section 2. SOLE DIRECTOR AND OFFICERS
TO VOTE
A. SOLE DIRECTOR
162. General rule
163. Joint shareholders 187. Composition of the Board of
164 Securities held by an Directors
administrator of the 188. Mandatary or agent
property of another or by a 189. Qualifications
trustee 190. Acceptance of office
165. Voting by a show of hands 191. Term of office
and casting vote 192. Powers
166. Voting on behalf of a body 193. Duties
corporate 194. Gifts inter biros
167. Ballot 195. Remuneration and expenses
168. Scrutineer 196. Conflict of interest
197. By-laws
198. End of term of office
H. PROXIES B. OFFICERS AND REPRESENTATIVES
169. Proxies 199 Mandataries or agents
170. Form of proxy 200. Appointment & cumulative duties
171. Revocation 201. Term of office
172. Filing of proxies 202. Remuneration
173. Deadline for filing 203. Powers
174. Soliciting proxies 204. Duties
205. Posting of security bond
<PAGE>
206. Conflict of interest 221. Place of action
207. Signing of documents
208. Signing of declarations D. BANKING OR FINANCE deposited
to be in the Register
209. Legal or other proceedings 222. Banking or finance
210. Prima facie evidence of 223. Financial year
by-law 224. Auditor
211. Resignation 225. Removal of auditor
212. Removal from office 226. Opposition by auditor
213. End of term of office 227. End of term of auditor
228. Accountant
C. PROTECTION OF THE SOLE 229. End of term of accountant
DIRECTOR, OF THE
OFFICERS AND OF THE Section 3. SOLE SHAREHOLDER
REPRESENTATIVES
A. SECURITIES AND DIVIDENDS
214. Exclusion of liability
vis-a-vis the Corporation 230. Allotment and issue of securities
and third parties 231. Security certificates
215. Right to compensation 232. Dividends
216. Legal action by third party
217. Legal action by the B. RESOLUTIONS OF THE SOLE
Corporation SHAREHOLDER
218. Liability insurance
219. Compensation after end of 233. Powers
term of office 234. Annual and other resolutions
220. Determination of conditions
precedent to compensation
BY-LAW NUMBER 2: GENERAL BORROWING BY-LAW
BY-LAW NUMBER 3: BANKING BY-LAW
<PAGE>
BY-LAW NUMBER 1
being the
GENERAL BY-LAWS OF
DECTRON INTERNATIONALE INC.
These general by-laws of the Corporation, also referred to as By-law Number 1,
have been passed by a resolution of the sole director or of the directors and
confirmed by a resolution of the sole shareholder or of the shareholders, in
accordance with the Act.
PART I COMMON RULES
Section 1. GENERAL PROVISIONS
1. Contractual nature. These general by-laws create relations of a
contractual nature between the Corporation and its sole shareholder or
its shareholders.
A. SCOPE OF APPLICATION
2. Part I. The common rules contained in this Part of the by-laws shall
apply at all times to Parts II and III hereof.
3. Part II. Part II of the by-laws shall apply from the moment when the
Corporation shall be made up either of more than one director or of
more than one shareholder or of more than one director and of more than
one shareholder.
4. Part III. Part III of the by-laws shall apply whenever the Corporation
shall be made up of one (1) sole director or of one (1) sole
shareholder or of one (1) sole director and of one (1) sole
shareholder, who do not necessarily have to be the same person. If the
Corporation is made up of one (l) sole director but of more than one
shareholder, Part II shall apply to the shareholders. Conversely, if
the Corporation is made up of one (1) sole shareholder but of more than
one director, Part II shall apply to the directors.
B. DEFINITIONS
5. Definitions in the by-laws. Unless there exists an express contrary
provision or unless the context clearly indicates otherwise, in the
by-laws of the Corporation, in the minutes of the proceedings of the
Board of Directors, of the Executive Committee and of the other
committees of the Board of Directors and in the resolutions of the sole
director or of the directors, of the Executive Committee and of the
other committees of the Board of Directors as well as in the minutes of
the meetings of the shareholders and in the resolutions of the sole
shareholder or of the shareholders the term or the expression:
"Act" or "Canada Business Corporations Act" shall mean the An Act
respecting Canadian business corporations, R.S.C. 1985, c. C-44, as
amended, and any amendment thereto, either past or future, and shall
include, in particular, any act or statute which may replace it, in
whole or in part. In the event of such replacement, any reference to a
provision of the Act shall be interpreted as being a reference to the
provision which replaced it;
<PAGE>
"An Act respecting the legal publicity of sole proprietorships"
shall mean An Act respecting the legal publicity of sole
proprietorships, partnerships and legal persons, S.Q. 1993, c. 48,
and any future amendment thereto and shall include, in particular,
any act or statute which may replace it, in whole or in part. In
the event of such replacement, any reference to a provision of An
Act respecting the legal publicity of sole proprietorships shall be
interpreted as being a reference to the provision which replaced it;
"articles" shall mean the original or restated articles of
incorporation, articles of amendment, articles of amalgamation,
articles of continuance, articles of reorganization, articles of
dissolution, articles of revival or articles of arrangement of the
Corporation as well as any amendment which may be made thereto;
"auditor" shall mean the auditor of the Corporation and shall
include, in particular, a partnership which is made up of auditors;
"body corporate" shall include, in particular, a legal person within
the meaning of the Civil Code of Quebec, a company, a non-profit
corporation, a corporation or an association having a juridical or
legal personality separate and distinct from its members, wherever
or however incorporated;
"by-laws" shall mean the present by-laws, any other by-laws of the
Corporation which are in force at the time as well as any amendments
thereto;
"contracts, documents or instruments in writing" shall include,
among other things, deeds, hypothecs or mortgages, liens,
encumbrances, transfers and assignments of property of any kind,
conveyances, titles to property, agreements, contracts, receipts and
discharges, obligations, debentures and other securities, cheques or
other bills of exchange of the Corporation;
"declaration deposited in the Register" shall mean, as the case may
be, the initial declaration, the declaration of registration, the
amending declaration, the annual declaration or any other
declaration which has been filed or which may, in the future, be
required to be filed pursuant to An Act respecting the legal
publicity of sole proprietorships and which has been entered on the
Register;
"Director" shall mean the Director appointed pursuant to section 260
of the Act and who is charged with the administration thereof;
"director" shall mean the person whose name appears at the relevant
time in the declaration deposited in the Register and in the Notice
of Directors or in the Notice of Change of Directors filed with the
Director pursuant to sections 106 or 113 of the Act as well as any
other person holding the office of director whatever title may be
ascribed to such person and shall include, in particular, the sole
director, any de facto director as well as any other person who, at
the request of the Corporation, acts or acted as director of another
body corporate of which the Corporation is or was a shareholder or a
creditor or any person who, at the relevant time, acted in that
capacity; and "Board of Directors" shall mean the body of the
Corporation made up of the sole director or of all the directors;
"Inspector General" shall mean the Inspector General of Financial
Institutions who is responsible for carrying out the administration
of An Act respecting the legal publicity of sole proprietorships;
"juridical or business day" shall mean any Monday, Tuesday,
Wednesday, Thursday or Friday, to the extent that it does not fall
on a non-juridical day or holiday;
<PAGE>
"meeting of the shareholders" shall mean an annual meeting of the
shareholders, a special meeting of the shareholders as well as any
meeting of the holders of any class or of any series of securities;
"non-juridical day or holiday" shall mean any of the following days,
namely: any Saturday or Sunday; New Year's Day (January 1st); Good
Friday; Easter Monday; the birthday or the day fixed by proclamation
for the celebration of the birthday of the reigning Sovereign;
Victoria Day; Dominion Day or Dollard-des-Ormeaux Day; Saint-Jean
Baptiste Day (June 24th); Canada Day or Confederation Day (July 1st)
or July 2nd if July 1St falls on a Sunday; the first Monday in
September designated Labour Day; the second Monday in October
designated Thanksgiving Day; Remembrance Day (November 11th);
Christmas Day (December 25th); any day appointed by proclamation of
the Governor-General of Canada to be observed as a day of general
prayer or mourning or day of public rejoicing or thanksgiving; in
the Province of Quebec, any of the following additional days, namely
any day appointed by proclamation of the Lieutenant-Governor to be
observed as a public holiday or as a day of general prayer or
mourning or day of public rejoicing or thanksgiving within the
province, and any day which shall be a non-juridical day or holiday
by virtue of an act of the legislature of the province as well as
any day which shall be appointed to be observed as a civic holiday
by resolution of the council or of any other authority charged with
the administration of the civic or municipal affairs of a city,
town, municipality or other organized district. Moreover, the 26th
day of December shall be considered a non-juridical day or holiday,
as shall be the 2nd day of January;
"officer" shall include the President of the Corporation, the
Chairman of the Board of Directors, the Vice-President, the
Secretary, the Assistant-Secretary, the Treasurer, the
Assistant-Treasurer and the Managing Director;
"person" shall include, in particular, an individual or a natural
person, a partnership within the meaning of the Civil Code of
Quebec, an association, a body corporate, a trustee, the liquidator
of a succession or a testamentary executor, a tutor or a guardian, a
curator, an adviser to a person of full age or a committee, a
mandatary or agent, the administrator of a succession or of an
estate or any representative of a deceased person or any other
person responsible for the administration of the property of another;
"record date" shall mean the last possible registration date which
the sole director or the directors may fix in advance, within fifty
(50) days prior to the event in question, for the purposes of
determining the shareholders entitled to receive dividends, to
participate in the distribution subsequent to liquidation, or the
shareholders who or which are qualified for any other purpose,
except as regards the right to receive notice of, or to vote at, a
meeting of the shareholders; and the record date in order to
determine the shareholders qualified for any other purpose, except
as regards the right to vote or the right to receive notice of a
meeting of the shareholders, shall be the date of passage by the
sole director or by the directors of the resolution to this end, at
the time of close of business;
"Register" shall mean the register of sole proprietorships,
partnerships and legal persons created pursuant to An Act respecting
the legal publicity of sole proprietorships, which is also known as
the Centre Informatise Du Registre des Entreprises du Quebec
(CIDREQ) and which is administered by the Inspector General;
"registration procedure" shall mean any registration procedure
required by law by virtue of which a Corporation shall register or
obtain a license or a permit in order to carry on business in a
province, in a territory, in another state or in another country or
political subdivision thereof;
<PAGE>
"Regulations" shall mean the Regulations made under the Act and as
amended from time to time, and any Regulation which may be
substituted therefor. In the event of such substitution, any
reference in the by-laws of the Corporation to a provision of the
Regulations shall be read as a reference to the provision
substituted therefor in the new Regulations;
"representative" shall mean any officer or mandatary or agent of the
Corporation or any other person who, at the request of the
Corporation, acts or acted as officer or as mandatory or agent of a
body corporate of which the Corporation is or was a shareholder or a
creditor or any person who, at the relevant time, acted in that
capacity and shall include any promoter or any incorporator of the
Corporation;
"reserved powers", in respect of the sole director or of the
directors, shall mean the duties which, according to the Act, must
be discharged by the sole director or by the directors, including,
in particular, the power to:
a) submit to the sole shareholder or to the shareholders
any matter requiring the approval of the latter;
b) fill vacancies arising among the directors and fill the
position of auditor;
c) issue securities unless the sole director or the
directors have set in advance the method and conditions
of the issue;
d) declare dividends;
e) acquire, in particular by way of purchase or of
redemption, the securities issued by the Corporation;
f) pay the commission provided for in section 41 of the Act
to any person purchasing, or agreeing to purchase or to
find buyers for, the securities of the Corporation;
g) approve the management proxy circulars referred to in
Part XIII of the Act;
h) approve the take-over bid circulars or the directors'
circulars referred to in Part XVII of the Act;
i) approve the annual financial statements of the
Corporation referred to in section 155 of the Act; and
j) pass, amend or repeal by-laws;
"special meeting" shall include, in particular, a special meeting of
the holders of securities of any class and a special meeting of all
shareholders entitled to vote at an annual meeting of the shareholders;
and
"unanimous shareholder agreement" or "unanimous agreement" shall
mean the lawful written agreement which, according to subsection
146(2) of the Act, is designed to restrict, in whole or in part, the
powers of the sole director or of the directors to manage the
business and the affairs of the Corporation and which has been
entered into among all the shareholders or among all the
shareholders and one (1) or more persons who are not shareholders,
and, in accordance with subsection 146(3) of the Act, shall include
the written declaration to the same effect by the sole shareholder
who is the beneficial owner of all the issued securities of the
Corporation.
6. Definitions in the Act or in the Regulations. Subject to the above
definitions, the definitions provided for in the Act or in its
Regulations shall apply to the terms and to the expressions used in the
by-laws of the Corporation.
C. INTERPRETATION
7. Rules of interpretation. Terms and expressions used only in the
singular shall include the plural and vice-versa, and those only
importing the masculine gender shall include the feminine and the
neutral genders and vice-versa.
8. Discretion. Unless otherwise provided, where the by-laws confer a
discretionary power upon the sole director or on the directors, the
latter shall exercise such power as they shall see fit, and shall act
prudently, diligently, honestly and faithfully in the best interests of
the Corporation and they shall avoid placing themselves in a position
of conflict of interest between their personal interest and that of the
Corporation. The sole director or the directors may also decide not to
exercise such power. No provision contained in these by-laws shall be
interpreted so as to increase the duties incumbent on the sole director
or on the directors beyond those which are provided in the Act.
9. Precedence. In the event of a contradiction between the Act, the
unanimous shareholder agreement or the written declaration of the sole
shareholder, the articles or the by-laws of the Corporation, the Act
shall prevail over the unanimous shareholder agreement or the written
declaration of the sole shareholder, the articles and the by-laws; the
unanimous shareholder agreement or the written declaration of the sole
shareholder shall prevail over the articles and the by-laws; and the
articles shall prevail over the by-laws.
10. Headings. The headings used in these by-laws shall serve merely as
references and they shall not be considered in the interpretation of
the terms, of the expressions or of the provisions contained in these
by-laws.
11. Time limits. If the date set for doing anything, in particular the
sending of a notice, falls on a non-juridical day or holiday, such
thing may be validly done on the next juridical or business day. In
computing any time limit set by these by-laws, the day which marks the
starting point is not counted, but the day of the deadline is.
Non-juridical days or holidays are counted but, when the last day is a
non-juridical day or holiday, the time limit is extended to the next
juridical or business day.
Section 2. CORPORATION
A. REGISTERED OFFICE AND ESTABLISHMENT
12. Place and address of registered office. The registered office of the
Corporation shall be located in the Province of Quebec in the place
indicated in its articles or at the address indicated at the relevant
time in the declaration deposited in the Register and in the Notice of
Registered Office or of Change of Registered Office filed with the
Director pursuant to section 19 of the Act.
13. Change of address and of place. The sole director or the directors, by
way of resolution, may change the address of the registered office of
the Corporation within the boundaries of the place specified in its
articles. The President of the Corporation and/or the Secretary or any
other representative designated by the sole director or by the
directors shall notify the Inspector General of this change by filing a
declaration to this effect pursuant to An Act respecting the legal
publicity of sole proprietorships and send to the Director, within
fifteen (15) days, a Notice of Change of Registered Office pursuant to
subsection 19(4) of the Act, this change of address of the registered
office taking effect upon receipt of such notice by the Director. The
sole director or the directors may transfer the registered office of
the Corporation to another place by amending the articles of the
Corporation. Such amendment shall take effect from the date indicated
on the certificate of amendment.
<PAGE>
14. Establishment. The Corporation may have one (1) or more establishments
elsewhere in the province in a place other than that of its registered
office..
15. Applicable legislation. Where the Corporation has an establishment or
where it carries on business in a province or in a territory within
Canada or in another jurisdiction, it shall comply with the legislation
applicable to it in that province, in that territory, in that other
state or in that other country or political subdivision thereof and, in
particular, it shall comply with the registration procedure. The
President of the Corporation or any person designated by him are
authorized to sign any document and take all appropriate action with
respect to such registration procedure.
16. Notices to the Corporation. Notices or documents to be sent to, or
served upon, the Corporation may be so sent or served, by registered
or by certified mail, to or at the address of the registered office
indicated at the relevant time in the declaration deposited in the
Register and in the Notice of Registered Of lice or of Change of
Registered Of lice filed with the Director pursuant to section 19 of
the Act. In such a case, the Corporation shall be deemed to have
received, or to have been served, such notices or documents on the
date of normal mail delivery unless reasonable grounds to the contrary
exist.
B. SEAL AND OTHER MEANS OF IDENTIFICATION OF THE CORPORATION
17. Form and contents of seal. Unless a different form or other contents
are approved by the sole director or by the directors, the seal of the
Corporation shall consist of two (2) concentric circles between which
shall appear the corporate name of the Corporation and only the year of
its incorporation may be written in the center of this seal.
18. Logo. The Corporation may approve one (1) or more logos according to
the specifications prescribed by the sole director or by the directors.
19. Facsimile of the seal. If the Corporation carries on business outside
the province in which its registered office is located, it may approve
one (1) or more facsimiles of its seal. Unless other contents are
prescribed by the sole director or by the directors, on any such
facsimile shall appear the corporate name of the Corporation and/or its
version in the language of the province, of the territory, of the state
or of the country or political subdivision thereof where the facsimile
is used, the year of its incorporation only and the name of the
province, of the territory, of the state or of the country or political
subdivision thereof.
20. Safekeeping of the seal. The seal shall be kept at the registered
office of the Corporation or at any other location determined by one
(1) of the persons authorized to use it.
21. Safekeeping of the facsimile. The facsimile of the seal shall be kept
at the principal establishment of the Corporation situated in the
province, in the territory, in the state or in the country or political
subdivision thereof where the facsimile is used or at any other
location determined by one (1) of the persons authorized to use it.
22. Use of the seal. The use of the seal on a document issued by the
Corporation shall be authorized by one (1) of the following persons:
a) the Managing Director;
b) the President of the Corporation;
c) any Vice-President;
d) the Secretary;
e) the Treasurer; and
f) any other representative designated by the sole director or by the
directors.
<PAGE>
23. Use of the facsimile. The sole director or the directors shall
determine the representatives authorized to use the facsimile of the
seal of the Corporation and only one (1) such authorized
representative, at a given time, may affix the facsimile to a document
issued by the Corporation.
24. Validity. The Corporation or its guarantors may not assert against a
third party who has dealt in good faith with the Corporation or with
its assigns that a document bearing the seal of the Corporation or its
facsimile and issued by the sole director or by one (1) of its
directors, of its officers or of its mandataries or agents having
actual or usual authority to issue such document is neither valid nor
genuine.
25. Name. The Corporation has a corporate name which shall be assigned to
it at the time of its incorporation and it shall exercise its rights
and perform its obligations under that name. The sole director or the
directors may approve or, as the case may be, abandon, the use of one
(1) or more assumed, business, trade or firm names or trade-marks so as
to enable the Corporation to carry on business or to identify itself,
or, as the case may be, to cease to carry on business or to identify
itself, by a name other than its corporate name or to identify, or to
cease to identify, its wares or its services under one (1) or more
trade-marks. However, the corporate name of the Corporation shall be
set out in legible characters on all its negotiable instruments,
contracts, invoices and orders for goods or services.
C. BOOKS AND REGISTERS
26. Corporate Records Book. The Corporation shall opt for one (1) or more
books in which the following documents, as the case may be, are to be
kept:
a) a copy of the articles of the Corporation as well as any related
certificate;
b) the by-laws of the Corporation and any amendments thereto;
c) a copy of the unanimous shareholder agreement or of the written
declaration of the sole shareholder;
d) a copy of the Notices of Directors or of Change of Directors filed
with the Director pursuant to sections 106 or 113 of the Act;
e) a copy of the Notices of Registered Office or of Change of
Registered Office filed with the Director pursuant to section 19
of the Act;
f) a copy of any declaration deposited in the Register;
g) the resolutions of the sole director or of the directors, of the
Executive Committee and of the other committees of the Board of
Directors as well as the minutes of their meetings;
h) the resolutions of the sole shareholder or of the shareholders as
well as the minutes of the meetings of the shareholders;
i) a register of the directors indicating the name, address and
citizenship of each director as well as the date of the
commencement and, as the case may be, of the end of his term of
office;
j) a register containing the notices of disclosure of interest given
pursuant to subsection 120(6) of the Act;
k) a register of the shareholders indicating the name and address of
each shareholder as well as the date of his registration as
shareholder and, as the case may be, the date on which this
registration was cancelled;
l) a register of the securities issued by the Corporation indicating,
for each class or series of securities, the name, in alphabetical
order, and the last-known address, of each of the holders of these
securities or their predecessors, the number of securities of each
holder and the date and the conditions of any transaction with
<PAGE>
respect to each security as well as the reference numbers for the
purposes of the transfer registers and of the security
certificates; and
m) a transfer register indicating the designation of the securities
transferred, the number and the date of the transfer, the names of
the transferor and of the transferee, the number of securities
transferred as well as the numbers of the certificates issued and
cancelled.
27. Minutes and resolutions. The minutes of the meetings of the Board of
Directors, of the Executive Committee and of the other committees of
the Board of Directors and the resolutions of the sole director or of
the directors, of the Executive Committee and of the other committees
of the Board of Directors as well as the resolutions of the sole
shareholder or of the shareholders and the minutes of the meetings of
the shareholders may be kept in the same Corporate Records Book under
the same tab divider.
28. Safekeeping. The Corporate Records Book shall be kept at the registered
office of the Corporation or at any other place determined by the sole
director or by the directors.
29. Accounting records. The Corporation shall keep an adequate accounting.
If the accounting of the Corporation is kept abroad, there shall be
kept, at the registered office or at any other office in Canada, books
enabling the sole director or the directors to ascertain on a quarterly
basis, with reasonable accuracy, the financial position of the
Corporation.
30. Examination of books, registers and documents. Subject to the Act, the
sole shareholder or the shareholders and their creditors, their
mandataries or agents as well as the Director may examine, during the
normal business hours of the Corporation, the following books,
registers and documents: the articles of the Corporation; the by-laws
and any amendments thereto; the unanimous shareholder agreement or the
written declaration of the sole shareholder; the minutes of the
meetings of the Board of Directors, of the Executive Committee and of
the other committees of the Board of Directors and the resolutions of
the sole director or of the directors, of the Executive Committee and
of the other committees of the Board of Directors; the minutes of the
meetings of the shareholders and the resolutions of the sole
shareholder or of the shareholders; the Notices of Directors or of
Change of Directorsae well as the Notices of Registered Office or of
Change of Registered Office filed with the Director; the copy of any
declaration deposited in the Register; the register of the directors of
the Corporation; the register of the shareholders of the Corporation;
the security register indicating the names and addresses of the
shareholder or of the shareholders, the number of securities held and
the date and the details of any transaction with respect to the
securities; the transfer register. This right of examination may be
granted to any person, upon payment of a reasonable fee, where the
issued securities of the Corporation are or have been part of a public
issue and are held by several persons. Subject to the Act, no
shareholder, including the sole shareholder, unless he is also, as the
case may be, the sole director or a director, and no creditor of the
Corporation may examine the books, registers and documents of the
Corporation except for those specifically referred to in this
paragraph. In addition, the sole director or the directors and the
auditor of the Corporation shall have access to the books, registers
and documents of the Corporation at all times.
31. Non-certified copies of documents. The sole shareholder or the
shareholders as well as their mandataries or agents may obtain, upon
request and without charge, a non-certified copy of the articles, of
the by-laws of the Corporation and of any amendments thereto as well as
of the unanimous shareholder agreement or of the written declaration of
the sole shareholder, as the case may be.
<PAGE>
32. Disclosure of information to shareholders. Unless otherwise provided in
the Act, no shareholder may insist upon being informed with respect to
the management of the business and of the affairs of the Corporation
especially where, in the opinion of the sole director or of the
directors, it would be contrary to the interests of the Corporation to
render any information public. Subject to paragraph 30 above, the sole
director or the directors may determine the conditions under which the
books, registers and documents of the Corporation may be made available
to the sole shareholder or to the shareholders.
PART II CORPORATION WITH MORE THAN ONE DIRECTOR
AND/OR SHAREHOLDER
Section 1. REPRESENTATION OF THE CORPORATION
33. Representative bodies. The Corporation shall act through its
representative bodies: the Board of Directors, the officers, the
meeting of the shareholders and its other representatives. These bodies
shall represent the Corporation within the limits of the powers granted
to them by virtue the Act, of its Regulations, of the articles, of a
unanimous shareholder agreement or of the by-laws. The Board of
Directors may be designated by any other name in any document issued by
the Corporation.
A. DIRECTORS
34. Mandatary or agent. The director shall be considered to be a mandatory
or agent of the Corporation. He shall have the powers and the duties
set out in the Act, in its Regulations, in the articles, in a unanimous
shareholder agreement and in the present by-laws as well as those which
are inherent in the nature of his office. In the course of discharging
his duties, he shall respect the duties with which he is charged under
the Act, its Regulations, the articles, a unanimous shareholder
agreement and the present by-laws and he shall act within the limits of
the powers granted to him.
35. Number. The number of directors shall be determined by the Board of
Directors between the minimum and the maximum indicated in the
articles. Failing such a decision, the number of directors of the
Corporation shall be the number of directors elected unanimously by the
shareholders entitled to vote or the number of directors determined by
a special resolution of the shareholders. Except in the case where
subsection 105(4) of the Act applies, the majority of the members of
the Board of Directors shall be made up of resident Canadians. The
Corporation may amend its articles in order to increase or to decrease
the number or the minimum or maximum number of directors, provided that
the number of votes in favour of the motion to decrease the number of
directors exceeds the number of votes cast against this multiplied by
the number of directors provided for in the articles. However, a
decrease in such numbers may not shorten the term of office of the
directors then in office.
36. Qualifications. Subject to the articles or to a unanimous agreement, a
person need not be a shareholder in order to become a director of the
Corporation. Moreover, any natural person may be a director except for
a person who is under eighteen (18) years of age, a person who is of
unsound mind and has been so found by a court of law in Canada or
elsewhere, a person who has the status of bankrupt or a person who has
been barred by a court of law from holding such an office.
37. Election. The directors shall be elected by the shareholders at the
first meeting of the shareholders and at each annual meeting or, as the
case may be, at a special meeting. In the event of a change in the
composition of the Board of Directors, the Corporation shall give
notice of this change by filing a declaration with the Inspector
General in accordance with An Act respecting the legal publicity of
sole proprietorships and send to
<PAGE>
the Director a Notice of Change of Directors in accordance with
subsection 113(1) of the Act.
38. Acceptance of office. A director may accept his office expressly by
signing an Acceptance of Office form to this end. Furthermore, his
acceptance may be made tacitly and, in such a case, it may be inferred
from the actions, from the acts, from the deeds and even from the
silence of the director.
39. Term of office. Unless otherwise decided by the shareholders, each
director shall hold of lice for a term of one (1) year or until his
successor or his replacement shall have been appointed or elected,
unless the term of office of the director ends prematurely. A director
whose term of office has ended may be reselected. The term of office of
the first directors whose names appear at the relevant time in the
declaration deposited in the Register and in the Notice of Directors
prescribed by subsection 106(1) of the Act shall commence on the date
of the certificate of incorporation and shall end when that of their
successors or of their replacements shall commence.
40. De facto directors. The actions, the acts or the deeds of the directors
shall not be voidable by reason only that the latter were incapable,
that their appointment was irregularly made or that a declaration
deposited in the Register or that a Notice of Directors or of Change of
Directors filed with the Director pursuant to subsections 106(1) or
113(1) of the Act are incomplete, irregular or erroneous. The action,
the act or the deed of a person who no longer holds the office of
director shall be valid unless, before that action, that act or that
deed, a written notice shall have been sent or tendered to the Board of
Directors or unless a written notice stating that such person is no
longer a director of the Corporation shall have been entered in the
Corporate Records Book. This presumption shall only be valid with
respect to persons acting in good faith.
41. Notices to directors. The notices or the documents required by the Act,
by its Regulations, by the articles, by the by-laws of the Corporation
or by a unanimous shareholder agreement to be sent to the directors may
be sent by registered or by certified mail or delivered in person to
the directors, to or at the address indicated at that time in the
Corporate Records Book or at the relevant time in the declaration
deposited in the Register and in the Notice of Directors or of Change
of Directors prescribed by sections 106 or 113 of the Act and filed
with the Director. The directors to whom are sent notices or documents
by registered or by certified mail shall be deemed to have received
them at the date of normal mail delivery for such registered or
certified mail. In order to prove receipt of such notices or documents
and the date thereof, it shall be sufficient to establish that the
letter was registered or certified, that it was properly addressed and
that it was deposited at a post office, as well as the date on which it
was so deposited and the time which was required for its delivery in
the ordinary course of mail delivery, or, if the letter was delivered
in person, it shall be sufficient to produce a dated acknowledgement of
receipt bearing the signature of the director.
42. Remuneration and expenses. The directors may fix their own remuneration
without having to pass a resolution to this end. Unless otherwise
provided, such remuneration shall be in addition to any other
remuneration paid to them in another capacity. A director may receive
advances and shall be entitled to be reimbursed for all expenses
incurred in the execution of his office except for those incurred as a
result of his own fault. Moreover, the Board of Directors may pay an
additional remuneration to any director undertaking any task outside
the ordinary course of his office.
