As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. ____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GUITRON INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 3931 51-0397012
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8
(514) 766-9778
(Address and telephone number of principal executive offices and
principal place of business)
Richard Duffy, President
38 Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8
(514) 766-9778
(Name, address and telephone number of agent for service)
With copies to: Scott Rapfogel, Esq., Levine & Rapfogel
621 Clove Road, Staten Island, NY 10310
(718) 981-8485
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /___
If 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: / /___
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Proposed Amount
Amount Maximum Maximum of
to be Offering Price Aggregate Registration
Title of Each Class of Securities To Be Registered Registered Per Security(1) Offering Price(1) Fee
- -------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 1,000,000 $1.00 $ 1,000,000 $ 303
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 3,302,910(2) $1.00 $ 3,302,910 $1,001
- --------------------------------------------------------------------------------------------------------------------
TOTAL 4,302,910 $1.00 $ 4,302,910 $1,304
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Represents shares to be offered by Selling Stockholders.
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 become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
- --------------------------------------------------------------------------------
(ii)
<PAGE>
CROSS REFERENCE SHEET
Cross Reference Sheet Showing Location in Prospectus of
Information Required by Items of the Form Pursuant to Rule 404(a)
<TABLE>
<CAPTION>
Form SB-2 Item No. and Heading Prospectus Caption
------------------------------ ------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus............................... Facing Page of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information and
Risk Factors ........................................... Prospectus Summary; Risk Factors
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price........................... Outside Front Cover Page of
Prospectus; Risk Factors;
6. Dilution.................................................. Dilution
7. Selling Security Holders.................................. Prospectus Summary; Plan of Distribution;
Selling Stockholders
8. Plan of Distribution...................................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Plan of Distribution;
Selling Stockholders
9. Legal Proceedings........................................... Business
10. Directors, Executive Officers, Promoters
and Control Persons......................................... Management
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
11. Security Ownership of Certain Beneficial
Owners and Management................................... Principal Stockholders
12. Description of Securities................................. Description of Securities
13. Interest of Named Experts and Counsel..................... Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for Securities Act Liabilities ...... Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities
15. Organization with Last Five Years......................... Business; Certain Transactions
16. Description of Business................................... Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation.................................... Plan of Operation
18. Description of Property................................... Business
19. Certain Relationships and Related Transactions............ Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters..................................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Market for Common Equity and Related Stockholder
Matters; Description of Securities;
Plan of Distribution
21. Executive Compensation.................................... Executive Compensation; Certain Transactions;
22. Financial Statements...................................... Financial Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. Not Applicable
</TABLE>
(iv)
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
PROSPECTUS SUBJECT TO COMPLETION: DATED MAY 26, 2000
- ----------
GUITRON INTERNATIONAL INC.
4,302,910 SHARES COMMON STOCK
This is the initial public offering of Guitron International Inc. (the
"Company", we", or "us"). We are offering for sale a minimum of 250,000 shares
and a maximum of 1,000,000 shares of our common stock, $0.001 par value (the
"Primary Shares") on a "best efforts" basis, subject to various conditions. We
may reject all or part of any order for such shares. All funds received from
sales of Primary Shares will be deposited in an escrow account and will not be
released unless certain conditions have been met. If a minimum of 250,000 shares
are not sold by us within 30 days from the date of the prospectus (which period
may be extended by us up to an additional 15 days), the escrow agent will
promptly return all funds without interest or deduction. Prior to this offering,
there has been no public market for our common stock and there can be no
assurances that such a market will be developed or, if developed, that it will
be sustained following the completion of this offering. The public offering
price for our common stock does not necessarily bear any direct relationship to
our assets, book value or any other established criteria of value and was
arbitrarily determined by us. See "Risk Factor No. 7". We expect that if this
public offering is completed, our stock will be traded in the over-the-counter
market and quoted on the OTC Electronic Bulletin Board. See "Plan of
Distribution".
An additional 3,302,910 shares of our common stock (the "Selling
Stockholders Shares") will be offered for sale by certain of our stockholders
(the "Selling Stockholders"). Selling Stockholders may be expected to sell their
shares at prevailing market prices or in negotiated transactions. We will not
receive any proceeds from any sales by the Selling Stockholders. The costs,
expenses and fees incurred in connection with the registration of the Primary
Shares and the Selling Stockholders Shares will be paid by the Company. The
Selling Stockholders and any broker-dealer acting in connection with the sale of
any of the Primary or the Selling Stockholder Shares may be deemed to be
underwriters for purposes of the federal securities laws. See "Plan of
Distribution" and "Selling Stockholders"
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. WE URGE YOU TO READ THE RISK FACTORS BEGINNING
ON PAGE 10, ALONG WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE
YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================
Underwriting Discounts Proceeds to
Price to Public and Commissions (1) Company (2)(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 1.00 $ 0.10 $ 0.90
Total Minimum (250,000 Primary Shares) $ 250,000 $ 25,000 $ 225,000
Total Maximum (1,000,000 Primary Shares) $1,000,000 $100,000 $ 900,000
Total Selling Stockholders $3,302,910 $ 0 $ 0
===================================================================================================
</TABLE>
(See Notes on Following Page)
The date of this Prospectus is May 26, 2000
1
<PAGE>
Notes to Spread Table
(1) The Primary Shares will be offered on behalf of the Company by certain of
our officers who have limited or no experience in the sale of securities.
No selling discounts or commissions will be paid to such officers,
although their out-of-pocket expenses will be reimbursed by the Company.
We have not made arrangements with a specific broker-dealer to act as an
underwriter in connection with this offering. However, we may pay selected
dealers ("Selected Dealers") who are members of the National Association
of Securities Dealers, Inc., and certain foreign dealers, a commission
equal to 10% of the public offering price of the Primary Shares sold by
these dealers. We will agree to indemnify any Selected Dealer against
civil liabilities under the Securities Act of 1933, as amended, See "Plan
of Distribution".
(2) The figures indicated assume that a 10% commission is paid on all Primary
Shares sold. To the extent that Primary Shares are sold by officers of the
Company however, no commissions will be paid and the proceeds to us will
be increased. The figures, however, do not reflect the deduction of
offering expenses estimated to be an aggregate of $40,000, which include
but are not limited to filing fees, printing expenses, legal and
accounting fees and other miscellaneous expenses.
(3) The first 250,000 Primary Shares will be offered by the Company on a "best
efforts-all or none" basis. The balance of the Primary Shares will be
offered on a "best efforts" basis. The proceeds from the sale of the
Primary Shares will be promptly deposited into a non-interest bearing
escrow account with Continental Stock Transfer & Trust Company (the
"Escrow Agent"). Funds will be deposited no later than noon of the next
business day following receipt. In the event that 250,000 or more Primary
Shares are not sold within 30 days after the date of this Prospectus
(which period may be extended up to an additional 15 days by us), this
offering will be withdrawn and all funds will be returned promptly to
subscribers by the Escrow Agent without deduction therefrom or interest
thereon. If at least 250,000 Primary Shares are sold, the remaining
750,000 Primary Shares will be offered until all of the Primary Shares
offered are sold, until expiration of the offering period or until the
offering is terminated by us, whichever occurs first. Subscribers will not
be entitled to a return of funds subscribed during the offering period.
Upon the sale of the minimum number of Primary Shares offered hereby, and
the consummation of our acquisition of The Guitron Corporation, a Canadian
corporation, we have the right, but not the obligation, to withdraw funds
from the escrow account pursuant to a closing or series of closings, upon
the completion of each of which, subscribers whose funds have been
withdrawn from escrow will become shareholders of the Company. We may
however, in our sole and absolute discretion, defer such closing or
closings until the sale of the maximum number of Primary Shares offered
hereby, expiration of the offering period or such earlier time as we deem
appropriate. See "Plan of Distribution". In all events, trading of our
common stock will not commence until after the offering has been
completed.
(4) We and participating broker dealers, if any, will not be involved in any
distribution of the shares owned by Selling Stockholders. The Selling
Stockholders will receive the entire proceeds from the sale of their
shares, less any commissions paid to other dealers for executing such
orders.
The Primary Shares are being offered by us subject to prior sale, to
acceptance of an offer to purchase, to approval of certain legal matters by
counsel and to certain other conditions. We reserve the right to withdraw or
cancel such offer and to reject orders in whole or in part.
We intend to furnish our shareholders with annual reports containing
audited financial statements and a report thereon by our independent certified
public accountants. In addition, we may furnish unaudited quarterly or other
interim reports to our shareholders as we deem appropriate.
2
<PAGE>
Subscribers purchasing the Primary Shares should make bank, cashier's or
certified checks payable to "Continental Stock Transfer & Trust Company - Escrow
Agent for Guitron International Inc." See "Plan of Distribution".
We, as issuer, have undertaken to make post-effective amendments to the
Registration Statement to which the Prospectus relates and to reflect therein
any facts or events arising after the date hereof which represent a fundamental
or material change in the information set forth herein or in said Registration
Statement. Any such amendments, which relate to this prospectus will be
disseminated to our stockholders after the required filings with the Securities
and Exchange Commission have been made.
This prospectus contains certain "forward-looking statements" which
represent our expectations or beliefs. The words "believe", "expect",
"anticipate", "estimate", "project", "intend", and similar expressions identify
forward-looking statements that may include, but not be limited to, future
results of operations, growth plans, integration of new operations, financing
needs, industry trends, consumer demand and levels of competition. These
statements by their nature involve substantial risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
differ materially from those expressed in, contemplated by or underlying any
such forward-looking statements. Statements in this prospectus, including
without limitation those contained in the sections entitled "Risk Factors",
"Plan of Operation", "Business", and in the Notes to our Financial Statements,
describe factors, among others, that could contribute to or cause such
differences.
Currency
- --------
Absent any reference to "Canadian", "Cdn", or any other variant thereof,
all dollar amounts shown throughout this document are in United States dollars.
Whenever any dollar amount has been translated from Canadian dollars into United
States dollars, the exchange rate used was one Canadian dollar (Cdn $1.00) for
every United States sixty eight and nine tenths cents (US $0.689). This was the
approximate Canada Spot Exchange Rate in effect on January 31, 2000 as published
by the U.S. Federal Reserve.
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all the information that is important to you. To understand this
offering fully, you should read carefully the entire prospectus, including the
risk factors and the financial statements. In this prospectus, unless the
context requires otherwise, "we" and "us" refer to Guitron International Inc.
Unless otherwise indicated, all information in this prospectus assumes our
acquisition of The Guitron Corporation, a Canadian corporation, has already
taken place, notwithstanding that such acquisition will not be effected until
the sale of the minimum offering amount has been achieved. (See "Business -
Acquisition of Guitron Canada")
3
<PAGE>
Our Business
We are a development stage company formed for the sole purpose of
acquiring The Guitron Corporation, a Canadian corporation ("Guitron Canada"). To
date, we have conducted no business other than that related to our formation and
initial organization. Our acquisition of Guitron Canada will take place upon the
completion of the sale of the minimum offering amount within the offering period
and prior to the release from escrow of the proceeds from such sale. (See
"Business - Acquisition of Guitron Canada") At the present time and at the time
of the acquisition, the following securities are and will be issued and
outstanding in Guitron Canada: (i) not more than 2,125,926 Guitron Canada
shares; and (ii) Guitron Canada stock options ("Guitron Canada Stock Options")
to purchase not more 454,800 Guitron Canada shares (see "Description of
Securities - Outstanding Options"). Pursuant to the acquisition:
(a) All of the 2,125,926 outstanding Guitron Canada shares will be
exchanged for 3.25 common shares of our Company; This will result in
the issuance of a total of 6,909,260 shares of our common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of our Company; this will result in
there being a total of 1,478,100 of our common shares subject to
future issuance pursuant to the exercise of presently outstanding
Guitron Canada Stock Options. (See "Business - Acquisition of
Guitron Canada)
In the event the minimum offering amount is not sold within the offering
period, including any extensions thereof, the acquisition will not be
consummated, this offering will be cancelled and all subscription proceeds will
be promptly returned to subscribers from escrow without interest or deduction.
Consequently, it is assumed herein and elsewhere when context requires, that the
acquisition has already taken place and that our existence dates back to August
20, 1997, the date of incorporation of Guitron Canada.
We were formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products. The GUITRON
represents a dramatic development respecting one of the world's oldest and most
popular musical instruments, the guitar. The first production models of the
GUITRON, development of which was completed in March 2000, are expected to be
made available for sale to the public during the second quarter of 2000.
GUITRONS are easy play instruments which look and sound like traditional guitars
but are different in that they rely on our patent pending technological features
for their playing and their sound. This technology preserves the pleasurable
function of strumming the instrument but removes many of the complexities of
learning to play the guitar that are related to learning the complicated
fingerboard positions necessary to produce a chord. Consequently, the instrument
learning process is dramatically simplified when compared to the traditional
guitar. Most of our activities to date have been devoted to organizational
activities, raising capital, conducting product
4
<PAGE>
research and development, filing patent and trademark applications respecting
the GUITRON, developing relationships with parts suppliers, developing a
marketing plan, and entering into contractual relationships with sales and
marketing organizations. As of the date hereof, we have had no operating
revenues and have financed all of our operations from loans, Canadian government
grants, research and development tax credits, and sales of capital stock to
affiliated parties and private investors. (See "Business" and "Certain
Transactions")
Corporate Information
We are a Delaware corporation. Our executive offices are located at 38
Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada H3E 1T8.
Our telephone number is (514) 766-9778.
The Offering
Common Stock Offered By The Company ................. We are offering up to
1,000,000 shares of our
common stock at a price
of $1.00 per share. The
first 250,000 shares
are being offered on a
"best efforts-all
-or-none" basis. The
remaining 750,000
shares are being
offered on a "best
efforts" basis.
Common Stock Offered By Selling Stockholders. 3,302,910 shares of
common stock including
340,600 shares
underlying outstanding
stock options.
Common Stock to be Outstanding After this
Offering ........................................... 9,758,560 shares
(minimum)(1)
10,508,560 Shares
(maximum)(1)
Use of Proceeds ................................ We intend to use the
net proceeds from this
offering for sales and
marketing expenses, to
purchase product
inventory, and for
general corporate
purposes. See "Use of
Proceeds."
- -----
(1) Does not take into account the exercise of any outstanding stock
options of Guitron Canada subsequent to the date of this prospectus.
5
<PAGE>
Escrow Agent Continental Stock
Transfer and Trust
Company is acting as
escrow agent for the
purpose of receiving
and disbursing to us
the proceeds from this
offering
Offering Period and Terms of
Subscription, Sale and Escrow Pending the sale of the
minimum offering amount
of 250,000 shares, all
subscription payments,
which are irrevocable,
will be deposited in a
non- interest bearing
account by the escrow
agent. This offering
will close on or before
30 days from the date
of this prospectus
(which period may be
extended for up to an
additional 15 days at
our discretion). Unless
at least the minimum
offering amount of
250,000 shares are sold
within the offering
period, this offering
will be withdrawn and
the proceeds will be
returned to subscribers
without interest or
deduction. If the
minimum offering amount
of 250,000 shares are
sold within the
offering period, the
remaining 750,000
shares will be offered
for sale until the
offering period ends or
such earlier time that
we deem appropriate.
The escrow agent will
not release the
escrowed funds to us
unless, before the end
of the offering period,
we have received
subscriptions for the
minimum offering amount
of 250,000 shares; and
thereafter (1) the
acquisition of
6
<PAGE>
Guitron Canada has been
approved, adopted and
completed, and (2) all
other conditions to the
acquisition of Guitron
Canada have been
satisfied.
Subscription Procedures Subscribers purchasing
our common stock should
make checks payable to
"Continental Stock
Transfer & Trust
Company - Escrow Agent
for Guitron
International Inc." All
subscribers must
provide a completed
subscription agreement
along with their
payment.
Risk Factors ....................................... The shares offered
hereby involve a high
degree of risk.
Potential investors
should carefully review
the entire prospectus
and particularly, the
section entitled "Risk
Factors" beginning on
page 10.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summarized financial information regarding
the Company and Guitron Canada, on a pro forma basis, for the years ended July
31, 1999 and July 31, 1998, for the six month period ended January 31, 2000 and
for the period from inception (August 20, 1997), to July 31, 1999. All of such
information, other than the information respecting the six month period ended
January 31, 2000, was derived from our audited financial statements appearing
elsewhere in this prospectus. The financial information for the six months ended
January 31, 2000, was derived from our unaudited financial statements appearing
elsewhere in this prospectus. In the opinion of management the financial
information for the six months ended January 31, 2000, contains all adjustments,
consisting only of normal recurring accruals necessary for the fair presentation
of the results of operations and financial position for such period. You should
read this summary financial information in conjunction with our plan of
operation, financial statements and related notes to the financial statements,
each appearing elsewhere in this prospectus.
Effective upon the sale of the minimum offering amount within the offering
period and certain other conditions, Guitron Canada will be acquired by us. The
principal reason for the acquisition is to take advantage of the laws of the
State of Delaware. Unless otherwise indicated, all information included in this
prospectus has been adjusted, in advance, to reflect the post acquisition
capitalization of our Company. (See "Business - Acquisition of Guitron Canada").
8
<PAGE>
<TABLE>
<CAPTION>
Income Statement Data: Cumulative Period From
August 20, 1997
Year Ended (date of inception) Six Months Ended
July 31,1999 to July 31, 1999 January 31, 1999
------------ ---------------- ----------------
<S> <C> <C> <C>
Revenues 0 0 0
Net Income (Loss) $ (321,095) $ (631,155) $ (850,755)
Net Income (Loss) Per Share $ (.22) $ (.48) $ (.14)
Weighted Average Number
of Shares Outstanding 1,487,970 1,318,590 6,272,148
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: January 31, 2000
July 31, 1998 July 31, 1999 January 31, 2000 As Adjusted (1)
------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Current Assets $ 35,613 $ 86,002 $ 125,826 $ 985,826
Total Assets $ 42,477 $ 100,658 $ 151,684 $1,011,684
Current Liabilities $ 197,887 $ 174,711 $ 186,566 $ 186,566
Total Liabilities $ 259,893 $ 357,955 $ 509,481 $ 509,481
Stockholders' Equity $(217,416) $(257,297) $(357,797) $ 502,203
(Deficit)
</TABLE>
(1) As adjusted to reflect the sale of all 1,000,000 of the Primary Shares
offered hereby.
9
<PAGE>
RISK FACTORS
The shares offered in this prospectus are highly speculative in nature and
involve a high degree of risk. You should consider very carefully certain risks
and speculative factors inherent in and affecting our business prior to the
purchase of any of our shares offered to you in this prospectus, as well as all
of the other matters set forth elsewhere in this prospectus. As elsewhere in
this prospectus, where context requires, the discussion under this "Risk
Factors" section assumes that the acquisition of Guitron Canada by us, to be
effected upon the sale of the minimum numbers of shares offered hereby during
the offering period, has already taken place and consequently, that our
existence dates back to the August 20, 1997 formation of Guitron Canada.
1. We Have No Material Operating History For You to Judge Our Prospects.
Since our inception, we have had no commercial business operations or earnings
from operations and we have very limited assets or financial resources. To date,
we have devoted all our efforts to various organizational activities, product
research and development, planning marketing strategies, and developing
relationships with suppliers. Moreover, because we are in the development stage,
we cannot predict with any certainty the future success or failure of our
proposed operations or even whether we will ever be able to generate net income
or successfully expand our operations in the future. As a result, we have no
operating history for you to analyze in order to make an informed judgment as to
the merits of an investment in us. As a new enterprise, it is likely that we
will remain subject to risks and occurrences which we are unable to predict with
any degree of certainty, and for which we may be unable to fully prepare. The
likelihood of our success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered by companies in
their early stages of development, particularly companies introducing new and
unproven products. To address these risks we must, among other things, develop
and implement effective manufacturing and marketing programs for each of our
three models of the GUITRON (the acoustic, electric and children's models), and
attract, retain and motivate qualified personnel. There can be no assurance that
we will be successful in addressing such risks, and any failure to do so could
have a material adverse effect on our business, results of operations and
financial condition. Any investment which you may make in us should be
considered a high risk investment in an unseasoned start-up company with the
possibility of the loss of the entire investment.
2. We Have Negative Working Capital and We May Not Receive Sufficient
Proceeds; We May Be Unable To Raise Additional Capital in the Future, Which
Would Adversely Affect Your Investment. Giving effect to the acquisition of
Guitron Canada, as at January 31, 2000, we had total current assets of $125,826
and total current liabilities of $186,566 or a negative working capital of
approximately $60,740. To date, we have been primarily dependent on debt and
equity funding from lenders and investors to allow us to conduct developmental
operations, and we may require additional funding in the future. The offering
under this Prospectus can close on the sale of the minimum of 250,000 shares,
which would yield approximately $185,000 in net proceeds. If we close on the
sale of the maximum of 1,000,000 shares, we will receive approximately $860,000
in net proceeds. While we believe that the receipt of the maximum
10
<PAGE>
amount of proceeds may be sufficient for the next twelve months, presently
unanticipated occurrences and expenses may make it necessary for us to continue
to raise funds through further equity or debt financings until such time, if
ever, as we are able to operate profitably. Should we close the offering prior
to receiving the maximum proceeds there is an increased likelihood that we will
require additional funding during the next twelve months. In the event that we
do require such additional outside funding, there is no assurance that we will
be able to obtain it on terms beneficial to us, if at all. Should that occur, we
might be prevented from commencing commercial operations or, if we have begun
commercial operations, we might have to curtail or cease them (see "Plan of
Operation").
3. We Have Had Losses and Anticipate That This Will Continue in the
Foreseeable Future; Going Concern Qualification. As of January 31, 2000, we had
an accumulated deficit of $1,481,910, and we anticipate that we will continue to
incur net losses for the foreseeable future pending our establishment of
profitable business operations. Moreover, we expect that during the next twelve
months, as we try to launch our products, our operating expenses will be
increasing, especially in the areas of sales and marketing and brand promotion.
The extent of our losses in the future will depend on our ability to commence
commercial operations and generate revenues on a profitable basis. To do so, we
will have to develop and implement successful manufacturing and sales and
marketing programs for the GUITRON. Although we expect to initiate manufacturing
and marketing operations during the second quarter of calendar 2000, no
assurance can be given that we will be able to achieve this objective or that,
if this objective is achieved, that we will ever be profitable.
Our independent accountants, in their report regarding our financial
statements for the fiscal year ended July 31, 1999, stated that since we have a
history of losses since inception and limited liquidity and capital resources
doubt existed as to our ability to continue as a going concern (see "Financial
Statements").
4. We Will Need To Implement Commercial Business Operations and Manage Our
Growth Successfully. To achieve profitability, we will need to successfully
establish manufacturing and marketing infrastructures and develop systems to
ensure high levels of product delivery and satisfaction. If we are able to
successfully commence our proposed commercial business operations, we may
experience rapid growth, requiring us to manage multiple relationships with
various wholesalers and retailers of our products, vendors of supplies and raw
materials, and other third parties. This could place significant burdens on our
management and on our operational, financial, and other resources. In such event
our current and planned personnel levels, and financial and operating procedures
and controls, might not be adequate to support our operations. In any event,
there can be no assurance that we will achieve revenue growth sufficient to
offset anticipated increases in costs, nor can there be any assurance that we
will be successful in overcoming problems associated with unforeseen costs and
competition, technical problems associated with new products and technology, and
other risks which all business ventures face and which could be especially acute
for a new company attempting to establish and expand its business. There can be
no assurance that our systems, procedures or controls will be adequate to
support our operations or that our management will be able to
11
<PAGE>
manage any growth effectively. Thus, in the face of rapid growth, if it occurs,
we will need to expand our management, manufacturing, and marketing
capabilities, develop and implement effective operational and financial systems
and controls, and attract, train, motivate, retain and supervise an expanding
staff. Should we fail to manage our growth in a successful and efficient manner
and at a pace consistent with such growth, it could have a material adverse
effect on our business and results of operations.
5. We Will Have Broad Discretion in How We Will Use The Proceeds From This
Public Offering. We may apply the proceeds of this offering for purposes other
than those specified in "Use of Proceeds" in order to accommodate changing
circumstances. Moreover, a substantial portion of the proceeds of this offering
will be applied to our working capital. Accordingly, our management will have
broad discretion as to the application of the proceeds of this offering (see
"Use of Proceeds").
6. We Cannot Guarantee That There Will Be Market Acceptance of the
GUITRON; We Have Not Conducted Any Formal Market Research Respecting Potential
Demand for the GUITRON. We have not yet commenced sales and marketing of the
GUITRON, which is our only product. We have no potential sources of revenues
other than from anticipated sales of the GUITRON and related support products.
Consequently, we are entirely dependent on the successful introduction and
commercial acceptance of the GUITRON. There can be no assurance, however, that
such market acceptance will be achieved. We have not conducted any formal market
studies regarding the probable market acceptance of the GUITRON and we therefore
have no basis for predicting the potential demand for this new musical
instrument. Accordingly, we cannot give any assurance that sufficient market
penetration can be achieved so that we can operate profitably. Failure to
achieve sufficient market acceptance of the GUITRON will have a material adverse
effect on our business, financial condition and results of operations. (see
"Business - Sales and Marketing").
7. We Have Arbitrarily Determined The Public Offering Price; You May Not
Be Able To Sell Your Shares Unless a Public Market Develops For Our Stock; If a
Public Market Develops, It May Be Very Unstable and Volatile; We Are Not
Eligible For Inclusion In NASDAQ. Prior to this offering, there has been no
public market for our securities. The initial public offering price of the
shares was arbitrarily determined by us and is not related to our assets, book
value, results of operations, or any other established criteria of value. While
we expect that, following the successful completion of this offering, our common
stock will be traded in the over the counter market and quoted on the OTC
Bulletin Board, we cannot be certain that a public trading market for our common
stock will develop after this offering. Failure to develop or maintain an active
trading market could negatively affect the price of our shares and even make it
impossible for you to sell your shares or recover any part of your investment in
us.
Even if a market for our common stock does develop, the market price of
the common stock following this offering may be highly volatile. In addition to
the uncertainties relating to our future operating performance and the potential
profitability of our operations, factors such as variations in our interim
financial results, comments by securities analysts, announcements of
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<PAGE>
technological innovations or new products by us or our potential competitors,
changing market conditions, developments concerning our proprietary rights, or
various, as yet unpredictable factors, many of which are beyond our control, may
have a negative effect on the market price of our common stock.
We are not presently, and it is likely that for the foreseeable future we
will not be, eligible for inclusion in NASDAQ or for listing on any United
States national stock exchange. To be eligible to be included in NASDAQ, a
company is required to have not less than $4,000,000 in net tangible assets, a
public float with a market value of not less than $5,000,000, and a minimum bid
of price of $4.00 per share. At the present time, we are unable to state when,
if ever, we will meet the Nasdaq application standards. Unless we are able to
increase our net worth and market valuation substantially, either through the
accumulation of surplus out of earned income or successful capital raising
financing activities, we will never be able to meet the eligibility requirements
of NASDAQ.
8. We Are Heavily Dependent On Our Proprietary Technology. The success of
our proposed business will depend in part upon our ability to protect our
proprietary GUITRON technology. On February 2, 1999 and August 5, 1999, we filed
applications with the U.S. Patent and Trademark Office for patents to protect
the technology used in and physical design of the GUITRON. On February 2, 2000,
a U.S. patent application reflecting subsequent technological advances was filed
to replace the application of a year earlier. On February 2, 2000 we also filed
applications for Canadian and international patents. While we expect that
patents will be granted in response to these applications, we are unable to give
any assurance that this will in fact be the case or how long the patent review
process will take. (See "Business-Patents and Trademarks") Until now, we have
relied on trade secrets, proprietary know-how and technological innovation to
protect our developing technology and the designs and specifications for the
GUITRON. We have entered into confidentiality and invention assignment
agreements with all of our employees and consultants in order to limit access
to, and disclosure or use of, our proprietary GUITRON technology. There can be
no assurance, however, that the steps taken by us to deter misappropriation or
third party development of our technology and/or processes will be adequate,
that others will not independently develop similar technology and/or processes,
or that secrecy will not be breached. We believe that our GUITRON technology
does not infringe on the proprietary rights of others. There can, however, be no
assurance that our technology does not and will not infringe on any other
technology presently unknown to us or that any third parties will not assert
infringement claims against us in the future. Moreover, even if our patents are
granted, there can be no assurance that they will provide meaningful protection
or significant competitive advantages over competing products or that we will
have the resources to defend them by bringing patent infringement or other
proprietary rights actions. Furthermore, there can be no assurance that other
companies or individuals will not independently develop similar products or
duplicate our products.
9. Competition From Guitar Manufacturers. Although we believe that the
GUITRON is a unique musical instrument with distinct advantages over
conventional acoustic or electric guitars, we will face competition from guitar
manufacturers, virtually all of whom are larger than
13
<PAGE>
us, and have substantially more assets and resources than we have. We intend to
meet such competition through marketing, advertising, and educational campaigns
aimed at acquainting the public with the GUITRON's unique advantages over
conventional guitars, by continuing to develop and refine our technological
innovations, and by developing user support systems which will provide
assistance to GUITRON owners, helping them to learn to play the GUITRON and to
enhance their playing skills, from beginner to expert levels. We can give no
assurance that this strategy will succeed, or that we will be able to overcome
the competitive disadvantages we face as a small company with limited capital
and without a history of successfully developing and marketing musical
instruments, technology, devices or products. In addition to existing
manufacturers of conventional guitars, we anticipate that numerous potential
competitors with high levels of technical and financial resources are, like the
Company, constantly searching for market niches and specialty products in the
musical instrument industry. (see Business - Competition").
10. Investors In This Public Offering Will Suffer An Immediate and
Substantial Dilution of Their Investment Because The Public Offering Price is
Higher Than the Per Share Value Of Our Net Assets; The Public Offering Price is
Also Higher Than The Price Paid By Our Founders and Prior Investors. The public
offering price of our shares is higher than the prices paid by our founders and
prior investors and will exceed the post Guitron Canada acquisition per share
value of our net tangible assets. Consequently, the purchasers of shares sold in
this offering will experience immediate and substantial dilution of
approximately $1.02 per share in their investment if the minimum offering is
sold and approximately $.91 per share in their investment if the maximum
offering is sold. The foregoing does not take into account the additional
substantial dilution that will result from the exercise of presently outstanding
stock options. Further, additional issuances or sales of our common stock or
other securities may involve additional substantial dilution to the interests of
our then existing stockholders. See "Dilution" and "Business - Sales and
Marketing".
11. Sales of Shares Eligible For Future Sale Could Depress The Market
Price Of Our Common Stock; Dilution of Common Stock From Exercise of Options.
Giving effect to the acquisition of Guitron Canada, we presently have issued and
outstanding 9,508,560 shares of our common stock and options to purchase an
additional 1,478,100 shares at exercise prices ranging from Cdn $.2308
(approximately US $.159) to Cdn $.3077 (approximately US $.212) per share. Of
these, 3,302,910 shares, including 340,600 shares underlying outstanding
options, are included in the Registration Statement of which this Prospectus is
a part and will be freely tradeable following the completion of this public
offering. Further sales of these shares could depress the market price of our
common stock in any market which may develop in the near future. The balance of
6,546,250 shares of our currently issued and outstanding common stock are
unregistered securities and are therefore restricted from resale other than by
way of registration, a transaction complying with the provisions of Rule 144,
adopted under the Securities Act of 1933, as amended, or some other exemption
from registration. Rule 144 provides, among other matters, that if certain
information concerning the operating and financial affairs of the Company is
publicly available, persons holding restricted securities for a period of one
year thereafter may sell in each subsequent three month period up to that number
of such shares equal to 1% of our
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<PAGE>
outstanding common stock. Shares purchasable under outstanding options, will be
eligible for sale under Rule 144, one year from the dates such options are
exercised and fully paid for. Future sales of these shares under Rule 144 could
depress the market price of our common stock in any market which may develop in
the near future.
In addition, the exercise prices of all outstanding options to purchase
shares of our common stock is less than the public offering price of $1.00 per
share. Accordingly, the investments made by purchasers in the public offering
will be diluted by the exercise of such options (see "Dilution" and "Description
of Securities").
12. Our Present Shareholders Will Continue to Control Us After the Public
Offering; Our Majority Shareholders Will Be Able to Take Shareholder Actions
Without Giving Prior Notice to Any Other Shareholders. The Common Stock offered
hereby will represent a minority of our voting stock after its issuance. Since
each common share is entitled to one vote which in non-cumulative, investors in
the offering will have no effective voting voice in our management which will
continue to be controlled by our current shareholders. At the time of our
acquisition of Guitron Canada, and prior to the issuance of any shares in this
offering, our shareholders will own an aggregate of 9,508,560 shares of Common
Stock. (see "Principal Stockholders" and "Certain Transactions".)
None of our securities are registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "34 Act"). We will not be required to
register under the "34 Act" unless and until at the end of any fiscal year we
have 500 or more shareholders of record and have total assets in excess of
$10,000,000. At present, we have no plans to register any of our securities
under the "34 Act" unless and until we are required to do so. As a result, we
are not, and after the public offering, we will not be, subject to the Proxy
Rules of Section 14 of the "34 Act". We will therefore be able to take
shareholder actions in conformance with Section 228 of the Delaware General
Corporation Act, which permits us to take any action which is required to, or
may, be taken at an annual or special meeting of the shareholders, without prior
notice and without a vote of all of our shareholders. Instead of a vote,
shareholder actions can be authorized by the written consents to such actions,
signed by the holders of the number of shares which would have been required to
be voted in favor of such action at a duly called shareholders meeting. We are
required to give notice to all shareholders of the actions taken pursuant to the
written consents of the majority shareholders, promptly after the action has
been taken.
13. Our Board of Directors Can Issue Up to 8,013,340 Additional Shares of
Common Stock Without the Consent of Any of Our Shareholders. Our Certificate of
Incorporation authorizes the issuance of 20,000,000 shares of Common Stock. Upon
the sale of all of the shares of Common Stock offered hereby approximately
9,491,440 of our authorized common shares will remain unissued. Approximately
1,478,100 of such shares will be reserved for issuance pursuant to the exercise
of presently outstanding options. Our board of directors has the power to issue
any or all of the remaining 8,013,340 authorized common shares for general
15
<PAGE>
corporate purposes, without shareholder approval. While we presently have no
commitments, contracts or intentions to issue any additional common shares
except as otherwise disclosed in this prospectus, potential investors should be
aware that any such stock issuances may result in a reduction of the book value
or market price of the outstanding common shares. If we issue any additional
common shares, such issuance will reduce the proportionate ownership and voting
power of each other common shareholder (see "Description of Securities").
14. We Will Face Certain Risks by Engaging in International Operations. We
intend to assemble all Guitrons at our production facilities in Montreal. In
addition, Quebec and other areas in Canada are among the initial markets which
we intend to target for the GUITRON. While there can be no assurances that we
will be successful in marketing the GUITRON or that any anticipated
international sales will take place, to the extent that we engage in
international sales and/or operations, we will be subject to various risks
associated with international operations. These include, but are not limited to,
changes in tariff rates, possible instability of political climate or economic
environment, and fluctuations in currency exchange rates. The latter will affect
any payments to or by us made or valued in non-U.S. currencies, all of which
will be subject to independent fluctuating exchange rates with the U.S. dollar
which may have an adverse affect on our revenues or asset values in terms of the
U.S. dollar.
