Vision Marine Technologies Inc F-1/A, filed Sep 22, 2020
Vision Marine Technologies Inc. (VMAR)
As filed with the U.S. Securities and Exchange Commission on September 22, 2020.
Registration No. 333-239777
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
FORM F-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
VISION MARINE TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
| Québec | 3730 | N/A |
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
| incorporation or organization) | Classification Code Number) | Identification Number) |
730 Boulevard du Curé-Boivin
Boisbriand, Québec J7G 2A7, Canada
Telephone: 450-951-7009
(Address of principal executive offices, including zip code, and telephone number, including area code)
Corporation Service Company
251 Little Falls Drive, Wilmington, DE 19808
Telephone: +1 302 636 5401
(Name, address, including zip code, and telephone number, including area code, of agent of service)
Copies to:
| William
Rosenstadt, Esq. Tim Dockery, Esq. Ortoli Rosenstadt LLP 501 Madison Avenue, 14th Floor New York, New York 10022 Telephone: (302) 738-6680 |
Rob Condon, Esq. Dentons US LLP 1221 Avenue of the Americas |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company x
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
CALCULATION OF REGISTRATION FEE
| Title of each class of securities to be registered(2) | Proposed maximum aggregate offering price(1) |
Amount of registration fee |
||||||
| Common shares | US$ | 17,250,000 | US$ | 2,239 | ||||
| Warrants to be issued to the underwriter | - | (3) | - | (3) | ||||
| Common shares underlying warrants to be issued to the underwriter (4) | US$ | 1,185,938 | US$ | 154 | ||||
| US$ | 18,435,938 | US$ | 2,393 | (5) | ||||
| (1) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act. Assumes that the underwriter exercises its over-allotment option. | |
| (2) | Pursuant to Rule 416 under the Securities Act, there are also being registered such indeterminate number of additional securities as may be issued to prevent dilution resulting from share splits, share dividends or similar transactions. | |
| (3) | No registration fee required pursuant to Rule 457(g). | |
| (4) | We have agreed to issue to the underwriters warrants to purchase common shares representing up to 5.5% of the common shares issued in the offering. The representative’s warrants are exercisable at a per share exercise price equal to 125% of the public offering price per share of the common stock offered hereby. As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrants is US$1,185,938, which is equal to 125% of US$948,750 (5.5% of US$17,250,000). | |
| (5) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine
The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED SEPTEMBER 22, 2020 |
1,666,667 Common Shares
Vision Marine Technologies Inc.
This is a firm commitment initial public offering of common shares of Vision Marine Technologies Inc. (d/b/a Canadian Electric Boat Company). Prior to this offering, there has been no public market for our common shares. We anticipate that the initial public offering price of our shares will be between US$8.00 and US$10.00.
We have applied to have our common stock listed on the Nasdaq Capital Market under the symbol “VMAR”.
We are an “emerging growth company” under the federal securities laws and have elected to comply with certain reduced public company reporting requirements.
Investing in our common shares involves a high degree of risk. You should carefully consider the matters described under the caption “Risk Factors” beginning on page 1.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per
Common Share | Total | |||||||||
| Public offering price | US$ | US$ | ||||||||
| Underwriter discounts and commissions(1) | US$ | US$ | ||||||||
| Proceeds to us, before expenses(2) | US$ | US$ | ||||||||
| (1) | The underwriter will receive compensation in addition to the discounts and commissions. The registration statement, of which this prospectus is a part, also registers for sale warrants to purchase common shares to be issued to the representative of the underwriters (based on the assumed offering price of US$9.00 per share, the midpoint of the range set forth on the cover page of this prospectus). We have agreed to issue the warrants to the underwriter as a portion of the underwriting compensation payable to the underwriter in connection with this offering. See “Underwriting” for a description of compensation payable to the underwriter. |
| (2) | The total estimated expenses related to this offering are set forth in the section entitled “Expenses Relating to this Offering.” |
We have granted a 45-day option to the underwriter to purchase up to additional common shares to cover over-allotments, if any.
The underwriter expects to deliver the common shares on or about , 2020.
| ThinkEquity |
| a division of Fordham Financial Management, Inc. |
The date of this prospectus is , 2020
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by or on our behalf. Neither we, nor the underwriter, have authorized any other person to provide you with different or additional information. Neither we, nor the underwriter, take responsibility for, nor can we provide assurance as to the reliability of, any other information that others may provide. The underwriter is not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and our business, financial condition, results of operations and/or prospects may have changed since those dates.
Except as otherwise set forth in this prospectus, neither we nor the underwriter have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.
Unless the context otherwise requires, in this prospectus, the term(s) “we”, “us”, “our”, “Company”, “our company”, “our business” and “Canadian Electric Boat Company” refer to Vision Marine Technologies Inc.
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The following summary highlights, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should read carefully the entire document, including our historical financial statements and related notes, to understand our business, the common shares and the other considerations that are important to your investment decision. You should pay special attention to the “Risk Factors” section beginning on page 1.
All references to “$” or “dollars”, are expressed in Canadian dollars unless otherwise indicated.
We completed a 3.7-for-1 reverse stock split on September 3, 2020. The reverse split combined each three and seven-tenths of our outstanding common shares into one common share. Additionally, on January 22, 2020, we completed a 1:23,084.86 share exchange. All share and per share information in this prospectus, excluding the audited financial statements and the notes thereto, has been adjusted to reflect the reverse stock split and the share exchange.
Our Company
We are in the business of designing and manufacturing electric outboard powertrain systems and our related technology. We believe that our electric outboard powertrain systems are significantly more efficient and powerful than those currently being offered in the market today. In particular, we have recorded powertrain efficiencies of more than 94%, well above the 54% efficiency that we recorded for our principal competitor’s product. Increases in powertrain efficiency allows for more power and range, both of which are highly desirable characteristics for consumers in the marketplace. Although our primary focus is on electric outboard powertrain technology, we will continue to design, manufacture and sell our high-performance, fully-electric boats to commercial and retail customers. According to Research and Markets, the global electric boat market will reach US$12.32 billion in 2027 up significantly from US$4.5 billion in 2018.
We have developed our first fully-electric outboard powertrain system that combines an advanced battery pack, inverter, high-efficiency motor with proprietary union assembly between the transmission and the electric motor design and extensive control software. Our technologies used in this powertrain system are designed to improve the efficiency of the outboard powertrain and, as a result, increase range and performance. We believe our approach in marketing and selling our powertrain technology to boat designers and manufacturers will enable us to leverage their distribution and servicing systems with minimal capital outlay. We expect our core intellectual property contained within our outboard electric powertrain systems to form the foundation for our future growth and for such systems to represent the majority of our revenue shortly following this initial public offering of our common shares. We do not currently have any patents or pending patent applications on the technology related to our electric outboard powertrain systems, but we intend to file patent applications shortly after this offering.
We continue to manufacture hand-crafted, highly durable, low maintenance, environmentally-friendly electric recreational powerboats. In our last two fiscal years, we manufactured 46 and 21 powerboats, respectively, and we expect to manufacture approximately 150 powerboats in the twelve months following the closing of this offering. We sell powerboats to retail customers and operators of rental fleets of powerboats through which we seek to build brand awareness. We intend to continue to build brand awareness by partnering with marina operators to offer rental fleets of electric boats. We conduct our transactions directly to customers through our website or through a network of marinas, distributors and show rooms. Our boats are a solution to bans and restrictions on the use of gasoline- and diesel-powered boats on local waterways, lakes and rivers that cities and regions have imposed to improve air quality and protect water habitats.
Our Electric Outboard Powertrain Systems
A powertrain system is a vehicle’s infrastructure that converts energy into movement. In an electric boat, that infrastructure starts at the battery pack, continues with an inverter, goes to the motor and ends with the propeller. Electric powertrains have less moving parts than powertrains for boats with an internal combustion engine and, as a result, tend to break less and require less complex servicing.
The efficiency of a powertrain system determines the range of a boat on a single battery charge and the speed at which the boat operates. We find existing electric powertrain systems unsatisfactory because of their insufficient yields and limited power range. In 2015, we decided to research technology to take advantage of this vacuum and develop an in-house system, relying on existing third-party components where possible. Our electric powertrain is designed to have 180 hp (horsepower) and 236 Lb. ft at 94% load. Furthermore, the electric powertrain system will be liquid cooled as compared to air cooled.
We intend to produce our electric powertrain at our current facilities in Quebec. We believe that we can produce up to 300 electric powertrains per year in addition to producing 150 boats in our current facilities in the year following the initial public offering. If customer demand is sufficiently high for our electric powertrains and we foresee demand for more than 300 units in a year, we will require additional manufacturing space. Although we believe that we will be able to find comparable space at a similar price on relatively short notice, including space adjacent to our current facility that is owned by our current landlord and our CEO, such space may not be available when needed.
The production of our electric powertrain will consist of assembling components from third parties, including battery packs, inverters and high-efficiency motors. We intend to use advanced batteries in our battery packs but do not envision depending on a limited number of suppliers, as we will be able to use a wide range of batteries. We will source the inverters from UQM (Danfoss Editron) and motors from UQM (Danfoss Editron) and Dana TM4.
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We have developed our first fully-electric outboard powertrain system that combines an advanced battery pack, inverter, high-efficiency motor with proprietary union assembly between the transmission and the electric motor design and extensive control software. We set out below the current specifications of this outboard electric powertrain.
| Maximum power | 180 HP, 135 Kw |  |
 |
| Max torque | 250 ft.lb, 340 Nm | ||
| Continuous power | 90 kW | ||
| Voltage | 650 V | ||
| Efficiency | 94% at 8,000 rpm | ||
| Weight | 413 Lbs., 188 kg | ||
| Lithium Battery | 60 - 420 kW | ||
| Shaft Length | S – XL | ||
| Cooling | Water | ||
| Control | Can bus |
As we develop our electric powertrain systems, we envisage a 300-horsepower version of our electric outboard engine to be released within the next 18 months.
Our Powerboats
We manufacture four models of electric powerboats and are preparing to launch a fifth model. Each model is available in different standard variations or may be customized according to a purchaser’s specifications. For each of our boats, our consumers are able to customize certain aspects including color (for the hull, striping, interior and deck), radio and covers and other storage options. In addition, there are customizations that are just available for some boat models, including propulsion and batteries. Our boats are:
 |
Phoenix 290: | Our latest model that we recently unveiled and which we are planning to begin production of in 2021. It is a 29-foot powerboat capable of accommodating up to 12 people, comes equipped with two Torqeedo Deep Blue engines. |
 |
Bruce 22: | Our current flagship boat. It is capable of reaching speeds of up to approximately 41 miles per hour (66 kph). We offer three variations of the Bruce 22 with starting prices between $69,995 and $289,995. Purchasers may customize the Bruce 22 by choosing among various options including type of propulsion, inserts, other options and batteries. In our 2019 fiscal year, we sold 5 Bruce 22s. |
 |
Volt 180: | A powerful boat that can reach speeds of up to approximately 30 miles per hour (48 kph). In our 2019 fiscal year, we sold 14 Volt 180s. |
 |
Fantail 217: | A boat designed with a view towards relaxation rather than speed. The Fantail 217 starts at $38,995, seats up to ten people and has a maximum speed of approximately 10 miles per hour (6 kph). In our 2019 fiscal year, we sold 23 Fantail 217s |
 |
Quietude 156: | A boat with an eye towards tranquility over speed or power. The Quietude 156 starts at $22,995, seats four passengers and reaches a top speed approximately 5 miles per hour (8 kph). In our 2019 fiscal year, we sold 4 Quietude 156s. |
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Sales
Although we have yet to commercialize our electric powertrains, we have received non-binding letters of intent (“LOIs”) from original equipment manufacturers (“OEMs”) for the purchase of such powertrains. Under the LOIs, OEMs have indicated their interest in purchasing 186 powertrains for the first 12 months following the introduction of the electric powertrain, 335 powertrains for the year ended August 31, 2023 and 504 powertrains for the year ended August 31, 2024. Such LOIs are non-binding and may never result in any actual sales. The projected sales price for our first electric outboard powertrain system is $100,000.
We currently generate over 90% of our revenue from the sale of our electric power boats. In our 2019 fiscal year, we sold 46 of our electric powerboats for revenue of $2,664,000, and in our 2018 fiscal year we sold 21 of our electric powerboats for revenue of $1,036,000. During the six months ended February 29, 2020, we generated $353,148 from the sale of electric powerboats. Our sales are to retail customers and operators of rental fleets of powerboats through which we seek to build brand awareness. We intend to continue to build brand awareness by partnering with marina operators to offer rental fleets of electric boats.
Industry Overview
In North America, 75 million people go boating every year, according to the U.S. Coast Guard, with approximately 12 million recreational vessels registered with the U.S. Coast Guard in 2018. The worldwide recreational boating market size is set to surpass US$63 billion by 2026, according to a research report by Global Market Insights, Inc. Within the boating market, there is an outboard motor market and an electric boat market. Our products fall into each of those categories, and if produced, our electric powertrains will be used in boats in both those markets.
Outboard Motor Market
An outboard motor is a propulsion system for boats, consisting of a self-contained unit that includes engine, gearbox and propeller or jet drive, designed to be affixed to the outside of the boat. As well as providing propulsion, outboards provide steering control, as they are designed to pivot over their mountings and thus control the direction of thrust. Outboard motors tend to be found on smaller watercraft as it is more efficient for larger boats to have an inboard system. Although outboard engines powered by fossil fuels have traditionally dominated this market and continue to do so, electric outboard motors are a relatively new phenomenon that have been growing in step with the growth in the electric boat market. We have developed our first fully-electric outboard powertrain system that combines an advanced battery pack, inverter, high-efficiency motor with proprietary union assembly between the transmission and the electric motor design and extensive control software. Our technologies used in this powertrain system are designed to improve the efficiency of the outboard powertrain and, as a result, increase range and performance.
According to the National Marine Manufacturing Association (“NMMA”), sales of outboard engines in the United States (which includes outboard motors) increased to a thirteen-year high of 280,300 units representing sales market of US$2.9 billion. Consumer demand for higher-performance engines continued to trend upward in 2019, with double digit gains in sales for engines with 200 and greater horsepower. Engines with between 200 and 300 horsepower accounted for 16.3% of all sales of outboard engines, and those with over 300 horsepower accounted for 10%. Overall, the average horsepower of all outboard engines sold in 2019 reached a record-high of 127.6 hp, up 6.9% from the prior year’s average of 119.4 horsepower and up 46% from the average ten years prior of 87 horsepower.
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Electric Boat Market
Although electric boats have been available for over 100 years, interest in them was minimal until the 1990s when the first studies were conducted in the United States following the suspicion that motorboats contaminate aquatic environments significantly through loss of gasoline and lubrication oil. According to Andre Mele, recreational boats pollute as much as cars and trucks in the United States. In the early 2000’s, 8 million speedboats in the United States released 15 times more pollutants annually into the environment than the oil spill produced by the oil tanker Exxon Valdez in 1989. The sinking of this tanker in Alaska had released 11 million U.S. gallons of hydrocarbons into the environment. After conversion, this means that each boat releases an average of 78 L of hydrocarbons into aquatic environments each year. If that average is still current, we estimate that in 2019 oil losses in the environment via motorboats equaled 150,000 tons of hydrocarbon scaly leaks in Canada (based on 2 million vessels), 750,000 tons of hydrocarbon scaly leaks in the United States (based on 10 million vessels) and 450,000 tons of hydrocarbon scaly leaks in Europe (based on 6 million vessels).
This explains why some lakes and bodies of water have recently banned motorboats. The total elimination of gasoline immediately eliminates a very large source of marine pollution, with immediate results: possibility of beaches, swimming, and reduction of BOD (biochemical oxygen demand) and DCO (direct chemical oxidation) of ambient water. Specifically, hydrocarbons, similar to the dirt that clings to the walls of a bathtub, contaminate the shores and banks of lakes, rivers and bodies of water, where the development of many living organisms takes place. The ecosystem is then modified with the scarcity or disappearance of certain species.
In an effort to tackle air pollution, cities around the world are beginning to ban all gasoline - and diesel-powered boats from the center of the city. One of the first cities to implement this change is Amsterdam, Netherlands. This movement to electrically powered boats has been implemented in Venice, where the city has restricted the movement of gasoline - and diesel-powered boats, while exempting electrically powered boats.
Research and Markets predicts that the growth in the electric boat market will be caused by:
| ● | advancement in battery technology that offers longer run-time and higher speed; |
| ● | decreasing battery prices; |
| ● | problems inherent to internal combustion engine boats, including a high pollution rate and the comparatively high fuel prices; and |
| ● | other noteworthy advantages offered by electric boats, such as noiseless and smokeless use and less vibration and less engine maintenance than boats that use internal combustion engines. |
The electric boat market is segmented into two categories, hybrid and pure electric boats. In 2018, hybrid electric boats represented approximately 70% of the electric boat market. The NMMA anticipates that the market shares of the pure electric boat segment will meaningfully increase during the period from 2019 to 2027 owing to advancements in battery technology.
Competitive Advantages & Operational Strengths
We intend to sell our electric powertrains to OEMs for use in their boats. We are currently aware of one company (Torqeedo) that produces electric powertrains for OEMs, and as a result we believe that there is room for competition in this market. We believe the primary competitive factors in our market include but are not limited to:
| ● | technological innovation; |  | |
| ● | product quality and safety; | ||
| ● | service options; | ||
| ● | product performance; | ||
| ● | environmental friendliness; | ||
| ● | design and styling; and | ||
| ● | brand perception. | ||
Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Most of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, many of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.
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We believe that our experience, production capability, product offering and management give us the ability to successfully operate in the recreational electric powerboat market in a way that our competitors cannot. In particular, we believe that we have a number of competitive advantages, including:
| · | technological innovation: we have demonstrated our capacity to develop our own products through research and development; |
| · | product performance: the efficiency of our powertrain systems provides the boats they are in greater speed and range; |
| · | certification: our boats are certified by the U.S. Coast Guard and the Canadian Coast Guard in Canada and meet the American Boat & Yacht Council (“ABYC”) safety standards and the European Union’s imported manufactured products standards; |
| · | product price: we believe that our products are competitively priced across all models and with all customizations. We have not priced our first powertrain system yet but intend to do so in a way that is competitive for its performance; and |
| · | management expertise: our founders have extensive experience in offshore power boating and are aware of what is required by customers in regard to power and efficiency of outboard electric powertrain systems. |
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Strategy
As a designer, manufacturer, and marketer of premium electric boats and electric powertrain systems, we strive to design new and innovative products that appeal to a broad customer base. Since fiscal 2014, we have successfully launched a number of new products and features with best-in-class quality leading to increased sales and significant margin expansion. Furthermore, our unique product development process enables us to offer products with innovative offerings that we believe will be difficult for our competitors to match without significant additional capital investments, most notably our outboard electric powertrain system.
We are developing innovative electric outboard powertrain systems designed to enable us to capture market share, as the outboard powertrain industry moves to electric powertrain outboard motors to comply with local green initiatives. The NMMA estimates that total retail orders of outboard engines was US$2.9 billion in 2018, and Global Market Insights estimates that sales of outboard engines will reach US$17 billion by 2025.
We sell our electric boats to retail customers as well as to boat clubs and boat rental operations. We intend to continue to build brand awareness by partnering with marina operators to offer rental fleets of electric boats. We plan to further expand our sales by offering our products via third party dealerships and by attending more tradeshows. As we launch our innovative electric outboard powertrain systems, we will directly market to OEMs of boats, thereby leveraging their support and distribution systems. We will market our electric powertrains to the OEMs by attending trade shows, inviting the OEMs to test the electric outboard powertrains on a prototype boat, introducing the electric powertrain using social media avenues and advertising the electric powertrain systems in trade journals.
We will continue to implement a number of initiatives to reduce our cost base and to improve the efficiency of our manufacturing process. Additionally, we have fostered a culture of operational improvement within our workforce, which will lead to further operational efficiencies. Finally, we intend to invest in further research and development to ensure that we develop innovative electric powertrain systems thus expanding the number of OEMs that will use our products.
We intend to increase our international sales and expand our network of international distributors and dealers.
General
We were incorporated in August 2012 under the laws of Québec, Canada, and have an August 31, fiscal year end. As of September 14, 2020, we had 5,177,677 common shares outstanding. We had net comprehensive income of $233,066 in our fiscal year ended August 31, 2019 and a net comprehensive loss of $477,797 in our six months ended February 29, 2020.
Our principal executive, registered and records offices are located at 730 Boulevard du Curé-Boivin, Boisbriand, Québec J7G 2A7, Canada. Our telephone number is (450) 951-7009. Our website address is www.electricboats.ca. Information on our website does not constitute part of this prospectus.
As of September 14, 2020, our executive officers and directors beneficially owned 67.0% of our common shares, which includes shares that our executive officers and directors have the right to acquire within the next 60 days pursuant to warrants and stock options which have vested.
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Offering Summary
| Common Shares Offered: | 1,666,667 (excluding the underwriter’s over-allotment option). | |
| Assumed Public Offering Price: | US$9.00 per common share, the midpoint of the price range on the cover page of this prospectus. | |
| Over-allotment | We have granted the underwriter a 45-day option (commencing from the date of this prospectus) to purchase up to an additional 250,000 common shares at the public offering price to cover over-allotments, if any. | |
| Shares Outstanding After the Offering: | 6,844,344 common shares will be outstanding immediately after the offering (or 7,094,344 if the underwriter exercises its over-allotment option in full). | |
| Use of Proceeds: | We intend to use the net proceeds from this offering for the sale and marketing and the production of our new powertrain, the build-up of inventory for order fulfilment and for general working capital. |
| Market for our Common Shares: | This is currently no market for our common shares. We intend to list our common shares on the Nasdaq Capital Market under the symbol “VMAR”. Our application could be rejected by Nasdaq, and this offering will not be consummated until we have received Nasdaq’s approval for our application. | |
| Risk Factors: | See “Risk Factors” for a discussion of the factors you should consider before deciding to invest in our securities. |
Shares outstanding after the offering is based on 5,177,677 common shares outstanding as of September 14, 2020 and excludes:
| · | 524,324 common shares issuable upon the exercise of outstanding options; and | |
| · | 91,667 shares issuable upon exercise of the warrants issued to the underwriter (or 105,417 common share issuable upon exercise of the warrants issued to the underwriter if the over-allotment option is exercised in full). |
Summary Financial Data
The summary financial information set forth below has been derived from our audited financial statements for the fiscal years ended August 31, 2019 and 2018 and from our unaudited financial statements for the three and six months ended February 29, 2020 and February 28, 2019. You should read the following summary financial data together with our historical financial statements and the notes thereto included elsewhere in this prospectus and with the information set forth in the section titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.
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Statement of Comprehensive Income (Loss)
Year ended August 31, | Six months ended | |||||||||||||||
| 2019 | 2018 | February 29,
2020 | February 28,
2019 | |||||||||||||
| Revenue | $ | 2,869,377 | $ | 1,271,566 | $ | 436,193 | $ | 1,271,552 | ||||||||
| Gross profit | $ | 1,285,364 | $ | 501,727 | $ | 233,560 | $ | 589,844 | ||||||||
| Net and comprehensive income (loss) | $ | 233,066 | $ | (185,848 | ) | $ | (477,797 | ) | $ | 54,647 | ||||||
| Basic and diluted income (loss) per share (1) | $ | 0.02 | $ | (0.01 | ) | $ | (0.03 | ) | $ | - | ||||||
(1) Revised to reflect a 1:23,084.86 share exchange effected on January 22, 2020.
Statements of Financial Position
Year ended August 31, | Six months ended February 29, 2020 | |||||||||||||||||||
| 2019 | 2018 | Actual | Pro
Forma | Pro
Forma As Adjusted(1) | ||||||||||||||||
| Current Assets | $ | 1,366,769 | $ | 1,578,282 | $ | 1,855,030 | 5,649,530 | $ | 23,553,215 | |||||||||||
| Total Assets | $ | 1,914,562 | $ | 1,993,194 | $ | 3,043,903 | 6,838,403 | $ | 24,742,088 | |||||||||||
| Current Liabilities | $ | 1,459,534 | $ | 1,890,278 | $ | 1,731,886 | 1,731,886 | $ | 1,731,886 | |||||||||||
| Total Liabilities | $ | 2,046,864 | $ | 2,395,987 | $ | 3,478,927 | 3,478,927 | $ | 3,478,927 | |||||||||||
| Total equity (deficit) | $ | (132,302 | ) | $ | (402,793 | ) | $ | (435,024 | ) | 3,359,476 | $ | 21,263,161 | ||||||||
Our financial position data as of February 29, 2020 is presented on:
| • | an actual basis; |
| • | a pro forma basis, giving effect to the issuance of 1,356,866 common shares since March 1, 2020 and the receipt of $3,794,500 in connection with such issuances; and | |
| • | a pro forma as adjusted basis, giving further effect to the sale and issuance of 1,666,667 common shares by us in this offering, based upon the assumed initial public offering price of US$9.00 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
(1) U.S. dollars converted into Canadian dollars at US$1.00 = $1.3411, the noon-buying price on February 28, 2020 as set out in “Currency and Exchange Rates”.
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An investment in our common shares carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, including our historical financial statements and related notes included elsewhere in this prospectus, before you decide to purchase the common shares. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares. Refer to “Special Note Regarding Forward-Looking Statements”.
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Risks Related to our Business and Industry
There is limited public information on our operating history.
Our limited public operating history makes evaluating our business and prospects difficult. Although we were formed in 2012, we did not provide public reports on the results of operations until we first filed a draft of the registration statement of which this prospectus forms a part. We only have two years of audited financial statements. Your investment decision will not be made with the same data as would be available as if we had a longer history of public reporting.
We currently have minimally positive net income, and if we are unable to maintain and grow our net income in the future our ability to grow our business as planned will be adversely affected.
We have made significant up-front investments in research and development, sales and marketing, and general and administrative expenses to rapidly develop and expand our business. We had net income of $233,066 in our 2019 fiscal year as compared to a net loss of $185,848 in our 2018 fiscal year and incurred a comprehensive net loss of $477,797 in our six months ended February 29, 2020 as compared to comprehensive net income of $54,647 for the corresponding period in 2019. Net income may fail to grow or even decline in certain circumstances, many of which are beyond our control. Even after the use of the proceeds from this offering, our revenues might not significantly exceed our expenses or could be less than our expenses.. It may take us longer to increase our net income to do so than we anticipate, if at all, or we may only do so at a much lower rate than we anticipate. Failure to increase our net income would mean that we would have to curtail our planned growth in operations or resort to financings to fund such growth.
A substantial amount of our revenues in our 2019 and 2018 fiscal years were derived or sourced from related-party transactions.
Our Chief Executive Officer is an affiliate of EB Rental Ltd., an entity that rents electric boats at the Lido Marina Village in Newport, California. We respectively sold $455,531 and $372,719 of boats, parts, services and other items to EB Rental Ltd. in our 2019 and 2018 fiscal years and have generated income from them in the six months ended February 29, 2020 of $66,077 from the sale of parts and maintenance. Although we believe that these sales were on an arms’-length terms, such sales may not have occurred were it not for the relation among these parties. Had such sales not occurred, our results of operations for those fiscal years would have been different, and we may not have achieved net comprehensive income in our 2019 fiscal year.
Our plan of operations entails promoting a product candidate that we may never launch or which may not be commercially accepted if launched.
We have concentrated the majority of our research and development efforts on developing electric powertrain systems that we intend to sell to OEMs of boats following our initial public offering. We expect the electric powertrain systems to represent the majority of our revenue in the accounting periods shortly following the initial public offering. We have built prototypes of our electronic powertrain but have not shared this prototype with potential OEMs or the performance specifications of our powertrain with them. We do not know if OEMs will find our product candidate to be an attractive component in their boats or if they will find the price of our electric powertrains to be acceptable. We do not currently have any customers for our electric powertrains. Although we have received LOIs from OEMs for 186 powertrains for the first 12 months following the introduction of the electric powertrain, 335 powertrains for the year ended August 31, 2023 and 504 powertrains for the year ended August 31, 2024, such LOIs are non-binding and may never result in any actual sales. Even if we do develop such relationships, we might not be able to maintain them or grow them as anticipated. If we are not successful in commercializing our product candidate or if sales of our electric powertrain are less than we estimate, our business may not grow as expected, if at all, and we may fail.
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To carry out our proposed business plan to build up inventory for order fulfilment, increase brand awareness and develop a new powertrain for our engines, we will require a significant amount of capital.
If the funds from this offering and revenue from our business are not sufficient to cover our cash requirements, we will need to raise additional funds through the sale of our equity securities, in either private placements or additional registered offerings, and through shareholder loans. If we are unsuccessful in raising enough funds through such capital-raising efforts, we may review other financing possibilities such as bank loans. Financing might not be available to us or, if available, only on terms that are not acceptable to us.
Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our current corporate structure. We might not be able to obtain any funding, and we might not have sufficient resources to conduct our business as projected, both of which could mean that we would be forced to curtail or discontinue our operations.
Terms of subsequent financings may adversely impact your investment.
We may have to engage in common equity, debt, or preferred stock financing in the future. Your rights and the value of your investment in our securities could be reduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could be issued in series from time to time with such designation, rights, preferences, and limitations as needed to raise capital. The terms of preferred stock could be more advantageous to those investors than to the holders of common shares. In addition, if we need to raise more equity capital from the sale of common shares, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which develops, which could adversely affect the market price.
Our future growth depends upon consumers’ willingness to purchase electric powerboats.