43. Conflict of interest. Any director who is a party to a material
contract or to a proposed material contract with the Corporation, or
who is a director of, or has a material interest in, any person which
is a party to a material contract or to a proposed material contract
<PAGE>
with the Corporation shall disclose the nature and the extent of his
interest at the time and in the manner provided for by the Act. Any
such contract or proposed contract shall be submitted to the directors
or to the shareholders for approval even if the contract is one which,
in the ordinary course of the business the Corporation, would not
require the approval of the directors or of the shareholders, and a
director who has an interest in a contract submitted to the directors
shall not be entitled to vote on any resolution with respect to its
approval except as otherwise provided by the Act. By accepting his
office, a director shall be deemed to have given a general notice to
the Corporation and to the other directors, disclosing his interest in
any contract with regard to his remuneration, to his compensation and
to any insurance relating thereto. This provision shall be a sufficient
disclosure in accordance with subsection 120(6) of the Act.
44. Resignation. A director may resign from office by forwarding a letter
of resignation to the registered office of the Corporation by courier
or by registered or certified mail. The resignation of a director shall
be approved by the directors. Subject to such approval, the resignation
shall become effective on the date when the letter of resignation shall
have been received by the Corporation or on the date specified in the
letter of resignation if the latter is subsequent to the date of its
sending. Such resignation, however, shall not relieve the director of
the obligation of paying any debt owing to the Corporation before his
resignation became effective. A director shall be liable for any injury
caused to the Corporation by his resignation if he submits it without a
serious reason and at an inopportune moment. However, a director shall
be entitled to the remuneration which he has earned until the date of
his resignation.
45. Removal from office. Unless otherwise provided in the articles or in a
unanimous agreement, any director may be removed from office
prematurely by way of an ordinary resolution passed, at a special
meeting called for this purpose, by a majority of the shareholders
entitled to elect him. Notwithstanding the fact that the director has
been removed from office prematurely, without a serious reason and at
an inopportune moment, the Corporation shall not be liable for any
injury caused to a director by his removal from office. Where the
holders of a class or of a series of securities have the exclusive
right to elect a director, the latter may only be removed from office
by an ordinary resolution passed at a meeting of the holders of that
class or of that series. The director against whom a request for
removal from office is directed shall be notified of the place, of the
date and of the time of the meeting within the same time frame as that
provided for the calling of the meeting. A director who is informed, in
particular by notice, of the calling of a meeting with a view to
removing him from office the shareholders, orally or in writing, and
state the reasons for his opposition to the resolution proposing his
removal from office, in accordance with section 110 of the Act.
Furthermore, at the same meeting, the shareholders, by way of an
ordinary resolution, may fill a vacancy caused by the removal from
office of the director.
46. End of term of office. The term of office of a director of the
Corporation shall end in the event of his death, of his resignation, of
his removal from office or ipso facto if he no longer qualifies as a
director, upon expiry of his term of office, by the institution of a
method of protective supervision in his respect or by one of the common
causes of extinction of obligations provided for by law. The term of
office of a director shall also end in the event of the bankruptcy of
the Corporation.
47. Vacancies. Subject to subsections 109(3), 111(3), 111(4) and 114(3) of
the Act, to paragraph 45 hereof and unless the articles provide
otherwise, the directors, if a quorum exists, may fill a vacancy in
their numbers on the Board of Directors. If the vacancy cannot be so
filled by the directors, the latter shall call, within thirty (30)
days, a special meeting of the shareholders in order to fill this
vacancy. If there are no longer any
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directors sitting on the Board of Directors or if the directors fail to
call such a meeting within the prescribed time limit, then one (1) or
more shareholders holding not less than five percent (5%) of the issued
securities of the Corporation may call such a meeting. In the event
that the term of office of all the directors shall have ended before
any securities of the Corporation have been issued, the last director
shall be deemed to have subscribed for one (1) security of the
Corporation and such security shall be deemed to have been issued
conditionally at the end of the term of office of this director thirty
(30) days before the end of such term. At the time of issue of such
security, the Corporation shall lend to the last director an amount
equal to the realizable value of the security and shall apply the
proceeds of this loan in payment of the security so issued. The
shareholder shall then proceed forthwith to elect a new Board of
Directors. Vacancies on the Board of Directors shall then be filled by
way of an ordinary resolution of the shareholders or, as the case may
be, of the holders of a class or of a series of securities having an
exclusive right to elect the director whose office is vacant. A
director appointed to fill a vacancy shall complete the unexpired
portion of his predecessor's term and shall remain in office until his
successor or his replacement shall have been appointed or elected. The
Corporation shall give notice of this change by filing a declaration
with the Inspector General pursuant to An Act respecting the legal
publicity of sole proprietorships and send to the Director a Notice of
Change of Directors in accordance with subsection 113(1) of the Act.
B. POWERS OF THE DIRECTORS
48. General rule. The directors shall supervise the management and carry on
the business and the affairs of the Corporation and they may execute,
in the name of the latter, contracts of any kind which are allowed by
law. Generally speaking, they shall exercise all the powers and duties
of the Corporation and perform all the actions, the acts or the deeds
within the limits of the powers of the latter, except those which the
Act or a unanimous agreement expressly reserve for the shareholders. In
particular, the directors shall be expressly authorized to lease, to
purchase or otherwise to acquire or to sell, to exchange, to
hypothecate or to mortgage, to pledge or otherwise to dispose of the
movable or immovable property or personal or real property, presently
held or after-acquired, of the Corporation. The directors may pass
resolutions with respect to reserved powers and a copy of these
resolutions shall be kept in the Corporate Records Book. Finally, they
may perform any other action, act or deed which is useful or necessary
in the interests of the Corporation.
49. Duties. Every director of the Corporation, in the exercise of his
powers and in the discharge of his duties, shall act prudently,
diligently, honestly and faithfully in the best interests of the
Corporation and avoid placing himself in a position of conflict of
interest between his personal interest and that of the Corporation.
Moreover, every director of the Corporation shall comply with the Act,
with its Regulations, with the articles, with the by-laws of the
Corporation and with any unanimous shareholder agreement of the
Corporation. In arriving at a decision, he may rely in good faith on
the opinion or on the report of an expert and, in such a case, shall be
deemed to have acted prudently, diligently, honestly and faithfully in
the best interests of the Corporation.
50. Gifts inter vivos. The directors may make gifts inter vivos of the
assets of the Corporation, even for a substantial value, without having
to obtain the consent of the shareholders, provided that such gifts
shall be made in the best interests of the Corporation.
51. By-laws. Unless otherwise provided in the articles, in the by-laws of
the Corporation or in a unanimous shareholder agreement, the directors,
by way of resolution, may pass,
<PAGE>
amend or repeal any by-law governing the business and the affairs of
the Corporation. By-laws passed, amended or repealed by the directors
according to the above shall be submitted to the shareholders at the
following meeting. By-laws passed, amended or repealed by the directors
shall take effect on the date of their passage, of their amendment or
of their repeal by the directors. After confirmation or amendment by
the shareholders, they shall continue in force in their original or
amended state, as the case may be. However, they shall cease to have
effect following their rejection by the shareholders or in the event of
failure by the directors to submit them to the shareholders at the
meeting following their passage. Furthermore, in the event of a
rejection by the shareholders of a by-law or of a failure by the
directors to submit such by-law to the meeting of the shareholders, any
subsequent resolution by the directors to the same general effect
cannot come into force until after confirmation by the shareholders.
52. Banking or finance. The banking or financial operations of the
Corporation shall be carried on with the banks or with the financial
institutions designated by the directors. The directors shall also
designate one (1) or more persons to carry out these banking or
financial operations on behalf of the Corporation.
53. Financial year. The date of the end of the financial year of the
Corporation shall be determined by the directors.
54. Approval by shareholders. The directors, in their discretion, may
submit any contract, decision made or transaction for approval,
confirmation or ratification at a meeting of the shareholders called
for this purpose. Except in the event of disclosure by a director of
the nature or of the extent of his interest in a material contract or
in a proposed material contract with the Corporation, any such
contract, decision made or transaction shall be approved, confirmed or
ratified by way of a resolution passed by a majority of the votes cast
at any such meeting and, unless any different or additional requirement
is imposed by the Act, by the articles or by any other by-law of the
Corporation, such contract, such decision made or such transaction
shall be as valid and as binding upon the Corporation and upon the
shareholders as if it had been approved, confirmed or ratified by all
the shareholders of the Corporation.
C MEETINGS OF THE BOARD OF DIRECTORS
55. Calling of meetings. The Chairman of the Board of Directors, the
President of the Corporation, any Vice-President, the Secretary or any
two (2) directors may call at any time a meeting of the Board of
Directors and the Secretary of the Corporation shall call the meeting
when so directed or otherwise authorized to do so. Such meetings shall
be called by way of a notice sent by mail, by telegram, by telex or by
any other electronic means or delivered in person to the directors, to
or at the address appearing at that time in the Corporate Records Book
or at the relevant time in the declaration deposited in the Register
and in the Notice of Directors or of Change of Directors referred to in
sections 106 and 113 of the Act and filed with the Director. The notice
of the meeting shall specify the place, the date and the time of such
meeting and, subject to paragraph 59 below, be received at least two
(2) clear juridical or business days prior to the date set for the
meeting. It need specify neither the purpose nor the agenda of the
meeting but it shall detail any question respecting the reserved
powers. The director shall be deemed to have received such notice
within the normal time for delivery according to the means of
communication used unless there are reasonable grounds for believing
that the notice was not received on time or that it was not received at
all. If the address of a director does not appear in the Corporate
Records Book, such notice may be sent to the address where, in the
judgment of the sender, it is most likely to be received promptly by
the director.
56. First directors' resolutions. After the issue of the certificate of
incorporation, the first directors, by way of resolutions in writing,
may pass by-laws, approve forms of security
<PAGE>
certificates and of registers of the Corporation, authorize the issue
of securities, appoint officers, appoint one (1) or more auditors or,
as the case may be, accountants of the Corporation, make any necessary
arrangements with banks or with financial institutions, and deal with
any other question.
57. Regular meetings. The directors may determine the place, the date and
the time where or when regular meetings of the Board of Directors shall
be held. A copy of any resolution of the directors setting the place,
the date and the time of these regular meetings shall be sent to each
director immediately after its passage but no further notice of a
regular meeting shall be required unless a question relating to the
reserved powers must be dealt with or settled at that meeting.
58. Annual meeting. Each year, immediately after the annual meeting of the
shareholders, a meeting of the Board of Directors made up of the
newly-elected directors shall be held, provided that a quorum exists,
for the purposes of appointing the officers, the accountant of the
Corporation, as the case may be, and the other representatives of the
Corporation, and to deal with any question which may be raised thereat.
Such meeting shall be held without notice unless a question respecting
the reserved powers must be dealt with or settled at that meeting.
59. Emergency meeting. A meeting of the Board of Directors may be called by
any means, at least three (3) hours before the meeting, by one (1) of
the persons who have the power to call a meeting of the Board of
Directors, if, in the opinion of such person, it is urgent that a
meeting be held. In determining the validity of a meeting so called,
such notice shall be considered sufficient in itself.
60. Waiver of notice. Any director, orally or in writing, may waive his
right to receive notice of a meeting of the Board of Directors or of a
change in such notice or in the time limit indicated therein. Such
waiver may be given validly before, during or after the meeting in
question. The attendance of a director at the meeting, in itself, shall
constitute a waiver, except where he indicates that he is attending the
meeting for the express purpose of objecting to the proceedings
because, among other reasons, the meeting was not validly called. The
signing of a written resolution in lieu of a meeting shall also
constitute a waiver of notice of the calling and of the holding of an
actual meeting.
61. Place of meetings. Meetings of the Board of Directors shall be held at
the registered office of the Corporation or at any other place, in the
Province of Quebec or elsewhere, which the directors may determine.
62. Quorum. Subject to the Act, to the articles, to the by-laws of the
Corporation or to a unanimous shareholder agreement, the quorum at a
meeting of the Board of Directors shall be a majority of the directors
then in office. If a quorum is not attained within fifteen (15) minutes
after commencement of the meeting, the directors may only decide on an
adjournment thereof. The quorum shall be maintained for the duration of
the meeting.
63. Canadian majority. Unless a majority of the directors attending a
meeting is made up of resident Canadians, the directors may not discuss
any matter. In accordance with subsection 114(4) of the Act and
notwithstanding the above, the directors may conduct business, even in
the absence of a majority of resident Canadians, if, among the
directors not in attendance, one (1) resident Canadian approves the
proceedings in writing, by telephone or by any other means of
communication and where the attendance of such director would have
enabled the meeting to attain the requisite Canadian majority.
<PAGE>
64. President and Secretary. The Chairman of the Board of Directors or, in
his absence, the President of the Corporation or any Vice-President
shall chair all meetings of the Board of Directors, and the Secretary
of the Corporation shall act as the secretary thereof. In the absence
of these persons, the directors shall choose a chairman from their
number, and, as the case may be, any person to act as secretary of the
meeting.
65. Procedure. The chairman of a meeting of the Board of Directors shall be
responsible for the proper conduct of the meeting, shall submit to the
directors the proposals which must be put to a vote and, generally,
shall establish reasonable and impartial rules of procedure to be
followed, subject to the Act, to the by-laws of the Corporation or to
the rules of procedure usually followed during deliberating assemblies.
Failure by the chairman of the meeting to submit a proposal shall
entitle any director to do so before the rising or the adjournment of
said meeting; if such proposal falls within the powers of the directors
and if no reference thereto is required in the notice of the meeting,
the directors may consider the proposal without it having been
seconded. To this end, the agenda for any meeting of the Board of
Directors shall be deemed to allow time for the directors to submit
their proposals.
66. Vote. Each director may cast one (1) vote and all questions submitted
to the Board of Directors shall be decided by a majority vote of the
directors in attendance and voting. Voting shall be by a show of hands
unless the chairman of the meeting or a director in attendance requests
a ballot. If a ballot is held, the secretary of the meeting shall act
as scrutineer and count the ballots. In both cases, if one (1) or more
directors participate in a meeting by way of technical means, they
shall indicate orally to the secretary the manner in which they shall
be casting their vote. Voting by proxy shall not be permitted at
meetings of the Board of Directors. The chairman of the meeting shall
not have a second or casting vote in the event of a tie vote.
67. Dissent. A director in attendance at a meeting of the Board of
Directors shall not be bound by the actions, by the acts or by the
deeds of the Corporation and shall not be deemed to have approved all
the resolutions passed or all the decisions made if, in the course of
the meeting, his dissent is recorded in the minutes of such meeting,
whether at his request or not, or if a notice in writing of his dissent
is sent to the secretary of the meeting before the adjournment or the
rising of the meeting or if his dissent is sent to the Corporation by
registered or by certified mail or is delivered to the registered
office of the Corporation immediately after the meeting is adjourned or
after it rises. A director absent from a meeting of the Board of
Directors shall be deemed not to have approved any resolution or to
have participated in any decision made at such meeting, if, within
seven (7) days after becoming aware of the resolution, he causes his
dissent to be recorded in the minutes of the meeting or if he sends his
dissent or causes it to be sent by registered or by certified mail or
delivers it or causes it to be delivered to the registered office of
the Corporation.
68. Meeting by way of technical means. All the directors, or one (1) or
several directors with the consent of all the other directors of the
Corporation, which consent may be given before, during or after the
meeting, in a specific manner for a given meeting or in a general
manner for all subsequent meetings, may participate in a meeting of the
Board of Directors by way of technical means, such as a telephone,
which enable them to communicate simultaneously and instantaneously
with the other directors or persons attending, or participating in, the
meeting. In such cases, these directors shall be deemed to have
attended the meeting, which shall be deemed to have been held in the
Province of Quebec. The meeting shall also be deemed to be made up of a
majority of resident Canadians if a majority of the directors
attending, or participating in, the meeting, in person or by way of
technical means, is made up of resident Canadians. The directors
<PAGE>
attending, or participating in, a meeting held using such technical
means may decide on any matter, such as the passage of a by-law, one
(1) of the reserved powers or the replacement of a director. A director
may also declare or disclose any conflict of interest at such meeting.
The Secretary shall keep minutes of such meetings and shall record any
dissent. The statement by the chairman and by the secretary of the
meeting so held to the effect that a director participated in the
meeting shall be valid until proven otherwise. In the event of an
interruption in the communication with one (1) or more directors, the
meeting shall continue to be valid if a quorum is maintained.
69. Resolutions in lieu of meetings. Resolutions in writing, signed by all
the directors entitled to vote thereon at meetings of the Board of
Directors, shall be ae valid ae if they had been passed at such
meetings. A copy of these resolutions, once posed, shall be kept with
the minutes of the proceedings of the Board of Directors.
70. Adjournment. The chairman of a meeting of the Board of Directors, with
the consent of the majority of the directors in attendance, may adjourn
this meeting to another place, date and time without having to provide
notice of the meeting again to the directors. The reconvening of any
meeting so adjourned may take place without notice if the place, the
date and the time of the adjourned meeting are announced at the
original meeting. Upon reconvening of the meeting, the directors may
validly decide on any matter which was not settled at the original
meeting, provided a quorum is present. The directors who constituted
the quorum at the original meeting need not be those constituting the
quorum at the reconvened meeting. If a quorum does not exist at the
reconvened meeting, the meeting shall be deemed to have ended at the
previous meeting when the adjournment was pronounced.
71. Validity. Decisions made during the course of a meeting of the Board of
Directors shall be valid notwithstanding any irregularity, thereafter
discovered, in the election or in the appointment of one (1) or more
directors or their inability to serve as directors.
D. OFFICERS AND REPRESENTATIVES
72. Mandataries or agents. The officers and the representatives shall be
considered to be mandataries or agents of the Corporation. They shall
have the powers and the duties set out in the Act, in its Regulations,
in the articles and in the present by-laws as well as those which are
inherent in the nature of their office. In the course of discharging
their duties, they shall respect the duties with which they are charged
under the Act, its Regulations, the articles and the present by-laws
and they shall act within the limits of the powers granted to them.
73. Appointment. Subject to the provisions of the articles, of the by-laws
or of any unanimous agreement, the directors may appoint any qualified
person, who, unless otherwise provided in the present by-laws, need not
necessarily be a shareholder or a director of the Corporation, to the
office of President of the Corporation, of Chairman of the Board of
Directors, of Vice-President, of Treasurer or of Secretary, and they
may provide for assistants of such officers. Moreover, the directors,
or the President of the Corporation or the Chairman of the Board of
Directors with the consent of the directors, may create any other
office and appoint thereto qualified persons, whether they be
shareholders of the Corporation or not, to represent the Corporation
and to discharge the duties which they may determine. The officers or
the representatives may delegate the powers which they have received
from the directorsae well as those which are inherent in their of lice.
However, they shall select their substitutes carefully and provide them
with appropriate instructions.
<PAGE>
74. Cumulative duties. The same person may hold two (2) or more offices
within the Corporation, provided that they are not incompatible with
each other. Where the same person holds the offices of Secretary and
Treasurer, he may, but need not, be designated as the
"Secretary-Treasurer" of the Corporation.
75. Term of office.. The term of office of the officers and of the
representatives of the Corporation shall begin with their acceptance of
the office and such acceptance may be inferred from their actions, from
their acts or from their deeds. Their term of office shall continue
until their successors or their replacements shall have been appointed
by the directors unless their term of office ends prematurely in
accordance with paragraphs 94 to 96 of the present by-laws.
76. Remuneration. The remuneration of the of ricers or of the
representatives of the Corporation shall be fixed by the directors
without their having to pass a resolution to this end, or, in the
absence of such a decision, by the President of the Corporation. Unless
otherwise provided, such remuneration shall be in addition to any other
remuneration paid to the officer or to the representative in another
capacity by the Corporation. The fact that any officer, representative
or employee shall also be a director or a shareholder of the
Corporation shall not disqualify him from receiving, in his capacity of
officer, representative or employee, such remuneration as may be
determined.
77. Powers. Subject to the articles, to the by-laws or to a unanimous
shareholder agreement, the directors shall determine the powers of the
of officers and of the representatives of the Corporation. The
directors may delegate to them all their powers, except the reserved
powers or those which require the approval of the shareholders. The
officers and the representatives shall also have the powers inherent in
the Act or which normally relate to their of lice. Furthermore, they
may exercise these powers either within or outside the Province of
Quebec.
78. Duties. The officers and the representatives, in the discharge of their
duties, shall act prudently, diligently, honestly and faithfully in the
best interests of the Corporation and within the limits of their
respective offices and they shall avoid placing themselves in a
position of conflict of interest between their personal interest and
that of the Corporation. They shall be deemed to have acted within the
limits of their offices when they discharge their duties in a manner
which is more advantageous for the Corporation. They shall be held
liable to the Corporation for actions, acts or deeds performed alone
which they were only authorized to carry out in conjunction with one
(1) or more other persons unless they acted in a manner which turned
out to be more advantageous for the Corporation than that which had
been agreed upon. In arriving at a decision, they may rely in good
faith on the opinion or on the report of an expert and, in such a case,
shall be deemed to have acted prudently, diligently, honestly and
faithfully in the best interests of the Corporation.
79. Chairman of the Board of Directors. The directors may appoint a
Chairman of the Board of Directors who shall be a director. If a
Chairman of the Board of Directors is appointed, the directors may
delegate to him all of the powers and duties conferred by the present
by-laws on the President of the Corporation as well as any other powers
which the directors may determine.
80. President of the Corporation. The President of the Corporation shall be
its chief executive officer subject to the control of the directors. He
shall supervise, administer and manage generally the business and the
affairs of the Corporation, except for the reserved powers and for the
business which must be transacted by the shareholders at annual or
special meetings. He shall appoint and dismiss the mandataries or
agents as
<PAGE>
well as hire, lay off, fire or dismiss the employees of the
Corporation. He shall also exercise all the powers and discharge all
the duties delegated to him by the directors. When requested to do so
by the directors, or by one (1) or more of them, he shall provide all
relevant information relating to the business and to the affairs of the
Corporation. If no Chairman of the Board of Directors has been elected,
or, if he is absent or unable to act, the President of the Corporation,
if he is a director and if he is in attendance, shall chair all
meetings of the Board of Directors and all meetings of the
shareholders.
81. Vice-President. In the absence of the President of the Corporation or
in the event of the latter's inability, refusal or failure to act, the
Vice-President shall possess all the powers and assume all the duties
of the President of the Corporation save that no Vice-President shall
chair a meeting of the Board of Directors or a meeting of the
shareholders who is not otherwise qualified to attend such meeting as a
director or as a shareholder, as the case may be. If there is more than
one (1) Vice-President, the President of the Corporation shall
designate any Vice-President to act on his behalf, and, if the
President of the Corporation fails to do so, the directors may
designate such Vice-President and, finally, failing such designation by
the directors, the Vice-Presidents may act on the basis of seniority.
82. Treasurer. The Treasurer shall manage generally the finances of the
Corporation. He shall be responsible for all funds, securities, books,
receipts or discharges and other documents of the Corporation. He shall
deposit all money and other valuables in the name and to the credit of
the Corporation in the bank or financial institution chosen by the
directors. He shall submit at each meeting of Board of Directors,
whenever required to do so by the President of the Corporation or by a
director, a detailed statement of account of the receipts and
disbursements as well as a detailed accounting of the financial
position of the Corporation. He shall present a detailed financial
statement of the Corporation, prepared in accordance with the Act, at
the meeting of the Board of Directors prior to the annual meeting of
the shareholders. He shall be responsible for receiving, and for
issuing receipts for, the amounts payable to the Corporation, and for
paying, and for receiving receipts for, amounts which the Corporation
owes, whatever the source of the funds may be. He shall discharge all
duties which are inherent in his of lice as well as those powers and
duties determined by the directors. The latter may appoint an
Assistant-Treasurer in order to assist the Treasurer of the Corporation
in the discharge of his duties.
83. Secretary. The Secretary shall act as secretary at all meetings of the
Board of Directors, of the Executive Committee, unless the latter
decides otherwise, and of the other committees of the Board of
Directors as well as at all the meetings of the shareholders. He shall
ensure that all notices are given and that all documents are sent in
accordance with the provisions the Act and with the by-laws of the
Corporation and he shall keep, in the Corporate Records Book, the
minutes of the meetings of the Board of Directors, of the Executive
Committee and of the other committees of the Board of Directors and of
the meetings of the shareholders as well as the resolutions of the
directors, of the Executive Committee and of the other committees of
the Board of Directors and the resolutions of the shareholders.
Moreover, he shall be responsible for the safekeeping of the seal of
the Corporation and shall ensure the maintenance and the updating of
all books, registers, reports, certificates and other documents of the
Corporation. He shall also be responsible for the filing of the records
of the latter. He shall countersign the minutes and the security
certificates. Finally, he shall discharge such other duties as shall be
entrusted to him by the President of the Corporation or by the
directors. The Assistant-Secretary shall exercise the powers and
discharge the duties which are delegated to him by the directors or by
the Secretary.
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84. General Manager. The directors may appoint a resident Canadian among
them to act as General Manager. They may delegate to him all their
powers except for the reserved powers. The remuneration of the General
Manager shall be fixed by the directors. Unless otherwise provided,
such remuneration shall be in addition to any other remuneration to be
paid to him in another capacity by the Corporation. The General Manager
shall be entitled to be compensated by the Corporation for fees and
expenses incurred in the discharge of his duties except for those
incurred as a result of his own fault.
85. Posting of security bond. The directors, the President of the
Corporation or any person designated by any one (1) of them, may
require that certain officers, representatives or employees of the
Corporation post a security bond, in such form and containing such
guarantees as the directors may determine, in order to guarantee the
proper performance of their powers and discharge of their duties.
86. Conflict of interest. Any officer or representative shall avoid placing
himself in a position of conflict of interest between his personal
interest and that of the Corporation and he shall declare or disclose
any conflict of interest to the directors. The rules governing
conflicts of interest of the directors shall apply, with all necessary
changes, to the officers and to the representatives.
87. Signing of documents. Contracts, documents or instruments in writing
requiring the signature of the Corporation may be signed by the
President of the Corporation alone or by two (2) persons holding the
office of Vice-President, of Chairman of the Board of Directors, of
director, of Secretary, of Treasurer or of General Manager or by their
duly authorized assistants and all contracts, documents or instruments
in writing so signed shall bind the Corporation without the necessity
of any other authorization or formality. The directors may also
authorize any other person to sign and to deliver on behalf of the
Corporation all contracts, documents or instruments in writing and such
authorization may be given by way of resolution in general or in
specific terms.
88. Signing of declarations to be deposited in the Register. The
declarations which are to be filed with the Inspector General pursuant
to An Act respecting the legal publicity of sole proprietorships may be
signed by the President of the Corporation, by any director of the
Corporation or by any person designated by the directors.
89. Mechanically-reproduced signature. Subject to the Act, the directors
may permit the contracts, documents or instruments in writing which are
issued by the Corporation to bear mechanically reproduced signatures.
The signature appearing on a resolution in lieu of a meeting of the
Board of Directors or of the shareholders may also be mechanically
reproduced, including the use of a stamp as a signature.
90. Proxy holder of the Corporation. The directors may authorize any person
to sign and to convey proxies and to ensure that the proper ballots or
other evidence of the right to vote attached to all the securities held
by the Corporation shall be issued. Furthermore, the directors, from
time to time, may determine the manner in which, and designate one (1)
or more persons by whom, the rights to vote may or shall be exercised.
91. Legal or other proceedings. The President of the Corporation or any
other person authorized by the directors or by the President of the
Corporation shall be respectively authorized to commence any action,
suit, application, proceeding of a civil, of a criminal or of an
administrative nature or any other legal proceeding on behalf of the
Corporation or to appear and to answer for the Corporation with respect
to any writ, order or injunction, issued by any court of law or by any
tribunal, with respect to any interrogatories upon articulated facts or
examinations for discovery, and with respect to
<PAGE>
any other action, suit, application or other legal proceeding in which
the Corporation shall be involved; to answer in the name of the
Corporation with respect to any seizure by garnishment in which the
Corporation shall be garnishee and to make any affidavit or sworn
declaration relating to such garnishment or to any other legal
proceeding to which the Corporation shall be made a party; to make
demands or requests for assignment of property or applications or
petitions for winding-up or liquidation or sequestration or
receivership orders against any debtor of the Corporation; to attend,
and to vote at, any meeting of the creditors or of the debtors of the
Corporation; to grant proxies and to take, with respect to such
actions, suits, applications or other legal proceedings, any other
action, act or deed or to make any other decision deemed to be in the
best interests of the Corporation.
92. Prima facie evidence of by-law. A copy of a by-law of the Corporation
to which the seal of the Corporation has been affixed and which
purports to have been signed by the President of the Corporation or by
the Secretary thereof shall be admissible as against any shareholder of
the Corporation as being, in itself, prima facie evidence of the
by-law.