15. We Have Entered, and in the Future We May Continue to Enter, Into
Transactions With Related Parties. Since our inception, we have on several
occasions entered into transactions with our officers, directors, principal
shareholders and other affiliated parties including those transactions discussed
in the "Certain Transactions" section of this prospectus. We believe that all
such transactions were made on terms as fair as those obtainable from
independent third parties, were independent third parties able and willing to
enter into similar transactions with us. However, no assurance can be given that
this was, in fact, the case. We have adopted a policy which, among other things,
requires all material transactions with affiliated parties to be approved by a
majority of the directors who do not have an interest in the transaction.
16. We are Dependent on the Services of our President. Our ability to
successfully conduct our business affairs is dependent upon the capabilities of
our president and chief executive officer, Richard Duffy. Mr. Duffy has a fixed
term employment agreement with us. His contract is scheduled to expire on
December 5, 2002. If we are unable to retain the services of Mr. Duffy, our
operations could be adversely affected. We do not presently carry any "key man"
insurance on Mr. Duffy or any other employee and we have no plans to obtain such
insurance following the completion of this offering. (see "Management --
Directors and Executive Officers").
17. If A Public Market is Established For Our Common Stock, The "Penny
Stock Rules" Will Apply to Broker-Dealer Sales of Such Stock. As discussed
above, at the present time, there is no public market for our stock. However, it
is expected that upon the successful completion and closing of this public
offering, our common stock will be traded in the over-the-counter
16
<PAGE>
market and we will endeavor to have trading activity reported on the OTC
Electronic Bulletin Board.
The United States Securities and Exchange Commission "Securities
Enforcement and Penny Stock Reform Act of 1990" requires special disclosure
relating to the trading of any stock defined as a "penny stock". Commission
regulations generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share and is not listed on The Nasdaq
SmallCap Stock Market or a major stock exchange. These regulations subject all
broker-dealer transactions involving such securities to special "Penny Stock
Rules". Following the completion of this offering the commencement of trading of
our common stock, and the foreseeable future thereafter, the market price of our
common stock is expected to be substantially less than $5 per share.
Accordingly, should anyone wish to sell any of our shares through a
broker-dealer, such sale will be subject to the Penny Stock Rules. These Rules
will affect the ability of broker-dealers to sell our shares (and will therefore
also affect the ability of purchasers in this offering to re-sell their shares
in the secondary market, if such a market should ever develop.)
The Penny Stock Rules impose special sales practice requirements on
broker-dealers who sell shares defined as a "penny stock" to persons other than
their established customers or "Accredited Investors." Among other things, the
Penny Stock Rules require that a broker-dealer make a special suitability
determination respecting the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. In addition, the Penny Stock
Rules require that a broker-dealer deliver, prior to any transaction, a
disclosure schedule prepared in accordance with the requirements of the
Commission relating to the penny stock market. Disclosure also has to be made
about commissions payable to both the broker-dealer and the registered
representative and the current quotations for the securities. Finally, monthly
statements have to be sent to any holder of such penny stocks disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Accordingly, for so long as the Penny Stock
Rules are applicable to our common stock, it may be difficult to trade such
stock because compliance with the Penny Stock Rules can delay and/or preclude
certain trading transactions. This could have an adverse effect on the liquidity
and/or price of our common stock.
18. No Dividends and None Anticipated. We have not paid any dividends, nor
do we contemplate or anticipate paying any dividends upon our common stock in
the foreseeable future. Any earnings which may be generated from our operations
will be used to finance our growth.
19. Best Efforts Nature of Offering - We shall use our best efforts to
sell the shares of our common stock. However, there is no present commitment by
any person to purchase any of the shares offered. Consequently, we cannot assure
you that any of the shares will be sold. See "Plan of Distribution." In
reviewing the information set forth under the heading "Plan of Distribution,"
potential purchasers of our common stock should note that there is a minimum
sale requirement and that the offering will not close unless the minimum is
subscribed for and our acquisition of Guitron Canada has been consummated. If we
are unable to sell the minimum
17
<PAGE>
number of shares of our common stock offered, we will refund your subscription
payments to you without interest or deduction. To the extent the minimum is sold
but the maximum is not, our ability to implement our initiatives may be
diminished.
20. Escrow of Investors' Funds - Under the terms of this offering, we are
offering 250,000 shares on a "best efforts - all or none" basis, and if the
minimum amount of shares are sold the remaining 750,000 shares will be offered
on a "best efforts" basis until all of the shares are sold, the offering period
ends, or the offering is terminated by us whichever first occurs. No commitment
currently exists by anyone to purchase all or any part of the shares offered
hereby. Consequently, there is no assurance that the minimum number of shares
being offered will be sold. Subscribers' funds may be escrowed for as long as 45
days and then returned without interest thereon in the event the minimum number
of shares are not sold within the 30 day offering period, and the possible 15
day extension period. Investors will not have the use of any funds paid for the
purchase of our shares during he subscription period. In the event we are unable
to sell the minimum number of shares within the offering period, the offering
will be withdrawn.
USE OF PROCEEDS
The net proceeds to us from the offering, after deducting sales
commissions and offering related expenses, is estimated to be approximately $
185,000 if the minimum number of 250,000 shares offered are sold and $860,000 if
all 1,000,000 shares offered are sold. To the extent that shares are sold by our
officers, no sales commissions will be paid and the net proceeds to us will be
increased proportionately. Such proceeds, if any, will be used as additional
working capital. We intend to use the net proceeds from the offering in the
approximate amounts shown below for the purposes listed, in order of priority:
Approximate Amount
----------------------------
Percent Percent
of of
Anticipated Use At minimum Total At maximum Total
- --------------- ---------- ----- ---------- -----
Product Inventory $ 50,000 27% $150,000 17.4%
Sales and
Marketing Expenses $125,000 67.6% $300,000 34.9%
Working Capital(1) $ 10,000 5.4% $410,000 47.7%
TOTAL $185,000 100% $860,000 100%
(1) In the minimum offering situation, approximately $10,000 will be used as
working capital and applied to general corporate purposes including, but
not limited to, rent and salaries. In the maximum offering situation
approximately $410,000 will be used as working capital and applied to
general corporate purposes including, but not limited to, rent, salaries,
and research and development expenses.
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None of the expenditures described above constitute a firm commitment by us.
Projected expenditures are estimates or approximations only. Future events,
including changes in the economic climate or in our planned business operations,
including the success of lack or success of our intended business activities,
could make shifts in the allocation of funds necessary or desirable. Any such
shifts will be at the discretion of our board of directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to this offering, there has been no public market for our common
stock and there can be no assurance that a public market for our common stock
will develop after this offering. We anticipate that upon completion of this
offering our common stock will be traded on the OTC Bulletin Board.
Giving present effect to our acquisition of Guitron Canada we would have
9,508,560 shares of common stock issued and outstanding held by approximately 55
persons. An additional 1,478,100 shares of common stock would be subject to
issuance upon exercise of outstanding stock options. 3,302,910 shares, including
340,600 shares underlying outstanding options will be freely tradeable by
Selling Stockholders after the completion of this offering.
Neither we nor Guitron Canada have ever paid dividends on our respective
common stocks. There are no restrictions that limit our ability to pay dividends
on our common stock or that are likely to do so in the future. Notwithstanding
the foregoing, for the foreseeable future, it is anticipated that any earnings
which may be generated from our operations will be used to finance our growth
and that cash dividends will not be paid to stockholders (see "Risk Factors"
- -"No Dividends and None Anticipated").
DILUTION
The following discussion assumes that we acquired Guitron Canada on
January 31, 2000. It does not assume the exercise of then outstanding options of
Guitron Canada, the exercise of which would result in further dilution to
investors in this offering. The following discussion also assumes that the net
proceeds to us will be $185,000 if the minimum number of shares offered are sold
and will be $860,000 if the maximum number of shares offered are sold.
At January 31, 2000, we had a net tangible book value of $(357,797) or
$(.0376) per share. Net tangible book value per share represents the amount of
our total tangible assets, minus total liabilities, divided by the 9,508,560
shares then outstanding. After giving effect to the sale of the minimum number
of Shares offered hereby (250,000 Shares), the pro forma net tangible book value
at January 31, 2000 would have been $(.0177) per share, representing an
immediate increase of $.0199 per share to present stockholders and an immediate
dilution of $1.0177 per share to the public stockholders from the public
offering price. After giving effect to the maximum number of Shares offered
hereby (1,000,000 Shares), the pro forma net tangible book value at January 31,
2000 would have been $.0478 per share, representing an immediate increase of
$.0854 per share to present stockholders from the public offering and an
immediate dilution of $.9146 per share to the public stockholders from the
public offering price. "Dilution" per
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share represents the difference between the public offering price and the net
tangible book value per share after the Offering.
The following table illustrates the per share dilution to be incurred by
public stockholders from the public offering price if the minimum number of
Shares offered hereby (250,000 Shares) are sold.
Assumed public offering price $ 1.00
Net tangible book value per share before Offering $(.0376)
Increase attributable to public stockholders $ .0199
Pro forma net tangible book value after Offering $(.0177)
Dilution to public stockholders $1.0177
The following table illustrates the per share dilution to be incurred by
public stockholders from the public offering price if the maximum number of
Shares offered hereby (1,000,000 Shares) are sold.
Assumed public offering price $ 1.00
Net tangible book value per share before Offering $(.0376)
Increase attributable to public stockholders $.0854
Pro forma net tangible book value after Offering $.0478
Dilution to public stockholders $.9146
The following table sets forth the difference between the present
stockholders and the new stockholders with respect to the number of shares
purchased from us on the sale of both the maximum and minimum number of Shares
offered, the total cash consideration paid and the average price per share,
assuming an initial public offering price of $1.00 per common share and before
the deduction of selling discounts and commissions and offering expenses payable
by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------- ------------------------------------------------
Percent Percent Average Price
Number of Total Amount of Total Per Share
------ -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C>
Present stockholders 9,508,560 97.44%(minimum) $ 928,163 78.78%(minimum) $.097
90.48%(maximum) 48.14%(maximum)
New stockholders 250,000 2.56% $ 250,000 21.22% $1.00
(minimum offering)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------- ------------------------------------------------
Percent Percent Average Price
Number of Total Amount of Total Per Share
------ -------- ------ -------- ---------
<S> <C> <C> <C> <C> <C>
New stockholders 1,000,000 9.52% $1,000,000 51.86% $1.00
(maximum offering)
TOTAL (MINIMUM) 9,758,560 100% $1,178,163 100% $.1207
TOTAL (MAXIMUM) 10,508,560 100% $1,928,163 100% $.1835
</TABLE>
CAPITALIZATION
The following table sets forth, as of January 31, 2000, (i) the
capitalization of our Company on a pro forma basis as if the acquisition of
Guitron Canada had occurred at that date, and (ii) the capitalization of our
Company on a pro forma as adjusted basis to give effect to the sale of the
minimum and maximum number of shares offered after deducting brokers'
commissions and the other estimated expenses of the offering.
January 31, 2000
----------------
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
---------------------
PRO FORMA MINIMUM MAXIMUM
<S> <C> <C> <C>
Long-term debt, including current portion $ 68,609 $68,609 $68,609
Stockholders' equity
Common stock, $.001 par value;
20,000,000 shares authorized,
9,508,560 shares outstanding
(pro forma), 9,758,560 shares
outstanding (pro forma
as adjusted minimum), 10,508,560
shares outstanding (pro forma as
adjusted maximum) $ 9,509 $ 9,759 $ 10,509
Additional paid-in capital $ 1,096,387 $ 1,281,137 $ 1,955,387
Accumulated deficit $(1,481,910) $(1,481,910) $(1,481,910)
Unrealized gain on foreign exchange $ 18,217 $ 18,217 $ 18,217
Total stockholders' equity $ (357,797) $ (172,797) $ 502,203
</TABLE>
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings, if
any, for the operation and expansion of our business. Dividends will be subject
to the discretion of our board of directors and will be contingent on future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors as our board of directors deem relevant.
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<PAGE>
PLAN OF OPERATION
The following discussion of our plan of operation for the next twelve
months should be read in conjunction with, and is qualified in its entirety by,
the more detailed information, including the summary financial information and
our financial statements and the notes thereto included elsewhere in this
prospectus. Our plan of operation for the next twelve months involves (i)
implementing our sales and marketing plans to create sales and distribution
channels for the GUITRON; (ii) commencing sales of the GUITRON, which is
expected to occur during the second quarter of 2000; (iii) continuing our
investment in research and development respecting the GUITRON; and (iv)
developing other applications for the GUITRON technology.
The component parts of the GUITRON will be manufactured for us by third
parties and assembled at our Montreal, Canada office. In our present space, we
estimate that we have the capacity to assemble approximately 10,000 GUITRONS per
month. In addition, should product demand necessitate assembly of a greater
number of GUITRONS we anticipate that we can lease additional space in the same
building that would allow us to double our present assembly capacity to
approximately 20,000 GUITRONS per month. Should even greater product demand
exist, we expect that we would move our operations to a larger facility in the
Montreal, Canada area, which we believe would be available to us from several
sources at rates that, on a square footage basis, are competitive with our
present monthly rental rate. The assembly of GUITRONS does not require skilled
labor. The level of demand for GUITRONS will dictate the number of additional
employees, if any, we will need to hire for assembly purposes.
We have not yet achieved operating revenues and do not expect to achieve
revenues until we commence GUITRON sales. Our activities to date have been
principally devoted to raising capital, developing marketing plans, identifying
and entering into relationships with marketing organizations and parts
suppliers, and completing development of the GUITRON. As of January 31, 2000 we
had a working capital deficit of $60,740, and had expended approximately
$731,000 on research and development activities.
Employee levels are expected to increase in conjunction with the
commencement of sales activities and are expected to be directly related to
product demand. Notwithstanding the foregoing, all of our marketing and sales
personnel requirements will be outsourced. (See "Business-Sales and Marketing")
The receipt of the maximum offering proceeds together with expected revenues
from operations may be sufficient to satisfy our cash requirements during the
next twelve months, but no assurance can be given that this will prove to be the
case. Our cash requirements over such period will be directly related to our
sales and marketing efforts, the number of geographic markets we attempt to
enter during such period, our research and development requirements, and the
overall speed at which we advance our operations. There can
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be no assurance given that if we are required to seek additional financing that
it will be available to us, or if available that we can obtain such financing on
reasonable terms. (see "Risk Factor #2...., We May Be Unable to Raise Additional
Capital In The Future, Which Would Adversely Affect Your Investment")
BUSINESS
The following discussion of our business contains forward-looking
statements which involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this Prospectus.
Overview
We are a development stage company which is poised to launch a unique
musical instrument known as the GUITRON. The GUITRON represents what we believe
is a dramatic development respecting one of the world's oldest and most popular
musical instruments, the guitar. It preserves the natural beauty of the guitar
while simplifying the playing. The GUITRON closely resembles and possesses the
characteristics of a traditional guitar. It looks like a guitar and maintains
the pleasurable function of strumming while eliminating certain of the
complexities of the traditional guitar including the need to learn the
complicated fingerboard positions necessary to produce a chord. According to the
National Association of Music Merchants ("NAMM"), this is the primary reason
that approximately 90% of first time guitar purchasers abandon their instruments
within the first three months of use. They are not prepared to invest the time
and energy required by the traditional guitar to attain a reasonable level of
skill. By contrast, to produce a chord on a GUITRON requires only one finger.
The GUITRON has a simplified grid system that allows the player to easily find
desired chords by following letters on the neck of the GUITRON and depressing
the string that corresponds to the chord family desired, producing a perfect
chord when the strings are plucked. Hundreds of chords are available, always in
tune and in perfect pitch. The GUITRON is battery operated and contains a patent
pending speakerless system which, together with its unique combination of
software and hardware, represents what we believe is a technological
breakthrough in the music field.
Ubaldo Fasano, the inventor of the GUITRON, had tried as a young man, to
learn and play the guitar. Failing to do so, his interests turned to
synthesizers. Subsequently, he became a pioneer in the programming of these
complex and innovative instruments. The knowledge he gained in manipulating and
shaping musical sounds played a decisive role in the creation of the GUITRON.
Through perseverance and determination he continued to experiment with devices
that would equip him to play guitar. He decided to put his knowledge of shaping
and creating sounds for synthesizers towards developing a series of experiments
in search of an electronic solution to his guitar learning problem.
Approximately, twenty years later, in May 1997,combining new electronic modules,
printed circuits and sophisticated microprocessors, he completed development of
the first prototype of the GUITRON. A second generation prototype
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was completed in February 1999. Mr. Fasano passed away in April 1999 after a
long illness but his vision lives on. Since such time, a third generation
prototype was developed and we continue to seek ways to further improve product
quality and reliability. There are three basic models of the GUITRON,
development of which was completed in March 2000, including an electronic,
acoustic, and children's model.
Acquisition of Guitron Canada
We were incorporated on December 6, 1999 for the specific purpose of
acquiring Guitron Canada which was formed on August 20, 1997. This acquisition
is scheduled to take place following our sale of the minimum offering amount. In
the event the minimum offering amount is not sold within the offering period,
including any extensions thereof, the acquisition will not be consummated and
the offering will be cancelled.
In connection with the acquisition (i) each of the issued and outstanding
shares of Guitron Canada at the time of the acquisition will be exchanged for
3.25 shares of our common stock; and (ii) each of the issued and outstanding
stock options of Guitron Canada will become exercisable for 3.25 shares of our
common stock. Pursuant to the foregoing (i) 2,125,926 outstanding shares of
Guitron Canada, which shares will represent all of the issued and outstanding
shares of Guitron Canada, will be exchanged for 6,909,260 shares of our common
stock; and (ii) the 454,800 stock options of Guitron Canada will become
exercisable for an aggregate of 1,478,100 shares of our common stock.
Additionally, the post-acquisition per share option exercise price will be
reduced by dividing the per share exercise price in effect prior to the
acquisition by 3.25 such that following the acquisition, each option holder will
be able to exercise each of his, her, or its options for 3.25 shares of our
common stock at the same price it would have cost to exercise the option to
purchase one share of Guitron Canada prior to the acquisition. Following the
effectuation of the acquisition, Guitron Canada will become a wholly owned
subsidiary of our Company.
Industry Background
In 1977, the United States ("US") music products industry reported annual
retail sales of approximately $1.9 billion. Ten years later, in 1987, it
reported sales of approximately $3.4 billion. By 1998, the industry was
reporting record breaking sales of approximately $6.51 billion, more than
tripling its sales figure twenty years earlier. This growth is primarily
attributable to the growing value placed by most Americans on musical pursuits,
the shift in purchases of higher priced items, and the vibrant US economy. For
purposes of this discussion, and throughout this document, all US industry unit
and dollar volume figures represent shipments by manufacturers and distributors
to US retailers at an estimated retail value. Estimates of unit sales, and
retail values are based on data prepared by NAMM from a variety of sources
including, but not limited to, the US Department of Commerce, industry
associations, and corporate financial records. The U.S. guitar market
experienced annual sales of approximately 1.1 million guitars in each of 1995,
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1996, 1997 and 1998 representing dollar sales of approximately $696,000,000;
$706,000,000; $711,000,000 and $695,000,000 respectively. These numbers do not
take into account the very large secondary or used market sales figures. These
statistics indicate the vast potential of the markets in which the GUITRON is
expected to compete.
In 1997, NAMM commissioned The Gallop Organization to conduct a national
survey of amateur music participation in the US. (the "Gallop Study") The
highlights of the Gallop Study show that approximately 25% of the US population
over the age of twelve currently play musical instruments. The study further
shows that:
(i) Approximately 53% of the population over the age of twelve have
previously played or are currently playing musical instruments;
(ii) Approximately 43% of all households own at least one musical
instrument.
(iii) Pianos and guitars are the most popular instruments (33% and 18%
respectively) of all instruments played;
(iv) Nearly one in five former players of musical instruments said they
would play again if they had more time;
(v) Approximately 84% of respondents agreed that playing a musical
instrument is fun and approximately 88% agreed that music is an
important part of life;
(vi) Respondents overwhelmingly agreed that music participation develops
a child's creativity when it is a part of a well rounded education.
They also expressed the belief that all schools should offer
instrumental music as part of the regular curriculum and communities
should provide financial support for music in the schools.
(vii) The guitar is most likely to be played by persons in the 18-49 age
group.
(viii) Males are more likely than females to play the guitar.
(ix) Respondents indicate that a barrier to playing a musical instrument,
especially the guitar, is learning how to play the instrument.
The popularity of music and musical instruments appears to be timeless.
Sales of classical, jazz, blues and other types of music are on the increase
with significant growth in the pop segment. The most popular instrument in pop
music is the guitar. Based upon the foregoing, it is our belief that guitar
sales will remain strong over the foreseeable future. For the past few years
keyboard manufacturers have been concentrating on making their product more
user-friendly in order to penetrate a wider market and have been extremely
successful. Guitar
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manufacturers have not followed this trend. It is our belief that this presents
us with a great opportunity to successfully introduce the GUITRON to the
marketplace, although no assurances can be given that this will prove to be the
case. We believe that beginners of all ages will be attracted to the immediate
results offered by the GUITRON. We further believe that the market for the
GUITRON will have global appeal to male, female, young and not-so-young, the
beginner and the master player although no assurance can be given that this will
prove to be the case. Notwithstanding the foregoing, based upon the results of
the Gallop Study, our primary marketing strategy will be directed to school age
players and to males in the 18-49 age group.
Growth Strategy
Our business objective is to be a leading, branded manufacturer of high
quality musical instruments including, but not limited to, the GUITRON. The key
elements of our strategy to accomplish these objectives include the following:
(a) Create a Reputation as a Manufacturer of High Quality Musical
Instruments.
(b) Establish Strong Brand Name Recognition. We intend to establish
brand name recognition through aggressive public relations and mass
market advertising.
(c) Establish a Broad Customer Base. Through aggressive mass marketing
advertising, and product quality and reliability, we intend to raise
consumer awareness of the GUITRON and other products we may develop
in the future.
(d) Offer New Products and Services
(e) Develop and Maintain Strategic Relationships with Hardware and
Software Contractors and Parts Suppliers
(f) Maintain and Improve Technological Focus and Expertise.
Products and Services
Products
IN March 2000, we completed development of three models of the GUITRON,
the acoustic GUITRON, the electric GUITRON and the children's GUITRON. We expect
to commence marketing and selling each of these GUITRON models during the second
quarter of 2000, although no assurance can be given that this will prove to be
the case. All GUITRON models contain the following features:
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(i) Simplified Left-Hand Movement - In response to our conclusion that
the intricate fingering positions are the primary reason why many
guitar purchasers give it up in frustration and why many others
never purchase a guitar in the first place we have identified and
simplified the complex left-handed functions of the traditional
guitar. The GUITRON solves the problem by replacing the complex left
hand fingering positions with a one finger movement.
(ii) Chord Locator by Grid System - All GUITRON models are equipped with
a simple and visible grid system that identifies chords. An
alpha-numeric display indicates the specific chord played.
(iii) Single and Double Switch Chording Function - All GUITRON models
contain a switching chord function feature which allows a person to
play in excess of 1000 chords if desired.
(iv) Low Tension Strings - Depressing strings on the traditional guitar
can cause pain when the strings bite into the fingers and can leave
deep ridges in the skin. All GUITRON models feature strings that are
low tension, made of nylon, easy to depress, and cause no injury to
the fingers.
(v) Excellent Sound Quality - Along with an interface and a
microprocessor, a simple playback mechanism produces quality sound
through a proprietary speakerless technology. The sound is generated
by the GUITRON's sound board.
(vi) Computer Interactive - All GUITRON models have full computer
interface capability. Each is equipped with the standard midi-in and
midi-out connections allowing for the interaction of the instrument
with personal home computers. This feature is expected to prove to
be a valuable tool for professional music writers and composers.
Accessory Items
- ---------------
In addition to the GUITRON, we intend to offer consumers related accessory
items including, but not limited to, guitar straps, picks, cases, headphones,
amplifiers and stands. All of these items will be manufactured for us, in
accordance with our specifications, by product manufacturers located in
Southeast Asia. There are several manufacturers available to us for each of
these items and we do not anticipate any problems with respect to product
quality or cost. We intend to carry a relatively small inventory of these
accessory items, at any given time, since the delivery time for orders given by
us to such manufacturers is expected to be short.
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Services
We will market the GUITRON as a high quality, sophisticated, musical
instrument. Consistent therewith, we will provide our customers with a product
warranty, product satisfaction guarantee and related support regarding the use
and enjoyment of such product. We will warrant the GUITRON to be free from
defects in material and workmanship and will provide each customer thereof with
a one year warranty on parts and labor, except for the GUITRON's rechargeable
batteries which will carry a 90-day warranty. During the effective warranty
period, we will remedy any product defects. Parts may be replaced under the
warranty, at our election, with new or comparable remanufactured parts. The
warranty will not extend however, to any GUITRON which has been subjected to
usage for which the product was not designed, which has been damaged as the
result of shipping, or which has been altered or repaired in a way that affects
product performance or reliability. To further insure customer satisfaction, we
will also provide each customer with a ten day money back guarantee, excluding
shipping and handling.
Patents and Trademarks
We have filed two provisional patent applications with the U.S. Patent and
Trademark office. The first of these patents was filed on February 2, 1999 and
titled "electronic stringed musical instrument". This patent application related
to both the sound technology utilized in the GUITRON and the related fingering
system for producing chords. On February 2, 2000 we filed a replacement
application which reflected technological advances made by us since the initial
filing date. The second patent application was filed on August 5, 1999 and
titled "guitar headstock". This patent application relates to the physical
design of the GUITRON. On February 2, 2000 we also filed applications titled
"electronic stringed musical instrument" for Canadian and international patents.
While we expect that patents will be granted in response to these applications,
we are unable to give any assurance that this will in fact be the case. In
addition to the protection to be offered to us upon the allowance of our patent
applications, we also rely on trade secrets proprietary know-how and
technological innovation with respect to the development of the GUITRON.
In April 1998 we filed an application with the U.S. Patent and Trademark
Office seeking trademark registration for the mark "Guitron" indicating our
intention to use the mark in connection with the musical instrument referred to
herein as the GUITRON. In October 1999 we received a Notice of Allowance with
respect to such application.
We have entered into confidentiality and invention assignment agreements
with our employees and consultants which limit access to, and disclosure or use
of, the GUITRON technology. There can be no assurance, however, that the steps
taken by us to deter misappropriation or third party development of our
technology and/or processes will be adequate, that others will not independently
develop similar technology and/or processes, or that secrecy will not be
breached. In addition, although we believe that our technology has been
independently developed and does not infringe on the proprietary rights of
others, there can be no assurance that our technology does not and will not so
infringe or that third parties will not
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assert infringement claims against us in the future. We believe that the steps
we have taken to date will provide some degree of protection and that the
issuance of patents pursuant to our applications will materially improve this
protection. However, no assurance can be given that this will be the case.
Sales and Marketing
We intend to commence market introduction of our three GUITRON models; the
electric GUITRON, acoustic GUITRON and children's GUITRON in the second quarter
of 2000. Our initial test markets will be Quebec, Canada and the Northeastern
United States followed in or about the fourth quarter of 2000 by the remainder
of the United States. By the end of 2002 we intend to be marketing the GUITRON
on a worldwide basis. During the second quarter of 2000, we intend to introduce
GUITRON accessories including guitar straps, cases, amplifiers, headphones,
picks, and foot and music stands. Our long term marketing objective is to create
full consumer awareness of the GUITRON, the accessory items, and such other
products that we may develop in the future. Our medium term marketing objective
is to introduce new lines of GUITRONS in or before 2004. These new lines are
expected to be the result of our continuing dedication to research and
development and our ability to respond to consumer feedback.
To limit our fixed expenses by decreasing our employee requirements, to
enable us to expedite the implementation of our sales and marketing plans and
strategies, and to position us to take advantage of the services of professional
sales and marketing organizations, we have decided to rely on outsourcing for
our sales and marketing needs. Accordingly, we have entered into marketing
agreements with Marvin Chankowsky (the "Chankowsky Marketing and Consulting
Agreement") and Jean Pilote (the "Pilote Marketing Agreement") to develop,
coordinate and implement marketing strategies for the GUITRON and the accessory
items. Jean Pilote, an experienced marketer of products and services, will
coordinate our marketing for the Quebec and Eastern Canada regions, while Marvin
Chankowsky, directly or through MBC Marketing Ltd., a leading Canadian sales
promotion agency under the control of Mr. Chankowsky, with offices in Toronto,
Canada, Montreal Canada, and affiliated offices in New York, Los Angeles and
Atlanta, the United Kingdom and Australia, will coordinate our marketing for the
United States and subsequently other countries and territories.
The Pilote Marketing Agreement between Guitron Canada and Jean Pilote was
entered into on September 1, 1999. It has a two year term that commenced on
September 1, 1999 and provides for Mr. Pilote to devise, develop and implement a
marketing plan with respect to sales of GUITRONS in the Province of Quebec,
Eastern Canada and such other geographic areas that shall be mutually agreed to
by the parties (collectively the "Sales Territory"). In consideration of such
services, the Pilote Marketing Agreement provides for the reimbursement of all
approved out of pocket expenses incurred by Mr. Pilote and his affiliates in
connection with the performance of the contract, the issuance to Mr. Pilote of
1,000 shares of Guitron Canada (3,250 shares of Guitron International Inc., on a
post acquisition basis) which issuance was made on December 7, 1999; and
additional compensation, as described below, which is based upon
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GUITRON sales that are directly related to the marketing efforts of Mr. Pilote
and his affiliates within the Sales Territory during the term of the Pilote
Market Agreement.
This additional compensation consists of the following:
(i) the right to receive 1,000 shares of Guitron Canada (up to a maximum
of 9,000 shares) which will be 3,250 shares of Guitron International
Inc. on a post acquisition basis (up to a maximum of 29,250 shares)
for every Cdn $100,000 (approximately US $68,900) in net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Pilote Marketing Agreement where such sales are
directly related to the marketing efforts of Mr. Pilote and his
affiliates;
(ii) during the stock earn out period described in (i) above, the right
to receive a sales commission equal to 3% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Pilote Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Pilote and his
affiliates; and
(iii) subsequent to the stock earn out period described in (i) above, the
right to receive a sales commission equal to 6% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Pilote Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Pilote and his
affiliates.
The Chankowsky Marketing and Consulting Agreement between Guitron Canada
and Marvin Chankowsky was entered into as of September 29, 1999. It has a thirty
month term that will commence in or about May 2000. The Chankowsky Marketing
Agreement provides for Mr. Chankowsky to devise, develop and implement a
marketing plan with respect to the sale of GUITRONS in North America and such
other geographic areas that shall be mutually agreed to between the parties
(collectively the "Sales Territory"). In consideration of the Chankowsky
Marketing Agreement Guitron Canada issued 10,000 shares of its stock to Mr.
Chankowsky on December 7, 1999. Mr. Chankowsky will be entitled to further
compensation, as described below based upon GUITRON sales within the Sales
Territory that are directly attributable to the marketing efforts of Mr.
Chankowsky and his affiliates, during the term of the agreement. The stock
compensation component of such further compensation will result in additional
dilution to investors in this offering. We have agreed to use our best efforts
to register the stock to be issued to Mr. Chankowsky pursuant to the Marketing
and Consulting Agreement.
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This additional compensation consists of the following:
(i) the right to receive 10,000 shares of Guitron Canada (up to a
maximum of 264,000 shares) which will be 32,500 shares of Guitron
International Inc. on a post acquisition basis (up to a maximum of
858,000 shares) for every Cdn $100,000 (approximately US$68,900) in
net receipts realized by us from sales of GUITRONS in the Sales
Territory during the term of the Chankowsky Marketing Agreement
where such sales are directly related to the marketing efforts of
Mr. Chankowsky and his affiliates;
(ii) during the stock earn out period described in (i) above, the right
to receive a sales commission equal to 2% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Chankowsky Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Chankowsky and his
affiliates; and
(iii) subsequent to the stock earn out period described in (i) above, the
right to receive a sales commission equal to 6% of the net receipts
realized by us from sales of GUITRONS in the Sales Territory during
the term of the Chankowsky Marketing Agreement that are directly
attributable to the marketing efforts of Mr. Chankowsky and his
affiliates.
The Quebec and Eastern Canada marketing strategy will primarily involve a
direct marketing approach that will utilize various media including, but not
limited to, newspapers, magazines, radio and television advertisements as well
as infomercials. This marketing strategy will also utilize the talents and name
recognition, in the Quebec and other french speaking regions of Canada, of our
Canadian spokesperson, Jean Pierre Ferland. Mr. Ferland is a French-Canadian
artist, singer and songwriter who has built an extensive reputation with his
audiences.
Other direct marketing approaches intended to be utilized include (i)
establishment of a toll free information number which will provide interested
parties with detailed information respecting the GUITRON; (ii) sponsorships of
music promotion programs within educational institutions, that will be geared
towards 12 to 25 year old music students as well as aspiring musicians, and that
will support music competitions, concerts and music clubs involving, among other
musical instruments, the GUITRON; (iii) product promotion by arranging for
GUITRON use by performing artists at concerts, cafes, cabarets, television shows
and other high profile venues; and (iv) creation of an internet web site that
will promote the GUITRON by among other things, providing a product
demonstration.
The North American marketing strategy will involve a dual approach
utilizing both direct marketing, similar to the direct marketing strategies to
be utilized with respect to our Canadian marketing, and distribution through
large retailers.
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Supplies and Suppliers
The primary components of the GUITRON include electronics, hardware,
software, and guitar bodies. These components will be manufactured for us by
third parties. We will assemble GUITRONS at our Montreal, Canada office. We also
intend to sell related accessories manufactured for us by third parties such as
speakers, amplifiers, stands, straps, footrests and cases. Suppliers of
component materials and accessories will be chosen based on quality, service and
price.
The price of raw materials for the manufacture of GUITRONS is expected to
remain stable in the near term. Increases that may occur are expected to be
small, although no assurance can be given that this will prove to be the case.
Each category of raw materials has several competing suppliers. We do not intend
to be dependent upon any one supplier for each of the raw materials that we will
purchase. We expect all required raw materials to be readily available in
sufficient quantities and to be of required quality. In the extreme situation,
however, were any required raw materials not to be generally available, it would
have a material adverse effect on our operations.
Seasonal Aspects
We do not expect to experience seasonal variations in our operating
results.
Research and Development
Except as otherwise disclosed herein, all of our research and development
activities are company sponsored. To date all of such activities have related to
the development of the GUITRON. During the fiscal year ending July 31,2000 we
anticipate spending approximately Cdn $400,000 (approximately US $275,600) on
research and development, approximately Cdn $307,146 (approximately US $209,282,
based upon the average conversion rate in effect for the first six months of
fiscal 2000, which was approximately $.681) of which had been spent as of
January 31, 2000. During the fiscal years ended July 31, 1999 and July 31, 1998
we spent approximately Cdn $459,140 (approximately US$303,674, based upon the
average conversion rate in effect for fiscal 1999, which was approximately
$.661) and Cdn $313,089 (approximately US $218,401, based upon the average
conversion rate in effect for fiscal 1998, which was approximately $.698)
respectively, on research and development activities.