Our growth highly depends upon the adoption by consumers of, and we are subject to an elevated risk of any reduced demand for, electric powerboats. Without such growth, sales of our electric powertrain, if any, and our electric boats may not grow at the rate that we anticipate, if such sales grow at all. If the market for electric powerboats does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be negatively impacted. Despite the long history of electric powerboats, the market for them is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new electric powerboat announcements and changing consumer demands and behaviors. Powerboats with conventional gas-powered motors may be deemed preferable to electric powerboats as they tend to be more powerful, have a longer range and/or cost less. Other factors that may influence the adoption of electric powerboats include:
| ● | the decline of an electric powerboats range resulting from deterioration over time in the battery’s ability to hold a charge; | |
| ● | concerns about electric grid capacity and reliability, which could derail our efforts to promote electric powerboats as a practical solution to powerboats which require gasoline; | |
| ● | improvements in the fuel economy of the internal combustion engine; | |
| ● | the availability of service for electric powerboats; | |
| ● | the environmental consciousness of consumers; | |
| ● | volatility in the cost of oil and gasoline; | |
| ● | consumers’ perceptions about convenience and cost to charge an electric powerboat; | |
| ● | the availability of tax and other governmental incentives to manufacture electric powerboats; and | |
| ● | perceptions about and the actual cost of alternative fuel. |
The influence of any of the factors described above may cause current or potential customers not to purchase our electric powerboat, which would materially adversely affect our business, operating results, financial condition and prospects.
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Our future growth depends upon consumers’ preference for outboard motors over inboard motors.
We envision the majority of our growth deriving from the sale of one of our product candidates, an electric powertrain for an outboard motor. If consumer preferences led to a decline in outboard motors, the OEMs we intend to sell to may produce less boats, and we may not be able to sell as many electric powertrains as we anticipate, if we sell any at all. We may not be able to adapt the technology behind this powertrain for inboard motors or may only be able to do so in a way that is not cost effective.
We rely on a limited number of suppliers for key components of our finished products.
Although we manufacture all of our powerboats, we do so by assembling the component parts that we acquire from third-party suppliers rather than by producing any of those component parts ourselves. We materially depend on some of those third-party suppliers for certain components that we obtain from a limited number of suppliers, namely
| ● | hulls: we purchase all of our hulls from Aqualux and Abitibi & Co., |
| ● | motors: for our electric powertrains, we intend to purchase motors from UQM Technologies and Dana TM4 and for our boats, we purchase approximately 20% of our motors from Torqeedo, 30% from Min-Kota, 35% from E-Tech and 10% from E-Propulsion; |
| ● | powertrains: we purchase approximately 5% of our powertrains from Piktronik, an Austrian-Slovenian company specialized in the research, development and production of components for electric vehicles and electric powerboats (which provides the powertrain used in our Bruce 22); and |
| ● | battery packs: we purchase our lithium-ion batteries (approximately 15% of all batteries we purchase) from BMW and/or Relion Batteries who in turn rely upon Samsung cells, and we purchase our lead batteries (approximately 85% of all batteries we purchase) from Thermo Fisher Scientific Inc. |
As we purchase our components and parts through purchase orders and informal arrangements rather than long-term purchase agreements, we have not contractually secured a supply chain for these components and parts. As a result of the COVID-19 pandemic, some of our third-party suppliers have experienced delays in delivering parts and components for our products. If as a result of the COVID-19 pandemic we continue to experience delays in receiving our supplies from these third-parties, if they significantly increased the cost of these components or if they ceased offering us these components, we would have to find new suppliers, which might not be possible on a timely basis, or cease production of the products in which the components are included.
The range of electric powerboats on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our boats or boats containing our electric powertrains.
The range of electric powerboats on a single charge declines principally as a function of usage, time and charging patterns. For example, a customer’s use of their powerboat as well as the frequency with which they charge the battery can result in additional deterioration of the battery’s ability to hold a charge. During the lifetime of the lead acid batteries in powerboats, 500 to 1000 recharge cycles are possible, and our lithium battery pack will retain approximately 85% of its ability to hold its initial charge after approximately 3,000 charge cycles and 8 years, which will result in a decrease to the boat’s initial range. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions whether to purchase an electric boat, which may harm our ability to market and sell our boats. Likewise, if such reasoning deters potential customers from purchasing boats made by OEMs that use our electric powertrains, they may order fewer electric powertrains from us, if they ever order any at all.
Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric powerboats.
Significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, fuel which is abundant and relatively inexpensive in North America, such as compressed natural gas, may emerge as consumers’ preferred alternative to petroleum-based propulsion. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced electric powerboats, which could result in the loss of competitiveness of our boats, decreased revenue and a loss of market share to competitors.
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If we are unable to keep up with advances in electric powerboat technology, we may suffer a decline in our competitive position.
We may be unable to keep up with changes in electric powerboats technology, particularly developments with powertrains. As a result, we may suffer a decline in our competitive position. Any failure to keep up with advances in electric powerboat technology would result in a decline in our competitive position which would materially and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may not be sufficient to adapt to changes in electric powerboat technology. As technologies change, we plan to upgrade or adapt our electric powertrain candidate. We would additionally upgrade our boats and introduce new models to take advantage of these changes. However, our technology and boats may not compete effectively with alternative technology or powerboats if we are not able to source and integrate the latest technology. For example, we do not manufacture either or lead or lithium battery cells which makes us depend upon suppliers of battery cell technology for our battery packs.
Demand in the powerboat industry is highly volatile.
Volatility of demand in the powerboat industry, especially for recreational powerboats and electric powerboats, may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we will be competing have been subject to considerable volatility in demand in recent periods. Demand for recreational powerboat and electric powerboat sales depends to a large extent on general, economic and social conditions in a given market. Historically, sales of recreational powerboats decrease during economic downturns. We have fewer financial resources than more established powerboat manufacturers to withstand adverse changes in the market and disruptions in demand.
Unfavorable weather conditions may have a material adverse effect on our business, financial condition, and results of operations, especially during the peak boating season.
Adverse weather conditions in any year in any particular geographic region may adversely affect sales in that region, especially during the peak boating season. Sales of our products are generally stronger just before and during spring and summer, which represent the peak boating months in most of our markets, and favorable weather during these months generally has a positive effect on consumer demand. Conversely, unseasonably cool weather, excessive rainfall, reduced rainfall levels, or drought conditions during these periods may close area boating locations or render boating dangerous or inconvenient, thereby generally reducing consumer demand for our products. Our annual results would be materially and adversely affected if our net sales were to fall below expected seasonal levels during these periods. We may also experience more pronounced seasonal fluctuation in net sales in the future as we continue to expand our businesses. Additionally, to the extent that unfavorable weather conditions are exacerbated by global climate change or otherwise, our sales may be affected to a greater degree than we have previously experienced.
We intend to increasingly use our network of independent dealers, and we will face increasing competition for dealers and have little control over their activities.
Currently, most of our sales are directly placed with us online, but approximately 35% of our sales in our 2019 fiscal year were derived from our network of independent dealers. We have agreements with the dealers in our network that typically provide for terms of between 1 and 3 years. While we will continue to market direct sales through our website, we seek to increase revenues and diversify our sales points by expanding our network of independent dealers. We envision an increase in the number of dealers supporting our products and the quality of their marketing and servicing efforts as being essential to our ability to increase sales. We may not be successful in our effort to grow our network of independent dealers.
Competition for dealers among recreational powerboat manufacturers continues to increase based on the quality, price, value and availability of the manufacturers' products, the manufacturers' attention to customer service and the marketing support that the manufacturer provides to the dealers. We will face intense competition from other recreational powerboat manufacturers in attracting and retaining dealers, and we might not be able to attract or retain relationships with qualified and successful dealers. We might not be able to maintain or improve our relationship with our dealers or our market share position. In addition, independent dealers in the recreational powerboat industry have experienced significant consolidation in recent years, which could inhibit our ability to retain them or result in the loss of one or more of our dealers in the future if the surviving entity in any such consolidation purchases similar products from a competitor. If we do not establish a significant network of dealers, our future sales could fail to meet our projected financial condition and results of operations and cause to alter our business plan.
We envision that our success will depend, in part, upon the financial health of our dealers and their continued access to financing.
We seek to increase revenues and diversify our sales points by expanding our network of independent dealers. The financial health of our current and any future dealers is critical to our success. Our business, financial condition and results of operations may be adversely affected if the financial health of dealers that sell our products suffers. Their financial health may suffer for a variety of reasons, including a downturn in general economic conditions, rising interest rates, higher rents, increased labor costs and taxes, compliance with regulations and personal financial issues.
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In addition, dealers require adequate liquidity to finance operations, including purchases of our products. Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions, including, among other things, continued access to adequate financing sources on a timely basis on reasonable terms. These sources of financing are vital to our ability to sell products through our distribution network. Access to floor plan financing generally facilitates dealers’ ability to purchase powerboats from us, and their financed purchases reduce our working capital requirements. If floor plan financing were not available to our dealers, our sales and our working capital levels could be adversely affected. The availability and terms of financing offered by dealers’ floor plan financing providers will continue to be influenced by:
| • | their ability to access certain capital markets and to fund their operations in a cost-effective manner; |
| • | the performance of their overall credit portfolios; |
| • | their willingness to accept the risks associated with lending to dealers; and |
| • | the overall creditworthiness of those dealers. |
Changes to trade policy, tariffs, and import/export regulations may have a material adverse effect on our business, financial condition, and results of operations.
Although we manufacture our products in Canada, in our last fiscal year approximately 90% of our sales occurred in the United States, a percentage that could increase as our operations expand. Changes in laws and policies governing foreign trade could adversely affect our business. As a result of recent policy changes, there may be greater restrictions and economic disincentives on international trade. We will particularly be affected by the Agreement Between the United States of America, the United Mexican States, and Canada (commonly known as USMCA), if ratified by all participants, the effects of which are not certain. Such changes have the potential to adversely impact the global and local economies, our industry and global demand for our products and, as a result, could have a material adverse effect on our business, financial condition and results of operations.
Interest rates and energy prices affect marine products’ sales
Although our products are not frequently financed by our dealers and retail powerboat consumers, we envision this becoming more common as we expand our operations and grow our network of distributors. This may not occur if interest rates meaningfully rise because higher rates increase the borrowing costs and, accordingly, the cost of doing business for dealers and the cost of powerboat purchases for consumers. Energy costs can represent a large portion of the costs to manufacture our products and increase their ultimate sales price. Therefore, higher interest rates and fuel costs can adversely affect consumers’ decisions relating to recreational powerboating purchases.
We have a large fixed cost base that will affect our profitability if our sales decrease.
The fixed cost levels of operating a recreational powerboat manufacturer can put pressure on profit margins when sales and production decline. Our profitability depends, in part, on our ability to spread fixed costs over a sufficiently large number of products sold and shipped, and if we decide to reduce our rate of production, gross or net margins could be negatively affected. Consequently, decreased demand or the need to reduce production can lower our ability to absorb fixed costs and materially impact our financial condition or results of operations.
We depend on certain key personnel, and our success will depend on our continued ability to retain and attract such qualified personnel.
Our success depends on the efforts, abilities and continued service of Alexandre Mongeon, our Chief Executive Officer, Patrick Bobby, our Chief Operating Officer, and Kulwant Sandher, our Chief Financial Officer. A number of these key employees and consultants have significant experience in the recreational boating and manufacturing industry. A loss of service from any one of these individuals may adversely affect our operations, and we may have difficulty or may not be able to locate and hire a suitable replacement. We have not obtained any “key person” insurance on certain key personnel.
We are subject to numerous environmental and health and safety laws and any breach of such laws may have a material adverse effect on our business and operating results.
We are subject to numerous environmental and health and safety laws, including statutes, regulations, bylaws and other legal requirements. These laws relate to the generation, use, handling, storage, transportation and disposal of regulated substances, including hazardous substances (such as batteries), dangerous goods and waste, emissions or discharges into soil, water and air, including noise and odors (which could result in remediation obligations), and occupational health and safety matters, including indoor air quality. These regulations also apply to any contamination that our powerboats cause in the lakes and rivers in which they operate. These legal requirements vary by location and can arise under federal, provincial, state or municipal laws. Any breach of such laws and/or requirements would have a material adverse effect on our company and its operating results.
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Our powerboats are subject to mandated safety standards and failure to meet those standards would have a material adverse effect on our business and operating results.
Given the inherent dangers involved with powerboats, all powerboats sold must comply with federal, state and provincial safety standards. Additionally, most powerboats sold in the United States meet the safety standards set by the ABYC, a non-profit, member organization that develops voluntary safety standards for the design, construction, maintenance, and repair of recreational powerboats and the NMMA. Our powerboats have been certified by the United States Coast Guard, the Canadian Coast Guard, meet the ABYC safety standards and have received CE marking indicating their conformity with health, safety, and environmental protection standards within the European Economic Area. Loss of any of these certifications or failure to obtain them for future products could have a material adverse effect on our business and operating results.
If we are unable to meet the service requirements of our customers, our business will be materially and adversely affected.
We do not offer warranties or provide service for our boats and do not intend to offer warranties on our powertrains systems. Instead, the purchasers of our boats and of our powertrains may rely upon the warranties and services of the manufacturers of the components used in our boats. As all such warranties are provided by third-party suppliers, the quality and timeliness of such service is outside of our control. Additionally, the terms of such warranties, including the length of time of coverage, and servicing terms, including locations and labor cost, are not uniform. If our purchasers and potential purchasers believe that warranties and servicing capabilities provided by our third-party suppliers are unable to successfully address their service requirements, the reputation of our brand will suffer and business and prospects could be materially and adversely affected.
We may not succeed in establishing, maintaining and strengthening the Vision Marine Technologies Inc. brand, which would materially and adversely affect customer acceptance of our boats and components and our business, revenues and prospects.
Our business and prospects heavily depend on our ability to develop, maintain and strengthen the Vision Marine Technologies brand and the brands of our powerboat models. Any failure to develop, maintain and strengthen these brands may materially and adversely affect our ability to sell our products. If we are not able to establish, maintain and strengthen our brands, we may lose the opportunity to build our customer base. We expect that our ability to develop, maintain and strengthen the Vision Marine Technologies brand will also depend heavily on the success of our marketing efforts. We intend to use proceeds from this offering for marketing of our products, but we might be successful in such expanded marketing. To further promote our brand, we may be required to change our marketing practices, which could result in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print. Many of our current and potential competitors have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If we do not develop and maintain strong brands, our business, prospects, financial condition and operating results will be materially and adversely impacted.
Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.
Although we do not materially use raw materials in the production of our electronic powerboats, we purchase the necessary parts and components for our boats from third-party suppliers that do. Were those third-party suppliers to experience increases in the cost or a sustained interruption in the supply or shortage of raw materials, the corresponding parts and components could become more costly or less available (if still available at all). For example, our supply chain has been impacted by the COVID-19 pandemic as some of our third-party suppliers have experienced delays in delivering parts and components for our products. We are particularly exposed to a supply-chain risk as we have not contractually secured long-term supply commitments at fixed prices with our third-party suppliers. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and price fluctuations and material shortages could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:
| ● | the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to meet demand; | |
| ● | disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and | |
| ● | an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells. |
Our business depends on the continued supply of battery cells for our boats. We do not currently have any agreements for the supply of batteries and depend upon the open market for their procurement. Any disruption in the supply of battery cells from our supplier could temporarily disrupt the planned production of our boats until such time as a different supplier is fully qualified. Moreover, battery cell manufacturers may choose to refuse to supply electric boat manufacturers to the extent they determine that the boats are not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials would increase our operating costs and could reduce our margins if we cannot recoup the increased costs through increased electric boat prices. We might not be able to recoup increasing costs of raw materials by increasing boat prices. We publish the price for the base model of our powerboats. However, any attempts to increase the published prices in response to increased raw material costs could be viewed negatively by our potential customers, result in cancellations of orders and could materially adversely affect our brand, image, business, prospects and operating results.
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If our suppliers sell us parts or components containing conflict minerals, we may be required at significant expense to find suppliers that do not use conflict minerals.
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requiring the Securities and Exchange Commission (“SEC”) to issue rules specifically relating to the use of “Conflict Minerals” within manufactured products. Conflict Minerals are currently defined by U.S. Law as tin, tantalum, tungsten and gold (also known as “3TG”) and related derivatives. Within a year of becoming a public company, the SEC rules require any SEC registrant whose commercial products contain any 3TG (“3TG Product”) to determine whether the 3TG in the 3TG Product originated from the Democratic Republic of the Congo (“DRC”) or adjoining countries (collectively, the “DRC Region”) and, if so, whether the 3TG is “conflict free”. “3TG Conflict Free” means that the supply chain is transparent and the 3TG in 3TG Products does not directly or indirectly benefit armed groups responsible for serious human rights abuses in the DRC Region. By enacting this provision, Congress intends to further the humanitarian goal of ending the extremely violent conflict in the DRC Region, which has been partially financed by the exploitation and trade of 3TG originating in the DRC Region.
We will need to expend time and money on determining whether our products contain conflict minerals. If our suppliers use conflict minerals in the production of the parts and components that we purchase from them, we may need to find alternative suppliers. If possible, this may only be possible at significant expense or with material delays in production.
Our software to control our electric powertrain systems contains “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
We use software to control our electric powertrain systems that relies upon “open source” licenses and intend to use such software in the future. Although we do not believe that the open source code we have used imposes any limitations on the use of the software that we have developed, the terms of many open source licenses have not been interpreted by United States or other courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions including requirements that we make available source code for modifications or derivative works we create based upon the open source software or license such modifications or derivative works. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. We cannot be sure that all open source is submitted for approval prior to use in our solutions. In addition, many of the risks associated with usage of open source cannot be eliminated, and could, if not properly addressed, negatively affect the performance of our electric powertrains and our business.
We rely on network and information systems and other technologies for our business activities and certain events, such as computer hackings, viruses or other destructive or disruptive software or activities may disrupt our operations, which could have a material adverse effect on our business, financial condition and results of operations.
Network and information systems and other technologies are important to our business activities and operations. Network and information systems-related events, such as computer hackings, cyber threats, security breaches, viruses, or other destructive or disruptive software, process breakdowns or malicious or other activities could result in a disruption of our services and operations or improper disclosure of personal data or confidential information, which could damage our reputation and require us to expend resources to remedy any such breaches. Moreover, the amount and scope of insurance we maintain against losses resulting from any such events or security breaches may not be sufficient to cover our losses or otherwise adequately compensate us for any disruptions to our businesses that may result, and the occurrence of any such events or security breaches could have a material adverse effect on our business and results of operations. The risk of these systems-related events and security breaches occurring has intensified, in part because we maintain certain information necessary to conduct our businesses in digital form stored on cloud servers. While we develop and maintain systems seeking to prevent systems-related events and security breaches from occurring, the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Despite these efforts, there can be no assurance that disruptions and security breaches will not occur in the future. Moreover, we may provide certain confidential, proprietary and personal information to third parties in connection with our businesses, and while we obtain assurances that these third parties will protect this information, there is a risk that this information may be compromised. The occurrence of any of such network or information systems-related events or security breaches could have a material adverse effect on our business, financial condition and results of operations.
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If the governmental grants and tax credits that we receive were no longer available, our net income would be materially reduced.
We receive governmental benefits in connection with our operations. In connection with the production of our powerboats and our research into green technology, we have been able to receive tax credits and grants provided by the Quebec provincial government and the Canadian federal government. In our 2019 and 2018 fiscal years, we received scientific research and development tax credits of $163,743 and $248,750, grants of $379,601 and $274,409, respectively, under an energy and greenhouse gas emission reduction innovation support program (known as Technoclimat). We intend to continue applying for such grants and receiving such tax credits. Without such grants and tax credits, our net income in each of the past two fiscal years would have been a net loss. If they were no longer available, our business, prospects, financial condition and operating results could be adversely affected.
The unavailability, reduction or elimination of government could have a material adverse effect on our business, financial condition, operating results and prospects.
Although we are unaware of substantial governmental economic incentives, such as tax credits and rebates, that customers may receive in connection with the purchase of our products, there are certain governmental regulations whose repeal could affect the desirability of our powerboats. In particular, local and regional restrictions of internal combustion engines on certain waterways, make electric boats an attractive alternative for use in such lakes and rivers. Any reduction, elimination or discriminatory application of such rules because of policy changes or other reasons may result in the diminished competitiveness of electric boats generally. This could materially and adversely affect the growth of our market and our business, prospects, financial condition and operating results.
If we fail to manage future growth effectively, we may not be able to market or sell our powerboats or powertrains successfully.
Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We plan to expand our operations in the near future. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:
| ● | training new personnel; | |
| ● | forecasting production and revenue; | |
| ● | expanding our marketing efforts, including the marketing of a new powertrain that we use; | |
| ● | controlling expenses and investments in anticipation of expanded operations; | |
| ● | establishing or expanding design, manufacturing, sales and service facilities; | |
| ● | implementing and enhancing administrative infrastructure, systems and processes; and | |
| ● | addressing new markets. |
We intend to continue to hire a number of additional personnel, including design and manufacturing personnel and service technicians for our electric boats and powertrains. Competition for individuals with experience designing, manufacturing and servicing electric boats is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.
Our business may be adversely affected by labor and union activities.
None of our employees are currently represented by a labor union, it is common in Québec for employees of manufacturers of a certain size to belong to a union. Although we do not believe that we are currently of a size where our employees will unionize, were they to do so now or in the future, we would be at risk for higher employee costs and increased risk of work stoppages. We also directly and indirectly depend upon other companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs within our business, that of our key suppliers or our network of distributors, it could materially reduce the manufacture and sale of our boats and have a material adverse effect on our business, prospects, operating results or financial condition.
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Our ability to meet our manufacturing workforce needs is crucial to our results of operations and future sales and profitability.
We rely on the existence of an available hourly workforce to manufacture our products. We cannot assure you that we will be able to attract and retain qualified employees to meet current or future manufacturing needs at a reasonable cost, or at all. For instance, the demand for skilled employees has increased recently with the low unemployment rates in the regions where we have manufacturing facilities. Also, although none of our employees are currently covered by collective bargaining agreements, we cannot assure you that our employees will not elect to be represented by labor unions in the future. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. Significant increases in manufacturing workforce costs could materially adversely affect our business, financial condition or results of operations.
We compete with a variety of other activities for consumers’ scarce leisure time.
Our powerboats are used for recreational and sport purposes, and demand for our powerboats may be adversely affected by competition from other activities that occupy consumers’ leisure time and by changes in consumer lifestyle, usage pattern or taste. Similarly, an overall decrease in consumer leisure time may reduce consumers’ willingness to purchase and enjoy our products.
Product liability, warranty, personal injury, property damage and recall claims may materially affect our financial condition and damage our reputation.
We are engaged in a business that exposes us to claims for product liability and warranty claims in the event our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to result, in property damage, personal injury or death. Our products involve kinetic energy, produce physical motion and are to be used on the water, factors which increase the likelihood of injury or death. Our products contain Lithium-ion batteries, which have been known to catch fire or vent smoke and flame, and chemicals which are known to be, or could later be proved to be, toxic carcinogenic. Any judgment or settlement for personal injury or wrongful death claims could be more than our assets and, even if not justified, could prove expensive to contest.
We do not provide warranties for our powerboats but instead rely upon the warranties provided by the third-party manufacturers from whom we purchase the components for our powerboats. Although we maintain product and general liability insurance of the types and in the amounts that we believe are customary for the industry, we are not fully insured against all such potential claims. We may experience legal claims in excess of our insurance coverage or claims that are not covered by insurance, either of which could adversely affect our business, financial condition and results of operations. Adverse determination of material product liability and warranty claims made against us could have a material adverse effect on our financial condition and harm our reputation. In addition, if any of our products or components in our products are, or are alleged to be, defective, we may be required to participate in a recall of that product or component if the defect or alleged defect relates to safety. Any such recall and other claims could be costly to us and require substantial management attention.
Our intellectual property is not protected through patents or formal copyright registration. As a result, we do not have the full benefit of patent or copyright laws to prevent others from replicating our products, product candidates and brands.
We have not yet protected our intellectual property rights through patents or formal copyright registration, and we do not currently have any patent applications pending. As we intend to transition into the production of electric powertrains to OEMs, we envision our intellectual property and its security becoming more vital to our future. Until we protect our intellectual property through patent, trademarks and registered copyrights, we may not be able to protect our intellectual property and trade secrets or prevent others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining access to our intellectual property or trade secrets. In such an instance, our competitors could produce products that are nearly identical to ours resulting in us selling less products or generating less revenue from our sales.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets, know-how and technology, which are not protected by patents, to protect the intellectual property behind our electric powertrain and for the construction of our boats. We do not yet use confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors to protect our proprietary technology and processes. We intend to use such agreements in the future, but these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
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Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from interfering with our commercialization of our products.
Although we currently do not have any patents or pending patent application, we intend to file patent applications in the future in connection with our electric outboard powertrain systems. The registration and enforcement of patents involves complex legal and factual questions and the breadth and effectiveness of patented claims is uncertain. We cannot be certain that we will be first to file patent applications on this or other inventions, nor can we be certain that such patent applications will result in issued patents or that any of our issued patents will afford sufficient protection against someone creating competing products, or as a defensive portfolio against a competitor who claims that we are infringing its patents. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications, if any, will result in issued patents in those foreign jurisdictions or that such patents can be effectively enforced, even if they relate to patents issued in the U.S.
We do not have trademarks for our products and trade names.
Although we use our logo as a trademark and have applied for its registration at the Canadian Intellectual Property Office, we do not have other trademarks for any of our brand names and logos in the United States or elsewhere. Any trademark applications that we file with a relevant governmental authority for brand names/logos might not be approved. Failure to obtain such approval could limit our ability to use the brand names/logos in those territories or lead our products be confused with, and/or tarnished by, competing products. Even if appropriate applications were made and approved, third parties may oppose or otherwise challenge such applications or registrations.
We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
The status of the protection of our intellectual property is unsettled as we do not have any patents, trademarks or registered copyrights and have not applied for the same. Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our powerboats and electric powertrains or use third-party components, which could make it more difficult for us to operate our business. From time to time, we may receive communications from third parties that allege our products or components thereof are covered by their patents or trademarks or other intellectual property rights. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:
| ● | cease making, using, selling or offering to sell processes, goods or services that incorporate or use the third-party intellectual property; | |
| ● | pay substantial damages; |
| ● | seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; | |
| ● | redesign our boats or other goods or services to avoid infringing the third-party intellectual property; | |
| ● | establish and maintain alternative branding for our products and services; or | |
| ● | find-third providers of any part or service that is the subject of the intellectual property claim. |
In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under the laws of the Province of Québec, a substantial portion of our assets are in Canada and all of our directors and executive officers reside outside the United States
We are constituted under the laws of the Business Corporations Act (Québec) (the “Business Corporation Act”) and our executive offices are located outside of the United States in Boisbriand, Québec. All of our officers, and directors, as well as our auditor reside outside the United States. In addition, a substantial portion of their assets and our assets are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. Federal or state securities laws. Furthermore, there is substantial doubt as to the enforceability in Canada against us or against any of our directors, officers and the expert named in this prospectus who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in Québec corporations may not have standing to initiate a shareholder derivative action in U.S. federal courts.
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As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Global economic conditions could materially adversely impact demand for our products and services.
Our operations and performance depend significantly on economic conditions. Global financial conditions continue to be subject to volatility arising from international geopolitical developments and global economic phenomenon, as well as general financial market turbulence, including a significant recent market reaction to the novel coronavirus (COVID-19), resulting in a significant reduction in many major market indices. Uncertainty about global economic conditions could result in
| • | customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services; and |
| • | third-party suppliers being unable to produce parts and components for our products in the same quantity or on the same timeline or being unable to deliver such parts and components as quickly as before or subject to price fluctuations, which could have a material adverse effect on our production or the cost of such production; and |
accordingly, on our business, results of operations or financial condition. Access to public financing and credit can be negatively affected by the effect of these events on Canadian, U.S. and global credit markets. The health of the global financing and credit markets may affect our ability to obtain equity or debt financing in the future and the terms at which financing or credit is available to us. These instances of volatility and market turmoil could adversely affect our operations and the trading price of our common shares.
Our business may be materially affected by the COVID-19 Outbreak
The outbreak of the novel coronavirus (COVID-19) may cause disruptions to our business and operational plans. These disruptions may include disruptions resulting from (i) shortages of employees, (ii) unavailability of contractors and subcontractors, (iii) interruption of, or price fluctuations in, supplies from third parties upon which we rely, (iv) restrictions that governments impose to address the COVID-19 outbreak, and (v) restrictions that we and our contractors and subcontractors impose to ensure the safety of employees and others. Although we have not noticed any decrease to orders that we would attribute to COVID-19, we believe that COVID-19 is impacting our supply chain by increasing the amount of time between ordering third-party materials needed for our boats and their delivery. Continued delays in our supply chain could adversely impact our production and, in turn, our revenues. Further, it is presently not possible to predict the extent or durations of these disruptions. These disruptions may have a material adverse effect on our business, financial condition and results of operations. Such adverse effect could be rapid and unexpected. These disruptions may severely affect our ability to carry out our business plans for 2020 and 2021.
Fluctuations in currency exchange rates may significantly impact our results of operations.
Our operations are conducted in Canada, but approximately 90% of our sales occur in the United States. As a result, we are exposed to an exchange rate risk between the U.S. and Canadian dollars. The exchange rates between these currencies in recent years have fluctuated significantly and may continue to do so in the future. An appreciation of the Canadian dollar against the U.S. dollar could increase the relative cost of our products outside of Canada, which could lead to decreased sales. Conversely, to the extent that we are required to pay for goods or services in U.S. dollars, the depreciation of the Canadian dollar against the U.S. dollar would increase the cost of such goods and services.
We do not hedge our currency exposure and, therefore, we incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the Canadian dollar. Given the volatility of exchange rates, we might not be able to effectively manage our currency transaction risks, and volatility in currency exchange rates might have a material adverse effect on our business, financial condition or results of operations.
Risks Related to Our Common Shares and this Offering
Our executive officers and directors beneficially will own approximately 51.1% of our common shares after completion of the proposed offering.
If we sell 1,666,667 common shares in this offering (excluding any shares that may be sold as a result of the underwriter’s over-allotment option), our executive officers and directors will beneficially own, in the aggregate, 51.1% of our common shares, which includes shares that our executive officers and directors have the right to acquire pursuant to stock options which have vested or will vest within the next 60 days. As a result, they will be able to exercise a significant level of control over all matters requiring shareholder approval, including the election of directors, amendments to our Articles of Incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these shareholders.