93. De facto officers or representatives. The actions, the acts or the
deeds carried out by the officers or by the representatives shall not
be voidable by reason only of the fact that the latter were incapable
or that their appointment was irregularly made.
94. Resignation. Any officer or representative may resign from of lice by
forwarding a letter of resignation to the registered office of the
Corporation by courier or by registered or certified mail. The
resignation shall become effective upon receipt of the letter of
resignation by the Corporation or at any later date specified therein.
The resignation of an officer or of a representative may only take
place subject to the provisions of any existing employment contract
between him and the Corporation. However, the resignation shall not
relieve the officer or the representative of the obligation of paying
any debt owing by him to the Corporation before such resignation became
effective. The officer shall be liable for any injury caused to the
Corporation by his resignation if he submits it without a serious
reason and at an inopportune moment.
95. Removal from office. The directors may remove from office any officer
or representative of the Corporation and may choose the successor or
the replacement of such person. Nevertheless, the removal from office
of an officer or of a representative may only take place subject to the
provisions of any existing employment contract between him and the
Corporation. However, the Corporation shall be liable for any injury
caused to the officer or to the representative by his removal from
office without a serious reason and at an inopportune moment.
96. End of term of office.. The term of office of an officer or of a
representative shall end upon his death, his resignation, his removal
from office, upon expiry of his term of office as officer or
representative, if he is of unsound mind and is so found by a court of
law in Canada or elsewhere, if he acquires the status of bankrupt, upon
appointment of his successor or of his replacement, by the institution
of a method of protective supervision in his respect or by one of the
common causes of extinction of obligations provided for by law.
E. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
97. Appointment. The directors may create an Executive Committee and
appoint its members. The appointment of the members of the Executive
Committee shall normally take place at the meeting of the Board of
Directors immediately following the annual meeting of the shareholders.
<PAGE>
98. Qualifications. The members of the Executive Committee of the Board of
Directors shall be chosen from among the directors. A majority of the
members of the Executive Committee shall be made up of resident
Canadians unless subsection 105(4) of the Act applies.
99. Powers. Subject to the restrictions on the exercise of powers provided
for in subsection 115(3) of the Act, the Executive Committee shall
exercise, under the control of the directors, all the powers of the
directors with regard to the management and control of the business and
of the affairs of the Corporation, except for the reserved powers and
for those powers which require the approval of the shareholders. The
Executive Committee shall report on its activities to the directors who
may reverse or modify the decisions of the Executive Committee, subject
to the rights of third parties. The Executive Committee shall consult
with, and assist, the officers and the representatives in all the
business and the affairs concerning the Corporation and its management.
100. Meetings. The directors or any person appointed by them may call
meetings of the Executive Committee at any time. These meetings shall
be chaired by the Chairman of the Board of Directors, or, in his
absence, by a chairman selected from among their number by the members
of the Executive Committee in attendance at the meeting. The Secretary
of the Corporation shall also act as the secretary of the Executive
Committee, unless the Executive Committee decides otherwise. Written
resolutions signed by all the members of the Executive Committee shall
be as valid as if they had been passed at a meeting of the Executive
Committee. A copy of these resolutions, once passed, shall be kept with
the minutes of the proceedings of the Executive Committee. The rules
applicable to meetings of the Board of Directors shall apply, with all
necessary changes, to meetings of the Executive Committee. The quorum
at meetings of the Executive Committee shall be a majority of the
members of the Executive Committee.
101. Remuneration. Members of the Executive Committee shall be entitled for
their services to the remuneration which the directors of the
Corporation shall fix without having to pass a resolution to this end.
Unless otherwise provided, such remuneration shall be in addition to
any other remuneration paid to them in another capacity by the
Corporation.
102. Compensation. Members of the Executive Committee shall be entitled to
be compensated by the Corporation for fees and expenses incurred in the
discharge of their duties. Such compensation shall be made in
accordance with the Division of the present by-laws entitled
"Protection of the Directors, of the Officers and of the
Representatives".
103. Other committees. The directors may also create other advisory
committees which they deem necessary and appoint any person to serve
thereon, whether or not such person be a director of the Corporation.
The powers of these other committees shall be limited to those powers
delegated to them by the directors and such other committees shall only
have access to such information as the directors may determine. Members
of these other committees shall be entitled for their services to the
remuneration which the directors of the Corporation shall fix without
having to pass a resolution to this end. They shall also be entitled to
be compensated by the Corporation for fees and expenses incurred in the
discharge of their duties. Such compensation shall be made in
accordance with the Division of the present by-laws entitled
"Protection of the Directors, of the Officers and of the
Representatives". The rules applicable to meetings of the Board of
Directors shall apply, with all necessary changes, to meetings of these
other committees. The quorum at meetings of each of these committees
shall be a majority of the members of that committee.
<PAGE>
104. Dissent. A member of the Executive Committee or of another committee of
the Board of Directors in attendance at a meeting of the Executive
Committee or of such other committee shall not be bound by the actions,
by the acts or by the deeds of the Corporation and shall not be deemed
to have approved all the resolutions passed or all the decisions made
if, in the course of the meeting, his dissent is recorded in the
minutes of such meeting, whether at his request or not, or if a notice
in writing of his dissent is sent to the secretary of the meeting
before the adjournment or the rising of the meeting or if his dissent
is sent to the Corporation by registered or by certified mail or is
delivered to the registered office of the Corporation immediately after
the meeting is adjourned or after it rises. A member of the Executive
Committee or of another committee of the Board of Directors absent from
a meeting of the Executive Committee or of such other committee shall
be deemed not to have approved any resolution or to have participated
in any decision made at such meeting, if, within seven (7) days after
becoming aware of the resolution, he causes his dissent to be recorded
in the minutes of the meeting or if he sends his dissent or causes it
to be sent by registered or by certified mail or delivers it or causes
it to be delivered to the registered office of the Corporation.
105. Removal from office and replacement. The directors may remove from
office any member of the Executive Committee or of any other committee
of the Board of Directors. Despite the fact that the removal from
office of a member of the Executive Committee shall have been carried
out prematurely, without a serious reason and at an inopportune moment,
the Corporation shall not be liable for any injury caused to the member
of the Executive Committee. The directors may fill any vacancy which
occurs on any committee at a meeting called for this purpose or by way
of resolution.
106. End of term of office. The term of office of a member of the Executive
Committee or of any other committee of the Board of Directors shall end
by reason of his death, of his resignation, of his removal from office
upon expiry of his term of office, if he is of unsound mind and is so
found by a court of law in Canada or elsewhere, if he acquires the
status of bankrupt, if he becomes disqualified from serving as a
director or as a member of the Executive Committee or of another
committee of the Board of Directors, upon appointment of his successor
or of his replacement, by the institution of a method of protective
supervision in his respect or by one of the common causes of extinction
of obligations provided for by law.
F. DIVISIONS
107. Creation. The directors may separate the activities of the Corporation
into divisions according to such criteria (such as type of activity,
geographical territory, etc.) and for such purposes as they may
determine. They may also subdivide the activities of such divisions
into subdivisions or consolidate these divisions or subdivisions
according to such criteria as they may determine.
108. Management. The directors, or the President of the Corporation with the
consent of the directors, may appoint one (1) or more persons to manage
a division or a subdivision and may determine their powers, duties,
terms of employment and remuneration. The persons managing such
divisions or subdivisions of the Corporation, by reason only of that
fact, shall not be officers of the Corporation.
G. PROTECTION OF THE DIRECTORS, OF THE OFFICERS AND OF THE
REPRESENTATIVES
109. Exclusion of liability vis-a-vis the Corporation and third parties.
Except as otherwise provided in the Act or in the by-laws of the
Corporation, no director or officer acting or
<PAGE>
having acted for or in the name of the Corporation shall be held
liable, in this capacity or in his capacity as mandatary or agent of
the latter, whether it be vis-a-vis the Corporation or third parties,
for the actions, the acts or the deeds, the things done or allowed to
be done, the omissions, the decisions made or not made, the
liabilities, the undertakings, the payments made, the receipts given or
the discharges granted, the negligence or the faults of any other
director, officer, employee, servant or representative of the
Corporation. Among other things, no director or officer shall be held
liable vis-a-vis the Corporation for any direct or indirect loss
suffered by the latter for any reason whatsoever; more specifically, he
shall not be held liable either for the insufficiency or the deficiency
of title to any property acquired by the Corporation, or for or on its
behalf, or for the insufficiency or the deficiency of any security or
debt instrument in or by which any of the funds or of the assets of the
Corporation shall be or have been placed or invested or yet for any
loss or damage resulting from the bankruptcy, from the insolvency or
from the delictual or tortious action, act or deed of any person,
including any person with whom or with which funds, securities, assets
or negotiable instruments shall be or have been placed or deposited.
Furthermore, the directors or the officers shall not be held liable
vis-a-vis the Corporation for any loss, conversion of property,
misappropriation, embezzlement or any other damage resulting from any
dealings with respect to any funds, assets or securities or for any
other loss, damage or misfortune whatsoever which may occur in the
discharge of, or in relation to the discharge of, their duties unless
the same shall occur owing to their failure to discharge the duties of
their office prudently, diligently, honestly and faithfully in the best
interests of the Corporation or owing to the fact that the directors or
the officers shall have placed themselves in a position of conflict of
interest between their personal interest and that of the Corporation.
None of the above shall be interpreted in such a way as to relieve a
director or an officer of his duty to act in accordance with the Act
and with its Regulations or of his joint or several liability for any
breach thereof, in particular in the event of a breach of the specific
provisions of the Act or of its Regulations. Moreover, the directors or
the officers individually or personally liable vis-a-vis third parties
for the duration of their term of office in respect of a contract, a
decision made, an undertaking or a transaction, whether or not
concluded, or with respect to bills of exchange, to promissory notes or
to cheques drawn, accepted or endorsed, to the extent that they are
acting or they acted in the name, or on behalf, of the Corporation, in
the ordinary course of the performance of the powers which they have
received, unless they acted prior to the incorporation of the
Corporation and unless their actions, their acts or their deeds have
not been ratified by the Corporation within the time limit prescribed
by the Act after its incorporation.
110. Right to compensation. The Corporation shall compensate its directors,
its officers or its representatives in respect of all costs or expenses
reasonably incurred by them in connection with the defense of an
action, of a suit, of an application, of a proceeding of a civil, of a
criminal or of an administrative nature or of any other legal
proceeding to which one (1) or more of them were parties by reason of
their duties or of their office, whether this action, this suit, this
application or this legal proceeding was commenced by or on behalf of
the Corporation or by a third party. Reasonable costs or expenses shall
include, in particular, all damages or fines arising from the actions,
from the acts or from the deeds done by the directors, by the officers
or by the representatives in the discharge of their duties as well as
all amounts paid to settle an action or to satisfy a judgment. The
right to compensation shall exist only to the extent that the
directors, the officers or the representatives were substantially
successful on the merits in their defense of the action, of the suit,
of the application or of the legal proceeding, that they acted
prudently, diligently, honestly and faithfully in the best interests of
the Corporation, that they did not place themselves in a position of
conflict of interest between their personal interest and that of the
Corporation, and, in the case of an action, of a suit, of an
application or of a proceeding of a criminal or of an administrative
nature leading to the imposition of a
<PAGE>
fine, to the extent that they had reasonable grounds for believing that
their conduct was lawful or to the extent that they were acquitted or
freed. The Corporation shall assume these liabilities in respect of any
person who acts or acted at its request as a director, as an officer or
as a representative of a body corporate of which the Corporation is or
was a shareholder or a creditor. As the case may be, this compensation
shall be paid to the heirs, legatees, liquidators or testamentary
executors, transferees, mandataries or agents, legal representatives,
successors, assigns or rightful claimants of the directors, of the
officers or of the representatives, in accordance with paragraph 114
below.
111. Legal action by third party. Where an action, a suit, an application, a
proceeding of a civil, of a criminal or of an administrative nature or
any other legal proceeding is commenced by a third party against one
(1) or more of the directors, of the officers or of the representatives
of the Corporation for one (1) or more actions, acts or deeds done in
the discharge of their duties, the Corporation shall assume the defense
of its mandatary or agent.
112. Legal action by the Corporation. Where an action, a suit, an
application, a proceeding of a civil, of a criminal or of an
administrative nature or any other legal proceeding is commenced by the
Corporation against one (1) or more of its directors, of its of ricers
or of its representatives for one (1) or more actions, acts or deeds
done in the discharge of their duties, the Corporation may pay
compensation to the directors, to the officers or to the
representatives if it loses its case and if a court of law or a
tribunal so orders. If the Corporation wins its case only in part, the
court of law or the tribunal may determine the amount of the costs or
of the expenses which the Corporation shall assume.
113. Liability insurance. The Corporation may purchase and maintain
insurance for the benefit of its directors, of its officers, its
representatives, of their predecessors as well as of their heirs,
legatees, liquidators or testamentary executors, transferees,
mandataries or agents, legal representatives, successors, assigns or
rightful claimants covering any liability incurred by them by reason of
their acting or having acted as a director, as an officer or as a
representative of the Corporation or, at the request of the latter, of
a body corporate of which the Corporation is or was a shareholder or a
creditor. However, this insurance may cover neither the liability
arising from the failure of the insured to act prudently, diligently,
honestly and faithfully in the best interests of the Corporation, nor
the liability arising from a fault or gross negligence or from a
personal offense severable from the discharge of their duties or the
liability arising from the fact that the insured shall have placed
themselves in a position of conflict of interest between their personal
interest and that of the Corporation.
114. Compensation after end of term of office. The compensation provided for
in the preceding paragraphs may be obtained even after the person has
ceased to hold the office of director, of officer or of representative
of the Corporation or, as the case may be, of a body corporate of which
the Corporation is or was a shareholder or a creditor. In the event of
death, the compensation may be paid to the heirs, legatees, liquidators
or testamentary executors, transferees, mandataries or agents, legal
representatives, successors, assigns or rightful claimants of such
person. Such compensation may also be combined with any other recourse
which the director, the of ricer, the representative, one (1) of his
predecessors as well as his heirs, legatees, liquidators or
testamentary executors, transferees, mandataries or agents, legal
representatives, successors, assigns or rightful claimants may have.
115. Determination of conditions precedent to compensation. In the event
that a court of law or a tribunal has not made a finding on the matter,
the compliance or the non-compliance of the conduct of a director, of
an officer or of a representative with the
<PAGE>
standards of conduct set out in paragraph 110 above, or the question of
whether a case was won in part or whether a person was substantially
successful on the merits in his defense of the action, of the suit, of
the application or of the legal proceeding shall be determined in the
following manner: a) by a majority vote of the directors who are not
parties to such action, suit, application or legal proceeding, if a
quorum exists; or b) by way of opinion from an independent legal
counsel if such a quorum of the directors cannot be attained, or, even
if attained, if a quorum of the directors who are not parties to such
action, suit, application or legal proceeding so decides; or, failing
the above, c) by decision of the majority of the shareholders of the
Corporation.
116. Place of action. The powers and the duties of the Corporation with
respect to the compensation of any director, officer or representative
shall apply regardless of the place where the action, the suit, the
application or the legal proceeding shall have been filed.
Section 2. SHAREHOLDERS
A. SECURITIES
117. Allotment and issue of securities. Unless otherwise provided in the
Act, in the articles, in the by-laws or in a unanimous shareholder
agreement, the directors, by way of resolution, may accept
subscriptions for securities, allot or issue securities of the share
capital of the Corporation at such times, on such terms and conditions,
to such persons and for such consideration as they see fit, provided
that no security of the Corporation may be issued before having been
fully paid up either in specie or in property or in services rendered
the fair value of which cannot be less than the amount of money which
the Corporation could have received if the securities had been fully
paid-up in specie or they may otherwise dispose thereof or alienate
them in favour of any person for a consideration which shall not
contravene the Act, the articles, the by-laws or the unanimous
shareholder agreement.
118. Commission. The directors may authorize the Corporation to pay a
reasonable commission to a person in consideration of his purchasing or
agreeing to purchase securities of the Corporation, directly from the
Corporation or from any other person, or of his procuring or agreeing
to procure purchasers for any such securities.
119. Joint shareholders. Where two (2) or more persons are registered as
joint shareholders in the securities' register of the Corporation, any
one (1) of them may give receipts and grant discharges in respect of
any dividends, payments of capital, of interest and/or payment of the
redemption price or other payments with regard to the securities held
jointly. In such cases, the joint shareholder who acts shall be deemed
to have been appointed manager by the other joint shareholder or
shareholders.
120. New shareholder. Any person who, by operation of the Act, by transfer
or by any other means, becomes a shareholder of the Corporation shall
be bound by any notice or document relating thereto, if such notice or
document was duly sent to the name and address of the person from whom
or from which he acquired his title to such securities, prior to the
new shareholder registering the securities.
B. SECURITY CERTIFICATES
121. Right to a certificate. Each shareholder, in his discretion, shall be
entitled either to a security certificate representing the securities
which he holds in the Corporation or to an irrevocable acknowledgement
in writing of his right to obtain a security certificate of the
Corporation, detailing the number, the class and the series of
securities which he holds as
<PAGE>
indicated in the securities' register. Such certificate shall be in a
form approved by the directors.
122. Signing of certificates. Certificates representing the securities of
the Corporation shall be signed manually by, or on behalf of, at least
one (1) of the directors or officers of the Corporation or by, or on
behalf of, one (1) of its registration or transfer agents or by a
trustee who shall certify them to be in accordance with a trust
indenture. A handwritten signature shall not be required, however, on a
security certificate representing a demand note which has not been
issued pursuant to a trust indenture, a fractional security, an option
or the right to acquire securities, or scrips.
123. Additional signatures. The directors may determine any additional
signatures which may be required on the certificates representing the
securities of the Corporation. Such signatures may be printed or
mechanically reproduced, even if the signatories have ceased to hold
office.
124. Joint holders. The Corporation shall not be required to issue more than
one (1) certificate in respect of securities held jointly by several
persons. In the event of a jointly-held security, delivery of the
certificate to one (1) of the joint holders shall constitute sufficient
delivery to all.
125. Full copy of text. The Corporation shall provide shareholders, at their
request and free of charge, with a full copy of the text of the rights,
of the privileges, of the conditions and of the restrictions attaching
to each class or series of securities making up the share capital of
the Corporation as well as of the authority of the directors to fix the
rights, the privileges, the conditions and the restrictions of
subsequent series.
126. Fractional securities. If fractional securities are issued, for each
fractional security, the Corporation may issue either a certificate or
bearer scrips entitling one to a full security in exchange for all the
corresponding scrips. Such scrips or certificates shall not be required
to bear a handwritten signature.
127. Evidence. In a legal action with regard to securities, unless
specifically denied in the pleadings, the signatures on the security
certificates or the required endorsements shall be admissible without
the necessity of adducing further evidence.
128. Replacement of certificates. Where a shareholder declares in writing
that a security certificate which he holds has been lost, destroyed or
stolen, and describes the circumstances surrounding the event, the
Corporation shall issue a new certificate in favour of the shareholder,
provided that:
a) the shareholder's request has been made to the Corporation before
the latter has been notified of the acquisition of this
certificate by a purchaser acting in good faith;
b) the shareholder has provided the Corporation with a sufficient
bond; and
c) the shareholder has satisfied any other reasonable requirements
which the directors, the President or the Secretary of the
Corporation may determine.
C TRANSFER OF SECURITIES
129. Securities' and transfer registers. The directors shall determine the
place within the Province of Quebec where the Corporation shall keep a
central register of the securities which it has issued, and failing
such a decision, this register shall be kept at the registered office
of the Corporation. The directors may also determine one (1) or more
places,
<PAGE>
within or outside the Province of Quebec, where branch transfer
registers shall or may be kept. The central and branch transfer
registers shall be kept by the Secretary of the Corporation or by the
mandataries or agents designated by the directors.
130. Transfer agents. The directors may appoint as mandataries or agents one
(1) or more transfer agents for the purpose of holding a central
securities' register or, as the case may be, branch transfer registers.
The directors may also pass by-laws concerning such transfers of
securities. The transfer agent shall keep the registers required for
the recording of any transaction of securities. All security
certificates which a transfer agent shall issue after his appointment
shall bear his signature and such certificates shall only be valid if
he countersigns them. The directors shall have the power to remove the
transfer agents whom they have appointed. However, the Corporation
shall be held liable for any injury caused to the transfer agents by
their removal without a serious reason and at an inopportune moment.
131. Transfers of securities. Subject to the Act and to the provisions of
paragraph 136 below, a transfer of securities shall be subject to the
restrictions contained in the articles and in the by-laws of the
Corporation and, as the case may be, in any unanimous shareholder
agreement. All transfers of securities of the share capital of the
Corporation and all details relating thereto shall be recorded in the
central securities' register or in the branch transfer registers of the
Corporation. However, no transfer of securities shall be validly
entered in one (1) of these registers of the Corporation or authorized
to be entered therein unless the certificate representing the
securities to be transferred shall have been returned to the Secretary
of the Corporation for cancellation. The Secretary shall inscribe the
word "cancelled" as well as the date of cancellation on any certificate
returned to him. If no certificate representing the transferred
securities has been issued by the Corporation, an instrument in writing
documenting the power to transfer shall be presented prior to the
registration of the transfer.
132. Lien on a security. If the articles of the Corporation provide that the
securities issued by the latter are subject to a lien registered in the
name of the shareholder for a debt owed by the shareholder to the
Corporation, the directors may refuse to register the transfer of this
security until such debt has been reimbursed.
133. Enforcement of a lien. Any proceeds from the sale of securities carried
out by the directors in order to enforce a lien held by the Corporation
shall be allocated as follows: first, to the payment of costs brought
about by this sale, then, to any amount owing by the shareholder to the
Corporation and, finally, the balance, if any, shall be returned to the
shareholder. Such a sale cannot take place before the debt shall be due
and owing nor before the directors shall have notified the shareholder
or his heirs, legatees, liquidators or testamentary executors,
transferees, mandataries or agents, legal representatives, successors,
assigns or rightful claimants of the fact that the debt has become due,
of the among owing and of their intention to proceed with the sale of
the securities nor before the shareholder in default has neglected to
remedy such default within seven (7) days of the receipt of such
notice.
134. Registration of transfers. Subject to the Act and to the provisions of
paragraph 136 below, no transfer of securities or of warrants shall be
registered in the securities' register of the Corporation unless:
a) the security certificate has been duly endorsed by the proper
person;
b) a reasonable assurance has been given to the effect that the
endorsement is genuine;
<PAGE>
c) every act or statute in Canada or in a province or territory of
Canada with respect to the collection of income tax, sales taxes
or charges, duties or fees has been complied with;
d) any restriction on its issue, on its transfer or on the holding
thereof ae authorized by the articles has been complied with; and
e) any lien on the securities as provided for in paragraph 132 above
has been reimbursed.
135. Deceased shareholder. In the event of the death of the holder or of one
(1) of the joint holders of any security of the Corporation, the
Corporation shall neither modify the securities' register or the
transfer register nor pay any dividend or make any other distribution
relating to the security in question unless all the documents which may
be required by the Act shall have been submitted and all reasonable
requirements imposed by the Corporation or by its transfer agents shall
have been satisfied.
136. Effect of registration. Subject to the Act, the Corporation may
consider the registered holder of a security as the only person
eligible to vote, to receive assets, interest, dividends or other
payments and to exercise the other rights and privileges attaching to
this capacity.
D. DIVIDENDS
137. Declaration and payment. Subject to the Act and unless otherwise
provided in a unanimous shareholder agreement and subject to it being
established that the Corporation is or will be able to discharge its
liabilities when due and that the realizable value of its assets will
not be less than the aggregate of its liabilities and of its stated
capital, the directors may declare and pay dividends to the
shareholders according to their respective rights and interests in the
Corporation. The directors shall not be compelled to make any
distribution of the profits of the Corporation; thus they may create a
reserve fund for the payment of dividends or set aside such profits in
whole or in part in order to keep them as a reserve fund of any kind.
Such dividends may be paid in specie, in property or by the issue of
fully paid-up securities of the Corporation.
138. Payment. Unless the holder otherwise indicates, a dividend payable in
specie shall be paid by cheque to the order of the registered holder of
the securities of the class in respect of which a dividend have been
declared and shall be delivered or mailed by prepaid ordinary mail to
such registered holder to or at the address appearing at that time in
the registers of the Corporation. In the case of joint holders, unless
such joint holders otherwise direct, the cheque shall be made payable
to the order of all of such joint holders and be delivered or mailed to
them to or at the address of one (1) of them appearing at that time in
the registers of the Corporation. The mailing of such chequeae
aforesaid, unless the same is not paid upon due presentation, shall
satisfy all claims and discharge the Corporation of its liability for
the dividend to the extent of the amount of the cheque. In the event of
non-receipt of the dividend cheque by the person to whom it was
delivered or mailed ae aforesaid, the Corporation shall issue to such
person a replacement cheque for the same amount on such termsae
determined by the directors.
139. Unclaimed dividend. The right to any dividend unclaimed after a period
of three (3) years from its declaration date shall be lost and the
dividend shall revert to the Corporation.
140. Joint shareholders. Where two (2) or more persons are registered ae
joint shareholders in the Corporate Records Book, each of the
shareholders may grant a valid discharge in
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respect of the payment of any dividend. In such a case, the shareholder
who acts shall be deemed to have been appointed manager by the other
joint shareholder or shareholders.
141. Set-off. The directors, in their discretion, may apply, in whole or in
part, any amount of dividend declared payable to a shareholder to set
off any debt owed by the shareholder to the Corporation.
E. NOTICES AND INFORMATION TO SHAREHOLDERS
142. Notices to shareholders. Subject to the provisions of paragraphs 147,
148 and 151 below, the notices or the documents required by the Act, by
its Regulations, by the articles, by the by-laws of the Corporation or
by a unanimous shareholder agreement to be sent to the shareholders may
be sent by registered or by certified mail or delivered in person to
the shareholders, to or at the address indicated at that time in the
Corporate Records Book or in the registers of its transfer agent. Where
two (2) or more persons hold securities jointly, the notices or the
documents shall be sent to one (1) of the persons entered as joint
shareholders in the Corporate Records Book or in the registers of the
transfer agent and this shall constitute sufficient notice with respect
to the other joint shareholder or shareholders unless the joint
shareholders have appointed a manager, in which case Me notices or the
documents shall be sent to the latter. Receipt by a shareholder of a
notice or of a document sent by registered or by certified mail shall
be deemed to have taken place at the time when, according to the
ordinary course of mail delivery, the registered or certified letter
containing such notice or document should have been received. In order
to prove receipt of such notices or documents and the date thereof, it
shall be sufficient that the letter was registered or certified, that
it was properly addressed and that it was deposited at a post office,
as well as the date on which it was so deposited and the time which was
required for its delivery in the ordinary course of mail delivery or,
if the letter was delivered in person, it shall be sufficient to
produce a dated acknowledgement of receipt bearing the signature of the
shareholder.
143. Addresses of shareholders. In addition to the persons referred to in
subsection 51(2) of the Act, the Corporation may consider the holder of
the securities who is registered in the securities' register of the
Corporation ae being the person entitled to receive the notices or the
documents required to be sent to the shareholders. The sending of any
notice or document to such person, in accordance with paragraph 142
above, shall constitute sufficient notice to the heirs, legatees,
liquidators or testamentary executors, transferees, mandataries or
agents, legal representatives, successors, assigns or rightful
claimants of the shareholder. Each shareholder shall provide the
Corporation with an address where the notices or the documents shall be
sent to him or left for him, failing which he shall be deemed to have
waived his right to receive such notices or documents.
144. Untraceable shareholder. The Corporation shall not be obliged to send
the notices or the documents required by the Act, by its Regulations,
by the articles, by the by-laws of the Corporation or by a unanimous
shareholder agreement to be sent to the shareholders where previous
notices or documents have been returned to it on more than three (3)
consecutive occasions, unless the untraceable shareholder has notified
the Corporation in writing of his new address.
145. Notice of record date. The directors may fix in advance, between the
fiftieth (50~) and the twenty first (21~) day preceding the date when a
meeting of the shareholders is to take place, a record date in order to
determine the shareholders eligible to receive notice of such meeting.
Where no record date has been set, the record date in order to
determine the shareholders entitled to receive notice of a meeting of
the shareholders shall be the
<PAGE>
eve of the day when such notice is given, at the time of close of
business, or the day of the meeting itself, in the absence of notice.
F. MEETINGS OF THE SHAREHOLDERS
146. Annual meetings. Annual meetings of the shareholders of the Corporation
shall be held no later than eighteen (18) months following the
incorporation of the Corporation and thereafter within fifteen (15)
months following the date of the preceding annual meeting. The
directors shall determine the exact date as well as the time and the
place of any such meeting. The annual meeting of the shareholders shall
convene to take notice of the financial statements of the Corporation
and of the other documents which are required by the Act to be placed
on the agenda of the annual meeting, to elect directors, to appoint one
(1) or more auditors, as the case may be, and to fix, or authorize the
directors to fix, their remuneration, and to decide on any other matter
which may be placed on the agenda. The annual meetings may be called by
the President of the Corporation or by any director in accordance with
paragraph 151.