Although the basic design and development of the GUITRON was brought to
completion during March 2000, we intend to continue to seek and refine and
enhance our GUITRON technology. We also intend to endeavor to develop new
products.
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Customers
We do not expect any single customer to account for a significant portion
of our revenues. Accordingly we will not be dependent upon any single customer
to achieve our business goals.
Competition
We know of no guitar-like related devices, apparatus or equipment,
utilizing electronic or other technology, which is identical or comparable to
the GUITRON technology, presently being sold or used anywhere in the world. Nor
are we aware of any competing patents relating to such technology. However, the
GUITRON may reasonably be expected to compete with related or similar guitar, or
guitar-like, instruments, apparatus or devices. Moreover prospective competitors
which may enter the field may include established manufacturers of musical or
electronic audio instruments and equipment, all of which will be considerably
larger than we are in total assets and resources. This could enable them to
bring their own technologies and instruments to advanced stages of development
and marketing with more speed and efficiency than we have been, or will be, able
to apply to the development and marketing of the GUITRON. There can be no
assurance that the GUITRON will successfully compete with conventional guitars
and existing electronic guitar-like instruments or with any improved or new
technology instrument which may be developed in the future.
Canadian Government and Government Sponsored Financial Assistance
The governments of Canada and Quebec have officially acknowledged the
pivotal role played by business investment in research and development in
insuring sustained economic growth and long-term prosperity. In order to
encourage such activities, the Government of Canada, on a national basis, and
the Government of Quebec, on a provincial basis, support private research and
development initiatives through the provision of research tax incentives to
businesses and individuals. These tax incentives take the form of deductions and
tax credits with respect to eligible research and development expenditures of
Canadian corporations. Certain tax credits are called "refundable" because of
the extent that the amount of the tax credit exceeds the taxes payable, they are
paid over or "refunded" to the taxpayer. Thus, such credits function effectively
as monetary grants. To qualify for such tax credits, research and development
activities must comprise investigation or systematic technological or scientific
research conducted through pure or applied research, undertaken to advance
science and develop new processes, materials, products or devices or to enhance,
even slightly, existing processes, materials, products, or devices. Cdn $201,732
(approximately US $138,993) and Cdn $337,895 (approximately US $232,810) of the
research and development expenditures made by Guitron Canada during the fiscal
years ended July 31, 1998 and July 31, 1999, respectively, qualified for such
tax credits. In consideration of such expenditures, we received Cdn $34,823
(approximately US $23,993) and Cdn $106,176 (approximately US $73,155) in tax
credits for the fiscal years ended July 31, 1998 and July 31, 1999 respectively.
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Guitron Canada has also received financial assistance by way of loans and
grants from Quebec governmental agencies for export market development. The
terms and conditions of the government and government sponsored loans and grants
obtained by Guitron Canada include the following:
(a) Loan From Canada Economic Development for Quebec Regions ("CEDQR")
CEDQR's Program for the Development of Quebec's IDEA Program provides loans in
amount of up to 50% of approved expenditures made by the borrower for the
purpose of identifying and developing export markets for Canadian products.
Under this program, Guitron Canada has obtained a loan, as follows:
On April 22, 1998, Guitron Canada qualified for a loan, in an amount equal
to 50% of approved expenditures, up to a maximum loan amount of $99,600 Canadian
(approximately $68,624 U.S.) for market development activities in the U.S.
respecting the sale of GUITRONS. In connection with the foregoing, during the
year ended December 31, 1998, CEDQR granted Guitron Canada loans in the
aggregate amount of Cdn $99,600 (the "Loan Amount"). The loan does not require
us to pay interest on the outstanding loan balance unless we are delinquent with
respect to an installment payment. The CEDQR Loan is repayable as follows: (i)
Cdn $9,960 of the Loan Amount is due and payable on January 31, 2001; (ii) Cdn
$19,920 of the Loan Amount is due and payable on January 31, 2002; (iii) Cdn
$29,880 of the Loan Amount is due and payable or January 31, 2003; and (iv) Cdn
$39,840 of the Loan Amount is due and payable on January 31, 2004.
(b) Loan From Business Development Bank of Canada On April 23, 1998 The
Business Development Bank of Canada ("BDBC") made a loan of $29,026 Canadian
(approximately $19,999 US) to Guitron Canada for the principal purpose of
helping to finance market development activities. The loan was made repayable in
60 monthly installments with payment due on the 23rd day of each month
commencing February 23, 1999. The loan required the payment of interest on the
outstanding principal loan balance at the rate of 10.5% per annum. The loan was
secured by a life insurance policy in favor of BDBC on Ubaldo Fasano in the
amount of the loan. Following the death of Mr. Fasano in April 1999, the life
insurance proceeds were utilized by BDBC to pay off the remaining loan balance.
Government Regulation
There are no special or unusual governmental laws or regulations that can
be expected to materially impact on the operation of our business.
34
<PAGE>
Personnel
As of April 3, 2000 we had five employees including two executive
officers, two administrative employees, and our Director of Production and
Quality Control. Our Director of Research, Engineering and Manufacturing works
for us on an independent contractor basis. (See "Management"). We plan to add
additional employees as required for the expanded operation of our business
including those required for GUITRON assembly. We consider our relationship with
our employees to be satisfactory. Our work force in non-unionized.
Legal Proceedings
No material legal proceedings are pending to which we or any of our
property is subject, nor to our knowledge are any such legal proceedings
threatened.
Facilities.
Our headquarters are currently located in a leased facility located at 38
Place du Commerce on Nun's Island, Montreal, Quebec, Canada, consisting of
approximately 1,500 square feet of space, which is under a month to month lease.
The monthly rent due under the lease is Cdn $1,875 (approximately US $1,292),
plus our proportionate share of all water taxes, business taxes, and other
similar taxes and rates which may be levied or imposed upon the premises.
Approximately 500 square feet of such space is utilized for general
administrative purposes while the balance of approximately 1,000 square feet of
such space is or will be utilized for manufacturing and assembly purposes. We
believe such space is sufficient to handle our present and immediate future
needs including additional production staff and equipment. Further, in the event
the lease is terminated, for any reason, space sufficient to handle our then
present and expected future needs is available from several sources at
comparable rental rates.
MANAGEMENT
Directors, Officers, Key Employees and Consultants.
The following table sets forth certain information, as of April 3, 2000,
with respect to our directors, executive officers and key employees and
consultants. Following the acquisition of Guitron Canada these persons will
continue to serve in these positions. With the exception of
35
<PAGE>
Michael Ash, all of such directors, executive officers and key employees and
consultants currently hold similar positions with Guitron Canada. As elsewhere
in this prospectus, where context requires, it is assumed that the acquisition
of Guitron Canada has already taken place and that our history dates back to the
August 20, 1997 formation of Guitron Canada.
NAME AGE POSITION
- ---- --- --------
Richard F. Duffy 53 President, Chief
Executive Officer
and Chairman
Michael D. A. Ash 50 Secretary, Treasurer
and Director
France B. Fasano 56 Director
Edward Santelli 65 Director
David L. Rosentzveig 49 Director
Paul D. Okulov 41 Director of Research,
Engineering and
Manufacturing
Jean Pierre Paradis 43 Director of Production
and Quality Control
The following is a brief account of the business experience of each of our
directors, executive officers, key employees and consultants during the past
five years or more.
Richard F. Duffy has been our president, chief executive officer and
chairman of our board of directors since August 1998. Prior to such date
however, he performed various services for us including, but not limited to,
coordinating of our initial research and development activities, identifying
parts suppliers, assisting us with certain financing activities and helping us
to develop a marketing strategy. Mr. Duffy has an extensive background in the
areas of finance and administration. From 1968 until 1991 Mr. Duffy worked in
the securities industry with various investment firms including Merrill Lynch,
Greenshields and Walwyn. In 1991 he left the securities trade to pursue
opportunities in direct corporate management. From 1991 until 1997 Mr. Duffy
managed international companies in Thailand; Toronto, Canada; Australia and
36
<PAGE>
Germany before returning to his roots in Montreal, Canada where he formed his
own financial consulting firm, Financial Initiatives, Inc. Mr. Duffy presently
serves as president of Financial Initiatives Inc. Mr. Duffy is past president of
the Canadian Investment Dealers Association (Atlantic). He has also been a
post-secondary lecturer in business and finance and has been a director of
various companies and charitable organizations. Mr. Duffy has a degree in
Business Administration from the University of Prince Edward Island.
Michael D. A. Ash has been our secretary, treasurer and a director since
December 6, 1999. Mr. Ash has more than twenty five years of business
experience. He has been a Chartered Accountant since 1972. Mr. Ash received a
Bachelor's Degree in Business Administration from Bishop's University in Quebec,
Canada in 1970 where he graduated Magna Cum Laude and received an MBA from
Harvard Business School in 1975. Most of Mr. Ash's business career has been
spent with the Government of Canada, first with the Office of the Comptroller
General in Ottawa and for the eighteen year period ending in January 1999 with a
federal regional economic and industrial development agency in Montreal, Canada.
Thereat he gained wide ranging exposure to many companies and industrial
sectors, ranging from developmental companies to major multi-national
corporations. For ten years during this time, Mr. Ash was also a part time
lecturer in accounting at Concordia University in Montreal. From February 11,
1999 to the present Mr. Ash has served, as the secretary, treasurer and chief
financial officer for The Tirex Corporation, a development stage public company
headquartered in Montreal. Mr. Ash is also a founding partner and principal
shareholder of Ashbyrne Investments, Inc., a business and financial consulting
firm which was formed in July 1999 and is the president, founder and sole
shareholder of Ashbyrne Consultants Inc., a business and financial consulting
firm which was formed in July 1999.
France B. Fasano has been a director of our Company since April 1999 and
has served as the secretary and treasurer of Guitron Canada since August 1997.
Since 1997 she has also been an officer and director of Productions Polyart
International, Inc., a corporation which she controls.
Edward Santelli has been a director of our Company since June 1999. Mr.
Santelli has extensive business experience in the construction industry. From
1994 to the present he has co-owned Pyramid Snow Services, a Canadian company
engaged in the business of snow removal. From 1982 until 1994 he was employed as
the president of Dorval Paving Co., a road contractor which he owned. From 1957
until 1982 he was employed in various capacities by Beaver Asphalt Paving Co.,
Ltd., a road contractor.
David L. Rosentzveig has been a director of our Company since June 1999.
He has been a practicing attorney since June 1976 with the law firm of
Mendelsohn, Rosentzveig & Schacter. He is currently a partner in such firm,
which serves as counsel to Guitron Canada.
Paul D. Okulov has been our director of research, engineering and
manufacturing since December 1998. Mr. Okulov is primarily responsible for the
supervision of our research and development and manufacturing operations as well
as our engineering requirements. Mr. Okulov
37
<PAGE>
has extensive experience in the areas of engineering consulting with an emphasis
on problem solving, cost reduction and innovations in the mechanical,
electro-mechanical and civil engineering fields. He is a member of the American
Society of Mechanical Engineers. Mr. Okulov's work has resulted in numerous
inventions 13 of which have been patented and even more of which are expected to
be patented in the future. Mr. Okulov's professional experience has included
idea conception, design development, and prototype building and testing. He has
also assumed responsibility for related research, patenting, manufacturing
set-ups and management. From 1977 until 1992 he worked in various capacities at
the Moscow Institute of Civil Engineering, Department of Design of Metal
Structures including several teaching and consulting positions. From 1992 until
1993 he was employed as a scientific consultant at Browning Thermal Systems,
Inc. in Enfield, New Hampshire. From 1993 until 1997 he was employed as a
Research and Development Product Manager and thereafter as a Director of
Engineering at Biosig Instruments Inc. in Quebec, Canada. From 1992 until 1998
he also worked as a consultant to the automotive and metal works, thermal spray
and aircraft industries in the areas of product design and patenting. From
September 1, 1998 to the present Mr. Okulov has worked for Innovative Products
Resources Ltd., an engineering, consulting, and research and development company
which he owns and controls. In 1988 Mr. Okulov received B.S.C. and M.S. degrees
in Civil Engineering from the Moscow Institute of Civil Engineering. In 1982 he
received a Master's degree in Patent Procedures and Patent Law from the High
State Patent Courses in Moscow. In 1985 he received a Ph.D in Mechanical
Engineering from the Moscow Institute of Civil Engineering.
Jean Pierre Paradis has been our director of production and quality
control since March 6, 1999. Mr. Paradis has extensive experience in the field
of electronics, electronics testing and electronics repair. He is responsible
for the oversight of our daily production requirements, staff, and product
quality. Mr. Paradis is an accomplished guitarist, bass guitarist and key
boarder. From January 1990 until March 1999 he worked as an electronics engineer
for Efkay Musical Instruments in Quebec, Canada where he was in charge of the
repair department. His duties included the repair and modification of musical
instruments and technical consultation. From March 1988 until December 1989 he
was employed as a Senior Electronics Engineer and Video and Audio Instructor at
Atlantique E'lectroniqe in Montreal, Canada where his duties included repairing,
calibrating and modifying various audio and video devices and training the
company's technicians. From June 1979 until June 1987 he worked in other musical
instrument repair, modification, programming and teaching capacities for various
employers in Quebec Canada.
DIRECTORS.
Our directors receive no cash compensation for their services as board
members or committee members and are not reimbursed for expenses incurred in
connection with attending board and committee meetings. However, during both the
fiscal year ended July 31, 1999 and during the present fiscal year we have
granted and issued to each of our directors, other than Michael Ash, stock
options to purchase an aggregate of 81,250 shares of our common stock at any
time during the period ending five years from the date of grant at an exercise
price of Cdn $.3077 (approximately US $.212) per share. See "Certain
Transactions". All directors hold office until
38
<PAGE>
the next annual meeting of the stockholders and until their successors have been
duly elected and qualified. Executive officers are elected by and serve at the
discretion of the board of directors. There are no family relationships among
any of our directors or executive officers. We have adopted a policy requiring
that all material affiliated transactions, including, but not limited to loans,
contractual arrangements and any forgiveness of loans, be approved by a majority
of our independent directors who do not have an interest in the transaction and
who had access, at our expense, to our independent legal counsel.
Limitation On Directors' Liabilities
Our Certificate of Incorporation limits, to the maximum extent permitted
under Delaware law, the personal liability of directors and officers for
monetary damages for breach of their fiduciary duties as directors and officers,
except in certain circumstances involving certain wrongful acts, such as a
breach of the director's duty of loyalty or acts of omission which involve
intentional misconduct or a knowing violation of law.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
us to indemnify our officers, directors or employees against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement in connection
with legal proceedings if the officer, director or employee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to our
best interests, and, with respect to any criminal act or proceeding, he or she
had no reasonable cause to believe his or her conduct was unlawful.
Indemnification is not permitted as to any matter as to which the person is
adjudged to be liable unless, and only to the extent that, the court in which
such action or lawsuit was brought upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. Individuals who successfully defend such an action are
entitled to indemnification against expenses reasonably incurred in connection
therewith.
We will not indemnify a director or officer for any breach of loyalty to
us or our stockholders, or if the director or officer does not act in good faith
or for acts involving intentional misconduct, or for acts or omissions falling
under Section 174 of the DGCL, or for any transaction for which the director or
officer derives an improper benefit. We agree to indemnify for expenses related
to indemnifiable events, and to pay for these expenses in advance. Our
obligation to indemnify and to provide advances for expenses are subject to the
approval of a review process with a reviewer to be determined by the Board. The
rights of directors and officers will not exclude any rights to indemnification
otherwise available under law or under our Certificate of Incorporation.
EXECUTIVE COMPENSATION.
The following table assumes the acquisition of Guitron Canada has been
effected and sets forth information concerning the total compensation paid or
accrued by us during the two fiscal
39
<PAGE>
years ended July 31, 1999 to our chief executive officer. No executive officer
received annual compensation in excess of $100,000 in either of such fiscal
years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Fiscal Year Ended Other Annual Options/Restricted LTIP All Other
Principal Position July 31, Salary Bonus Compensation SAR's Stock Awards Payouts Compensation
- ------------------ -------- ------ ----- ------------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Duffy 1999 0 0 32,036(1) 81,250 0 0 0
Chief Executive Officer
1998 0 0 28,800(2) 0 0(3) 0 0
</TABLE>
(1) Represents approximately Cdn $840 (approximately US $579) in health
benefits provided to Mr. Duffy and Cdn $45,656 (approximately US $31,457)
in consulting fees paid to Financial Initiatives Inc., a financial
consulting firm owned by Mr. Duffy's wife, and in which Mr. Duffy is an
executive officer. (See "Certain Transactions")
(2) Represents approximately Cdn $41,800 (approximately US $28,800) in
consulting fees paid to Financial Initiatives Inc., a financial consulting
firm owned by Mr. Duffy's wife, and in which Mr. Duffy is an executive
officer. (See "Certain Transactions")
(3) Excludes 1,284,290 shares issued on March 15, 1998 to Joan Callaghan, the
wife of Richard Duffy.
STOCK OPTION PLANS; STOCK OPTION/STOCK APPRECIATION RIGHT GRANTS; AGGREGATE
STOCK OPTION/STOCK APPRECIATION RIGHT EXERCISES AND FISCAL YEAR END STOCK
OPTION/STOCK APPRECIATION RIGHT VALUES; REPORT ON REPRICING OF STOCK
OPTIONS/STOCK APPRECIATION RIGHTS.
From our inception on August 20, 1997 through July 31, 1999 we did not
adopt any stock option plans. During the same period we did not grant or issue
any stock appreciation rights ("SARs"). We did however, during the fiscal year
ended July 31, 1999, grant and issue an aggregate of 294,800 stock options, each
of which is exercisable for the purchase of 3.25 shares of our common stock.
19,800 of these options entitle the holder thereof to purchase an aggregate of
64,350 shares of our common stock at an exercise price of Cdn $.2308
(approximately US $.159) per share. 275,000 of these options entitle the holders
thereof to purchase an aggregate of 893,750 shares of our common stock at an
exercise price of Cdn $.3077 (approximately US $.212) per share. 25,000 of these
latter options exercisable for the purchase of 81,250 shares of our common stock
were issued to the named executive. During such period there were no
40
<PAGE>
exercises of any of our stock options and no adjustments or amendments to the
exercise price of such options.
Long Term Incentive Plan Awards
We have not made any long-term incentive plan awards since our inception.
Pension Plans
We do not presently provide pension plans for any of our officers or
directors.
Employment Agreements
During the two fiscal years ended July 31, 1999 we did not have employment
agreements with any of our executive officers and paid no cash salary to any of
such executive officers. On December 6, 1999 we entered into an executive
agreement with Richard Duffy (the "Executive Agreement"), pursuant to which Mr.
Duffy is employed as our president and chief executive officer. The agreement is
for a three year term ending December 5, 2002 and provides for salary
compensation at the annual rate of $100,000. The Executive Agreement provides
for the payment of bonuses at the sole discretion of our board of directors
based upon an evaluation of Mr. Duffy's performance, with payment of any such
bonuses to be reviewed annually. The Executive Agreement also provides for the
participation by Mr. Duffy in any pension plan, profit-sharing plan, life
insurance, hospitalization or surgical program, or insurance program hereafter
adopted by us (there are no such programs in effect at the present time),
reimbursement of business related expenses, the non-disclosure of information
which we deem to be confidential to us, non-competition by Mr. Duffy with us for
the one-year period following termination of his employment with us (except for
termination other than for cause or a termination upon a change in control) and
for various other terms and conditions of employment.
The Executive Agreement also includes severance provisions which provide,
among other things, for severance compensation to be paid to Mr. Duffy in the
event that Mr. Duffy's employment is terminated by us other than for cause, or
by Mr. Duffy for "good reason", as that term is defined in the Executive
Agreement, or pursuant to a "change in control" of the Company. Where
applicable, the Executive Agreement provides for severance compensation in an
amount equal to 200% of the amount of the executive's annual base salary at the
time of termination.
The Executive Agreement further provides that, as compensation, and in
lieu of payment in cash of salary, due thereunder, we may, if agreed to by Mr.
Duffy, issue unregistered shares of our common stock, valued at a discounted
percentage of the average of the bid and ask prices
41
<PAGE>
of our stock, as traded in the over-the-counter market and quoted in the OTC
Bulletin Board, during part or all of the period in which the salary was earned
under the Executive Agreement.
CERTAIN TRANSACTIONS
On December 6, 1999 we entered into a three year employment agreement with
Richard F. Duffy, our president and chief executive officer. The agreement
provides for an initial annual base salary of $100,000. (See
"Management-Executive Compensation Employment Agreements").
On each of June 25, 1999 and November 30, 1999 Guitron Canada granted
25,000 stock options to each of its directors, Richard F. Duffy, France B.
Fasano, Edward Santelli and David L. Rosentzveig in connection with their
services as directors of Guitron Canada during the fiscal year ended July 31,
1999 and the current fiscal year. Each option is exercisable to purchase one
share of common stock of Guitron Canada at any time during the five year period
commencing on the date of grant at an exercise price of Cdn $1.00 per share.
None of these options have been exercised to date. Pursuant to our acquisition
of Guitron Canada, each option will become exercisable to purchase 3.25 shares
of Guitron International Inc. at an exercise price of Cdn $.3077 (approximately
US $.212) per share.
During the period November 10, 1997 through January 31, 2000, we have
periodically received loans from Productions Polyart International, Inc.
("PPII"), a corporation, controlled by France B. Fasano, a director and
principal shareholder of our Company. As at January 31, 2000 there was an
outstanding principal loan balance due to PPII of approximately $199,198.
Interest at the rate of 6% per annum is payable on all outstanding loan
balances. All principal and interest due on the loan is payable in full no later
than July 31, 2001.
On December 6, 1999 we entered into a two year consulting agreement (the
"Consulting Agreement") with Ashbyrne Consultants Inc. ("ACI"), a Canadian
corporation owned by Michael D.A. Ash, an officer and director of our Company.
The agreement provides for ACI to provide us with various services, including
but not limited to, (i) corporate planning; (ii) evaluation of business
strategies; (iii) financial advice and planning; and (iv) corporate management
assistance. Pursuant to such agreement, Mr. Ash is currently employed as our
secretary, treasurer and chief financial officer on a non-salaried basis. In
consideration of the Consulting Agreement, on January 3, 2000 we issued 500,000
shares of our common stock to Michael D.A. Ash and 1,500,000 shares of our
common stock to Ashbyrne 2000 Limited.
On September 1, 1997 and March 15, 1998, respectively, Guitron Canada sold
1,000,000 and 395,166 founders' shares (the "Guitron Canada Founders' Shares"),
to Ubaldo Fasano and Joan Callaghan, the wife of Richard Duffy, at a price of
$.00001 and $.001 per share, respectively.
42
<PAGE>
On January 15, 1999, Guitron Canada issued 25,000 options to Judit
Fellegi, the wife of David Rosentzveig, one of our directors. Each option is
exercisable to purchase one share of stock of Guitron Canada at any time during
the five year period ending January 14, 2004 at an exercise price of Cdn $1.00
(approximately US $.689) per share. Pursuant to our acquisition of Guitron
Canada, each option will become exercisable to purchase 3.25 shares of Guitron
International Inc. at an exercise price of Cdn. $.3077 (approximately US $.212)
per share.
On May 17, 1999 Guitron Canada sold 6,000 shares, to Judit Fellegi, the
wife of David L. Rosentzveig, one of our directors, at the price of Cdn $.90
(approximately US $.62) per share.
On December 7, 1999 Guitron Canada sold 27,300 shares to Loryta
Investments Ltd., a corporation beneficially owned by the family of Michael D.A.
Ash, at a price of Cdn $1.00 (approximately US $.689) per share.
On December 7, 1999 and January 3, 2000 Guitron Canada sold 7,000 and
8,850 shares, respectively to Ashbyrne Investments Inc., a corporation in which
Michael D.A. Ash is the principal shareholder, at a price of Cdn $1.00
(approximately US $.689) per share.
On October 15, 1998 and December 7, 1999 Guitron Canada sold 10,000 and
5,000 shares, respectively, to Tersan Consultants Inc., a Canadian corporation
owned by Edward Santelli, one of our directors, at a price of Cdn $1.00
(approximately US $.689) per share.
On April 15, 1999 Guitron Canada issued 100,000 options to Paul D. Okulov,
each to purchase one share of stock of Guitron Canada at any time during the
five year period ending April 14, 2004 at an exercise price of Cdn $1.00
(approximately US$.689) per share. On May 19, 1999 Guitron Canada issued 25,000
options to Paul D. Okulov, each to purchase one share of stock of Guitron Canada
at any time during the five year period ending May 18, 2004 at an exercise price
of Cdn $1.00 (approximately US $.689) per share. Pursuant to our acquisition of
Guitron Canada, each option will become exercisable to purchase 3.25 shares of
Guitron International Inc. at an exercise price of Cdn. $.3077 (approximately US
$.212) per share.
Since the formation of Guitron Canada on August 20, 1997 the law firm of
Mendelsohn, Rosentzveig & Schacter ("Mendelsohn") has acted as its corporate
counsel. David L. Rosentzveig, one of our directors, is a partner in Mendelsohn.
To date, Guitron Canada has paid legal fees to Mendelsohn by issuing, on
December 7, 1999, an aggregate of 50,000 shares of stock to 3535843 Canada Inc.,
a Canadian corporation owned by the partners of Mendelsohn.
During the fiscal years ended July 30, 1998 and July 30, 1999 Guitron
Canada paid financial and management consulting fees in the amounts of Cdn.
$41,800 (approximately US $28,800) and Cdn. $45,656 (approximately US $31,457)
respectively, to Financial Initiatives Inc., a financial consulting firm in
which Richard Duffy, our president, is an executive officer. Financial
Initiatives, Inc. is owned by Mr. Duffy's wife, Joan Callaghan.
43
<PAGE>
From December 1998 through January 31, 2000, Paul D. Okulov, our Director
of Research, Engineering and Manufacturing worked for us, on an independent
contractor basis, pursuant to an oral agreement that provided for payment to Mr.
Okulov at the rate of Cdn $100 (approximately US $69) per hour. Pursuant to the
foregoing, in lieu of cash payments, on April 15, 1999 and January 3, 2000
Guitron Canada issued 80,000 and 100,000 shares of its common stock,
respectively, to Mr. Okulov. For purposes of amounts invoiced by Mr. Okulov
pursuant to said agreement, these shares were valued at Cdn $1.00 per share. The
foregoing agreement between Mr. Okulov and Guitron Canada was terminated by
mutual consent effective January 31, 2000.
On January 31, 2000 Guitron Canada entered into a two year contract,
effective as of February 1, 2000, with Innovative Products Resources Ltd.,
("IPR") a corporation owned by Paul Okulov. Pursuant thereto, IPR will manage,
direct, supervise and coordinate both our continuing research and development
activities respecting the GUITRON and our manufacturing operations. IPR will
also provide assistance with regard to (i) the preparation of any and all patent
and trademark applications that we may seek to file; (ii) the preparation of
budgets and work schedules; and (iii) the supervision of certain of our
personnel. In consideration of the foregoing, the agreement provides for monthly
payments to IPR of Cdn. $10,000 (approximately US $6,890) together with related
Canadian provincial sales taxes and goods and services taxes. The agreement also
provides for the payment of bonuses to IPR at the discretion of management,
which bonuses, if any, may be paid in cash or stock.
In January 2000, Richard Duffy and France B. Fasano made interest free
loans to us in the amounts of Cdn $25,000 (approximately US $17,225) and Cdn
$55,000 (approximately US $37,895) respectively.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock known by us as of April 3, 2000, after
giving effect to the acquisition of Guitron Canada, by (i) each person or entity
known by us to be the beneficial owner of more than 5% of our common stock, (ii)
each of our directors, (iii) each of our executive officers; and (iv) all of our
named directors and executive officers as a group. The percentages in the table
have been calculated on the basis of treating as outstanding for a particular
person, all shares of our common stock outstanding on such date and all shares
of our common stock issuable to such holder in the event of exercise of
outstanding options owned by such person at said date which are exercisable
within 60 days of such date. Except as otherwise indicated, the persons listed
below have sole voting and investment power with respect to all shares of our
common stock owned by them, except to the extent such power may be shared with a
spouse. Amounts shown assume the maximum number of shares being offered are all
sold.
44
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------------ ---------------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering (8) Offering (9)
---------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Paul D. Okulov(1)(2) 991,250 892,125 9.02% 7.44%
Joan Callaghan(14) 1,284,290 1,155,861 11.69% 9.64%
Ashbyrne 2000 Limited(21) 1,500,000 1,350,000 13.65% 11.26%
Richard F. Duffy(1)(3) 1,446,790 1,318,361 13.17% 11 %
Michael D.A. Ash(1)(4) 2,140,238 1,926,215 19.48% 16.07%
France B. Fasano(1)(5) 3,412,500 3,087,500 31.06% 25.76%
Edward Santelli(1)(6) 211,250 206,375 1.92% 1.72%
David L. Rosentzveig(1)(7) 263,250 253,175 2.4 % 2.11%
All directors and executive
officers as a group (5 persons) 7,474,028 6,791,626 68.03% 56.66%
</TABLE>
See Footnotes following Selling Stockholders' Table
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock known by us as of April 3, 2000, by
each Selling Shareholder, after giving effect to our acquisition Guitron Canada.
The percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in the
event of exercise of outstanding options owned by such person at said date which
are exercisable within 60 days of such date. Except as otherwise indicated, the
persons listed below have sole voting and investment power with respect to all
shares of our common stock owned by them, except to the extent such power may be
shared with a spouse. Amounts shown assume the maximum number of shares being
offered are all sold. The shares being offered by the Selling Stockholders are
being registered to permit public secondary trading, and the stockholders may,
commencing after the completion and closing of the primary offering by us, offer
all or part of their registered shares for resale from time to time. However,
such Selling Stockholders are under no obligation to sell all or any portion of
such shares. The table below assumes that all shares offered hereby by the
Selling Stockholders shall be sold. See "Plan of Distribution".
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------------ ---------------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering(8) Offering(9)
---------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Alain Breault 19,500 0 (23) 0
Andreas Gaitanis 48,750 0 (23) 0
Ashbyrne Investments Inc.(10) 51,513 46,362 (23) (23)
Bartholomew Investments Ltd.(11) 128,700 0 1.17% 0
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------------ ---------------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering (8) Offering (9)
---------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Carl Ravinsky(12) 247,000 0 2.25% 0
C.C.J. Investments Ltd. 19,500 0 (23) 0
Chris Sarena 16,250 0 (23) 0
Diane Desjardins-Ferland 1,625 0 (23) 0
Earl S. Cohen 19,500 0 (23) 0
Edward C. Mungenast 16,900 0 (23) 0
Elias Kawkab 32,500 0 (23) 0
France B. Fasano(5) 3,412,500 3,087,500 31.06% 25.76%
Fotini Gassios 32,500 0 (23) 0
Frank Zylberberg 19,500 0 (23) 0
Gabriel Ricciardelli 16,900 0 (23) 0
George Anthony Nelson 3,250 0 (23) 0
George Condax 32,500 0 (23) 0
George Gaitanis 16,250 0 (23) 0
Helen Nicolopoulos 438,750 0 4% 0
Ibrahim Geha 16,250 0 (23) 0
Jean Pierre Ferland 32,500 0 (23) 0
Jean Pierre Paradis(13) 110,500 0 1.01% 0
Jean Pilote 3,250 0 (23) 0
Jeremiah O. Spitzberg 16,900 0 (23) 0
Joan Callaghan(14) 1,284,290 1,155,861 11.69% 9.64%
Joelle Mamane 19,500 0 (23) 0
John Amaral 32,500 0 (23) 0
Judit Fellegi(15) 100,750 90,675 (23) (23)
Jules Brossard 19,500 0 (23) 0
Kosta Alichos 19,500 0 (23) 0
Tersan Consultants(16) 48,750 43,875 (23) (23)
Loryta Investments Ltd.(17) 88,725 79,853 (23) (23)
3517942 Canada Inc. 32,500 0 (23) 0
Marc Ian Leiter 19,500 0 (23) 0
Martin Desrosiers 19,500 0 (23) 0
Martine Lauziere(18) 39,000 0 (23) 0
Marvin Chankowsky 32,500 0 (23) 0
Michael Garonce 19,500 0 (23) 0
Michael Rosentzveig 19,500 0 (23) 0
Patricia Havtiov 32,500 0 (23) 0
Patrick Riga 16,250 0 (23) 0
Paul D. Okulov(2) 991,250 892,125 9.02% 7.44%
Raymond Boucher 3,250 0 (23) 0
Barbara Green Mariano 16,250 0 (23) 0
Richard Ferland 12,058 0 (23) 0
Sandra Abitan 19,500 0 (23) 0
Shirley Rosentzveig 39,000 0 (23) 0
Stan Kolethras 16,250 0 (23) 0
Vijay Kachru 22,750 0 (23) 0
Zax Management Ltd. 19,500 0 (23) 0
3535843 Canada Inc.(19) 162,500 0 1.48% 0
Michael D.A. Ash(20) 500,000 450,000 4.55% 3.75%
Ashbyrne 2000 Limited(21) 1,500,000 1,350,000 13.65% 11.26%
Frances Katz Levine(22) 299,650 0 2.73% 0
Scott Rapfogel(22) 299,650 0 2.73% 0
</TABLE>
(1) The address of the beneficial owner is c/o Guitron International Inc., 38
Place Du Commerce, Suite 230, Nuns' Island, Montreal, Quebec, Canada
H3E1T8
(2) Includes 406,250 shares issuable to Mr. Okulov upon the exercise of stock
options at an exercise price of Cdn. $.3077 (approximately US $.212) per
share.
(3) Includes (i) 1,284,290 shares owned by Mr. Duffy's wife, Joan Callaghan;
and (ii) 162,500 shares issuable upon the exercise of stock options at an
exercise price of Cdn. $.3077 (approximately US $.212) per share. See
"Certain Transactions"
46
<PAGE>
(4) Includes (i) 1,500,000 shares owned by Ashbyrne 2000 Limited, a
corporation in which Mr. Ash is a principal shareholder; (ii) 51,513
shares owned by Ashbyrne Investments Inc., a corporation in which Mr. Ash
is a principal shareholder; and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation which is beneficially owned by the family
of Mr. Ash. See "Certain Transactions"
(5) Includes 162,500 shares issuable upon the exercise of stock options at an
exercise price of Cdn. $.3077 (approximately US $.212) per share. See
"Certain Transactions"
(6) Includes (i) 48,750 shares owned by Tersan Consultants Inc., a Canadian
corporation owned by Mr. Santelli; and (ii) an additional 162,500 shares
issuable upon the exercise of stock options at an exercise price of Cdn.