In addition, Nasdaq provides a “controlled company”, a company of which more than 50% of the voting power for the election of its directors is held by a single person, entity or group, with exemptions from certain corporate governance requirements, including the requirement that a majority of its board of directors consist of independent directors. While we will not be a "controlled company" after the offering pursuant to Nasdaq rules, two of our directors will each beneficially own approximately 31.8% of our common shares through a commonly controlled entity. Any future concentration of voting power among these directors or other persons could result in our becoming a "controlled company". If we become a "controlled company," we may elect to rely on certain exemptions from Nasdaq’s corporate governance rules. In such case, you may not have the same protection afforded to shareholders of companies that are subject to those corporate governance requirements.
The continued sale of our equity securities will dilute the ownership percentage of our existing shareholders and may decrease the market price for our common shares.
Our Articles of Incorporation, as amended by our Articles of Amendment, authorize the issuance of an unlimited number of common shares, also referred to in our Articles of Amendment as Common Shares, which are issuable in four series, of which an unlimited number are designated as Voting Common Shares – Series Founder, an unlimited number are designated as Voting Common Shares – Series Investor 1, an unlimited number are designated as Voting Common Shares – Series Investor 2 and an unlimited number are designated as Non-Voting Common Shares. All of our currently issued and outstanding common shares are Voting Common Shares – Series Founder, Voting Common Shares – Series Investor 1 and Voting Common Shares – Series Investor 2, and there is no difference in the rights and obligations of the holders of shares of those classes. The common shares being offered hereby are technically common shares – Series Investor 2. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future. The issuance of any such common shares may result in a reduction of the book value or market price, if one exists at the time, of the outstanding common shares. If we do issue any additional common shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. As a result of such dilution, if you acquire common shares, your proportionate ownership interest and voting power could be decreased. Further, any such issuances could result in a change of control or a reduction in the market price for our common shares.
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The market price of our common shares may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Currently, there is no public market for our common shares. Although we will not close this offering unless our application to list our common shares on the Nasdaq Capital Market is approved, such listing might not result in significant volume, a per common share market price in excess of the per common share price in this offering or per common share price stability. The value of your investment could decline due to the impact of any of the following factors upon the market price of our common shares:
| ● | sales or potential sales of substantial amounts of our common shares; |
| ● | announcements about us or about our competitors; |
| ● | litigation and other developments relating to our patents or other proprietary rights or those of our competitors; |
| ● | conditions in the marine product industry; |
| ● | governmental regulation and legislation; |
| ● | variations in our anticipated or actual operating results; |
| ● | change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; |
| ● | change in general economic trends; and |
| ● | investor perception of our industry or our prospects. |
Many of these factors are beyond our control. The stock markets in general, and the market for marine product companies in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broad or active public trading market for our common shares may not develop or be sustained.
We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.
We have never paid any cash or stock dividends, and we do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of any dividends. Because we do not intend to declare dividends, any gain on your investment will need to result from an appreciation in the price of our common shares. There will therefore be fewer ways in which you are able to make a gain on your investment.
FINRA sales practice requirements may limit your ability to buy and sell our common shares, which could depress the price of our shares.
FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares and, thereby, depress their market prices.
Volatility in our common shares price may subject us to securities litigation.
The market for our common shares may have, when compared to seasoned issuers, significant price volatility, and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
| · | we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; |
| · | for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; |
| · | we are not required to provide the same level of disclosure on certain issues, such as executive compensation; |
| · | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; |
| · | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and |
| · | we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction. |
Our shareholders may not have access to certain information they may deem important and are accustomed to receiving from U.S. reporting companies.
As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common shares less attractive to investors.
For as long as we remain an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our common shares less attractive as a result, there may be a less active trading market for such securities and their market prices may be more volatile.
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We incur significant costs as a result of being a public company, which costs will grow after we cease to qualify as an “emerging growth company.”
We incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the end of the fiscal year in which the fifth anniversary of this offering occurs, (b) in which we have total annual gross revenue of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds US$700 million as of the prior February 28th, and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
If we are, or were to become, a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, U.S. investors in our common shares would be subject to certain adverse U.S. federal income tax consequences.
In general, a non-U.S. corporation will be a PFIC for any taxable year if (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. We do not expect to be a PFIC for our current taxable year or in the foreseeable future. However, there can be no assurance that we will not be considered a PFIC for any taxable year. If we were a PFIC for any taxable year during which a U.S. investor held common shares, such investor would be subject to certain adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, an additional interest charge on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. If we are characterized as a PFIC, a U.S. investor may be able to make a “mark-to-market” election with respect to our common shares that would alleviate some of the adverse consequences of PFIC status. Although U.S. tax rules also permit a U.S. investor to make a “qualified electing fund” election with respect to the shares of a non-U.S. corporation that is a PFIC if the non-U.S. corporation provides certain information to its investors, we do not currently intend to provide the information that would be necessary for a U.S. investor to make a valid “qualified electing fund” election with respect to our common shares.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute “forward-looking statements”. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in a number of different places in this prospectus and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will”, or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this prospectus may include, but are not limited to, statements and/or information related to: strategy, future operations, projected production capacity, projected sales or rentals, projected costs, expectations regarding demand and acceptance of our products, availability of material components, trends in the market in which we operate, plans and objectives of management.
We believe that we have based our forward-looking statements on reasonable assumptions, estimates, analysis and opinions made in light of our experience and our perception of trends, current conditions and expected developments, as well as other factors that we believe to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. Although management believes that the assumption and expectations reflected in such forward-looking statements are reasonable, we may have made misjudgments in preparing such forward-looking statements. Assumptions have been made regarding, among other things: our expected production capacity; labor costs and material costs, no material variations in the current regulatory environment and our ability to obtain financing as and when required and on reasonable terms. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used.
The forward-looking statements, including the statements contained in the sections entitled Risk Factors, Description of Business and Management’s Discussion and Analysis of Financial Conditions and Results of Operations and elsewhere in this prospectus, are subject to known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from those expressed or implied by such forward-looking statements.
Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Forward-looking statements might not prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements or we may have mad misjudgments in the course of preparing the forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. We wish to advise you that these cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our company or persons acting on our company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws. You should carefully review the cautionary statements and risk factors contained in this prospectus and other documents that we may file from time to time with the securities regulators.
IMPLICATIONS OF BEING A FOREIGN PRIVATE ISSUER
We are considered a foreign private issuer. In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are U.S. citizens or residents, (2) more than 50% of our assets are located in the United States or (3) our business is administered principally in the United States.
We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.
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IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
The U.S. Congress passed the JOBS Act, which provides for certain exemptions from various reporting requirements applicable to reporting companies under the Exchange Act, that qualify as “emerging growth companies.” We are an “emerging growth company” and we will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which we have total annual gross revenues of US$1.07 billion (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”, as defined in Exchange Act Rule 12b–2. Therefore, we expect to continue to be an emerging growth company for the foreseeable future.
An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
| • | the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure in this prospectus; | |
| • | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and | |
| • | Exemption from mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the registrant (auditor discussion and analysis). |
We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market value of our common shares held by non-affiliates or issue more than US$1 billion of non-convertible debt over a three-year period.
Assuming the sale of 1,666,667 common shares in this offering at a price of US$9.00 per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us and assuming no exercise of the underwriter’s over-allotment option, we expect to receive net proceeds of approximately US$13,350,000 from this offering. If the underwriter exercises its over-allotment option in full, our net proceeds will be approximately US$15,420,000.
A US$1.00 increase or decrease in the assumed public offering price of US$9.00 per share would increase or decrease the net proceeds from this offering by approximately US$1,533,334, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. Similarly, each increase or decrease of 100,000 shares offered would increase or decrease our net proceeds by approximately US$828,000, assuming the assumed public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering (assuming no exercise of the over-allotment option) as follows, and we have ordered the specific uses of proceeds in order of priority.
| Description of Use | Estimated
Amount of Net Proceeds | |||
| Sales & Marketing | US$ | 2,000,000 | ||
| Build Up Inventory for Order Fulfilment | US$ | 3,000,000 | ||
| Research & Development | US$ | 350,000 | ||
| Unallocated Working Capital | US$ | 3,000,000 | ||
| Development of Rental Sales | US$ | 5,000,000 | ||
| Total | US$ | 13,350,000 | ||
Pending our use of the net proceeds from this offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.
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To date, we have not paid any dividends on our outstanding common shares. The future payment of dividends will depend upon our financial requirements to fund further growth, our financial condition and other factors which our Board of Directors may consider in the circumstances. We do not contemplate paying any dividends in the immediate or foreseeable futures.
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our capitalization as of February 29, 2020:
| • | on an actual basis, |
| • | a a pro forma basis, giving effect to the issuance of 1,356,866 common shares since March 1, 2020 and the receipt of $3,794,500 in connection with such issuances and |
| • | on a pro forma as adjusted basis to further reflect the application of net proceeds of US$13,350,000 (or $17,903,647), excluding proceeds from the exercise of the over-allotment option, if any, after deducting the estimated offering expenses. |
You should read this table in conjunction with our historical financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds.”
| As of February 29, 2020 | ||||||||||||
| Actual (unaudited) | Pro Forma | Pro
forma as adjusted(1) | ||||||||||
| Assets: | ||||||||||||
| Current assets | $ | 1,855,030 | $ | 5,649,530 | $ | 23,553,215 | ||||||
| Property and equipment | $ | 483,136 | 483,136 | 483,136 | ||||||||
| Right-of-use assets | $ | 705,737 | 705,737 | 705,737 | ||||||||
| Total Assets | $ | 3,043,903 | $ | 6,838,403 | $ | 24,742,088 | ||||||
| Liabilities: | ||||||||||||
| Current liabilities | $ | 1,731,886 | 1,731,886 | 1,731,886 | ||||||||
| Non-current liabilities | $ | 1,747,041 | 1,747,041 | 1,747,041 | ||||||||
| Total Liabilities | $ | 3,478,927 | 3,478,927 | 3,478,927 | ||||||||
| Shareholders’ Equity (Deficiency): | ||||||||||||
| Capital stock | $ | 213,100 | 4,007,600 | 21,911,285 | ||||||||
| Retained earnings (deficit) | $ | (648,124 | ) | (648,124 | ) | $ | (648,124 | ) | ||||
| Total equity (deficit) | $ | (435,024 | ) | $ | 3,359,476 | $ | 21,263,161 | |||||
| Total Liabilities and Shareholder’s Equity (Deficit) | $ | 3,043,903 | $ | 6,838,403 | $ | 24,742,088 | ||||||
| (1) | U.S. dollars converted into Canadian dollars at US$1.00 = $1.3411, the noon-buying price on February 28, 2020 as set out in “Currency and Exchange Rates”. | |
A US$1.00 increase or decrease in the assumed public offering price per common share would increase or decrease the amount of current assets by approximately $2.06 million and total shareholders’ equity by approximately $2.06 million, assuming the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of common shares we are offering. An increase (decrease) of 100,000 common shares offered by us, would increase (decrease) the amount of current assets by approximately $1.1 million and total shareholders’ equity by approximately $1.1 million after deducting estimated underwriting discounts and commissions and any estimated offering expenses payable by us.
If you invest in our common shares, your interest in our common shares will be diluted to the extent of the difference between the offering price per common share and the as adjusted net tangible book value per common share after the offering. Dilution results from the fact that the per common share offering price is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares. Our net tangible book value attributable to shareholders at February 29, 2020 was $(435,024) or approximately $(0.1139) per common share. Net tangible book value per common share as of February 29, 2020 represents the amount of total assets less intangible assets and total liabilities, divided by the number of common shares outstanding.
After giving effect to the issuance of 1,356,866 common shares since March 1, 2020 and the receipt of $3,794,500 in connection with such issuances (the “Post-February 29, 2020 Issuances”), our pro forma net tangible book value as of February 29, 2020 would have been approximately $3.4 million, or approximately $0.6488 per common share, based on 5,177,677 shares of common stock outstanding on a pro forma basis.
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Our pro forma as adjusted net tangible book value of our common shares as of February 29, 2020 gives further effect to the sale of common shares at the assumed public offering price of US$9.00 (or $12.07 converted into Canadian dollars at US$1.00 = $1.3411, the noon-buying price on February 28, 2020 as set out in “Currency and Exchange Rates”) per common share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses. We will issue 1,666,667 common shares upon completion of the offering (and 1,916,667 common shares if the over-allotment option is exercised in full). Our pro forma as adjusted net tangible book value as of February 29, 2020, which gives effect to the Post-February 29, 2020 Issuances and the receipt of the net proceeds from the offering and the issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after February 29, 2020, will be approximately $21,263,161 or $3.1067 per common share (or $24,039,238 or $3.3885 per common share if the over-allotment option is exercised in full). This would result in dilution to investors in this offering of approximately $8.9632 per common share (or $8.6814 per common share if the over-allotment option is exercised in full) or approximately 74.3% (or 71.9% if the over-allotment option is exercised in full) from the assumed offering price of US$9.00 per common share ($12.07). Pro forma as adjusted net tangible book value per common share would increase to the benefit of present shareholders by $2.4579 per share attributable to the purchase of the common shares by investors in this offering (or $2.7397) if the over-allotment option is exercised in full).
The following table sets forth the estimated net tangible book value per common share after the offering and the dilution to persons purchasing common shares based on the foregoing offering assumptions.
| Offering Without Over- Allotment (1) | Offering With Over- Allotment (1) | |||||||
| Assumed offering price per common share (US$9.00) | $ | 12.0699 | $ | 12.0699 | ||||
| Historical net tangible book value per common share before the offering | $ | (0.1139 | ) | $ | (0.1139 | ) | ||
| Increase in net tangible book value per share attributable to the Post-February 29, 2020 Issuances | 0.7627 | 0.7627 | ||||||
| Pro forma net tangible book value per share | $ | 0.6488 | $ | 0.6488 | ||||
| Increase per common share attributable to this offering | 2.4579 | 2.7397 | ||||||
| Pro forma as adjusted net tangible book value after the offering | $ | 3.1067 | $ | 3.3885 | ||||
| Pro forma as adjusted dilution per common share to new investors in this offering | $ | 8.9632 | $ | 8.6814 | ||||
| (1) | U.S. dollars converted into Canadian dollars at US$1.00 = $1.3411, the noon-buying price on February 28, 2020 as set out in “Currency and Exchange Rates”. |
A US$1.00 increase or decrease in the assumed public offering price per common share would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by approximately $0.3005 per share (or $0.3334 per share if the over-allotment is exercised in full), and increase or decrease the dilution per share to new investors by approximately $1.0406 per share (or $1.0077 per share if the over-allotment is exercised in full), assuming the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of common shares we are offering. An increase (decrease) of 100,000 common shares offered by us, would increase or decrease the as adjusted net tangible book value per share after this offering by approximately $0.1152 per share (or $0.1231 per share if the over-allotment is exercised in full), and increase or decrease the dilution per share to new investors by approximately $0.1152 per share (or $0.1231 per share if the over-allotment is exercised in full).
If any common shares are issued upon exercise of outstanding options, you may experience further dilution.
All dollar amounts in this prospectus are expressed in Canadian dollars unless otherwise indicated. Our accounts are maintained in Canadian dollars, and our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All reference to “U.S. dollars”, “USD”, or to “US$” are to United States dollars.
The following table sets forth, for each period indicated, the high and low exchange rate for U.S. dollars expressed in Canadian dollars, and the average exchange rate for the periods indicated. Averages for year-end periods are calculated by using the exchange rates on the last day of each full month during the relevant period. These rates are based on the noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York set forth in the H.10 statistical release of the Federal Reserve Board. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in preparation of our financial statements or elsewhere in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. We make no representation that any Canadian dollar or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Canadian dollars, as the case may be, at any particular rate or at all.
| Period End | Period Average Rate |
High Rate | Low Rate | |||||||||||||
| Year Ended | ||||||||||||||||
| August 31, 2019 | $ | 1.3290 | $ | 1.3260 | $ | 1.3644 | $ | 1.2799 | ||||||||
| August 31, 2018 | $ | 1.3072 | $ | 1.2812 | $ | 1.3319 | $ | 1.2131 | ||||||||
| Month Ended | ||||||||||||||||
| March 31, 2020 | $ | 1.4123 | $ | 1.3960 | $ | 1.4529 | $ | 1.3334 | ||||||||
| April 30, 2020 | $ | 1.4048 | $ | 1.3911 | $ | 1.4222 | $ | 1.3903 | ||||||||
| May 31, 2020 | $ | 1.4021 | $ | 1.3972 | $ | 1.4143 | $ | 1.3879 | ||||||||
| June 30, 2020 | $ | 1.3614 | $ | 1.3552 | $ | 1.3695 | $ | 1.3379 | ||||||||
| July 31, 2020 | $ | 1.3384 | $ | 1.3497 | $ | 1.3606 | $ | 1.3364 | ||||||||
| August 31, 2020 | $ | 1.3034 | $ | 1.3235 | $ | 1.3408 | $ | 1.3034 | ||||||||
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Unless otherwise specified, conversions from U.S. dollars into Canadian dollars have been made for your convenience at US$1.00 = $1.3411, the noon-buying price on February 28, 2020.
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History and Development of the Company
We were incorporated on August 29, 2012, under the laws of the province of Quebec, Canada, and our principal activity is the design, development and manufacturing of electric outboard powertrain systems and electric boats. We do not currently have any subsidiaries.
Corporate Headquarters
Our principal executive offices are located at 730 Boulevard du Curé-Boivin, Boisbriand, Québec J7G 2A7, Canada. Our phone number is 450-951-7009. Our website address is https://electricboats.ca. The information contained on, or that can be accessed through, our website is not part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
 |  |
General
We are in the business of designing and manufacturing electric outboard powertrain systems and our related technology. We believe that our electric outboard powertrain systems are significantly more efficient and powerful than those currently being offered in the market today. In particular, we have recorded powertrain efficiencies of more than 94%, well above the 54% efficiency that we recorded for our principal competitor’s product. Increases in powertrain efficiency allows for more power and range, both of which are highly desirable characteristics for consumers in the marketplace. Although our primary focus is on electric outboard powertrain technology, we will continue to design, manufacture and sell our high-performance, fully-electric boats to commercial and retail customers. According to Research and Markets, the global electric boat market will reach US$12.32 billion in 2027 up significantly from US$4.5 billion in 2018.
We have developed our first fully-electric outboard powertrain system that combines an advanced battery pack, inverter, high-efficiency motor with proprietary union assembly between the transmission and the electric motor design and extensive control software. Our technologies used in this powertrain system are designed to improve the efficiency of the outboard powertrain and, as a result, increase range and performance. We believe our approach in marketing and selling our powertrain technology to boat designers and manufacturers will enable us to leverage their distribution and servicing systems with minimal capital outlay. We expect our core intellectual property contained within our outboard electric powertrain systems to form the foundation for our future growth and for such systems to represent the majority of our revenue shortly following this initial public offering of our common shares.
We continue to manufacture hand-crafted, highly durable, low maintenance, environmentally-friendly electric recreational powerboats. In our last two fiscal years, we manufactured 46 and 21 powerboats, respectively, and we expect to manufacture approximately 150 powerboats in the twelve months following the closing of this offering. We sell powerboats to retail customers and operators of rental fleets of powerboats through which we seek to build brand awareness. We intend to continue to build brand awareness by partnering with marina operators to offer rental fleets of electric boats. We conduct our transactions directly to customers through our website or through a network of marinas, distributors and show rooms.
In an effort to improve air quality and protect local water habitats, cities and local municipalities are beginning to ban or restrict the use of gasoline- and diesel-powered boats from local waterways, lakes and rivers. For example, Teal Lake in Michigan, USA, bans the standard use of powerboat motors fueled by gasoline or diesel. This trend is beginning to take hold in other parts of the United States, including Washington state, which has provided clear examples of the harm that gasoline products cause on local waterways, and New Hampshire, where the Department of Safety has published restrictions on the use of gasoline and diesel-powered boats across its state.
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Our Electric Outboard Powertrain Systems
A powertrain system is a vehicle’s infrastructure that converts energy into movement. In an electric boat, that infrastructure starts at the battery pack, continues with an inverter, goes to the motor and ends with the propeller. Electric powertrains have less moving parts than powertrains for boats with an internal combustion engine and, as a result, tend to break less and require less complex servicing.
The efficiency of a powertrain system determines the range of a boat on a single battery charge and the speed at which the boat operates. We find existing electric powertrain systems unsatisfactory because of their insufficient yields and limited power range. In 2015, we decided to research technology to take advantage of this vacuum and develop an in-house system, relying on existing third-party components where possible. We noted the need for innovation in the following areas:
| ● | optimizing the electric motor to improve efficiency and range by customizing the power to the motor from different battery suppliers; |
| ● | developing optimization software that reads and calibrates the controller to suit the current use of the outboard electric powertrain system; |
| ● | using appropriate components, including the battery; |
| ● | customizing gears and propellers to a boat's specifications. We have recorded the efficiency of our principal competitor’s electric powertrain system as 54%, meaning that only 54% of the power leaving the battery pack reached the propeller. Our proprietary union and direct transmission system allow our prototype powertrains to have an efficiency of 94% which provides a competitive advantage over current electric outboard motors. We have also chosen a propeller design which when combined with the efficiencies obtained using our proprietary union and transmission system, provides optimal results; and |
| ● | developing an innovative controller, in particular, one that: |
| o | improves control over thermal overheating and thus protects the electric powertrain system; |
| o | incorporates a dual electrical and mechanical cooling system allowing for a better performance of the electric powertrain system; |
| o | detects possible operating problems (for example cavitation); and |
| o | reduces jolts and noise. |
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Our electric powertrain is designed to have 180 hp (horsepower) and 236 Lb. ft at 94% load. Furthermore, the electric powertrain system will be liquid cooled as compared to air cooled.
We intend to produce our electric powertrain at our current facilities in Quebec. We believe that we can produce up to 300 electric powertrains per year in addition to producing 150 boats in our current facilities in the year following the initial public offering. If customer demand is sufficiently high for our electric powertrains and we foresee demand for more than 300 units in a year, we will require additional manufacturing space. Although we believe that we will be able to find comparable space at a similar price on relatively short notice, including space adjacent to our current facility that is owned by our current landlord and our CEO, such space may not be available when needed.
The production of our electric powertrain will consist of assembling components from third parties, including battery packs, inverters and high-efficiency motors. We intend to use advanced batteries in our battery packs but do not envision depending on a limited number of suppliers as we will be able to use a wide range of batteries. Consequently, we have not entered into long-term contracts for the supply of batteries. We will source the inverters from UQM (Danfoss Editron) and motors from UQM (Danfoss Editron) and Dana TM4.
Our electric powertrains will be controlled by control software developed in house. We have used open-source software code to develop our own battery management system software that will be tailored to regulate the power from the battery pack to the electric motor and its related systems.
We have received governmental support in connection with our development of electric powertrain. In our 2019 and 2018 fiscal years, we respectively received scientific research and development tax credits of $163,743 and $248,750, grants of $379,601 and $274,409 under an energy and greenhouse gas emission reduction innovation support program (known as Technoclimat).
Specifications of our first outboard electric powertrain:
We have developed our first fully-electric outboard powertrain system that combines an advanced battery pack, inverter, high-efficiency motor with proprietary union assembly between the transmission and the electric motor design and extensive control software. We set out below the current specifications of this outboard electric powertrain.
| Maximum power | 180 HP, 135 kW |  |
 |
| Max torque | 250 ft.lb, 340 Nm | ||
| Continuous power | 90 kW | ||
| Voltage | 650 V | ||
| Efficiency | 94% | ||
| Weight | 413 Lbs., 188 kg | ||
| Lithium Battery | 60 - 420 kW | ||
| Shaft Length | S – XL | ||
| Cooling | Water | ||
| Control | Can bus |
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As we develop our electric powertrain systems, we envisage a 300-horsepower version of our electric outboard engine to be released within the next 18 months.
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Our Powerboats
We manufacture four models of electric powerboats and are preparing to launch a fifth model. Each model is available in different standard variations or may be customized according to a purchaser’s specifications. The following table sets out the specifications of our different models, although the specifications of any specific powerboat within that line would depend on the variation purchased or the customizations requested.
| Phoenix 290* | Bruce 22 | Volt 180 | Fantail 217 | Quietude 156 | |
 |
 |
 |
 |
 | |
| Price Range | $175,000 - $325,000 | $68,995 - $289,995 | $34,995 –$190,000 | $38,995 – $90,000 | $22,995 – $38,000 |
| Maximum speed | 51.5 km/h (32 mph) | 65.9 km/h (41 mph) | 48 km/h (30 mph) | 9.66 km/h (6 mph) | 8.05 km/h (5 mph) |
| Cruising speed | 32.2 km/h (20 mph) | Up to 32 km/h (20 mph) | Up to 24 km/h (15 mph) | 8.05 km/h (5 mph) | 6 – 13 km/h (4-8 mph) |
| Capacity | 10 passengers | 5-8 passengers | 11 Canada, 14 US | 8-10 passengers | 4 passengers |
| Dry Weight | 1996 Kg (4400 pounds) | 1088 Kg (2400 pounds) | 720 kg (1600 pounds) | 775 kg (1705 lbs.) | 800lbs |
| Hull Material | Fiberglass | Fiberglass | Fiberglass (Infusion Sandwich) | Fiberglass | Fiberglass |
| Overall Length | 8.3 m (29 feet) | 6.7 m (22′) | 5.4 m (17’9”) | 6.6 m (21’7”) | 4.7 m (15’6”) |
| Overall Width | 2.6 meters (8’5”) | 2.08 m (6’6”) | 2.13 m (7’) | 2.03 m (6’8”) | 1.5 m (4’11”) |
| Draft | 0.45 m (18”) | 0.30 m (12”) | 0.43 m (20”) | 0.18 m (8”) | |
| Homologation | USA, Canada, EU | USA, Canada, EU | USA, Canada, EU | USA, Canada, EU | USA, Canada, EU |
| Woodwork | Mahogany, Teak | Synthetic | Synthetic | Synthetic | |
| Propulsion | Twin Deep Blue 80 HP | Minn Kota, Torqeedo or Piktronic | Minn-Kota or Torqeedo | Minn-Kota, E-Tech engine, E-Tech Propulsion, Torqeedo salt-water engine | Minn-Kota |
| Battery Type | Lithium ion/80 kW BMW i3 | Lithium ion | Lead Acid, Lithium Relion or Lithium BMW | Lead Acid, Lithium Relion or Lithium BMW | Lead Acid |
* Proposed specifications based on prototypes
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For each of our boats, our consumers are able to customize certain aspects including color (for the hull, striping, interior and deck), radio and covers and other storage options. In addition, there are customizations that are just available for some boat models, including propulsion and batteries.
Phoenix 290
 |
We have been developing the Phoenix 290 as the next in our line of boats. The Phoenix 290, a 29-foot powerboat capable of accommodating up to 12 people, comes equipped with two Torqeedo Deep Blue engines. We unveiled the Phoenix 290 at the Miami boat show in February 2020. We anticipate that we will begin production of the Phoenix 290 in 2021. |
Bruce 22
 |
Reaching speeds of up to approximately 41 miles per hour (66 kph), the Bruce 22 is our flagship boat. We offer three variations of the Bruce 22: a Hatchback Classic (a 100 kWh five-seater starting at $279,995), an Open Utility (a 100 kWh eight-seater starting at $289,995) and the Bruce22 T (a 4 kWh eight-seater starting at $68,995). In addition to the customizations that are available for each of our boats, purchasers may customize the Bruce 22 by choosing among various options including type of propulsion (Piktronic, Torqeedo or Min-Kota), inserts (mahogany, permatek and fiber glass) and other options (including ski pole, underwater light and a swim platform). In our 2019 fiscal year, we sold 5 Bruce 22s. |
Volt 180
|
Reaching speeds of up to approximately 30 miles per hour (48 kph), the Volt 180 is a powerful boat that can be used for various watersports. In addition to the customizations that are available for each of our boats, purchasers may customize the Volt 180 by choosing among various options including the power of the motor (available in 2, 3, 6, 10 and 60 kilowatts), accessories (including racing seats, fish rod holder, depth finder and anchor) and other options (including bumper, types of canopies and a premium sound system). In our 2019 fiscal year, we sold 14 Volt 180s. |
Fantail 217
 |
We designed the Fantail 217 with a view towards relaxation rather than speed. The Fantail 217 starts at $38,995, seats up to ten people and has a maximum speed of approximately 10 miles per hour (6 kph). In addition to the customizations that are available for each of our boats, purchasers may customize the Fantail 217 by choosing among various options including the type of motor (Torqeedo Salt Water, E-Tech, Min-Kota or E-Propulsion), type of battery (lead acid, lithium relion, lithium BMW 48-5000), number of batteries (up to eight), type of canopy (aluminum, stainless steel or fiberglass) and other options (including night navigation light, a double horn and bottom paint). In our 2019 fiscal year, we sold 23 Fantail 217s. |
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Quietude 156
 |
As the name suggests, we designed the Quietude 156 with an eye towards tranquility over speed or power. The Quietude 156 starts at $22,995, seats four passengers and reaches a top speed approximately 5 miles per hour (8 kph). The Quietude 156 comes with a Min-Kota 36V motor and three lead acid batteries, but purchasers may still customize other aspects of the Quietude 156 by choosing among various options including the type of table to be used, the type of canopy and electronics that can be included (such as a bluetooth marine radio and a depth meter). In our 2019 fiscal year, we sold 4 Quietude 156s. |
Sales
We currently generate over 90% of our revenue from the sale of our electric power boats. In our 2019 fiscal year, we sold 46 of our electric powerboats for revenue of $2,664,000, and in our 2018 fiscal year we sold 21 of our electric powerboats for revenue of $1,036,000. In the six months ended February 29, 2020, we generated $353,000 from the sale of electric powerboats. Our sales are to retail customers and operators of rental fleets of powerboats.