147. Special meetings. Special meetings of the shareholders of the
Corporation may be called at any time by the Chairman of the Board of
Directors, by the President of the Corporation, by the General Manager
or by two (2) directors.
148. Calling by shareholders. The holders of not less than five per cent
(5%) of the securities issued by the Corporation which carry the right
to vote at the meeting sought to be held may request that the directors
call a meeting for the purposes stated in their request. The request,
which may consist of several documents of like form signed by at least
one (1) of the shareholders, shall state the items on the agenda of the
meeting to be called. It shall be sent to each director and to the
registered office of the Corporation. The directors shall call the
meeting within twenty-one (21) days following receipt of the request in
order to debate the questions referred to therein. The directors,
however, shall not be obliged to call the meeting if the notice of a
record date set pursuant to subsection 134(2) of the Act has been given
in accordance with subsection 134(4) of the Act, if a meeting has
already been called and if notice thereof has been given pursuant to
section 135 of the Act or if the items on the agenda stated in the
request relate to instances described in paragraphs 137(5)b) to e) of
the Act. Should the directors fail to call said meeting within the time
limits prescribed above, any shareholder who signed the request may do
so.
149. Meetings in the Province of Quebec. Subject to the articles or to any
unanimous shareholder agreement, the meetings of the shareholders shall
be held at the registered office of the Corporation or at any other
place in the Province of Quebec designated by the directors. The
meetings may be held validly within the territorial limits of the
Province of Quebec on land, at sea or in the air. Meetings held by way
of written resolutions in lieu of meetings shall be deemed to have been
held in the Province of Quebec at the registered office of the
Corporation.
150. Meetings outside the Province of Quebec. The meetings of the
shareholders, with the unanimous consent of the shareholders entitled
to attend, and to vote at, such meetings, may be held outside the
Province of Quebec if the auditor and all the directors are in
attendance or, in writing, have waived notice of the meeting or if they
have agreed to the holding of the meeting. Where a meeting of the
shareholders is held outside the Province of Quebec, the shareholders
who are not in attendance or represented by proxy and who, in writing,
have waived notice of the calling of the meeting or who have agreed to
the holding of the meeting shall be deemed to have agreed to its being
held at that place outside the Province of Quebec. Any business which
may be transacted at a meeting of the shareholders may be transacted at
such a meeting.
<PAGE>
151. Notice of meeting. Notice of the calling of any meeting of the
shareholders shall be sent by letter or by telegram, between the
fiftieth (50~) and the twenty first (21S') day prior to the meeting, to
each shareholder entitled to vote thereat, to each director at his
last-known address indicated in the Corporate Records Book and to the
auditor.
152. Notice to the auditor. The auditor of the Corporation shall be entitled
to notice of any meeting, to attend such meeting at the expense of the
Corporation and to be heard thereat on any issue pertaining to his
duties. The auditor or his predecessors to whom one (1) of the
directors or one (1) shareholder, whether entitled to vote or not,
shall give written notice at least ten (10) days prior to the holding
of such meeting shall attend this meeting at the expense of the
Corporation and answer any questions pertaining to his duties.
153. Contents of notice. The notice of the calling of a meeting of the
shareholders shall contain all the items on the agenda and state their
nature with sufficient detail so as to enable the shareholders to reach
an informed opinion with respect thereto and shall reproduce the text
of any special resolution to be submitted at the meeting. It shall not
be necessary for the notice of an annual meeting to indicate that the
financial statements of the Corporation and the auditor's report shall
be examined and that the renewal of the latter's duties and the
election of the directors shall be addressed at this meeting, but a
copy of the financial statements of the Corporation and of the
auditor's report shall be appended to this notice.
154. Waiver of notice. A meeting of the shareholders may be held validly at
any time and for any purpose without the notice required by the Act, by
its Regulations or by the by-laws, if all the shareholders entitled to
vote at the meeting as well as all the directors and the auditor waive
notice of the meeting in any manner whatsoever. This waiver of the
notice of the meeting may take place before, during or after the
holding of the meeting. Moreover, the attendance of a shareholder, of a
director, of the auditor or of any other person entitled to attend such
meeting shall constitute a waiver on his part of notice of the meeting,
unless he indicates that he is attending for the express purpose of
objecting to the proceedings because, among other reasons, the meeting
was not validly called. The signing, by any of the aforementioned
persons, of a resolution in lieu of a meeting shall also constitute a
waiver of the notice on his part of the calling and of the holding of
an actual meeting.
155. Irregularities. Irregularities affecting the notice of a meeting or the
sending thereof, the accidental omission to give such notice or the
non-receipt of the notice by a shareholder, by a director, by the
auditor or by any other person entitled to attend the meeting in no way
shall affect the validity of a meeting of the shareholders. Moreover,
the accidental failure in the notice of a meeting to refer to one (1)
or more of the matters to be submitted to such meeting, even though
reference thereto is required, shall not prohibit the meeting from
considering this matter unless it is prejudicial to a shareholder or
unless there is a risk of his interests being injured. A certificate
from the Secretary, from an officer or from another duly authorized
representative of the Corporation shall constitute irrebuttable
evidence of the sending of a notice of the meeting to the shareholders
and shall be binding upon each of the shareholders.
156. Persons entitled to attend a meeting. The only persons entitled to
attend a meeting of the shareholders shall be those entitled to vote
thereat, the directors, the auditor of the Corporation and other
persons who, pursuant to the Act, to the articles or to the by-laws of
the Corporation, are entitled or required to attend a meeting of the
shareholders. Any other person may be admitted to a meeting of the
shareholders upon invitation of the chairman of the meeting or if a
majority of the shareholders agrees thereto.
<PAGE>
157. Quorum. Subject to the Act, to the articles, to the by-laws of the
Corporation or to a unanimous shareholder agreement, the attendance, in
person or by proxy, of a person holding or representing at least one
(1) security issued by the Corporation and carrying the right to vote
shall constitute a quorum at the meeting for the purpose of choosing a
chairman of the meeting, as the case may be, and of pronouncing the
adjournment of the meeting. For any other purpose, a quorum at a
meeting of the shareholders shall be attained, no matter how many
persons are actually in attendance when, at least fifteen (15) minutes
after the time set for the meeting, the shareholders representing a
majority of the votes are in attendance, in person or represented by
proxy. Where a quorum is attained at the opening of a meeting of the
shareholders, the shareholders attending the meeting in person or
represented by proxy may proceed with the business of the meeting
notwithstanding the fact that the quorum is not maintained throughout
the entire meeting. Where the Corporation only has one (1) shareholder
or where only one (1) holder of a class of securities entitled to vote
attends the meeting, the attendance of this shareholder in person or
represented by proxy shall constitute the quorum at the meeting for any
purpose.
158. Adjournment. A shareholder attending a meeting in person or represented
by proxy and constituting a quorum for the purposes of adjourning a
meeting may adjourn any meeting of the shareholders. The chairman of
the meeting, with the consent of the shareholders attending the meeting
in person or represented by proxy and entitled to vote, may adjourn any
meeting of the shareholders to a specified place, date and time if he
deems it appropriate. Notice of the adjournment of a meeting to a date
less than thirty (30) days later shall be given by an announcement made
before the latter is adjourned. If a meeting of the shareholders is
adjourned one (1) or more times for a total of thirty (30) days or
more, notice of the adjournment of such meeting shall be given in the
same manner as the notice of the original meeting. In the event that a
meeting is held according to the terms of the adjournment, it may
validly consider any matter provided that a quorum is attained. The
persons who constituted the quorum at the original meeting shall not be
required to constitute the quorum at the reconvening of the meeting. If
a quorum is not attained at the reconvening of the meeting, the meeting
shall be deemed to have ended immediately after adjournment thereof.
159. Chairman and secretary. The meetings of the shareholders shall be
chaired by the President of the Corporation or, failing him, by any
Vice-President. The Secretary of the Corporation shall act as the
secretary at meetings of the shareholders. In the absence of these
persons, the shareholders attending the meeting shall designate any
person to act as chairman or secretary of the meeting. It shall not be
necessary to appoint a chairman and a secretary in the event of an
adjournment.
160. Procedure. The chairman of a meeting of the shareholders shall be
responsible for the proper conduct of the meeting, shall submit to the
shareholders the proposals which must be put to a vote and shall
establish reasonable and impartial rules of procedure to be followed,
subject to the Act, to the articles, to any unanimous shareholder
agreement, to the by-laws of the Corporation and to the rules of
procedure usually followed during deliberating assemblies. He shall
decide on any matter including, but without restricting the generality
of the foregoing, issues relating to the validity of proxies. His
decisions shall be final and binding on the shareholders.
161. Resolutions in lieu of meetings. Resolutions in writing, signed by all
the shareholders entitled to vote on these resolutions at meetings of
the shareholders, shall be as valid as if they had been passed at these
meetings. A copy of these resolutions shall be kept with the minutes of
these meetings. However, it shall not be possible to decide by way of
written
<PAGE>
resolutions where a director submits a written statement pursuant to
subsection 110(2) of the Act in which he gives the reasons for his
resignation or for his opposition to his removal or to his replacement
or where an auditor submits a written statement pursuant to subsection
168(5) of the Act in which he gives the reasons for his resignation or
for his opposition to his removal, to his replacement or to the
decision not to appoint an auditor.
G. RIGHT OF SHAREHOLDERS TO VOTE
162. General rule. Subject to the articles and to the by-laws of the
Corporation, each shareholder shall be entitled to as many votes as he
has securities which carry a right to vote at meetings of the
shareholders. This right shall belong to the shareholders whose names
appear in the securities' register on the record date, or, if no record
date has been set, on the date of the notice of the meeting or, failing
that, at the time of close of business on the eve of the date of
notice, or, if no notice is given, on the date of the meeting.
163. Joint shareholders. Where two (2) or more persons hold securities
jointly, one (1) of these persons attending a meeting of the
shareholders or duly represented thereat, in the absence of the other
or of the others, shall be entitled to vote with respect to these
securities and, in such a case, shall be deemed to have been appointed
manager by the other joint shareholder or shareholders. However, if
several of these persons attend the meeting in person or represented by
proxy and vote, they shall vote together as one (1) shareholder with
respect to the securities which they hold jointly.
164. Securities held by an administrator of the property of another or by a
trustee. Where a person, in his capacity as administrator of the
property of another or trustee, holds securities for a shareholder,
this person or his proxy holder shall be entitled to vote at any
meeting of the shareholders with respect to the securities so held if
such securities are voting securities.
165. Voting by a show of hands and casting vote. Any question submitted to a
meeting of the shareholders shall be decided by a vote by a show of
hands, unless a ballot is requested or unless the chairman of the
meeting prescribes another voting procedure. Proxy holders may vote by
a show of hands unless they have received contrary instructions. The
chairman of the meeting shall not be entitled to a second or casting
vote in the event of a tie vote. At any meeting, a statement by the
chairman of the meeting to the effect that a resolution has been passed
or defeated unanimously or by a particular majority shall constitute
conclusive evidence thereof without it being necessary to prove the
number or the percentage of votes cast in favour of, or against, the
proposal.
166. Voting on behalf of a body corporate. The Corporation shall permit any
individual authorized by a resolution of the Board of Directors or of
the governing body of a body corporate which is one (1) of the
shareholders of the Corporation to represent the body corporate at
meetings of the shareholders of the Corporation. An individual so
authorized may exercise, on behalf of the body corporate which he
represents, all the powers which such person could exercise if it were
an individual shareholder.
167. Ballot. Voting at a meeting of the shareholders shall be by ballot
where a shareholder or a proxy holder entitled to vote at the meeting
so requests. Each shareholder or proxy holder shall deliver to the
scrutineer of the meeting a ballot on which he has written his name,
that of the shareholder or those of the shareholders which he
represents by proxy, as the case may be, the number of votes which he
is entitled to cast and the manner in which he shall be casting those
votes. A vote by ballot may be requested before or after
<PAGE>
any vote by a show of hands. Such request may also be withdrawn before
the ballot is taken. A vote by ballot shall take precedence over a vote
by a show of hands.
168. Scrutineer. The chairman of a meeting of the shareholders may appoint
one (1) or more persons, whether or not they be representatives or
shareholders of the Corporation, to act as scrutineers at any meeting
of the shareholders. Failing such an appointment, the secretary of the
meeting shall act as the scrutineer.
H. PROXIES
169. Proxies. A shareholder entitled to vote at a meeting, by means of a
proxy, may appoint a proxy holder as well as one (1) or more alternate
proxy holders, who need not be shareholders, to attend the meeting and
to act thereat within the limits set out in the proxy. The instrument
in writing appointing a proxy holder shall be signed by the shareholder
or by his mandatory or agent authorized in writing. However, it shall
not be necessary for the instrument in writing to be signed before
witnesses. If the shareholder is a body corporate, any director of the
body corporate may appoint a proxy holder and sign his proxy. A proxy
holder may hold the proxies of several shareholders. A proxy shall be
valid only at the meeting in respect of which it was given as well as
at any reconvening thereof in the event of an adjournment. A proxy may
be general in nature and may be in respect of the exercise of the sum
of the rights attaching to the securities of the holder granting the
proxy.
170. Form of proxy. The instrument in writing appointing a proxy holder may
read as follows:
The undersigned, ........................., shareholder of
......................., hereby appoints ........................., or,
in his absence , as his mandatary or agent for the purpose of attending
the meeting of the shareholders to be held at ................. on the
.............day of 19......... and any reconvening of this meeting, in
the event of an adjournment, and for the purpose of acting on his
behalf with the same authority as if the undersigned had attended in
person the said meeting or its reconvening in the event of an
adjournment.
Dated this .............. day of .................19........
--------------------------
Signature of shareholder
171. Revocation. The instrument appointing a proxy holder shall revoke any
prior instrument appointing another proxy holder. Such an instrument
may be revoked by the filing' at the registered of lice of the
Corporation, before the end of the last juridical or business day
preceding the meeting, or its reconvening in the event of an
adjournment, of an instrument in writing signed by the shareholder or
by his mandatory or agent bearing a written authorization, by the
filing thereof with the chairman of the meeting on the day of the
meeting, or upon reconvening thereof in the event of an adjournment, or
in any other manner permitted by law.
172. Filing of proxies. The directors may pass a by-law designating a place,
other than that where a meeting of shareholders, or a reconvening
thereof in the event of an adjournment, is to be held, where proxies
shall be filed before the holding of the meeting. Such by-law may
provide that any proxy so filed may be included in the vote as if it
had been tendered at the meeting, or at a reconvening thereof in the
event of an adjournment, and the votes cast in accordance with this
by-law shall be valid and counted. Subject to the passage of such
by-law, the chairman of any meeting of the shareholders, in his sole
<PAGE>
discretion, may decide to accept as valid a written communication sent
by telegram, by cable, by telex or by any other means with respect to
the authorization of any person who claims to represent, and to vote in
the name of, a shareholder, notwithstanding the fact that no proxy
granting such authority has been filed with the Corporation. Any vote
cast following the acceptance of such communication shall be valid and
counted.
173. Deadline for filing. The directors, in the notice of the calling of a
meeting of the shareholders, may specify a deadline for granting a
proxy to a mandatory or to an agent, which, excluding any non-judicial
days or holidays, may not precede by more than forty-eight (48) hours
the date of opening of the meeting, or of a reconvening thereof in the
event of an adjournment.
174. Soliciting proxies. If the Corporation has fifteen (15) or more
shareholders, joint holders of one (1) security being counted as a
single shareholder, when giving notice of the meeting to the
shareholders, it shall send them a form of proxy in the prescribed
form. The proxies shall be solicited by way of a proxy circular sent in
the prescribed form, and shall take the form of an appendix to, or of a
separate document sent along with, the notice of the meeting, in case
of solicitation by or on behalf of the management, or, in any other
case, by any dissident who shall state therein the purpose of the
solicitation. A copy of this circular shall be sent to the Director
along with a notice of the meeting. A person who is appointed proxy
holder after having solicited a proxy shall attend in person the
meeting in question, or cause an alternate proxy holder to represent
him at the meeting, and shall comply with the instructions of the
shareholder who appointed him. He shall have the same rights as the
shareholder who appointed him in respect of his participation in the
proceedings and of voting by way of ballot. However, where the proxy
holder has received contrary instructions from his mandator or
principal, he may not take part in a vote by way of a show of hands.
I. AUDITOR OR ACCOUNTANT
175. Appointment of auditor. Subject to the provisions of the Act which
enable one to dispense with the appointment of an auditor and subject
to paragraph 181 below, the shareholders, by way of an ordinary
resolution, at the first annual meeting of the shareholders and at each
subsequent annual meeting, shall appoint an auditor to serve until the
close of the next annual meeting. Failing the appointment of an auditor
at a meeting, the incumbent auditor shall continue to serve until the
appointment of his successor or of his replacement. The shareholders
may also appoint more than one auditor. The directors, in the course of
the organizational proceedings of the Corporation, may appoint an
auditor to serve until the close of the first annual meeting of the
shareholders.
176. Remuneration of auditor. The shareholders shall fix the remuneration of
the auditor or of the auditors unless this power has been delegated to
the directors.
177. Independence of auditor. The auditor shall be independent of the
Corporation, of the affiliates, of the directors and of the officers of
the latter. A person shall be deemed not to be independent if he or his
business partner is a business partner, a director, an officer or an
employee of the Corporation, of an affiliate, of any of the directors,
of the officers or of the employees of the latter, or if he
beneficially owns or controls, directly or indirectly, a material
interest in the securities of the Corporation, of one (1) of its
affiliates, or has been a receiver, a receiver manager, a liquidator or
trustee in bankruptcy of the Corporation or of one (1) of its
affiliates within the two (2) years immediately preceding his proposed
appointment to the position of auditor. The auditor shall resign as
<PAGE>
soon as he becomes aware that he no longer qualifies to serve as
auditor unless a court of law otherwise authorizes him to serve.
178. Removal of auditor. The auditor may be removed at any time by the
shareholders of the Corporation at a special meeting. However, the
Corporation shall be liable for any injury caused to the auditor by his
removal without a serious reason and at an inopportune moment. A
vacancy created by the removal of the auditor may be filled by the
shareholders at the meeting at which it was decided to remove him or,
if the vacancy is not so filled by the shareholders, by the directors.
Any other vacancy in the position of auditor shall be filled by the
directors. The person appointed to replace the auditor shall hold the
position for the unexpired term of his predecessor.
179. Opposition by auditor. The auditor shall be entitled to give to the
Corporation reasons in writing for his resignation or for his
opposition to the actions or to the resolutions contemplated with
respect to his removal or to his replacement at the end of his term.
180. End of term of auditor. The term of the auditor shall end upon his
death, his resignation, his removal in accordance with paragraph 178 of
the present by-laws, upon expiry of his term, if he is of unsound mind
and is so found by a court of law in Canada or elsewhere, if he
acquires the status of bankrupt, if he becomes disqualified from
practicing as an auditor in the province where the registered office of
the Corporation is located, upon appointment of his successor or of his
replacement, by the institution of a method of protective supervision
in his respect or by one of the common causes of extinction of
obligations provided for by law. The resignation of the auditor shall
take effect on the date on which written notice of his resignation is
received by the Corporation or on any later date which is specified
therein. However, the auditor shall be liable for any injury caused to
the Corporation by his resignation if he submits it without a serious
reason and at an inopportune moment.
181. Accountant. If the shareholders of the Corporation decide not to
appoint an auditor by way of a resolution passed unanimously by all the
shareholders, including those not otherwise entitled to vote, the
directors may appoint an accountant to prepare the financial statements
of the Corporation and to discharge such other duties as they may
determine. The directors shall also fix the remuneration of the
accountant without having to pass a resolution to this end and they
shall fill any vacancy which may occur in the position of the
accountant.
182. End of term of accountant. The term of the accountant shall end upon
his death, his resignation, his removal by the directors, upon expiry
of his term, if he is of unsound mind and is so found by a court of law
in Canada or elsewhere, if he acquires the status of bankrupt, if he
becomes disqualified from practicing as an accountant in the province
where the registered office of the Corporation is located, upon
appointment of his successor or of his replacement, by the institution
of a method of protective supervision in his respect or by one of the
common causes of extinction of obligations provided for by law. The
resignation of the accountant shall take effect on the date on which
written notice of his resignation is received by the Corporation or on
any later date which is specified therein. However, the accountant
shall be liable for any injury caused to the Corporation by his
resignation if he submits it without a serious reason and at an
inopportune moment.
183. Audit Committee. The directors may create an Audit Committee made up of
not less than three (3) directors of the Corporation, a majority of
whom shall be made up of persons who are neither officers nor employees
of the Corporation or of bodies corporate which are shareholders of the
Corporation and which control it. If the Corporation issues
<PAGE>
securities by way of a distribution to the public, it shall create such
an Audit Committee unless it has been dispensed of this duty by the
Director. Each member of the Audit Committee shall hold office until he
is replaced by the directors or, as the case may be, until he ceases to
be a director. The directors may fill any vacancy on the Audit
Committee.
184. Duty of Audit Committee. The Audit Committee shall review the financial
statements of the Corporation before their approval according to the
Act. It shall also receive notification of any errors or misstatements
contained in financial statements of the Corporation which have been
the subject of a report by the auditor or by one (1) of his
predecessors. Any director or officer of the Corporation shall notify
the Audit Committee forthwith of any errors or misstatements of which
he becomes aware in financial statements which have been the subject of
a report by the auditor or by one (1) of his predecessors.
185. Meetings of Audit Committee. Meetings of the Audit Committee shall be
subject, with all necessary changes, to the rules and to the procedures
which govern the meetings of the Board of Directors.
PART III CORPORATION WITH SOLE DIRECTOR OR SOLE SHAREHOLDER
Section 1. REPRESENTATION OF THE CORPORATION
186. Representative bodies. The Corporation shall act through its
representative bodies: the Board of Directors, the officers, the
meeting of the shareholders and its other representatives. These bodies
shall represent the Corporation within the limits of the powers granted
to them by virtue of the Act, of its Regulations, of the articles, of a
written declaration of the sole shareholder or of a unanimous
shareholder agreement or of the present by-laws. The Board of Directors
may be designated by any other name in any document issued by the
Corporation.
Section 2. SOLE DIRECTOR AND OFFICER
A. SOLE DIRECTOR
187. Composition of the Board of Directors. The Board of Directors shall be
made up of one (1) sole director.
188. Mandatary or agent. The sole director shall be considered to be a
mandatory or an agent of the Corporation. He shall have the powers and
the duties set out in the Act, in its Regulations, in the articles, in
a written declaration of the sole shareholder or in a unanimous
shareholder agreement and in the present by-laws as well as those which
are inherent in the nature of his office. In the course of discharging
his duties, he shall respect the duties with which he is charged under
the Act, the articles, a written declaration of the sole shareholder or
a unanimous shareholder agreement and the present by-laws and he shall
act within the limits of the powers granted to him.
189. Qualifications. Subject to the articles, to a written declaration of
the sole shareholder or to a unanimous agreement, a person need not be
a shareholder in order to become a director of the Corporation.
Moreover, any natural person may be a director except for a person who
is under eighteen (18) years of age, a person who is of unsound mind
and has been so found by a court of law in Canada or elsewhere, a
person who has the status of bankrupt or a person who has been barred
by a court of law from holding such an office.
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190. Acceptance of office. The sole director may accept his office expressly
by signing an Acceptance of Office form to this end. Furthermore, his
acceptance may be made tacitly and, in such a case, it may be inferred
from the actions, from the acts, from the deeds and even from the
silence of the sole director.
191. Term of office. Unless otherwise decided by the sole shareholder or by
the shareholders, the sole director shall hold office for a term of one
(1) year or until his successor or his replacement shall have been
appointed or elected, unless the term of office of the sole director
ends prematurely. Subject to the Act and to the articles, the sole
director may resign from office and be replaced by another director in
the same resolution. Such resignation, however, shall not relieve the
sole director of the obligation of paying any debt owing to the
Corporation before his resignation became effective. The sole director
shall be liable for any injury caused to the Corporation by his
resignation if he submits it without a serious reason and at an
inopportune moment. However, the sole director shall be entitled to the
remuneration which he has earned until the date of his resignation.
192. Powers. The sole director shall supervise the management and carry on
the business and the affairs of the Corporation and he may execute, in
the name of the latter, contracts of any kind which are allowed by law.
Generally speaking, he shall exercise all the powers and duties of the
Corporation and perform all the actions, the acts or the deeds within
the limits of the powers of the latter, except those which the Act, a
written declaration of the sole shareholder or a unanimous shareholder
agreement expressly reserve for the sole shareholder or for the
shareholders. In particular, the sole director shall be expressly
authorized to lease, to purchase or otherwise to acquire or to sell, to
exchange, to hypothecate or to mortgage, to pledge or otherwise to
dispose of the movable or immovable property or personal or real
property, presently held or after-acquired, of the Corporation. He may
perform any other action, act or deed which is useful or necessary in
the interests of the Corporation. Finally, the sole director may pass
resolutions with respect to the reserved powers and a copy of these
resolutions shall be kept in the Corporate Records Book.
193. Duties. The sole director of the Corporation, in the exercise of his
powers and in the discharge of his duties, shall act prudently,
diligently, honestly and faithfully in the best interests of the
Corporation and avoid placing himself in a position of conflict of
interest between his personal interest and that of the Corporation.
Moreover, the sole director of the Corporation shall comply with the
Act, with its Regulations, with the articles, with the by-laws of the
Corporation, with any written declaration of the sole shareholder or
with any unanimous shareholder agreement of the Corporation. In
arriving at a decision, he may rely in good faith on the opinion or on
the report of an expert and, in such a case, shall be deemed to have
acted prudently, diligently, honestly and faithfully in the best
interests of the Corporation.
194. Gifts inter vivos. The sole director may make gifts inter vivos of the
assets of the Corporation, even for a substantial value, without having
to obtain the consent of the sole shareholder or of the shareholders,
provided that such gifts shall be made in the best interests of the
Corporation.
195. Remuneration and expenses. The sole director may fix his own
remuneration without having to pass a resolution to this end. Unless
otherwise provided, such remuneration shall be in addition to any other
remuneration paid to him in another capacity. The sole director may
receive advances and shall be entitled to be reimbursed for all
expenses incurred in the execution of his office except for those
incurred as a result of his own fault.
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196. Conflict of interest. The sole director who is a party to a material
contract or to a proposed material contract with the Corporation, or
who is a director of, or has a material interest in, any person which
is a party to or a material contract or to a proposed material contract
with the Corporation shall disclose the nature and the extent of his
interest at the time and in the manner provided for by the Act. Any
such contract or proposed contract shall be submitted to the sole
shareholder or to the shareholders for approval even if the contract is
one which, in the ordinary course of the business of the Corporation,
would not require the approval of the sole shareholder or of the
shareholders. By accepting his office, the sole director shall be
deemed to have given a general notice to the Corporation and to the
sole shareholder or to the shareholders, disclosing his interest in any
contract with regard to his remuneration, to his compensation and to
any insurance relating thereto. This provision shall be a sufficient
disclosure in accordance with subsection 120(6) of the Act.
197. By-laws. Unless otherwise provided in the articles, in the by-laws of
the Corporation, in a written declaration of the sole shareholder or in
a unanimous shareholder agreement, the sole director, by way of
resolution, may pass, amend or repeal any by-law governing the business
and the affairs of the Corporation. By-laws passed, amended or repealed
by the sole director according to the above shall be submitted to the
sole shareholder or to the shareholders at the following meeting.
By-laws passed, amended or repealed by the sole director shall take
effect on the date of their passage, of their amendment or of their
repeal by the sole director. After confirmation or amendment by the
sole shareholder or by the shareholders, they shall continue in force
in their original or amended state, as the case may be. However, they
shall cease to have effect following their rejection by the sole
shareholder or by the shareholders or, in the event of failure by the
sole director to submit them to the sole shareholder or to the
shareholders at the meeting following their passage. Furthermore, in
the event of a rejection by the sole shareholder or by the shareholders
of a by-law or of a failure by the sole director to submit this by-law
to the sole shareholder or to the meeting of the shareholders, any
subsequent resolution by the sole director to the same general effect
cannot come into force until after confirmation by the sole shareholder
or by the shareholders.
198. End of term of office. The term of office of the Corporation shall end
in the event of his death, of his resignation, of his removal from
office or ipso facto if he no longer qualifies as a director, upon
expiry of his term of office, by the institution of a method of
protective supervision in his respect or by one of the common causes of
extinction of obligations provided for by law. The term of office of
the sole director shall also end in the event of the bankruptcy of the
Corporation.
B. OFFICERS AND REPRESENTATIVES
199. Mandataries or agents. The officers and the representatives shall be
considered to be mandataries or agents of the Corporation. They shall
have the powers and the duties set out in the Act, in its Regulations,
in the articles and in the present by-laws as well as those which are
inherent in the nature of their office.. In the course of discharging
their duties, they shall respect the duties with which they are charged
under the Act, its Regulations, -the articles and the present by-laws
and they shall act within the limits of the powers granted to them.