$.3077 (approximately US $.212) per share. See "Certain Transactions"
(7) Includes 19,500 shares and an additional 81,250 shares issuable upon the
exercise of stock options at an exercise price of Cdn $.3077
(approximately US $.212 per share) owned by Mr. Rosentzveig's wife, Judit
Fellegi. Excludes (i) 162,500 shares owned by 3535843 Canada Inc., a
Canadian corporation, in which Mr. Rosentzveig is a minority shareholder
with ownership of less than 10% of such corporation's issued and
outstanding shares; and (ii) an additional 162,500 shares issuable upon
the exercise of stock options at an exercise price of Cdn. $.3077
(approximately US $.212) per share. See "Certain Transactions"
(8) Based upon 10,986,660 shares issued and outstanding including 1,478,100
shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(9) Based upon 11,986,660 shares issued and outstanding including 1,478,100
shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(10) Excludes (i) 1,500,000 shares owned by Ashbyrne 2000 Limited, a
corporation in which Michael D.A. Ash, a principal shareholder of Ashbyrne
Investments Inc is a principal shareholder; (ii) 500,000 shares owned
directly by Michael D.A. Ash; and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation which is beneficially owned by the family
of Mr. Ash. See "Certain Transactions".
(11) Includes 64,350 shares issuable upon the exercise of stock options at an
exercise price of Cdn $.2308 (approximately US $.159) per share.
(12) Includes 195,000 shares issuable to Mr. Ravinsky upon the exercise of
stock options at an exercise price of Cdn $.3077 (approximately US $.212)
per share.
(13) Includes 48,750 shares issuable to Mr. Paradis upon the exercise of stock
options at an exercise price of Cdn $.3077 (approximately US $.212) per
share.
(14) Ms. Callaghan is the wife of Richard F. Duffy, our president and chief
executive officer. Excludes 162,500 shares issuable upon the exercise of
stock options owned by Richard F. Duffy, each of which is exercisable at a
price of Cdn. $.3077 (approximately US $.212) per share. See "Certain
Transactions"
(15) Ms. Fellegi is the wife of David L. Rosentzveig, one of our directors.
Includes 81,250 shares issuable upon the exercise of stock options at an
exercise price of Cdn $.3077 (approximately US $.212) per share. Excludes
(i) 162,500 shares issuable upon the exercise of stock options owned by
David L. Rosentzveig, each of which is exercisable at a price of Cdn.
$.3077 (approximately US $.212) per share; and (ii) 162,500 shares owned
by 3535843 Canada Inc., a Canadian corporation in which Mr. Rosentzveig is
a minority shareholder, with ownership of less than 10% of such
corporation's issued and outstanding shares. See "Certain Transactions"
47
<PAGE>
(16) Tersan Consultants Inc. is a corporation owned by Mr. Santelli, one of our
directors. Excludes 162,500 shares issuable upon the exercise of stock
options owned by Edward Santelli, each of which is exercisable at a price
of Cdn. $.3077 (approximately US $.212) per share. See "Certain
Transactions"
(17) Loryta Investments Ltd. is a corporation, beneficially owned by the family
of Michael D.A. Ash. Excludes (i) 500,000 shares owned directly by Mr.
Ash; (ii) 1,500,000 shares owned by Ashbyrne 2000 Ltd., a corporation in
which Mr. Ash is a principal shareholder; and (iii) 51,513 shares owned
directly by Ashbyrne Investments Inc., a corporation in which Mr. Ash is a
principal shareholder. See "Certain Transactions"
(18) Includes 32,500 shares issuable to Martine Lauziere upon the exercise of
stock options at an exercise price of Cdn $.3077 (approximately US $.212)
per share.
(19) 3535843 Canada Inc. is a Canadian corporation, one of the shareholders of
which is David L. Rosentzveig, one of our directors. Mr. Rosentzveig owns
less than 10% of the outstanding stock of such corporation.
(20) Excludes (i) 1,500,000 shares owned by Ashbyrne 2000 Ltd., a corporation
in which Mr. Ash is a principal shareholder; (ii) 51,513 shares owned by
Ashbyrne Investments Inc., a corporation in which Mr. Ash is a principal
shareholder; and (iii) 88,725 shares owned by Loryta Investments Inc., a
corporation beneficially owned by the family of Michael Ash. See "Certain
Transactions".
(21) Excludes (i) 51,513 shares owned by Ashbyrne Investments Inc., a
corporation in which Michael Ash, the principal shareholder of Ashbyrne
2000 Limited is a principal shareholder; (ii) 500,000 shares owned
directly by Michael Ash, and (iii) 88,725 shares owned by Loryta
Investments Inc., a corporation beneficially owned by the family of Mr.
Ash.
(22) These shares were issued in consideration of legal services including, but
not limited to, general corporate work and the preparation of this
prospectus and related documents.
(23) Less than 1%
DESCRIPTION OF SECURITIES
General
Pursuant to our Articles of Incorporation, we are authorized to issue
20,000,000 shares of Common Stock, $.001 par value per share. At April 3, 2000,
we had issued and outstanding 2,599,300 shares of Common Stock. Assuming the
acquisition of Guitron Canada had taken place on April 3, 2000, and further
assuming that all presently outstanding options of Guitron Canada were exercised
by the holders thereof immediately prior to such acquisition there would be
10,986,660 shares of our common stock issued and outstanding as at such date.
Common Stock
The holders of shares of Common Stock are entitled to dividends when and
as declared by our Board of Directors from funds legally available therefore
and, upon liquidation, are
48
<PAGE>
entitled to share pro rata in any distribution to common shareholders. Holders
of Common Stock have one non-cumulative vote for each share held. There are no
pre-emptive, conversion or redemption privileges, nor sinking fund provisions,
with respect to our Common Stock. All of our outstanding shares of Common Stock
are validly issued, fully paid and non-assessable.
Outstanding Stock Options
Giving present effect to the acquisition of Guitron Canada, there are
currently outstanding 454,800 stock options, each to purchase 3.25 shares of our
common stock. Accordingly, the exercise of all of these outstanding options
would result in the issuance of an aggregate of 1,478,100 shares of our common
stock. 19,800 of these options were granted on March 31, 1999 and are
exercisable at any time through and including September 30, 2000 at an exercise
price of Cdn. $.2308 (approximately US $.159) per share. 435,000 of these
options are exercisable at an exercise price of Cdn $.3077 (approximately US
$.212) per share. 25,000 of the latter options were granted on January 15, 1999
and may be exercised at any time during the 5 year period ending January 14,
2004. 50,000 of the latter options were granted on May 19, 1999 and may be
exercised at any time during the five year period ending May 18, 2004. 100,000
of the latter options were granted on June 25, 1999 and may be exercised at any
time during the five year period ending June 24, 2004. 60,000 of the latter
options were granted on October 25, 1999 and may be exercised at any time during
the two and one half year period ending April 24, 2002. 100,000 of the latter
options were granted on November 30, 1999 and may be exercised at any time
during the five year period ending November 29, 2004. 100,000 of the latter
options were granted on April 15, 1999 and may be exercised at any time during
the 5 year period ending April 14, 2004.
Delaware Anti-Takeover Law
We are not presently subject to Section 203 of the DGCL ("Section 203")
and will not become subject to Section 203 in the future unless, among other
things, our common stock is (i) listed on a national securities exchange; (ii)
authorized for quotation on the NASDAQ Stock Market; or (iii) held of record by
more than 2,000 stockholders. If Section 203 should become applicable to us in
the future, it could prohibit or delay a merger, takeover or other change in
control of our Company and therefore could discourage attempts to acquire us.
Section 203 restricts certain transactions between a corporation organized under
Delaware law and any person holding 15% or more of the corporation's outstanding
voting stock, together with the affiliates or associates of such person (an
"Interested Stockholder"). Section 203 prevents, for a period of three years
following the date that a person became an Interested Stockholder, the following
types of transactions between the corporation and the Interested Stockholder
(unless certain conditions, described below, are met): (a) mergers or
consolidations, (b) sales, leases, exchanges or other transfers of 10% or more
of the aggregate assets of the corporation, (c) issuances or transfers by the
corporation of any stock of the corporation which would have the effect of
increasing the
49
<PAGE>
Interested Stockholder's proportionate share of the stock of any class or series
of the corporation, (d) any other transaction which has the effect of increasing
the proportionate' share of the stock of any class or series of the corporation
which is owned by the Interested Stockholder and (e) receipt of the Interested
Stockholder of the benefit (except proportionately as a stockholder) of loans,
advances, guarantees, pledges or other financial benefits provided by the
corporation.
The three-year ban does not apply if either the proposed transaction or
the transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the time such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors or certain employees stock plans. Business combinations
are also permitted within the three-year period if approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
holders of at least two-thirds of the outstanding voting stock not owned by the
Interested Stockholder. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed, and
a majority of certain continuing directors of the corporation have approved, a
transaction with a party who is not an Interested Stockholder (or who becomes
such with approval of the board of directors) if the proposed transaction
involves (a) certain mergers or consolidations involving the corporation, (b) a
sale or other transfer of over 50% of the aggregate assets of the corporation,
or (c) a tender or exchange offer for 50% or more of the outstanding voting
stock of the corporation.
Transfer Agent
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 will act as the Transfer Agent for our common stock.
PLAN OF DISTRIBUTION
Shares Sold by Us
The Primary Shares may be offered and sold by us through our officers. To
the extent that these shares are sold by our officers, no selling discounts,
commissions or other form of remuneration will be paid in connection with the
offering. We may however, utilize the services of NASD registered broker-dealers
and/or foreign broker-dealers with respect to such offers and sales. To the
extent we do so, we will pay a commission equal to 10% of the public offering
price of the Primary Shares sold by such broker-dealers. The price at which the
shares are offered has been established without independent appraisal by
management and has no relationship to the book value per share, our earnings, or
other generally accepted measurements of value. Up to 10% of the shares offered
and sold by us in the offering may be purchased by
50
<PAGE>
present shareholders of Guitron Canada and/or Guitron International Inc.,
including officers and directors of such corporations.
Shares Sold by the Selling Shareholders
The shares offered by the Selling Stockholders may be sold or distributed
from time to time by the Selling Stockholders or by pledgees, donees or
transferees of, or successors in interest to, the Selling Stockholders directly
to one or more purchasers, including pledgees, or through brokers, dealers or
underwriters who may act solely as agents or may acquire shares as principals,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices, which may be
changed.
The distribution of the shares may be effected in one or more of the
following methods:
(i) ordinary brokers transactions, which may include long or short
sales,
(ii) purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to this
prospectus,
(iii) "at the market" to or through market makers or into an existing
market for the common stock,
(iv) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents, or
(v) any combination of the foregoing, or by any other legally available
means.
In addition, the Selling Stockholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of shares of common stock in the course of hedging the positions they
assume with the Selling Stockholders. The Selling Stockholders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both. Such compensation as to a particular broker-dealer may be in excess of
customary commissions. The Selling Stockholders and any broker-dealers acting in
connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commission received by them and any profit realized by them on the resale of
shares as principals may be deemed underwriting compensation under the
Securities Act. No Selling Stockholder can presently estimate the amount of such
compensation.
51
<PAGE>
Each Selling Stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Stockholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus. There can be no assurance that the Selling
Stockholders will sell any or all of the shares of common stock offered by them
hereunder.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming the sale of the maximum offering amount, upon consummation of the
Guitron Canada acquisition and the offering, we will have 10,508,560 shares of
common stock issued and outstanding. Of these shares, the 1,000,000 Primary
Shares sold in the offering together with all shares of Selling Stockholders
stock sold in the offering commencing after the completion of the offering will
be freely tradeable without restrictions or further registration under the
Securities Act, except for any of such shares purchased by an "affiliate" of
ours as defined in Rule 144 under the Securities Act ("Rule 144"), which will be
subject to the resale limitations under Rule 144.
In general, under Rule 144, a person or persons whose shares are required
to be aggregated who has beneficially owned shares of common stock for a period
of one year, including a person who may be deemed an "affiliate", is entitled to
sell, within any three-month period, a number of shares not exceeding 1% of the
total number of outstanding shares of such class. A person who is not an
"affiliate" of ours and who has beneficially owned shares for at least two years
is entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. Under Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, such issuer.
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Section 145 of the Delaware General Corporation Law, as amended,
authorizes us to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably
52
<PAGE>
incurred in connection with any action, suit or proceedings, whether civil,
criminal, administrative or investigative, to which such person is a party by
reason of being one of our directors or officers if it is determined that the
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions. Article 9 of our certificate of incorporation
provides for the indemnification of directors and officers to the fullest extent
permitted by Delaware law.
Insofar as indemnification for liabilities may be permitted to directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable.
LEGAL MATTERS
Levine & Rapfogel, Esqs., 621 Clove Road, Staten Island, New York 10310
will render an opinion as our counsel, that the Primary Shares offered hereby,
when issued and sold, will be legally issued, fully paid and nonassessable.
Frances Katz Levine and Scott E. Rapfogel, attorneys with Levine & Rapfogel,
each own 299,650 shares of our common stock.
EXPERTS
The financial statements included in this prospectus, and elsewhere in the
registration statement as of July 31, 1999, and July 31, 1998 and from August
20, 1997 (date of inception), to July 31, 1999, have been audited by Pinkham &
Pinkham, P.C., independent auditors, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The report of Pinkham & Pinkham, P.C. covering the two years ended July
31, 1999 contains an explanatory paragraph that states that we have incurred
losses since inception and have limited liquidity and capital resources, which
raises substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of reported assets amounts or the amounts and
classification of liabilities that might result from the outcome of that
uncertainly.
ADDITIONAL INFORMATION
With respect to the shares offered in this prospectus, we have filed with
the principal office of the Securities and Exchange Commission in Washington,
D.C., a registration statement on
53
<PAGE>
Form SB-2. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits thereto, to which reference hereby
is made. Each statement made in this prospectus concerning a document filed as
an exhibit to the registration statement is not necessarily complete and is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. Any interested party may inspect the registration statement
and its exhibits without charge, or obtain a copy of all or any portion thereof,
at prescribed rates, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Information on the Operation of the Public Reference
Room can be obtained by calling the Commission at 1-800-SEC-0330. The
registration statement and exhibits may also be inspected at the Commission's
regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New
York, New York 10048, or the Commissions website located at www.sec.gov.
We are not currently a reporting company under the Securities and Exchange
Act of 1934, and therefore we have not filed any reports with the Securities and
Exchange Commission. Upon completion of this offering we intend to file reports
with the Securities and Exchange Commission under the Securities Act of 1933,
and to furnish to our security holders annual reports containing audited
financial statements reported on by our independent auditors.
54
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors Report F2
Balance Sheets as of July 31, 1999 and July 31, 1998 F3
Statements of Operations for the year ended July 31, 1999;
for the period August 20, 1997 (Date of Inception) to July 31, 1998;
and for the period August 20, 1997 (Date of Inception) to July 31, 1999 F4
Statements of Stockholders' Equity (Deficit) for the years
ended July 31, 1998 and July 31, 1999 F5
Statements of Cash Flows for the year ended July 31, 1999;
for the period August 20, 1997 (Date of Inception) to July 31, 1998;
and for the period August 20, 1997 (Date of Inception) to July 31, 1999 F6
Notes to Financial Statements F8
Accountants Compilation Report F14
Balance Sheet as of January 31, 2000 (unaudited) F15
Statements of Operations for the six months ended
January 31, 2000 (unaudited) and for the period
August 20, 1997 (Date of Inception) to January 31, 2000 (unaudited) F16
Statements of Stockholders' Equity (Deficit) for the years ended
July 31, 1998 and July 31, 1999 and for the six months ended
January 31, 2000 (unaudited) F17
Statements of Cash Flows for the six months ended
January 31, 2000 (unaudited) and for the period August 20, 1997
(Date of Inception) to January 31, 2000 (unaudited) F18
Notes to Financial Statements F20
-F1-
55
<PAGE>
Pinkham & Pinkham, P.C.
Certified Public Accountants
This is the report Pinkham & Pinkham, PC, CPA's will issue on the accompanying
financial statements of Guitron International, Inc., subject to the finalization
and completion of the restructuring scheme in respect of the businesses to be
injected into the company as described in Note 1 to the accompanying financial
statements. If the restructuring scheme is modified or not completed, there
would be significant changes to the report.
Report of Independent Public Accountants
Board of Directors
Guitron International, Inc.
We have audited the accompanying balance sheets of Guitron International, Inc.
(a development stage company) as of July 31, 1999 and 1998 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended July 31, 1999, for the period August 20, 1997 (date of inception) to
July 31, 1998 and for the cumulative period from August 20, 1997, (date of
inception) to July 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guitron International, Inc. (a
development stage company) at July 31, 1999 and 1998, and the results of their
operations, and their cash flows for the year ended July 31, 1999, for the
period August 20, 1997 (date of inception) to July 31, 1998 and for the
cumulative period from August 20, 1997, (date of inception) to July 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company is
still in the development stage and it cannot be determined at this time that the
technology acquired will be developed to a productive stage. In 1999 and 1998,
the Company experienced net losses and had limited liquidity and capital
resources. The Company's uncertainty as to its productivity and its ability to
raise sufficient capital, raise doubt about the entity's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/S/ Pinkham & Pinkham, P.C.
Pinkham & Pinkham, P.C.
Certified Public Accountants
March 27, 2000
Cranford, New Jersey
-F2-
56
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheets
July 31,
Assets
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current assets
Sales tax receivable $ 15,547 $ 12,396
R&D Investment tax credit receivable 70,455 23,217
--------- ---------
86,002 35,613
Property and equipment, at cost, net of accumulated
depreciation and amortization 13,415 5,623
Other assets
Security deposits 1,241 1,241
--------- ---------
$ 100,658 $ 42,477
========= =========
Liability and Stockholders' Equity (Deficit)
Current liabilities
Notes payable - bank $ 80,133 $ 66,421
Current portion of long-term debt 6,985 23,215
Accounts payable and accrued expenses 87,593 108,251
--------- ---------
174,711 197,887
--------- ---------
Other liabilities
Long term debt (net of current portion) 85,301 38,846
Loans from affiliated companies 94,426 23,160
Loan from officers 3,517 --
--------- ---------
183,244 62,006
--------- ---------
Stockholders' equity (deficit)
Common stock 190,952 4,585
Additional paid-in-capital 172,264 76,080
Deficit accumulated during the development stage (631,155) (310,060)
Unrealized gain on foreign exchange 10,642 11,979
--------- ---------
(257,297) (217,416)
--------- ---------
$ 100,658 $ 42,477
========= =========
</TABLE>
See Notes to Financial Statements
-F3-
57
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative
Period from
August 20, August 20,
Year 1997 1997
Ended Date of (Date of
July, 31 Inception) to Inception) to
1999 July 31, 1998 July 31, 1999
----------- ------------- -------------
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
----------- ----------- -----------
Operations
General and administrative 18,690 87,768 106,458
Depreciation and amortization 3,524 868 4,392
Research and development 303,674 218,401 522,075
----------- ----------- -----------
Total expense 325,888 307,037 632,925
----------- ----------- -----------
Loss before other income and expenses (325,888) (307,037) (632,925)
-----------
Other expense
Interest expense (13,491) (3,023) (16,514)
----------- ----------- -----------
Net loss before extraordinary item (339,379) (310,060) (649,439)
Extraordinary item - early extinguishment
of debt 18,284 -- 18,284
----------- ----------- -----------
Comprehensive loss $ (321,095) $ (310,060) $ (631,155)
=========== =========== ===========
Net loss per common share $ (.22) (.27) $ (.48)
=========== =========== ===========
Weighted average shares of common
stock outstanding 1,487,970 1,139,203 1,318,590
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
-F4-
58
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Development Foreign
Shares Amount Capital Stage Exchange Total
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 1,409,166 $ 277 $ -- $ -- $ -- $ 277
Stock issued for services 21,500 4,308 -- -- -- 4,308
Government grants -- -- 76,080 -- -- 76,080
Unrealized gain on foreign
exchange -- -- -- -- 11,979 11,979
Net loss for year -- -- -- (310,060) -- (310,060)
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1998 1,430,666 4,585 76,080 (310,060) 11,979 (217,416)
Issuance of common stock 201,000 127,007 -- -- -- 127,007
Stock issued for services 89,455 59,360 -- -- -- 59,360
Government grants -- -- 96,184 -- -- 96,184
Unrealized loss on foreign
exchange -- -- -- -- (1,337) (1,337)
Net loss for year -- -- -- (321,095) -- (321,095)
---------- ---------- ---------- ---------- ---------- ----------
Balance at July 31, 1999 1,721,121 $ 190,952 $ 172,264 $ (631,155) $ 10,642 $ (257,297)
========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
-F5-
59
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
Period from
August 20, August 20,
Year 1997 1997
Ended (Date of (Date of
July 31, Inception) to Inception) to
1999 1998 July 31, 1999
---------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(321,095) $(310,060) (631,155)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,524 868 4,392
Stock issued in exchange for services 59,360 4,308 63,668
Unrealized (loss) gain on foreign exchange (1,337) 11,979 10,642
Early extinguishments of debt (18,284) -- (18,284)
Change in assets and liabilities:
Increase in:
Sales tax receivable (3,151) (12,396) (15,547)
R&D investment tax credit receivable (47,238) (23,217) (70,455)
(Decrease) increase in:
Accounts payable and accrued expenses (20,658) 108,251 87,593
--------- --------- ---------
Net cash used in operating activities (348,879) (220,267) (569,146)
--------- --------- ---------
Cash flow from investing activities:
Purchase of property and equipment (11,316) (6,491) (17,807)
Increase in security deposits -- (1,241) (1,241)
--------- --------- ---------
Net cash used in investing activities (11,316) (7,732) (19,048)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable 13,712 66,421 80,133
Proceeds from long-term debt 53,505 62,061 115,566
Payments on long-term debt (23,280) -- (23,280)
Loan from affiliated companies 71,266 23,160 94,426
Loans from directors 3,517 -- 3,517
Proceeds from issuance of common stock 127,007 277 127,284
Proceeds from grants 96,184 76,080 172,264
Proceeds from insurance company 18,284 -- 18,284
--------- --------- ---------
Net cash provided by financing activities 360,195 227,999 588,194
--------- --------- ---------
Net increase in cash and cash equivalents -- -- --
Cash and cash equivalents - beginning
of year -- -- --
--------- --------- ---------
Cash and cash equivalents - end of year $ -- $ -- $ --
========= ========= =========
</TABLE>
See Notes to Financial Statements
-F6-
60
<PAGE>
GUITRON INTERNATIONAL, INC.
A Development Stage Company
Statements of Cash Flows
Supplemental Disclosure of Non-Cash Activities:
In 1999 and 1998 stock was issued in exchange for services performed and
expenses in the amount of $59,360 and $4,308, respectively.
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 13,491 $ 3,023 $ 16,514
======== ======= ========
Income taxes paid $ -- $ -- $ --
======== ======= ========
See Notes to Financial Statements
-F7-
61
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies
Nature of Business
Guitron International, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on December 6, 1999 for the specific purpose
of acquiring Guitron Canada, which was formed on August 20, 1997. Guitron
Canada was formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products.
Merger of Guitron Canada
Guitron International, Inc. will acquire Guitron Canada upon the
completion of the sale of the minimum amount within the offering period
and prior to the release from escrow of the proceeds from such sales.
As of January 31, 2000 and at the time of the acquisition, the following
securities are and will be issued and outstanding in Guitron Canada: (i)
not more than 2,125,926 Guitron Canada shares and (ii) Guitron Canada
Stock Options to purchase not more 454,800 Guitron Canada shares. Pursuant
to the acquisition:
(a) All of the outstanding Guitron Canada shares will be exchanged for
3.25 common shares of the Company. This will result in the issuance
of a total of 6,909,260 shares of our common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each one Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of the Company; this will result in
there being a total of 1,478,100 of the Company's common shares
subject to future issuance pursuant to the exercise of presently
outstanding Guitron Canada Stock Options.
For accounting purposes the Company recorded the merger as a pooling of
interests and not as a purchase.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include receivables, accounts payable and accrued expenses,
approximates fair value due to the relatively short maturity of such
instruments.
The fair values of the Company's debt instruments are based on the amount
of future cash flows associated with each instrument discounted using the
Company's borrowing rate. At July 31, 1999 and 1998, respectively, the
carrying value of all financial instruments was not materially different
from fair value.
Development Stage
At July 31, 1999 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of deposits
with maturities of 90 days or less, were deemed to be cash equivalents.
Receivables
Management believes that all receivables as of July 31, 1999 and 1998 were
fully collectible; therefore, no allowances for doubtful accounts were
recorded.
-F8-
62
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
accelerated method over the estimated useful lives of three to five years.
Repairs and maintenance costs are expensed as incurred while additions and
betterments are capitalized. The cost and related accumulated depreciation
and amortization of assets sold or retired are eliminated from the
accounts and any gain or losses are reflected in earnings.
Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Adoption of Statement of Accounting Standard No. 123
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
encourages, but does not require companies to record at fair value
compensation cost for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The difference between the fair value method of SFAS-123 and APB 25
is immaterial.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 changes the standards for computing and presenting
earnings per share (EPS) and supersedes Accounting Principles Board
Opinion No. 15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. This
Statement requires restatement of all prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are the
exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents
are calculated in the determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to
stock options and warrants outstanding during the period.
-F9-
63
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Adoption of Statement of Accounting Standard No. 128 (continued)
For the years ended July 31, 1999 and 1998, primary loss per share was the
same as basic loss per share and fully diluted loss per share was the same
as diluted loss per share. A net loss was reported in 1999 and 1998, and
accordingly, in those years the denominator was equal to the weighted
average outstanding shares with no consideration for outstanding options
and warrants to purchase shares of the Company's common stock, because to
do so would have been anti-dilutive. Stock options for the purchase of
1,478,100 shares at July 31, 1999 were not included in loss per share
calculations, because to do so would have been anti-dilutive.
Foreign Exchange
Assets and liabilities of the Company, which are denominated in foreign
currencies, are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
Revenue Recognition
Revenue is recognized when the product is shipped to the customer.
Income Taxes
The Company has net operating loss carryovers of approximately $600,000 as
of July 31, 1999, expiring in the year 2013. However, based upon present
Internal Revenue regulations governing the utilization of net operating
loss carryovers where the corporation has issued substantial additional
stock, most of this loss carryover may not be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, effective July 1998. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount pursuant
to SFAS No. 109. Accordingly, no deferred tax asset is reflected in these
financial statements.
The Company has research and development investment tax credits receivable
from Canada and Quebec amounting to $70,455 and $23,217 at July 31, 1999
and 1998, respectively.
Note 2 -Going Concern
As shown in the accompanying financial statements, the Company incurred a
cumulative net loss of approximately, $631,000 as of July 31, 1999. In
addition, the Company has a negative working capital of approximately
$89,000 and a stockholders' deficit of approximately, $257,000.
The Company, which is in the development stage, is currently in the
process of formulating a plan to effect a public offering, the proceeds of
which would be used for working capital, capital acquisitions and sales
and marketing expenses. The ability of the Company to continue as a going
concern is dependent on the success of the plan. The financial statements
do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
-F10-
64
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 3 -Property and Equipment
As of July 31 property and equipment consisted of the following:
1999 1998
------- -------
Samples $10,054 $ --
Furniture, fixtures and equipment 4,325 3,415
Leasehold improvements 1,743 1,741
Computer 1,685 1,335
------- -------
17,807 6,491
Less accumulated depreciation and amortization 4,392 868
------- -------
$13,415 $ 5,623
======= =======
Depreciation and amortization expense charged to operations was $3,524 and
$868 for the years ended July 31, 1999 and 1998, respectively.
Note 4 -Notes Payable
The Company has available a Cdn $180,000 (approximately US$119,443) line
of credit which bears interest at 25%. At July 31, 1999 and 1998 there was
$80,133 and $66,421, respectively, outstanding against this line of
credit. The note is collateralized by virtually all of the assets of the
company.
Note 5 -Long-Term Debt
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Term loan payable, due in monthly installments of $582
plus interest at prime plus 2%, due April 2003 $26,194 $33,086
Loans payable under the Program for the Development
of Quebec SME's based on 50% of approved eligible
costs for the preparation of market development studies
in certain regions. Loans are unsecured and non-interest
bearing. (If the Company defaults the loans become
interest bearing).
Loan payable over five years commencing
January 2001 due January 2004 66,092 12,725
Loan payable from The Business Development Bank of
Canada to finance market development activities. Loan
Is due in 60 monthly installment including interest at 10.5% -- 16,250
------- -------
92,286 62,061
Current portion 6,985 23,215
------- -------
$85,301 $38,846
======= =======
</TABLE>
-F11-
65
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 -Long-Term Debt (continued)
Minimum principal repayments of each of the next five
years as follows:
2000 $ 6,985
2001 13,594
2002 20,203
2003 25,067
2004 26,437
--------
$ 92,286
========
Note 6 -Related Party Transactions
The Company entered into an employment agreement with the executive
officer on December 6, 1999 that provides for an annual salary of $100,000
a year plus benefits. The employment agreement calls for a term of three
years. In addition to the employment services, the officer agrees not to
compete with the Company for a year following the termination of
employment. If the officer is terminated other than for cause or for "good
reason", the terminated officer will be paid twice the amount of their
base salary for twelve months.
Note 7 -Common Stock
During the years ended July 31, 1999 and 1998, the Company issued common
stock to individuals in exchange for services performed totaling $59,360
and $4,308, respectively. The dollar amounts assigned to such transactions
have been recorded at the fair value of the services received, because the
fair value of the services received was more evident than the fair value
of the stock surrendered.
Note 8 -Stock Options
The Company has stock options outstanding to purchase 1,478,100 shares of
common stock which expire at various dates through November 2004. The
exercise price ranges from $.16 to $.21.
Note 9 -Government Assistance
The Company receives financial assistance from Revenue Canada and Revenue
Quebec in the form of scientific research tax credit. During the year
ended July 31, 1999 and 1998 the company received or has receivables of
approximately $96,000 and $76,000, respectively, which have been recorded
as additional paid in capital.
Note 10 -Commitments
The Company leases office space on a month-to-month basis with a monthly
rent of $1,292 plus a proportionate share of all water, taxes, business
taxes, and other similar taxes and rates, which may be levied or imposed
upon the premises. Under the terms of the lease, the Company is required
to obtain adequate public liability and property damage insurance.
Rental expense for the year ended July 31, 1999 and 1998 amounted to
$15,518 and $4,120, respectively.
Note 11 -Loan from Officers
The loan from officers is non-interest bearing and has no specific terms
of repayment
-F12-
66
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 12 -Loans from Affiliated Companies
These loans represent advances from a company that is controlled by a
director and principal shareholder of the Company. Interest is computed at
6% per annum. All principal and interest is due no later than July 31,
2001.
Note 13 -Capital Stock
The capital stock structure for Guitron Canada is as follows:
Authorized:
(Unlimited as to capital contribution and the number of shares without par
value)
Common shares
Class "A" non-voting, participating shares
Class "B" 8% non-cumulative, voting, non-
participating shares, redeemable
at their paid-in value
Class "C" 10% non cumulative, non-voting
non-participating shares, redeemable
at their paid-in value
Class "D" $0.50 per share, non
cumulative, non-voting,
non-participating shares,
redeemable at $100 per share.
Class "E" 9% non cumulative, non-voting
non-participating shares, redeemable
and retractable at their paid-in value
Class "F" 1% monthly non cumulative, non-voting
non-participating shares, redeemable
and retractable at their paid-in value
1999 1998
---- ----
Issued: 1,721,121 1,430,666
Note 14 -Extraordinary Item
The extraordinary item results from the early extinguisment of a long-term
debt. The proceeds from a life insurance policy, which had been used to
secure the balance of the loan, was used to pay off a note payable. The
life insurance policy had been secured by the bank on a director of the
Company.
-F13-
67
<PAGE>
[Letterhead of Pinkham & Pinkham, P.C.]
Certified Public Accountants
Accountants' Compilation Report
We have compiled the accompanying balance sheet of Guitron International, Inc.
as of January 31, 2000 and the related statements of operations and retained
earnings, and cash flows and supplemental information for the six months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/S/ Pinkham & Pinkham, P.C.
----------------------------
Pinkham & Pinkham, P.C.
Certified Public Accountants
March 27, 2000
Cranford, New Jersey
-F14-
68
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Balance Sheet
January 31, 2000
(Unaudited)
Assets
Current assets
Sales tax receivable $ 18,245
R&D Investment tax credit receivable 107,581
-----------
125,826
Property and equipment, at cost, net of accumulated
depreciation and amortization 24,617
Other assets
Security deposits 1,241
-----------
$ 151,684
===========
Liability and Stockholders' Equity
Current liabilities
Notes payable - bank $ 12,040
Current portion of long-term debt --
Accounts payable and accrued expenses 174,526
-----------
186,566
-----------
Other liabilities
Long term debt (net of current portion) 68,609
Loans from affiliated companies 199,198
Loan from officers 55,108
-----------
322,915
-----------
Stockholders' equity
Common stock authorized 20,000,000 shares
issued and outstanding 9,508,560 9,509
Additional paid-in-capital 1,096,387
Deficit accumulated during the development stage (1,481,910)
Unrealized gain on foreign exchange 18,217
-----------
(357,797)
-----------
$ 151,684
===========
See accompanying notes to financial statements
and accountants' compilation report
-F15-
69
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Cumulative
Period from
August 20,
1997
Six Months (Date of
Ended Inception) to
January 31, January 31,
2000 2000
----------- -----------
Revenue $ -- $ --
----------- -----------
Operations
General and administrative 627,560 734,018
Depreciation and amortization 3,318 7,710
Research and development 209,282 731,357
----------- -----------
Total expense 840,160 1,473,085
----------- -----------
Loss before other income and expenses (840,160) (1,473,085)
Other expenses
Interest expense (10,595) (27,109)
----------- -----------
Net loss (850,755) (1,500,194)
Extraordinary item - early extinguishments
of debt -- 18,284
----------- -----------
Comprehensive loss $ (850,755) $(1,481,910)
=========== ===========
Net loss per common share $ (.14) $ (.32)
=========== ===========
Weighted average shares of common
stock outstanding 6,272,148 4,694,320
=========== ===========
See accompanying notes to financial statements
and accountants' compilation report
-F16-
70
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During Unrealized
Common Stock Paid-in Development Foreign
Shares Amount Capital Stage Exchange Total
--------- --------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 1,409,166 $ 277 $ -- $ -- $ -- $ 277
Stock issued for services 21,500 4,308 -- -- -- 4,308
Government grants -- -- 76,080 -- -- 76,080
Unrealized gain on foreign
exchange -- -- -- -- 11,979 11,979
Net loss for year -- -- -- (310,060) -- (310,060)
--------- --------- ----------- ------------ -------- ----------
Balance at July 31, 1998 1,430,666 4,585 76,080 (310,060) 11,979 (217,416)
Issuance of common stock 201,000 127,007 -- -- -- 127,007
Stock issued for services 89,455 59,360 -- -- -- 59,360
Government grants -- -- 96,184 -- -- 96,184
Unrealized loss on foreign
exchange -- -- -- -- (1,337) (1,337)
Net loss for year -- -- -- (321,095) -- (321,095)
--------- --------- ----------- ------------ -------- ----------
Balance at July 31, 1999 1,721,121 190,952 172,264 (631,155) 10,642 (257,297)
Issuance of common stock 315,745 96,210 -- -- -- 96,210
Stock issued for services 2,688,360 63,949 548,452 -- -- 612,401
Government grants -- -- 34,069 -- -- 34,069
Unrealized gain on foreign
exchange -- -- -- -- 7,575 7,575
Merger of Guitron Canada 4,783,334 (341,602) 341,602 -- -- --
Net loss for period -- -- -- (850,755) -- (850,755)
--------- --------- ----------- ------------ -------- ----------
Balance at January 31, 2000 9,508,560 $ 9,509 $ 1,096,387 $ (1,481,910) $ 18,217 $ (357,797)
========= ========= =========== ============ ======== ==========
</TABLE>
See accompanying notes to financial statements
and accountants' compilation report
-F17-
71
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Period from
August 20,
1997
Six Months (Date of
Ended Inception to
January 31, January 31,
2000 2000
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (850,755) $(1,481,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,318 7,710
Stock issued in exchange for services 612,401 676,069
Unrealized gain on foreign exchange 7,575 18,217
Early extinguishments of debt -- (18,284)
Change in assets and liabilities:
Increase in :
Sales tax receivable (2,698) (18,245)
R&D investment tax credit receivable (37,126) (107,581)
Increase in :
Accounts payable and accrued expenses 86,933 174,526
----------- -----------
Net cash used in operating activities (180,352) (749,498)
----------- -----------
Cash flow from investing activities:
Purchase of property and equipment (14,520) (32,327)
Increase in security deposits -- (1,241)
----------- -----------
Net cash used in investing activities (14,520) (33,568)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable -- 80,133
Payments on notes payable (68,093) (68,093)
Proceeds from long-term debt -- 115,566
Payments on long-term debt (23,677) (46,957)
Loan from affiliated companies 104,772 199,198
Loans from directors 51,591 55,108
Proceeds from issuance of common stock 96,210 223,494
Proceeds from grants 34,069 206,333
Proceeds from insurance company -- 18,284
----------- -----------
Net cash provided by financing activities 194,872 783,066
----------- -----------
Net increase in cash and cash equivalents -- --
Cash and cash equivalents - beginning
of year -- --
Cash and cash equivalents - end of year $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements
and accountants' compilation report
-F18-
72
<PAGE>
GUITRON INTERNATIONAL, INC.