Although we have yet to commercialize our electric powertrains, we have received non-binding letters of intent from OEMs for the purchase of such powertrains. Under the LOIs, OEMs have indicated their interest in purchasing 186 powertrains for the first 12 months following the introduction of the electric powertrain, 335 powertrains for the year ended August 31, 2023 and 504 powertrains for the year ended August 31, 2024. Such LOIs are non-binding and may never result in any actual sales. The projected sales price for our first electric outboard powertrain system is $100,000.
Sales of New Powerboats to Retail Purchasers
We sell our powerboats to retail purchasers. In our 2019 and 2018 fiscal years, we sold 15 and 5 powerboats to retail customers, respectively, which was approximately 33% and 24% of all sales.
Sales of Fleets of New Powerboats
We sell our powerboats to persons operating fleets of rental boats. In our 2019 and 2018 fiscal years, we sold 31 and 16 powerboats to rental fleet operators, respectively, which was approximately 67% and 76% of all of our sales. These sales were to related parties. We intend to continue to build brand awareness by partnering with marina operators to offer rental fleets of electric boats.
Suppliers
We purchase all of our product parts and components from third-party suppliers. Some of these parts and components are manufactured to our specifications (such as hulls and motors) while others are bought “off the shelf” (such as batteries and canopies). We do not maintain long-term contracts with preferred suppliers, but instead rely on informal arrangements and off-the-shelf purchases. We have not experienced any material shortages in any of our product parts, or components, but as a result of the COVID-19 pandemic some of our third-party suppliers have experienced delays in delivering our product parts and components in a timely manner and fluctuations in price for these supplies is a possibility if raw material pricing increases. Temporary shortages, when they do occur, usually involve manufacturers of these products adjusting model mix, introducing new product lines, or limiting production in response to an industry-wide reduction in boat demand, or, as recently experienced during the COVID-19 pandemic, in finding persons able to deliver the parts and components in a timely manner.
Electric Powertrains
The most significant parts and components we intend to use in manufacturing our electric powertrains are:
| • | engines – we intend to rely on two suppliers of engines, UQM (Danfoss Editron) and Dana TM4; |
| • | lithium-ion batteries – we intend to use duplicate suppliers as multiple producers make lithium-ion batteries we can use in our product candidate at a price and quality that we are looking for; |
| • | inverter –we intend to source our inverters from UQM. |
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Power Boats
The most significant parts and components used in manufacturing our boats are:
| • | engines – we use three suppliers of engines, Torqeedo (for the Bruce 22, the Fantail 217 and the Volt 180), Min Kota (for the Bruce 22, the Fantail 217, the Volt 180 and the Quietude 156) and E-Tech Propulsion (for the Fantail 217); |
| • | lithium-ion batteries – we source duplicate suppliers for our lithium-ion batteries, including Relion and BMW, and believe that we could source batteries at a similar price from the market were these suppliers unable to meet our demand; |
| • | hulls – we have two suppliers of the hulls that we use in our boats, but we believe that we could source hulls of a similar quality and at a similar price without significant delay to our production schedule were these suppliers unable to meet our demands. |
As we do not produce any of the parts of components of our electric powertrains or electric powerboats, we do not materially use, or intend to use, any raw materials in their production. The manufacturers of the parts and components that we use, however, do use raw materials, including resins, fiberglass, hydrocarbon feedstocks, steel and various minerals, especially in the production of the engines and batteries that we use. We do not control how these third parties source the raw materials that they use, and we may suffer production delays if such third parties do not have access to all of the raw materials that they need or source conflict minerals in violation of applicable regulations.
Patents and Licenses
We do not currently have any patents or any patent applications pending, and we do not rely on any licenses from third parties at this time.
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we intend to rely on a combination of patent and design applications, trade secrets, including know-how, employee and third-party non-disclosure agreements, copyright laws, trademarks and other contractual rights to establish and protect our proprietary rights in our technology. We intend to continue to file patent applications with respect to components of a powertrain that we are developing. We do not know whether any of our patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if granted, these pending patent applications might not provide us with adequate protection.
Trademarks
We use our logo as a trademark and have applied for its registration at the Canadian Intellectual Property Office. We have operated under the trade name “CANADIAN ELECTRIC BOAT COMPANY” and are transitioning to operating under the name “VISION MARINE TECHNOLOGIES”, but neither these nor any of the names of the models of our boats are currently registered trademarks.
This prospectus contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Industry Overview
In North America, 75 million people go boating every year, according to the U.S. Coast Guard, with 12 million recreational vessels registered with the U.S. Coast Guard in 2018. The worldwide recreational boating market size is set to surpass US$63 billion by 2026, according to a research report by Global Market Insights, Inc. Within the boating market, there is an outboard motor market and an electric boat market. Our products fall into each of those categories, and if produced, our electric powertrains will be used in boats in both those markets.
Outboard Motor Market
An outboard motor is a propulsion system for boats, consisting of a self-contained unit that includes engine, gearbox and propeller or jet drive, designed to be affixed to the outside of the boat. As well as providing propulsion, outboards provide steering control, as they are designed to pivot over their mountings and thus control the direction of thrust. Outboard motors tend to be found on smaller watercraft as it is more efficient for larger boats to have an inboard system. Although outboard engines powered by fossil fuels have traditionally dominated this market and continue to do so, electric outboard motors are a relatively new phenomenon that have been growing in step with the growth in the electric boat market.
According to the NMMA, sales of outboard engines in the United States (which includes outboard motors) increased to a thirteen-year high of 280,300 units representing sales market of US$2.9 billion. Consumer demand for higher-performance engines continued to trend upward in 2019, with double digit gains in sales for engines with 200 and greater horsepower. Engines with between 200 and 300 horsepower accounted for 16.3% of all sales of outboard engines, and those with over 300 horsepower accounted for 10%. Overall, the average horsepower of all outboard engines sold in 2019 reached a record-high of 127.6 hp, up 6.9% from the prior year’s average of 119.4 horsepower and up 46% from the average ten years prior of 87 horsepower.
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Although many recreational boats can be powered by outboard or inboard motors, many consumers prefer outboard motors. Among the reasons for their preference are that, unlike inboard motors, outboard motors can be easily removed for storage or repairs, they provide more room in the boat as they are attached to the transom outside of the boat, they tend to have a shallower draft and they can be more easily replaced in the event the motor no longer works or a desire to upgrade to a higher horsepower.
There are many manufacturers of outboard motors. Some of these manufacturers are subsidiaries of massive global conglomerates, like Yamaha, Bombardier and Suzuki, that have more resources and experience in the market than we do. Others are relatively new startups, like us, that may be more nimble and adaptive to changes in the outboard motor market than we will be. We deem our biggest competitor in the electric outboard motor market to be Torqeedo.
Electric Boat Market
Although electric boats have been available for over 100 years, interest in them was minimal until the 1990s when the first studies were conducted in the United States following the suspicion that motorboats contaminate aquatic environments significantly through loss of gasoline and lubrication oil. According to Andre Mele, recreational boats pollute as much as cars and trucks in the United States. In the early 2000’s, 8 million speedboats in the United States released 15 times more pollutants annually into the environment than the oil spill produced by the oil tanker Exxon Valdez in 1989. The sinking of this tanker in Alaska had released 11 million U.S. gallons of hydrocarbons into the environment. After conversion, this means that each boat releases an average of 78 L of hydrocarbons into aquatic environments each year. If that average is still current, we estimate that in 2019 oil losses in the environment via motorboats equaled 150,000 tons of hydrocarbon scaly leaks in Canada (based on 2 million vessels), 750,000 tons of hydrocarbon scaly leaks in the United States (based on 10 million vessels) and 450,000 tons of hydrocarbon scaly leaks in Europe (based on 6 million vessels).
This explains why some lakes and bodies of water have recently banned motorboats. The total elimination of gasoline immediately eliminates a very large source of marine pollution, with immediate results: possibility of beaches, swimming and reduction of BOD (biochemical oxygen demand) and DCO (direct chemical oxidation) of ambient water. Specifically, hydrocarbons, similar to the dirt that clings to the walls of a bathtub, contaminate the shores and banks of lakes, rivers and bodies of water, where the development of many living organisms takes place. The ecosystem is then modified with the scarcity or disappearance of certain species.
In an effort to tackle air pollution, cities around the world are beginning to ban all gasoline - and diesel-powered boats from the center of the city. One of the first cities to implement this change is Amsterdam, Netherlands. This movement to electrically powered boats has been implemented in Venice, where the city has restricted the movement of gasoline - and diesel-powered boats, while exempting electrically powered boats.
Interest in electric boats has also been driven by decreases in their cost largely as a result of a decrease in the price of the batteries used to power them. The average price per kilowatt hour of a lithium-ion battery fell from approximately US$1,200 in 2010 to below US$200 in 2018.
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The electric boat market is competitive in nature with much of that competition of late focusing on launching new E-boats that have longer range and higher speed than currently available boats. The global electric boat market in 2018 was worth approximately US$4.5 billion, according to Research and Markets which expects that market to reach US$12.32 billion by 2027, a cumulative annual growth rate of 11.9%. Research and Markets predicts that the growth in the electric boat market will be caused by:
| ● | advancement in battery technology that offers longer run-time and higher speed; |
| ● | decreasing battery prices; |
| ● | problems inherent to internal combustion engine boats, including a high pollution rate and the comparatively high fuel prices; and |
| ● | other noteworthy advantages offered by electric boats, such as noiseless and smokeless use and less vibration and less engine maintenance than boats that use internal combustion engines. |
The electric boat market is segmented into two categories, hybrid and pure electric boats. In 2018, hybrid electric boats represented approximately 70% of the electric boat market. The NMMA anticipates that the market shares of the pure electric boat segment will meaningfully increase during the period from 2019 to 2027 owing to advancements in battery technology. On the basis of passenger capacity, electric boats with a capacity of less than 10 passengers captured the highest share of the global electric boat market in 2018. Additionally, the same segment is the fastest-growing segment pertaining to high demand for small boats for recreational purposes from the rich class of the U.S., Canada, and Western European countries.
Government Support
Although the recreational powerboat industry does not generally receive much direct governmental support, we have received tax credits from, and grants provided by, the Quebec provincial government and the Canadian federal government primarily in connection with our development and promotion of green technology. In our 2019 and 2018 fiscal years, we respectively received scientific research and development tax credits of $163,743 and $248,750, grants of $379,601 and $274,409 under an energy and greenhouse gas emission reduction innovation support program (known as Technoclimat). We intend to continue applying for such grants and receiving such tax credits. Although we do not consider the receipt of such credits and grants as essential to our operations, if they were no longer available, our business, prospects, financial condition and operating results could be adversely affected.
Competitive Advantages & Operational Strengths
We face competition from manufacturers of:
| (i) | electric powertrain systems that sell to OEMs, |
| (ii) | traditional fossil fuel-powered recreational powerboats in general and |
| (iii) | electric recreational powerboats in particular. |
We intend to sell our electric powertrains to OEMs for use in their boats. We are currently aware of one company (Torqeedo) that produces electric powertrains for OEMs, and as a result we believe that there is a viable and meaningful market opportunity in this market for us. Although, we believe that our electric powertrain systems are more efficient and powerful than current offerings on the market, our competitors, including Torqeedo, may have greater resources than we do and OEMs may find their designs or price to be more attractive than ours. Even if we produce electric powertrains and sell them to OEMs, other competitors may enter the field or the OEMs may decide to produce their own powertrains and cease purchasing ours.
The recreational powerboat industry is highly competitive for consumers and dealers. Competition affects our ability to succeed in the markets we currently serve and new markets that we may enter in the future. Some potential purchasers of powerboats may not have a preference as to whether they will purchase electric power boats or fossil fuel powered ones. To that end, we compete with several large manufacturers, such as Brunswick Corporation, MasterCraft Boat Holdings, Inc. and Correct Craft, that produce fossil fuel powerboats and have greater financial, marketing and other resources than we do. To the extent that OEMs incorporate our electric powertrains into their boats, those boats will also compete with traditional fossil fuel power boats. We compete with large manufacturers who are represented by dealers in the markets in which we now operate and into which we plan to expand. We also compete with a wide variety of small, independent manufacturers. Competition in our industry is based primarily on brand name, price and product performance.
The electric recreational powerboat market is evolving and companies within it must be able to adapt without jeopardizing the timing, quality or quantity of their products. We deem our principal competitors within this market to be Duffy Electric Boat Company, Elctracraft, Pender Harbour, Elco Motor Yachts Company (formerly known as Launch Electric Company), Budsin Wood Craft, Ruban Bleu Electric Boats, Frauscher Boats and Boote Marian GmbH. In addition to the matters mentioned above, we compete with other manufactures of recreational electric boats on technological developments (such as powertrain efficiency, life of batteries and battery use per charge) and partnerships with battery and motor suppliers. As electric boat technology improves, we anticipate that more manufacturers will market. As they do, we expect that we will experience significant competition.
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We believe the primary competitive factors in our market include but are not limited to:
| ● | technological innovation; | |
| ● | product quality and safety; | |
| ● | service options; | |
| ● | product performance; | |
| ● | environmental friendliness; | |
| ● | design and styling; and | |
| ● | brand perception. | |
Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Most of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, many of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.
Furthermore, certain large manufacturers offer financing options on their powerboats and also have the ability to market powerboats at a substantial discount, provided that the boats are financed through their affiliated financing company. We do not currently offer any form of direct financing on our boats. The lack of our direct financing options and the absence of customary boat discounts could put us at a competitive disadvantage.
We might not be able to compete successfully in our market. If our competitors introduce new powertrains, powerboats or services that compete with or surpass the quality, price or performance of our powertrains, powerboats or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.
We believe that our experience, production capability, product offering and management give us the ability to successfully operate in the recreational electric powerboat market in a way that our competitors cannot. In particular, we believe that we have a number of competitive advantages, including:
| · | technological innovation: we have demonstrated our capacity to develop our own products through research and development by introducing the Volt 180, which currently holds the speed record for a certified electric boat, and our recent introduction of the Phoenix 290. We believe that the technological design of our electric powertrain will provide efficiency at a price that our competitors will not be able to match. |
| · | product performance: the efficiency of our powertrain systems provides the boats they are in greater speed and range, results that are magnified when combined with our ultra-hydrodynamic hull designs. |
| · | certification: unlike some of our competitors, our boats, excluding the Phoenix 290 for which we will shortly seek certification, are certified by the U.S. Coast Guard and the Canadian Coast Guard in Canada and meet the European Union’s imported manufactured products standards. We intend to have such certification for our electric powertrain systems as well as that of the ABYC and to receive CE marking indicating their conformity with health, safety, and environmental protection standards within the European Economic Area. |
| · | product price: although the price of our boats depends on the customer’s specifications, we believe that our products are competitively priced across all models and with all customizations. We have not priced our first powertrain system yet but intend to do so in a way that is competitive for its performance. |
| · | management expertise: our founders have extensive experience in offshore power boating and are aware of what is required by customers in regard to power and efficiency of outboard electric powertrain systems. The inherent reputation of our management team over 25 years has built our brand for quality and technologically advanced products. |
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Strategy
As a designer, manufacturer, and marketer of premium electric boats and electric powertrain systems, we strive to design new and innovative products that appeal to a broad customer base. Since fiscal 2014, we have successfully launched a number of new products and features with best-in-class quality leading to increased sales and significant margin expansion. Furthermore, our unique product development process enables us to offer products with innovative offerings that we believe will be difficult for our competitors to match without significant additional capital investments, most notably our outboard electric powertrain system.
We are developing innovative electric outboard powertrain systems designed to enable us to capture market share, as the outboard powertrain industry moves to electric powertrain outboard motors to comply with local green initiatives. The NMMA estimates that total retail orders of outboard engines was US$2.9 billion in 2018, and Global Market Insights estimates that sales of outboard engines will reach US$17 billion by 2025.
We sell our electric boats to retail customers as well as to boat clubs and boat rental operations. We intend to continue to build brand awareness by partnering with marina operators to offer rental fleets of electric boats. We plan to further expand our sales by offering our products via third party dealerships and by attending more tradeshows. As we launch our innovative electric outboard powertrain systems, we will directly market to OEMs of boats, thereby leveraging their support and distribution systems. We will market our electric powertrains to the OEMs by attending trade shows, inviting the OEMs to test the electric outboard powertrains on a prototype boat, introducing the electric powertrain using social media avenues and advertising the electric powertrain systems in trade journals.
We will continue to implement a number of initiatives to reduce our cost base and to improve the efficiency of our manufacturing process. Additionally, we have fostered a culture of operational improvement within our workforce, which will lead to further operational efficiencies. Finally, we intend to invest in further research and development to ensure that we develop innovative electric powertrain systems thus expanding the number of OEMs that will use our products.
We intend to increase our international sales and expand our network of international distributors and dealers.
Manufacturing
We produce our electric recreational powerboats and related components at our 15,000 square foot assembly warehouse in Quebec and intend to produce our electric powertrains in the same facility. In our last two fiscal years, we manufactured 46 and 21 powerboats, and we expect to manufacture approximately 150 electric boats and 300 electric powertrains in the twelve months following the closing of this offering. We run one assembly lines and have a production capacity that allows us to produce up to seven boats a week depending on the type of boats and the specifications of each order. We believe that we will be able to produce up to 300 electric powertrains per year without needing additional manufacturing space.
Marketing
As we intend to sell our electric powertrains to a handful of OEMs, we will market the powertrains to them in a direct and focused manner. This will entail visits to the OEMs and visits from the OEMs at our production facility as well as general exposure of our powertrains at trade shows and in trade journals.
We primarily use our website and social media to sell our boats. We support this effort by attendance at trades shows (boat shows) that exposes our products to the boat buying public and to industry specialists. We intend to continue to expand our social media presence and attend more trade shows in North America and internationally. We also rely on a network of distributors and dealers, and their marketing efforts, for the sale of our boats and seek to grow this network following the initial public offering. We do not currently have a coordinated marketing effort with our network of distributors and dealers.
Sales and Service Model
As we do not have a direct relationship with the purchasers of the boats that incorporate our electric powertrains, we do not intend to service such purchasers directly if there is a problem with the powertrain. Rather, the OEMs of the boats incorporating the powertrains will service such purchasers, and we will provide OEMs instruction on their repair and provide training to OEM personnel at our facilities on a periodic basis, so that the OEMs can provide maintenance, repair and customer support to their customers. As we introduce new electric powertrain systems, we will continue to provide training to OEM personnel.
Currently, most of the sales of our electric boats are directly placed with us online, but approximately 67% of our sales in our 2019 fiscal year were derived from our network of independent dealers. While we will continue to market direct sales through our website, we seek to increase revenues and diversify our sales points by expanding our network of independent dealers. We envision an increase in the number of dealers supporting our products and the quality of their marketing and servicing efforts as being essential to our ability to increase sales. We may not be successful in our effort to grow our network of independent dealers.
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Sales Model
We sell directly to the customer via online, social media marketing and the attendance at boat shows. We also sell our boats through a limited number of dealers and distributors. We will further expand our product offerings to third-party dealerships and by selling directly to OEMs.
Service Model
We do not offer direct servicing of our boats and do not offer a warranty for our boats. Purchasers of our boats are able to rely on the warranties provided by the manufacturers of the parts used in our boats, including the motors, the batteries and certain other components.
Government Regulation
Our operations are subject to extensive and frequently changing federal, state, provincial, local and foreign laws and regulations, including those concerning product safety, environmental protection and occupational health and safety. We believe that our operations and products are in compliance with these regulatory requirements. Historically, the cost of achieving and maintaining compliance with applicable laws and regulations has not been material. However, future costs and expenses required for us to comply with such laws and regulations, including any new or modified regulatory requirements, or an inability to address newly discovered environmental conditions could have a material adverse effect on our business, financial condition, operating results, or cash flows.
The regulatory programs that impact our business include the following:
Certain materials used in our manufacturing, including the resins used in production of our boats, are toxic, flammable, corrosive, or reactive and are classified by the federal, state and provincial governments as “hazardous materials.” Control of these substances is regulated by the Environmental Protection Agency (EPA) and state pollution control agencies under the Federal Resource Conservation and Recovery Act, and related state programs in the United States, and by Environment and Climate Change Canada and Health Canada and provincial pollution control agencies under the Canadian Environmental Protection Act, 1999 and related provincial legislation in Canada. Storage of these materials must be maintained in appropriately labeled and monitored containers, and disposal of wastes requires completion of detailed waste manifests and recordkeeping requirements. Any failure by us to properly store or dispose of our hazardous materials could result in liability, including fines, penalties, or obligations to investigate and remediate any contamination originating from our operations.
The United States Clean Air Act and the Canadian Environmental Protection Act
The United States Clean Air Act (the “CAA”) and the Canadian Environmental Protection Act, 1999 (the “CEPA”) and corresponding state and provincial rules regulate emissions of air pollutants. Because our manufacturing operations involve molding and coating of fiberglass materials, which involves the emission of certain volatile organic compounds, hazardous air pollutants, and particulate matter, we are required to comply with Canadian federal and provincial environmental protection regulations. The hulls used in our products are all manufactured by third parties. The additional cost of complying with these regulations has increased our cost to purchase hulls and, accordingly, has increased the cost to manufacture our products.
In addition to the regulation of our manufacturing operations, the EPA has adopted regulations stipulating that many marine propulsion engines meet certain air emission standards. The engines used in our products, all of which are manufactured by third parties, are warranted by the manufacturers to be in compliance with the EPA’s emission standards. Furthermore, the engines used in our products must comply with the applicable emission standards under the CEPA and corresponding provincial legislation. The additional cost of complying with these regulations has increased our cost to purchase the engines and, accordingly, has increased the cost to manufacture our products.
If we are not able to pass these additional costs along to our customers, it may have a negative impact on our business and financial condition.
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Boat Manufacturing Standards
As a manufacturer of small vessels established in Canada, we are required to ensure that:
| ● | our boats comply with all the applicable construction requirements of Part 7 of the Small Vessel Regulations (Canada) and Transport Canada’s Construction Standards for Small Vessels (TP 1332E); |
| ● | for each boat, a Declaration of Conformity is produced to Transport Canada in accordance with Part 8 of the Small Vessel Regulations (Canada) stating that the boat meets all the construction requirements and that a Compliance Notice is attached to the boat; and |
| ● | each boat is marked with a Hull Serial Number (HIN) (also known as a Hull Identification Number) in accordance with Part 9 of the Small Vessel Regulations (Canada). |
Boat Safety Standards
Our powerboats must be manufactured to meet the standards of certification in the jurisdictions in which they are used or to which they are imported. This means that our powerboats must meet the standards of certification required by the U.S. Coast Guard and the Canadian Coast Guard in Canada and they must be certified to meet the European Union’s imported manufactured products standards in the European Union. These certifications specify standards for the design and construction of powerboats. We believe that all our boats meet these standards. In addition to those standards, we believe that our powerboats meet the safety standards set by the ABYC, a non-profit, member organization that develops voluntary safety standards for the design, construction, maintenance, and repair of recreational powerboats.
Safety of recreational boats in the United States is subject to federal regulation under the Boat Safety Act of 1971, which requires boat manufacturers to recall products for replacement of parts or components that have demonstrated defects affecting safety. Any recall of our boats or components in our boats could result in large expenditures and tarnish our brand.
Labor regulations
The Act respecting occupational health and safety (Quebec) and the regulations made thereunder impose standards of conduct for and regulate workplace safety, including limits on the amount of emissions to which an employee may be exposed without the need for respiratory protection or upgraded plant ventilation. Our facilities are subject to inspection by Canadian, Quebec and local agencies and departments. We believe that our facilities comply in all material aspects with these regulations. We have made a considerable investment in safety awareness programs and provide ongoing safety training for all of our employees.
Research and Development
Among other factors, our boats are distinguished from their competitors as a result of design and technological features. We invest in research and development to develop and improve these features so that we may innovate future product offerings in boat and electric powertrain systems. For example, our Volt 180 was developed in conjunction with a Canadian government grant.
Seasonality
Our current operating results are subject to annual and seasonal fluctuations resulting from a variety of factors, including:
| • | seasonal variations in retail demand for boats, with a significant majority of sales occurring during peak boating season; |
| • | product mix, which is driven by boat model mix and higher option order rates; while sales of all our boats generate comparable margins, sales of larger boats and boats with optional content produce higher absolute profits; |
| • | inclement weather, which can affect production at our manufacturing facilities as well as consumer demand; |
| • | competition from other recreational boat manufacturers; and |
| • | general economic conditions. |
We do not envision the sales of our electric powertrains to OEMs will be seasonal. As building a boat is a time-consuming process, we expect that OEMs will build their boats and increase their inventory even in those seasons where sales are generally lower in preparation for the seasons of higher sales.
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Employees
As of September 14, 2020, we employed a total of 14 people full-time and no one part-time. All of our employees were employed at our principal executive offices in Boisbriand, Québec. None of our employees are covered by a collective bargaining agreement.
The breakdown of full-time employees by main category of activity is as follows:
| Activity | Number of Full-Time Employees | ||||
| Administration | 6 | ||||
| Manufacturing | 8 | ||||
Property, Plant and Equipment
Our manufacturing and office space is located in Boisbriand, Québec, just outside of Montreal. This space is in two adjacent units each under a separate lease with a related party. One lease is for approximately 3,600 square feet, has a monthly rent of approximately $3,000 and expires on June 30, 2024. The other lease is for approximately 8,210 square feet, has a monthly rent of approximately $8,550 and expires on May 31, 2022. We consider our office and manufacturing space sufficient to meet our current needs and our needs in the year following this offering.
We do not own any real property and do not lease any other properties.
Legal Proceedings
We are not involved in, or aware of, any legal or administrative proceedings contemplated or threatened by any governmental authority or any other party. As of the date of this prospectus, no director, officer or affiliate is a party adverse to us in any legal proceeding or has an adverse interest to us in any legal proceeding.
Selected Historical Financial Data
You should read the following selected financial data together with our historical financial statements and the notes thereto included elsewhere in this prospectus and with the information set forth in the section titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.
Selected Historical Financial Data
The selected historical financial information set forth below has been derived from our audited financial statements for the fiscal years ended August 31, 2019 and 2018 and from our unaudited financial statements for the six-month period ended February 29, 2020 and February 28, 2019.
Statement of Comprehensive (Loss)
| Year ended August 31, | Six months ended | |||||||||||||||
| 2019 | 2018 | February 29, 2020 |
February 28, 2019 |
|||||||||||||
| Revenue | $ | 2,869,377 | $ | 1,271,566 | $ | 436,193 | $ | 1,271,552 | ||||||||
| Gross Profit | $ | 1,285,364 | $ | 501,727 | $ | 233,560 | $ | 589,844 | ||||||||
| Net and Comprehensive Income/(Loss) | $ | 233,066 | $ | (185,848 | ) | $ | (477,797 | ) | $ | 54,647 | ||||||
| Income/(Loss) per Share – Basic and Fully Diluted | $ | 0.02 | $ | (0.01 | ) | $ | (0.03 | ) | $ | - | ||||||
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Statements of Financial Position
| August 31,
2019 |
August 31,
2018 |
For the six months ended February 29, 2020 |
||||||||||
| Cash | $ | Nil | $ | Nil | $ | Nil | ||||||
| Current Assets | $ | 1,366,769 | $ | 1,578,282 | $ | 1,855,030 | ||||||
| Total Assets | $ | 1,914,562 | $ | 1,993,194 | $ | 3,043,903 | ||||||
| Current Liabilities | $ | 1,459,534 | $ | 1,890,278 | $ | 1,731,886 | ||||||
| Total Liabilities | $ | 2,046,864 | $ | 2,395,987 | $ | 3,478,927 | ||||||
| Total Equity (Deficiency) | $ | (132,302 | ) | $ | (402,793 | ) | $ | (435,024 | ) | |||
Outstanding Share Data
Our authorized share capital consists of an unlimited number of common shares without nominal or par value, issuable in four series (“Common Shares”), of which an unlimited number are designated as Voting Common Shares – Series Founder, an unlimited number are designated as Voting Common Shares – Series Investor 1, an unlimited number are designated as Voting Common Shares – Series Investor 2 and an unlimited number are designated as Non-Voting Common Shares. As at September 14, 2020, our outstanding equity and convertible securities were as follows:
| Securities | Outstanding | |
| Voting equity securities issued and outstanding | 5,177,677 | |
| Preferred shares | nil | |
| Securities convertible or exercisable into voting equity securities – stock options | 524,324 | |
| Securities convertible or exercisable into voting equity securities – warrants | nil |
Common Shares
The holders of our Voting Common Shares are entitled to vote at all meetings of shareholders, to receive dividends if, as and when declared by the directors and to participate pro rata in any distribution of property or assets upon our liquidation, winding-up or other dissolution. The holders of our Non-Voting Common Shares are not entitled to vote at meetings of shareholders but are entitled to receive dividends if, as and when, declared by the directors and to participate pro rata in any distribution of property or assets upon our liquidation, winding-up or other dissolution. Our common shares carry no pre-emptive rights, conversion or exchange rights, redemption, retraction, repurchase, sinking fund or purchase fund provisions. There are no provisions requiring the holders of our common shares to contribute additional capital and no restrictions on the issuance of additional securities by us. There are no restrictions on the repurchase or redemption of common shares by us except to the extent that any such repurchase or redemption would render us insolvent pursuant to the Business Corporations Act.
For additional information regarding our common shares, please see the discussion under the heading entitled “Articles of Incorporation of Our Company - Rights, Preferences and Restrictions Attaching to Our Shares”.
Non-cumulative voting
Holders of our common shares do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
Preferred Shares
We do not have any preferred shares outstanding as of the date of this prospectus.
Stock transfer agent
Our stock transfer agent for our securities is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598, Phone: (212) 828-8436.
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Indebtedness as of August 31, 2019:
| Payments due by period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year | 2-3 years | 4-5 years | Greater than 5 years | |||||||||||||||
| Operating Lease Obligations | $ | 543,300 | $ | 211,100 | $ | 266,000 | 66,200 | nil | ||||||||||||
| Bank Indebtedness | 283,813 | 283,813 | nil | nil | nil | |||||||||||||||
| Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under IFRS | 1,195,994 | 22,005 | 1,086,753 | 15,632 | 71,604 | |||||||||||||||
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
This prospectus should be read in conjunction with the accompanying financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the International Accounting Standards Board (IASB).