200. Appointment and cumulative duties. The sole director shall hold the
offices of President and of Secretary of the Corporation. He may also
create any other office and appoint thereto qualified persons, whether
they be shareholders of the Corporation or not, to represent the
Corporation and to discharge the duties which he determines. The
officers or the representatives may delegate the powers which they have
received from
<PAGE>
the sole director as well as those which are inherent in their office..
However, they shall select their substitutes carefully and provide them
with appropriate instructions.
201. Term of office. The term of office of the officers and of the
representatives of the Corporation shall begin with their acceptance of
the office and such acceptance may be inferred from their actions, from
their acts or from their deeds. Their term of office shall continue
until their successors or their replacements shall have been appointed
by the sole director unless their term of office in accordance with
paragraphs 211 to 213 of the present by-laws.
202. Remuneration. The sole director shall fix the remuneration of the
officers or of the representatives of the Corporation without having to
pass a resolution to this end. Unless otherwise provided, such
remuneration shall be in addition to any other remuneration paid to the
officer or to the representative in another capacity by the
Corporation. The fact that any officer, representative or employee
shall also be the sole director or the sole shareholder or a
shareholder of the Corporation shall not disqualify him from receiving,
in his capacity as officer, representative or employee, such
remuneration as may be determined.
203. Powers. Subject to the articles, to the by-laws, to a written
declaration of the sole shareholder or to a unanimous shareholder
agreement, the sole director shall determine the powers of the officers
and of the representatives of the Corporation. The sole director may
delegate to them all his powers except the reserved powers or those
which require the approval of the sole shareholder or of the
shareholders. The officers and the representatives shall have the
powers inherent in the Act or which normally relate to their office..
Furthermore, they may exercise these powers either within or outside
the Province of Quebec.
204. Duties. The officers and the representatives, in the discharge of their
duties, shall act prudently, diligently, honestly and faithfully in the
best interests of the Corporation and within the limits of their
respective offices and they shall avoid placing themselves in a
position of conflict of interest between their personal interest and
that of the Corporation. They shall be deemed to have acted within the
limits of their offices when they discharge their duties in a manner
which is more advantageous for the Corporation. They shall be held
liable to the Corporation for actions, acts or deeds performed alone
which they were only authorized to carry out in conjunction with one
(1) or more other persons unless they acted in a manner which turned
out to be more advantageous for the Corporation than that which had
been agreed upon. In arriving at a decision, they may rely in good
faith on the opinion or on the report of an expert and, in such a case,
shall be deemed to have acted prudently, diligently, honestly and
faithfully in the best interests of the Corporation.
205. Posting of security bond. The sole director or any person designated by
him may require that certain officers, representatives or employees of
the Corporation post a security bond, in such form and containing such
guarantees as the sole director may determine, in order to guarantee
the proper performance of their powers and discharge of their duties.
206. Conflict of interest. Any officer or representative shall avoid placing
himself in a position of conflict of interest between his personal
interest and that of the Corporation and he shall declare or disclose
any conflict of interest to the sole director. The rules governing
conflicts of interest of the sole director shall apply, with all
necessary changes, to the officers and to the representatives.
<PAGE>
207. Signing of documents. Contracts, documents or instruments in writing
requiring the signature of the Corporation may be signed by the sole
director in his capacity as President and Secretary of the Corporation
and all contracts, documents or instruments in writing so signed shall
bind the Corporation without the necessity of any other authorization
or formality. The sole director may also authorize any other person to
sign and to deliver on behalf of the Corporation all contracts,
documents or instruments in writing and such authorization may be given
by way of resolution in general or in specific terms. Subject to the
Act, the sole director may permit the contracts, documents or
instruments in writing which are issued by the Corporation to bear
mechanicallyreproduced signatures.
208. Signing of declarations to be deposited in the Register. The
declarations which are to be filed with the Inspector General pursuant
to An Act respecting the legal publicity of sole proprietorships may be
signed by the sole director in his capacity as President of the
Corporation or by any person designated by the sole director.
209. Legal or other proceedings. The sole director in his capacity as
President of the Corporation or any other person authorized by the sole
director shall be respectively authorized to commence any action, suit,
application, proceeding of a civil, of a criminal or of an
administrative nature or any other legal proceeding on behalf of the
Corporation or to appear and to answer for the Corporation with respect
to any writ, order or injunction, issued by any court of law or by any
tribunal, with respect to any interrogatories upon articulated facts or
examinations for discovery, and with respect to any other action, suit,
application or other legal proceeding in which the Corporation shall be
involved; to answer in the name of the Corporation with respect to any
seizure by garnishment in which the Corporation shall be garnishee and
to make any affidavit or sworn declaration relating to such garnishment
or to any other legal proceeding to which the Corporation shall be made
a party; to make demands or requests for assignment of property or
applications or petitions for winding-up or liquidation or
sequestration or receivership orders against any debtor of the
Corporation; to attend, and to vote at, any meeting of the creditors or
of the debtors of the Corporation; to grant proxies and to take, with
respect to such actions, suits, applications or other legal
proceedings, any other action, act or deed or to make any other
decision deemed to be in the best interests of the Corporation.
210. Prima facie evidence of by-law. A copy of a by-law of the Corporation
to which the seal of the Corporation has been affixed and which
purports to have been signed by the President and Secretary of the
Corporation shall be admissible ae against the sole shareholder or
against any shareholder of the Corporation ae being, in itself, prima
facie evidence of the by-law.
211. Resignation. Any officer may resign from office by forwarding a letter
of resignation to the registered office of the Corporation by courier
or by registered or certified mail. The resignation shall become
effective upon receipt of the letter of resignation by the Corporation
or at any later date specified therein. The resignation of an of ricer
or of a representative may only take place subject to the provisions of
any existing employment contract between him and the Corporation. The
resignation shall not relieve the officer or the representative of the
obligation of paying any debt owing by him to the Corporation before
his resignation became effective. The officer or the representative
shall be liable for any injury caused to the Corporation by his
resignation if he submits it without a serious reason and at an
inopportune moment.
212. Removal from office. The sole director may remove from office any
officer or representative of the Corporation and may choose the
successor or the replacement of
<PAGE>
such person. Nevertheless, the removal from office of an officer or of
a representative may only take place subject to the provisions of any
existing employment contract between him and the Corporation. However,
the Corporation shall be liable for any injury caused to the officer or
to the representative by his removal from of lice without a serious
reason and at an inopportune moment.
213. End of term of office. The term of office of an of ricer or of a
representative shall end upon his death, his resignation, his removal
from office, upon expiry of his term of office as officer or
representative, if he is of unsound mind and is so found by a court of
law in Canada or elsewhere, if he acquires the status of bankrupt, upon
appointment of his successor or of his replacement, by the institution
of a method of protective supervision in his respect or by one of the
common causes of extinction of obligations provided for by law.
C. PROTECTION OF THE SOLE DIRECTOR, OF THE OFFICERS AND OF
THE REPRESENTATIVES
214. Exclusion of liability vis-a-vis the Corporation and third parties.
Except as otherwise provided in the Act or in by-laws of the
Corporation, the sole director or an officer acting or having acted for
or in the name of the Corporation shall not be held liable, in this
capacity or in their capacity as mandataries or agents of the latter,
whether it be vis-a-vis the Corporation or third parties, for the
actions, the acts or the deeds, the things done or allowed to be done,
the omissions, the decisions made or not made, the liabilities, the
undertakings, the payments made, the receipts given or the discharges
granted, the negligence or the faults of any officer, employee, servant
or representative of the Corporation. Among other things, the sole
director or an officer shall not be held liable vis-a-vis the
Corporation for any direct or indirect loss suffered by the latter for
any reason whatsoever; more specifically, they shall not be held liable
either for the insufficiency or the deficiency of title to any property
acquired by the Corporation, or for or on its behalf, or for the
insufficiency or the deficiency of any security or debt instrument in
or by which any of the funds or of the assets of the Corporation shall
be or have been placed or invested or yet for any loss or damage
resulting from the bankruptcy, from the insolvency or from the
delictual or tortious action, act or deed of any person, including any
person with whom or with which funds, securities, assets or negotiable
instruments shall be or have been placed or deposited. Furthermore, the
sole director or the officers shall not be held liable vis-a-vis the
Corporation for any loss, conversion of property, misappropriation,
embezzlement or any other damage resulting from any dealings with
respect to any funds, assets or securities or for any other loss,
damage or misfortune whatsoever which may occur in the discharge of, or
in relation to the discharge of, their duties unless the same shall
occur owing to their failure to discharge the duties of their office
prudently, diligently, honestly and faithfully in the best interests of
the Corporation or owing to the fact that the sole director or the
officers shall have placed themselves in a position of conflict of
interest between their personal interest and that of the Corporation.
None of the above shall be interpreted in such a way as to relieve the
sole director or an officer of their duty to act in accordance with the
Act and with its Regulations or of their joint or several liability for
any breach thereof, in particular in the event of a breach of the
specific provisions of the Act or of its Regulations. Moreover, the
sole director or the officers shall not be held individually or
personally liable vis-a-vis third parties for the duration of their
term of office in respect of a contract, a decision made, an
undertaking or a transaction, whether or not concluded, or with respect
to bills of exchange, to promissory notes or to cheques drawn, accepted
or endorsed, to the extent that they are acting or they acted in the
name, or on behalf, of the Corporation, in the ordinary course of the
performance of the powers which they have received, unless they acted
prior to the incorporation of the Corporation and unless their
<PAGE>
actions, their acts or their deeds have not been ratified by the
Corporation within the time limit prescribed by the Act after its
incorporation.
215. Right to compensation. The Corporation shall compensate the sole
director, its officers or its representatives in respect of all costs
or expenses reasonably incurred by them in connection with the defense
of an action, a suit, an application, a proceeding of a civil, of a
criminal or of an administrative nature or of any other legal
proceeding to which one (1) or more of them were parties by reason of
their duties or of their office, whether this action, this suit, this
application or this legal proceeding was commenced by or on behalf of
the Corporation or by a third party. Reasonable costs or expenses shall
include, in particular, all damages or fines arising from the actions,
from the acts or from the deeds done by the sole director, by the
officers or by the representatives in the discharge of their duties as
well as all amounts paid to settle an action or to satisfy a judgment.
The right to compensation shall exist only to the extent that the sole
director, the officers or the representatives were substantially
successful on the merits in their defense of the action, of the suit,
of the application or of the legal proceeding, that they acted
prudently, diligently, honestly and faithfully in the best interests of
the Corporation, that they did not place themselves in a position of
conflict of interest between their personal interest and that of the
Corporation, and, in the case of an action, of a suit, of an
application or of a proceeding of a criminal or of an administrative
nature leading to the imposition of a fine, to the extent that they had
reasonable grounds for believing that their conduct was lawful or to
the extent that they were acquitted or freed. The Corporation shall
assume these liabilities in respect of any person who acts or acted at
its request as a director, as an officer or as a representative of a
body corporate of which the Corporation is or was a shareholder or a
creditor. As the case may be, this compensation shall be paid to the
heirs, legatees, liquidators or testamentary executors, transferees,
mandataries or agents, legal representatives, successors, assigns or
rightful claimants of the sole director, of the officers or of the
representatives, in accordance with paragraph 219 below.
216. Legal action by third party. Where an action, a suit, an application, a
proceeding of a civil, of a criminal or of an administrative nature or
any other legal proceeding is commenced by a third party against the
sole director or against one (1) or more of the officers or
representatives of the Corporation for one (1) or more actions, acts or
deeds done in the discharge of their duties, the Corporation shall
assume the defense of its mandatory or agent.
217. Legal action by the Corporation. Where an action, a suit, an
application, a proceeding of a civil, of a criminal or of an
administrative nature or any other legal proceeding is commenced by the
Corporation against the sole director or against one (1) or more of the
officers or representatives of the Corporation for one (1) or more
actions, acts or deeds done in the discharge of their duties, the
Corporation may pay compensation to the sole director, to the officers
or to the representatives if it loses its case and if a court of law or
a tribunal so decides. If the Corporation wins its case only in part,
the court of law or the tribunal may determine the amount of the costs
or of the expenses which the Corporation shall assume.
218. Liability insurance. The Corporation may purchase and maintain
insurance for the benefit of the sole director, of its officers, of its
representatives, of their predecessors as well as of their heirs,
legatees, liquidators or testamentary executors, transferees,
mandataries or agents, legal representatives, successors, assigns or
rightful claimants covering any liability incurred by them by reason of
their acting or having acted as sole director, as an officer or as a
representative of the Corporation or, at the request of the latter, as
a director, as an officer or as a representative of a body corporate of
which the Corporation is or was a shareholder or a creditor. However,
this insurance may cover
<PAGE>
neither the liability arising from the failure of the insured to act
prudently, diligently, honestly and faithfully in the best interests of
the Corporation, nor the liability arising from a fault or gross
negligence or from a personal offence severable from the discharge of
their duties or the liability arising from the fact that the insured
shall have placed themselves in a position of conflict of interest
between their personal interest and that of the Corporation.
219. Compensation after end of term of office. The compensation provided for
in the preceding paragraphs may be obtained even after the person has
ceased to hold the office of sole director, of officer of
representative of the Corporation or, as the case may be, of director,
of officer or of representative of a body corporate of which the
Corporation is or was a shareholder or a creditor. In the event of
death, the compensation may be paid to the heirs, legatees, liquidators
or testamentary executors, transferees, mandataries or agents, legal
representatives, successors, assigns or rightful claimants of such
person. Such compensation may also be combined with any other recourse
which the sole director, the officer, the representative, one (1) of
his predecessors as well as his heirs, legatees, liquidators or
testamentary executors, transferees, mandataries or agents, legal
representatives, successors, assigns or rightful claimants may have.
220. Determination of conditions precedent to compensation. In the event
that a court of law or a tribunal has not made a finding on the matter,
the compliance or the non-compliance of the conduct of the sole
director, of an officer or of a representative with the standards of
conduct set out in paragraph 215 above or the question whether a case
was won in part or whether a person was substantially successful on the
merits in his defense of the action, of the suit, of the application or
of the legal proceeding shall be determined in the following manner: a)
by way of opinion from an independent legal counsel; or b) by decision
of the majority of the shareholders of the Corporation where there is
more than one shareholder; or, failing that, c) by decision of the sole
shareholder, to the extent that he and the sole director are not the
same person.
221. Place of action. The powers and the duties of the Corporation with
respect to the compensation of the sole director, of an officer or of a
representative shall apply regardless of the place where the action,
the suit, the application or the legal proceeding shall have been
filed.
D. BANKING OR FINANCE
222. Banking or finance. The banking or financial operations of the
Corporation shall be carried on with the banks or with the financial
institutions designated by the sole director. The sole director shall
also designate one (1) or more persons to carry out these banking or
financial operations on behalf of the Corporation.
223. Financial year. The date of the end of the financial year of the
Corporation shall be determined by the sole director.
224. Auditor. Subject to the provisions of the Act which enable one to
dispense with the appointment of an auditor and subject to paragraph
228 below, the sole shareholder or the shareholders, by way of an
ordinary resolution, at the time of the signing of the resolution in
lieu of the first annual meeting of the shareholders or at the first
annual meeting of the shareholders and at the time of the signing of
the resolution in lieu of each subsequent annual meeting or at each
subsequent annual meeting, shall appoint an auditor or decide not to
appoint one. If the sole shareholder or the shareholders appoint an
auditor, the latter shall serve until the signing of the resolution in
lieu of the next annual meeting or until the close of the next annual
meeting. Failing the appointment of
<PAGE>
an auditor at the time of the signing of the resolution in lieu of an
annual meeting or at an annual meeting, the incumbent auditor shall
continue to serve until the appointment of his successor or of his
replacement. The sole shareholder or the shareholders may also appoint
more than one auditor. The sole shareholder or the shareholders shall
fix the remuneration of the auditor or of the auditors unless this
power has been delegated to the sole director. The sole director, in
the course of the organizational proceedings of the Corporation, may
appoint an auditor to serve until the signing of the resolution in lieu
of the first annual meeting of the shareholders or until the close of
the first annual meeting of the shareholders.
225. Removal of auditor. The auditor may be removed at any time by the sole
shareholder or by the shareholders of the Corporation by way of a
resolution or at a special meeting. However, the Corporation shall be
liable for any injury caused to the auditor by his removal without a
serious reason and at an inopportune moment. A vacancy created by the
removal of the auditor may be filled by the sole shareholder or by the
shareholders in the resolution in which, or at the meeting at which, it
was decided to remove him, or if the vacancy is not so filled by the
sole shareholder or by the shareholders, by the sole director. Any
other vacancy in the position of auditor shall be filled by the sole
director. The person appointed to replace the auditor shall hold the
position for the unexpired term of his predecessor.
226. Opposition by auditor. The auditor shall be entitled to give to the
Corporation reasons in writing for his resignation or for his
opposition to the actions or to the resolutions contemplated with
respect to his removal or to his replacement at the end of his term.
227. End of term of auditor. The term of the auditor shall end upon his
death, his resignation, his removal in accordance with paragraph 225 of
the present by-laws, upon expiry of his term, if he is of unsound mind
and is so found by a court of law in Canada or elsewhere, if he
acquires the status of bankrupt, if he becomes disqualified from
practicing as an auditor in the province where the registered office of
the Corporation is located, upon appointment of his successor or of his
replacement, by the institution of a method of protective supervision
in his respect or by one of the common causes of extinction of
obligations provided for by law. The resignation of the auditor shall
take effect on the date on which written notice of his resignation is
received by the Corporation or on any later date which is specified
therein. However, the auditor shall be liable for any injury caused to
the Corporation by his resignation if he submits it without a serious
reason and at an inopportune moment.
228. Accountant. If the sole shareholder or the shareholders decide not to
appoint an auditor by way of a resolution passed by the sole
shareholder or unanimously by all the shareholders, including those not
otherwise entitled to vote, the sole director may appoint an accountant
to prepare the financial statements of the Corporation and to discharge
such other duties as the sole director may determine. The sole director
shall also fix the remuneration of the accountant without having to
pass a resolution to this end and he shall fill any vacancy which may
occur in the position of the accountant.
229. End of term of accountant. The term of the accountant shall end upon
his death, his resignation, his removal by the sole director, upon
expiry of his term, if he is of unsound mind and is so found by a court
of law in Canada or elsewhere, if he acquires the status of bankrupt,
if he becomes disqualified from practicing as an accountant in the
province where the registered office of the Corporation is located,
upon appointment of his successor or of his replacement, by the
institution of a method of protective supervision in his respect or by
one of the common causes of extinction of obligations provided for by
law. The resignation of the accountant shall take effect on the date on
which written
<PAGE>
notice of his resignation is received by the Corporation or on any
later date which is specified therein. However, the accountant shall be
liable for any injury caused to the Corporation by his resignation if
he submits it without a serious reason and at an inopportune moment.
Section 3. SOLE SHAREHOLDER
A. SECURITIES AND DIVIDENDS
230. Allotment and issue of securities. Unless otherwise provided in the
Act, in the articles, in the by-laws or in a written declaration of the
sole shareholder, the sole director or the directors shall have
absolute power over the share capital of the Corporation and, in
particular, by way of resolution, they may accept subscriptions for
securities, allot or issue securities of the share capital of the
Corporation at such times, on such terms and conditions, to such
persons and for such consideration as they see fit, provided that no
security of the Corporation may be issued before having been fully
paid-up either in specie or in property or in services rendered the
fair value of which may not be less than the amount of money which the
Corporation could have received if the securities had been fully
paid-up in specie or they may otherwise dispose thereof or alienate
them in favour of any person for a consideration which shall not
contravene the Act, the articles, the by-laws or the written
declaration of the sole shareholder.
231. Security certificates. The sole shareholder, in his discretion, shall
be entitled either to a security certificate representing the
securities which he holds in the Corporation or to an irrevocable
acknowledgement in writing of his right to obtain a security
certificate of the Corporation detailing the number, the class and the
series of securities which he holds as indicated in the securities'
register. The sole director or the directors shall determine the form
and, unless otherwise provided in the Act, the contents of the
certificates representing the securities of the Corporation. These
certificates shall bear the signature of the sole director or of the
directors.
232. Dividends. Subject to the Act and unless otherwise provided in a
written declaration of the sole shareholder and subject to it being
established that the Corporation is or will be able to discharge its
liabilities when due and that the realizable value of its assets will
not be less than the aggregate of its liabilities and of its stated
capital, the sole director or the directors may declare and pay
dividends to the sole shareholder according to his rights and to his
interests in the Corporation. The sole director or the directors shall
not be compelled to make any distribution of the profits of the
Corporation; thus they may create a reserve fund for the payment of
dividends or set aside such profits in whole or in part in order to
keep them as a reserve fund of any kind. Such dividends may be paid in
specie, in property or by the issue of fully paid-up securities of the
Corporation.
B. RESOLUTIONS OF THE SOLE SHAREHOLDER
233. Powers. The sole shareholder shall exercise by himself all the powers
which the Act expressly reserves for the shareholders by passing
resolutions of the sole shareholder. A copy of these resolutions shall
be kept in the Corporate Records Book.
234. Annual and other resolutions. The sole shareholder of the Corporation
shall pass annual resolutions of the sole shareholder in which he shall
approve the financial statements of the Corporation, and, as the case
may be, the report of the auditor, appoint an auditor or decide not to
appoint one, re-elect the sole director or elect directors, fix, or
authorize the sole director or the directors to fix, their
remuneration, and settle any other matter which shall be in his power
to decide. The sole shareholder at any time may also
<PAGE>
pass any other resolution of the sole shareholder with respect to any
other matter which he may legally consider.
By-law Number 1 passed this
--------------------------
President and/or Secretary
<PAGE>
BY-LAW NUMBER 2
being the
GENERAL BORROWING BY-LAW OF
DECTRON INTERNATIONALE INC.
The following general borrowing by-law of the Corporation, also referred to as
By-law Number 2, which authorizes the sole director or the directors to borrow
money upon the credit of the Corporation, has been passed by a resolution of the
sole director or of the directors and confirmed by a resolution of the sole
shareholder or of the shareholders, in accordance with the Canada Business
Corporations Act.
1. In addition to the powers conferred on the sole director or on the
directors by the articles and without restricting the generality of the
powers conferred on the sole director or on the directors by section
189 of the Canada Business Corporations Act, the sole director or the
directors, if they see fit, and without having to obtain the
authorization of the sole shareholder or of the shareholders, may:
a) borrow money upon the credit of the Corporation;
b) issue or reissue debt obligations, debentures or other
securities of the Corporation and pledge or sell the same at
such price or amount as shall be deemed appropriate;
c) give a guarantee in the name of the Corporation to secure the
performance of the obligation of another person, subject to it
being established that the Corporation is or will be able to
discharge its liabilities when due and that the realizable
value of its assets will not be less than the aggregate of its
liabilities and of its stated capital; and
d) grant a hypothec or a mortgage, even a floating hypothec or
mortgage, on a universality of property, movable or immovable,
present or future, corporeal or incorporeal, of the
Corporation.
2. No provision shall limit or restrict the borrowing power of the
Corporation on bills of exchange or promissory notes made, drawn,
accepted or endorsed by or on behalf of the Corporation.
3. The sole director or the directors, by way of resolution, may delegate
the powers conferred on them by paragraph 1 above to a director, to an
Executive Committee, to a committee of the Board of Directors or to an
officer of the Corporation.
4. The powers hereby conferred should be deemed to be supplementary to,
and not in substitution of, any borrowing powers possessed by the sole
director or by the directors or by the officers of the Corporation
independently of a borrowing by-law.
By-law Number 1 passed this
--------------------------
President and/or Secretary
<PAGE>
BY-LAW NUMBER 3
being the
GENERAL BORROWING BY-LAW OF
DECTRON INTERNATIONALE INC.
The following banking by-law, also referred to as By-law Number 3, has been
passed by a resolution of the sole director or of the directors and confirmed by
a resolution of the sole shareholder or of the shareholders, in accordance with
the Canada Business Corporations Act.
BE IT RESOLVED:
1. to authorize the sole director or the directors of the Corporation to
borrow money from a bank or from a financial institution upon the
credit of the Corporation, for the required amounts and by way of
overdraft loan or otherwise;
2. to render binding on the Corporation all promissory notes or other
negotiable instruments, including partial or complete renewals covering
such loans as well as the agreed-upon interest accruing therefrom,
given to the said bank or financial institution and signed in the name
of the Corporation by the officers of the Corporation authorized to
sign these negotiable instruments;
3. to authorize the sole director or the directors to grant a hypothec or
a mortgage, even a floating hypothec or mortgage, on a universality of
property, movable or immovable, present or future, corporeal or
incorporeal, of the Corporation to secure the repayment of the loans
contracted by the Corporation with the bank or with the financial
institution or the performance of any other obligation assumed by the
Corporation vis-a-vis the bank or the financial institution; and to
render binding on the Corporation any hypothec or mortgage so granted
and signed by the officer or by the officers authorized to sign
negotiable instruments on behalf of the Corporation;
4. to have all contracts, deeds, documents, grants and other guarantees
reasonably required by said bank or financial institution or by its
legal advisers, for one (1) of the purposes stated above, executed,
completed, and delivered by the duly authorized officers of the
Corporation; and
5. to have the present by-law remain in force, after confirmation by the
sole shareholder or by the shareholders of the Corporation, until
another by-law repealing it has been confirmed by the sole shareholder
or by the shareholders and until a copy thereof has been delivered to
the said bank or financial institution.
By-law Number 1 passed this
--------------------------
President and/or Secretary
<PAGE>
Exhibit 8.1
[SHAFFER & ASSOCIATES LETTERHEAD]
September 10, 1998
Dectron Internationale Inc.
4300 Poirier Blvd.
Montreal, Quebec H4R 2C5
Canada
Gentlemen:
You have requested our opinion as to certain Canadian federal income tax
considerations for persons not residents 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 tot he 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 other Canadian or foreign stock
exchange. 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. 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 proceeding a disposition of the Common Stock or
Warrants. For these 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 into 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
professional advisors regarding tax and other legal consequences applicable to
the Investor's particular circumstances.
EXERCISE OF WARRANT
An Investor will not incur liability for Canadian tax upon exercise of a
Warrant. The cost of 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.
<PAGE>
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 tot he
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).
We consent to the use of our name and opinion in connection with references
to Canadian laws, regulations, treaties and potential liabilities in Dectron
Internationale Inc.'s Registration Statement. We note that our name is
specifically referred to in the Registration Statement under the heading "Civil
Liabilities" and in connection with the information contained under the heading
"Tax Aspects of the Offering" and confirm that we are giving our opinion with
respect to the information indicated therein.
<TABLE>
<S> <C> <C>
Very truly yours,
SHAFFER & ASSOCIATES
By: /s/ SHAFFER & ASSOCIATES
-----------------------------------------
</TABLE>
<PAGE>
Exhibit 10.3
MEMORANDUM OF AGREEMENT OF RENEWAL OF LEASE
BETWEEN: SITQ INC.
a body politic and corporate, duly incorporated
under the laws of the Province of Quebec, having
its head office in the City and District of
Montreal, Quebec, herein acting and represented by
Fernand Perreault, President, and Gilbert Vocelle,
Vice President, Industrial Division, hereunto duly
authorized (hereinafter called the "Landlord")
For:
SITQ INDUSTRIEL INC.,
ABRIM 14 INC.,
149855 CANADA INC.,
149856 CANADA INC.,
PARTY OF THE FIRST PART;
AND: DECTRON INC.
a body politic and corporate, duly and legally
incorporated, herein acting and represented by
Ness Lakdawala, hereunto duly authorized
(hereinafter called the "Tenant")
PARTY OF THE SECOND PART.
WHEREAS, on May 23rd, 1985, the Tenant executed a memorandum of
agreement of lease (hereinafter called the "Lease") for certain premises located
at and bearing civic number 4300 Poirier, in the City of St. Laurent, Quebec
(hereinafter called the "Premises") measuring 33,750 gross square feet, for a
term of FIVE (5) years, commencing on February 1st, 1985 and ending January
31st, 1990;
WHEREAS, on July 11th, 1989, the Lease was renewed for a term of FIVE
(5) years, commencing on February 1st, 1990 and ending on January 31st, 1995
(hereinafter called "Renewal #1");
WHEREAS, the Landlord and the Tenant wish to extend the term of the
Lease for an additional period of FIVE (5) years, commencing on February 1st,
1995 and ending on January 31st, 2000, upon the terms and conditions hereinafter
set forth in this memorandum of agreement of renewal of lease (hereinafter
called the "Renewal Agreement #2");
<PAGE>
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS, AGREEMENTS, AND
OBLIGATIONS OF THE PARTIES HERETO, THE PARTIES HERETO DO HEREBY COVENANT AND
AGREE AS FOLLOWS:
SECTION 1 RENEWAL OF TERM
The Landlord and the Tenant do hereby renew the Lease for a period of
FIVE (5) years commencing February 1st, 1995 and ending on January 31st, 2000
(hereinafter called the "Renewal Term").