A Development Stage Company
Statements of Cash Flows
(Unaudited)
Supplemental Disclosure of Non-Cash Activities:
During the six months ended January 31, 2000, stock was issued in exchange for
services performed and expenses in the amount of $644,646.
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 10,595 $ 27,109
========== ==========
Income taxes paid $ -- $ --
========== ==========
See accompanying notes to financial statements
and accountants' compilation report
-F19-
73
<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies
Nature of Business
Guitron International, Inc. (the "Company") was incorporated under the
laws of the State of Delaware on December 6, 1999 for the specific purpose
of acquiring Guitron Canada , which was formed on August 20, 1997. Guitron
Canada was formed to develop, manufacture and sell a unique musical
instrument known as the GUITRON and related music products.
Merger of Guitron Canada
Guitron International, Inc. will acquire Guitron Canada upon the
completion of the sale of the minimum amount within the offering period
and prior to the release from escrow of the proceeds from such sales.
As of January 31, 2000 and at the time of the acquisition, the following
securities are and will be issued and outstanding in Guitron Canada: (i)
not more than 2,125,926 Guitron Canada shares and (ii) Guitron Canada
Stock Options to purchase not more 454,800 Guitron Canada shares. Pursuant
to the acquisition:
(a) All of the outstanding Guitron Canada shares will be exchanged for
3.25 common shares of the Company. This will result in the issuance
of a total of 6,909,260 shares of the common stock.
(b) The exercise rights under all outstanding Guitron Canada Stock
Options will be changed to provide that, for each one Guitron Canada
share purchasable under the option, the option holder will be able
to purchase 3.25 common shares of the Company; this will result in
there being a total of 1,478,100 of the Company's common shares
subject to future issuance pursuant to the exercise of presently
outstanding Guitron Canada Stock Options.
For accounting purposes the Company recorded the merger as a pooling of
interests and not as a purchase.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, receivables, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity of
such instruments.
The fair values of the Company's debt instruments are based on the amount
of future cash flows associated with each instrument discounted using the
Company's borrowing rate. At January 31, 2000, the carrying value of all
financial instruments was not materially different from fair value.
Development Stage
At January 31, 2000 the Company is still in the development stage. The
operations consist mainly of raising capital, obtaining financing,
developing equipment, obtaining customers and supplies, installing and
testing equipment and administrative activities.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of deposits
with maturities of 90 days or less, were deemed to be cash equivalents.
Receivables
Management believes that all receivables as of January 31, 2000 were fully
collectible; therefore, no allowances for doubtful accounts were recorded.
-F20-
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<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
accelerated method over the estimated useful lives of three to five years.
Repairs and maintenance costs are expensed as incurred while additions and
betterments are capitalized. The cost and related accumulated depreciation
and amortization of assets sold or retired are eliminated from the
accounts and any gain or losses are reflected in earnings.
Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Adoption of Statement of Accounting Standard No. 123
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
encourages, but does not require companies to record at fair value
compensation cost for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The difference between the fair value method of SFAS-123 and APB 25
is immaterial.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 changes the standards for computing and presenting
earnings per share (EPS) and supersedes Accounting Principles Board
Opinion No. 15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. This
Statement requires restatement of all prior-period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are the
exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents
are calculated in the determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to
stock options and warrants outstanding during the period.
-F21-
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<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 -Summary of Accounting Policies (continued)
Adoption of Statement of Accounting Standard No. 128 (continued) For the
six months ended January 31, 2000, primary loss per share was the same
as basic loss per share and fully diluted loss per share was the same as
diluted loss per share. A net loss was reported in 2000, and
accordingly, in those years the denominator was equal to the weighted
average outstanding shares with no consideration for outstanding options
and warrants to purchase shares of the Company's common stock, because
to do so would have been anti-dilutive. Stock options for the purchase
of 1,478,100 shares were not included in loss per share calculations,
because to do so would have been anti-dilutive.
Foreign Exchange
Assets and liabilities of the Company, which are denominated in foreign
currencies, are translated at exchange rates prevailing at the balance
sheet date. Revenues and expenses are translated at average rates
throughout the year.
Revenue Recognition
Revenue is recognized when the product is shipped to the customer.
Income Taxes
The Company has net operating loss carryovers of approximately
$1,490,000 as of January 31, 2000, expiring in the year 2014. However,
based upon present Internal Revenue regulations governing the
utilization of net operating loss carryovers where the corporation has
issued substantial additional stock, most of this loss carryover may not
be available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1998. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of the
uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
The Company has research and development investment tax credits
receivable from Canada and Quebec amounting to $107,581 at January 31,
2000.
Note 2 -Going Concern
As shown in the accompanying financial statements, the Company incurred
a cumulative net loss of approximately, $1,490,000 as of January 31,
2000. In addition, the Company has a negative working capital of
approximately $61,000 and a stockholders' deficit of approximately,
$358,000.
The Company, which is in the development stage, is currently in the
process of formulating a plan to effect a public offering, the proceeds
of which would be used for working capital, capital acquisitions and
sales and marketing expenses. The ability of the Company to continue as
a going concern is dependent on the success of the plan. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
-F22-
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<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 3- Property and Equipment
As of January 31, 2000 property and equipment consisted of the
following:
Samples $ 10,054
Furniture, fixtures and equipment 4,325
Leasehold improvements 1,743
Computer 16,205
--------
32,327
Less accumulated depreciation and amortization 7,710
--------
$ 24,617
========
Depreciation and amortization expense charged to operations was $3,318
for the six months ended January 31, 2000.
Note 4- Notes Payable
The Company has available a Cdn $180,000 (approximately US$119,443) line
of credit which bears interest at 25%. At January 31, 2000 there was
$12,040 outstanding against this line of credit. The note is
collateralized by virtually all of the assets of the company.
Note 5- Long-Term Debt
Loans payable under the Program for the
Development of Quebec SME's based on 50%
of approved eligible costs for the
preparation of market development studies
in certain regions. Loans are unsecured
and non-interest bearing. (If the Company
defaults the loans become interest
bearing).
Loan payable over five years
commencing January 2001, due January 2004 $ 68,609
Current portion --
--------
$ 68,609
========
Minimum principal repayments of each of the next five
years as follows:
2000 $ --
2001 6,861
2002 13,722
2003 20,583
2004 27,443
--------
$ 68,609
========
Note 6- Related Party Transactions
The Company entered into an employment agreement with the executive
officer on December 6, 1999 that provides for an annual salary of
$100,000 a year plus benefits. The employment agreement calls for a term
of three years. In addition to the employment services, the officer
agrees not to compete with the Company for a year following the
termination of employment. If the officer is terminated other than for
cause or for "good reason", the terminated officer will be paid twice
the amount of their base salary for twelve months.
-F23-
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<PAGE>
GUITRON INTERNATIONAL, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 7- Common Stock
During the six months ended January 31, 2000 the Company issued common
stock to individuals in exchange for services performed totaling
$612,400. The dollar amounts assigned to such transactions have been
recorded at the fair value of the services received, because the fair
value of the services received was more evident than the fair value of
the stock surrendered.
Note 8- Stock Option
The Company has stock options outstanding to purchase 1,478,100 shares
of common stock which expire at various dates through November 2004. The
exercise price ranges from $.16 to $.21.
Note 9- Government Assistance
The Company receives financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit. During the
six months ended January 31, 2000 the company received or has
receivables of approximately $34,000 which have been recorded as
additional paid in capital.
Note 10- Commitments
The Company leases office space on a month-to-month basis with a monthly
rent of $1,292 plus a proportionate share of all water, taxes, business
taxes, and other similar taxes and rates, which may be levied or imposed
upon the premises. Under the terms of the lease, the Company is required
to obtain adequate public liability and property damage insurance.
Rental expense for the six months ended January 31, 2000 amounted to
$11,498.
Note 11- Loan from Officers
The loan from officers is non-interest bearing and has no specific
terms of repayment
Note 12- Loans from Affiliated Companies
These loans represent advances from a company that is controlled by a
director and principal shareholder of the Company. Interest is computed
at 6% per annum. All principal and interest is due no later than July
31, 2001.
Note 13- Extraordinary Item
The extraordinary item results from the early extinguishments of a
long-term debt. The proceeds from a life insurance policy, which had
been used to secure the balance of the loan, was used to pay off a note
payable from the payment by the proceeds of a life insurance policy,
which had been secured by the bank on a director of the Company.
-F24-
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<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus in connection
with the offer made hereby. If given or made, such information or representation
must not be relied upon as having been authorized by us. This Prospectus does
not constitute an offer to any person in any jurisdiction in which such an offer
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
- ---------------------------------------------------- 4,302,910 Shares
TABLE OF CONTENTS Page
Prospectus Summary................... 3 GUITRON INTERNATIONAL
Summary Financial Information........ 8 INC.
Risk Factors ........................ 10
Use of Proceeds...................... 18
Market for Common Equity and
Related Stockholder Matters ......... 19
Dilution............................. 19
Capitalization....................... 21
Dividend Policy...................... 21
Plan of Operation.................... 22
Business............................. 23
Management........................... 35
Certain Transactions................. 42
Principal Stockholders .............. 44 ------------
Selling Stockholders................. 45
Description of Securities............ 48 PROSPECTUS
Plan of Distribution................. 50
Shares Eligible for Future Sale...... 52 ------------
Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities...................... 52
Legal matters........................ 53
Experts.............................. 53 May 26, 2000
Additional Information............... 53
Financial Statements................. 55
- ----------------------------------------------------
Until _____,2000 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered 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 when
acting as underwriter and with respect to their unsold allotments or
subscriptions.
79
<PAGE>
GUITRON INTERNATIONAL INC.
PART II
Item 24. Indemnification of Directors and Officers
Our certificate of incorporation limits the liability of our directors and
officers to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for:
(i) breach of the directors' duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption, and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of our Certificate of Incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The effect of the foregoing is to require us to indemnify our officers and
directors for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES MAY BE PERMITTED TO OUR
DIRECTORS, OFFICERS AND CONTROLLING PERSONS PURSUANT TO THE FOREGOING
PROVISIONS, OR OTHERWISE, WE HAVE BEEN ADVISED THAT IN THE OPINION OF THE
SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY
AND IS, THEREFORE, UNENFORCEABLE.
Corporate Takeover Provisions
Section 203 of the Delaware General Corporation Law
We are not presently subject to the provisions of Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203, certain
"business combinations" between a Delaware corporation whose stock generally is
publicly traded or held of record by more than 2,000 stockholders and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its original certificate of incorporation not to be
governed by Section 203 (we did not make such an election) (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
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<PAGE>
corporation outstanding at the commencement of the transaction (excluding voting
stock owned by directors who are also officers or held in employee benefit plans
in which the employees do not have a confidential right to render or vote stock
held by the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. If it should become
applicable to us in the future, Section 203 could prohibit or delay a merger,
takeover or other change in control of our company and therefore could
discourage attempts to acquire us.
Item 25. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses in connection with the
issuance and distribution of the securities being registered, other than selling
discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee ........................................... $ 1,304
NASD Filing Fee................................................. $ 930
Blue Sky Filing Fees............................................ $ 2,000
Printing and Engraving Expenses ................................ $13,000
Legal Fees and Expenses ........................................ $ 0(1)
Accounting Fees and Expenses ................................... $15,000
Transfer Agent's Fees and Expenses ............................. $ 2,000
Escrow Agent's Fees and Expenses................................ $ 2,500
Miscellaneous Expenses ......................................... $ 3,266
-------
TOTAL ESTIMATED EXPENSES ..................................... $40,000
</TABLE>
All such expenses will be borne by us.
(1) Legal fees and expenses related to this offering have been paid by the
issuance of shares of our common stock. The parties receiving such shares
also received additional shares in connection with providing us with legal
services involving general corporate work.
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<PAGE>
Item 26. Recent Sales of Unregistered Securities
On January 3, 2000, in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, we issued an
aggregate of 2,599,300 shares of our common stock to Michael D.A. Ash (500,000
shares), Ashbyrne 2000 Limited (1,500,000 shares), Frances Katz Levine (299,650
shares) and Scott Rapfogel (299,650 shares). All of the foregoing persons are
sophisticated investors, are familiar with our business activities and were
given full and complete access to any corporate information requested by them
and did in fact review extensive corporate information.
The shares issued to Michael D.A. Ash and Ashbyrne 2000 Limited were
issued in connection with consulting services. The shares issued to Frances Katz
Levine and Scott Rapfogel were issued in connection with legal services.
Pursuant to our acquisition of Guitron Canada which will take place
following the sale of the minimum offering amount, all of the 2,125,926 then
issued and outstanding shares of Guitron Canada will each be exchanged for 3.25
shares of our common stock. Such Guitron Canada shares are held by an aggregate
of 51 persons who acquired them during the period September 1, 1997 through
January 3, 2000 at prices ranging from approximately $.00001 per share to
approximately $.689 per share. 46 of such issuances by Guitron Canada were made
to Canadian or other foreign residents and were not subject to US securities
laws. 5 of such issuances by Guitron Canada were made to US residents in
reliance on Section 4(2) of the Securities Act of 1933, as amended. Pursuant to
the acquisition, all issued and outstanding stock options of Guitron Canada will
be exercisable to purchase 3.25 shares of our common stock. The Guitron Canada
options are held by 10 persons who acquired them during the period January 15,
1999 through January 3, 2000. All of such options were issued to Canadian and
other foreign residents and therefore were not subject to U.S. securities laws.
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<PAGE>
Item 27. Exhibits
EXHIBIT NO. ITEM
- ----------- ----
2.1 Form of Agreement and Plan of Reorganization among The Guitron
Corporation, a Canadian corporation, Guitron International Inc., and
the shareholders of The Guitron Corporation
2.2 Form of Shareholder's Power of Attorney
2.3 Form of Shareholders Letter of Transmittal and Custody Agreement
3.1 Certificate of Incorporation of Guitron International Inc. filed
December 6, 1999
3.2 Certificate of Incorporation of The Guitron Corporation filed August
20, 1997.
3.3 By-Laws of Guitron International Inc.
4.1 Specimen Common Stock Certificate*
5.1 Opinion and Consent of Counsel*
10.1 Executive Agreement dated December 6, 1999 between Guitron
International Inc. and Richard Duffy
10.2 Marketing and Consulting Agreement dated September 29, 1999 between
The Guitron Corporation and Marvin Chankowsky
10.3 Marketing Agreement dated June 1, 1999 between The Guitron
Corporation and Jean Pilote
10.4 Consulting Agreement dated December 6, 1999 between Guitron
International Inc. and Ashbyrne Consultants Inc.
10.5 Form of Escrow Agreement between the Company and Continental Stock
Transfer & Trust Company
10.6 Loan Agreement dated as of July 30, 1999 between The Guitron
Corporation and Productions Polyart International Inc.
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<PAGE>
10.7 Service Agreement dated January 31, 2000 between The Guitron
Corporation and Innovative Products Resources Ltd.
21 Subsidiaries - We presently have no subsidiaries. Following the
receipt of the minimum offering proceeds we will acquire The Guitron
Corporation, making such corporation a wholly owned subsidiary of
ours.
23 Consent of Pinkham & Pinkham, P.C., independent certified public
accountants
27 Financial Data Schedule (filed by EDGAR)
* To be filed by amendment
Item 28. Undertakings.
(a) Rule 415 Offering.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
of expenses incurred or paid by a director, officer or controlling person of the
issuer in the successful defense of any action, suit or proceedings)
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<PAGE>
is asserted by such director, officer or controlling person in connection with
the securities being registered, the 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 Securities Act and will be governed by
the final adjudication of such court.
(c) Rule 430A
The undersigned issuer will:
(1) For determining any liability under the Securities Act, treat the
information in the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of prospectus
file by the small business issuer under rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as at the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of
Montreal, Canada on May 23, 2000.
GUITRON INTERNATIONAL INC.
By: /s/ Richard F. Duffy
------------------------------------------
Richard F. Duffy, President, Chief Executive
Officer and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 has been signed by the following persons in
their respective capacities with Guitron International Inc. and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard F. Duffy President, Chief Executive Officer
- -------------------- and Chairman of the Board of Directors May 23, 2000
Richard F. Duffy
/s/ Michael D.A. Ash Treasurer, Chief Financial and
- -------------------- Accounting Officer and Director May 23, 2000
Michael D.A. Ash
Majority of the Board of Directors
/s/ Richard F. Duffy Director
- --------------------
Richard F. Duffy May 23, 2000
/s/ Michael D.A. Ash Director
- --------------------
Michael D.A. Ash May 23, 2000
/s/ France B. Fasano Director
- --------------------
France B. Fasano May 23, 2000
/s/ Edward Santelli Director
- -------------------
Edward Santelli May 23, 2000
/s/ David L. Rosentzveig Director
- ------------------------
David L. Rosentzveig May 23, 2000
</TABLE>
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GUITRON INTERNATIONAL INC.
EXHIBITS
87
<PAGE>
GUITRON INTERNATIONAL INC.
EXHIBIT INDEX
EXHIBIT NO. ITEM PAGE
2.1 Form of Agreement and Plan of Reorganization among The
Guitron Corporation, a Canadian corporation, Guitron
International Inc., and the shareholders of The Guitron
Corporation 90
2.2 Form of Shareholder's Power of Attorney 95
2.3 Form of Shareholders Letter of Transmittal and Custody
Agreement 105
3.1 Certificate of Incorporation of Guitron International Inc.
filed December 6, 1999 108
3.2 Certificate of Incorporation of The Guitron Corporation
filed August 20, 1997. 112
3.3 By-Laws of Guitron International Inc. 120
4.1 Specimen Common Stock Certificate*
5.1 Opinion and Consent of Counsel*
10.1 Executive Agreement dated December 6, 1999 between Guitron
International Inc. and Richard Duffy 130
10.2 Marketing and Consulting Agreement dated September 29, 1999
between The Guitron Corporation and Marvin Chankowsky 141
10.3 Marketing Agreement dated June 1, 1999 between The Guitron
Corporation and Jean Pilote 149
10.4 Consulting Agreement dated December 6, 1999 between Guitron
International Inc. and Ashbyrne Consultants Inc. 157
88
<PAGE>
10.5 Form of Escrow Agreement between the Company and
Continental Stock Transfer & Trust Company 163
10.6 Loan Agreement dated as of July 30, 1999 between The
Guitron Corporation and Productions Polyart International
Inc. 172
10.7 Service Agreement dated January 31, 2000 between The
Guitron Corporation and Innovative Products Resources Ltd. 174
21 Subsidiaries - We presently have no subsidiaries. Following
the receipt of the minimum offering proceeds we will
acquire The Guitron Corporation, making such corporation a
wholly owned subsidiary of ours.
23 Consent of Pinkham & Pinkham, P.C., independent certified
public accountants 176
27 Financial Data Schedule (filed by EDGAR)
* To be filed by amendment
89
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization is entered into this ________
day of ______, 2000, by and between:
GUITRON INTERNATIONAL INC.
38 Place du Commerce, Suite 230
Nuns' Island, Montreal, Quebec
Canada H3E 1T8
("Acquiror")
THE GUITRON CORPORATION 38 Place du
Commerce, Suite 230 Nuns' Island,
Montreal, Quebec
Canada H3E 1T8
("Acquiree")
and
the SHAREHOLDERS of
THE GUITRON CORPORATION
as stated in Exhibit A
attached hereto
("Shareholders")
RECITALS
The Shareholders own an aggregate of 6,909,260 shares of Acquiree,
constituting all of the capital stock of Acquiree issued and outstanding as of
the date hereof.
Acquiror desires to acquire all of the issued and outstanding stock of
Acquiree, resulting in Acquiree's being a wholly-owned subsidiary of Acquiror
and the Shareholders desire to exchange their shares in Acquiree solely for
shares of Acquiror's $.001 par value common stock, on the terms and in
accordance with the provisions set forth herein.
Now, Therefore, in consideration of the mutual representations,
warranties, covenants, agreements and other premises set out herein, the parties
agree as follows:
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<PAGE>
AGREEMENT
1. Plan of Reorganization. The Shareholders are the owners of all of the
issued and outstanding shares of stock of Acquiree consisting of an aggregate of
6,909,260 shares (the "Acquiree Stock"). It is the intention of the parties
hereto that all of the Acquiree Stock be acquired by Acquiror (the
"Acquisition") in exchange solely for Acquiror voting stock.
2. Exchange of Shares. Acquiror and the Shareholders agree that all of the
Acquiree Stock shall be exchanged with Acquiror for shares of common stock of
Acquiror ("Acquiror Shares") on a pro rata basis, in proportion to their
stockholdings in Acquiree. The Acquiror Shares shall be issued and exchanged at
a ratio of 3.25 Acquiror Shares for each share of Acquiree Stock. Certain of the
Acquiror Shares to be issued to the shareholders will be registered for resale
pursuant to a Registration Statement on Form SB-2 (the "Registration Statement")
filed by Acquiror with the Securities and Exchange Commission on , 2000 (SEC
File No. ). The balance of the Acquiror Shares will not be registered with the
SEC and will be "Restricted Shares" as defined in Rule 144 promulgated by the
SEC. The Shareholders represent and warrant that they will hold such shares for
investment purposes and not for further public distribution absent SEC
registration or exemption therefrom.
3. Delivery of Shares. Prior to the Closing Date, the Shareholders will
deliver to Richard Duffy, attorney-in-fact for the Shareholders (the
"Attorney-in-Fact") certificates representing all of the Acquiree Stock, duly
endorsed for transfer to the Acquiror, free and clear of all claims and
encumbrances. Delivery of the Acquiror Shares (which shares, where required,
will be appropriately restricted as to transfer) will be made to the
Shareholders, at the Closing on the Closing Date, as set forth herein. The
transaction contemplated herein shall not close unless all of the shares
constituting the Acquiree Stock are delivered to the Acquiror by Mr. Duffy at
Closing.
4. Option Exercises. There are presently issued and outstanding options to
purchase a total of 454,800 shares of the capital stock of Acquiree ("Acquiree
Stock Options"). All of the said Acquiree Stock Options are held by certain of
the Shareholders and Principal Shareholders. The parties hereto agree that upon
the effectuation of the Acquisition: (i) all Acquiree Stock Options shall be
exercisable for the purchase of shares of the common stock of the Acquoror and
shall no longer be exercisable for the purchase of shares of the capital stock
of the Acquiree; (ii) the number of shares purchasable pursuant to the exercise
of the Acquiree Stock Options shall be increased at a ratio of 1:3.25, enabling
the holders of such options to purchase 3.25 shares of Acquiror's common stock
for each share of Acquiree Capital Stock for which such options were formerly
exercisable, at any time during the respective option exercise periods presently
in effect; and (iii) the exercise prices of each Acquiree Stock Option will be
adjusted downward so that the exercise price for the purchase of 3.25 shares of
Acquiror's
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Common Stock after the Acquisition shall be the same as the exercise price for
the purchase of one share of Acquiree's stock prior to the Acquisition.
5. Representations of the Shareholders and Acquiree. The Acquiree hereby
represents and warrants without restriction, and the Shareholders hereby
represent to the best of their knowledge that, as at this date and as at the
Closing Date, the representations listed below are true and correct.
(a) The Shareholders are the sole owners of all of all of the issued
and outstanding shares of the Acquiree Stock, such shares are free from claims,
liens, or other encumbrances; and the Shareholders have the unqualified right to
transfer and dispose of such shares. As to this representation, such ownership
and lien status is warranted by each individual Shareholder as to the respective
portion of the Acquiree Stock owned.
(b) The Acquiree Stock constitutes all of the issued and outstanding
stock of the Acquiree and are validly issued shares of Acquiree, fully-paid and
nonassessable.
(c) Between the effective date of the Registration Statement and the
Closing Date of this Agreement, Acquiree will not issue any additional shares of
stock or any other securities convertible into or exercisable for the stock of
Acquiree.
(d) The officers of Acquiree are duly authorized to execute this
Agreement and have taken all action required by law and agreements, charters,
by-laws, or otherwise, to properly and legally execute this Agreement.
6. Representations of Acquiror. Acquiror hereby represents and warrants as
follows:
(a) As of the Closing Date, the Acquiror Shares to be delivered to
the Shareholders will constitute valid and legally issued shares of Acquiror,
fully-paid and nonassessable, and will be legally equivalent in all respects to
the common stock of Acquiror issued and outstanding as of the date thereof.
(b) The officers of Acquiror are duly authorized to execute this
Agreement and have taken all action required by law and agreements, charters,
by-laws, or otherwise, to properly and legally execute this Agreement.
7. Closing Date. The Closing Date herein referred to shall be immediately
following the sale, in the public offering to be made by the Acquiror pursuant
to the Registration Statement, of the minimum amount offered therein. At the
Closing: (i) the Attorney-in-Fact shall deliver to the Acquiror the certificates
representing all of the shares of the Acquiree Stock, duly endorsed for transfer
to the Acquiror; and (iii) the Attorney-in-Fact shall accept delivery, on
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behalf of the Shareholders, of the certificate representing all of the Acquiror
Shares. Certain opinions, exhibits, and other documents may be delivered
subsequent to the Closing Date upon the mutual agreement of the parties hereto.
8. Nature and Survival of Representations. All representations, warranties
and covenants made by any party in this Agreement shall survive the Closing
hereunder and the consummation of the transactions contemplated hereby for two
years from the date hereof. All of the parties hereto are executing and carrying
out the provisions of this Agreement in reliance solely on the representations,
warranties and covenants and agreements contained in this Agreement or at the
Closing of the transactions herein provided for and not upon any investigation
upon which it might have made or any representations, warranty, agreement,
promise or information, written or oral, made by the other party or any other
person other than as specifically set forth herein.
9. Miscellaneous.
(a) Further Assurances. At any time, and from time to time, after
the effective date, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to carry out the
intent and purposes of this Agreement.
(b) Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived in
writing by the party to whom such compliance is owed.
(c) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person or sent
by prepaid first class registered or certified mail, return receipt requested
given to the party at the address stated at the outset of this Agreement.
(d) Headings. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(f) Governing Law. This Agreement shall be governed by the laws of
the State of Delaware.
(g) Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
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(h) Entire Agreement. This Agreement is the entire agreement of the
parties covering everything agreed upon or understood in the transaction. There
are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
(i) Benefit and Assignability. This agreement shall bind and inure
to the benefit of the parties hereto and their respective legal representatives,
successors and assigns, provided, however, that this Agreement cannot be
assigned by any party except by or with the written consent of the others.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or to give any person, firm or corporation other than the parties hereto
and their respective legal representatives, successors and assigns any rights or
benefits under or by reason of this Agreement.
In Witness Whereof, the parties have executed this Agreement the day and
year first above written.
ATTEST: THE GUITRON CORPORATION
__________________________ By___________________________________
Richard Duffy, President
ATTEST: GUITRON INTERNATIONAL INC.
__________________________ By___________________________________
Richard Duffy, President
ATTEST:
__________________________ _____________________________________
Richard Duffy, as Attorney-
In-Fact for the Shareholders
94
EXHIBIT 2.2
SHAREHOLDER'S POWER OF ATTORNEY
The Guitron Corporation
38 Place du Commerce, Suite 230
Nuns' Island, Montreal, Quebec
Canada H3E 1T8
Attention: Richard Duffy, President
Dear Mr. Duffy:
It is contemplated that the undersigned (hereinafter sometimes referred to
as the "Shareholder"), along with other shareholders of The Guitron Corporation
(the "Canadian Company") (such shareholders and the undersigned are hereinafter
sometimes referred to herein, collectively, as the "Shareholders") will exchange
their shares of the capital stock of the Canadian Company for shares in Guitron
International Inc., a Delaware Corporation (the "Delaware Company").
1. In connection with the foregoing, the undersigned hereby makes,
constitutes and appoints Richard Duffy the true and lawful attorney-in-fact of
the undersigned (the "Attorney-in-Fact"), with full power and authority, in the
name of and for and on behalf of the undersigned:
(a) To exchange the number of shares of stock of the Canadian Company (the
"Canadian Company Shares") owned by the undersigned, as set forth at Instruction
3 at the end of this Power of Attorney, for shares of the common stock of the
Delaware Company ("Delaware Company Shares") at a ratio of 3.25 Delaware Company
Shares for each Canadian Company Share.
(b) For the purpose of effecting such exchange, to execute and deliver an
Agreement and Plan of Reorganization among the Canadian Company, the Delaware
Company, and the Shareholders (the "Acquisition Agreement"), which includes
representations and warranties by the undersigned in substantially the form of
the preliminary copy of the Acquisition Agreement heretofore received by the
undersigned and attached as Appendix B hereto, containing such terms and
conditions as the Attorney-in-Fact, in his sole discretion, shall determine and,
if necessary, a stock power(s) evidencing the transfer of the shares to be
exchanged by the undersigned in accordance with the terms and conditions of the
Acquisition Agreement.
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(c) To deliver to the undersigned new certificates representing the number
of Delaware Company Shares which the undersigned shall be entitled to receive in
exchange for the undersigned's Canadian Company Shares at the closing of the
Acquisition Agreement and to return to the undersigned the old certificates
representing the undersigned's Canadian Company Shares in the event the
Acquisition Agreement is not executed or fails to close pursuant to the terms
thereof.
(d) To make, execute, acknowledge and deliver all such other contracts,
stock powers, orders, receipts, notices, instructions, certificates, letters and
other writings, and in general to do all things and to take all actions which
the Attorney-in-Fact, in his sole discretion, may consider necessary or proper
in connection with, or to carry out, the exchange of the Canadian Company Shares
for the Delaware Company Shares in accordance with the terms of the Acquisition
Agreement, as fully as could the undersigned if personally present and acting.
2. This Power of Attorney and all authority conferred hereby are granted
and conferred subject to and in consideration of the interests of the Canadian
Company, and the other Shareholders, and for the purposes of completing the
transactions contemplated by the Acquisition Agreement. This Power of Attorney
and all authority conferred hereby shall be irrevocable until December 31, 2000,
and shall not be terminated by any act of the undersigned or by operation of
law, whether by the death or incapacity of the undersigned (or either or any of
them) or by the occurrence of any other event or events (including, without
limiting the foregoing, the termination of any trust or estate for which the
undersigned is acting as a fiduciary or fiduciaries), and if after the execution
hereof the undersigned shall die or become incapacitated, or if any other such
event or events shall occur before the completion of the transactions
contemplated by the Acquisition Agreement and this Power of Attorney, all
actions taken by the Attorney-in-Fact hereunder shall be as valid as if such
death, incapacity, or other event or events had not occurred regardless of
whether or not the Attorney-in-Fact, shall have received notice of such death,
incapacity or other event.
3. The Attorney-in-Fact shall have full power to make and substitute any
attorney-in-fact in his place and stead, and the undersigned hereby ratifies and
confirms all that the Attorney-in-Fact or his substitute or substitutes shall do
by virtue of these present all actions hereunder which may be taken by the
Attorney-in-Fact or his substitutes. The term "Attorney-in-Fact"as used herein
shall include such substitutes.
4. The undersigned hereby represents, warrants and agrees that:
(a) The undersigned has full right, power and authority to enter into this
Power of Attorney and the Acquisition Agreement.
(b) The undersigned has and, at the time of delivery to the Delaware
Company of the Canadian Company Shares on the Closing Date (as such term is
defined in the Acquisition
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Agreement), will have full right, power and authority to sell, assign, transfer,
and deliver the Canadian Company Shares to be exchanged by him pursuant to the
Acquisition Agreement.
(c) He is, and at the time of the delivery of the Canadian Company Shares
on the Closing Date will be, the lawful owner of and has, and will then have,
valid and unencumbered title to such shares and, upon delivery and exchange of
such shares, in accordance with the terms of the Acquisition Agreement, the
Delaware Company will acquire valid and unencumbered title thereto.
(d) Neither the execution and delivery of the Acquisition Agreement, this
Power of Attorney, the fulfillment of the terms therein or herein set forth, nor
the consummation of the transactions therein or herein contemplated will
conflict with or constitute a breach of or default under any agreement or other
instrument to which the undersigned is a party, by which the undersigned is
bound, or to which the undersigned's property or assets are subject, or any
statute, order, rule, regulation, judgment or decree applicable to the
undersigned or the undersigned's property or assets.
(e) The certificates representing the shares to be exchanged by the
undersigned under the Acquisition Agreement are, and on the Closing Date will
be, genuine and valid and the undersigned has no knowledge of any fact which
would impair the validity of the certificates; the shares to be exchanged by the
undersigned under the Acquisition Agreement, have been duly and validly
authorized and issued and are fully paid and nonassessable; and upon delivery of
such shares and receipt in exchange therefor of 3.25 Delaware Company Shares for
every Canadian Company Share, the undersigned will convey valid and unencumbered
title to such shares.