The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates or other forward-looking statements under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our actual results may differ materially as a result of many factors, including those set forth under the headings entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors”.
Critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below under the heading “Critical Accounting Policies and Estimates”, and have not changed significantly since our founding.
Overview
We were incorporated on August 29, 2012, under the laws of the province of Quebec, Canada, and its principal activity is the design, development and manufacturing of electric outboard powertrain systems and electric boats.
Our head office and principal address is located at 730 Boulevard du Cure-Boivin, Boisbriand, Quebec, Canada, V7G 2A7.
Results of Operations
Results of Operations for the Year Ended August 31, 2019 as Compared to the Year Ended August 31, 2018
Revenue for our fiscal year ended August 31, 2019 was $2,869,377 as compared to $1,271,566 for our 2018 fiscal year. The 126% increase in revenues resulted from an increase in new boat sales compared to the prior year.
Our gross profit increased to $1,285,364 from $501,727 for our 2018 fiscal year. The increase of 156% resulted from a reduction in sub-contracting costs and an increase in sales from new boats which resulted in a higher gross margin.
Our operating expenses for the year ended August 31, 2019 increased to $987,911 from $535,842 for the year ended August 31, 2018. The 84% increase in expenses was primarily due to increases in:
| ● | office salaries and benefits for year ended August 31, 2019 to $372,961 from $105,101 for the year ended August 31, 2018 due to an increase in the size of our office staff; |
| ● | rent paid for the year ended August 31, 2019 to $204,596 from $108,137 for the year ended August 31, 2018 due to an increase in the size of our production facilities; and |
| ● | advertising and promotion expenses for the year ended August 31, 2019 to $157,276 from $111,198 for the year ended August 31, 2018 as we attended more trade shows in our 2019 fiscal year. |
We incurred a reduction in income taxes for the year ended August 31, 2019, of $64,387 as compared to $151,733 for our 2018 fiscal year. The reduction resulted from the usage of losses incurred in prior periods that we intend to utilize to reduce our current tax liabilities.
Income taxes for the year ended August 31, 2019 were $64,387 as compared to $151,733 for the year ended August 31, 2018. The reduction was caused by a decrease in current and deferred taxes.
During the year ended August 31, 2019, we incurred a comprehensive income of $233,066 compared to $185,848 loss for the corresponding period in the prior year. The increase in comprehensive income was due to the increase in new boat sales, thus resulting in an increase in gross profit.
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Results of Operations for the Three Months Ended February 29, 2020 as Compared to the Three Months ended February 28, 2019
Revenue for the three months ended February 29, 2020 was $383,190 as compared to $332,645 for the three months ended February 28, 2019, a 15% increase. The increase was due to an increase in part sales for the period.
Gross margin the three months ended February 29, 2020, was $220,556 as compared to $176,455 for the corresponding period in 2019, a 25% increase. The increase in gross margin was caused by the aforementioned increase in revenue and an increase in closing inventory for the period.
During the three months ended February 29, 2020, we incurred a comprehensive loss of $199,609 compared to $79,603 loss for the corresponding period in 2019. The largest expense items that resulted in an increase in net comprehensive loss for the three months ended February 29, 2020 were;
| ● | Professional fees for the three months ended February 29, 2020 increased to $138,871 (2019: $33,644), caused by an increase in legal and accounting fees related to the registration statement of which this prospectus forms a part; | |
| ● | Advertising and promotion expenses for the three months ended February 29, 2020, increased to $75,619 from $66,847 in the 2019 period, caused by the increased attendance of boat shows during the period and the unveiling of our Phoenix 290 at the Miami Boat Show; | |
| ● | Interest on long-term debt and finance lease expenses for the three months ended February 29, 2020, increased to $16,049 from $861 for the three months ended February 28, 2019 due to an increase in long term debt and finance lease obligations; and | |
| ● | Depreciation of right-of-use assets for the three months ended February 29, 2020, increased to $32,437 from $nil for the 2019 period caused by the addition of leased assets due to the requirements of IFRS 16 – Leased Assets. |
Our operating expenses for the three months ended February 29, 2020 increased to $420,166 from $256,058 for the three months ended February 28, 2019. The increase in operating expenses was caused by the aforementioned increase in expenses for the year.
Net and comprehensive loss of the three months ended February 29, 2020 was $199,609 as compared to $79,603 for the 2019 period.
Results of Operations for the Six Months Ended February 29, 2020 as Compared to the Six Months ended February 28, 2019
Revenue for the six months ended February 29, 2020 was $436,193 as compared to $1,271,552 for the six months ended February 28, 2019. The decrease of approximately 66% resulted from a decrease in new boat sales compared to the prior period. This resulted in our gross profit decreasing to $233,560 over the period from $589,844 in the corresponding 2019 period.
During the six months ended February 29, 2020, we incurred a comprehensive loss of $477,797 compared to $54,647 profit for the corresponding period in 2019. The increase in comprehensive loss was due to the decrease in new boat sales, thus resulting in a decrease in gross profit and an increase in net comprehensive loss.
Expenses for the six months ended February 29, 2020, increased to $711,357 from $519,777 for the six months ended February 28, 2019. The largest expense items that are included in expenses for the six months ended February 29, 2020 were;
| ● | Rent for the six months ended February 29, 2020 decreased to $39,262 from $131,311 for the six months ended February 28, 2019, due to the adoption of the IFRS 16 – Leases; | |
| ● | Professional fees for the six months ended February 29, 2020, increased to $180,895 from $62,146 for the corresponding period in 2019 due to costs associated with our preparation of the registration statement of which this prospectus forms a part; | |
| ● | Travel and entertainment expenses for the six months ended February 29, 2020 increased to $37,945 from $13,738 for the six months ended February 28, 2019 due to an increase in attendances at boat shows, in particular the Miami Boat Show in February 2020 at which we unveiled our newest boat, The Phoenix 290; | |
| ● | Advertising and promotion for the six months ended February 29, 2020, increased to $155,599 from $110,568 for the six months ended February 28, 2019 as we attended more trade shows during the period; | |
| ● | Interest on long-term debt and finance lease expenses for the six months ended February 29, 2020, increased to $29,744 from $1,773 in the prior year due to an increase in long term debt and lease obligations; and | |
| ● | Depreciation of right-of-use assets for the six months ended February 29, 2020 increased to $64,076 from $nil in the corresponding period in 2019 as a result of the addition of leased assets due to the requirements of IFRS 16 – Leased Assets. |
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The operating expenses for the six months ended February 29, 2020 increased by 37% compared to the corresponding year which were caused by the aforementioned expenses for the period.
We incurred a reduction in income taxes for the six months ended February 29, 2020 of $nil from $15,421 in the six months ended February 28, 2019. The reduction resulted from losses incurred in the current period that will not generate any taxes payable.
We had a net and comprehensive loss for the six months ended February 29, 2020 of $477,797 as compared to net and comprehensive income for the six months ended February 28, 2019 of $54,647.
Liquidity and Capital Resources
Our operations consist of the designing and developing electric outboard powertrain systems and designing, developing and manufacturing electric boats. Our financial success depends upon our ability to market and sell our outboard powertrain systems and electric boats and to raise sufficient working capital to enable us to execute our business plan. Our historical capital needs have been met by internally generated cashflow from operations and the support of our shareholders. We cannot assure you that equity funding will be possible at the times we required it. If no funds are can be raised and sales of our outboard powertrain systems and electric boats do not produce sufficient net cash flow, then we may need to significantly curtail operations to ensure our survival.
As of September 14, 2020, we had 5,177,677 issued and outstanding shares and 5,702,001 common shares outstanding on a fully-diluted basis (assuming that all issued options eventually vest).
We had $92,765 of working capital deficiency as at August 31, 2019 compared to $311,996 working capital deficiency as at August 31, 2018. The increase in working capital deficiency resulted from the cash used in operations of $112,368, (2018: $125,037 cash provided by operations); cash used in investing activities of $109,184 (2018: $108,375) resulting from the additions to property and equipment; which was offset by financing activities generating cash of $259,052, (2018: $(16,662)), due to an increase in bank indebtedness and an increase in long term debt; this was partially offset by a repayment of long term debt. We had a working capital surplus of $123,144 as at February 29, 2020.
We had cash and cash equivalents of $nil at each of February 29, 2020, August 31, 2019 and August 31, 2018. We are pursuing equity financing but might not be successful in this endeavor.
As of the date of this prospectus, we have no outstanding commitments, other than rent and lease commitments. We have pledged our assets as security for loans and are subject to customary debt covenants.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Research and Development, Patents and Licenses, etc.
We incur research and development costs associated with the development of our outboard electric powertrains as well as the design of new boats. We have not patented any of our technology.
Going Concern
We prepare our financial statements on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We incurred a net and comprehensive income of $233,066 during the year ended August 31, 2019 and had a cash balance and a working capital deficiency of $nil and $311,993, respectively, as at August 31, 2019. Our ability to meet our obligations as they fall due and to continue to operate as a going concern depends on the continued financial support of the creditors and the shareholders. In the past, we have relied on the support of our shareholders to meet our cash requirements. Funding from this or other sources might not be sufficient in the future to continue our operations. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or terms that are acceptable to us. Failure to obtain such financing on a timely basis could cause us to reduce or terminate our operations.
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Internal control over financial reporting and disclosure controls and procedures
Management is responsible for the design and maintenance of both internal control systems over financial reporting and disclosure controls and procedures. Disclosure controls and procedures are designed to provide reasonable assurance that relevant information is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.
Current disclosure controls include meetings with the Chief Executive Officer, Chief Financial Officer and members of our Board of Directors and Audit Committee through e-mails, on telephone conferences and informal meetings to review public disclosure. All public disclosures are reviewed by certain members of senior management and our Board of Directors and Audit Committee. Our Board of Directors has delegated the duties to the Chief Executive Officer who is primarily responsible for financial and disclosure controls.
Management and the Board of Directors continue to work to mitigate the risk of material misstatement.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenue and expenses.
Research costs are expensed in the period in which they are incurred. Development costs are capitalized when it probable that the project will be a success considering its commercial and technical feasibility; we are able to use or sell the asset; we have sufficient resources and intent to complete our development; and our costs can be measured reliably. We have not capitalized any development costs.
We account for all stock-based payments and awards using the fair value-based method. Under the fair value-based method, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity estimates issued, or liabilities incurred, whichever is more reliably measurable.
From time to time, we must make accounting estimates. These are based on the best information available at the time, utilizing generally accepted industry standards.
Recently Adopted Accounting Standards
IFRS 16: Leases
We adopted IFRS 16 as of September 1, 2019. The adoption of IFRS 16 has a significant impact as we recognized new assets and liabilities for our operating leases. In addition, the nature and timing of expenses related to those leases has changed as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for the right-of-use assets and interest expense on lease liabilities. We have elected to apply the modified retrospective method, under which the cumulative effect of initial application is recognized in retained earnings at September 1, 2019, by setting right-of-use assets based on the lease liability at the date of initial application, adjusted by the amount of any prepaid or accrued lease payments, and have applied the following practical expedients:
| • | applied IFRS 16 exclusively to contracts that were previously identified as leases applying IAS 17 at the date of initial application; |
| • | accounted for leases for which the lease term ended within 12 months of the date of initial application as short-term leases; |
| • | did not recognize right-of-use assets and liabilities for leases of low value assets; |
| • | relied on its assessment of whether leases are onerous applying IAS 37 immediately before the date of initial application as an alternative to performing an impairment review; and |
| • | did not separate non-lease components from lease components, and instead accounted for each lease component and any associated non-lease components as a single lease component. |
IFRIC 23: Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
| • | Us to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution; |
| • | Us to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and |
| • | If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations. |
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The interpretation is effective for periods beginning on or after September 1, 2019. We adopted the new interpretation with no impact on the financial statements.
DIRECTORS AND EXECUTIVE OFFICERS
Board of Directors
Our Articles of Incorporation are attached as an exhibit to the registration statement of which this prospectus forms a part. Our Articles of Incorporation provide that our company shall have a minimum of one (1) and a maximum of ten (10) directors.
Our Board of Directors (the “Board”) consists of six directors. Four of our six directors satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet the independence standards under Rule 10A-3 under the Exchange Act. Our directors are elected annually at each annual meeting of our company’s shareholders. The Board assesses potential Board candidates to fill perceived needs on the Board for required skills, expertise, independence and other factors.
Our Board of Directors is responsible for appointing our company’s officers.
Board Committees
We will establish three committees under the board of directors immediately upon the closing of this offering: an Audit Committee, a Compensation Committee and a Nominating Committee. Each committee is to be governed by a charter approved by our Board of Directors.
Audit Committee
Our Audit Committee will consist of Renaud Cloutier, Steve P. Barrenechea and Luisa Ingargiola and will be chaired by Ms. Ingargiola. Each member of the Audit Committee will satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet the independence standards under Rule 10A-3 under the Exchange Act. Our Audit Committee Financial Expert is Luisa Ingargiola who qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of the Listing Rules of the Nasdaq Stock Market. The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The Audit Committee is responsible for, among other things:
| · | selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm; |
| · | reviewing with our independent registered public accounting firm any audit problems or difficulties and management’s response and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K; |
| · | discussing the annual audited financial statements with management and our independent registered public accounting firm; |
| · | annually reviewing and reassessing the adequacy of our Audit Committee charter; |
| · | meeting separately and periodically with the management and our independent registered public accounting firm; |
| · | reporting regularly to the full board of directors; |
| · | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposure; and |
| · | such other matters that are specifically delegated to our Audit Committee by our board of directors from time to time. |
Compensation Committee
Our Compensation Committee will consist of Robert Ghetti, Steve P. Barrenechea and Luisa Ingargiola and will be chaired by Mr. Barrenechea. Each of the Compensation Committee members satisfies the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. Our Compensation Committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. No officer may be present at any committee meeting during which such officer’s compensation is deliberated upon. The Compensation Committee will be responsible for, among other things:
| · | reviewing and approving to the board with respect to the total compensation package for our most senior executive officers; |
| · | approving and overseeing the total compensation package for our executives other than the most senior executive officers; |
| · | reviewing and recommending to the board with respect to the compensation of our directors; |
| · | reviewing periodically and approving any long-term incentive compensation or equity plans; |
| · | selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and |
| · | programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. |
Nominating Committee
Our Nominating Committee will consist of Robert Ghetti, Renaud Cloutier and Steve P. Barrenechea and will be chaired by Mr. Cloutier. Each member of the Audit Committee will satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The Nominating Committee considers persons identified by its members, management, shareholders, investment bankers and others.
Directors and Executive Officers
The following table sets forth the names and ages of all of our directors and executive officers.
|
Name, Province/State and Country of Residence |
Age | Position | Director/Officer Since | |||
| Alexandre Mongeon Quebec, Canada |
44 | Chief Executive Officer and Chairman | August 2014 | |||
| Patrick Bobby Quebec, Canada |
49 | Chief Operating Officer, Secretary and Director | August 2014 | |||
| Kulwant Sandher British Columbia, Canada |
58 | Chief Financial Officer | July 2019 | |||
| Robert Ghetti Quebec, Canada |
57 | Vice Chairman | August 2012 | |||
| Renaud Cloutier Quebec, Canada |
56 | Director | September 2020 | |||
| Steve P. Barrenechea California, United States |
62 | Director | September 2020 | |||
| Luisa Ingargiola Florida, United States |
57 | Director | September 2020 |
Business Experience
The following summarizes the occupation and business experience during the past five years or more for our directors, and executive officers as of the date of this prospectus:
Alexandre Mongeon, Chief Executive Officer
Alexandre Mongeon has been employed by us since 2014 as our Chief Executive Officer. From 1999 to 2015, he imported high-performance boats from the United States to Canada. During much of that time, 1999 to 2016, he also worked as a designer and contractor for a Contractor 91340489 QC and managed several new construction projects on the waterfront in and around Montreal. Mr. Mongeon is a graduate of the School of Construction in Laval, Quebec with a specialization in electricity.
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Patrick Bobby, Chief Operating Officer
Patrick Bobby has been employed by us since 2014. From 1999 to 2015, he imported high-performance boats from the United States to Canada. During much of that time, 1999 to 2016, he also worked as a designer and contractor for a Contractor 91340489 QC Inc. and created a condominium syndicate. Mr. Bobby attended Georgian College in Barrie, Ontario.
Kulwant Sandher, Chief Financial Officer
Kulwant Sandher is a Chartered Professional Accountant with over 25 years of experience in business and finance. Mr. Sandher graduated from Queen Mary, University of London (formerly known as Queen Mary College) in 1986 with a B.Sc. (Eng.) in Avionics. Mr. Sandher became a Chartered Accountant in England in 1991 and received his Chartered Professional Accountant designation in Canada in 1997.
Mr. Sandher has considerable private and public company experience. He served as CFO of ElectraMeccanica Vehicles Corp., a Nasdaq listed electric car manufacturer from June 2016 to November 2018; as CFO of MineSense Technologies Inc. from August 2013 until July 2015; as CFO of Alba Mineral Ltd. from June 2017 to April 1, 2018; as CFO of Delta Oil & Gas from October 2008 to September 2017; as CFO of Astorius Resources Ltd. from June 2017 to February 1, 2018; as CFO of Hillcrest Petroleum from December 2011 to April 2015; as CFO of Intigold Mines Ltd. from December 2010 to April 2017; and as COO & CFO for Marketrend Interactive Inc., from March 2004 to March 2006. Currently, Mr. Sandher serves as President of Hurricane Corporate Services Ltd. and as CFO of Alba Resources Ltd. (TSX-V). Furthermore, Mr. Sandher is currently serving as a director of The Cloud Nine Education Group Inc since December 2015. Prior to August 2013, Mr. Sandher had also served as CFO of several publicly listed companies, including: Hillcrest Petroleum (TSX-V), Millrock Resources Inc. (TSX-V) and St. Elias Mines (TSX-V).
Robert Ghetti – Vice Chairman
Robert Ghetti has been in charge of business development and financing of our company since 2013. He received a diploma in Business Administration – Finance in 1983 from Vanier College in Montreal, Quebec. Since 1997, he has owned and operated Societe de Placements de Robert Ghetti Inc., a holding company with interests in commercial and industrial properties.
Renaud Cloutier -- Director
Renaud Cloutier has been active in the electromobility sector for over 15 years. Prior to joining Hydro-Québec’s Direction for Transportation Electrification as Senior Delegate, Mr. Cloutier occupied various senior management positions in business development and international partnerships at TM4, a world leader in the design and manufacturing of electric drivetrains. He was instrumental in TM4’s product management and international growth including setting-up a manufacturing joint venture in China. Mr. Cloutier serves on several Boards of Directors of key industry players in Canada including Electric Mobility Canada and the Innovative Vehicle Institute, where he was the Founder and first President. Mr. Cloutier has previously lived in Europe, where he held various management positions in the areas of strategic planning and market development at Toyota Motor Europe’s headquarters in Brussels, Belgium. His experience also includes managerial positions in France and Germany with Amadeus and Dun & Bradstreet Software. Mr. Cloutier has been involved in various business process reengineering initiatives in Canada and the United States for Accenture’s Montréal office. He holds a Bachelor’s degree in Physics from the Université de Montréal as well as an MBA from the École des hautes études commerciales (HÉC) de Montréal.
Steve P. Barrenechea -- Director
Steve Barrenechea is an accomplished entrepreneur and advisor, with over 30 years of primary hands on expertise covering the hospitality and renewable and alternative energy industries, with a focus on electric vehicles and battery technologies. Mr. Barrenechea has held numerous senior management and primary consulting positions with both public and private companies throughout his career, with particular emphasis in corporate governance, directorships, corporate development, investor relations, and early stage operations. He has in the past sat on the Board of Directors of The Creative Coalition (sponsors discussion of issues such as education policy, the role of media, campaign reform), Child Guidance Center of Connecticut, and The American Red Cross. Mr. Barrenechea holds a BBA in Economics from The Stern School, New York University.
Luisa Ingargiola -- Director
Luisa Ingargiola has served as Chief Financial Officer of Avalon GloboCare since 2017. From 2007 to 2016, Ms. Ingargiola served as Chief Financial Officer of MagneGas Corporation (and board member from 2016 to June 2018). Ms. Ingargiola currently serves as board member and audit committee chair of FTE Networks and ElectraMeccanica Vehicles Corp. She also serves as a board member for Globe Photos, Inc., Operation Transition Assistance Corporation and The JBF Foundation Worldwide. Ms. Ingargiola received her Bachelors of Science from Boston University and her Masters of Business Administration from the University of Florida.
Family Relationships
There are no family relationships among any of our directors and executive officers.
Term of Office
Each director of our company is to serve for a term of one year ending on the date of the subsequent annual meeting of shareholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our Board of Directors appoints our officers and each officer is to serve until his successor is appointed and qualified or until his or her death, resignation or removal.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors or executive officers have been the subject of the following events:
| 1. | a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; |
| 2. | convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3. | the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities; |
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| i) | acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; |
| ii) | engaging in any type of business practice; or |
| iii) | engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; |
| 4. | the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity; |
| 5. | was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; |
| 6. | was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; |
| 7. | was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
| i) | any Federal or State securities or commodities law or regulation; or |
| ii) | any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or |
| iii) | any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 8. | was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Director Independence
Our Board has determined that the following directors are “independent” as such directors do not have a direct or indirect material relationship with our company: Robert Ghetti, Renaud Cloutier, Steve P. Barrenechea and Luisa Ingargiola. A material relationship is a relationship which could, in the view of our Board of Directors, be reasonably expected to interfere with the exercise of a director’s independent judgment.
Code of Business Conduct and Ethics
We will adopt a Code of Conduct and Ethics that applies to our directors, officers and other employees prior to the consummation of the offering.
Compensation Discussion and Analysis
This section sets out the objectives of our company’s executive compensation arrangements, our company’s executive compensation philosophy and the application of this philosophy to our company’s executive compensation arrangements. It also provides an analysis of the compensation design, and the decisions that the Board made in fiscal 2019 with respect to our Named Executive Officers (as defined below). When determining the compensation arrangements for the Named Executive Officers, our Board of Directors acting as the Compensation Committee considers the objectives of: (i) retaining an executive critical to our success and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing the interests of management and our shareholders; and (iv) rewarding performance, both on an individual basis and with respect to the business in general.
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Benchmarking
Our Board of Directors handles matters relating to compensation, including benchmarking, but upon the closing of this offering, we will form a Compensation Committee for matters of management’s compensation. The Compensation Committee will consider a variety of factors when designing and establishing, reviewing and making recommendations for executive compensation arrangements for all our executive officers. The Compensation Committee does not intend to position executive pay to reflect a single percentile within the industry for each executive. Rather, in determining the compensation level for each executive, the Compensation Committee will look at factors such as the relative complexity of the executive’s role within the organization, the executive’s performance and potential for future advancement and pay equity considerations.
Elements of Compensation
The compensation paid to Named Executive Officers in any year consists of two primary components:
| (a) | base salary; and |
| (b) | long-term incentives in the form of stock options granted under our Stock Option Plan (as defined below). |
The key features of these two primary components of compensation are discussed below:
Base Salary
Base salary recognizes the value of an individual to our company based on his or her role, skill, performance, contributions, leadership and potential. It is critical in attracting and retaining executive talent in the markets in which we compete for talent. Base salaries for the Named Executive Officers are intended to be reviewed annually. Any change in base salary of a Named Executive Officer is generally determined by an assessment of such executive’s performance, a consideration of competitive compensation levels in companies similar to our company (in particular, companies in the EV industry) and a review of our performance as a whole and the role such executive officer played in such corporate performance.
Stock Option Awards
We provide long-term incentives to Named Executive Officers in the form of stock options as part of our overall executive compensation strategy. Our Board of Directors acting as the Compensation Committee believes that stock option grants serve our executive compensation philosophy in several ways: firstly, it helps attract, retain, and motivate talent; secondly, it aligns the interests of the Named Executive Officers with those of the shareholders by linking a specific portion of the officer’s total pay opportunity to the share price; and finally, it provides long-term accountability for Named Executive Officers.
Risks Associated with Compensation Policies and Practices
The oversight and administration of our executive compensation program requires the Board of Directors acting as the Compensation Committee to consider risks associated with our compensation policies and practices. Potential risks associated with compensation policies and compensation awards are considered at annual reviews and also throughout the year whenever it is deemed necessary by the Board of Directors acting as the Compensation Committee.
Our executive compensation policies and practices are intended to align management incentives with the long-term interests of the Corporation and its shareholders. In each case, the Corporation seeks an appropriate balance of risk and reward. Practices that are designed to avoid inappropriate or excessive risks include (i) financial controls that provide limits and authorities in areas such as capital and operating expenditures to mitigate risk taking that could affect compensation, (ii) balancing base salary and variable compensation elements and (iii) spreading compensation across short and long-term programs.
Compensation Governance
The Compensation Committee intends to conduct a yearly review of directors’ compensation having regard to various reports on current trends in directors’ compensation and compensation data for directors of reporting issuers of comparative our size. Director compensation is currently limited to the grant of stock options pursuant to the Stock Option Plan. It is anticipated that the Chief Executive Officer will review the compensation of our executive officers for the prior year and in comparison to industry standards via information disclosed publicly and obtained through copies of surveys. The Board expects that the Chief Executive Officer will make recommendations on compensation to the Compensation Committee. The Compensation Committee will review and make suggestions with respect to compensation proposals, and then makes a recommendation to the Board.
The Compensation Committee will be comprised of independent directors.
The Compensation Committee’s responsibility is to formulate and make recommendations to our directors in respect of compensation issues relating to our directors and executive officers. Without limiting the generality of the foregoing, the Compensation Committee has the following duties:
| (a) | to review the compensation philosophy and remuneration policy for our executive officers and to recommend to our directors’ changes to improve our ability to recruit, retain and motivate executive officers; |
| (b) | to review and recommend to the Board the retainer and fees, if any, to be paid to our directors; |
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| (c) | to review and approve corporate goals and objectives relevant to the compensation of the CEO, evaluate the CEO’s performance in light of those corporate goals and objectives, and determine (or make recommendations to our directors with respect to) the CEO’s compensation level based on such evaluation; |
| (d) | to recommend to our directors with respect to non-CEO officer and director compensation including reviewing management’s recommendations for proposed stock options and other incentive-compensation plans and equity-based plans, if any, for non-CEO officer and director compensation and make recommendations in respect thereof to our directors; |
| (e) | to administer the stock option plan approved by our directors in accordance with its terms including the recommendation to our directors of the grant of stock options in accordance with the terms thereof; and |
| (f) | to determine and recommend for the approval of our directors’ bonuses to be paid to our executive officers and employees and to establish targets or criteria for the payment of such bonuses, if appropriate. Pursuant to the mandate and terms of reference of the Compensation Committee, meetings of the Compensation Committee are to take place at least once per year and at such other times as the Chair of the Compensation Committee may determine. |
Summary Compensation Table
The following table sets forth all annual and long-term compensation for services in all capacities to our Company during the fiscal periods indicated in respect of the executive officers set out below (the “Named Executive Officers”):
Named Executive Officer and Principal Position | Year | Salary ($) | Share- based awards ($) | Option- based awards ($)(1) | Annual Plan ($) | Long- term Incentive Plan ($) | Pension Value ($) | All Other Compensation ($) | Total Compensation ($) | |||||||||||||
| Alexandre Mongeon | 2019 | 111,635 | Nil | Nil | Nil | Nil | Nil | Nil | 111,635 | |||||||||||||
| Chief Executive Officer | 2018 | 97,614 | Nil | Nil | Nil | Nil | Nil | Nil | 97,614 | |||||||||||||
| Patrick Bobby | 2019 | 96,116 | Nil | Nil | Nil | Nil | Nil | Nil | 96,116 | |||||||||||||
| Chief Operating Officer | 2018 | 82,336 | Nil | Nil | Nil | Nil | Nil | Nil | 82,336 | |||||||||||||
| Kulwant Sandher | 2019 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||
| Chief Financial Officer | 2018 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||
Executive Compensation Agreements
Alexandre Mongeon, Chief Executive Officer
On April 7, 2020, our Board of Directors approved the entering into of an executive services agreement with Alexandre Mongeon with a term commencing on April 1, 2020 and expiring on April 1, 2023 (the “Mongeon Agreement”).
The Mongeon Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless we provide written notice not to renew the Mongeon Agreement no later than 30 days prior to the end of the then current or renewal term. There are no change of control provisions in the Mongeon Agreement.
Pursuant to the terms and provisions of the Mongeon Agreement: (a) Mr. Mongeon is appointed as our President and Chief Executive Officer and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. Mongeon a monthly fee of CAD$10,000; (c) provide Mr. Mongeon with employee benefits, if and when such benefits have been adopted by us, including group health insurance, accidental death and dismemberment insurance, travel accident insurance, group life insurance, short-term disability insurance, long-term disability insurance, drug coverage and dental coverage (the “Group Benefits”); (d) our Board of Directors shall, in good faith, consider the payment of reasonable industry standard annual bonuses (“Bonus”) based upon our performance and upon the achievement by Mr. Mongeon and/or the Company of reasonable management objectives to be reasonably established by our Board of Directors; and (e) Mr. Mongeon will be entitled to four weeks’ paid annual vacation per calendar year. Furthermore, our Board of Directors may from time to time, in its sole and absolute discretion, grant to Mr. Mongeon stock options exercisable into Common Shares subject to such exercise terms and conditions as may be determined by the Board of Directors.
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We may terminate the employment of Mr. Mongeon under the Mongeon Agreement without any notice or any payment in lieu of notice for a serious reason. Mr. Mongeon may terminate his employment under the Mongeon Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.
The employment of Mr. Mongeon will terminate upon the death of Mr. Mongeon. Upon the death of Mr. Mongeon during the continuance of the Mongeon Agreement, we will provide Mr. Mongeon’s estate and, if applicable, Mr. Mongeon’s immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued Bonus, prorated to the end of the three-month period from the effective date of termination that our Board of Directors determines would likely have been paid to Mr. Mongeon; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Mr. Mongeon as at the effective date of termination; and (e) subject to our then Stock Option Plan as defined in “Stock Option Plans and Stock Options” below and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Mongeon’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.