SECTION 2 BASE RENT
During the Renewal Term, the Tenant covenants and agrees to pay to the
Landlord an annual base rent of:
For the period commencing on February 1st, 1995 and ending on January 31st,
1997, the sum of ONE HUNDRED AND TWO THOUSAND, AND SIX HUNDRED DOLLARS
($102,600.00), payable in and by even, equal, consecutive, monthly
installments of EIGHT THOUSAND, FIVE HUNDRED AND FIFTY DOLLARS ($8,550.00)
payable in advance in lawful currency of Canada, on the first (1st) day of
each month, at the office of the Landlord, without demand, deduction or
compensation; representing THREE DOLLARS AND FOUR CENTS ($3.04) per square
foot per annum.
For the period commencing on February 1st, 1997 and ending on January 31st,
20000, the sum of ONE HUNDRED AND SIX THOUSAND, THREE HUNDRED AND TWELVE
DOLLARS AND FIFTY CENTS ($106,212.50), payable in and by even, equal,
consecutive, monthly, installments of EIGHT THOUSAND, EIGHT HUNDRED AND
FIFTY-NINE DOLLARS AND THIRTY-EIGHT CENTS ($8,859.38) payable in advance in
lawful currency of Canada, on the first (1st) day of each month, at the
office of the Landlord, without demand, deduction or compensation;
representing THREE DOLLARS AND FIFTEEN CENTS ($3.15) per square foot per
annum.
SECTION 3 TAXES
Notwithstanding anything to the contrary contained in the Lease or in
the Renewal #1, the Tenant undertakes to pay to the Landlord as additional rent
its share of any surtax on non-residential immoveable or other similar tax that
is or might be levied, confirmed, imposed or assessed with respect to the
Building by any taxation authority. The share of the surtax so payable by the
Tenant, shall be calculated by the Landlord in conformity with all applicable
laws and regulations.
Notwithstanding anything to the contrary contained in the Lease or in
the Renewal
2
<PAGE>
#1, should the real estate taxation system currently in effect be modified, or
should a new tax, assessment or imposition, in replacement of or in addition to
the real estate taxes currently imposed upon the Building, the imposed, or
should such tax, assessment or imposition be imposed upon the Landlord or upon
the revenues arising from the rental of the Building, the words "real estate
taxes" shall include any such new tax, assessment or imposition. Should any
competent taxing authority, at any time whatsoever, cancel any tax, assessment
or imposition forming part of the real estate taxes, the Landlord shall abolish
such tax, assessment or imposition from the real estate tax.
SECTION 4 OPERATING EXPENSES
Notwithstanding anything to the contrary contained in the Lease or in
the Renewal #1, during the Renewal Term, the Tenant shall pay its proportion of
the costs incurred by the Landlord to replace, improve, modify or increase the
insulation of the Building, when, in the opinion of an expert on the subject,
these costs are likely to reduce the cost of electricity or gas consumed in the
Premises.
Notwithstanding anything to the contrary contained in the Lease or in
the Renewal #1, during the Renewal Term, the Tenant shall pay its proportion of
the salaries, wages and cost related to fringe benefits and pension plan
benefits of any kind for all employees of the Landlord engaged in the operation,
maintenance, repair, surveillance, supervision and management of the Building.
Notwithstanding anything to the contrary contained in the Lease or in
the Renewal #1, during the Renewal Term, should the Landlord decide to replace
the heating, ventilation and air conditioning units, or the windows, the capital
cost thereof shall be amortized over a period of FIFTEEN (15) years without
interest and the Tenant shall reimburse annually to the Landlord one fifteenth
(1/15) of such capital cost as additional rental.
SECTION 5 LEASEHOLD IMPROVEMENTS
The Landlord shall grant the Tenant an allowance of SEVENTY-FIVE
THOUSAND DOLLARS ($75,000.00), in order to execute leasehold improvements in the
Premises. This allowance shall be paid subject to the following conditions:
- plans to be approved by the Landlord; and
- upon the obtention of a satisfactory credit report on the
solvability of the Tenant; and
- upon completion of the leasehold improvements; and
- upon inspection and approval of the leasehold improvements by the
Landlord.
SECTION 6 OPTION TO RENEW
Provided the Tenant is not, or has not been in default under any of
the terms and
3
<PAGE>
conditions of this Renewal Agreement #2, the Landlord hereby grants to the
Tenant ONE (1) option to renew this Lease of a period of FIVE (5) years,
commencing on February 1st, 2000 and terminating on January 31st, 2005 provided
that the Tenant gives to the Landlord written notice, by registered mail, of its
intention to exercise this option SIX (6) months prior to the expiry date of
this Renewal Agreement #2; failing which this option to renew will become null
and void. All terms and conditions are contained in the Lease shall remain the
same except for the following:
- the minimum rental shall be increased by the consecutive annual
Canadian Price Index all items for the Montreal area published by
Statistic Canada from February 1st, 1995 to January 31st, 2000;
- The Landlord shall not be obliged to execute any leasehold
improvements in the Premises.
SECTION 7 RIGHT TO RELOCATE
During the Renewal Term, the Tenant shall have the right without
penalty and upon giving a sixty (60) days prior written notice, to substitute
for the Premises any other premises located in one of the Landlord's building,
provided that such premises comprise of the same area of the Premises, or more;
however, if at the time of the Tenant's request, should there be no available
vacant space in the Landlord's buildings, the Tenant shall be obliged to remain
in the Premises.
SECTION 8 LEASE
Save and except as modified by the Renewal Agreement #2, the Lease
shall remain in full force and affect MUTATIS MUTANDIS.
SECTION 9 ADMINISTRATION FEE
The Tenant undertakes to pay to the Landlord an administrative fee of
five percent (5%) on all sums due to the Landlord under the Lease or the Renewal
Agreement #2, save as to base rent and real estate taxes as set forth in the
Lease.
SECTION 10 LANGUAGE
The parties hereto acknowledge and confirm having requested that this
agreement and all notices and communications contemplated hereby be drafted in
the English Language.
Les parties aux presentes reconnaissent et confirment qu'elles onto
exige que la presente convention ainsi que tous avis et communications y
afferents soient rediges en anglais.
SECTION 11 PREAMBLE
The preamble shall form an integral part hereof.
4
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE DULY EXECUTE THIS RENEWAL AGREEMENT
#2.
Signed in the City of St. Laurent,
This 7th day of December 1994
SITQ INC.
For:
SITQ INDUSTRIEL INC.,
ABRIM 14 INC.,
149855 CANADA INC.,
149856 CANADA INC.,
Per: /s/ Fernand Perreault
- ------------------------------ -------------------------------
Witness Fernand Perreault
Per: /s/ Gilbert Vocelle
- ------------------------------ -------------------------------
Witness Gilbert Vocelle
Party of the First Part
Signed in the City of St. Laurent
This 6th day of December 1994
DECTRON INC.
5
<PAGE>
Per: /s/ Ness Lakdawala
- ------------------------------ -------------------------------
Witness Ness Lakdawala
Party of the Second Part
6
<PAGE>
Exhibit 10.4
LEASE AGREEMENT
BETWEEN : ROSHANESS INC.
119 De Touraine
St. Lambert, P.Q.
J3Y 5T6
AND : KLAASCO Div. Fibre Mobile Ltee
4400 boul. Poirier
Ville St. Laurent, P.Q.
H4R 2C5
1. TERM OF LEASE
The term of this Lease shall be for THIRTY TWO (32) months commencing
on the first day of April 1997 and shall terminate on the thirty first day of
January 2000 unless sooner terminated under the provisions hereof.
2. USE OF PROPERTY
Tenant covenants that the premises shall be used solely for the purpose
of offices, warehousing, manufacture and assembly.
3. NET RENT
Tenant covenants and agrees to pay to Landlord in lawful money of
Canada without deduction, abatement or set off, an annual base rent of
THIRTY-SIX THOUSAND DOLLARS (36,000.00$) payable in equal consecutive monthly
instalments of THREE THOUSAND DOLLARS (3,000.00$) plus 7% G.S.T. and 7.5% P.S.T.
each in advance on the first day of each month during the term hereof for
premises located at 3848 St. Jacques Ouest, Montreal, P.Q.
The rent as herein provided shall be paid to Landlord and/or its
nominee at 119 De Touraine, St. Lambert, P.Q. J3Y 5T6 or at such other place in
Canada as shall be designated by Landlord in writing to Tenant.
1
<PAGE>
4. TAXES
Within thirty (30) days of receipt from the Landlord of a written
statement of the taxes set out in this paragraph the Tenant will in each and
every year during the term of this Lease pay to the Landlord, property taxes,
municipal taxes, school taxes, ecclesiastical taxes, rates including local
improvement rates, duties and assessments that may be levied, rated, charged or
assessed against the building and/or all equipment and facilities thereon or
therein, and/or the land appurtenant land on which the building is situated,
and/or any property on or in the building owned or brought thereon or therein by
Landlord or Tenant, and any and every of its assignees or subTenants and its and
their respective officers, agents, employees, servant, visitors or licensees
and/or against Landlord or Tenant in respect thereof, whether such taxes, rates,
duties or assessments are charged by a municipal, parliamentary, school, or any
other body of competent jurisdiction. Up;on payment by the Tenant as provided
for in this paragraph, the Landlord will pay and will indemnify and keep
indemnified the Tenant from and against any and every tax, rate, charge, duty
and assessment referred to in this paragraph with respect to the building and
the lands appurtenant thereto.
The taxes and local improvement rates in respect of the first and last
years of the term hereby leased shall be adjusted between Landlord and Tenant.
5. INSURANCE
The Tenant shall, at its expense, procure and maintain at all times
during the continuance of the Lease, such insurance as will protect the Tenant
and the Landlord from any claim for personal injury including death, and for
property damage in any way arising out of or attributable to the exercise by the
Tenant, or others, of any of the privileges or rights therein granted. This
insurance shall provide a combined limit of $1,000,000.00 for personal injury
and property damage and shall extend to cover any liability assumed by the
Tenant under this Lease. The Tenant shall forward to the Landlord a certificate
of insurance and evidence of renewals thereof during the continuance of this
Lease. The Tenant hereby agrees and understands that the placing of such
insurance shall in no way relieve the Tenant from any obligation assumed under
this Lease.
6. UTILITIES
The Tenant shall pay for its electricity, water, heat, gas, telephone,
pest control, garbage removal and all public utilities with respect to the
Leased Premises.
7. HEATING
2
<PAGE>
The Tenant shall pay the cost to keep the Leased Premises suitably
heated during the customary heating season.
8. FAILURE OF TENANT TO PERFORM
If Tenant fails to pay any taxes, rates, insurance premium, charges or
debts which it owes or has herein covenanted to pay, Landlord may pay the same
and shall be entitled to charge the sums so paid to Tenant who shall pay them
forthwith on demand, as additional rent and Landlord, in addition to any other
rights, shall have the same remedies and may take the same steps for the
recovery of all such sums as it might have and take for the recovery of rent in
arrears under the terms of this Lease; all arrears of rent and any monies paid
by Landlord hereunder shall bear interest at the rate of ..................% per
annum from the time such arrears become due until paid to Landlord. Landlord may
demand such sums from Tenant even before payment with interest at the rate
charged by the Taxing Authority or other creditor in question.
9. OTHER EXPENSES
The Tenant shall pay for the maintenance and repair and reasonable
replacement of the common washrooms, common corridors, common malls, common
driveways, common heating and air-conditioning equipment and services and all
other common equipment, common areas, and all common facilities and services
available at the commencement of the term or added or provided at any time
thereafter, (should such services, etc., be and to the extent that they are
available).
The Tenant shall furthermore pay its proportionate cost of the expense
required to keep the exterior of the Lease Premised in good order and condition
and to keep the sidewalks, curbs, lawns and grounds in and about the Leased
Premises in good condition, clean and free of snow and ice.
10. DEFAULT
In case of any termination, or in case Tenant, in the absence of such
termination, shall be dispossessed by or at the instance of Landlord in any
lawful manner, whether by force or otherwise, rent for the then current month
and for the three months next succeeding the date of such termination or
dispossession shall immediately become due and payable (as accelerated rent) and
this Lease shall immediately, at the option of the Landlord, become forfeited
and terminated, and the Landlord may, without notice or any form of legal
process, forthwith re-enter upon and take possession of the Lease Premises and
remove the Tenant's effects
3
<PAGE>
therefrom, the whole without prejudice to and under reserve of all of the rights
and recourses of the Landlord to claim any and all losses and damages sustained
by the Landlord by reason of and arising from any default of the Tenant.
11. SIGNS
Landlord shall have the right at all times during the term of this
Lease to place upon the Leased Premises a notice of reasonable dimensions and
reasonably placed, so as not to interfere with the business of Tenant, stating
that the Premises are for sale and for six (6)months prior to the termination of
this Lease, Landlord shall have the right to place upon the Leased Premises a
similar notice that the Leased Premises are for rent and Tenant will not remove
such notice or knowingly permit same to be removed.
Landlord shall have the right to exhibit the Leased Premises from time
to time to any prospective lender or purchaser or Tenant of Landlord's rights
hereunder at all reasonable hours.
Tenant shall have the right from time to time during the term hereby
granted to erect, paint, display, maintain, alter, change or remove advertising
signs on interior of the walls of the Leased Premises.
Any signs will be subject to the Landlord's approval in writing and
installation if approved will be at the sole expense of the Tenant.
11. INSPECTION AND REPAIR
Landlord and its agents shall have the right, at all reasonable times
during the term of this Lease to enter the Leased Premises to examine the
condition thereof and to ascertain whether Tenant is performing its obligations
hereunder, and Tenant shall make any repairs which Landlord deems necessary as a
result of such examination. If Tenant fails to make any such repairs within
thirty (30) days after notice from Landlord requesting Tenant so to do, provided
that such repairs may reasonably be made within the said period, Landlord may,
without prejudice to any other rights or remedies it may have, make such repairs
and charge the cost thereof to Tenant. Nothing in this Clause shall be construed
to obligate or require Landlord to make any repairs by Landlord shall have the
right at any time to make any emergency repairs without notice to Tenant and
charge the cost thereof to Tenant. Any costs chargeable to Tenant hereunder
shall be payable forthwith on demand as
4
<PAGE>
additional rent and shall bear interest at the rate of twenty-four percent (24%)
per annum or two percent (2%) per month from the date on which the same were
incurred until payment.
12. PERMITS, ETC
The Tenant shall obtain all necessary permits and licences required for
the occupancy and carrying on of its business, the Landlord making no warranties
whatsoever regarding zoning, permits and licences which may be required by the
Tenant. should the Tenant fail to obtain any required permit and/or licence, it
shall remain bound to perform its obligations under the present Lease.
13. ACCESS
The Landlord shall have the right of access to the Leased Premises to
perform such work as it chooses to do upon the Lease Premises, the Tenant
renouncing any claim to any indemnity or diminution of rent, provided the same
is carried ut with reasonable diligence.
14. OUTSIDE AREAS
The Tenant shall not use any part of the exterior parking and loading
areas or any other areas outside the Leased Premises for any purpose other than
shipping or receiving in the areas designated by the Landlord for same.
15. The Tenant hereby confirms that it has requested that the present document
be drafted in the English Language.
Le Locataire confirme par les presentes qu'il a demande que le present
document soit redige dans la langue anglaise.
Signed in the City of Montreal, on the ........... day of ...........1997.
5
<PAGE>
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Roshaness Inc.
- --------------------------
Klassco Div. Fibre Mobile
6
<PAGE>
Exhibit 10.5
LEASE AGREEMENT
BETWEEN : ROSHANESS INC.
119 De Touraine
St. Lambert, P.Q.
J3Y 5T6
AND : REFPLUS INC.
1385A De Coulomb
Boucherville, P.Q.
J4B 7L8
1. TERM OF LEASE
The term of this Lease shall be for FORTY THREE (43) months commencing
on the first day of May 1996 and shall terminate on the thirty first day of
January 2000 unless sooner terminated under the provisions hereof.
2. USE OF PROPERTY
Tenant covenants that the premises shall be used solely for the purpose
of offices, warehousing, manufacture and assembly.
3. NET RENT
Tenant covenants and agrees to pay to Landlord in lawful money of
Canada without deduction, abatement or set off, an annual base rent of TWELVE
THOUSAND DOLLARS (12,000.00$) payable in equal consecutive monthly instalments
of ONE THOUSAND DOLLARS (1,O00.00$) plus 7% G.S.T. and 7.5% P.S.T. each in
advance on the first day of each month during the term hereof for premises
located at 3848 St. Jacques Ouest, Montreal, P.Q.
The rent as herein provided shall be paid to Landlord and/or its
nominee at 119 De Touraine, St. Lambert, P.Q. J3Y 5T6 or at such other place in
Canada as shall be designated by Landlord in writing to Tenant.
<PAGE>
4. TAXES
Within thirty (30) days of receipt from the Landlord of a written
statement of the taxes set out in this paragraph the Tenant will in each and
every year during the term of this Lease pay to the Landlord, property taxes,
municipal taxes, school taxes, ecclesiastical taxes, rates including local
improvement rates, duties and assessments that may be levied, rated, charged or
assessed against the building and/'or all equipment and facilities thereon or
therein, and/or the land appurtenant land on which the building is situated,
and/or any property on or in the building owned or brought thereon or therein by
Landlord or Tenant, and any and every of its assignees or subTenants and its and
their respective officers, agents, employees, servant, visitors or licensees
and/or against Landlord or Tenant in respect thereof, whether such taxes, rates,
duties or assessments are charged by a municipal, parliamentary, school, or any
other body of competent jurisdiction. Up;on payment by the Tenant as provided
for in this paragraph, the Landlord will pay and will indemnify and keep
indemnified the Tenant from and against any and every tax, rate, charge, duty
and assessment referred to in this paragraph with respect to the building and
the lands appurtenant thereto.
The taxes and local improvement rates in respect of the first and last
years of the term hereby leased shall be adjusted between Landlord and Tenant.
5. INSURANCE
The Tenant shall, at its expense, procure and maintain at all times
during the continuance of the Lease, such insurance as will protect the Tenant
and the Landlord from any claim for personal injury including death, and for
property damage in any way arising out of or attributable to the exercise by the
Tenant, or others, of any of the privileges or rights therein granted. This
insurance shall provide a combined limit of $1,000,000.00 for personal injury
and property damage and shall extend to cover any liability assumed by the
Tenant under this Lease. The Tenant shall forward to the Landlord a certificate
of insurance and evidence of renewals thereof during the continuance of this
Lease. The Tenant hereby agrees and understands that the placing of such
insurance shall in no way relieve the Tenant from any obligation assumed under
this Lease.
6. UTILITIES
The Tenant shall pay for its electricity, water, heat, gas, telephone,
pest control, garbage removal and all public utilities with respect to the
Leased Premises.
7. HEATING
2
<PAGE>
The Tenant shall pay the cost to keep the Leased Premises suitably
heated during the customary heating season.
8. FAILURE OF TENANT TO PERFORM
If Tenant fails to pay any taxes, rates, insurance premium, charges or
debts which it owes or has herein covenanted to pay, Landlord may pay the same
and shall be entitled to charge the sums so paid to Tenant who shall pay them
forthwith on demand, as additional rent and Landlord, in addition to any other
rights, shall have the same remedies and may take the same steps for the
recovery of all such sums as it might have and take for the recovery of rent in
arrears under the terms of this Lease; all arrears of rent and any monies paid
by Landlord hereunder shall bear interest at the rate of ..................% per
annum from the time such arrears become due until paid to Landlord. Landlord may
demand such sums from Tenant even before payment with interest at the rate
charged by the Taxing Authority or other creditor in question.
9. OTHER EXPENSES
The Tenant shall pay for the maintenance and repair and reasonable
replacement of the common washrooms, common corridors, common malls, common
driveways, common heating and air-conditioning equipment and services and all
other common equipment, common areas, and all common facilities and services
available at the commencement of the term or added or provided at any time
thereafter, (should such services, etc., be and to the extent that they are
available).
The Tenant shall furthermore pay its proportionate cost of the expense
required to keep the exterior of the Lease Premised in good order and condition
and to keep the sidewalks, curbs, lawns and grounds in and about the Leased
Premises in good condition, clean and free of snow and ice.
10. DEFAULT
In case of any termination, or in case Tenant, in the absence of such
termination, shall be dispossessed by or at the instance of Landlord in any
lawful manner, whether by force or otherwise, rent for the then current month
and for the three months next succeeding the date of such termination or
dispossession shall immediately become due and payable (as accelerated rent) and
this Lease shall immediately, at the option of the Landlord, become forfeited
and terminated, and the Landlord may, without notice or any form of legal
process, forthwith re-enter upon and take possession of the Lease Premises and
remove the Tenant's effects
3
<PAGE>
therefrom, the whole without prejudice to and under reserve of all of the rights
and recourses of the Landlord to claim any and all losses and damages sustained
by the Landlord by reason of and arising from any default of the Tenant.
11. SIGNS
Landlord shall have the right at all times during the term of this
Lease to place upon the Leased Premises a notice of reasonable dimensions and
reasonably placed, so as not to interfere with the business of Tenant, stating
that the Premises are for sale and for six (6)months prior to the termination of
this Lease, Landlord shall have the right to place upon the Leased Premises a
similar notice that the Leased Premises are for rent and Tenant will not remove
such notice or knowingly permit same to be removed.
Landlord shall have the right to exhibit the Leased Premises from time
to time to any prospective lender or purchaser or Tenant of Landlord's rights
hereunder at all reasonable hours.
Tenant shall have the right from time to time during the term hereby
granted to erect, paint, display, maintain, alter, change or remove advertising
signs on interior of the walls of the Leased Premises.
Any signs will be subject to the Landlord's approval in writing and
installation if approved will be at the sole expense of the Tenant.
11. INSPECTION AND REPAIR
Landlord and its agents shall have the right, at all reasonable times
during the term of this Lease to enter the Leased Premises to examine the
condition thereof and to ascertain whether Tenant is performing its obligations
hereunder, and Tenant shall make any repairs which Landlord deems necessary as a
result of such examination. If Tenant fails to make any such repairs within
thirty (30) days after notice from Landlord requesting Tenant so to do, provided
that such repairs may reasonably be made within the said period, Landlord may,
without prejudice to any other rights or remedies it may have, make such repairs
and charge the cost thereof to Tenant. Nothing in this Clause shall be construed
to obligate or require Landlord to make any repairs by Landlord shall have the
right at any time to make any emergency repairs without notice to Tenant and
charge the cost thereof to Tenant. Any costs chargeable to Tenant hereunder
shall be payable forthwith on demand as
4
<PAGE>
additional rent and shall bear interest at the rate of twenty-four percent (24%)
per annum or two percent (2%) per month from the date on which the same were
incurred until payment.
12. PERMITS, ETC
The Tenant shall obtain all necessary permits and licences required for
the occupancy and carrying on of its business, the Landlord making no warranties
whatsoever regarding zoning, permits and licences which may be required by the
Tenant. should the Tenant fail to obtain any required permit and/or licence, it
shall remain bound to perform its obligations under the present Lease.
13. ACCESS
The Landlord shall have the right of access to the Leased Premises to
perform such work as it chooses to do upon the Lease Premises, the Tenant
renouncing any claim to any indemnity or diminution of rent, provided the same
is carried ut with reasonable diligence.
14. OUTSIDE AREAS
The Tenant shall not use any part of the exterior parking and loading
areas or any other areas outside the Leased Premises for any purpose other than
shipping or receiving in the areas designated by the Landlord for same.
15. The Tenant hereby confirms that it has requested that the present document
be drafted in the English Language.
Le Locataire confirme par les presentes qu'il a demande que le present
document soit redige dans la langue anglaise.
Signed in the City of Montreal, on the ........... day of ...........1997.
5
<PAGE>
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Roshaness Inc.
- -----------------------
REFPLUS INC.
6
<PAGE>
Exhibit 10.6
LEASE AGREEMENT
BETWEEN : ROSHANESS INC.
119 De Touraine
St. Lambert, P.Q.
J3Y 5T6
AND :THERMOPLUS AIR INC.
262 Scott Street
St. Jerome, P.Q.
J7Z 1H1
1. TERM OF LEASE
The term of this Lease shall be for THIRTY TWO (32) months commencing
on the first day of April 1997 and shall terminate on the thirty first day of
January 2000 unless sooner terminated under the provisions hereof.
2. USE OF PROPERTY
Tenant covenants that the premises shall be used solely for the purpose
of offices, warehousing, manufacture and assembly.
3. NET RENT
Tenant covenants and agrees to pay to Landlord in lawful money of
Canada without deduction, abatement or set off, an annual base rent of NINE
THOUSAND SIX HUNDRED DOLLARS (9,600.00$) payable in equal consecutive monthly
instalments of EIGHT HUNDRED DOLLARSS (800.00$) plus 7% G.S.T. and 7.5% P.S.T.
each in advance on the first day of each month during the term hereof for
premises located at 3848 St. Jacques Ouest, Montreal, P.Q.
The rent as herein provided shall be paid to Landlord and/or its
nominee at 119 De Touraine, St. Lambert, P.Q. J3Y 5T6 or at such other place in
Canada as shall be designated by Landlord in writing to Tenant.
1
<PAGE>
4. TAXES
Within thirty (30) days of receipt from the Landlord of a written
statement of the taxes set out in this paragraph the Tenant will in each and
every year during the term of this Lease pay to the Landlord, property taxes,
municipal taxes, school taxes, ecclesiastical taxes, rates including local
improvement rates, duties and assessments that may be levied, rated, charged or
assessed against the building and/'or all equipment and facilities thereon or
therein, and/or the land appurtenant land on which the building is situated,
and/or any property on or in the building owned or brought thereon or therein by
Landlord or Tenant, and any and every of its assignees or subTenants and its and
their respective officers, agents, employees, servant, visitors or licensees
and/or against Landlord or Tenant in respect thereof, whether such taxes, rates,
duties or assessments are charged by a municipal, parliamentary, school, or any
other body of competent jurisdiction. Up;on payment by the Tenant as provided
for in this paragraph, the Landlord will pay and will indemnify and keep
indemnified the Tenant from and against any and every tax, rate, charge, duty
and assessment referred to in this paragraph with respect to the building and
the lands appurtenant thereto.
The taxes and local improvement rates in respect of the first and last
years of the term hereby leased shall be adjusted between Landlord and Tenant.
5. INSURANCE
The Tenant shall, at its expense, procure and maintain at all times
during the continuance of the Lease, such insurance as will protect the Tenant
and the Landlord from any claim for personal injury including death, and for
property damage in any way arising out of or attributable to the exercise by the
Tenant, or others, of any of the privileges or rights therein granted. This
insurance shall provide a combined limit of $1,000,000.00 for personal injury
and property damage and shall extend to cover any liability assumed by the
Tenant under this Lease. The Tenant shall forward to the Landlord a certificate
of insurance and evidence of renewals thereof during the continuance of this
Lease. The Tenant hereby agrees and understands that the placing of such
insurance shall in no way relieve the Tenant from any obligation assumed under
this Lease.
6. UTILITIES
The Tenant shall pay for its electricity, water, heat, gas, telephone,
pest control, garbage removal and all public utilities with respect to the
Leased Premises.
7. HEATING
2
<PAGE>
The Tenant shall pay the cost to keep the Leased Premises suitably
heated during the customary heating season.
8. FAILURE OF TENANT TO PERFORM
If Tenant fails to pay any taxes, rates, insurance premium, charges or
debts which it owes or has herein covenanted to pay, Landlord may pay the same
and shall be entitled to charge the sums so paid to Tenant who shall pay them
forthwith on demand, as additional rent and Landlord, in addition to any other
rights, shall have the same remedies and may take the same steps for the
recovery of all such sums as it might have and take for the recovery of rent in
arrears under the terms of this Lease; all arrears of rent and any monies paid
by Landlord hereunder shall bear interest at the rate of ..................% per
annum from the time such arrears become due until paid to Landlord. Landlord may
demand such sums from Tenant even before payment with interest at the rate
charged by the Taxing Authority or other creditor in question.
9. OTHER EXPENSES
The Tenant shall pay for the maintenance and repair and reasonable
replacement of the common washrooms, common corridors, common malls, common
driveways, common heating and air-conditioning equipment and services and all
other common equipment, common areas, and all common facilities and services
available at the commencement of the term or added or provided at any time
thereafter, (should such services, etc., be and to the extent that they are
available).
The Tenant shall furthermore pay its proportionate cost of the expense
required to keep the exterior of the Lease Premised in good order and condition
and to keep the sidewalks, curbs, lawns and grounds in and about the Leased
Premises in good condition, clean and free of snow and ice.
10. DEFAULT
In case of any termination, or in case Tenant, in the absence of such
termination, shall be dispossessed by or at the instance of Landlord in any
lawful manner, whether by force or otherwise, rent for the then current month
and for the three months next succeeding the date of such termination or
dispossession shall immediately become due and payable (as accelerated rent) and
this Lease shall immediately, at the option of the Landlord, become forfeited
and terminated, and the Landlord may, without notice or any form of legal
process, forthwith re-enter upon and take possession of the Lease Premises and
remove the Tenant's effects
3
<PAGE>
therefrom, the whole without prejudice to and under reserve of all of the rights
and recourses of the Landlord to claim any and all losses and damages sustained
by the Landlord by reason of and arising from any default of the Tenant.