(f) The undersigned has enclosed herewith a certificate or certificates
for the number of shares proposed to be exchanged by the undersigned under the
Acquisition Agreement, in proper form for good delivery, and duly executed, and
has granted the Attorney-in-Fact irrevocable authority to purchase all requisite
stock transfer tax stamps and to hold such certificate or certificates for good
delivery, and for exchange for certificates for The Delaware Company Shares,
pursuant to the provisions of the Acquisition Agreement, on the Closing Date on
the undersigned's behalf, and the undersigned has duly executed and delivered
this Power of Attorney appointing Richard Duffy, with full power of
substitution, as such Shareholder's Attorney-in-Fact.
5. The Attorney-in-Fact shall be entitled to act and rely upon any
statement, request, notice or instructions respecting this Power of Attorney
given by the undersigned, not only as to the authorization, validity and
effectiveness thereof, but also as to the truth and acceptability of any
information contained therein; It is understood that the Attorney-in-Fact
assumes no responsibility or liability to any person other than to deal with the
certificates for the Canadian Company Shares deposited with him and the
certificates for the Delaware Company Shares to be exchanged therefor in
accordance with the provisions hereof. The Attorney-in-Fact shall not be liable
for any error of judgment or for any act done or omitted or for any mistake of
fact or law except for the Attorney-in-Fact's own negligence or bad faith.
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6. It is understood that the Attorney-in-Fact shall serve entirely without
compensation.
This Power of Attorney shall terminate if the Acquisition, as that term is
defined in the Acquisition Agreement, is not closed on or prior to December 31,
2000.
Witness the due execution of the foregoing Power of Attorney as of the
date written below.
INSTRUCTIONS
THIS POWER OF ATTORNEY MUST BE RETURNED TO THE COMPANY TOGETHER WITH A
CERTIFICATE OR CERTIFICATES REPRESENTING ALL SHARES OF STOCK HELD BY YOU IN THE
GUITRON CORPORATION, DULY COMPLETED BY _______________________.
1. Fill in Date. ____________________
2. Fill in number of shares of
stock beneficially* owned
by you in The Guitron
Corporation. ____________________
3. Fill in number of shares of
The Guitron Corporation
beneficially* represented
by certificates enclosed
herewith ____________________
5. Sign exactly as name or names appear on stock certificate. If certificate is
held in more than one name, all must sign.
________________________________________
________________________________________
________________________________________
________________________________________
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6. Fill in your address.
________________________________________
________________________________________
________________________________________
________________________________________
7. Have this Power of Attorney notarized in the appropriate form on the next
page(s).
8. Return this Power of Attorney, and your stock certificate(s) in the
enclosed envelope.
9. Notice to all Shareholders who are custodians, trustees and/or guardians:
Please enclose copies of all documentation demonstrating your authority to
enter into and be bound by this Power of Attorney and the Custody
Agreement (e.g., enclose appropriate trust agreement; etc.).
- ----------
*See Appendix A attached hereto.
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<PAGE>
ACKNOWLEDGMENT FOR INDIVIDUAL
STATE (PROVINCE) OF _______________ )
) SS.
COUNTY OF ______________ )
On this _______________ day of _______________, in the year , before me, a
Notary Public in and for the (State) (Province) of _______________, personally
appeared _______________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to this
instrument, and acknowledged that _____ executed it.
(SEAL)
______________________________
Notary Public
State (Province) of _______________
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<PAGE>
ACKNOWLEDGMENT FOR INDIVIDUAL
SERVING AS ATTORNEY-IN-FACT
FOR SHAREHOLDER
STATE (PROVINCE) OF _______________ )
) SS.
COUNTY OF ______________ )
On this __________ day of _______________, in the year _______, before me,
a Notary Public in and for the State of _______________, personally appeared
_______________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to this
instrument as the attorney-in-fact of _______________, and acknowledged to me
that _____ he subscribed the name of _______________ thereto as principal, and
his (her) own name as attorney-in-fact.
(SEAL)
______________________________
Notary Public
State (Province) of _______________
101
<PAGE>
CORPORATE ACKNOWLEDGMENT
STATE (PROVINCE) OF }
} ss.
COUNTY OF }
On this day of , 2000, before me personally appeared ____________________
(and _______________________) to me known, who being by me sworn, did depose and
say that such person(s) is (are) the _____________________________ (and the ___)
of _______________________________, the corporation described in and which
executed the foregoing instrument and that such person(s) so executed such
instrument by order of the Board of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[Notary Seal] ..........................................
My Commission Expires: ........................................
102
<PAGE>
PARTNERSHIP ACKNOWLEDGMENT
STATE (PROVINCE) OF }
} ss.
COUNTY OF }
On this ______ day of ____________, 2000, before me personally appeared
________________________ one of the partners of the firm of
________________________, known to me to be the person who executed the
foregoing instrument and acknowledged that he/she executed, and was duly
authorized to execute, the same as and for the act and deed of said firm.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
[Notary Seal] ..........................................
My Commission Expires: ........................................
103
<PAGE>
APPENDIX A
Definitions
For purpose of the representations made in the Power of Attorney, the
following definitions shall be applicable:
"Beneficially" when used in connection with the ownership of securities,
means (a) any interest in a security which entitles a party to any of the rights
or benefits of ownership even though such party may not be the owner of record
or (b) securities owned by such party directly or indirectly, including those
held by him for his own benefit (regardless of how registered) and securities
held by others for his benefit (regardless of how registered), such as by
custodians, brokers, nominees, pledgees, etc., and including securities held by
an estate or trust in which such party has an interest as legatee or
beneficiary, securities owned by a partnership or which such party is a partner,
securities held by a personal holding company of which such party is a
stockholder, etc., and securities held in the name of such party's spouse, minor
children and any relative (sharing the same home). A "beneficial owner" of a
security includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares:
(1) Voting power which includes the power to vote, or to direct the
voting of, such security; and/or
(2) investment power which includes the power of dispose, or to direct
the disposition of such security.
104
EXHIBIT 2.3
SHAREHOLDER'S LETTER OF TRANSMITTAL
AND
CUSTODY AGREEMENT
The Guitron Corporation
38 Place du Commerce, Suite 230
Nuns' Island, Montreal, Quebec
Canada H3E 1T8
Attention: Richard Duffy, President
Dear Mr. Duffy:
The undersigned hereby delivers to you a certificate or certificates (the
"Certificate(s)) representing _______________ shares (the "Canadian Company
Shares") of issued and outstanding stock of The Guitron Corporation (the
"Canadian Company"), duly endorsed for transfer. You are to hold the
Certificate(s) as Custodian for the account of the undersigned and dispose of
them in accordance with this Letter of Transmittal.
Concurrently with the execution and delivery of this Letter of
Transmittal, the undersigned has executed a Power of Attorney (the "Power of
Attorney") to Richard Duffy, (the "Attorney") authorizing the Attorney to
exchange all of the Canadian Company Shares represented by the Certificate(s)
for shares (the "Delaware Company Shares") of the common stock of Guitron
International Inc., a Delaware Corporation (the "Delaware Company") and for that
purpose to enter into an Agreement and Plan of Reorganization among the Canadian
Company, the Delaware Company, and the shareholders of the Canadian Company (the
"Acquisition Agreement"), for certificates representing 3.25 Delaware Company
Shares for every one Canadian Company Share delivered to you herewith.
If the Acquisition Agreement shall not be entered into prior to December
31, 2000, or if it shall be terminated pursuant to the provisions thereof, you
are to return the Certificate(s) to the undersigned.
Under the terms of the power of Attorney, the authority thereby conferred
is subject to the interests of the Company, the other Shareholders, and prior to
December 31, 2000, is irrevocable and not subject to termination by the
undersigned or by operation of law, whether by death or incapacity or otherwise,
and the obligations of the undersigned under the Acquisition
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Agreement are to be similarly not subject to termination. Accordingly, the
certificate(s) deposited herewith, and this Letter of Transmittal and your
authority hereunder, are subject to the interests of the Company, and the other
Shareholders, and this Letter of Transmittal and your authority hereunder shall
not be subject to termination by the undersigned or by operation of law, whether
by the death or incapacity of the undersigned (or either or any of them) or by
the occurrence of any other event or events. Notwithstanding any such death,
incapacity of other event or events, you are nevertheless authorized and
directed to deal with the Certificate(s) deposited hereunder in accordance with
the terms and conditions hereof and of the Acquisition Agreement as if such
death, incapacity or other event or events had not occurred regardless of
whether you shall have received notice of such death, incapacity or other event
or events.
Until the Canadian Company Shares deposited herewith are exchanged
pursuant to the terms of the Acquisition Agreement, the undersigned shall remain
the owner of such shares, and shall have the right to vote such shares and to
receive all dividends or distributions thereon.
You shall be entitled to act and rely upon any statement, request, notice,
or instruction respecting this Letter of Transmittal given to you by the
Attorney or his respective substitutes.
It is understood that you assume no responsibility or liability to any
person other than to deal with the Certificate(s) deposited herewith and the
certificates for the Delaware Company Shares proposed to be exchanged therefor.
This instrument constitutes a representation of the authority of the
undersigned to execute and deliver this Letter of Transmittal, the Power of
Attorney and the Acquisition Agreement and to exchange the shares represented by
the certificate(s) deposited herewith and that good title to such shares, free
and clear of all liens, encumbrances, equities and claims whatsoever, will be
transferred to the Delaware Company under the Acquisition Agreement.
Please acknowledge receipt of the enclosed certificate(s) and your
acceptance of the authority and powers hereby conferred on you, by signing and
returning the enclosed copy of this letter.
Very truly yours,
____________________________
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<PAGE>
Number of Shares of Stock
Represented by Certificate(s)
Deposited Herewith
Serial Number Number of Shares Represented by Each
of Certificates Certificate
- --------------- ------------------------------------
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
RECEIPT OF CUSTODIAN
Receipt of the above certificates and acceptance of the authority and
powers herein conveyed are hereby acknowledged on this __________ day of
_______________, 2000.
________________________
Richard Duffy
107
EXHIBIT 3.1
PAGE 1
Office of the Secretary of the State
------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "GUITRON INTERNATIONAL INC.", FILED IN THIS OFFICE ON THE SIXTH
DAY OF DECEMBER, A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SECRETARY'S OFFICE SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
3136333 8100 AUTHENTICATION: 0120779
991518785 DATE: 12-07-99
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/06/1999
991518785 - 3136333
CERTIFICATE OF INCORPORATION
OF
GUITRON INTERNATIONAL INC.
-------------------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is GUITRON INTERNATIONAL INC.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware at such address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH The total number of shares of stock which the corporation
shall have authority to issue is twenty million. The par value of each of such
shares is one mill. All such shares are of one class and are shares of Common
Stock.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
John S. Hoenigmann Two World Trade Center
Suite 8746
New York, New York 10048-8798
SIXTH: The corporation is to have perpetual existence.
-1-
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SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss. 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
ss. 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of
directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss. 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the Bylaws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of ss. 141 of the General Corporation Law of the State of
Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by
the stockholders entitled to vote of the corporation unless provisions for
such classification shall be set forth in this certificate of
incorporation.
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<PAGE>
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of ss. 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of ss. 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
provisions of ss. 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on December 3, 1999.
/s/ John S. Hoenigmann
-----------------------------------------
John S. Hoenigmann, Incorporator
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111
EXHIBIT 3.2
Quebec [GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
CERTIFICAT DE CONSTITUTION
Loi sur les compagnies, Partie IA
(L.R.Q., chap. C-38)
J'atteste par les presentes que la compagnie
LA CORPORATION GUITRON
et sa ou ses version(s)
THE GUITRON CORPORATION
a ete constituee le 20 AOUT 1997, en vertu de la partie IA de
la Loi sur les compagnies, tel qu'indique dans les statuts de
constitution ci-joints.
Depose au registre le 22 aout 1997
sous le matricule 1147041983
[SEAL] Gouvernement
du Quebec
L'Inspecteur /s/ ILLEGIBLE
general des Inspecteur general des institutions financieres
institutions
financieres
T010G13C89L12AA
112
<PAGE>
Gouvernement du Quebec A-110720-H9401
L'Inspecteur general
des institutions financieres
Form 1
ARTICLES OF INCORPORATION
The Companies Act, R.S.Q., c. C-38
Part 1A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Corporate name
LA CORPORATION GUITRON
THE GUITRON CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
2 Quebec judicial district wherein 3 Precise number of minimum and 4 Effective date if after filing date
company is setting up its head maximum number of directors
office
Montreal MIMIMUM: 1 MAXIMUM: 15 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
5 Description of share capital
The annexed Schedule 1 is incorporated in this form.
- ------------------------------------------------------------------------------------------------------------------------------------
6 Restrictions (if any) on transfer of shares
Any transfer of shares shall require the approval of the majority of the
directors.
- ------------------------------------------------------------------------------------------------------------------------------------
7 Limitations (if any) on company activity
None
- ------------------------------------------------------------------------------------------------------------------------------------
8 Other provisions
The annexed Schedule 2 is incorporated in this form.
- ------------------------------------------------------------------------------------------------------------------------------------
9 Incorporators
- ------------------------------------------------------------------------------------------------------------------------------------
Address and postal code Signature of each incorporator
(if a corporation, give head office (if a corporation, signature
Name and surname address and incorporation act) of authorized person)
- ------------------------------------------------------------------------------------------------------------------------------------
Rosentzveig, David L. 1000 Sherbrooke Street West /s/ David L. Rosentzveig
27th Floor
Montreal
Quebec H3A 3G4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If space is insufficient, attach an appendix in two (2) copies
- --------------------------------------------------------------------------------
For departmental use only CA-211 (Rev. 12-95)
- ----------------------------
Gouvernement du Quebec
depose le
20 AOUT 1997
L'Inspecteur general des
Institutions financieres [LOGO] Corporatek
- ----------------------------
113
<PAGE>
SCHEDULE 1
The Company is authorized to issue an unlimited number of each of the following
classes of shares: Common shares, Class A shares, Class B shares, Class C
shares, Class D shares, Class E shares and Class F shares, all without par
value. The rights, privileges, restrictions and conditions attached to each
class of shares are as follows:
1.0 COMMON SHARES
1.1 The holders of the Common shares shall be entitled to receive notice of,
attend and vote at all meetings of shareholders, except meetings at which
only holders of a specified class of shares are entitled to vote. Each
Common share shall entitle its holder to one (1) vote.
1.2 Subject to the prior rights of the holders of the Class B, Class C, Class
D, Class E and Class F shares, the holders of the Common shares shall be
entitled to receive the remaining property of the Company upon
dissolution.
2.0 CLASS A SHARES
2.1 The Class A shares rank pari passu in all respects with the Common shares,
save and except that, subject to the provisions of the Companies Act, the
holders of the Class A shares shall not, as such, have any right to
receive notice of, attend or vote at meetings of shareholders.
3.0 CLASS B SHARES
3.1 The holders of the Class B shares shall be entitled to receive notice of,
attend and vote at all meetings of shareholders, except meetings at which
only holders of a specified class of shares are entitled to vote. Each
Class B share shall entitle its holder to one (1) vote.
3.2 Save and except for such dividends or distributions as are expressly
contemplated in this Section 3.0, the holders of the Class B shares shall
not be entitled to further participation in any earnings or profits of the
Company or in the value of its assets.
3.3 Annual, non-cumulative dividends may be declared by the directors on the
Class B shares provided that the aggregate amount thereof shall not be
greater than 8% of the amount of the consideration for which such shares
were issued and provided that such dividends shall only be payable if, as
and when declared and at such times and in such manner as the directors
may determine in their discretion. The holders of
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the Class B shares shall not be entitled to any dividends other than or in
excess of the above dividends.
3.4 The Company may redeem any Class B share issued by it at a price equal to
the amount of the consideration for which such share was issued. At the
time of payment of such redemption price, the Company shall pay to the
holder of said share the amount of any dividend declared thereon and
unpaid.
3.5 Upon dissolution of the Company, the holders of the Class B shares shall
be entitled to receive an amount equal to the amount of the consideration
for which such shares were issued, together with any dividends declared
thereon and unpaid, and no more, the whole in priority to the distribution
of any property to the holders of the Common and Class A shares.
4.0 CLASS C SHARES
4.1 Subject to the provisions of the Companies Act, the holders of the Class C
shares shall not, as such, have any right to receive notice of, attend or
vote at meetings of shareholders.
4.2 Save and except for such dividends or distributions as are expressly
contemplated in this Section 4.0, the holders of the Class C shares shall
not be entitled to further participation in any earnings or profits of the
Company or in the value of its assets.
4.3 Annual, non-cumulative dividends may be declared by the directors on the
Class C shares provided that the aggregate amount thereof shall not be
greater than 10% of the amount of the consideration for which such shares
were issued and provided that such dividends shall only be payable if, as
and when declared and at such times and in such manner as the directors.
may determine in their discretion. The holders of the Class C shares shall
not be entitled to any dividends other than or in excess of the above
dividends.
4.4 The Company may redeem any Class C share issued by it at a price equal to
the amount of the consideration for which such share was issued. At the
time of payment of such redemption price, the Company shall pay to the
holder of said share the amount of any dividend declared thereon and
unpaid.
4.5 Upon dissolution of the Company, the holders of the Class C shares shall
be entitled to receive an amount equal to the amount of the consideration
for which such shares were issued, together with any dividends declared
thereon and unpaid, and no more, the whole in priority to the distribution
of any property to the holders of the Common, Class A and Class B shares.
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5.0 CLASS D SHARES
5.1 Subject to the provisions of the Companies Act, the holders of the Class D
shares shall not, as such, have any right to receive notice of, attend or
vote at meetings of shareholders.
5.2 Save and except for such dividends or distributions as are expressly
contemplated in this Section 5.0, the holders of the Class D shares shall
not be entitled to further participation in any earnings or profits of the
Company or in the value of its assets.
5.3 Monthly, non-cumulative dividends may be declared by the directors on the
Class D shares provided that the aggregate amount thereof shall not be
greater than FIFTY CENTS ($0.50) per share and provided that such
dividends shall only be payable if, as and when declared and at such times
and in such manner as the directors may determine in their discretion. The
holders of the Class D shares shall not be entitled to any dividends other
than or in excess of the above dividends.
5.4 The Company may, and upon the demand of any holder thereof shall, redeem
any Class D share issued by it at a price per share equal to One Hundred
Dollars ($100). At the time of payment of such redemption price, the
Company shall pay to the holder of said share the amount of any dividend
declared thereon and unpaid.
5.5 Upon dissolution of the Company the holders of the Class D shares shall be
entitled to receive an amount equal to One Hundred Dollars ($100) per
share, together with any dividends declared thereon and unpaid, and no
more, the whole in priority to the distribution of any property to the
holders of the Common, Class A, Class B and Class C shares.
6.0 CLASS E SHARES
6.1 Subject to the provisions of the Companies Act, the holders of the Class E
shares shall not, as such, have any right to receive notice of, attend or
vote at meetings of shareholders.
6.2 Save and except for such dividends or distributions as are expressly
contemplated in this Section 6.0, the holders of the Class E shares shall
not be entitled to further participation in any earnings or profits of the
Company or in the value of its assets.
6.3 Annual, non-cumulative dividends may be declared by the directors on the
Class E shares provided that the aggregate amount thereof shall not be
greater than 9% of the amount of the consideration for which such shares
were issued and
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<PAGE>
-4-
provided that such dividends shall only be payable if, as and when
declared and at such times and in such manner as the directors may
determine in their discretion. The holders of the Class E shares shall not
be entitled to any dividends other than or in excess of the above
dividends.
6.4 The Company may, and upon the demand of any holder thereof shall, redeem
any Class E share issued by it at a price equal to the amount of the
consideration for which such share was issued. At the time of payment of
such redemption price, the Company shall pay to the holder of said share
the amount of any dividend declared thereon and unpaid.
6.5 Upon dissolution of the Company the holders of the Class E shares shall be
entitled to receive an amount equal to the amount of the consideration for
which such shares were issued, together with any dividends declared
thereon and unpaid, and no more, the whole in priority to the distribution
of any property to the holders of the Common, Class A, Class B, Class C
and Class D shares.
7.0 CLASS F SHARES
7.1 Subject to the provisions of the Companies Act, the holders of Class F
shares shall not, as such, have any right to receive notice of, attend or
vote at meetings of shareholders.
7.2 Save and except for such dividends or distributions as are expressly
contemplated in this Section 7.0, the holders of the Class F shares shall
not be entitled to further participation in any earnings or profits of the
Company or in the value of its assets.
7.3 Monthly, non-cumulative dividends may be declared by the directors on the
Class F shares provided that the aggregate amount thereof shall not be
greater than 1% of the amount of the consideration for which such shares
were issued and provided that such dividends shall only be payable if, as
and when declared and at such times and in such manner as the directors
may determine in their discretion. The holders of the Class F shares shall
not be entitled to any dividends other than or in excess of the above
dividends.
7.4 The Company may, and upon the demand of any holder thereof shall, redeem
any Class F share issued by it at a price per share equal to the amount of
the consideration for which such share was issued. At the time of payment
of such redemption price, the Company shall pay to the holder of said
share the amount of any dividend declared thereon and unpaid.
7.5 Upon dissolution of the Company, the holders of the Class F shares shall
be entitled to receive an amount equal to the
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<PAGE>
-5-
amount of the consideration for which such shares were issued, together
with any dividends declared thereon and unpaid, and no more, the whole in
priority to the distribution of any property to the holders of any other
class of shares.
8.0 DIVIDENDS
8.1 Subject to the provisions of the Companies Act and of this Schedule, the
directors may declare dividends on both the Common and the Class A shares
or on the Class B shares, the Class C shares, the Class D shares, the
Class E shares or the Class F shares alone, at such times, in such manner
and in such amounts as they may determine in their discretion.
8.2 Nothing contained herein shall oblige the directors to declare any
dividend or, except as hereinabove provided in respect of the Common and
Class A shares, to declare a dividend on one class of shares when a
dividend is declared on another class of shares.
9.0 PURCHASE OR ACQUISITION OF SHARES BY THE COMPANY
9.1 Subject to the provisions of the Companies Act and of this Schedule, the
Company may, with the consent of the holder, purchase or otherwise acquire
any share issued by it, at such times, in such manner and for such
consideration as the directors of the Company may determine in their
discretion, provided that the Company may not purchase or otherwise
acquire any Class B, Class C, Class E or Class F share for an amount
greater than the amount of the consideration for which such share was
issued nor may the Company purchase or otherwise acquire any Class D share
for an amount greater than the redemption price thereof.
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SCHEDULE 2
1.0 The Company shall have a lien on any share registered in the name of a
shareholder or his legal representative for a debt of that shareholder to
the Company.
2.0 The number of shareholders of the Company shall be limited to fifty (50),
exclusive of persons who are in the employment of the Company or of any of
its subsidiaries and of persons who, having been formerly in the
employment of the Company or any of its subsidiaries were, while in that
employment, and have continued to be after the termination of that
employment, shareholders of the Company, two (2) or more persons who are
the joint registered owners of one (1) or more shares being counted as a
single shareholder.
3.0 Any invitation to the public to subscribe for any securities of the
Company is prohibited.
4.0 Without in any way limiting the powers conferred upon the Company or its
directors by any of the provisions of the Companies Act, but subject to
the provisions thereof, the directors of the Company may, without the
authorization of the shareholders, cause the Company to,
4.1 hypothecate or otherwise create a security interest in any property,
moveable or immoveable, present or future, which the Company may
presently own or subsequently acquire, for the purpose of securing
any bonds, debentures or securities which it is by law entitled to
issue or for the purpose of securing the performance of any
obligation of the Company;
4.2 borrow money, without limitation or restriction, upon the credit of
the Company;
4.3 issue, re-issue, sell or hypothecate debt obligations of the
Company; or
4.4 guarantee the performance of any obligation of any person.
5.0 The shareholders of the Company may participate and vote at a
shareholders' meeting by any means allowing all the participants to
communicate with each other.
6.0 The election of the directors of the Company and its annual meeting may be
held outside of the Province of Quebec.
119
EXHIBIT 3.3
BYLAWS
OF
GUITRON INTERNATIONAL INC.
(a Delaware corporation)
----------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock
in the corporation shall be signed by, or in the name of, the corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were such officer, transfer
agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors may
require the owner of the lost, stolen, or destroyed certificate, or such owner's
legal representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution
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or resolutions that some or all of any or all classes or series of the stock of
the corporation shall be uncertificated shares. Within a reasonable time after
the issuance or transfer of any uncertificated shares, the corporation shall
send to the registered owner thereof any written notice prescribed by the
General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by the registered holder's attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board
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<PAGE>
of Directors may fix a new record date for the adjourned meeting. In order that
the corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining the
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting
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<PAGE>
rights under the provisions of the certificate of incorporation, except as any
provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- ALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at such stockholder's record address or
at such other address which such stockholder may have furnished by request in
writing to the Secretary of the corporation. Notice by mail shall be deemed to
be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice of
the adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned meeting. Notice need not be given to any stockholder who
submits a written waiver of notice signed by such stockholder before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose
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of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairperson of the Board, if any, the Vice-Chairperson of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairperson to be chosen by the
stockholders. The Secretary of the corporation, or in such Secretary's absence,
an Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the chairperson of the
meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for such stockholder by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by such
stockholder's attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and, if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need
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not, appoint one or more inspectors. In case any person who may be appointed as
an inspector fails to appear or act, the vacancy may be filled by appointment
made by the directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, if any, before entering upon the discharge of
duties of inspector, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of such inspector's ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots, or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots, or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting,
the inspector or inspectors, if any, shall make a report in writing of any
challenge, question, or matter determined by such inspector or inspectors and
execute a certificate of any fact found by such inspector or inspectors. Except
as may otherwise be required by subsection (e) of Section 231 of the General
Corporation Law, the provisions of that Section shall not apply to the
corporation.
- QUORUM. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to
one vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Except as any provision of
the General Corporation Law may otherwise require, any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
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ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder,
a citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
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- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairperson of the Board, if any, the Vice-Chairperson of the
Board, if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by such
director or member before or after the time stated therein. Attendance of any
such person at a meeting shall constitute a waiver of notice of such meeting,
except when such person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute
a quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRPERSON OF THE MEETING. The Chairperson of the Board, if any
and if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairperson of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by the Board,
shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with
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or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
6. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
any such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation with
the exception of any power or authority the delegation of which is prohibited by
Section 141 of the General Corporation Law, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairperson of the Board, a Vice-Chairperson of the Board,
an Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing such officer, no officer other than the Chairperson or
Vice-Chairperson of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing such officer,
each officer shall be chosen for a term which shall continue until the meeting
of the Board of Directors following the next annual meeting of stockholders and
until such officer's successor shall have been chosen and qualified.
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All officers of the corporation shall have such authority and
perform such duties in the management and operation of the corporation as shall
be prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office except
to the extent that such resolutions may be inconsistent therewith. The Secretary
or an Assistant Secretary of the corporation shall record all of the proceedings
of all meetings and actions in writing of stockholders, directors, and
committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to such Secretary or
Assistant Secretary. Any officer may be removed, with or without cause, by the
Board of Directors. Any vacancy in any office may be filled by the Board of
Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and
the provisions of the General Corporation Law, the power to amend, alter, or
repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of
Directors or by the stockholders.
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EXHIBIT 10.1
EXECUTIVE AGREEMENT
This Executive Agreement (the "Agreement") is made and entered into as of
this date by and between Guitron International Inc., a Delaware corporation (the
"Corporation"), and Richard Duffy ("the Executive").
Whereas, the Corporation and the Executive desire that the term of this
Agreement begin as of December 6, 1999 (the "Effective Date").
Whereas, the Corporation desires to employ the Executive as its President,
to serve in such position as its Chief Executive Officer and the Executive is
willing to accept such employment by the Corporation, on the terms and subject
to the conditions set forth in this Agreement.
Now Therefore, it is agreed as follows:
1. Definitions
For the purposes of this Agreement the following terms shall have the
following meanings:
1.1 "Change in Control" shall mean (i) the time that the Corporation first
determines that any person and all other persons who constitute a group (within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act") have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of twenty percent (20%) or
more of the Corporation's outstanding securities, unless a majority of the
"Continuing Directors", as that term is defined in Paragraph 1.3, approves the
acquisition not later than ten (10) business days after the Corporation makes
that determination, or (ii) the first day on which a majority of the members of
the Corporation's Board of Directors are not "Continuing Directors."
1.2 "Constructive Termination" shall mean termination by the Corporation
of the Executive's employment by reason of material breach of this Agreement by
the Corporation, such "Constructive Termination" to be effective upon 30 days
written notice thereof from the Executive to the Corporation.
1.3 "Continuing Directors" shall mean, as of any date of determination,
any member of the Board of Directors of the Corporation who (i) was a member of
that Board of Directors on December 6, 1999, (ii) has been a member of that
Board of Directors for the two years
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immediately preceding such date of determination, or (iii) was nominated for
election or elected to the Board of Directors with the affirmative vote of the
greater of (x) a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election or (y) at least four Continuing
Directors.
1.4 "Effective Date" shall mean December 6, 1999
1.5 "Termination For Cause" shall mean termination by the Corporation of
the Executive's employment by the Corporation by reason of the Executive's
willful dishonesty towards, fraud upon, or deliberate injury or attempted injury
to, the Corporation or by reason of the Executive's willful material breach of
this Agreement which has resulted in material injury to the Corporation. For
purposes of this paragraph, no act, or failure to act, on the Executive's part
shall be considered "willful" or "deliberate" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Corporation. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
without (i) written notice to the Executive setting forth the reasons for the
Corporation's intention to terminate for Cause, (ii) an opportunity on not less
than 20 days written notice from the Corporation to the Executive for the
Executive, together with his counsel, to be heard before the full Board of
Directors of the Corporation, and (iii) delivery to the Executive of a Notice of
Termination as defined in Paragraph 6.9 hereof from the Board of Directors
finding that, following such hearing before the Board, in the good faith opinion
of such Board, the Executive was guilty of conduct set forth above and
specifying the particulars thereof in detail.
1.6 "Termination for Good Reason" shall mean termination by the Executive
of the Executive's employment by the Corporation because of: (i) a "Change in
Control", as defined in Paragraph 1.1, above, (ii) a failure by the Corporation
to comply with any material provision of this Agreement which has not been cured
within ten (10) days after notice of such noncompliance has been given by the
Executive to the Company, (iii) the determination by the Executive that because
of changes in the composition or policies of the Board of Directors of the
Corporation, or of other events or occurrences of material effect, that the
Executive can no longer properly and effectively discharge his responsibilities
as Chief Executive Officer of the Corporation after giving the Corporation not
less than thirty (30) days prior written notice of the effective date of such
termination, or (iv) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Paragraph 6.9 hereof (and for purposes of this agreement no such
purported termination shall be effective).
1.7 "Termination Other Than For Cause" shall mean termination by the
Corporation of the Executive's employment by the Corporation (other than in a
Termination for Cause) and shall include "Constructive Termination", as that
term is defined in Paragraph 1.2.
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1.8 "Termination Upon a Change in Control" shall mean a termination by the
Corporation of the Executive's employment with the Corporation within 120 days
following a "Change in Control", as that term is defined in Paragraph 1.1.
1.9 "Voluntary Termination" shall mean termination by the Executive of the
Executive's employment by the Corporation other than (i) Constructive
Termination, (ii) Termination Upon a Change in Control, (iii) Termination for
Good Reason, and (iv) termination by reason of the Executive's death or
disability as described in Paragraphs 6.4 and 6.5.
2. Employment
During the term of this Agreement, the Executive agrees to be employed by
the Corporation and to serve as its President, serving in such position as the
Corporation's Chief Executive Officer or in such other positions as the
Corporation shall require, and the Corporation agrees to employ and retain the
Executive in such capacities.
3. Duties and Responsibilities
The Executive shall devote a substantial portion of his business time,
energy, and skill to the affairs of the Corporation, reporting to its Board of
Directors, and at all times during the term of this Agreement the Executive
shall have powers and duties at least commensurate with his positions as
President and Chief Executive Officer.
The Corporation hereby acknowledges that the Executive has reviewed with
the Board of Directors of this Corporation, any positions held by him in other
business organizations, and the Corporation agrees to and approves of the
Executive's continuance in such present capacities, none of which are deemed by
the Corporation to reflect a conflict of interest with the Executive's duty of
loyalty to the Corporation. Any future proposed positions or activities in
outside ventures shall be subject to review by the Corporation's Board of
Directors, provided however, that such Board shall not prohibit any such
activities unless a potential material conflict shall exist.
4. Term of Employment
The term of employment of the Executive by the Corporation shall be for a
period of three (3) years beginning with the Effective Date (the "Initial
Term"), unless terminated earlier pursuant to Section 6. At any time prior to
the expiration of the Initial Term, the Corporation and the Executive may by
mutual written agreement extend the Executive's employment under the terms of
this Agreement for such additional periods as they shall mutually agree.
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5. Salary, Benefits and Bonus Compensation
5.1 Base Salary. As payment for the services to be rendered by the
Executive as provided in Section 3, the Corporation agrees to pay to the
Executive a "Base Salary" for the twelve (12) calendar months beginning the
Effective Date at the rate of one hundred thousand US dollars ($100,000) per
annum payable in cash, subject to annual review and increase, as the Board of
Directors shall determine.
5.2 Bonuses. The Executive shall be eligible to receive a discretionary
bonus for each year (or portion thereof) during the term of this Agreement and
any extensions thereof, with the actual amount of any such bonus to be
determined in the sole discretion of the Board of Directors based upon its
evaluation of the Executive's performance during such year. All such bonuses
shall be reviewed annually by the Compensation Committee of the Board of
Directors, if any shall be in existence.
5.3 Additional Benefits. During the term of this Agreement, the Executive
shall be entitled to the following fringe benefits:
5.3.1 Executive Benefits. The Executive shall be eligible to
participate in such of the Corporation's benefits and deferred
compensation plans as are now generally available or later
made generally available to executive officers of the
Corporation, including, without limitation, stock option
plans, profit sharing plans, annual physical examinations,
dental and medical plans, personal catastrophe and disability
insurance, financial planning, retirement plans and
supplementary executive retirement plans, if any. For purposes
of establishing the length of service under any benefit plans
or programs of the Corporation, the Executive's employment
with the Corporation will be deemed to have commenced on the
Effective Date.
5.3.2 Vacation. The Executive shall be entitled to vacation time
during each year during the term of this Agreement and any
extensions thereof, in an amount to be determined by the Board
of Directors.
5.4 Reimbursement for Expenses. During the term of this Agreement, the
Corporation shall reimburse the Executive for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by the Executive
in connection with his duties under this Agreement.