If we elect to terminate the Mongeon Agreement without a serious reason, and provided that Mr. Mongeon is in compliance with the relevant terms and conditions of the Mongeon Agreement, we shall be obligated to provide a severance package to Mr. Mongeon as follows: (a) a cash payment equating to an aggregate of six months of the then monthly fee, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued Bonus, prorated to the end of the three-month period from the effective date of termination that our Board of Directors determines would likely have been paid to Mr. Mongeon; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Mongeon during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. Mongeon as at the effective date of termination; (f) maintain Mr. Mongeon’s Group Benefits for a period of six months from the effective date of termination; and (g) subject to our then Stock Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Mongeon to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.
Patrick Bobby, Chief Operating Officer
On April 7, 2020, our Board of Directors approved the entering into of an executive services agreement with Patrick Bobby with a term commencing on April 1, 2020 and expiring on April 1, 2023 (the “Bobby Agreement”).
The Bobby Agreement is subject to automatic renewal on a one-month to one-month term renewal basis unless we provide written notice not to renew the Bobby Agreement no later than 30 days prior to the end of the then current or renewal term.
Pursuant to the terms and provisions of the Bobby Agreement: (a) Mr. Bobby is appointed as our Chief Operating Officer and will undertake and perform the duties and responsibilities normally and reasonably associated with such office; (b) we shall pay to Mr. Bobby a monthly fee of CAD$10,000; (c) provide Mr. Bobby with employee benefits, if and when such benefits have been adopted by us, including group health insurance, accidental death and dismemberment insurance, travel accident insurance, group life insurance, short-term disability insurance, long-term disability insurance, drug coverage and dental coverage; (d) our Board of Directors shall, in good faith, consider the Bonus based upon our performance and upon the achievement by Mr. Bobby and/or the Company of reasonable management objectives to be reasonably established by our Board of Directors; and (e) Mr. Bobby will be entitled to four weeks’ paid annual vacation per calendar year. Furthermore, our Board of Directors may from time to time, in its sole and absolute discretion, grant to Mr. Bobby stock options exercisable into common shares subject to such exercise terms and conditions as may be determined by the Board of Directors.
We may terminate the employment of Mr. Bobby under the Bobby Agreement without any notice or any payment in lieu of notice for a serious reason. Mr. Bobby may terminate his employment under the Bobby Agreement for any reason by providing not less than 90 calendar days’ notice in writing to us, provided, however, that we may waive or abridge any notice period specified in such notice in our sole and absolute discretion.
The employment of Mr. Bobby will terminate upon the death of Mr. Bobby. Upon the death of Mr. Bobby during the continuance of the Bobby Agreement, we will provide Mr. Bobby’s estate and, if applicable, Mr. Bobby’s immediate family members with the following: (a) three month’s base salary, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued Bonus, prorated to the end of the three-month period from the effective date of termination that our Board of Directors determines would likely have been paid to Mr. Bobby; (c) any outstanding vacation pay as at the effective date of termination; (d) any outstanding expenses owing to Mr. Bobby as at the effective date of termination; and (e) subject to our then Stock Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Bobby’s estate to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.
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If we elect to terminate the Bobby Agreement without a serious reason, and provided that Mr. Bobby is in compliance with the relevant terms and conditions of the Bobby Agreement, we shall be obligated to provide a severance package to Mr. Bobby as follows: (a) a cash payment equating to an aggregate of six months of the then monthly fee, less any required statutory deductions, if any; (b) that portion of any then declared and/or earned or accrued Bonus, prorated to the end of the three-month period from the effective date of termination that our Board of Directors determines would likely have been paid to Mr. Bobby; (c) the present value, as determined by us, acting reasonably, of each of the Group Benefits that would have been enjoyed by Mr. Bobby during the next three months from the effective date of termination; (d) any outstanding vacation pay as at the effective date of termination; (e) any outstanding expenses owing to Mr. Bobby as at the effective date of termination; (f) maintain Mr. Bobby’s Group Benefits for a period of six months from the effective date of termination; and (g) subject to our then Stock Option Plan and the rules and policies of any regulatory authority and stock exchange having jurisdiction over us, allow Mr. Bobby to then exercise any unexercised and fully vested portion of stock options on the effective date of termination at any time during three months from the effective date of termination.
Kulwant Sandher, Chief Financial Officer
On August 1, 2019, we entered into a Consulting Services Agreement with Hurricane Corporate Services Ltd., an entity controlled by Mr. Kulwant Sandher (the “Consultant”), by which the Consultant would assist us in our corporate development. The agreement is for a term of twelve months, and each year it is automatically renewed for additional twelve-month terms unless notice is given otherwise 30 days prior to the automatic renewal. In exchange for the services, we pay the Consultant $10,000 each month under the Agreement, and issued 205,795 common shares.
Stock Option Plans and Stock Options
The following table sets forth, as at September 14, 2020, the equity compensation plans pursuant to which our equity securities may be issued:
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted- average exercise price of outstanding options, warrants and rights ($) |
Number of securities remaining available for future issuance under equity compensation plans (excluding Securities reflected in column (a)) |
||||||||||
| Plan Category | (a) | (b) | (c) | |||||||||
| Equity compensation plans approved by securityholders | $ | |||||||||||
| Equity compensation plans not approved by securityholders | 524,324 | $ | 3.415 | 88,288 | ||||||||
| Total | 524,324 | $ | 3.415 | 88,288 | ||||||||
2020 Stock Option Plan
On January 20, 2020, our Board of Directors adopted our 2020 Stock Option Plan (the “Stock Option Plan”) under which an aggregate of 601,802 shares may be issued, subject to adjustment as described in the Stock Option Plan.
The purpose of the Stock Option Plan is to retain the services of our valued key employees, directors and consultants and such other persons as the plan administrator, which is currently the Board of Directors, shall select in accordance with the eligibility requirements of the Stock Option Plan, and to encourage such persons to acquire a greater proprietary interest in our Company, thereby strengthening their incentive to achieve the objectives of our shareholders, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by the plan administrator. The Stock Option Plan shall be administered initially by our Board of Directors, except that the Board may, in its discretion, establish a committee composed of two or more members of the Board to administer the Stock Option Plan, which committee may be an executive, compensation or other committee, including a separate committee especially created for this purpose.
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Unless accelerated in accordance with the Stock Option Plan, in the event an Option holder's Continuous Service terminates (other than upon the Option holder's death or Disability), the Option holder may exercise his or her Option (to the extent that the Option holder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (a) the date three months following the termination of the Option holder's Continuous Service or (b) the expiration of the term of the Option as set forth in the Award Agreement; provided that, if we terminate Continuous Service for Cause, all outstanding Options (whether or not vested) shall immediately terminate and cease to be exercisable. If, after termination, the Option holder does not exercise his or her Option within the time specified in the Award Agreement, the Option shall terminate. In the event an Option holder's Continuous Service terminates as a result of the Option holder's death or disability, then the Option may be exercised (to the extent the Option holder was entitled to exercise such Option as of the date of death) by the Option holder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Option holder's death, but only within the period ending on the earlier of (a) the date 12 months following the date of death or (b) the expiration of the term of such Option as set forth in the Award Agreement. If, after the Option holder's death, the Option is not exercised within the time specified herein or in the Award Agreement, the Option shall terminate.
For purposes of the Stock Option Plan, unless otherwise defined in the stock option agreement between us and the optionee, “disability” shall mean unless the applicable Award Agreement says otherwise, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. The Committee shall determine whether an optionee has incurred a disability on the basis of medical evidence acceptable to the plan administrator. Upon making a determination of disability, the Committee shall, for purposes of the Stock Option Plan, determine the date of an optionee’s termination of employment or contractual relationship.
As of September 14, 2020, we have issued 524,324 stock options under the stock option plan:
| • | 298,648 of these options are exercisable at $3.70 and vest in 1/12ths over a one-year period; |
| • | 162,162 of these options are exercisable at $2.775 and vest quarterly in 1/4ths upon grant and then every three months thereafter; and |
| • | 63,514 of these options are exercisable at $3.70 and vest monthly in 1/36ths starting one-year after their grant. |
Outstanding Option-based Awards for Named Executive Officers and Directors
The following table reflects all option-based awards for each Named Executive Officer and director outstanding as at August 31, 2019. We do not have any other equity incentive plans other than its Stock Option Plan.
| Option–based Awards | ||||||||||
Named Executive Officer or Director | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date | |||||||
| Alexandre Mongeon, Chief Executive Officer | Nil | |||||||||
| Patrick Bobby, Chief Operating Officer | Nil | |||||||||
| Kulwant Sandher, Chief Financial Officer | Nil | |||||||||
Incentive Plan Awards
The following table provides information concerning our incentive award plans with respect to each Named Executive Officer and directors during the fiscal year ended August 31, 2019.
Named Executive Officer and Director | Option-based Awards – Value Vested During the Year ($)(1) | Non-Equity Incentive Plan Compensation – Value Vested During the Year ($) | ||||||
| Alexandre Mongeon, Chief Executive Officer | $ | Nil | ||||||
| Patrick Bobby, Chief Operating Officer | $ | Nil | ||||||
| Kulwant Sandher, Chief Financial Officer | $ | Nil | ||||||
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Director Compensation for Fiscal 2019
We did not pay our directors for their services as directors in our fiscal 2019, although we did compensate some of our directors in that fiscal year for services that they provided as officers.
Pension Benefits
We do not have any defined benefit pension plans or any other plans providing for retirement payments or benefits.
Termination of Employment and Change of Control Benefits
Details with respect to termination of employment and change of control benefits for our directors and executive officers is reported above under the section titled “Executive Compensation Agreements.”
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our common shares as of September 14, 2020 by (a) each shareholder who is known to us to own beneficially 5% or more of our outstanding common shares; (b) all directors; (c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their common shares, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their common shares.
| Name | Common Shares Beneficially Owned (1) | Percentage of Common Shares Beneficially Owned (2) | Percentage of Common Shares Beneficially Owned After Offering (2) | |||||||||
| Directors and Executive Officers: | ||||||||||||
| Alexandre Mongeon, Chief Executive Officer, Director (3)(4) | 2,197,194 | 42.0 | % | 31.8 | % | |||||||
| Patrick Bobby, Chief Operating Officer, Director (3)(5) | 2,195,778 | 42.0 | % | 31.8 | % | |||||||
| Kulwant Sandher, Chief Financial Officer (6) | 235,524 | 4.5 | % | 3.4 | % | |||||||
| Robert Ghetti, Director (7) | 1,129,899 | 21.6 | % | 16.4 | % | |||||||
| Renaud Cloutier, Director | 0 | - | - | |||||||||
| Steve P. Barrenechea, Director | 0 | - | - | |||||||||
| Luisa Ingargiola, Director | 0 | - | - | |||||||||
| Directors and Executive Officers as a Group (Seven Persons) | 3,587,316 | 67.0 | % | 51.1 | % | |||||||
| Other 5% or more Shareholders: | ||||||||||||
| Michel Amyot (8) | 565,231 | 10.9 | % | 8.3 | % | |||||||
| James Stafford | 547,298 | 10.6 | % | 8.0 | % | |||||||
| (1) | Under Rule 13d–3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on September 14, 2020. |
| (2) | The percentage is calculated based on (i) 5,177,677 common shares that were outstanding as of September 14, 2020, (ii) common shares deemed to be beneficially owned by such person or group if the person or group has the right to acquire the common shares within 60 days of the date as of which the information is provided and (iii) where applicable, 1,666,667 common shares sold in this offering (excluding any common shares that may be sold pursuant to the over-allotment option). |
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| (3) | Includes (i) 2,140,506 shares held by 9134-0489 Quebec Inc. and (ii) 11,015 common shares that will be converted simultaneously with the offering from debt held by a subsidiary of 9134-0489 Quebec Inc. using (a) a conversion price that will equal the offering price per common share in this offering, which we assume to be US$9.00, the midpoint of the price range on the cover page of this prospectus and (b) an exchange rate to convert such debt to U.S. dollars of US$1.00:CDN$1.3106, the August 28, 2020 noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York. This entity is jointly owned by Alexandre Mongeon and Patrick Bobby who each have dispositive and voting control over it. |
| (4) | Includes common shares underlying 32,432 options that have vested or will vest within the next 60 days. Includes common 13,240 shares that will be converted simultaneously with the offering from debt using (a) a conversion price that will equal the offering price per common share in this offering, which we assume to be US$9.00, the midpoint of the price range on the cover page of this prospectus and (b) an exchange rate to convert such debt to U.S. dollars of US$1.00:CDN$1.3106, the August 28, 2020 noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York. |
| (5) | Includes common shares underlying 32,432 options that have vested or will vest within the next 60 days. Includes 11,824 common shares that will be converted simultaneously with the offering from debt using (a) conversion price that will equal the offering price per common share in this offering, which we assume to be US$9.00, the midpoint of the price range on the cover page of this prospectus and (b) an exchange rate to convert such debt to U.S. dollars of US$1.00:CDN$1.3106, the August 28, 2020 noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York. |
| (6) | 205,795 of these shares are held by KPAC Holding Ltd., an entity over which Kulwant Sandher has dispositive and voting control. Also includes common shares underlying 29,729 options that have vested or will vest within the next 60 days. |
| (7) | Includes (i) 1,066,895 shares held by Société de Placements Robert Ghetti Inc., an entity over which Robert Ghetti has dispositive and voting control, (ii) 30,572 common shares that will be converted simultaneously with the offering from debt held by Robert Ghetti and entities over which Robert Ghetti has dispositive and voting control using (a) a conversion price that will equal the offering price per common share in this offering, which we assume to be US$9.00, the midpoint of the price range on the cover page of this prospectus and (b) an exchange rate to convert such debt to U.S. dollars of US$1.00:CDN$1.3106, the August 28, 2020 noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York and (iii) common shares underlying 30,572 options that have vested or will vest within the next 60 days. | |
| (8) | Includes (i) 536,805 shares held by Gestion Toyma Inc., an entity over which Michel Amyot has dispositive and voting control, (ii) 14,912 common shares that will be converted simultaneously with the offering from debt held by Gestion Toyma Inc. using (a) a conversion price that will equal the offering price per common share in this offering, which we assume to be US$9.00, the midpoint of the price range on the cover page of this prospectus and (b) an exchange rate to convert such debt to U.S. dollars of US$1.00: 1.3106, the August 28, 2020 noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York and (iii) 13,514 common shares underlying options held by Michel Amyot that have vested or will vest within the next 60 days. |
The information as to shares beneficially owned, not being within our knowledge, has been furnished by the officers and directors.
As at September 14, 2020, there were 59 holders of record of our common shares, of which there were four record shareholders in the United States who hold approximately 1.1% of our common shares on the date thereof.
In addition to employment and consulting agreements described elsewhere in this prospectus, we have entered into the following transactions with our directors, officers, promoters and shareholders who beneficially own more than 10% of our common shares:
| • | We respectively sold $460,531 and $374,459 of boats, parts, services and other items to EB Rental Ltd. in our 2019 and 2018 fiscal years. Our Chief Executive Officer is an affiliate of EB Rental Ltd., an entity that rents electric boats at the Lido Marina Village in Newport, California. In addition, in the six months ended February 29, 2020, we generated revenue of $66,077 from the sale of parts and boat maintenance with EB Rental Ltd. There was no written agreement for any of these sales.; |
| • | We respectively paid rent to California Electric Boat Company Inc. for the use of our manufacturing space and offices totaling $143,376 and $35,056 in our 2019 and 2018 fiscal years. Our Chief Executive Officer is an affiliate of California Electric Boat Company. The manufacturing space and offices are in two adjacent units each under a separate lease. One lease is for approximately 3,600 square feet, has a monthly rent of approximately $3,000 and expires on June 30, 2024. The other lease is for approximately 8,210 square feet, has a monthly rent of approximately $8,550 and expires on May 31, 2022; |
| • | We advanced California Electric Boat Company Inc. $40,310 and $38,710 in our 2019 and 2018 fiscal years. Our Chief Executive Officer is an affiliate of California Electric Boat Company. The advances were not pursuant to a written agreement and have subsequently been repaid; and |
| • | We have received advances from related parties some of which are current and other of which are non-current. All of these advances to and from related parties are non-interest bearing and have no specified terms of repayment. The following amounts were due to related parties as of February 29, 2020: |
| Non-Current advances from shareholders or indirect shareholders subordinated in favor of the Company’s lender: | ||||
| Alexandre Mongeon | $ | 141,972 | ||
| Patrick Bobby | $ | 139,472 | ||
| Robert Ghetti | $ | 64,749 | ||
| Immobilier R. Ghetti Inc. | $ | 16,487 | ||
| Société de Placement Robert Ghetti Inc. | $ | 279,376 | ||
| Gestion Toyma | $ | 151,500 | ||
| Total: | $ | 793,556 | ||
| Current advances from shareholders or indirect shareholders: | ||||
| 9335-1427 Quebec Inc. | $ | 129,932 | ||
| Gestion Toyma Inc. | $ | 24,394 | ||
| Alexandre Mongeon | $ | 14,201 | ||
| Total: | 168,527 |
| Due to shareholders and included in Trade and other payables | ||||
| Alexandre Mongeon | $ | 39,668 | ||
| Patrick Bobby | $ | 5,091 | ||
| Total: | $ | 44,759 |
| • | We have entered into written subscription agreements with the holders of $962,083 of the related-party debt listed above (representing the current and non-current advances) to convert that related-party debt into our common shares simultaneous with this offering. The related-party debt will convert at the per share offering price in this offering. Using a US$9.00 per common share offering price, the midpoint of the price range on the cover page of this prospectus and a U.S. dollar to Canadian dollar exchange rate of US$1.00:CDN$1.3016, the August 28, 2020 noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York, the related-party debt would convert into 82,128 common shares; |
| • | In August 2020, we entered into a subscription agreement, in a form that we have used for most of our private placements in 2020, with James Stafford for the sale of 547,298 common shares at a price per share of $3.70 in exchange for $2,025,000. As a result of this sale, Mr. Stafford beneficially owns approximately 10.8% of our common shares. Prior to entering into the subscription agreement, we had issued Mr. Stafford 12,162 common shares as a finder’s fee in connection with other private placements made in 2020. |
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We have not entered into any material agreements other than in the ordinary course of business and other than those described in this prospectus.
There is currently no market for our common shares. We have applied to have our common shares listed on the Nasdaq Capital Market under the symbol “VMAR”. The offering that we are conducting with the prospectus will not close unless the Nasdaq Capital Market has approved our common shares for listing.
SECURITIES ELIGIBLE FOR FUTURE SALE
Common Shares
Upon completion of this offering at an assumed offering price of US$9.00 per common share, we will have 6,844,344 common shares outstanding, not including (i) shares underlying underwriter’s warrants (please see below “Underwriter’s Warrants”), (ii) any shares that may be sold pursuant to the underwriter’s over-allotment option and (iii) any shares underlying warrants that may be sold pursuant to the underwriter’s over-allotment option. All of the common shares sold in this offering will be freely transferable by persons other than by our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of our common share in the public market could adversely affect prevailing market prices of our common share. Prior to this offering, there has been no public market for our common shares. We have applied to list the common shares on the Nasdaq Capital Market under the symbol “VMAR”.
Additionally, we had 524,324 options outstanding as of September 14, 2020. We had no warrants outstanding as of September 14, 2020.
Underwriter’s Warrants
In addition to cash compensation, we have agreed to issue to the underwriter warrants to purchase up to a total of 91,667 common shares (equal to 5.5% of the common shares sold in this offering, or 105,417 common shares if the underwriter exercises its option in full), at an exercise price equal to US$11.25 per common share assuming an offering price of US$9.00 per common share. The warrants will be exercisable from time to time, in whole or in part, from six months after the effective date of the registration statement of which this prospectus forms a part until five years from the effective date of the registration statement. The warrants are exercisable at a per share price equal to 125% of the per share offering price. The warrants are also exercisable on a cashless basis. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriter (or permitted assignees under FINRA Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the offering, except as provided for in FINRA Conduct Rule 5110(g)(2). The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, subdivisions, combinations, reclassification, merger or consolidation.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
| · | 1% of the number of common shares then outstanding, which will equal 68,443 shares immediately after our initial public offering, or |
| · | the average weekly trading volume of the common shares during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
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Rule 701
In general, under Rule 701 as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement in a transaction before the effective date of our initial public offering that was completed in reliance on Rule 701 and complied with the requirements of Rule 701 will be eligible to resell such shares 90 days after the date of this prospectus in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.
ARTICLES OF INCORPORATION OF OUR COMPANY
Our company was incorporated under the laws of the Province of Québec, Canada on August 27, 2012 under the name Riopel Marine, Inc. We amended our Articles on April 22, 2020 to change our name to Vision Marine Technologies Inc. The following is a description of certain sections of our Articles of Incorporation as amended and as modified by our Bylaws.
Remuneration of Directors
Our directors are entitled to the remuneration for acting as directors as the directors may from time to time determine. Unless otherwise provided for in a unanimous shareholder’s agreement, the board Directors fixes, from time to time, by resolution, the remuneration of the directors. In addition, the board of directors, may, by resolution, grant special compensation to a director who performs a specific or additional mandate on behalf of the Corporation. Directors also have the right to be reimbursed for travel expenses and all reasonable costs and expenses incurred in the exercise of their duties.
Number of Directors
According to Article 11 of our Internal By-laws, under Section D. Interpretation, the number of directors is indicated in the articles. If the articles provide for a minimum and a maximum number of directors, the board of directors is composed of the fixed number of directors, between these minimum and maximum numbers, determined by resolution of the board of directors, or failing that by shareholder resolution. An amendment to the articles which reduces the number of directors does not end the mandate of the directors in office.
Directors
Our directors are elected each year at the annual shareholder’s meeting. The election of a director is made by plurality of votes; the candidates who collect the greatest number of votes are elected in descending order, up to the number of positions to be filled. Our Articles provide that the Board may, between annual meetings, appoint one or more additional directors to serve until the next annual meeting, but the number of additional directors must not at any time exceed the fixed or maximum number of directors provided for by the articles.
Our By-laws provide that our directors may from time to time on behalf of our company, without shareholder approval:
| ● | Take out loans; |
| ● | Issue, reissue, sell or mortgage its debt securities; |
| ● | Give security for the performance of another person’s obligation; |
| ● | Mortgage all or part of his property, present or future, in order to guarantee the performance of any obligation; |
| ● | Fill vacancies in the directors or the auditor or to appoint additional directors; |
| ● | Appoint the chairman of the Corporation and the chairman of the board of directors, the head of management, the head of operations or the head of finance, and fix their remuneration; |
| ● | Authorize the issue of shares; |
| ● | Approve the transfer of unpaid shares; |
| ● | Declare dividends; |
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| ● | Acquire, in particular by purchase, redemption or exchange, shares issued by the Corporation; |
| ● | Subdivide, redesign or convert shares; |
| ● | Authorize the payment of a commission to a person who purchases shares or other securities in the Corporation, or who undertakes to buy or to have these shares or values purchased; |
| ● | Approve the financial statements presented at annual meetings of shareholders; |
| ● | Adopt the rules of procedure, modify or repeal them; |
| ● | Authorize calls for payments; |
| ● | Authorize the confiscation of shares; |
| ● | Approve an amendment to the articles allowing the series division of a class of unissued shares and establish the designation, rights and restrictions; |
| ● | Approve a simplified merger. |
Authorized Capital
Our Certificate of Incorporation, as amended by our Articles of Amendment, provides that our authorized capital consists of one (1) class of shares, being an unlimited number of common shares without par value, issuable in four series, of which an unlimited number are designated as Voting Common Shares – Series Founder, an unlimited number are designated as Voting Common Shares – Series Investor 1, an unlimited number are designated as Voting Common Shares – Series Investor 2 and an unlimited number are designated as Non-Voting Common Shares.
Rights, Preferences and Restrictions Attaching to Our Shares
Our Voting Common Shares, subject to the Business Corporations Act, are entitled to the following rights, privileges, restrictions and conditions attaching to our Voting Common Shares:
| ● | To vote at every shareholders’ meeting and receive a notice of meeting; each shareholder has one vote per share during the meeting; |
| ● | Voting Common Shares carry the right to receive any dividend; |
| ● | Voting Common Shares have the right to share the remainder of the assets in the event of the liquidation or dissolution of the Corporation. |
Our Non-Voting Common Shares, subject to the Business Corporations Act, are entitled to the following rights, privileges, restrictions and conditions attaching to our Non-Voting Common Shares:
| ● | Non-Voting Common Shares do not carry the right to vote at shareholder meetings or to receive notice of such meetings; |
| ● | Non-Voting Common Shares carry the right to receive any dividend; |
| ● | Non-Voting Common Shares have the right to share the remainder of the assets in the event of the liquidation or dissolution of the Corporation. |
Shareholder Meetings
The Business Corporations Act provides that: (i) the corporation must hold an annual meeting of shareholders; if necessary, it can hold one or more special shareholder’s meetings; (ii) shareholders meeting may be held in Quebec, in any place chosen by the board of directors, or may be held at a location outside Quebec if the articles allow it, or if all the shareholders entitled to vote agree; (iii) an annual meeting must be held within 18 months of the incorporation of the Corporation and, thereafter, within 15 months of the previous annual meeting; (iv) the board of directors may at any time call a special meeting; (v) shareholders holding at least 10% of the shares giving the right to vote at the special meeting requested to be convened may, by means of a notice, request the board of directors to convene a special meeting for the purposes set out in their request.
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Pursuant to Article 69 of our By-laws, a shareholder or proxy holder who is entitled to participate in a meeting of shareholders may do so by any means, if all shareholders and proxy holders participating in the meeting are able to communicate with each other; each shareholder participating by such means shall be deemed to be present at the meeting.
LIMITATIONS ON RIGHTS OF NON-CANADIANS
Vision Marine Technologies Inc. is incorporated pursuant to the laws of the Province of Quebec, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See “Certain Canadian Federal Income Tax Considerations For Non-Canadian Holders,” below.
There is no limitation imposed by Canadian law or by the charter or other constituent documents of our company on the right of a non-resident to hold or vote common shares of our company. However, the Investment Canada Act (Canada) (the “Investment Act”) has rules regarding certain acquisitions of shares by non-residents, along with other requirements under that legislation.
The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire common shares of our company. The discussion is general only; it is not a substitute for independent legal advice from an investor’s own advisor; and it does not anticipate statutory or regulatory amendments.
The Investment Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures (each an “entity”). Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Act, the Investment Act generally prohibits implementation of the investment unless, after review, the Minister of Innovation, Science and Economic Development, is satisfied that the investment is likely to be of net benefit to Canada.
A non-Canadian would acquire control of our company for the purposes of the Investment Act through the acquisition of common shares if the non-Canadian acquired a majority of the common shares of our company.
Further, the acquisition of less than a majority but one-third or more of the common shares of our company would be presumed to be an acquisition of control of our company unless it could be established that, on the acquisition, our company was not controlled in fact by the acquirer through the ownership of common shares.
For a direct acquisition that would result in an acquisition of control of our company, subject to the exception for “WTO-investors” that are controlled by persons who are resident in World Trade Organization (“WTO”) member nations, a proposed investment would be reviewable where the value of the acquired assets is $5 million or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada’s cultural heritage or national identity, where the value of the acquired assets is less than $5 million.
For a proposed indirect acquisition that by an investor other than a so-called WTO investor that would result in an acquisition of control of our company through the acquisition of a non-Canadian parent entity, the investment would be reviewable where the value of the assets of the entity carrying on the Canadian business, and of all other entities in Canada, the control of which is acquired, directly or indirectly is $50 million or more. The threshold is reduced to $5 million or more for a direct acquisition of control of the company by a non-WTO investor.
In the case of a direct acquisition by or from a “WTO investor”, the threshold is significantly higher. An investment in common shares of our company by a WTO investor would be reviewable only if it was an investment to acquire control of the company and the enterprise value of the assets of the company was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular year. This amount is currently $1.075 billion (unless the WTO member is party to one of a list of certain free trade agreements, in which case the amount is currently $1.613 billion); beginning January 1, 2019, both thresholds will be adjusted annually by a GDP (Gross Domestic Product) based index.
The higher WTO threshold for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carrying on a “cultural business”. The acquisition of a Canadian business that is a “cultural business” is subject to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.
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In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister of Innovation, Science and Economic Development has reasonable grounds to believe that an investment by a non-Canadian “could be injurious to national security,” the Minister of Innovation, Science and Economic Development may send the non-Canadian a notice indicating that an order for review of the investment may be made. The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Act. To date, there is neither legislation nor guidelines published, or anticipated to be published, on the meaning of “injurious to national security.” Discussions with government officials suggest that very few investment proposals will cause a review under these new sections. In 2016, the government of Canada released a set of guidelines for the national security review process. The guidelines state that, in assessing a proposed investment under the national security provisions of the Investment Act, the nature of the asset or business activities and the parties, including the potential for third party influence, involved in the transaction will be considered. The guidelines also provide a list of factors that may be taken into account to determine whether a review of an investment on national security grounds will be conducted.
Certain transactions, except those to which the national security provisions of the Investment Act may apply, relating to common shares of our company are exempt from the Investment Act, including
| (a) | the acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities, |
| (b) | the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions on the Investment Act, and |
| (c) | the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of our company, through the ownership of common shares, remained unchanged. |
MATERIAL INCOME TAX INFORMATION
Material Canadian Federal Income Tax Considerations for Non-Canadian Holders
The following summary describes, as of the date hereof, the material Canadian federal income tax considerations generally applicable to a purchaser who acquires, as a beneficial owner, common shares pursuant to this offering and who, at all relevant times, for the purposes of the application of the Income Tax Act (Canada) and the Income Tax Regulations, or, collectively, the Canadian Tax Act, (1) is not, and is not deemed to be, resident in Canada for purposes of the Canadian Tax Act and any applicable income tax treaty or convention; (2) deals at arm’s length with us; (3) is not affiliated with us; (4) does not use or hold, and is not deemed to use or hold, common shares in a business carried on in Canada; (5) has not entered into, with respect to the common shares, a “derivative forward agreement” as that term is defined in the Canadian Tax Act and (6) holds the common shares as capital property (a “Non-Canadian Holder”). Special rules, which are not discussed in this summary, may apply to a Non-Canadian Holder that is an insurer carrying on an insurance business in Canada and elsewhere.