11. SIGNS
Landlord shall have the right at all times during the term of this
Lease to place upon the Leased Premises a notice of reasonable dimensions and
reasonably placed, so as not to interfere with the business of Tenant, stating
that the Premises are for sale and for six (6)months prior to the termination of
this Lease, Landlord shall have the right to place upon the Leased Premises a
similar notice that the Leased Premises are for rent and Tenant will not remove
such notice or knowingly permit same to be removed.
Landlord shall have the right to exhibit the Leased Premises from time
to time to any prospective lender or purchaser or Tenant of Landlord's rights
hereunder at all reasonable hours.
Tenant shall have the right from time to time during the term hereby
granted to erect, paint, display, maintain, alter, change or remove advertising
signs on interior of the walls of the Leased Premises.
Any signs will be subject to the Landlord's approval in writing and
installation if approved will be at the sole expense of the Tenant.
11. INSPECTION AND REPAIR
Landlord and its agents shall have the right, at all reasonable times
during the term of this Lease to enter the Leased Premises to examine the
condition thereof and to ascertain whether Tenant is performing its obligations
hereunder, and Tenant shall make any repairs which Landlord deems necessary as a
result of such examination. If Tenant fails to make any such repairs within
thirty (30) days after notice from Landlord requesting Tenant so to do, provided
that such repairs may reasonably be made within the said period, Landlord may,
without prejudice to any other rights or remedies it may have, make such repairs
and charge the cost thereof to Tenant. Nothing in this Clause shall be construed
to obligate or require Landlord to make any repairs by Landlord shall have the
right at any time to make any emergency repairs without notice to Tenant and
charge the cost thereof to Tenant. Any costs chargeable to Tenant hereunder
shall be payable forthwith on demand as
4
<PAGE>
additional rent and shall bear interest at the rate of twenty-four percent (24%)
per annum or two percent (2%) per month from the date on which the same were
incurred until payment.
12. PERMITS, ETC
The Tenant shall obtain all necessary permits and licences required for
the occupancy and carrying on of its business, the Landlord making no warranties
whatsoever regarding zoning, permits and licences which may be required by the
Tenant. should the Tenant fail to obtain any required permit and/or licence, it
shall remain bound to perform its obligations under the present Lease.
13. ACCESS
The Landlord shall have the right of access to the Leased Premises to
perform such work as it chooses to do upon the Lease Premises, the Tenant
renouncing any claim to any indemnity or diminution of rent, provided the same
is carried ut with reasonable diligence.
14. OUTSIDE AREAS
The Tenant shall not use any part of the exterior parking and loading
areas or any other areas outside the Leased Premises for any purpose other than
shipping or receiving in the areas designated by the Landlord for same.
15. The Tenant hereby confirms that it has requested that the present document
be drafted in the English Language.
Le Locataire confirme par les presentes qu'il a demande que le present
document soit redige dans la langue anglaise.
Signed in the City of Montreal, on the ........... day of ...........1997.
5
<PAGE>
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Roshaness Inc.
- -----------------------
Thermoplus Air Inc.
6
<PAGE>
Exhibit 10.7
MEMORANDUM OF AGREEMENT OF LEASE entered into in the City and District of
Montreal, this first day of January, 1997.
BY AND BETWEEN:
Roshan Katrak et Al., herein acting and represented by Roshan Katrak,
business woman therein domiciled and residing in the City of St. Lambert
declares;
Hereinafter referred to as the
"LANDLORD"
AND: Fibre Mobile Ltd., a body politic and corporate, duly
incorporated according to Law, having its head office and principal place of
business in the City of St. Laurent, herein acting and represented by Fritz
Klass, duly authorized hereto, as he so declares;
Hereinafter referred to as the:
"TENANT"
THIS AGREEMENT WITNESSETH:
For the term, in consideration of the rentals, and subject to the
conditions hereinafter set forth, the LANDLORD does hereby lease unto the TENANT
hereto present and accepting, the local designated as Richelieu (the "Premises")
of the building bearing civic number 3755 Richelieu in the City of St. Hubert
being composed of lot numbers 115-1150-6 and 1.
For purposes of brevity, the lease Premises contain an area of
approximately ELEVEN THOUSAND SIX HUNDRED SEVENTY FIVE (11,675) square feet and
are hereinafter referred to as the "Premises", the building of which the same
forms a part together with the access ways, driveways, parking areas, lawns, and
fences adjacent thereto and the mechanical and electrical systems thereof as
well as all accessories thereof are hereinafter referred to together as the
"Building"; and the Building together with the emplacement upon which the same
is erected is hereinafter referred to as the "Property". The TENANT acknowledges
that it has examined the Property, the Building and the Premises, and is content
and satisfied therewith and notwithstanding any other provisions contained in
these presents, the TENANT shall not impose any further obligations upon the
LANDLORD with respect to any defects and faults which may exist at the
commencement of the term, but which manifest themselves subsequently thereto.
1. DURATION OF LEASE
11 TERM
The present Lease is made for a term of five (5) years commencing on
the First Day of January, 1997, and terminating on the Last Day of
December, 2001..
For purposes of brevity, the said period is hereinafter referred to as
the "Term", and the full period of the TENANT'S occupancy of the Premises after
the commencement of the Term, whether comprised in the Term or extending beyond
the same is hereinafter referred to as the "Occupancy Period".
1.02 HOLDING OVER
Notwithstanding any law or custom to the contrary, the present Lease
shall not be subject to tacit renewal and in the event that the TENANT remains
in possession of the Premises after the expiry of the Term, or any renewal or
extension thereof, the occupancy thereof shall be deemed to be on a
month-to-month basis and the TENANT shall pay to the LANDLORD a monthly rental
equal to twelve and one-half percent (12 1/2%) of the aggregate of all sums
payable by the TENANT to the LANDLORD during the last year of the Term or
extension thereof, pursuant to the provisions of Paragraph 2.01 and 2.02 hereof.
11. RENTAL
2.01 MINIMUM ANNUAL RENTAL
TENANT covenants and agrees to pay to the LANDLORD yearly throughout
the Term of this Lease without demand, set-off, compensation or deduction
whatsoever, in lawful money of Canada a fixed minimum annual rental (hereinafter
called the "Minimum Annual Rental") as follows:
A "Minimum Annual Rental" equal to FIFTY-TWO THOUSAND, EIGHT HUNDRED
DOLLARS AND ZERO CENTS ($52,800.00) payable in equal, monthly and consecutive
instalments of
<PAGE>
FOUR THOUSAND, FOUR HUNDRED DOLLARS AND ZERO CENTS ($4,400), in advance on the
first day of each
month representing FOUR DOLLARS AND FOURTY CENTS ($4.40) per square foot net net
per annum.The "Minimum Annual Rental" shall be increased each subsequent year
thereafter by the greater of an equal amount to three percent (3%) of the
minimum annual rental over the immediate preceeding lease year or an amount
equal to the increase in the CPI over the immediate preceeding lease year which
increase shall not in any event be less than the minimun annual rental of that
immediate preceeding lease year.
2.02 Business Taxes, Water Taxes, Taxes on Improvements and Other Taxes
2.02.01 TENANT shall pay all business taxes, water taxes, surtaxes, the
municipal taxes on non-residential properties and/or its replacement, or other
similar rates and taxes which may be levied or imposed upon the Premises or the
business carried on therein, all other rates and taxes which are or may be
payable by TENANT as tenant and occupants thereof and on TENANT'S fixtures,
equipment and machinery and any and all taxes that may be levied upon the
Alterations and/or Improvements;
If by law, regulation or otherwise, business taxes and water taxes or
other similar rates and taxes or taxes upon TENANT's fixtures, equipment,
machinery or upon Alterations and/or Improvements are made payable by landlords
or proprietors, of if the mode of collecting such taxes and/or rates to be so
altered as to make LANDLORD liable therefor instead of TENANT, TENANT shall
repay to LANDLORD prior to the due date but in any event within seven (7) days
after demand upon TENANT the amount of the charge imposed on LANDLORD as a
result of such change, and shall save LANDLORD harmless from any cost or expense
in respect thereof.
2.02.02 TENANT shall pay as additional rent, in addition to the other amounts
payable under the Lease, any multi-stage sales, sales, use consumption, the
Federal Goods and Services Tax (GST), and the Provincial Sales Tax (PST), value
added or other similar taxes imposed by the Government of Canada, or by any
provincial or local government upon LANDLORD or TENANT on or in respect of this
Lease, the payments made by TENANT, the goods and services provided by LANDLORD
hereunder including, without limitation, the rental of the Premises or
administrative service provided to TENANT or to tenants generally. Amounts
payable by TENANT under this Sub-section from time to time shall be paid when
the rent under this Lease is payable.
If required, LANDLORD agrees, at the request and cost of TENANT, to
prepare and execute any requisite forms necessary to establish that TENANT has
paid to LANDLORD the amounts payable by TENANT under this subsection and that
LANDLORD has remitted such amount to the appropriate taxing authority.
2.03 REAL ESTATE TAXES
2.03.01 For the purposes of this Section:
(i) "Real Estate Taxes" means all taxes, surtaxes, water taxes,
rates and assessments, general and special, levied or imposed
with respect to the Building (including any accessories and
improvements therein or thereto) and the Property including
where applicable, all taxes, surtaxes, water taxes, rates,
assessments and impositions, general and special, levied or
imposed for schools, public betterment, general or local
improvements.
If the system of real estate taxation shall be altered or
varied and any new tax or levy shall be levied or imposed on
the Building and/or the Property and/or the revenues therefrom
and/or LANDLORD in substitution for and/or in addition to Real
Estate Taxes presently levied or imposed on immovables in the
city, town or municipality in which the Building and Property
are situated, then any such new tax or levy shall be included
within the term "Real Estate Taxes" and the provision of this
Section 2.03 shall apply mutatis mutandis.
The amount of the Real Estate Taxes which shall be deemed to
have been levied or imposed with respect to the Building and
the Property shall be such amount as the legal authority
imposing Real Estate Taxes shall have attributed to the
Building and the Property respectively, or, in the absence of
such attribution, or, if such legal authority shall include
other immovables other than the Building and the Property in
imposing such Real Estate Taxes, such amount as LANDLORD in
the exercise of reasonable judgment shall establish.
(ii) TENANT acknowledges that it is occupying and/or responsible
for ..100%...... of the Property of which the Premises and the
Building form part of. Accordingly the parties agree that
TENANT's proportion (hereinafter referred to s the
"Proportion") to be utilized in calculating TENANT's share of
Real Estate Taxes shall be ..100%.... of any such taxes.
For purposes of information, the estimated annual rate for
Real Estate Taxes is ONE DOLLAR AND FIFTY-TWO CENTS ($1.52)
per square foot.
<PAGE>
2.03.02 The rent payable during the term of this Lease in respect of each year
shall be increased by an amount equal to the Proportion of Real Estate Taxes
attributable to such year. TENANT shall pay to LANDLORD, not later than the tax
due date, or such other date as may be specified in writing to TENANT by
LANDLORD (hereinafter referred to as the "Specified Date"), the amount of such
increase in the annual rent.
At the option of LANDLORD, LANDLORD may at any time and from time to
time estimate the amount of increased rent as will become payable by TENANT by
the tax due date or Specified Date, and bill TENANT therefor, and in such event
TENANT shall pay to LANDLORD the full amount of such estimate in equal monthly
installments commencing with the first month following such estimate and
terminating on the tax due date or Specified Date. Such monthly amounts when
paid to LANDLORD shall be available (without interest) as a credit against
TENANT's obligations to LANDLORD under this SECTION 2.03.
Any amounts payable by TENANT hereunder shall be adjusted on a pro
rata basis to reflect the actual commencement and termination dates of this
Lease having regard too the period in respect of which the calculation of Real
Estate Taxes is made.
The obligations of the parties hereto to adjust pursuant to this
Sub-section 2.03.02 for the final period of the Lease shall survive the
expiration of the term of this Lease.
LANDLORD shall furnish to TENANT upon the specific writtenrequest of
TENANT copies of all pertinent valuation and assessment notices and of all
pertinent tax bills and notices received by LANDLORD.
2.03.03 TENANT shall pay to LANDLORD as additional rent the Proportion of any
expenses including legal, appraisal, administration and overhead expenses
including legal, appraisal, administration and overhead expenses incurred by
LANDLORD in obtaining or attempting to obtain a reduction of any Real Estate
Taxes. Real Estate Taxes which are contested by LANDLORD shall nevertheless be
included for purposes of the computation of the liability of TENANT under
Sub-section 2.03.02 provided, however, that in the event that TENANT shall have
paid any amount of increased rent pursuant to this Ssection 2.03 and LANDLORD
shall thereafter receive a refund of any portion of the Real Estate Taxes on
which such payment shall have been based, LANDLORD shall pay toTENANT the
appropriate portion of such refund after deduction of the afore mentionned
expenses.
LANDLORD shall have no obligation to contest, object to or to litigate
the levying or imposition of any Real Estate Taxes and may settle, compromise,
consent to, waive or otherwise determine in its discretion any Real Estate Taxes
without notice to, consent or approval of TENANT.
2.03.04 Nothing contained in this Section 2.03 shall be construed at any time so
as to reduce the monthly installments of rent payable hereunder below the amount
stipulated in Section 2.01.
TENANT's obligation to pay under this Section 2.03 for the final
period of the Lease shall survive the expiration of the term of this Lease.
2.03.05 Notwithstanding any law or custom to the contrary, the TENANT shall not
have the right to contest the corrections, existence or absence of any entry on
the tax roll of which the Property and/or the Building and/or the Premises are
entered or submit a complaint to any board or tribunal or court with respect
thereof, or for any other matter, without first obtaining the prior written
consent of the LANDLORD to any such contestation, which consent may be
arbitrarily withheld. If the TENANT obtains such consent, the TENANT shall
diligently prosecute any such appeal, contestation or complaint to an
expeditious resolution and shall keep the LANDLORD informed of its progress at
all times. Real Estate Taxes which are contested by the TENANT shall
nevertheless be included for purposes of computation of the liability of TENANT
under subsection 2.03.02 provided, however, that in the event that TENANT shall
have paid any amount of increased rent pursuant to this Section 2.03 and
LANDLORD shall thereafter receive a refund of any portion of the Real Estate
Taxes on which such payment shall have been based, LANDLORD shall pay to TENANT
the appropriate portion of such refund.
Notwithstanding any of the foregoing, should LANDLORD avail itself of
its right (but not obligation) to contest the levying or imposition of any Real
Estate Taxes within the appropriate delays to do so, such contestation of the
LANDLORD shall take precedence over any such contestation of the TENANT and the
provisions of Section 2.03 and subsequent shall apply to the complete exclusion
of this subsection 2.03.05 in which case TENANT shall discontinue from any
contestation it may have undertaken at TENANT's entire cost and expense.
2.04 OPERATING EXPENSES
2.04.01 For the purposes of this Section:
(i) "OPERATING EXPENSES" means (without duplication) in any period
designated by
<PAGE>
LANDLORD (determined for each period on an accrual basis) the total cost
and expense determined in accordance with generally accepted accounting
principles and practices and incurred by the LANDLORD in each lease year to
operate and maintain the Property, the Building and the Premises and facilities
(except as otherwise payable by TENANT hereunder) including without limitation.
(a) the cost of maintaining, operating, repairing, replacing, cleaning,
heating, gardening, draining, painting, landscaping, snow and garbage
removal, electricity, fuel, gas and water, material and supplies,
service contracts including without restriction the cost to maintain,
repair and replace any equipment, machinery inclusive of the sprinkler
system as well as the cost of any additional equipment or improvements
required by law as well as the cost of executive salaries,
administration and legal fees, tax on capital and capital retirement of
debt;
(b) the cost of heating, ventilating and air-conditioning including
without limitation the cost of operating, repairing, maintaining,
inspecting and replacing the machinery, equipment and other facilities
required for the heating, ventilating and air conditioning of the
Building;
(c) the actual cost of all insurance as may be carried by LANDLORD,
such costs to include without limitation premiums, claims, deductibles
and other insurance related charges, in respect of, or attributable to
the Property, the Building and the Premises or related thereto
including without limitation all risk insurance against fire and other
perils and liability regarding casualties, injuries and damages,
boiler, machinery, and equipment insurance and rental income insurance.
Notwithstanding all the foregoing, Operating Costs shall not include
repairs of a structural nature providing same are not the result of any act or
omission of the TENANT. For the purposes hereof structural repairs shall mean
repairs of a structural nature necessitated to the foundations, outer walls,
structural columns and beams of the Premises.
(ii) TENANT acknowledges that it is occupying and/or is responsible for
..100%. of the Property of which the Premises and the Building form
part of. Accordingly the parties agree that TENANT's proportion
(hereinafter referred to as the "Proportion") to be utilized in
calculating TENANT'S share of all Operating Expenses shall be
...100%... of the aggregate of any and all Operating Expenses.
2.04.02 During each Operating Year TENANT shall pay to LANDLORD as additional
rent the Proportion of the Operating Expenses.
2.04.03 On or before the commencement of any Lease Year, LANDLORD may estimate
the amount of the Proportion of the Operating Expenses and bill TENANT therefor
in equal monthly installments, in advance, which TENANT shall pay on the first
day of each calendar month of such Lease Year.
2.04.04 At the end of each Lease Year of the term of the Lease, LANDLORD shall
furnish to TENANT a statement of the actual gross amount of the Operating
Expenses during such Operating Year and the amount of TENANT's Proportion
pursuant to this Section 2.04, showing in reasonable detail the information
relevant to the calculation and termination thereof. If such amount is greater
or less than he payments on account thereof made by TENANT pursuant to
Subsection 2.04.03, appropriate adjustments will be made within fourteen (14)
days after the delivery of such statement. Notwithstanding the foregoing, and in
view of the fact that TENANT is occupying and responsible for the entire
Property of which the Premises and the Building form part of, it is agreed that
TENANT shall have the right to engage its own personnel or contractors for
purposes of carrying out any work which would otherwise be included in the
definition of "OPERATING EXPENSES" and paying for same directly providing TENANT
shall have furnished LANDLORD with copies of all documents and invoices related
thereto and provided that in carrying out any such work and the engaging of such
contractors and/or personnel, shall at all times be in conformity with and
subject to the observance of the other provisions of this Lease Agreement
including without restriction Section vi hereof.
2.04.05 The obligations of the parties hereto to adjust pursuant to Sub-section
2.04.04 hereof shall survive the expiration of the term of the Lease.
2.05 PAYMENT OF MONIES
2.05.01 All monies payable pursuant tot his Lease by TENANT shall be payable
immediately when due without notice or demand and shall be collectible as rent
and shall be paid to LANDLORD and/or its nominees at the head office of LANDLORD
or at such place in Canada as shall be designated from time to time by Landlord
in writing to the TENANT.
2.05.02 If the term of this Lease begins on any day of the month other than the
first day, then any amounts payable hereunder for such month shall be prorated
and paid on a per diem basis.
2.05.03 Upon final determination of the actual amounts payable by TENANT
<PAGE>
the parties shall adjust any differences between the estimated amounts so paid
and the actual amounts payable.
2.05.04 TENANT shall pay interest compounded monthly on all rent and/or amounts
collectible as rent under the terms of this Lease and not paid when due at a
rate per annum of three (3) percentage points above the prime lending rate at
the principal branch in the city of LANDLORD'S bank on the due date of such rent
or amounts.
2.05.05 TENANT hereby waives and renounces any and all existing and future
claims, set-off and compensation against any rent or other amounts due hereunder
and agrees to pay such rent and other amounts regardless of any claim, set-off
or compensation which may be asserted by TENANT or on its behalf.
2.05.06 Upon any termination of this Lease, as a condition precedent to being
permitted by LANDLORD to vacate the Premises, TENANT shall, in addition to all
other amounts which it is obliged to pay hereunder, pay to LANDLORD such amount
as is estimated by LANDLORD to represent that portion of the aggregate amount of
Real Estate Taxes and Operating Expenses payable and to become payable by TENANT
in virtue of Sections 2.03 and 2.04 hereof, and which has not yet been paid.
3.01 UTILITIES
The TENANT shall be solely responsible for and promptly pay, to the
exoneration of the LANDLORD, all costs and charges incurred in relation to the
installation supply, use or consumption of telephone services, electricity, gs
or water in or to the Premises, the Building and Property including, without
restriction, all charges made by any company, commission, or authority providing
such services for the connection or disconnection thereof and/or the maintenance
or repair of pipes, conduits, meters, cables or other media or in apparati used
for the provisions thereof. In no event shall LANDLORD have any obligation or
liability in connection with the cessation or unavailability or interruption or
suspension of any services or utilities at any time.
IV INSURANCE
4.01 PROPERTY DAMAGE AND PUBLIC LIABILITY
Throughout the Occupancy Period, the TENANT shall, at its own expense,
insure and keep insured the LANDLORD and the TENANT against loss arising from
damage to the property of the TENANT or any subtenant or licensee and any and
all other persons claiming through or under it, or any of them, or damage to any
other property howsoever occasioned by the use or occupation of the Premises or
any injury to any person or persons including death at any time resulting
therefrom occurring in or about the Premises or the accessories thereof and, in
this regard, will maintain proper policies or property damage and public
liability insurance the limits whereof initially shall be not less than
$2,000,000.00 for property damage, $l,000,000.00 for injury to one person and
$1,000,000.00 for injury in one accident and in such other amount as the
LANDLORD may, from time to time, reasonably require.
4.02 POLICIES OF INSURANCE
All contracts of insurance required herein to be maintained by the
TENANT shall be with a company or companies duly licensed to do business in
Canada and the Province of Quebec and ordinarily engaged, inter alia, in the
business of insuring against such risks and reasonably acceptable to the
LANDLORD, with loss payable to the LANDLORD. All notices to be sent in virtue of
said insurance policies shall be sent to the LANDLORD and any such policies of
insurance shall be in form and substance subject to the approval of the LANDLORD
which said approval shall not be unreasonably withheld and shall contain a
provision whereby the insurers shall not be subrogated in any rights which the
TENANT may have against the LANDLORD in respect of the indemnities paid pursuant
thereto so that, in the event of loss, the insurer or insurers shall have no
recourse of any nature whatsoever against either the LANDLORD or the TENANT. The
TENANT shall forward to the LANDLORD all policies of insurance or certificates
of insurance of all insurance policies taken out in accordance with the
provisions of the present Section IV. TENANT shall obtain from the insurers
under such policies, undertakings to notify the LANDLORD in writing at least
thirty (30) days prior to of any cancellation thereof or negative material
change relating to the said insurance coverage.
4.03 INCREASED RISK
The TENANT shall pay all extra premiums of insurance that any company
or companies with which the Building or the contents thereof may be insured,
shall exact by reason of anything carried into the Premises or stored therein by
the TENANT or any activity carried on therein by the TENANT.
4.04 COPIES OF POLICIES
<PAGE>
Prior to the commencement of the Term and thereafter prior to the
expiry of any insurance policy maintained by the TENANT pursuant to the terms of
the present Section, the TENANT shall deliver to the LANDLORD, without demand,
certified copies of al policies or certificates of insurance of insurance
maintained by it as herein required. If the TENANT fails to deliver such
policies as aforesaid, it shall be presumed not to have taken out or maintained
in force the appropriate insurance as herein required. TENANT agrees that if
TENANT fails to take out or to keep in force such insurance, LANDLORD will have
the right to do so and to pay the premium therefor and in such event TENANT
shall repay to the LANDLORD the amount paid as premium, which repayment shall be
collectible as additional rent payable on the first day of the next month
following the said payment by LANDLORD.
V. LIABILITY
5.01 NON RESPONSIBILITY OF LANDLORD
The LANDLORD shall not, under any circumstances whatsoever save in the
case of its gross negligence be responsible for any damages suffered by the
TENANT or any other person by reason of the ownership of, original defect in or
want of repair of the Property or any part thereof and, without restricting the
generality of the foregoing, there shall be no abatement from or reduction of
rentals due hereunder nor shall the TENANT be entitled to damages, costs, losses
or disbursements from the LANDLORD regardless of the cause or reason therefore
on account of partial or total failure of, damage caused by, lessening of supply
of or stoppage of heat, air-conditioning, electric light, power, water,
plumbing, sewage or any other service, nor on account of anything coming through
or leaking from the roof, skylights, trap doors, windows or otherwise or any
defect or break in any pipes, tanks, fixtures or otherwise whereby stream,
water, snow, smoke or gas, leak issue or flow into the Premises nor on account
of any electric or other wiring, nor on account of any damage or annoyance
arising from any acts, omissions or negligence of co-tenants or other occupants
of the Property, or the owners or occupants of adjacent or contiguous
properties, nor on account of anything coming through or leaking from the roof,
skylights, trap doors, windows or otherwise or any defect or break in any pipes,
tanks, fixtures or flow into the Premises nor on account of any damage or
annoyance occasioned by the condition or arrangements of any electric or other
wiring, nor on account of any damage or annoyance arising from any acts,
omissions or negligence of co-tenants or other occupants of the Property, or the
owners or occupants of adjacent or contiguous properties, nor on account of the
making of any repairs, alterations, improvements, additions or structural
changes to the Building or any part thereof or any property adjacent to the
Property. In addition, the LANDLORD shall not be liable for any other damage to
or loss,theft, or destruction of property or death of or injury to any person or
persons, including the TENANT at any time, in, or about the Property, howsoever
occurring.
5.02 INDEMNIFICATION OF LANDLORD
Save in the case of negligence on the part of the LANDLORD, the TENANT
does hereby agree to indemnify, and save harmless the LANDLORD, the TENANT does
hereby agree to indemnify, and save harmless the LANDLORD from and against any
and all liabilities, damages, suits and actions (including judicial and
extra-judicial fees and disbursements) arising out of:
a) Damage to the property of the TENANT, any subtenant or licensee of the
TENANT, and all persons claiming through or under it, or any of them, or damage
to any other property howsoever occasioned by the use or occupation of the
Property or any part thereof;
b) Any breach, violation or non-performance of any covenant, condition or
agreement set forth in the present Lease and contained on the part of the TENANT
to be fulfilled, kept, observed or performed;
c) Any injury to any person or persons including death at any time resulting
therefrom occurring in or about the Property;
d) Failure by the TENANT to fully, faithfully and punctually comply with all of
the legitimate requirements of any public or quasi-public authority having
jurisdiction in the Property or any requirement of any insurance company or
companies with which the Building or any of the contents thereof is insured or
the Fire Underwriters Association.
The indemnification contemplated under the terms of the present
paragraph as well as all other indemnifications herein provided shall survive
the termination of this Lease in respect of claims the origin or cause of which
arose during theterm hereof. Without in any manner limiting anythingellse
contained herein, in the event that the LANDLORD is made a party to any claim,
action, suit or proceeding from and against which the TENANT has undertaken to
indemnify and save the LANDLORD harmless, the TENATN shall pay such claim or, at
its own cost and expense defend int he LANDLORD's name, by an attorney or
counselnamed by the LANDLORD, such action, suite or proceeding as well as
satisfy any condemnation, judgment or pronouncement against the LANDLORD,
principal, interest and costs, the whole to the entire exoneration of the
LANDLORD or, in the alternative, shall furnish the LANDLORD with money to pay
such claim.
<PAGE>
VI. MAINTENANCE, ALTERATIONS AND USE
6.01 TENANT'S MAINTENANCE
The TENANT shall, at all times during the Occupancy Period, at its own
cost and expense, maintain the Premises and all accessorites thereof in a proper
state of repair and promptly effect all requisite repairs and replacements
thereof, including, without restriction, an ypipes, drains, conduits, doors,
windows, walls, floors, ceilings and plumbing, heating ventilating and
electrical equipment and fixtures therein located.
6.02 RIGHT TO ENTER AND INSPECT
The LANDLORD or any employee, servant or agent of the LANDLORD shall
be entitled upon twenty-four (24) hours prior notice, except in the case of
emergency to enter and examine the state of the maintenance, repairs, decoration
and order of the Premises and otherwise ascertain whether the TENANT is
adequately fulfilling its obligations under the terms of the preent Section. The
LANDLORD maygivenotice tot he TENANT requiring that the TENANT perform such
maintenance or effect such repairs or replacemtns as may be found necessary
pursuant to such examination but the failure of the LANDLORD to give such notice
shall not, however, relieve the TENANT from any of the obligations assumed by it
hereunder. If the TENANT fails to make any such repairs within thirty (30) days
after notice from the LANDLORD requesting the TENANT to do so, provided that
such repairs may reasonably be made within the said peeriod, the LANDLORD may,
without prejudice to any other rights or remedies it may have, make such repairs
and charge the cost thereof to the TENANT. Any costs chargeable to the TENANT
hereunder, or in virtue of any other clause of these presents, shall be payable
forthwith on demand as additional rent and shall bear interest at the rate of
Eighteen percent (18%) per annum. Nothing herein shall be construed to obligate
or require the LANDLORD to make any repairs to the Premises but the LANDLORD
shall have the right, at any time, to make urgent repairs without notice to the
TENANT and charge the costs thereof to the TENANT.