5.5 Compensation Shares in Lieu of Cash Payments. Notwithstanding the
requirements of Paragraph 5.1, above, the Executive and the Corporation agree
and acknowledge that:
5.5.1 From time to time, during the foreseeable future, the
Corporation may not have available the financial resources to pay to the
Executive, in cash, the amount of his Base Salary then due to him. In such
event, with the consent of the Executive, the obligations of the
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Corporation with respect to any unpaid amount of Base Salary may be satisfied by
the issuance to the Executive of shares of the common stock of the Corporation
("Compensation Shares"), which Compensation Shares shall constitute compensation
pursuant to the terms of this Executive Agreement.
5.5.2 All Compensation Shares will be issued to the Executive at a
value, to be determined by the Board of Directors. Where practical, such value
shall be determined to be equal to a percentage of the average of the high and
low bid prices of the Corporation's common stock, during the trading period when
such Compensation Shares were earned, as traded in the over-the-counter market
and quoted in the OTC Bulletin Board or such other public market in the United
States in which the common stock of the Corporation shall then be traded.
5.5.3 From time to time, all or part of the Compensation Shares may
be registered by the Corporation under a Registration Statement on Form S-8,
including a Re-offer Prospectus, as and at such time as the Board of Directors
of the Corporation or the executive committee thereof shall determine.
6. Termination
6.1 Termination For Cause. Termination For Cause may be effected by the
Corporation in accordance with the procedures set forth in Paragraph 1.5 at any
time during the term of this Agreement and shall be effected by written
notification to the Executive in accordance with Paragraph 6.9, below. Upon the
effectiveness of a Termination For Cause, the Executive shall promptly be paid
all accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension play or profit sharing plan benefits which will
be paid in accordance with the applicable plan), any benefits under any plans of
in which the Executive is a participant to the full extent of the Executive's
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by the Executive in connection with his duties hereunder, all
to the date of termination, but the Executive shall not be paid any other
compensation or reimbursement of any kind.
6.2 Termination Other Than For Cause. Notwithstanding anything else in
this Agreement, the Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to the Executive of such termination. Upon
the effectiveness of any Termination Other Than For Cause, the Executive shall
promptly be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of in which the Executive is a participant to the full
extent of the Executive's rights under such plans (including accelerated
vesting, if any, of awards granted to the Executive under the Corporation's
stock option plan), accrued vacation pay and any appropriate business expenses
incurred by the Executive in connection with his duties hereunder, all to the
date of termination, and all severance compensation as provided in Paragraph
7.1.
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6.3 Termination For Good Reason. Notwithstanding anything else in this
Agreement, the Executive may effect a Termination for Good Reason at any time
upon giving written notice to the Corporation of such termination in accordance
with the provisions of Paragraph 6.9 hereof. Upon the effectiveness of any
Termination for Good Reason the Executive shall promptly be paid all accrued
salary, bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of in which
the Executive is a participant to the full extent of the Executive's rights
under such plans (including accelerated vesting, if any, of awards granted to
the Executive under's stock option plan), accrued vacation pay and any
appropriate business expenses incurred by the Executive in connection with his
duties hereunder, all to the date of termination, and all severance compensation
as provided in Paragraph 7.1.
6.4 Termination by Reason of Disability. If, during the term of this
Agreement, the Executive fails to perform his duties under this Agreement on
account of illness or physical or mental incapacity, and such illness or
incapacity continues for a period of more than six (6) consecutive months, the
Corporation shall have the right to terminate the Executive's employment
hereunder by written notification to the Executive and payment to the Executive
of all accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan or profit sharing plan benefits which will
be paid in accordance with the applicable plan), any benefits under any plans of
in which the Executive is a participant to the full extent of the Executive's
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by the Executive in connection with his duties hereunder, all
to the date of termination, with the exception of medical and dental benefits
which shall continue through the expiration of this Agreement, but the Executive
shall not be paid any other compensation or reimbursement of any kind.
6.5 Death. In the event of the Executive's death during the term of this
Agreement, the Executive's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs and the Corporation
shall promptly pay to his estate or such beneficiaries as the Executive may from
time to time designate all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of in which the Executive is a participant to the full
extent of the Executive's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Executive in connection with his
duties hereunder, all to the date of termination, but the Executive's estate
shall not be paid any other compensation or reimbursement of any kind.
6.6 Voluntary Termination. In the event of a Voluntary Termination, the
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of in which the Executive is a participant
to the full extent of the Executive's rights under such plans, accrued vacation
pay
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and any appropriate business expenses incurred by the Executive in connection
with his duties hereunder, all to the date of termination, but no other
compensation or reimbursement of any kind.
6.7 Termination Upon a Change in Control. In the event of a Termination
Upon the effectiveness of a Change in Control, the Executive shall immediately
be paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of in which the Executive is a participant to the full extent of the
Executive's rights under such plans (including accelerated vesting, if any, of
any awards granted to the Executive under the Corporation's Stock Option Plan),
accrued vacation pay and any appropriate business expenses incurred by the
Executive in connection with his duties hereunder, all to the date of
termination, and all severance compensation as provided in Paragraph 7.1.
6.8 Constructive Termination. The Executive may give notice to the
Corporation that the Corporation has effected a Constructive Termination of the
Executive's employment by reason of the Corporation's material breach of this
Agreement, by written notification to the Corporation in accordance with
Paragraph 6.9, below. Upon the effectiveness of any Constructive Termination the
Executive shall immediately be paid all accrued salary, bonus compensation to
the extent earned, vested deferred compensation (other than pension plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of in which the Executive is a
participant to the full extent of the Executive's rights under such plans
(including accelerated vesting, if any, of any awards granted to the Executive
under the Corporation's Stock Option Plan), accrued vacation pay and any
appropriate business expenses incurred by the Executive in connection with her
duties hereunder, all to the date of termination, and all severance compensation
provided in Paragraph 7.1.
6.9 Notice of Termination. The Corporation may effect a termination of
this Agreement pursuant to the provisions of this Section upon giving thirty
(30) days' written notice to the Executive of such termination. The Executive
may effect a termination of this Agreement pursuant to the provisions of this
Section upon giving thirty (30) days' written notice to the Corporation of such
termination.
7. Severance Compensation
7.1 Severance Compensation in the Event of: Termination Other Than for
Cause Pursuant to Paragraph 6.2; Termination for Good Reason Pursuant to
Paragraph 6.3,; Termination Upon a Change in Control Pursuant to Paragraph 6.7;
or a Constructive Termination Pursuant to Paragraph 6.8. In the event the
Executive's employment is terminated in a termination: Other Than for Cause
pursuant to Paragraph 6.2; for Good Reason pursuant to Paragraph 6.3; a Change
in Control pursuant to Paragraph 6.7; or a Constructive Termination pursuant to
Paragraph 6.8, the Executive shall be paid as severance compensation twice the
amount of his Base Salary (at the rate payable at the time of such termination),
for a period of twelve (12) months from the
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date of such termination. Notwithstanding anything in this Paragraph to the
contrary, the Executive may in the Executive's sole discretion, by delivery of a
notice to the Corporation within thirty (30) days following a Termination Upon a
Change in Control, elect to receive as Severance Compensation a lump sum
severance payment by bank cashier's check equal to the present value of the flow
of cash payments that would otherwise be paid to the Executive pursuant to this
Paragraph. The Executive shall also be entitled to an accelerated vesting of any
awards granted to the Executive under any of the Corporation's then effective
stock option plans or any other employee compensation plans or to the extent
provided in any such plans. The Executive shall continue to accrue retirement
benefits and shall continue to enjoy any benefits under any plans in which the
Executive is a participant to the full extent of the Executive's rights under
such plans, including any perquisites provided under this Agreement, through the
remaining term of this Agreement; provided, however, that the benefits under any
such plans in which the Executive is a participant, including any such
perquisites, shall cease upon re-employment by a new employer.
7.2 No Severance Compensation Upon Other Termination. In the event of
Termination For Cause pursuant to Paragraph 6.1, or termination by reason of the
Executive's Disability or Death pursuant to Paragraphs 6.4 or 6.5, or Voluntary
Termination pursuant to Paragraph 6.6 hereof, neither the Executive nor his
estate shall not be paid any severance compensation.
8. Outside Activities of the Executive; Covenant Not to Compete
The Corporation acknowledges that the Executive has commitments and
business activities not related to the Corporation. There shall be no
restriction on the Executive's ability to fulfill such commitments or engage in
such business activities, provided that during the term of the Executive's
employment under this Agreement and for a period of one year after the
termination of such employment (other than a Termination Other Than For Cause or
a Termination Upon Change in Control) the Executive shall not directly or
indirectly compete with the Corporation and shall not divert away from, for the
Executive's personal benefit, or for the benefit of an organization in which the
Executive has a material financial interest, any opportunity, arising during
such period, in the business segments in which the Corporation is operating at
the time of such termination of employment, unless the Board of Directors of the
Corporation has determined not to pursue such opportunity.
9. Payment Obligations
The Corporation's obligation to pay the Executive the compensation and to
make the arrangements provided herein shall be unconditional, and the Executive
shall have no obligation whatsoever to mitigate damages hereunder. If litigation
after a Change in Control shall be brought to enforce or interpret any provision
contained herein, the Corporation, to the extent permitted by applicable law and
the Corporation's Articles of Incorporation and Bylaws, shall
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indemnify the Executive for the Executive's reasonable attorneys' fees and
disbursements incurred in such litigation.
10. Confidentiality
The Executive agrees that all confidential and proprietary information
relating to the business of the Corporation shall be kept and treated as
confidential both during and after the term of this Agreement, except as may be
permitted in writing by the Corporation's Board of Directors or as such
information is within the public domain or comes within the public domain
without any breach of this Agreement.
11. Withholdings
All compensation and benefits to the Executive hereunder shall be reduced
by all federal, state, local and other withholdings and similar taxes and
payments required by applicable law.
12. Indemnification
In addition to any rights to indemnification to which the Executive is
entitled to under the Corporation's Articles of Incorporation and Bylaws, the
Corporation shall indemnify the Executive at all times during and after the term
of this Agreement to the maximum extent permitted under Delaware Business
Corporation Law or any successor provision thereof and any other applicable
state law, and shall pay the Executive's expenses in defending any civil or
criminal action, suit, or proceeding in advance of the final disposition of such
action, suit or proceeding, to the maximum extent permitted under such
applicable state laws.
13. Notices
Any notices permitted or required under this Agreement shall be delivered
by hand, certified mail, or recognized overnight courier, in all cases with
written proof of receipt required, addressed to the parties as set forth below
and shall be deemed given upon receipt to the Corporation at:
Guitron International Inc.
38 Place Du Commerce, Suite 230
Nuns' Island, Montreal, Quebec
Canada H3E 1T8
addressed to the Executive at:
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Richard Duffy
1660 Stravinski Street
Brossard, Quebec
Canada J4X 2J4
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Paragraph.
14. Law Governing
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
15. General
15.1 Titles and Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
15.2 Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
15.3 Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
15.4 Attorney Fees. In the event an arbitration, suit or action is brought
by any party under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
15.5 Computation of Time. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday, or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
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15.6 Pronouns and Plurals. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or persons may require.
15.7 Presumption. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
15.8 Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
15.9 Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
15.10 Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Date: December 6, 1999
GUITRON INTERNATIONAL INC.
By /s/ Michael Ash
------------------------------------
Michael Ash, Secretary/Treasurer
/s/ Richard Duffy
---------------------
Richard Duffy
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EXHIBIT 10.2
MARKETING AND CONSULTING AGREEMENT
This Marketing and Consulting Agreement (hereinafter the "Agreement") is
made and executed this 29th day of September, 1999 between The Guitron
Corporation (hereinafter the "Corporation"), a Canadian corporation with
principal offices at 38 Place du Commerce, Suite 230, Nuns' Island, Montreal,
Quebec Canada H38 1T8 and Marvin Chankowsky (hereinafter the "Contractor") with
offices at 34 Belsize, Hampstead, Quebec, Canada H3X 3J8.
1. Recitals
1.1 The Corporation is presently developing a musical instrument
known as the GUITRON. The GUITRON is an easy play guitar like instrument which
looks and sounds like a traditional guitar but is different in that it relies on
unique technological features for its playing and its sound. The Corporation
expects to complete commercial development of the GUITRON within the next six to
twelve months.
1.2 Contractor desires to actively and diligently promote the sale
and use of the GUITRON within the Territory, as that term is hereinafter
defined, and has the knowledge, expertise, and resources to do so.
1.3 The Corporation is willing to grant Contractor the non-exclusive
right to market the GUITRON in the Territory, as that term is hereinafter
defined, under the terms and conditions hereinafter set forth.
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
2. Definitions
2.1 Agreement. This document and any annex, exhibit, attachment,
schedule, addendum, or modification hereto, unless the context otherwise
indicates.
2.2 Contractor. Marvin Chankowsky
2.3 Customer. Any purchaser of a GUITRON.
2.4 GUITRON. An easy play guitar like musical instrument currently
being developed by the Corporation.
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2.5 MBC Marketing Ltd. A marketing and sales promotion company
affiliated with and controlled by the Contractor
2.6 Technical Information. Includes all know-how, designs, drawings,
specifications, catalogs, data sheets, sales and technical bulletins, service
manuals, mechanical diagrams, and all other information, whether or not reduced
to writing, relating to the design, manufacture and use of the GUITRON, as well
as any other information relating to the business of the Corporation that may be
divulged to the Contractor in the course of its performance of this Agreement
and that is not generally known in the trade.
2.7 Territory. (i) North America; and (ii) any additional geographic
areas that may be mutually agreed upon by the Corporation and the Contractor.
2.8 The Corporation. The Guitron Corporation, a Canadian
corporation.
3. Engagement and Scope
3.1 Engagement. Subject to the terms and conditions , and for the
term, of this Agreement, the Corporation hereby engages the Contractor on a
non-exclusive basis, to market the GUITRON in the Territory and the Contractor
hereby accepts such engagement and agrees to use its best efforts to market and
develop demand for the GUITRON within the Territory and agrees to conduct its
activities in accordance with the terms and conditions of this Agreement and to
devote such time and attention to the performance of the duties entailed by such
engagement, as shall be required therefor.
3.2 Independent Contractor Status. The Contractor shall be an
independent contractor, therefore:
(a) Neither the Contractor nor any affiliate of the
Contractor shall be or be considered to be an agent,
representative or employee of the Corporation. The
Contractor is not granted and shall not exercise the
right or authority to assume or create any obligation or
responsibility, including without limitation contractual
obligations and obligations based on warranties or
guarantees, on behalf of or in the name of the
Corporation. The Contractor shall not misrepresent its
authority to any third party.
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(b) The detailed operations of the Contractor under this
Agreement shall be subject to the sole control and
management of the Contractor. Except for expressly
approved out of pocket expenses incurred by the
Contractor hereunder, the Contractor shall be
responsible for all of its own expenses and employees.
The Contractor agrees that it shall incur no expense
chargeable to the Corporation, except as may be
specifically authorized by this Agreement.
4. Product Acceptance and Delivery
4.1 Orders Subject to Acceptance. All orders for GUITRONS that
result from the marketing efforts of the Contractor hereunder shall be subject
to acceptance by the Corporation.
4.2 Delivery of Products. The Corporation will use its best efforts
to fill accepted GUITRON orders resulting from the marketing efforts of the
Contractor as promptly as practicable, subject, however, to delays caused by
transportation conditions, labor or material shortages, strikes or other labor
difficulties, fire or other natural disaster, or other cause of whatever nature
beyond the immediate control of the Corporation.
5. Obligations of the Contractor.
5.1 Sales Promotion. The Contractor, directly, or through a separate
contract with MBC Marketing Ltd., shall use its best efforts to promote the sale
and use of the GUITRON by potential Customers within the Territory. For that
purpose, the Contractor hereby undertakes to conduct the following activities:
(i) subject to approval of the Corporation's Board of Directors, to devise and
develop a marketing plan or plans for the Territory; and (ii) to assist the
Corporation to implement the marketing plan or plans for the Territory.
5.2 Facilities and Personnel. The Contractor shall maintain, at its
own expense, such office space and facilities, and hire and train such
personnel, as may be required to carry out its obligations under this Agreement.
6. Obligations of the Corporation
6.1 Notification of Changes. The Corporation shall notify the
Contractor of any changes in or affecting the GUITRON or prices, terms, and
conditions of sale,
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sales, policies, projected delivery dates, schedule changes, and other matters
that the Corporation determines may affect the procurement, processing and/or
completion of orders attributable to the Contractor.
6.2 Payment of Compensation to Contractor. In consideration of the
services to be performed by the Contractor hereunder, the Corporation agrees to
compensate the Contractor as follows:
6.2.1 Issuance of Stock. Upon execution of this Agreement, the
Corporation shall issue 10,000 shares of its common stock to Contractor.
6.2.2 Issuance of Additional Stock. The Corporation agrees to issue
up to an additional 440,000 shares of its common stock to Contractor based upon
the net receipts realized by the Corporation from accepted, fulfilled and
completed GUITRON orders within the Territory during the term of this Agreement
that are the clear and direct result of the marketing efforts of Contractor,
(such directly attributable net receipts realized by the Corporation from
Guitron sales within the Territory during the term of this Agreement are
hereinafter referred to as the "Net Receipts") as follows:
(i) 10,000 shares for every Cdn $100,000 of Net Receipts.
6.2.3 Sales Commissions.
(i) During the stock earn out period referred to in Paragraph 6.2.2
above, Contractor shall be entitled to a sales commission equal to
3% of the Net Receipts.
(ii) During the period subsequent to the stock earn out period referred
to in Paragraph 6.2.2 above, and throughout the remaining term of
this Agreement, Contractor shall be entitled to a sales commission
equal to 6% of the Net Receipts.
6.3 Effect of Merger or Acquisition. In the event that during the
term of this Agreement, the Corporation is acquired by or merged into another
corporation with the result that shareholders of the Corporation at the time of
such merger or acquisition receive shares of stock in the acquiring corporation
or surviving corporation, as the case may be, in exchange for their stock in the
Corporation, Contractor will exchange all his shares in the Corporation on the
same basis as such other shareholders. Additionally, subsequent to such merger
or acquisition, in lieu of receiving stock of the Corporation to which
Contractor may be entitled pursuant to Paragraph 6.2.2 above, Contractor shall
receive shares in the acquiring or surviving entity, as the case may be, in an
amount that reflects the exchange rate provided for in such merger or
acquisition. By way of example, assume there is an acquisition of the
Corporation prior to any earn out of shares pursuant to said Paragraph 6.2.2 and
that pursuant to such
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acquisition, shareholders of the Corporation receive two shares of the acquiring
corporation in exchange for every one share they own in the Corporation. Under
this circumstance, Contractor would be entitled to 20,000 shares of the
acquiring corporation for every Cdn $100,000 of Net Receipts (up to a maximum of
880,000 shares)
7. Representations and Warranties.
7.1 Representations and Warranties of the Contractor. The Contractor
represents and warrants the following:
7.1.1 Authority to Enter into Agreement. The Contractor represents
and warrants that it has full right, power and authority to enter into this
Agreement and to perform the same in accordance with the terms, provisions and
conditions hereof and in the manner herein specified.
7.1.2 Scope of Promotional and Solicitation Activities. The
Contractor represents and warrants that it shall limit its promotional
activities with respect to the GUITRON to Customers located within the
Territory.
7.1.3 Investment Representations. The Contractor represents and
warrants that with respect to any stock issued to it pursuant to this Agreement
that (i) Contractor will acquire such shares for investment, for its own account
and not with a view to their resale or distribution and does not intend to
resell or otherwise dispose of all or any part of such shares unless and until
they are subsequently registered under the Securities Act of 1933, as amended,
or an exemption from such registration is available; (ii) Contractor has the
ability to evaluate the merits and risks of an investment in the Corporation or
a successor thereof, based upon its knowledge and experience in financial and
business matters; (iii) Contractor understands that there is no current market
for such shares and that in the event Rule 144 of the Securities and Exchange
Commission hereafter becomes applicable to such shares, any routine sales of the
shares made thereunder can be made only in limited amounts in accordance with
the terms of Rule 144; (iv) Contractor understands that the Corporation has no
obligation to register such shares but that registration will be undertaken by
the Corporation; and (v) Contractor understands that before any transfer of any
such shares can be made by Contractor, written approval, which shall not be
unreasonably withheld, must be obtained from Corporation's counsel and that a
legend to this effect will be placed on the shares.
7.2 Representations and Warranties of the Corporation. The
Corporation represents and warrants that it is the sole and exclusive owner of
the GUITRON technology, all related patent applications, and any other
proprietary information relating to the GUITRON and that it has the sole right
and authority to grant the Contractor the right to market, the GUITRON in the
Territory.
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8. Assignment
This Agreement may be assigned by the Corporation as part of the
sale of substantially all of its business, provided however, that the purchaser
shall expressly assume all obligations of the Corporation under this Agreement.
Further, this Agreement may be assigned by the Corporation to an affiliate,
provided that any such affiliate shall expressly assume all obligations of the
Corporation under this Agreement, and provided further that the Corporation
shall then fully guarantee the performance of the Agreement by such affiliate.
Contractor agrees that if this Agreement is so assigned, all the terms and
conditions of this Agreement shall obtain between assignee and himself with the
same force and effect as if said Agreement had been made with such assignee in
the first instance. This Agreement shall not be assigned by the Contractor
without the express written consent of the Corporation.
9. Term and Termination
9.1 Term. Unless earlier terminated, this Agreement shall continue
in full force and effect for an initial term of thirty months, which shall
commence at such time that commercial development of the GUITRON has been
completed. At the end of such term, this Agreement may be renegotiated by the
parties in good faith for a new term.
9.2 Early Termination. This Agreement may be terminated prior to the
end of its term (i) by mutual consent of the parties; (ii) by one party in the
case of the declared or admitted insolvency or bankruptcy of the other party; or
(iii) by one party in the case of the other party's failure to fulfill an
obligation hereunder and to cure such default within 30 days of the defaulting
parties receipt of notice.
10. Confidentiality and Proprietary Rights
10.1 Confidentiality of Technical Information and Proprietary
Rights. The Contractor shall hold in strict confidence the Technical Information
supplied to it by the Corporation and shall not divulge the same to an other
person, firm, or corporation without the prior written permission of the
Corporation, except as reasonably required to perform its obligations under this
Agreement. The Contractor, its agents, and employees shall use their best
efforts to maintain such Technical Information secret and confidential and shall
exercise the same degree of care for such purpose as the Corporation would
normally exercise with respect to a new product or material that the Corporation
desires to keep secret and confidential shall survive termination of this
Agreement for any reason. Upon termination of this Agreement, the Contractor
shall return to the Corporation all Technical Information it then has in its
possession.
10.2 Use of Technical Information and Proprietary Rights. The
Contractor shall not, without the Corporation's prior specific written consent,
use for any purpose other than implementation of this Agreement any portion of
the Technical Information supplied by the Corporation hereunder or any patent,
trademark, or other industrial property right of the
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Corporation nor copy any of the Corporation's designs of the GUITRON.
Acknowledging that the damages sustainable by the Corporation as a consequence
of any breach of the Contractor's obligations under this Paragraph 13.2 may be
difficult to measure in monetary terms, the Contractor hereby agrees that the
Corporation shall be entitled to have the continuation of any such breach
permanently enjoined.
10.3 Protection of Proprietary Rights. The Contractor agrees to
cooperate with and assist the Corporation, at the Corporation's expense, in the
protection of trademarks or patents, owned by the Corporation and shall inform
the Corporation immediately of any infringements or other improper action with
respect to such trademarks or patents that shall come to the attention of the
Contractor.
11. Miscellaneous
11.1 Further Assurances. At any time, and from time to time, after
the date of this Agreement, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party to carry
out the intent and purposes of this Agreement.
11.2 Notices.Any notice or report required hereunder shall be in
writing and shall be given by personal delivery, recognized courier service,
telecopier, or prepaid certified mail, return receipt requested, properly
addressed or transmitted to the party to whom sent at its or his principal place
of business or principal residence. All such notices and reports shall be deemed
to have been given or made on the date upon which the same is actually received
at the address of the addressee thereof.
11.3 Complete Agreement. This Agreement constitutes a complete
statement of all of the arrangements, understandings and agreements between the
parties with respect to the subject matter hereof. All prior memoranda and oral
understandings with respect thereto are merged into this Agreement. Except as
aforesaid, neither of the parties hereto shall rely on any statement by or in
behalf of any other party which is not contained in this Agreement.
11.4 Interpretation. Whenever possible, each Article of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any Article is unenforceable or invalid under such law,
such Article shall be ineffective only to the extent of such unenforceability or
invalidity, and the remainder of such Article and the balance of this Agreement
shall in such event continue to be binding and in full force and effect.
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11.5 Non-Waiver. The terms, provisions and covenants hereinbefore
contained shall be specifically enforceable. The failure by either party hereto
to enforce any provision of this Agreement shall not operate or be construed as
a waiver of any right, power or privilege contained in that provision or any
other provision of this Agreement.
11.6 Headings. The headings of all Articles or within any Articles
herein specified are for the convenience of locating information only and shall
have no substantive effect on or be construed as assisting in the interpretation
of any of the terms, covenants or conditions of this Agreement.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed the day and year first above written.
/s/ Marvin Chankowsky
------------------------------------
Marvin Chankowsky
THE GUITRON CORPORATION
By:/s/ Richard Duffy
------------------------------------
Richard F. Duffy, President
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EXHIBIT 10.3
MARKETING AGREEMENT
This Marketing Agreement (hereinafter the "Agreement") is made and
executed this 1st day of September, 1999 between The Guitron Corporation
(hereinafter the "Corporation"), a Canadian corporation with principal offices
at 38 Place du Commerce, Suite 230, Nuns' Island, Montreal, Quebec Canada H38
1T8 and Jean Pilote (hereinafter the "Contractor") with offices at 1300
Megantic, St. Hubert, Quebec, Canada J3V 7H6. .
1. Recitals
1.1 The Corporation is presently developing a musical instrument
known as the GUITRON. The GUITRON is an easy play guitar like instrument which
looks and sounds like a traditional guitar but is different in that it relies on
unique technological features for its playing and its sound. The Corporation
expects to complete commercial development of the GUITRON within the next six to
twelve months.
1.2 Contractor desires to actively and diligently promote the sale
and use of the GUITRON within the Territory, as that term is hereinafter
defined, and has the knowledge, expertise, and resources to do so.
1.3 The Corporation is willing to grant Contractor the non-exclusive
right to market the GUITRON in the Territory, as that term is hereinafter
defined, under the terms and conditions hereinafter set forth.
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements hereinafter contained, the parties agree as follows:
2. Definitions
2.1 Agreement. This document and any annex, exhibit, attachment,
schedule, addendum, or modification hereto, unless the context otherwise
indicates.
2.2 Contractor. Jean Pilote
2.3 Customer. Any purchaser of a GUITRON.
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2.4 GUITRON.An easy play guitar like musical instrument currently
being developed by the Corporation.
2.5 Technical Information. Includes all know-how, designs, drawings,
specifications, catalogs, data sheets, sales and technical bulletins, service
manuals, mechanical diagrams, and all other information, whether or not reduced
to writing, relating to the design, manufacture and use of the GUITRON, as well
as any other information relating to the business of the Corporation that may be
divulged to the Contractor in the course of its performance of this Agreement
and that is not generally known in the trade.
2.6 Territory. (i) Quebec, Canada; (ii) Eastern Canada and (iii) any
additional geographic areas that may be mutually agreed upon by the Corporation
and the Contractor.
2.7 The Corporation. The Guitron Corporation, a Canadian
corporation.
3. Engagement and Scope
3.1 Engagement. Subject to the terms and conditions , and for the
term, of this Agreement, the Corporation hereby engages the Contractor on a
non-exclusive basis, to market the GUITRON in the Territory and the Contractor
hereby accepts such engagement and agrees to use its best efforts to market and
develop demand for the GUITRON within the Territory and agrees to conduct its
activities in accordance with the terms and conditions of this Agreement and to
devote such time and attention to the performance of the duties entailed by such
engagement, as shall be required therefor.
3.2 Independent Contractor Status. The Contractor shall be an
independent contractor, therefore:
(a) Neither the Contractor nor any affiliate of the
Contractor shall be or be considered to be an agent,
representative or employee of the Corporation. The
Contractor is not granted and shall not exercise the
right or authority to assume or create any obligation or
responsibility, including without limitation contractual
obligations and obligations based on warranties or
guarantees, on behalf of or in the name of the
Corporation. The Contractor shall not misrepresent its
authority to any third party.
(b) The detailed operations of the Contractor under this
Agreement shall be subject to the sole control and
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management of the Contractor. Except for expressly
approved out of pocket expenses incurred by the
Contractor hereunder, the Contractor shall be
responsible for all of its own expenses and employees.
The Contractor agrees that it shall incur no expense
chargeable to the Corporation, except as may be
specifically authorized by this Agreement.
4. Product Acceptance and Delivery
4.1 Orders Subject to Acceptance. All orders for GUITRONS that
result from the marketing efforts of the Contractor hereunder shall be subject
to acceptance by the Corporation.
4.2 Delivery of Products. The Corporation will use its best efforts
to fill accepted GUITRON orders resulting from the marketing efforts of the
Contractor as promptly as practicable, subject, however, to delays caused by
transportation conditions, labor or material shortages, strikes or other labor
difficulties, fire or other natural disaster, or other cause of whatever nature
beyond the immediate control of the Corporation.
5. Obligations of the Contractor.
5.1 Sales Promotion. The Contractor shall use its best efforts to
promote the sale and use of the GUITRON by potential Customers within the
Territory. For that purpose, the Contractor hereby undertakes to conduct the
following activities: (i) to devise and develop a marketing plan or plans for
the Territory; and (ii) to assist the Corporation to implement the marketing
plan or plans for the Territory.
5.2 Facilities and Personnel. The Contractor shall maintain, at its
own expense, such office space and facilities, and hire and train such
personnel, as may be required to carry out its obligations under this Agreement.
6. Obligations of the Corporation
6.1 Notification of Changes. The Corporation shall notify the
Contractor of any changes in or affecting the GUITRON or prices, terms, and
conditions of sale, sales, policies, projected delivery dates, schedule changes,
and other matters that the Corporation determines may affect the procurement,
processing and/or completion of orders attributable to the Contractor.
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6.2 Payment of Compensation to Contractor. In consideration of the
services to be performed by the Contractor hereunder, the Corporation agrees to
compensate the Contractor as follows:
6.2.1 Issuance of Stock. Upon execution of this Agreement, the
Corporation shall issue 1,000 shares of its common stock to Contractor.
6.2.2 Issuance of Additional Stock. The Corporation agrees to issue
up to an additional 9,000 shares of its common stock to Contractor based upon
the net receipts realized by the Corporation from accepted, fulfilled and
completed GUITRON orders within the Territory during the term of this Agreement
that are the clear and direct result of the marketing efforts of Contractor,
including completed orders resulting from introductions, negotiations, supplying
of contacts and general assistance by the Contractor, (such directly
attributable net receipts realized by the Corporation from Guitron sales within
the Territory during the term of this Agreement are hereinafter referred to as
the "Net Receipts") as follows:
(i) 1,000 shares for every Cdn $100,000 of Net Receipts.
6.2.3 Sales Commissions.
(i) During the stock earn out period referred to in Paragraph 6.2.2
above, Contractor shall be entitled to a sales commission equal to
3%of the Net Receipts.
(ii) During the period subsequent to the stock earn out period referred
to in Paragraph 6.2.2 above, and throughout the remaining term of
this Agreement, Contractor shall be entitled to a sales commission
equal to 6% of the Net Receipts.
6.3 Effect of Merger or Acquisition. In the event that during the
term of this Agreement, the Corporation is acquired by or merged into another
corporation with the result that shareholders of the Corporation at the time of
such merger or acquisition receive shares of stock in the acquiring corporation
or surviving corporation, as the case may be, in exchange for their stock in the
Corporation, Contractor will exchange all his shares in the Corporation on the
same basis as such other shareholders. Additionally, subsequent to such merger
or acquisition, in lieu of receiving stock of the Corporation to which
Contractor may be entitled pursuant to Paragraph 6.2.2 above, Contractor shall
receive shares in the acquiring or surviving entity, as the case may be, in an
amount that reflects the exchange rate provided for in such merger or
acquisition. By way of example, assume there is an acquisition of the
Corporation prior to any earn out of shares pursuant to said Paragraph 6.2.2 and
that pursuant to such acquisition, shareholders of the Corporation receive two
shares of the acquiring corporation in exchange for every one share they own in
the Corporation. Under this circumstance, Contractor
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would be entitled to 2,000 shares of the acquiring corporation for every Cdn
$100,000 of Net Receipts (up to a maximum of 18,000 shares)
7. Representations and Warranties.
7.1 Representations and Warranties of the Contractor. The Contractor
represents and warrants the following:
7.1.1 Authority to Enter into Agreement. The Contractor represents
and warrants that it has full right, power and authority to enter into this
Agreement and to perform the same in accordance with the terms, provisions and
conditions hereof and in the manner herein specified.
7.1.2 Scope of Promotional and Solicitation Activities. The
Contractor represents and warrants that it shall limit its promotional
activities with respect to the GUITRON to Customers located within the
Territory.
7.1.3 Investment Representations. The Contractor represents and
warrants that with respect to any stock issued to it pursuant to this Agreement
that (i) Contractor will acquire such shares for investment, for its own account
and not with a view to their resale or distribution and does not intend to
resell or otherwise dispose of all or any part of such shares unless and until
they are subsequently registered under the Securities Act of 1933, as amended,
or an exemption from such registration is available; (ii) Contractor has the
ability to evaluate the merits and risks of an investment in the Corporation or
a successor thereof, based upon its knowledge and experience in financial and
business matters; (iii) Contractor understands that there is no current market
for such shares and that in the event Rule 144 of the Securities and Exchange
Commission hereafter becomes applicable to such shares, any routine sales of the
shares made thereunder can be made only in limited amounts in accordance with
the terms of Rule 144; (iv) Contractor understands that the Corporation has no
obligation to register such shares; and (v) Contractor understands that before
any transfer of any such shares can be made by Contractor, written approval,
which shall not be unreasonably withheld, must be obtained from Corporation's
counsel and that a legend to this effect will be placed on the shares.
7.2 Representations and Warranties of the Corporation. The
Corporation represents and warrants that it is the sole and exclusive owner of
the GUITRON technology, all related patent applications, and any other
proprietary information relating to the GUITRON and that it has the sole right
and authority to grant the Contractor the right to market the GUITRON in the
Territory.
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8. Assignment
This Agreement may be assigned by the Corporation as part of the
sale of substantially all of its business, provided however, that the purchaser
shall expressly assume all obligations of the Corporation under this Agreement.
Further, this Agreement may be assigned by the Corporation to an affiliate,
provided that any such affiliate shall expressly assume all obligations of the
Corporation under this Agreement, and provided further that the Corporation
shall then fully guarantee the performance of the Agreement by such affiliate.
Contractor agrees that if this Agreement is so assigned, all the terms and
conditions of this Agreement shall obtain between assignee and himself with the
same force and effect as if said Agreement had been made with such assignee in
the first instance. This Agreement shall not be assigned by the Contractor
without the express written consent of the Corporation.
9. Term and Termination
9.1 Term. Unless earlier terminated by mutual written consent, this
Agreement shall continue in full force and effect for an initial term of two
years, at the end of which term, it may be renegotiated by the parties in good
faith for a new term.