This summary is based on the current provisions of the Canadian Tax Act, and an understanding of the current administrative policies of the Canada Revenue Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Canadian Tax Act and the Canada-United States Tax Convention (1980), as amended, or the Canada-U.S. Tax Treaty, publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof the (“Proposed Amendments”) and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policy or assessing practice whether by legislative, regulatory, administrative or judicial action nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may differ from those discussed herein.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Non-Canadian Holder and no representation with respect to the Canadian federal income tax consequences to any particular Non-Canadian Holder or prospective Non-Canadian Holder is made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, prospective purchasers should consult with their own tax advisors for advice with respect to their own particular circumstances.
Generally, for purposes of the Canadian Tax Act, all amounts relating to the acquisition, holding or disposition of the common shares must be converted into Canadian dollars based on the exchange rates as determined in accordance with the Canadian Tax Act. The amount of any dividends required to be included in the income of, and capital gains or capital losses realized by, a Non-Canadian Holder may be affected by fluctuations in the Canadian exchange rate.
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Dividends
Dividends paid or credited on the common shares or deemed to be paid or credited on the common shares to a Non-Canadian Holder will be subject to Canadian withholding tax at the rate of 25%, subject to any reduction in the rate of withholding to which the Non-Canadian Holder is entitled under any applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident. For example, under the Canada-U.S. Tax Treaty, where dividends on the common shares are considered to be paid to or derived by a Non-Canadian Holder that is a beneficial owner of the dividends and is a U.S. resident for the purposes of, and is entitled to benefits of, the Canada-U.S. Tax Treaty, the applicable rate of Canadian withholding tax is generally reduced to 15%.
Dispositions
A Non-Canadian Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition or deemed disposition of a Common Share, unless the common shares are “taxable Canadian property” to the Non-Canadian Holder for purposes of the Canadian Tax Act and the Non-Canadian Holder is not entitled to relief under an applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident.
Generally, the common shares will not constitute “taxable Canadian property” to a Non-Canadian Holder at a particular time provided that the common shares are listed at that time on a “designated stock exchange” (as defined in the Canadian Tax Act), which includes the Nasdaq, unless at any particular time during the 60-month period that ends at that time (i) one or any combination of (a) the Non-Canadian Holder, (b) persons with whom the Non-Canadian Holder does not deal at arm’s length, and (c) partnerships in which the Non-Canadian Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships, has owned 25% or more of the issued shares of any class or series of our capital stock, and (ii) more than 50% of the fair market value of the common shares was derived, directly or indirectly, from one or any combination of: (i) real or immoveable property situated in Canada, (ii) “Canadian resource properties” (as defined in the Canadian Tax Act), (iii) “timber resource properties” (as defined in the Canadian Tax Act), and (iv) options in respect of, or interests in, or for civil law rights in, property in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain circumstances set out in the Canadian Tax Act, common shares could be deemed to be “taxable Canadian property.” Non-Canadian Holders whose common shares may constitute “taxable Canadian property” should consult their own tax advisors.
Material United States Federal Income Tax Considerations
The following is a general summary of material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from the acquisition, ownership and disposition of our securities. This summary applies only to U.S. Holders that acquire securities pursuant to this prospectus, hold our common shares as capital assets within the meaning of Section 1221 of the Code (as defined below) and have the U.S. dollar as their functional currency.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition, ownership and disposition of our common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. In addition, this summary does not address the U.S. federal alternative minimum, net investment income, U.S. federal estate and gift, U.S. Medicare contribution, U.S. state and local, or non-U.S. tax consequences of the acquisition, ownership or disposition of our common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local and non-U.S. tax consequences of the acquisition, ownership and disposition of our common shares.
No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership or disposition of our common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, or contrary to, any position taken in this summary. In addition, because the authorities upon which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
The following discussion does not describe all the tax consequences that may be relevant to any particular U.S. Holders, including those subject to special tax situations such as:
| • | banks and certain other financial institutions; | ||
| • | regulated investment companies; | ||
| • | real estate investment trusts; |
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| • | insurance companies; | ||
| • | broker-dealers; | ||
| • | traders that elect to mark-to-market; | ||
| • | tax-exempt entities or governmental organizations; | ||
| • | individual retirement accounts or other tax deferred accounts; | ||
| • | persons deemed to sell our common shares under the constructive sale provisions of the Code; | ||
| • | persons liable for alternative minimum tax or the Medicare contribution tax on net investment income; | ||
| • | U.S. expatriates; | ||
| • | persons holding our common shares as part of a straddle, hedging, constructive sale, conversion or integrated transaction; | ||
| • | persons that directly, indirectly, or constructively own 10% or more of the total combined voting power or total value of our common shares; | ||
| • | persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; | ||
| • | persons who acquired our common shares pursuant to the exercise of any employee share option or otherwise as compensation; | ||
| • | persons subject to special tax accounting rules as a result of any item of gross income with respect to our common shares being taken into account in an applicable financial statement; or | ||
| • | persons holding our common shares through partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes. |
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PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF OUR COMMON SHARES.
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that, for U.S. federal income tax purposes, is or is treated as:
| • | an individual who is a citizen or resident of the United States; |
| • | a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| • | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| • | a trust that (1) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
The tax treatment of a partner (or other owner) in an entity or arrangement treated as a partnership for U.S. federal income tax purposes that holds our common shares, and such entity or arrangement, generally will depend on such partner’s (or other owner’s) status and the activities of such entity or arrangement. A U.S. Holder that is a partner (or other owner) in such an entity or arrangement should consult its tax advisor.
Dividends and Other Distributions on Our Common Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us with respect to our common shares (including the amount of non-U.S. taxes withheld therefrom, if any) generally will be includible as dividend income in a U.S. Holder’s gross income in the year received, to the extent such distributions are paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, a U.S. Holder should expect all cash distributions will be reported as dividends for U.S. federal income tax purposes. Such dividends will not be eligible for the dividends-received deduction allowed to U.S. corporations with respect to dividends received from other U.S. corporations.
Dividends received by certain non-corporate U.S. Holders (including individuals) may be “qualified dividend income,” which is taxed at the lower applicable capital gains rate, provided that (1) our common shares are readily tradable on an established securities market in the United States, (2) we are neither a passive foreign investment company (as discussed below) nor treated as such with respect to the U.S. Holder for our taxable year in which the dividend is paid or the preceding taxable year, (3) the U.S. Holder satisfies certain holding period requirements, and (4) the U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. Under IRS authority, common shares generally are considered for purposes of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq Capital Market, as our common shares are expected to be. U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for dividends paid with respect to our common shares.
The amount of any distribution paid in foreign currency will be equal to the U.S. dollar value of such currency, translated at the spot rate of exchange on the date such distribution is actually or constructively received by the U.S. Holder, regardless of whether the payment is in fact converted into U.S. dollars at that time. A U.S. Holder generally should not recognize any foreign currency gain or loss in respect of such distribution if such foreign currency is converted into U.S. dollars on the date received by the U.S. Holder. Any further gain or loss on a subsequent conversion or other disposition of the currency for a different U.S. dollar amount will be U.S. source ordinary income or loss.
Dividends on our common shares generally will constitute foreign source income for foreign tax credit limitation purposes. Subject to certain complex conditions and limitations, non-U.S. taxes withheld, if any, on any distributions on our common shares may be eligible for credit against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our common shares will generally constitute “passive category income.” The U.S. federal income tax rules relating to foreign tax credits are complex, and U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.
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Sale or Other Taxable Disposition of Our Common Shares
Subject to the passive foreign investment company rules discussed below, upon a sale or other taxable disposition of our common shares, a U.S. Holder will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in such common shares. Any such gain or loss generally will be treated as long-term capital gain or loss if the U.S. Holder’s holding period in common shares exceeds one year. Non-corporate U.S. Holders (including individuals) generally will be subject to U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of capital losses is subject to significant limitations. Gain or loss, if any, recognized by a U.S. Holder on the sale or other taxable disposition of our common shares generally will be treated as U.S. source gain or loss for U.S. foreign tax credit limitation purposes.
If the consideration received upon the sale or other disposition of our common shares is paid in foreign currency, the amount realized will be the U.S. dollar value of the payment received, translated at the spot rate of exchange on the date of the sale or other taxable disposition. If our common shares are treated as traded on an established securities market, a cash basis U.S. Holder or an accrual basis U.S. Holder who has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the IRS) will determine the U.S. dollar value of the amount realized in foreign currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If our common shares are not treated as traded on an established securities market, or the relevant U.S. Holder is an accrual basis taxpayer that does not make the special election, such U.S. Holder will recognize foreign currency gain or loss to the extent attributable to any difference between the U.S. dollar amount realized on the date of sale or disposition (as determined above) and the U.S. dollar value of the currency received translated at the spot rate on the settlement date.
A U.S. Holder’s initial U.S. federal income tax basis in our common shares generally will equal the cost of such common shares. If a U.S. Holder used foreign currency to purchase the common shares, the cost of the common shares will be the U.S. dollar value of the foreign currency purchase price on the date of purchase, translated at the spot rate of exchange on that date. If our common shares are treated as traded on an established securities market and the relevant U.S. Holder is either a cash basis taxpayer or an accrual basis taxpayer who has made the special election described above, the U.S. Holder will determine the U.S. dollar value of the cost of such common shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
Passive Foreign Investment Company Considerations
We will be classified as a passive foreign investment company (a “PFIC”) for any taxable year if either: (1) at least 75% of our gross income is “passive income” for purposes of the PFIC rules or (2) at least 50% of the value of our assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Under the PFIC rules, if we were considered a PFIC at any time that a U.S. Holder holds our common shares, we would continue to be treated as a PFIC with respect to such U.S. Holder unless (1) we cease to qualify as a PFIC under the income and asset tests discussed in the prior paragraph and (2) the U.S. Holder has made a “deemed sale” election under the PFIC rules.
Based on the anticipated market price of our common shares in the offering and the current and anticipated composition of our income, assets and operations, we do not expect to be treated as a PFIC for the current taxable year or in the foreseeable future. This is a factual determination, however, that depends on, among other things, the composition of our income and assets and the market value of our shares and assets from time to time, and thus the determination can only be made annually after the close of each taxable year. Therefore, there can be no assurance that we will not be classified as a PFIC for the current taxable year or for any future taxable year.
If we are considered a PFIC at any time that a U.S. Holder holds our common shares, any gain recognized by a U.S. Holder on a sale or other disposition of our common shares, as well as the amount of any “excess distribution” (defined below) received by the U.S. Holder, would be allocated ratably over the U.S. Holder’s holding period for our common shares. The amounts allocated to the taxable year of the sale or other disposition (or the taxable year of receipt, in the case of an excess distribution) and to any year prior to the year in which we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed. For the purposes of these rules, an excess distribution is the amount by which any distribution received by a U.S. Holder on its common shares exceeds 125% of the average of the annual distributions on our common shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter.
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Certain elections may be available that would result in alternative treatments (such as qualified electing fund treatment or mark-to-market treatment) of our common shares if we are considered a PFIC. We do not intend to provide the information necessary for U.S. Holders of our common shares to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for an investment in a PFIC described above. If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, the U.S. Holder will be deemed to own shares in any of our subsidiaries that are also PFICs. However, an election for mark-to-market treatment would likely not be available with respect to any such subsidiaries.
If we are considered a PFIC, a U.S. Holder will also be subject to annual information reporting requirements. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an investment in our common shares.
U.S. Information Reporting and Backup Withholding
Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to information reporting to the IRS and possible U.S. backup withholding. A U.S. Holder may be eligible for an exemption from backup withholding if the U.S. Holder furnishes a correct taxpayer identification number and makes any other required certification or is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status may be required to provide such certification on IRS Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability, and such U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing an appropriate claim for refund with the IRS and furnishing any required information.
Additional Information Reporting Requirements
A U.S. Holder that acquires common shares generally will be required to file Form 926 with the IRS if (1) immediately after the acquisition such U.S. Holder, directly or indirectly, owns at least 10% of the common shares, or (2) the amount of cash transferred in exchange for common shares during the 12-month period ending on the date of the acquisition exceeds US$100,000. Significant penalties may apply for failing to satisfy these filing requirements. U.S. Holders are urged to contact their tax advisors regarding these filing requirements.
Certain U.S. Holders who are individuals (and certain entities) that hold an interest in “specified foreign financial assets” (which may include our common shares) are required to report information relating to such assets, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain financial institutions). Penalties can apply if U.S. Holders fail to satisfy such reporting requirements. U.S. Holders should consult their tax advisors regarding the applicability of these requirements to their acquisition and ownership of our common shares.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE IMPORTANT TO YOU. EACH PROSPECTIVE PURCHASER SHOULD CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR COMMON SHARES UNDER THE INVESTOR’S OWN CIRCUMSTANCES.
We have entered into an underwriting agreement, dated, 2020, with ThinkEquity, a division of Fordham Financial Management, Inc., acting as the sole book-running manager (sometimes referred to as the “Representative”). Subject to the terms and conditions of the underwriting agreement, the underwriter named below has agreed to purchase, and we have agreed to sell to it, the number of common shares at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this prospectus and as indicated below:
| Name of Underwriter | Number of common shares | |
| ThinkEquity, a division of Fordham Financial Management, Inc. | ||
| Total |
The underwriting agreement provides that the obligations of the underwriter to pay for and accept delivery of the shares of common shares offered by this prospectus are subject to various conditions and representations and warranties, including the approval of certain legal matters by its counsel and other conditions specified in the underwriting agreement. The common shares are offered by the underwriter, subject to prior sale, when, as and if issued to and accepted by it. The underwriter reserves the right to withdraw, cancel or modify the offer to the public and to reject orders in whole or in part. The underwriter is obligated to take and pay for all of the common shares offered by this prospectus if any such shares are taken.
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We have agreed to indemnify the underwriter and certain of its affiliates and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), among others, against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriter may be required to make in respect thereof.
Discounts and Commissions
The underwriter proposes to offer the common shares directly to the public at the public offering price set forth on the cover page of this prospectus. After the offering to the public, the offering price and other selling terms may be changed by the underwriter without changing the proceeds we will receive from the underwriter.
The following table summarizes the public offering price, underwriting commissions and proceeds before expenses to us. The underwriting commissions are 7.0% of the public offering price. We have also agreed to pay a non-accountable expense allowance to the underwriter equal to 1% of the gross proceeds received at the closing of the offering.
| Per Share | Total Without Over-Allotment Option |
Total With
Full Over-Allotment Option |
||||||||||
| Public offering price | US$ | US$ | US$ | |||||||||
| Underwriting discount (7%) | US$ | US$ | US$ | |||||||||
| Non-accountable expense allowance (1%) | US$ | US$ | US$ | |||||||||
| Proceeds, before expenses, to us | US$ | US$ | US$ | |||||||||
We have also agreed to pay certain of the Representative’s expenses relating to the offering, including the fees and expenses of the Representative’s legal counsel and for the underwriter’s use of Ipreo’s book-building, prospectus tracking and compliance software for this offering, totaling US$192,500.
Our total estimated expenses of the offering, including the non-accountable expense allowance, registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, are approximately US$600,000 .
Over-Allotment Option
We have granted a 45-day option to the Representative to purchase up to 250,000 additional common shares at the public offering price from us solely to cover over-allotments, if any, less underwriting discounts and commissions.
Representative’s Warrants
Upon closing of this offering, we have agreed to issue to the Representative as compensation warrants to purchase a number of shares of common stock equal to 5.5% of the aggregate number of common shares of common stock sold in this offering (the “Representative’s Warrants”). The Representative’s Warrants will be exercisable at a per share exercise price equal to 125% of the public offering price per share in this offering. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in part, during the four- and one-half year period commencing 180 days from the effective date of the registration statement of which this prospectus is a part.
The Representative’s Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Representative (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the registration statement. In addition, the warrants provide for registration rights upon request, in certain cases. The one-time demand registration right provided will not be greater than five years from the effective date of the registration statement in compliance with FINRA Rule 5110(f)(2)(G)(iv). The unlimited piggyback registration right provided will not be greater than seven years from the effective date of the registration statement in compliance with FINRA Rule 5110(f)(2)(G)(v). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
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Discretionary Accounts
The underwriter does not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to “lock-up” agreements, we, our executive officers and directors, and our stockholders, have agreed, without the prior written consent of the Representative, not to directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of (or enter into any transaction or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) our common shares, enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of our common shares, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common shares or securities convertible into or exercisable or exchangeable for common shares or any other of our securities or publicly disclose the intention to do any of the foregoing, subject to customary exceptions, for a period of 180 days from the date of this prospectus.
Right of First Refusal
We have granted the Representative a right of first refusal, for a period of twenty-four (24) months from the closing of the offering, to act as sole and exclusive investment banker, book-runner, financial advisor, underwriter and/or placement agent, at the underwriter’s sole and exclusive discretion, for each and every future public and private equity and debt offering, including all of our equity linked financings (each, a “Subject Transaction”), or any successor (or any of our subsidiaries), on terms and conditions customary to the Representative for such Subject Transactions.
Nasdaq Capital Market
We have applied to have our common shares listed on the Nasdaq Capital Market under the symbol “VMAR”. Our application might not be approved and the consummation of this offering is contingent upon such approval. There is no established public trading market for the common shares, and such a market might never develop.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate the offering of our securities, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. In connection with the offering, the underwriter may purchase and sell our securities in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriter of a greater number of shares of securities than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriter’s option to purchase additional shares of securities in the offering. The underwriter may close out any covered short position by either exercising the over-allotment option to purchase shares or purchasing shares in the open market. In determining the source of shares of securities to close out the covered short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option to purchase shares. “Naked” short sales are sales in excess of the over-allotment option to purchase shares. The underwriter must close out any naked short position by purchasing securities in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of our securities in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of securities made by the underwriter in the open market before the completion of the offering.
Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As result, the price of our securities may be higher than the price that might otherwise exist in the open market.
The underwriter makes no representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our securities. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by the underwriter or selling group members, if any, participating in the offering. The underwriter may agree to allocate a number of shares of securities to underwriter and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriter and selling group members that may make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriter’s websites and any information contained in any other website maintained by the underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part.
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Other Relationships
From time to time, the underwriter and/or its affiliates may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they will receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with the underwriter or any of its affiliates for any further services.
Pricing of the Offering
The public offering price was determined by negotiations between us and the Representative. Among the factors considered in determining the public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours. Neither we nor the underwriter can assure investors that an active trading market for the shares will develop or that, after the offering, the shares will trade in the public market at or above the public offering price.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriter that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to our Company.
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In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
Hong Kong
Neither the information in this document nor any other document relating to the offer has been delivered for registration to the Registrar of Companies in Hong Kong, and its contents have not been reviewed or approved by any regulatory authority in Hong Kong, nor have we been authorized by the Securities and Futures Commission in Hong Kong. This document does not constitute an offer or invitation to the public in Hong Kong to acquire shares. Accordingly, unless permitted by the securities laws of Hong Kong, no person may issue or have in its possession for the purpose of issue, this document or any advertisement, invitation or document relating to the shares, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong other than in relation to shares which are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” (as such term is defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”) and the subsidiary legislation made thereunder) or in circumstances which do not result in this document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance of Hong Kong (Cap. 32 of the Laws of Hong Kong) (the “CO”) or which do not constitute an offer or an invitation to the public for the purposes of the SFO or the CO. The offer of the shares is personal to the person to whom this document has been delivered by or on behalf of our company, and a subscription for shares will only be accepted from such person. No person to whom a copy of this document is issued may issue, circulate or distribute this document in Hong Kong or make or give a copy of this document to any other person. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. No document may be distributed, published or reproduced (in whole or in part), disclosed by or to any other person in Hong Kong or to any person to whom the offer of sale of the shares would be a breach of the CO or SFO.
EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding placement discounts and commissions, the underwriter’s non-accountable expenses and the underwriter’s accountable expenses, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the FINRA filing fee and the Nasdaq Capital Market listing fee, all amounts are estimates.
| Securities and Exchange Commission Registration Fee | US$ | 2,513 | ||
| Nasdaq Capital Market Listing Fee | US$ | 48,000 | ||
| FINRA | US$ | 2,905 | ||
| Legal Fees and Expenses | US$ | 154,113 | ||
| Accounting Fees and Expenses | US$ | 20,000 | ||
| Printing and Engraving Expenses | US$ | 5,000 | ||
| Miscellaneous Expenses | US$ | 25,000 | ||
| Total Expenses | US$ | 257,531 |
Ortoli Rosenstadt LLP is acting as counsel to our company regarding U.S. securities law matters. The current address of Ortoli Rosenstadt LLP is 501 Madison Avenue, 14th Floor, New York, NY 10022. Renno & Co. is acting as our Canadian counsel. The current address of Renno & Co. is Suite 400, 3 Place Ville Marie, Montreal, Québec, H3B 2E3, Canada.
Dentons US LLP, New York, New York is acting as counsel to the underwriter.
The financial statements of Vision Marine Technologies Inc. as of August 31, 2019 and August 31, 2018 and for the years respectively then ended included in this prospectus and registration statement have been so included in reliance on the report of BDO Canada LLP, an independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. BDO Canada LLP has offices at 1000 De La Gauchetière Street West, Suite 200, Montréal, Québec H3B 4W5, Canada. Their telephone number is 514-931-0841.
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INTERESTS OF EXPERTS AND COUNSEL
None of the named experts or legal counsel was employed on a contingent basis, owns an amount of shares in our company which is material to that person, or has a material, direct or indirect economic interest in our company or that depends on the success of the offering.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed 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.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a corporation organized under the laws of Canada, and all of our directors and officers, as well as the Canadian independent registered chartered accountants named in the “Experts” section of this prospectus, reside outside of the United States. Service of process upon such persons may be difficult or impossible to effect within the United States. Furthermore, because a substantial portion of our assets, and substantially all the assets of our directors and officers and the Canadian experts named herein, are located outside of the United States, any judgment obtained in the United States, including a judgment based upon the civil liability provisions of United States federal securities laws, against us or any of such persons may not be collectible within the United States.
In addition, there is doubt as to the applicability of the civil liability provisions of United States federal securities law to original actions instituted in Canada. It may be difficult for an investor, or any other person or entity, to assert United States securities laws claims in original actions instituted in Canada. However, subject to certain time limitations, a foreign civil judgment, including a United States court judgment based upon the civil liability provisions of United States federal securities laws, may be enforced by a Canadian court, provided that:
| • | the judgment is enforceable in the jurisdiction in which it was given; |
| • | the judgment was obtained after due process before a court of competent jurisdiction that recognizes and enforces similar judgments of Canadian courts, and the court had authority according to the rules of private international law currently prevailing in Canada; |
| • | adequate service of process was effected and the defendant had a reasonable opportunity to be heard; |
| • | the judgment is not contrary to the law, public policy, security or sovereignty of Canada and its enforcement is not contrary to the laws governing enforcement of judgments; |
| • | the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; |
| • | the judgment is no longer appealable; and |
| • | an action between the same parties in the same matter is not pending in any Canadian court at the time the lawsuit is instituted in the foreign court. |
Foreign judgments enforced by Canadian courts generally will be payable in Canadian dollars. A Canadian court hearing an action to recover an amount in a non-Canadian currency will render judgment for the equivalent amount in Canadian currency.
The name and address of our agent for service of process in the United States is Corporation Service Company, 251 Little Falls Road, Wilmington, DE 19808.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the common shares offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits thereto, to which reference is hereby made. With respect to each contract, agreement or other document filed as an exhibit to the registration statement, reference is made to such exhibit for a more complete description of the matter involved. The registration statement and the exhibits thereto filed by us with the SEC may be inspected at the public reference facility of the SEC listed below.
The registration statement, reports and other information filed or to be filed with the SEC by us can be inspected and copied at the public reference facilities maintained by the SEC at 100 F. Street NW, Washington, D.C. 20549. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
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We are subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements are filing reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial information.
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| Table of Contents | |
| Annual Financial Statements for the Year Ended August 31, 2019 | |
| Auditor's report | F-1 |
| Statements of Financial Position | F-2 |
| Statements of Changes in Deficiency | F-3 |
| Statements of Comprehensive Income | F-4 |
| Statements of Cash Flows | F-5 |
| Notes to Financial Statements | F-6 |
| Amended Condensed Interim Financial Statements for the Six-Month Period Ended February 29, 2020 and February 28, 2019 | |
| Amended Condensed Interim Statements of Financial Position | F-30 |
| Amended Condensed Interim Statements of Changes in Deficiency | F-31 |
| Amended Condensed Interim Statements of Comprehensive Income | F-32 |
| Amended Condensed Interim Statements of Cash Flows | F-33 |
| Notes to Amended Condensed Interim Financial Statements | F-34 |
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 |
Tel: 514-931-0841 | BDO Canada s.r.l./S.E.N.C.R.L./LLP | ||||||
| Fax: 514-931-9491 | 1000 De La Gachetière
Street West Suite 200 | |||||||
| www.bdo.ca | Montréal, Québec H3B 4W5 |
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Riopel Marine Inc.
Boisbriand, Québec
Opinion on the Financial Statements
We have audited the accompanying statements of financial position of Riopel Marine Inc. (the “Company”) as of August 31, 2019 and 2018, the related statements of comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at August 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2019.
Montréal, Québec
April 24, 2020
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
| F-1 |
Riopel Marine Inc.
Statements
of Financial Position
As at August 31, 2019 and 2018
| 2019 | 2018 | |||||||
| $ | $ | |||||||
Assets | ||||||||
| Current | ||||||||
| Trade and other receivables (note 6) | 101,784 | 59,248 | ||||||
| Inventories (note 7) | 818,811 | 931,706 | ||||||
| Cash held in trust | 37,500 | - | ||||||
| Prepaid expenses | 8,595 | - | ||||||
| Grants and investment tax credits receivable | 400,079 | 518,960 | ||||||
| Term deposit | - | 68,368 | ||||||
| Total current assets | 1,366,769 | 1,578,282 | ||||||
| Advances to related parties (note 12) | 40,310 | 38,710 | ||||||
| Property and equipment (note 8) | 507,483 | 355,307 | ||||||
| Deferred income taxes (note 17) | - | 20,895 | ||||||
| Total non-current assets | 547,793 | 414,912 | ||||||
| Total assets | 1,914,562 | 1,993,194 | ||||||
Liabilities | ||||||||
| Current | ||||||||
| Bank indebtedness (note 9) | 283,813 | 87,937 | ||||||
| Trade and other payables (note 10) | 376,303 | 472,437 | ||||||
| Contract liabilities (note 11) | 180,072 | 676,070 | ||||||
| Advances from related parties (note 12) | 597,341 | 601,282 | ||||||
| Current portion of long-term debt (note 13) | 17,628 | 52,552 | ||||||
| Current portion of obligation under finance lease (note 14) | 4,377 | - | ||||||
| Total current liabilities | 1,459,534 | 1,890,278 | ||||||
| Non-current | ||||||||
| Advances from related parties (note 12) | 452,723 | 444,732 | ||||||
| Long-term debt (note 13) | 125,862 | 60,977 | ||||||
| Finance lease (note 14) | 3,839 | - | ||||||
| Deferred income taxes (note 17) | 4,906 | - | ||||||
| Total non-current liabilities | 587,330 | 505,709 | ||||||
| Total liabilities | 2,046,864 | 2,395,987 | ||||||
| Commitments (note 15) | ||||||||
| Shareholders' deficiency | ||||||||
| Capital stock (note 16) | 525 | 600 | ||||||
| Capital stock to be issued (note 16) | 37,500 | - | ||||||
| Deficit | (170,327 | ) | (403,393 | ) | ||||
| (132,302 | ) | (402,793 | ) | |||||
| 1,914,562 | 1,993,194 | |||||||
See accompanying notes
| F-2 |
Riopel Marine Inc.
Statements of Changes in Deficiency
For the Years Ended August 31, 2019 and 2018
| Capital stock | Capital stock to be issued | Deficit | Total | |||||||||||||||||
| units | $ | $ | $ | $ | ||||||||||||||||
| Shareholders' deficiency as at August 31, 2017 | 600 | 600 | - | (217,545 | ) | (216,945 | ) | |||||||||||||
| Net and comprehensive loss | - | - | - | (185,848 | ) | (185,848 | ) | |||||||||||||
| Shareholders' deficiency as at August 31, 2018 | 600 | 600 | - | (403,393 | ) | (402,793 | ) | |||||||||||||
| Net and comprehensive income | - | - | - | 233,066 | 233,066 | |||||||||||||||
| Repurchase of capital stock (note 16) | (75 | ) | (75 | ) | - | - | (75 | ) | ||||||||||||
| Subscriptions to capital stock received in advance of issuance (note 16) | -- | - | 37,500 | - | 37,500 | |||||||||||||||
| Shareholders' deficiency as at August 31, 2019 | 525 | 525 | 37,500 | (170,327 | ) | (132,302 | ) | |||||||||||||
See accompanying notes
| F-3 |
Riopel Marine Inc.