6.03 DAMAGE OR DESTRUCTION
If and whenever during the term of this Lease the Premises shall be
destroyed or damaged by fire, lightning or tempestof any other insured risk, or
otherwise, then, and in every such event the following provisions shall apply:
(a) If the damage or destruction is such that the Premises are rendered wholly
unfit for occupancy of if it is impossible or unsafe to use and occupy the same,
or if the damage is such that, in the opinion of the Architect to be given to
the TENANT within thirty (30) days of the happening of such damage or
destruction, then either the LANDLORD or the TENANT may within five (5) days
next succeeding the giving of the LANDLORD's notice as aforesaid, terminate this
Lease by giving the other party notice in writing of such termination in which
event this Lease shall cease and be at an end as at the date of such destruction
or damage and all rents which the TENANT is obliged to pay under the terms
hereof shall be apportioned and paid in full to the date of such damage or
destruction.
In the event that neither the LANDLORD nor the TENANT shall elect to terminate
this Lease as herein provided, then the LANDLORD shall repair the Pre ises with
all reasonable diligence and the rentals hereby reserved shall abate from the
ate of the happening of the damage until the damage shall have been made good to
the extent of enabling the TENANT to use and occupy the Premises;
(b) If the damage be such that the Premises are wholly unfit for occupancy or it
is impossible or unsafe to use or occupy them but in either event the damage, in
the opinion of the Architect to be given to the TENANT within thirty (30) days
from the happening of such damage, can, with reasonable diligence, be repaired
within ninety (90) days of the happening of such damage, then the rentals
payable by the TENANT hereunder shall abate from the date oof the happening of
such damage until the damage shall be made good to the extent of enabling the
TENANT to use and occupy the Premises and the LANDLORD shall repair the damage
with all reasonable diligence;
c) If in the opinion of the Architect the damage can be made good as aforesaid
within ninety (90) of the hapening of such damage or destruction and the damage
is such that the Premises are capable of being partially used for the purpose
for which they are hereby leased, then until such damage has been repaaired the
rentals payable hereunder shall abate so that the TENANT shall pay that
proportion of the said rentals which is equal to the proportion that the usable
area of the Premises is to to the total area of the Premises;
d) Not withstanding anything herein contained if any such damage or destruction
results from the fault or negligence of the TENANT or a person or persons for
whom the TENANT is in law responsible, without prejudice to any other rights or
remedies of the LANDLORD, the TENANT shall be liable for all costs and damages
and the damages may be repaired by the LANDLORD at the cost and expense of the
TENANT. In no such event shall there be any abatement of rentals payable
hereunder.
e) Notwithstanding anything herein contained the LANDLORD may in the case of
destruction or extensive damage to the Premises elect not to rebuild the same
provided that notice of such election be given to the TENANT within thirty (30)
days of such damage or destruction, in which case this lease shall
<PAGE>
cease and be at an end as at the date of such damage or destruction and all
rentals which the TENANT is obliged to pay under the terms hereof shall be
apportioned and paid in full to the date of such damage or destruction.
6.04 ALTERATIONS, ADDITIONS, IMPROVEMENTS
The TENANT shall not make or perform any alterations, additions or
improvements, whether of a structural or nonstructural nature, in the Premises
unless the plans and specifications therefore shall have been submitted to the
LANDLORD prior to the commencement of such alterations, additions or
improvements and the latter shall have given its prior written consent thereto,
which consent shall not be unreasonably withheld. All such alterations,
additions or improvements made by the TENANT under the terms of the present
paragraphs shall be promptly executed in accordance with he approved plans and
specification and all applicable laws, by-laws, regulations and ordinances or
all public and quasi-public authorities having jurisdiction in the Property,
including, without restrictions, the Fire Underwriters Association and any
company or companies with which the Building may, at the time, be insured and
the TENANT shall be responsible for all costs incurred in connection with such
alterations and improvements the whole to the entire exoneration of the
LANDLORD. The TENANT shall maintain workmen's compensation insurance covering
all persons employed in connection with such work and shall produce evidence of
such insurance to the LANDLORD, and shall also maintain adequate general
liability insurance for the protection of the LANDLORD and the TENANT as the
LANDLORD may reasonably require. Nothing herein contained may be so interpreted
as to permit the TENANT to perform any act, retain any service, purchase any
materials or cause to be performed any works which would give rise to a
privilege, prior claim and/or hypothec on the Property. Notwithstanding the
foregoing, the value of the Premises shall not, as a result of any work proposed
to be carried out by the TENANT, be less than the value of the Premises before
the commencement of such work and the LANDLORD shall be the sole judge or such
value. If the cost of any work shall be in excess of TEN THOUSAND DOLLARS
($10,000.00) as reasonably estimated by the LANDLORD, the LANDLORD may require
the TENANT to furnish security satisfactory to the LANDLORD guaranteeing the
completion of the work and the payment of the cost thereof free and clear of all
conditional bills of sale, pledges, privileges, prior claims, hypothecs,
workmen's and supplier's liens and other similar liens and charges. All work,
when completed, shall be comprised in and form part of the Premises and shall be
subject to all the provisions of this Lease.
6.05 SUPERVISION OF LANDLORD
In the event that the TENANT shall elect to perform any alterations or
improvements to the Premises in accordance with the terms of the present
Section, all such alterations and improvements may be performed under the
general supervision of the LANDLORD and the TENANT, if he so requests and the
LANDLORD if he so accepts to perform such supervision, shall be obliged to pay
to the LANDLORD, in consideration for such supervision, a fee in an amount equal
to Ten Percent (10%) of the cost of such alterations and improvements.
6.06 DISPOSITION OF ALTERATIONS
At the expiry of the Occupancy Period the TENANT shall, at the option
of the LANDLORD, either remove all alterations performed by it in accordance
with the provisions of the present Section and restore the Premises to
substantially the same condition in which the same were found prior to the
performance of any such alterations, or abandon the Premises and surrender
ownership and possession of such alterations and improvements to the LANDLORD. I
neither case will the TENANT be entitled to receive any compensation or
indemnity in respect of such alterations or improvements or in respect of the
removal thereof.
6.07 USE OF PREMISES
The TENANT shall use the Premises solely for the purpose of carrying
on its business, and moreover the TENANT shall confine its activities to the
leased premises only and shall not store, warehouse and/or carry on any type of
work whatsoever in the common areas of the Building and/or the Property. The
TENANT shall not do or permit anything to be done in or about the Property which
would obstruct or interfere with the rights of other tenants therein or in any
way hinder or annoy them by the emission of disagreeable noise, smoke or
unpleasant odors, or which may conflict with the rules of the Fire Underwriters
Association or with the rules, regulations, laws, bylaws, ordinances or other
requirements of any public or quasi public authority having jurisdiction in the
Property or in the activities carried on therein, nor shall the TENANT install
or store in the Premises any effects which would adversely affect the structural
integrity or solidity of the Building, or any part thereof. The TENANT
represents that the Premises have been examined by the TENANT and that the
TENANT accepts same in the condition and state in which they now are. The TENANT
alone shall be responsible for obtaining from he appropriate regulatory bodies
whatever permits, licences or approvals as may be necessary, and this to the
entire exoneration of the LANDLORD. Notwithstanding the generality of the
foregoing, failure by the TENANT to obtain any such permits, licences or
approvals shall not entitle the TENANT to cancel this Lease.
6.08 FIRE PREVENTION
<PAGE>
The TENANT shall institute and maintain such programs of fire
prevention as may be reasonably required by an y insurance company or companies
with which the Building is insured or the Fire Underwriters Association and
shall install and maintain in the Premises such fire prevention and detection
equipment as may be recommended by such company, companies or association.
6.09 SANITATION AND CLEANLINESS
The TENANT shall maintain the Premises in a tidy, orderly and clean
condition at all times and shall keep all garbage, refuse and other waste
materials emanating from the Premises in metal, ratproof and covered containers
and agrees to provide strict measure and put forth every effort for rat
prevention and other pest control, including, if required by the LANDLORD, a
regular contract with a firm of recognized exterminators.
VII. ASSIGNMENT, SUB-LET AND SHARED POSSESSION
7.01 CONDITIONAL RIGHT
The TENANT may not assign its rights hereunder or sublet or share
possession of the Premises or any part thereof without the prior consent in
writing of the LANDLORD, which consent shall not be unreasonably withheld.
Consent shall be deemed to be reasonably withheld if any such assignment, sublet
or granting of possession shall be made for an annual consideration less than
the total annual consideration (consisting of the Minimum Annual Rental and all
deemed additional rental referred to in Paragraph 2.03 hereof) as set forth in
the present Lease or the then going market value, whichever be the greater. In
the event that such consent is solicited and granted, and the TENANT assigns its
rights hereunder or sub-lets or shares possession of all or part of the
Premises, the TENANT shall notwithstanding such assignment or sub-let or sharing
of possession, remain solitarily responsible for the full and faithful
performance of all of the obligations undertaken by it hereunder, in the same
manner and to the same extent as if the said assignment had not been made, or
the said sublet not granted, or the sharing of possession not effected.
7.02 ASSIGNMENT OF SUB-RENTALS
To secure the full and faithful performance by the TENANT of all of
its obligations to the LANDLORD hereunder, the TENANT does hereby assign,
transfer and make over unto the LANDLORD hereto present and accepting, the same,
all rents now or hereafter payable to the TENANT by any subtenants or assignees
or possessors of the TENANT leasing or occupying space in the Premises. The
LANDLORD may, t its option, give notice to any such assignees or possessors of
the TENANT leasing or occupying space in the Premises. The LANDLORD may, at its
option, give notice to any such assignees or subtenants or possessors who shall,
be obliged thence forward to pay all sums otherwise payable to the TENANT and in
reduction of any sums payable or to become payable by the TENANT TO THE LANDLORD
pursuant hereto. The LANDLORD shall not be accountable to the TENANT for any
failure on its part to collect any sums payable by any assignees or sub-tenants
or possessors of the TENANT.
7.03 COPIES OF SUB-LEASE
The TENANT shall, within three days of their respective execution,
forward to the LANDLORD, authentic or certified true copies of all deeds,
contracts, agreements or instruments entered into by the TENANT whereby the
TENANT assigns any of its rights hereunder or in the Premises or sub-lets the
whole or any part of the Premises or grants any rights to possessors.
7.04 LANDLORD'S PREFERRED RIGHTS
In the event that the TENANT elects to solicit the consent of the
LANDLORD to the assignment of the former's rights hereunder or the sub-let of
the whole or any part of the Premises or to the granting of possession of any
part of the Premises (which said solicitation must, on pain of nullity thereof,
be in writing, setting forth all terms and conditions of the sub-let or
assignment or granting of possession), the LANDLORD may, at its option and by
giving written notice of its intention so to do, to the TENANT within fifteen
days of its having received the TENANT'S request to sub-let or assign or grant
possession, as aforesaid, elect to:
a) terminate the present Lease at the end of the then current year or at the
effective date of such proposed sub-let, assignment or granting of possession,
or ninety (90) days after giving the said notice to the TENANT in which case the
TENANT shall surrender vacant possession of the Premises to the LANDLORD on the
appropriate termination date and as and from the said date, neither party shall
have any future rights or obligations hereunder; or
b) become the sub-tenant or assignee or possessor of the TENANT at the same
terms and conditions as set forth in the notice given by the TENANT to the
LANDLORD soliciting consent to the sub-lease or assignment.
<PAGE>
7.05 CORPORATE OWNERSHIP
If at any time during the term the TENANT is a corporation and if, by
the sale or other disposition of its securities, the control of such corporation
is changed, notice of which the TENANT SHALL be bound to give to the LANDLORD
within fifteen (15) days after such sale or other disposition, the LANDLORD may,
at its option, cancel the Lease upon the giving of thirty (30)days' notice to
the TENANT of its intention to cancel and this lease shall terminate upon the
expiration of the said thirty (30) day period; and this without any recourse
against the LANDLORD.
7.06 PERMITTED ASSIGNMENT OR SUBLEASE
Notwithstanding anything contained in this Lease to the contrary,
TENANT will have the right to assign the Lease or to sublet the Premises to a
bona fide franchise of the TENANT without having to obtain the prior consent of
LANDLORD, but upon giving notice to LANDLORD of the assignment or subletting is
made, however in the event of such assignment or subletting herein permitted,
TENANT shall remain solitarily responsible together with the assignee or
subtenant for the fulfilment of all obligations of the TENANT under this Lease
and all terms and conditions of the Lease shall continue to apply. In the even
TENANT is entitled to receive from said Subtenant or Assignee a minimum annual
rent higher than what is being paid by the TENANT at that point in time, such
excess sum shall be paid to LANDLORD. TENANT furthermore agrees to provide
LANDLORD with a copy of a duly executed franchise agreement.
VIII. HEATING AND ELECTRICAL SYSTEM
8.01 MAINTENANCE OF SYSTEM
Without limiting or otherwise restricting the obligations of the
TENANT pursuant to the provisions of Section I hereof, the TENANT will, at its
own expense, maintain the heating and electrical system part of the Premises in
a fit and proper condition and shall, if required by the LANDLORD, take out and
maintain in force a contract providing for the regular preventative maintenance
thereof. The TENANT'S obligation to maintain the said system shall include the
obligation tor place the same as and who such replacement shall, by reason of
use or otherwise, become necessary.
8.02 MAINTENANCE OF TEMPERATURE
The TENANT shall, at its own cost and expense, heat the Premises to a
reasonable temperature at such times as may be required. The TENANT furthermore
undertakes to operate and maintain LANDLORD'S heating system at the proper
temperature throughout the term of this lease, or any renewal thereof, in order
to thereby prevent the premises from freezing.
IX. DEFAULTS
9.01 RIGHT TO CANCEL
In the event that the TENANT fails to pay any ental payable to the
LANDLORD hereunder within five (5) days of the due date thereof, or in the event
that the TENANT fails to fully, faithfully and punctually discharge any of the
obligations incumbent upon it hereunder, and fails to remedy said default within
ten (10) days of written notification to that effect or if any execution be
issued pursuant to a judgment rendered against the TENANT, the LANDLORD shall be
entitled to cancel the present lease the whole without notice or mise-en-demeure
to the TENANT or any other party, and without prejudice to and in addition to
any other rights, recourses or remedies which the LANDLORD may enjoy against the
TENANT by reason of such default, in damages or otherwise.
9.02 PERFORMANCE BY LANDLORD
In the even that the TENANT fails to pay any sum payable to any third
party without a written reasonable explanation or perform any other obligation
incumbent upon it under the terms of the present Lease, the LANDLORD may, after
giving ten (10) days notice in writing to the TENANT, pay the said sum or
perform the said obligation in the place of the TENANT who shall be obliged to
repay the said sum so paid by the LANDLORD and reimburse any costs so incurred
by the LANDLORD in performing such obligations, together with an administrative
fee equal to Ten Percentum (10%) of the amount so paid or the cost so incurred,
to the LANDLORD without demand or other formality, the whole without prejudice
to any other rights or recourses of the LANDLORD by reason of the TENANT's
default.
9.03 DESERTION OR VACANCY
In the event that the PREMISES HALL BE DESERTED OR VACATED, THE
landlord shall be entitled , as it sees fit, to enter the same as the agent of
the TENANT either by force or otherwise, without being liable for prosecution
therefore, and to relet the same as the agent of an at the risk of the TENANT
and to receive any rental therefore, the whole on account of any sums payable by
the
<PAGE>
TENANT to the LANDLORD hereunder. In the event that the TENANT deserts or
vacates the Premises, leaving behind therein any furniture, fixtures or other
moveable effects, the TENANT shall be deemed to have abandoned the said
furniture, fixtures and moveable effects, and the LANDLORD shall be entitled to
dispose of the same and all costs incurred by the LANDLORD in removing the said
furniture, fixtures and moveable effects from the Premises and disposing thereof
shall be reimbursed by the TENANT to the LANDLORD on demand.
9.04 BANKRUPTCY, INSOLVENCY, etc.
In the even that the TENANT becomes bankrupt or insolvent or makes an
assignment or proposal under the provisions of the Bankruptcy Act, the Winding
up Act, or any other insolvency legislation in force at the time, this Lease
shall, at the option of the LANDLORD, terminate either forthwith, or at the end
of the then current month or at the end of the then current year, the whole
without prejudice to any rights, recourses or remedies which the LANDLORD may
enjoy against the TENANT or any GUARANTOR of the TENANT's obligations hereunder
in damages or otherwise. Under such circumstances, and without prejudice to any
other rights, recourses or remedies enjoyed by the LANDLORD, the damages or
accelerated rent, which, for the purposes of the present paragraph shall be
deemed to be three (3) times the aggregate of the monthly instalments then
payable by the TENANT to the LANDLORD pursuant to paragraphs 2.01 and 2.02
hereof.
9.05 FORBEARANCE OR INDULGENCE
No covenant, term or condition of this Lease shall be waived except by
the written consent of the LANDLORD and forbearance or indulgence of the
LANDLORD in any regard whatsoever shall not constitute a waiver of the covenant,
term or condition, the LANDLORD shall be entitled to invoke any remedies under
this Lease or by law despite such forbearance or indulgence.
9.06 RIGHT TO REMEDY
In the event that the TENANT is in default to fully, faithfully and
punctually perform all of the obligations incumbent upon it hereunder, and the
LANDLORD shall have instituted proceedings to cancel the present Lease,
notwithstanding any law or custom to the contrary, the TENANT shall not have any
right to prevent such cancellation or annulment by remedying its default or
defaults, subsequent to the institution of such legal proceedings.
9.07 INDEMNITY
In the event that the LANDLORD is required to retain the services of a
solicitor to enforce the fulfillment by the TENANT of the obligations incumbent
upon it hereunder, then and n any such event, the LANDLORD shall be entitled to
demand from the TENANT in addition to and without prejudice to judicial costs
otherwise payable by the TENANT and whether or not judicial proceedings are in
fact instituted, and indemnity in an amount equal to fifteen percent (15%) of
the amount otherwise owing by the TENANT to t he LANDLORD, such sums to
indemnify the LANDLORD for additional administration expenses incurred in
connection with he enforced fulfillment by the TENANT of its obligations
hereunder.
X MISCELLANEOUS PROVISIONS
10.01 ELECTION OF DOMICILE
The TENANT hereby elects domiciled at the Premises for the purpose of
service or receipt of any Writs of Summons, Notices under the terms hereof or
other legal documents in any suit of law, action or proceedings which may arise
in respect of the present Lease or the TENANT's occupancy of the Premises.
10.02 EXAMINATION OF PREMISES
During the last six (6)months of the Term and at any time thereafter
the TENANT shall allow any person who may be desirous of obtaining a lease on
the Premises to visit the same during the normal business hours and allow
notices suitable to the LANDLORD for the purposes of reletting the Premises to
be placarded and left on the Premises during the said period. At all times
during the occupancy Period, the LANDLORD and/or its agent or representatives
shall have the right to enter into the Premises during business hours for the
purpose of exhibiting the same to prospective purchasers of the Property and
shall be entitled to affix signs on the Property with respect to the proposed
sale thereof.
10.03 NOTICE TO LANDLORD
The TENANT agrees to give to the LANDLORD prompt written notice of any
accident to or defects in the water pipes, drains, gas pipes, electric lights,
or heating apparatus or any other mechanical or physical feature in the Premises
and/or Building. The freezing of any water heating, sprinklers or other pipes or
radiators caused by the failure of the TENANT to take the necessary precautions
to prevent same, shall be the direct responsibility of the TENANT, and the
TENANT agrees to
<PAGE>
indemnify and save harmless the LANDLORD from any and all causes of actions and
demands whatsoever which may arise as a result of any damage by water leaking
from the TENANT's Premises so caused.
10.04 SIGNS
The TENANT shall not be permitted to install or erect any sign of any
nature whatsoever on any part of the Property save with the prior consent tin
writing of the LANDLORD, which consent shall not be unreasonably withheld. Any
sign which may have been installed by another TENANT occupying the leased
premises prior to the TENANT and not being employed by the latter in any manner,
shall not be considered as forming part of the provisions herein.
10.05 SUBORDINATION
This Lease, and the rights and obligations of the parties hereunder
shall be subordinated and subjected to any charge or charges from time to time
created by the LANDLORD in respect of the Property by way of hypothec or other
real right; provided that any such charge or charges by way of hypothec or
otherwise shall not increase the rental payments herein provided and provided
further that the TENANT is given satisfactory assurance this Lease may not be
canceled or terminated by any subsequent hypothecary creditor of the LANDLORD
save upon the default of the TENANT as herein provided. At any time and from
time to time during the term hereof, as required by the LANDLORD and upon being
given such assurances as aforesaid, the TENANT obliges itself to give all such
assurances as may be reasonably required to evidence and effectuate any
subordination or postponement of the TENANT's right hereunder to holders of any
such charge or charges.
10.06 GOVERNMENTAL AND OTHER REGULATIONS
The TENANT shall, during the Occupancy Period, at its own cost and
expense, promptly observe and comply with all present and future laws, statutes,
ordinances, requirements, orders, directions, by-laws, rules and regulations of
all public and quasi-public authorities having jurisdiction in the Premises and
of all insurance company or companies insuring the Building or the Property and
the Fire Underwriters Association or other bodies exercising similar functions
whether with respect to the Premises, the condition thereof, the moveable
effects therein located or any activities carried on therein in the same manner
and to the same extent as if it were the owner of the Premises and the occupant
thereof. "LANDLORD represents and warrants that as of the execution hereof it
has not received any notice of non-compliance from any public or quasi public
authority having jurisdiction in the Premises nor from any insurance company
insuring the Building nor from other bodies exercising similar functions."
10.07 INTERFERENCE WITH RIGHTS OF OTHERS
The TENANT will not do anything or permit anything to be done on the
Premises or int he Building which may be injurious or annoying to the LANDLORD
or its other tenants, or to any person lawfully on the Premises of the LANDLORD,
or anything which the LANDLORD may deem to be a nuisance, or which may be
calculated to damage the business or reputation of the LANDLORD, or the
satisfactory operation of the Building. The TENANT shall neither do nor permit
anything to be done in or upon the Premises or the Building which will in any
way obstruct or interfere with the rights of any tenants or persons having
business within or permit any employees to smoke or congregate in the halls of
the building, or do or permit anything to be done or bring or keep anything upon
the Premises or n the Building which in any way will increase the risk of fire
and/or the rate of fire insurance on the Building, or any part thereof, or any
property kept therein, or conflict with the laws relating to fires or with the
regulations of the Fire Department and/or the Health Department, or with any of
the rules, regulations, by-laws and/or ordinances of the City of Montreal and/or
the Fire Underwriters and/or any other lawful authority.
10.08 EXPROPRIATIONS
If the whole or any part of the Premises or the whole of the Building
or so much thereof as shall render it commercially unpracticable to operate the
Building shall be expropriated or taken in any manner by any competent authority
for any purpose, the LANDLORD may, at its option, terminate this Lease with
effect from the date when possession of the Premises or building so taken shall
be required for such use and purpose by the expropriating authority. The TENANT
shall have no claim against the LANDLORD for the value of the unexpired term of
this Lease.
10.09 LANDLORD'S HYPOTHEC
As continuing and collateral security for the due and punctual
performance of TENANT's obligations under this Lease, TENANT hypothecates in
favor of LANDLORD, for the sum of One Hundred and Fifty Thousand Dollars
($..150,000..) and interest thereon at the interest rate from time to time,
calculated semi-annually and not in advance, a universality consisting of all
moveable improvements, equipment, machinery, stock, inventory, furniture,
fixtures of every kind now or hereafter located in, on or upon the Property,
Building and Premises, including all indemnities or proceeds paid or payable to
TENANT under insurance policies pertaining to or covering such moveables. The
hypothec herein created
<PAGE>
does not constitute a floating hypothec under Article 2715 of the Civil Code of
Quebec. Upon the occurrence of a Default under this Lease, the security hereby
constituted shall become enforceable and LANDLORD shall be entitled to
immediately exercise any and all rights arising from such hypothec without any
notice or delay except as may be required by law. The hypothec referred to
herein shall constitute a first ranking charge on all assets charged thereunder.
It is agreed that all moveable effects located on the Property and/or in the
Building and/or Premises that were prior to the execution of this Lease, the
property and ownership of the LANDLORD, shall continue to remain the property
and ownership of the LANDLORD. Nothing herein contained shall be deemed to
prevent TENANT from obtaining a secured financing on its assets by way of
hypothec or otherwise providing such security granted by TENANT result from
financing obtained from a recognized financial institution in Canada dealing at
arm's length with TENANT. Furthermore, any security given by TENANT shall not
implicate nor concern the movable effects being included as part of the leased
premises or which would otherwise belong to LANDLORD. Furthermore the TENANT
shall prior to granting any security, ensure that the financial institution has
duly advised LANDLORD of its intention to take security of TENANT's assets with
a detailed description thereof including a waiver of any and all rights over
LANDLORD's property inclusive of the movable effects herein included.
10.10 ADJUSTMENTS
At the commencement and upon the expiry of the Occupancy Period, the
LANDLORD and the TENANT shall pro-rate, adjust and apportion all rentals payable
by the TENANT to the LANDLORD hereunder.
10.11 OPTION TO RENEW
Provided that the TENANT is not in default thereunder, the TENANT
shall have ..one......... (...1...) Option to extend the term of this Lease for
a period of ..five........ (..5...) years immediately following the expiration
of the initial term, that being from the first day of January 2002, and
terminating on the last day of December 2006. The option herein granted is
exercisable by written notice by the TENANT to the LANDLORD no later than six
(6) months nor earlier than eight (8) months prior to the expiry of the initial
term.
This option is granted subject to the foregoing provisions.
The option herein granted is not transferrable nor assignable. Any
right of renewal herein granted shall be deemed to be a personal right of the
TENANT and shall not pass to nor devolve upon any assignee or subtenant of this
Lease or of the rights granted thereby save and except to a bona
fide franchise.
The said lease renewed under this option shall be for the same
premises and subject to the same conditions (except that there shall be no right
of renewing this Lease) as herein set forth, save that the Minimum Annual Rental
payable by the TENANT for said option period shall be increased each lease year
of the renewed term by the greater of an equal amount to five.... percent
(...5..%) of the minimum annual rental payable for the immediate preceding lease
year or an amount equal to the increase in the CPI over the immediate preceding
lease year which increase shall not in any event be less than the minimum annual
rental of that immediate preceding lease year.
XI. INTERPRETATION
11.01 LAW TO GOVERN
The present lease shall be interpreted according to the laws of the
Province of Quebec wherein it was executed.
11.02 HEADINGS
Sectional and paragraph headings are included only for the convenience
of the parties and shall not be deemed to form part hereof.
11.03 LANGUAGE
The parties hereto have requested and hereby confirm their request
that the present Agreement be written in the English language. Les parties
declarent et par les presentes confirment leur demande que la presente
Convention soit ecrite dans la langue anglaise.
11.04 ENTIRE AGREEMENT
The present lease and the schedules annexed hereto, if any, represent
the entire agreement between the LANDLORD and the TENANT with respect to the
Premises the LANDLORD having made no representations to the TENANT except as
herein set forth. Without restricting the generality of the foregoing, nothing
herein contained shall be so interpreted as to imply that htis Lease is
conditional upon the TENANT obtaining any permits or licenses from any public
authority having jurisdiction in the Property, the Premises or any activity
carried on therein. Furthermore, the terms
<PAGE>
of the present lease cannot be altered or varied save by express written
agreement between the parties hereto.
11.05 INTERPRETATION
Should any of the provisions of this lease and/or its conditions be
illegal or enforceable under the laws of the Province of Quebec, it or they
shall be considered severable and the lease and its conditions shall remain in
force and be binding upon the parties as though the said provision or provisions
had never been included.
11.06 PARTIES OF INTEREST
The present lease as well as the rights and obligations of the parties
hereunder shall enure to and be binding upon the parties and their respective
heirs, assigns and legatees.
11.07 TENANT'S DEPOSIT
LANDLORD acknowledges the receipt of the sum of Fifteen Thousand
Dollars ($15,000) from the TENANT as a deposit to be applied towards the last
three month's minimum rental obligations becoming due and payable by TENANT in
accordance with this Lease, provided that if TENANT should default in the
performance of any undertaking under this Lease before application of this
deposit, LANDLORD may apply such deposit towards any cost it may incur on behalf
of TENANT, provided further that if this Lease shall be terminated for any
reason before application of the said deposit, the whole of said deposit may be
retained by LANDLORD and treated as liquidated damages. Nothing herein contained
shall limit LANDLORD's right of action against TENANT for such further or other
damages or remedies arising out of any breach of this Lease by TENANT.
IN WITNESS WHEREOF, the parties hereto have signed on the date and at the place
hereinabove first mentioned.
Per:
--------------------------------- ---------------------------------
LANDLORD WITNESS
Per:
--------------------------------- ---------------------------------
TENANT WITNESS
<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 Amendment No. 2 to Form SB-2 being filed by the Company.
Date: September 11, 1998
<TABLE>
<S> <C>
Schwartz Levitsky Feldman, Chartered
Accountants
/s/ Schwartz Levitsky Feldman
---------------------------------------------
</TABLE>