10. Confidentiality and Proprietary Rights
10.1 Confidentiality of Technical Information and Proprietary
Rights. The Contractor shall hold in strict confidence the Technical Information
supplied to it by the Corporation and shall not divulge the same to an other
person, firm, or corporation without the prior written permission of the
Corporation, except as reasonably required to perform its obligations under this
Agreement. The Contractor, its agents, and employees shall use their best
efforts to maintain such Technical Information secret and confidential and shall
exercise the same degree of care for such purpose as the Corporation would
normally exercise with respect to a new product or material that the Corporation
desires to keep secret and confidential shall survive termination of this
Agreement for any reason.
10.2 Use of Technical Information and Proprietary Rights. The
Contractor shall not, without the Corporation's prior specific written consent,
use for any purpose other than implementation of this Agreement any portion of
the Technical Information supplied by the Corporation hereunder or any patent,
trademark, or other industrial property right of the Corporation nor copy any of
the Corporation's designs of the GUITRON. Acknowledging that the damages
sustainable by the Corporation as a consequence of any breach of the
Contractor's obligations under this Paragraph 13.2 may be difficult to measure
in monetary terms, the Contractor hereby agrees that the Corporation shall be
entitled to have the continuation of any such breach permanently enjoined.
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10.3 Protection of Proprietary Rights. The Contractor agrees to
cooperate with and assist the Corporation, at the Corporation's expense, in the
protection of trademarks or patents, owned by the Corporation and shall inform
the Corporation immediately of any infringements or other improper action with
respect to such trademarks or patents that shall come to the attention of the
Contractor.
11. Miscellaneous
11.1 Further Assurances. At any time, and from time to time, after
the date of this Agreement, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party to carry
out the intent and purposes of this Agreement.
11.2 Notices. Any notice or report required hereunder shall be in
writing and shall be given by personal delivery, recognized courier service,
telecopier, or prepaid certified mail, return receipt requested, properly
addressed or transmitted to the party to whom sent at its or his principal place
of business or principal residence. All such notices and reports shall be deemed
to have been given or made on the date upon which the same is actually received
at the address of the addressee thereof.
11.3 Complete Agreement. This Agreement constitutes a complete
statement of all of the arrangements, understandings and agreements between the
parties with respect to the subject matter hereof. All prior memoranda and oral
understandings with respect thereto are merged into this Agreement. Except as
aforesaid, neither of the parties hereto shall rely on any statement by or in
behalf of any other party which is not contained in this Agreement.
11.4 Interpretation. Whenever possible, each Article of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any Article is unenforceable or invalid under such law,
such Article shall be ineffective only to the extent of such unenforceability or
invalidity, and the remainder of such Article and the balance of this Agreement
shall in such event continue to be binding and in full force and effect.
11.5 Non-Waiver. The terms, provisions and covenants hereinbefore
contained shall be specifically enforceable. The failure by either party hereto
to enforce any provision of this Agreement shall not operate or be construed as
a waiver of any right, power or privilege contained in that provision or any
other provision of this Agreement.
11.6 Headings. The headings of all Articles or within any Articles
herein specified are for the convenience of locating information only and shall
have no substantive effect on or be construed as assisting in the interpretation
of any of the terms, covenants or conditions of this Agreement.
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In Witness Whereof, the parties hereto have caused this Agreement to be
executed the day and year first above written.
/s/ Jean Pilote
-------------------------------------
Jean Pilote
THE GUITRON CORPORATION
By:/s/ Richard F. Duffy
-------------------------------------
Richard F. Duffy, President
156
EXHIBIT 10.4
----------------
CONSULTING AGREEMENT
----------------
Consulting Agreement, made as of December 6, 1999 between Guitron
International Inc., a Delaware corporation (the "Corporation"), and Ashbyrne
Consultants Inc., a Canadian corporation (the "Consultant").
Whereas, the Corporation wishes to assure itself of the services of the
Consultant for the period provided in this Agreement, and the Consultant is
willing to provide its services to the Corporation for the said period under the
terms and conditions hereinafter provided.
Now, Therefore, Witnesseth, that for and in consideration of the premises
and of the mutual promises and covenants herein contained, the parties hereto
agree as follows:
1. Engagement
The Corporation agrees to and does hereby engage the Consultant, and
the Consultant agrees to and does hereby accept engagement by the Corporation in
connection with the operation of the business and affairs of the Corporation,
for the two year period commencing on December 6, 1999 and ending on December 5,
2001. The two year period during which Consultant shall serve in such capacity
shall be deemed the "Engagement Period" and shall hereinafter be referred to as
such.
2. Services
2.1 The Consultant shall render to the Corporation the services described
below, with respect to which the Consultant shall apply its best efforts and its
personnel shall devote such time as shall be reasonably necessary to perform
Consultant's duties hereunder and advance the interests of the Corporation. The
Consultant shall report to the chief executive officer of the Corporation and to
such persons as the chief executive officer shall direct.
2.2 The services to be rendered by the Consultant to the Corporation shall
consist of the following:
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2.2.1 Corporate Planning
a. Develop an in-depth familiarization with the Corporation's
business objectives and bring to its attention potential or
actual opportunities which meet those objectives or logical
extensions thereof.
b. Assist the Corporation with the preparation and implementation
of a business plan.
c. Alert the Corporation to new or emerging high potential forms
of marketing and distribution of its products which could
either be acquired or developed internally.
d. Comment on the Corporation's commercial development including
such factors as its position in its competitive environment,
its financial performance as compared to that of its
competition, financing impacts of its alternative strategies,
its maximization of its operational viability, etc.
e. Identify and negotiate arrangements with United States
securities counsel and auditors respecting a proposed public
offering of the Corporation's shares.
f. Identify prospective suitable merger, acquisition, or venture
partners for the Corporation, perform appropriate diligence
investigations with respect thereto, advise the Corporation
with respect to the desirability of pursuing such prospects,
and assist the Corporation in any negotiations which may ensue
therefrom.
2.2.2 Business Strategies
a. Evaluate business strategies and recommend changes where
appropriate.
b. Critically evaluate the Corporation's performance in view of
its corporate planning and business objectives.
2.2.3 Commercial Financing
a. Review and comment upon the Corporation's annual and quarterly
financial statements and reports and other financial
disclosures and publications.
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b. Develop, in conjunction with the Corporation's financial
personnel and advisers, periodic projections of its cash needs
commensurate with its projected growth in operations and
revenues.
c. Attempt to arrange for commercial financing to meet the
Corporation's projected cash needs by way of accounts
receivable financing and/or factoring, purchase order
financing, institutional commercial financing (business
finance plans, bank letters of credit [standby], lines of
credit, and other institutional financial accommodation),
governmental financing (US Small Business Administration,
State Economic and Authorities, etc.).
2.2.4 Corporate Management
a. Assist the corporation with the identification and procurement
of a qualified chief financial officer for the Corporation,
which may involve for a period of up to one year, the
employment of Michael D.A. Ash, a principal of the Consultant,
in such capacity. Any such employment of Michael Ash shall not
require the Corporation to pay a salary to Mr. Ash.
3. Compensation
3.1 In consideration of the Consultant's having entered into this
agreement, the Corporation agrees to sell to the Consultant 2,000,000 shares of
common stock of the Corporation, $.001 par value (the "Consulting Stock"). The
price shall be at the per share rate of the par value of the Consulting Stock.
The said price shall be paid and the certificates for the Consulting Stock shall
be delivered as soon as possible, and in all events promptly, following the date
hereof. The terms of the Consulting Stock shall be as follows:
a. The Consulting Stock shall be issued to such person or persons
as directed by the Consultant.
b. The Consultant warrants and represents that it is
knowledgeable concerning the business, financial condition and
prospects of the Corporation and that it is acquiring the
Consulting Stock solely for the purposes of investment and
without a view toward the resale or distribution thereof.
c. The Corporation warrants and represents that the Consulting
Stock, at the time of its issuance by the Corporation to the
holders thereof, will be duly and validly issued, fully paid
and non-assessable.
3.2 The Corporation shall reimburse Consultant for those expenses,
incurred in connection with its engagement by the Corporation, which shall have
been previously approved by the Corporation in writing, which approval shall not
be unreasonably withheld.
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4. Secrets
Consultant agrees that any trade secrets or any other like information of
value relating to the business and/or field of interest of the Corporation or
any of its affiliates, or of any corporation or other legal entity in which the
Corporation has an ownership interest of more than twenty-five percent (25%),
including but not limited to, information relating to inventions, disclosures,
processes, systems, methods, formulae, patents, patent applications, machinery,
materials, research activities and plans, costs or production, contract forms,
prices, volume of sales, promotional methods, list of names or classes of
customers, which it has heretofore acquired during its engagement by the
Corporation or any of its affiliates or which it may hereafter acquire during
the Engagement Period as the result of any disclosures to it, or in any other
way, shall be regarded as held by the Consultant and its personnel in a
fiduciary capacity solely for the benefit of the Corporation, its successors or
assigns, and shall not at any time, either during the term of this Agreement or
thereafter, be disclosed, divulged, furnished, or made accessible by the
Consultant and its personnel to anyone, or be otherwise used by them, except in
the regular course of business of the Corporation or its affiliates. Information
shall for the purposes of this Agreement be considered to be secret if not known
by the trade generally, even though such information may be disclosed to one or
more third parties pursuant to distribution agreements, joint venture agreements
and other agreements entered into by the Corporation or any of its affiliates.
5. Assignment
This Agreement may be assigned by the Corporation as part of the sale of
substantially all of its business, provided, however, that the purchaser shall
expressly assume all obligations of the Corporation under this Agreement.
Further, this Agreement may be assigned by the Corporation to an affiliate,
provided that any such affiliate shall expressly assume all obligations of the
Corporation under this Agreement, and provided further that the Corporation
shall then fully guarantee the performance of the Agreement by such affiliate.
Consultant agrees that if this Agreement is so assigned, all the terms and
conditions of this Agreement shall obtain between assignee and himself with the
same force and effect as if said Agreement had been made with such assignee in
the first instance. This Agreement shall not be assigned by the Consultant
without the express written consent of the Corporation.
6. Survival of Certain Agreements
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The covenants and agreements set forth in Article 4 and Article 5 shall
survive the expiration of the Engagement Period and shall survive termination of
this Agreement and remain in full force and effect regardless of the cause of
such termination.
7. Notices
7.1 All notices to be given hereunder shall be delivered by hand,
telecopier, or recognized courier service to the party to whom such notice is
required or permitted to be given hereunder. Any notice properly delivered to
the address designated herein for delivery shall be deemed to have been received
by the party to whom it is made notwithstanding the refusal of such party or
other person to accept such delivery.
7.2 Any notice to the Corporation or to any assignee of the Corporation
shall be addressed as follows:
Guitron International Inc.
38 Place Du Commerce, Suite 230
Nun's Island, Montreal, Quebec
Canada H3E 1T8
7.3 Any notice to Consultant shall be addressed as follows:
Ashbyrne Consultants Inc.
1 Place Du Commerce, Suite 235
Nun's Island, Montreal, Quebec
Canada H3E 1A4
7.4 Either party may change the address to which notice to it is to be
addressed, by notice as provided herein.
8. Applicable Law
This Agreement shall be interpreted and enforced in accordance with the
laws of Delaware and all disputes arising hereunder shall be settled by
arbitration before the American Arbitration Association.
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9. Interpretation
Whenever possible, each Article of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
Article is unenforceable or invalid under such law, such Article shall be
ineffective only to the extent of such unenforceability or invalidity, and the
remainder of such Article and the balance of this Agreement shall in such event
continue to be binding and in full force and effect.
In Witness Whereof, the parties hereto have executed the above Agreement
as of the day and year first above written.
GUITRON INTERNATIONAL INC.
By /s/ Richard Duffy
----------------------------------
Richard Duffy, President
ASHBYRNE CONSULTANTS INC.
By /s/ Michael Ash
----------------------------------
Michael Ash, President
162
EXHIBIT 10.5
ESCROW AGREEMENT
AGREEMENT made this day of ________, ________ 2000 by and among the Issuer
whose name and address appears on the Information Sheet (as defined herein)
attached to this Agreement and Continental Stock Transfer & Trust Company (the
"Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Issuer has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration Statement")
covering a proposed public offering of its securities (the "Securities") as
described on the Information Sheet;
WHEREAS, the Issuer, through its officers and directors, and/or
participating selected dealers proposes to offer the Securities for sale to the
public on a "best efforts, all or none" basis with respect to the Minimum
Securities Amount and Minimum Dollar Amount and at the price per share all as
set forth on the Information Sheet;
WHEREAS, the Issuer proposes to establish an escrow account (the "Escrow
Account"), to which subscription monies which are received by the Escrow Agent
from the Issuer and participating selected dealers, if any, in connection with
such public offering are to be credited, and the Escrow Agent is willing to
establish the Escrow Account on the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, the Escrow Agent has an agreement with Chemical Bank to establish
a special bank account (the "Bank Account") into which the subscription monies,
which are received by the Escrow Agent for the Issuer and/or participating
selected dealers, if any, and credited to the Escrow Account, are to be
deposited;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Information Sheet. Each capitalized term not otherwise defined in this
Agreement shall have the meaning set forth for such term on the information
sheet which is attached to this Agreement and is incorporated by reference
herein and made a part hereof (the "Information Sheet").
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2. Establishment of the Bank Account.
2.1 The Escrow Agent shall establish a non-interest-bearing bank account
at the branch of Chemical Bank selected by the Escrow Agent, and bearing the
designation set forth on the Information Sheet (heretofore defined as the "Bank
Account"). The purpose of the Bank Account is for (a) the deposit of all
subscription monies (checks, cash or wire transfers) which are received by the
Issuer and participating selected dealers, if any, from prospective purchasers
of the Securities and are delivered by the Issuer and participating selected
dealers, if any, to the Escrow Agent, (b) the holding of amounts of subscription
monies which are collected through the banking system, and (c) the disbursement
of collected funds, all as described herein.
2.2 On or before the date of the initial deposit in the Bank Account
pursuant to this Agreement, the Issuer shall notify the Escrow Agent in writing
of the effective date of the Registration Statement (the "Effective Date"), and
the Escrow Agent shall not be required to accept any amounts for credit to the
Escrow Account or for deposit in the Bank Account prior to its receipt of such
notification.
2.3 The Offering Period, which shall be deemed to commence on the
Effective Date, shall consist of the number of calendar days or business days
set forth on the Information Sheet. The Offering Period shall be extended by an
Extension Period only if the Escrow Agent shall have received written notice
thereof at least five (5) business days prior to the expiration of the Offering
Period. The Extension Period, which shall be deemed to commence on the next
calendar day following the expiration of the Offering Period, or the last day of
the Extension Period (if the Escrow Agent has received written notice thereof as
hereinabove provided), is referred to herein as the "Termination Date". Except
as provided in Section 4.3 hereof, after the Termination Date the Underwriter
shall not deposit, and the Escrow Agent shall not accept, any additional amounts
representing payments by prospective purchasers.
3. Deposits to the Bank Account.
3.1 The Issuer and participating selected dealers, if any, shall promptly
deliver to the Escrow Agent all monies which they receive from prospective
purchasers of the Securities, which monies shall be in the form of checks, cash,
or wire transfers. Upon the Escrow Agent's receipt of such monies, they shall be
credited to the Escrow Account. All checks delivered to the Escrow Agent shall
be made payable to "Continental Stock Transfer & Trust Company, as Escrow Agent
for Guitron International Inc.". Any check payable other than to the Escrow
Agent as required hereby shall be returned to the prospective purchaser, or if
the Escrow Agent has insufficient information to do so, then to the Issuer
(together with any Subscription Information, as defined below or other documents
delivered therewith) by noon of the next business day following receipt of such
check by the Escrow Agent, and such check shall be deemed not to have been
delivered to the Escrow Agent pursuant to the terms of this Agreement.
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3.2 Promptly after receiving subscription monies as described in Section
3.1, the Escrow Agent shall deposit the same into the Bank Account. Amounts of
monies so deposited are hereinafter referred to as "Escrow Amounts". The Escrow
Agent shall cause Chemical Bank to process all Escrow Amounts for collection
through the banking system. Simultaneously with each deposit to the Escrow
Account, the Issuer (or the participating selected dealer, if such deposit is
made by the selected dealer) shall inform the Escrow Agent in writing of the
name and address of the prospective purchaser, the amount of Securities
subscribed for by such purchaser, and the aggregate dollar amount of such
subscription (collectively, the "Subscription Information").
3.3 The Escrow Agent shall not be required to accept for credit to the
Escrow Account or for deposit into the Bank Account checks which are not
accompanied by the appropriate Subscription Information. Wire transfers and cash
representing payments by prospective purchasers shall not be deemed deposited in
the Escrow Account until the Escrow Agent has received in writing the
Subscription Information required with respect to such payments.
3.4 The Escrow Agent shall not be required to accept in the Escrow Account
any amounts representing payments by prospective purchasers, whether by check,
cash, or wire, except during the Escrow Agent's regular business hours.
3.5 Only those Escrow Amounts, which have been deposited in the Bank
Account and which have cleared the banking system and have been collected by the
Escrow Agent, are herein referred to as the "Fund".
3.6 If the proposed offering is terminated before the Termination Date,
the Escrow Agent shall refund any portion of the Fund prior to disbursement of
the Fund in accordance with Article 4 hereof upon instructions in writing signed
by the Issuer.
4. Disbursement from the Bank Account.
4.1 Subject to Section 4.3 below, if by the close of regular banking hours
on the Termination Date the Escrow Agent determines that the amount in the Fund
is less than the Minimum Dollar Amount or the Minimum Securities Amount, as
indicated by the Subscription Information submitted to the Escrow Agent, then in
either such case, the Escrow Agent shall promptly refund to each prospective
purchaser the amount of payment received from such purchaser which is then held
in the Fund or which thereafter clears the banking system, without interest
thereon or deduction therefrom, by drawing checks on the Bank Account for the
amount of such payments and transmitting them to the purchasers. In such event,
the Escrow Agent shall promptly notify the Issuer of its distribution of the
Fund.
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4.2 Subject to Section 4.3 below, if at any time up to the close of
regular banking hours on the Termination Date, the Escrow Agent determines that
the amount in the Fund is at least equal to the Minimum Dollar Amount and
represents the sale of not less than the Minimum Securities Amount, the Escrow
Agent shall promptly notify the Issuer of such fact in writing. The Escrow Agent
shall promptly disburse the Fund, by drawing checks on the Bank Account in
accordance with instructions in writing signed by the Issuer as to the
disbursement of the Fund, promptly after it receives such instructions.
4.3 If the Escrow Agent or the Issuer has on hand at the close of business
on the Termination Date any uncollected amounts which when added to the Fund
would raise the amount in the Fund to the Minimum Dollar Amount, and result in
the Fund representing the sale of the Minimum Securities Amount, the Collection
Period (consisting of the number of business days set forth on the Information
Sheet) shall be utilized to allow such uncollected amounts to clear the banking
system. During the Collection Period, the Issuer and participating selected
dealers, if any, shall not deposit, and the Escrow Agent shall not accept, any
additional amounts; provided, however, that such amount as were received by the
Issuer (or the participating selected dealer) by the close of business on the
Termination Date may be deposited with the Escrow Agent by noon of the next
business day following the Termination Date. If at the close of business on the
last day of the Collection Period an amount sufficient to raise the amount in
the Fund to the Minimum Dollar Amount and which would result in the Fund
representing the sale of the Minimum Dollar Amount and which would result in the
Fund representing the sale of the Minimum Securities Amount shall not have
cleared the banking system, the Escrow Agent shall promptly notify the Issuer in
writing of such fact and shall promptly return all amounts then in the Fund, and
any amounts which thereafter clear the banking system, to the prospective
purchasers as provided in Section 4.2 hereof.
4.4 Upon disbursement of the Fund pursuant to the terms of this Article 4,
the Escrow Agent shall be relieved of all further obligations and released from
all liability under this Agreement. It is expressly agreed and understood that
in no event shall the aggregate amount of payments made by the Escrow Agent
exceed the amount of the Fund.
5. Rights, Duties and Responsibilities of Escrow Agent.
It is understood and agreed that the duties of the Escrow Agent are purely
ministerial in nature, and that:
5.1 The Escrow Agent shall notify the Issuer, on a daily basis, of the
Escrow Amounts which have been deposited in the Bank account and of the amounts,
constituting the Fund, which have cleared the banking system and have been
collected by the Escrow Agent.
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5.2 The Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of any agreement between the Issuer and
participating selected dealers, if any, nor shall the Escrow Agent be
responsible for the performance by the Issuer of its obligations under this
Agreement.
5.3 The Escrow Agent shall not be required to accept from the Issuer any
Subscription Information pertaining to prospective purchasers unless such
Subscription Information is accompanied by checks, cash, or wire transfers
meeting the requirements of Section 3.1, nor shall the Escrow Agent be required
to keep records of any information with respect to the amount of such payments;
however, the Escrow Agent shall notify the Issuer within a reasonable time of
any discrepancy between the amount set forth in any Subscription Information and
the amount delivered to the Escrow Agent therewith. Such amount need not be
accepted for deposit in the Escrow Account until such discrepancy has been
resolved.
5.4 The Escrow Agent shall be under no duty or responsibility to enforce
collection of any check delivered to it hereunder. The Escrow Agent, within a
reasonable time, shall return to the Issuer any check received which is
dishonored, together with the Subscription Information, if any, which
accompanied such check.
5.5 The Escrow Agent shall be entitled to rely upon the accuracy, act in
reliance upon the contents, and assume the genuineness of any notice,
instruction, certificate, signature, instrument or other document which is given
to the Escrow Agent pursuant to this Agreement without the necessity of the
Escrow Agent verifying the truth or accuracy thereof. The Escrow Agent shall not
be obligated to make any inquiry as to the authority, capacity, existence or
identity of any person purporting to give any such notice or instructions or to
execute any such certificate, instrument or other document.
5.6 If the Escrow Agent is uncertain as to its duties or rights hereunder
or shall receive instructions with respect to the Bank Account, the Escrow
Amounts or the Fund which, in it sole determination, are in conflict either with
other instructions received by it or with any provision of this Agreement, it
shall be entitled to hold the Escrow Amounts, the Fund, or a portion thereof, in
the Bank Account pending the resolution of such uncertainty to the Escrow
Agent's sole satisfaction, by final judgment of a court or courts of competent
jurisdiction or otherwise; or the Escrow Agent, at its sole option, may deposit
the Fund (and any other Escrow Amounts that thereafter become part of the Fund)
with the Clerk of a court of competent jurisdiction in a proceeding to which all
parties in interest are joined. Upon the deposit by the Escrow Agent of the Fund
with the Clerk of any court, the Escrow Agent shall be relieved of all further
obligations and released from all liability hereunder.
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5.7 The Escrow Agent shall not be liable for any action taken or omitted
hereunder, or for the misconduct of any employee, agent or attorney appointed by
it, except in the case of wilful misconduct or gross negligence. The Escrow
Agent shall be entitled to consult with counsel of its own choosing and shall
not be liable for any action taken, suffered or omitted by it in accordance with
the advice of such counsel.
5.8 The Escrow Agent shall have no responsibility at any time to ascertain
whether or not any security interest exists in the Escrow Amounts, the Fund or
ant part thereof or to file any financing statement under the Uniform Commercial
Code with respect to the Fund or any part thereof.
6. Amendment; Resignation. This Agreement may be altered or amended only
with the written consent of the Issuer and the Escrow Agent. The Escrow Agent
may resign for any reason upon three (3) business days written notice to the
Issuer. Should the Escrow Agent resign as herein provided, it shall not be
required to accept any deposit, make any disbursement or otherwise dispose of
the Escrow Amounts until they clear the banking system and the Fund for a period
of not more than five (5) business days following the effective date of such
resignation, at which tine (a) if a successor escrow agent shall have been
appointed and written notice thereof (including the name and address of such
successor escrow agent) shall have been given to the resigning Escrow Agent by
the Issuer and such successor escrow agent, then the resigning Escrow Agent
shall pay over to the successor escrow agent the Fund, less any portion thereof
previously paid out in accordance with this Agreement; or (b) if the resigning
Escrow Agent shall not have received written notice signed by the Issuer and a
successor escrow agent, then the resigning Escrow Agent shall promptly refund
the amount in the Fund to each prospective purchaser, without interest thereon
or deduction therefrom, and the resigning Escrow Agent shall promptly notify the
Issuer in writing of its liquidation and distribution of the Fund; whereupon, in
either case, the Escrow Agent shall be relieved of all further obligations and
released from all liability under this Agreement. Without limiting the
provisions of Section 8 hereof, the resigning Escrow Agent shall be entitled to
be reimbursed by the Issuer for any expenses incurred in connection with its
resignation, transfer of the Fund to a successor escrow agent or distribution of
the Fund pursuant to this Section 6.
7. Representations and Warranties. The Issuer hereby represents and
warrants to the Escrow Agent that:
7.1 No party other than the parties hereto and the prospective purchasers
have, or shall have, any lien, claim or security interest in the Escrow Amounts
or the Fund or any part thereof.
7.1 No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Amount or the Fund or any part thereof.
168
<PAGE>
7.3 The Subscription Information submitted with each deposit shall, at the
tine of submission and at the time of the disbursement of the Fund, be deemed a
representation and warranty that such deposit represents a bona fide payment by
the purchaser described therein for the amount of Securities set forth in such
Subscription Information.
7.4 All of the Information contained in the Information Sheet is, as of
the date hereof, and will be, at the time of any disbursement of the Fund, true
and correct.
8. Fees and Expenses. The Escrow Agent shall be entitled to the Escrow
Agent Fees set forth on the Information Sheet, payable as and when stated
therein. In addition, the Issuer agrees to reimburse the Escrow Agent for any
reasonable expenses incurred in connection with this Agreement, including, but
not limited to, reasonable counsel fees. Upon receipt of the Minimum Dollar
Amount, the Escrow Agent shall have a lien upon the Fund to the extent of its
fees for services as Escrow Agent.
9. Indemnification and Contribution.
9.1 The Issuer (herein referred to as the "Indemnitor") agrees to
indemnify the Escrow Agent and its officers, directors, employees, agents and
shareholders (collectively referred to as the "Indemnitees") against, and hold
them harmless of and from, any and all loss, liability, cost, damage and
expense, including without limitation, reasonable counsel fees, which the
Indemnitees may suffer or incur by reason of any action, claim or proceeding
brought against the Indemnitees arising out of or relating in any way to this
Agreement or any transaction to which this Agreement relates, unless such
action, claim or proceeding is the result of the willful misconduct or gross
negligence of the Indemnitees.
9.2 If the indemnification provided for in Section 9.1 is applicable, but
for any reason is held to be unavailable, the Indemnitor shall contribute such
amounts as are just and equitable to pay, or to reimburse the Indemnitees for,
the aggregate of any and all losses, liabilities, costs, damages and expenses,
including counsel fees, actually incurred by the Indemnitees as a result of or
in connection with, and any amount paid in settlement of, any action, claim or
proceeding arising out of or relating in any way to any actions or omissions of
the Indemnitor.
9.3 The provisions of this Article 9 shall survive any termination of this
Agreement, whether by disbursement of the Fund, resignation of the Escrow Agent
or otherwise.
10. Governing Law and Assignment. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the
169
<PAGE>
Escrow Amounts or the Fund shall be void as against the Escrow Agent unless (a)
written notice thereof shall be given to the Escrow Agent; and (b) the Escrow
Agent shall have consented in writing to such assignment or transfer.
11. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, Federal Express or comparable overnight courier, or by hand delivery
with receipt acknowledged, or by the Express Mail service offered by the United
States Post Office, and addressed, if to the Issuer, at its address set forth on
the Information Sheet, and if to the Escrow Agent, at its address set forth
above, to the attention of the Trust Department.
12. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
13. Execution in Several Counterparts. This Agreement may be executed in
several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection therewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date and year first above written.
THE ISSUER CONTINENTAL STOCK
TRANSFER & TRUST COMPANY
By: __________________________ By: __________________________
170
<PAGE>
ESCROW AGREEMENT INFORMATION SHEET
1. The Issuer
Name: Guitron International Inc.
Address: 38 Place du Commerce, Suite 230, Nuns' Island,
Montreal, Quebec, Canada H3E 1T8
State of incorporation of organization: Delaware
2. The Securities
Description of the Securities to be offered (e.g., shares of
or warrants for common stock, debentures, units consisting
shares and warrants, etc.) common stock
Par value, if any $.001 par value
Offering price per share $1.00
3. Minimum Amounts Required for Disbursement of the Escrow Account
Aggregate dollar amount which must be collected before the
Escrow Account may be disbursed to the Issuer
("Minimum Dollar Amount") $250,000
Total amount of securities which must be subscribed for before
the Escrow Account may be disbursed to the Issuer ("Minimum
Securities Amount") 250,000 shares
4. Plan of Distribution of the Securities
Offering Period: 30 calendar days
Extension Period, if any: 15 calendar days
Collection Period, if any: 5 business days
5. Title of Escrow Account: Continental Stock Transfer & Trust Company,
Escrow Agent for the offering by Guitron International Inc.
6. Escrow Agent Fees
Amount due on execution of the Escrow Agreement: $1,000 and $1,000 upon
completion of the escrow
Fee for each check disbursed pursuant to the terms of the
Escrow Agreement: $10
Fee for each check returned pursuant to the terms of the
Escrow Agreement: $10
171
EXHIBIT 10.6
AGREEMENT OF LOAN ENTERED INTO AS OF JULY 30, 1999
BETWEEN: PRODUCTS POLYART INTERNATIONAL INC., a corporation,
hereinafter referred to as the
"LENDER"
AND: THE GUITRON CORPORATION, having it's head office at 38 Place du
Commerce, Suite 230, Nuns' Island, Quebec, hereinafter referred
to as the
"BORROWER"
NOW THEREFORE IT IS AGREED TO BETWEEN THE PARTIES THAT:
1.00 The preamble is true and correct and forms part of this Agreement.
2.00 The LENDER hereby agrees to lend to the BORROWER, present and accepting,
the maximum sum of ONE HUNDRED FORTY FIVE THOUSAND DOLLARS ($145,000.00)
July 30, 1999.
3.00 The loan shall be for a period of two years (2). The BORROWER shall pay
interest to the LENDER at the rate of 6% per annum. The loan shall be
payable in full no later than July 31, 2001.
3.01 Interest shall accrue monthly for the first year of the loan agreement and
be payable July 31, 2001. Thereafter, interest shall be payable monthly
commencing July 31, 2000.
4.00 The BORROWER shall sign a promissory note in favour of the LENDER
evidencing the LOAN and the BORROWER shall be entitled to the return of
the said note at such time as the LOAN has been completely repaid.
5.00 This Agreement shall not be assignable. This Agreement shall enure to the
benefit of and be binding upon the parties hereto and their respective
heirs, legal representatives, administrators and successors who agree to
do and sign all act, deeds and documents as may necessary or desirable to
give full force and effect to this Agreement.
172
<PAGE>
6.00 The parties acknowledge that they have specifically requested and degree
that this Agreement be drawn up in English language.
AND THE PARTIES HAVE SIGNED.
/s/ Richard Duffy /s/ France Bergeron Fasano
- ------------------------------ ------------------------------------
Richard Duffy for France Bergeron Fasano for
THE GUITRON CORPORATION PRODUCTIONS POLYART
INTERNATIONAL INC.
173
EXHIBIT 10.7
January 31, 2000
Innovative Products Resources Ltd.
Lachine, Quebec
Attn: Dr. Paul Okulov
Service Contract
Whereas The Guitron Corporation (Guitron) wishes to engage Innovative Products
Resources Ltd. (IPR) to manage, direct, co-ordinate and supervise the further
development of the Guitron technology and the manufacture of the Guitron
instrument and whereas IPR is will to undertake these tasks, be it hereby agreed
that:
This agreement will become effective February 1, 2000 and will be for a term of
two years. By mutual consent this agreement can be extended for an additional
two years.
IPR will be responsible for all aspects of research, development and
improvements to the existing technology.
IPR will be responsible for all aspects of the future development of the Guitron
instruments and the manufacture of instruments with the existing technology and
the manufacture of future instruments and products during the term of this
agreement.
IPR will assist in the preparation of all necessary patents, trademarks and
other pertinent filings necessary to protect the proprietary technology and know
how of The Guitron Corporation.
Guitron will pay a monthly fee of $10,000 plus GST and QST for the term of the
contract.
IPR will work directly with the President in preparing budgets, personnel, work
schedules and priorities.
From time to time, the Board of Directors of Guitron will evaluate the
contribution made by IPR to the commercial success of the Corporation with the
express intent of providing compensation for such contribution in the form of a
bonus which may be paid in cash or shares of the Corporation.
174
<PAGE>
Either party shall be entitled to terminate this agreement in the case of the
declared or admitted insolvency or bankruptcy of the other party, without
notice, or in the case of the other party's failure to fulfill an obligation
hereunder and to cure such default within 30 days of written notice.
IPR recognizes that during the course of providing its services, it will become
privy to information relating to the business and financial affairs of Guitron,
its customers and suppliers, its costing and pricing of the products, all of
which constitute confidential and proprietary information which Guitron is
entitled to protect. IPR agrees and undertakes that it will not disclose any
such information to any third party for any reason whatsoever except for such
information relating to the performance of its contracted activities.
During the course of the agreement, certain proprietary technology will be
developed and expanded. All such technology and know how shall remain or become
the property of Guitron and as such will not be disclosed except where such
disclosure relates to the performance of IPR's activities under this agreement.
Upon termination of this agreement, for any reason, IPR will deliver to Guitron
all information and data, in whatever form, which IPR has in its possession
relating to Guitron or to the products.
IPR is an independent contractor, and is not a partner, co-venturer or agent of
Guitron. IPR is not authorized to enter into any contractual agreements on
behalf of Guitron, unless specifically authorized and such authority shall not
be unreasonably withheld.
This agreement constitutes the entire agreement between the parties as to the
subject matter hereof.
This agreement is to IPR and may not be assigned or transferred by IPR without
the express written consent of Guitron. Subject to the foregoing, this agreement
shall be binding upon and enure to the benefit of the respective successors and
assigns of the parties.
The parties acknowledge that they have required that this agreement and all
related documents be prepared in English.
GUITRON CORPORATION INNOVATIVE PRODUCTS RESOURCES LTD.
By: /s/ Richard Duffy By: /s/ Paul Okolov
--------------------------- -------------------------------
Richard Duffy Paul Okolov
175
EXHIBIT 23
Pinkham & Pinkham, P.C.
Certified Public Accountants
Independent Auditor's Consent
We consent to the use in this Registration Statement of Guitron International,
Inc. on Form SB-2 of our report dated March 27, 2000, appearing in the
Prospectus which is part of this Registration Statement, relating to the
financial statements of The Guitron Corporation, which are contained in such
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ Pinkham & Pinkham
----------------------------
Pinkham & Pinkham, P.C.
Certified Public Accountants
April 4, 2000
Cranford, New Jersey
176
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