Statements of Comprehensive Income
For the Years Ended August 31, 2019 and 2018
2019 $ | 2018 $ | |||||||
| Revenues (notes 12 and 20) | 2,869,377 | 1,271,566 | ||||||
| Cost of sales (note 21) | 1,584,013 | 769,839 | ||||||
| Gross profit | 1,285,364 | 501,727 | ||||||
| Expenses | ||||||||
| Office salaries and benefits | 372,961 | 105,101 | ||||||
| Rent | 204,596 | 108,137 | ||||||
| Professional fees | 111,653 | 104,294 | ||||||
| Travel and entertainment | 30,199 | 23,295 | ||||||
| Advertising and promotion | 157,276 | 111,198 | ||||||
| Office and general | 69,737 | 55,325 | ||||||
| Impairment of trade and other receivables | 3,729 | - | ||||||
| Interest and bank charges | 18,788 | 17,013 | ||||||
| Interest on long-term debt and finance lease | 15,669 | 22,938 | ||||||
| Foreign exchange | 1,790 | (11,959 | ) | |||||
| Depreciation | 1,513 | 500 | ||||||
| 987,911 | 535,842 | |||||||
| Earnings (loss) before income taxes | 297,453 | (34,115 | ) | |||||
| Income taxes | ||||||||
| Current | 38,586 | 65,023 | ||||||
| Deferred | 25,801 | 86,710 | ||||||
| 64,387 | 151,733 | |||||||
| Net and comprehensive income (loss) | 233,066 | (185,848 | ) | |||||
| Weighted average shares outstanding | 527 | 600 | ||||||
| Basic and diluted income (loss) per share | 485 | (203 | ) | |||||
See accompanying notes
| F-4 |
Riopel Marine Inc.
For the Years Ended August 31, 2019 and 2018
2019 $ | 2018 $ | |||||||
| Operating activities | ||||||||
| Net and comprehensive income (loss) | 233,066 | (185,848 | ) | |||||
| Depreciation | 35,109 | 30,371 | ||||||
| Accretion on long-term debt | 5,143 | 9,309 | ||||||
| Deferred income taxes | 25,801 | 86,710 | ||||||
| 299,119 | (59,458 | ) | ||||||
| Net change in non-cash working capital items Trade and other receivables | (42,536 | ) | (23,414 | ) | ||||
| Inventories | 112,895 | (507,093 | ) | |||||
| Grants and investment tax credits receivable | 118,881 | 4,047 | ||||||
| Prepaid expenses | (8,595 | ) | 5,142 | |||||
| Trade and other payables | (96,134 | ) | 105,253 | |||||
| Contract liabilities | (495,998 | ) | 600,560 | |||||
| (411,487 | ) | 184,495 | ||||||
| (112,368 | ) | 125,037 | ||||||
| Investing activities | ||||||||
| Additions to property and equipment | (175,952 | ) | (1,755 | ) | ||||
| Advances to related parties | (1,600 | ) | (38,252 | ) | ||||
| Term deposit | 68,368 | (68,368 | ) | |||||
| (109,184 | ) | (108,375 | ) | |||||
| Financing activities | ||||||||
| Change in bank indebtedness | 195,876 | (5,795 | ) | |||||
| Increase in long-term debt | 84,818 | - | ||||||
| Repayment of long-term debt | (60,000 | ) | (83,326 | ) | ||||
| Repayment of obligations under finance leases | (3,117 | ) | - | |||||
| Repurchase of capital stock | (75 | ) | - | |||||
| Advances from related parties | 4,050 | 72,459 | ||||||
| Subscriptions to capital stock received in advance of issuance | 37,500 | - | ||||||
| 259,052 | (16,662 | ) | ||||||
| Increase in cash and cash equivalents | 37,500 | - | ||||||
| Cash and cash equivalents - end of year | 37,500 | - | ||||||
| Cash and cash equivalents | ||||||||
| Cash held in trust | 37,500 | - | ||||||
See accompanying notes
| F-5 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 1. | Incorporation and nature of business |
Riopel Marine Inc. (the "Company") was incorporated on August 29, 2012. The principal business of the Company is to manufacture and sell electric boats.
The head office and registered office of the Company is located at 730 Curé-Boivin boulevard, Boisbriand, Quebec, J7G 2A7.
| 2. | Basis of preparation |
Compliance with IFRS
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") in effect on August 31, 2019.
The financial statements were authorized for issued by the Board of Directors on April 24, 2020.
Basis of measurement
These financial statements are stated in Canadian dollars, which is also the Company's functional currency, and were prepared on the historical cost basis.
Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Areas where estimates are significant to the financial statements are disclosed in note 4.
| 3. | Significant accounting policies |
Revenue recognition
Revenue is recognized at an amount that reflects the consideration to which the Company is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Company:
| - | identifies the contract with the customer; |
| - | identifies the performance obligations in the contract; |
| - | determines the transaction price which takes into account estimates of variable consideration and the time value of money; |
| F-6 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 3. | Significant accounting policies (continued) |
Revenue recognition (continued)
| - | allocates the transaction price to separate performance obligations on the basis of relative stand- alone selling price of each distinct good or service to be delivered; and, |
| - | recognizes revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. |
The Company enters into contracts with customers, as well as distributor agreements with specific distributors for the sale of boats.
Sale of boats
Revenue from the sale of boats, including incidental shipping fees, is recognized at the point in time when the customer obtains control of the goods, which is generally at the shipping point. In the context of its distributor agreements, control is passed at the shipping point to the distributor as the Company has no further performance obligations at that point. The amount of consideration the Company receives and the revenue recognized varies with volume rebate programs offered to distributors. When the Company offers retrospective volume rebates, it estimates the expected volume rebates based on an analysis of historical experience, to the extent that it is highly probable that a significant reversal will not occur. The Company adjusts its estimate of revenue related to volume rebates at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed.
The Company recognizes customer deposits on the sale of boats as contract liabilities.
Sales of parts and boat maintenance
Revenue from the sale of parts and related maintenance services are recognized at the point in time when the customer obtains control of the parts and when services are completed.
Commission
Commission income is recognized at the point in time when the underlying transaction is settled.
Other
Other revenue is recognized when it is received or when the right to receive payment is established.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, cash held in trust, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and – for the purpose of the statement of cash flows - bank overdrafts. Bank overdrafts are shown within bank indebtedness in current liabilities on the statement of financial position.
| F-7 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
3. Significant accounting policies (continued)
Trade and other receivables
Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days.
The Company has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit loss, trade receivables have been grouped based on days overdue.
Other receivables are recognized at amortized cost, less any allowance for expected credit loss.
Inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realizable value on a first-in first-out basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes, and appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity. Cost of purchased inventory are determined after deducted rebates and discounts received or receivable.
Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Depreciation is recorded to recognize the cost of assets over their useful lives. The estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
| Methods | Rates and period | |
| Computer equipment | Declining balance method | 55% |
| Machinery and equipment | Declining balance method | 20% |
| Rolling stock | Declining balance method | 30% |
| Moulds | Straight-line method | 25 years |
Any item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales and proceeds and the carrying amount of the asset and is recognized in profit or loss.
Repairs and maintenance costs that do not improve or extend productive life are recognized in profit or loss in the period in which the costs are incurred.
| F-8 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 3. | Significant accounting policies (continued) |
Research and development
Research costs are expensed in the period in which they are incurred. Development costs are capitalized when it probable that the project will be a success considering its commercial and technical feasibility; the Company is able to use or sell the asset; the Company has sufficient resources and intent to complete its development; and its costs can be measured reliably. The Company has not capitalized any development costs.
Trade and other payables
These amounts represent liabilities for goods and services provided to the entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortized cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Taxes
Tax expense comprises current and deferred tax. Tax is recognized in the statement of operations except to the extent it relates to items recognized in other comprehensive income or directly in equity.
Current tax
Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred taxes are the taxes expected to be payable or recoverable on differences between the carrying amounts of assets in the balance sheet and their corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences between the carrying amounts of assets and their corresponding tax bases. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets in a transaction that affects neither the taxable profit nor the accounting profit.
| F-9 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 3. | Significant accounting policies (continued) |
Foreign currency
Transactions entered into by the Company in a currency other than their functional currency are recorded at the rates prevailing when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates prevailing at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognized immediately in profit or loss.
Provisions
Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognized as a finance cost.
Leases
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Company (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognized as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analyzed between capital and interest. The interest element is charged to profit and loss over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Company (an "operating lease"), the total rentals payable under the lease are charged to the statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognized as a reduction of the rental expense over the lease term on a straight-line basis.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market
| F-10 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 3. | Significant accounting policies (continued) |
Fair value measurement (continued)
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.
Financial instruments
Classification and measurement of financial instruments
The Company measures its financial assets and financial liabilities at fair value on initial recognition, which is typically the transaction price unless a financial instrument contains a significant financing component. Subsequent measurement is dependent on the financial instrument’s classification which in the case of financial assets, is determined by the context of the Company’s business model and the contractual cash flow characteristics of the financial asset. Financial assets are classified into two categories: (1) measured at amortized cost and (2) fair value through profit and loss (“FVTPL”).
Financial liabilities are subsequently measured at amortized cost at the effective interest rate, other than financial liabilities that are measured at FVTPL or designated as FVTPL where any change in fair value resulting from an entity’s own credit risk is recorded as other comprehensive income (“OCI”).
Amortized cost
The Company classifies trade and other receivables, term deposit, trade and other payables, long- term debt and advances to/from related parties as financial instruments measured at amortized cost. The contractual cash flows received from the financial assets are solely payments of principal and interest and are held within a business model whose objective is to collect the contractual cash flows.
Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses on financial assets measured at amortized cost. The measurement of the loss allowance depends upon the Company's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has been a significant increase in exposure to credit risk, a 12-month expected credit loss allowance is estimated. The amount of expected credit loss recognized is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
| F-11 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 3. | Significant accounting policies (continued) |
Financial instruments (continued)
Equity instruments
Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issuance costs.
The Company's shares are classified as equity instruments.
Grants and investment tax credits receivable
Grants and investment tax credits received on capital expenditure are deducted in arriving at the carrying amount of the asset purchased. Grants and investment tax credits for revenue expenditure are netted against the cost incurred by the Company. Where retention of a government grant is dependent on the Company satisfying certain criteria, it is initially recognized as deferred income.
When the criteria for retention have been satisfied, the deferred income balance is released to the statement of comprehensive income or netted against the asset purchased.
Cost of sales are presented net of $394,715 (2018 - $691,462) of grants and investment tax credits.
Earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of common stock outstanding during the year.
Diluted income per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of common stock outstanding, adjusted for the effects of all dilutive potential common stock. The weighted average number of common stock outstanding is increased by the number of additional common stock that would have been issued by the Company assuming exercise of all options with exercise prices below the average market price for the year.
The Company does not hold any dilutive instruments as at August 31, 2019 and 2018.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the about by which the asset's carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.
| F-12 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 4. | Significant accounting estimates and assumptions |
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates.
Provision for impairment of inventories
The provision for impairment of inventories assessment requires a degree of estimation and judgment. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence.
Income tax
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax- related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
| 5. | Future accounting standards issued but not yet effective |
IFRS 16: Leases
The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Under IFRS 16, a lessee recognizes a right-of- use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. This will typically produce a front-loaded expense profile (whereas operating leases under IAS 17 would typically have had straight-line expenses) as an assumed linear depreciation of the right-of-use asset and the decreasing interest on the liability will lead to an overall decrease of expense over the reporting period.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the lessee shall use their incremental borrowing rate.
IFRS 16 supersedes IAS 17 Leases and related interpretations and is effective for periods beginning on or after September 1, 2019, with earlier adoption permitted if IFRS 15 Revenue from Contracts with Customers has also been applied. The Company is currently evaluating the impact of adopting this new standard.
| F-13 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 5. | Future accounting standards issued but not yet effective (continued) |
IFRIC 23: Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
| - | The Company to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution; |
| - | The Company to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and |
| - | If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations. |
The interpretation is effective for periods beginning on or after September 1, 2019. The Company is currently evaluating the impact of adopting this new interpretation.
| 6. | Trade and other receivables |
| 2019 $ | 2018 $ | |||||||
| Trade receivable | 73,597 | 9,298 | ||||||
| Allowance for expected credit losses | - | (3,196 | ) | |||||
| Sales taxes receivable | 28,187 | 53,146 | ||||||
| 101,784 | 59,248 | |||||||
Trades receivables disclosed above include amounts that are past due at the end of the reporting period for which the Company has not recognized an allowance for expected credit losses because there has not been a significant change in credit quality and the amounts are still considered recoverable.
| F-14 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 6. | Trade and other receivables (continued) |
As at August 31, 2019, trade receivables of $73,597 (2018 - $1,714) were past due but not impaired. They relate to customers with no default history. The aging analysis of these receivables is as follows:
| 2019 $ | 2018 $ | |||||||
| 0 - 30 | 67,887 | - | ||||||
| 31 - 60 | - | 1,714 | ||||||
| 61 - 90 | - | - | ||||||
| 91 and over | 5,710 | - | ||||||
| 73,597 | 1,714 | |||||||
Movements in the allowance for expected credit losses are as follows:
| 2019 $ | 2018 $ | |||||||
| Opening balance | 3,196 | - | ||||||
| Provision recognized | 530 | 3,196 | ||||||
| Receivables written-off as uncollectable | (3,726 | ) | - | |||||
| Closing balance | - | 3,196 | ||||||
| 7. | Inventories |
| 2019 $ | 2018 $ | |||||||
| Raw materials | 301,939 | 175,620 | ||||||
| Work-in-process | 147,388 | 361,047 | ||||||
| Finished goods | 369,484 | 395,039 | ||||||
| 818,811 | 931,706 | |||||||
For the year ended August 31, 2019, inventories recognized as an expense amounted to $1,584,013 (2018 - $769,839).
For the year ended August 31, 2019, cost of sales includes depreciation of $33,596 (2018 - $29,870).
| F-15 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 8. | Property and equipment |
| Computer | ||||||||||||||||||||||||
| Machinery | equipment | |||||||||||||||||||||||
| and | Rolling | Computer | under | |||||||||||||||||||||
| equipment | stock | equipment | lease | Moulds | Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| Balance at August 31, 2017 | 187,850 | 19,875 | 758 | - | 305,295 | 513,778 | ||||||||||||||||||
| Additions | - | - | 1,755 | - | - | 1,755 | ||||||||||||||||||
| Balance at August 31, 2018 | 187,850 | 19,875 | 2,513 | - | 305,295 | 515,533 | ||||||||||||||||||
| Additions | - | 5,800 | 2,918 | 11,333 | 167,234 | 187,285 | ||||||||||||||||||
| Balance at August 31, 2019 | 187,850 | 25,675 | 5,431 | 11,333 | 472,529 | 702,818 | ||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| Balance at August 31, 2017 | 110,324 | 12,700 | 726 | - | 6,105 | 129,855 | ||||||||||||||||||
| Depreciation | 15,505 | 2,153 | 500 | - | 12,213 | 30,371 | ||||||||||||||||||
| Balance at August 31, 2018 | 125,829 | 14,853 | 1,226 | - | 18,318 | 160,226 | ||||||||||||||||||
| Depreciation | 12,404 | 2,377 | 1,513 | 453 | 18,362 | 35,109 | ||||||||||||||||||
| Balance at August 31, 2019 | 138,233 | 17,230 | 2,739 | 453 | 36,680 | 195,335 | ||||||||||||||||||
| Net carrying amount | ||||||||||||||||||||||||
| As at August 31, 2018 | 62,021 | 5,022 | 1,287 | - | 286,977 | 355,307 | ||||||||||||||||||
| As at August 31, 2019 | 49,617 | 8,445 | 2,692 | 10,880 | 435,849 | 507,483 | ||||||||||||||||||
| 9. | Credit facility |
The Company has an authorized line of credit of $250,000 and $100,000 letter of guarantee facility, renewable annually, bearing interest at prime rate plus 1%, secured by a first ranking movable hypothec of $750,000 on all assets, as well as a personal guarantee of $250,000 from the shareholders.
In 2018, the Company had an authorized line of credit of $100,000, renewable annually, bearing interest at prime rate plus 3%, secured by a second ranking movable hypothec of $185,000 on all assets, as well as a personal guarantee of $185,000 from shareholders. The line of credit was not renewed in 2019.
| F-16 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 10. | Trade and other payables |
| 2019 $ |
2018 $ |
|||||||
| Trade payable | 372,217 | 469,231 | ||||||
| Government remittances | 4,086 | 3,206 | ||||||
| 376,303 | 472,437 | |||||||
| 11. | Contract liabilities |
| 2019 | 2018 | |||||||
| $ | $ | |||||||
| Opening balance | 676,070 | 75,509 | ||||||
| Payments received in advance | 140,872 | 676,070 | ||||||
| Transferred to revenues | (636,870 | ) | (75,509 | ) | ||||
| Closing balance | 180,072 | 676,070 | ||||||
| 12. | Related party transactions |
| Company under common control |
| California Electric Boat Company Inc. |
| EBR Ltd. |
| 7858078 Canada Inc |
| Company jointly controlled by the majority shareholder |
| 9335-1427 Quebec Inc. |
| Ultimate shareholders and their individually controlled entities |
Alexandre Mongeon |
| Patrick Bobby |
| Robert Ghetti |
| Immobilier R. Ghetti Inc. |
| Société de Placement Robert Ghetti Inc. |
| Shareholders |
| Gestion Toyma Inc. |
| Entreprises Claude Beaulac Inc. (former shareholder) |
| Gestion Moka Inc. (former shareholder) |
| F-17 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 12. | Related party transactions (continued) |
The following table summarizes the Company's related party transactions for the year:
| 2019 $ | 2018 $ | |||||||
| Revenues | ||||||||
| Sales of boats | ||||||||
| EBR Ltd. | 429,132 | 327,932 | ||||||
| Sales of parts and boat maintenance | ||||||||
| EBR Ltd. | 26,399 | 42,187 | ||||||
| Claude Beaulac | - | 1,740 | ||||||
| Other | ||||||||
| EBR Ltd. | - | 2,600 | ||||||
| 7858078 Canada Inc | 5,000 | - | ||||||
| Expenses | ||||||||
| Rent expense | ||||||||
| California Electric Boat Company Inc. | 143,376 | 35,056 | ||||||
At the end of the year, the amounts due to and from related parties are as follows:
| 2019 $ |
2018 $ |
|||||||
| Advances to related party | ||||||||
| California Electric Boat Company Inc. | 40,310 | 38,710 | ||||||
| Non-current advances from related parties | ||||||||
| Alexandre Mongeon (subordinated in favor of the Company's lender) | 81,061 | 81,061 | ||||||
| Patrick Bobby (subordinated in favor of the Company's lender) | 82,534 | 82,534 | ||||||
| Robert Ghetti (subordinated in favor of the Company's lender) | 45,215 | 45,215 | ||||||
| Immobilier R. Ghetti Inc. (subordinated in favor of the Company's lender) | 1,487 | 1,487 | ||||||
| Société de Placement Robert Ghetti Inc. (subordinated in favor of the Company's lender) | 242,426 | 234,426 | ||||||
| F-18 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 12. | Related party transactions (continued) |
2019 $ |
2018 $ |
|||||||
| Current advances from related parties | ||||||||
| 9335-1427 Quebec Inc. | 104,931 | 100,956 | ||||||
| Alexandre Mongeon | 60,911 | 60,911 | ||||||
| Patrick Bobby | 56,939 | 56,939 | ||||||
| Robert Ghetti | 19,535 | 19,535 | ||||||
| Immobilier R. Ghetti Inc. | 15,000 | 15,000 | ||||||
| Société de Placement Robert Ghetti Inc. | 36,950 | 44,950 | ||||||
| Gestion Toyma Inc. | 151,500 | 151,500 | ||||||
| Entreprises Claude Beaulac Inc. (former shareholder) | 151,575 | 101,000 | ||||||
| Gestion Moka Inc. (former shareholder) | - | 50,500 | ||||||
Advances to and from related parties are non-interest bearing and have no specified terms of repayment. Subsequent to year-end, the related parties waived their right to demand repayment until after September 1, 2020.
| 13. | Long-term debt |
| 2019 | 2018 | |||||||
| $ | $ | |||||||
| Loan from Canada Economic Development for Quebec Regions, non-interest bearing, repayable in monthly instalments of $1,667 starting July 2018 and maturing in June 2023. The loan was discounted using an effective interest rate of 8.85% (a) | 58,672 | 73,533 | ||||||
| Term loan, bearing interest at prime rate plus 6%, repaid during the year (b) | - | 39,996 | ||||||
| Term loan, bearing interest at 6.24%, repayable in monthly instalments of $630, including principal and interest, and maturing in December 2038 | 84,818 | - | ||||||
| 143,490 | 113,529 | |||||||
| Current portion of long-term debt | 17,628 | 52,552 | ||||||
| 125,862 | 60,977 | |||||||
| a) | As security for the loan, the Company has subordinated certain advances from related parties for $452,723. |
| b) | As security for the loan, the Company has subordinated certain advances from related parties for $444,732 in 2018. |
| F-19 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 13. | Long-term debt (continued) |
Future minimum payments are as follows:
| $ | ||||
| 2020 | 17,628 | |||
| 2021 | 16,485 | |||
| 2022 | 15,462 | |||
| 2023 | 12,650 | |||
| 2024 | 2,982 | |||
| Thereafter | 71,604 | |||
| 14. | Finance lease |
2019 $ | 2018 $ | |||||||
| Finance lease, bearing interest at 9.34%, secured by the leased equipment, payable in monthly instalments of $365 including principal and interest, maturing in November 2022 | 8,216 | - | ||||||
| Current portion of obligation under finance lease | 4,377 | - | ||||||
| 3,839 | - | |||||||
Future minimum lease payments of obligation under finance lease are as follows:
| $ | ||||
| 2020 | 4,377 | |||
| 2021 | 4,377 | |||
| 2022 | 365 | |||
| 9,119 | ||||
| Interest included in instalments | 903 | |||
| 8,216 | ||||
| F-20 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 15. | Commitments |
The commitments of the Company under lease agreements for premises with California Electric Boat Company Inc., a company under common control, and EB Rentals and for equipment aggregate to $543,300. The minimum annual payments are approximately as follows:
| Equipment | Premise | EB Rentals | ||||||||||
| $ | $ | $ | ||||||||||
| 2020 | 12,700 | 138,700 | 59,700 | |||||||||
| 2021 | 12,800 | 138,700 | - | |||||||||
| 2022 | 1,500 | 113,000 | - | |||||||||
| 2023 | - | 36,100 | - | |||||||||
| 2024 | - | 30,100 | - | |||||||||
| 16. | Capital stock |
Authorized -
Class A shares, voting and participating Class B shares, voting and non-participating
Class C shares, non-voting, preferential non-cumulative dividend over Class D, E, F and A shares at a maximum rate of 1% per month, retractable at the option of the holder at the fair market value of these shares
Class D shares, non-voting, preferential non-cumulative dividend over Class E, F and A shares at a maximum rate of 0.5% per month, retractable at the option of the holder at the fair market value of these shares
Class E shares, non-voting, preferential non-cumulative dividend over Class F and A shares at a maximum rate of 8% per year, retractable at the option of the holder at the amount paid
Class F shares, non-voting, preferential non-cumulative dividend over Class A shares at a maximum rate of 8% per year, redeemable by the Company at the amount paid
| 2019 $ | 2018 $ | |||||||
| Issued - 525 (2018 - 600) Class A shares | 525 | 600 | ||||||
During the year ended August 31, 2019, the Company repurchased 75 Class A shares for a cash consideration of $75.
| F-21 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 16. | Capital stock (continued) |
During the year ended August 31, 2019, the Company received subscription proceeds of $37,500 in advance of the January 20, 2020 issuance of Voting Common Shares - Series Investor 1 (note 24). As at August 31, 2019, the number of shares to be issued was undetermined and therefore the capital stock to be issued is not considered in the computation of basic and diluted earnings (loss) per share.
| 17. | Income taxes |
The income tax expense on the Company's income before tax differs from the theoretical amount that would arise using the federal and provincial statutory tax rates applicable. The difference is as follows:
| 2019 $ |
2018 $ |
|||||||
| Income taxes at the applicable tax rate of 15% (2018 - 17%) | 44,618 | (5,800 | ) | |||||
| Permanent differences | (6,032 | ) | 70,823 | |||||
| Temporary differences | 25,801 | 86,710 | ||||||
| Income tax expense | 64,387 | 151,733 | ||||||
The following tables present the composition of deferred income tax assets and liabilities:
| Balance as at August 31, |
Recognized in profit and |
Balance as at August 31, |
||||||||||
| 2018
$ |
loss
$ |
2019
$ |
||||||||||
| Temporary differences | ||||||||||||
| Property and equipment | (26,389 | ) | (2,102 | ) | (28,491 | ) | ||||||
| Research and development | 47,284 | (23,699 | ) | 23,585 | ||||||||
| Deferred tax (liability) asset | 20,895 | (25,801 | ) | (4,906 | ) | |||||||
| F-22 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 17. | Income taxes (continued) |
| Balance as at August 31, |
Recognized in profit and |
Balance as at August 31, |
||||||||||
| 2017 $ |
loss
$ |
2018
$ |
||||||||||
| Temporary differences | ||||||||||||
| Losses carried forward | 62,736 | (62,736 | ) | - | ||||||||
| Property and equipment | (12,629 | ) | (13,760 | ) | (26,389 | ) | ||||||
| Research and development | 57,498 | (10,214 | ) | 47,284 | ||||||||
| Deferred tax (liability) asset | 107,605 | (86,710 | ) | 20,895 | ||||||||
| 18. | Remuneration of directors and key management of the Company |
The remuneration awarded to directors and senior key management consists of wages of $207,751 (2018 - $179,949).
| 19. | Capital disclosures |
The Company's objectives in managing capital are:
| - | to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and |
| - | to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. |
The Company manages and adjusts its capital structure considering changes in economic conditions. To maintain or adjust its capital structure, the Company may issue debt or new shares. Financing decisions are generally made on a specific transaction basis and depend on such things as the Company’s needs, capital markets and economic conditions at the time of the transaction. Management reviews its capital management approach on an ongoing basis and believes that this approach is reasonable, given the size of the Company.
The Company does not have any externally imposed capital compliance requirements at August 31, 2019.
| F-23 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 20. | Revenues |
| 2019
$ |
2018 $ |
|||||||
| Sale of boats | 2,664,001 | 1,036,379 | ||||||
| Sales of parts and boat maintenance | 171,217 | 222,945 | ||||||
| Commission | - | 6,052 | ||||||
| Other | 34,159 | 6,190 | ||||||
| 2,869,377 | 1,271,566 | |||||||
| 21. | Cost of sales |
2019 $ | 2018 $ | |||||||
| Inventories - beginning of year | 931,706 | 424,613 | ||||||
| Purchases | 1,453,051 | 1,485,452 | ||||||
| Salaries and benefits | 297,670 | 301,215 | ||||||
| Transport costs | 66,328 | 30,652 | ||||||
| Sub-contracting | 17,870 | 121,205 | ||||||
| Depreciation | 33,596 | 29,870 | ||||||
| Grants and investment tax credits | (397,397 | ) | (691,462 | ) | ||||
| 2,402,824 | 1,701,545 | |||||||
| Inventories - end of year | 818,811 | 931,706 | ||||||
| 1,584,013 | 769,839 | |||||||
| F-24 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 22. | Financial instruments and risk management |
The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them.
Fair value measurement and hierarchy
The fair value measurement of the Company’s financial and non-financial assets and liabilities utilizes market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorized into different levels based on how observable the inputs used in the valuation technique utilized are (the 'fair value hierarchy'):
| - | Level 1: Quoted prices in active markets for identical items (unadjusted); |
| - | Level 2: Observable direct or indirect inputs other than Level 1 inputs; and |
| - | Level 3: Unobservable inputs (i.e. not derived from market data). |
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognized in the period they occur.
The carrying amount of trade and other receivables, term deposit, advances to related parties, trade and other payables and advances from related parties are assumed to approximate their fair value due to their short-term nature.
The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has a strict code of credit, including obtaining instalment payments, obtaining agency credit information and setting appropriate credit limits. The maximum exposure to credit risk at the reporting date, is the carrying amount of financial assets. The Company does not hold any collateral.
Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure for a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company is exposed to liquidity risk primarily from its trade payables and convertible debentures. The Company believes that its recurring financial resources are adequate to cover all its expenditures.
| F-25 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 22. | Financial instruments and risk management (continued) |
| Contractual
cash flows |
Less than
one year |
1-5 years | Greater
than 5 years |
|||||||||||||
| August 31, 2019 | ||||||||||||||||
| Trade and other payables | 376,303 | 376,303 | - | - | ||||||||||||
| Advances from related parties | 1,050,064 | - | 1,050,064 | - | ||||||||||||
| Long-term debt | 136,810 | 17,628 | 47,578 | 71,604 | ||||||||||||
| 1,563,177 | 393,931 | 1,097,642 | 71,604 | |||||||||||||
| August 31, 2018 | ||||||||||||||||
| Trade and other payables | 472,437 | 472,437 | - | - | ||||||||||||
| Advances from related parties | 1,046,014 | - | 1,046,014 | - | ||||||||||||
| Long-term debt | 113,529 | 52,552 | 60,977 | - | ||||||||||||
| 1,631,980 | 524,989 | 1,106,991 | - | |||||||||||||
Interest rate risk
The Company is exposed to interest-rate risk on its variable rate bank indebtedness and variable and fixed rate long-term debt.
Foreign exchange risk
Foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company has certain financial assets and liabilities denominated in United States dollars. As at August 31, 2019, the Company has an amount of trade and other payables denominated in foreign currency of approximately U.S.$96,000; $128,000 (2018 - U.S.$114,000 ($148,000)).
| 23. | Additional cash flows information |
Financing and investing activities not involving cash:
| 2019 $ | 2018 $ | |||||||
| Additions to property and equipment by way of finance lease | 11,333 | - | ||||||
| F-26 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 24. | Subsequent events |
Subscription and issuance of class A common shares and share exchange
On September 3, 2019, the Board of Directors authorized the issuance of 75 class A shares for total consideration of $75. On January 20, 2020, the Board of Directors amended the share capital of the Company. Immediately thereafter, the Board of Directors authorized the exchange of 600 class A shares, being the entire share capital of the Company, for 13,850,916 Voting Common Shares - Series Founder, at a ratio of 23,084.86:1. Immediately thereafter, the Board of Directors authorized the issuance of 2,643 Voting Common Shares - Series Founder for total consideration of $0.11.
Subscription and issuance of Voting Common Shares - Series Investor 1
On January 20, 2020, the Board of Directors authorized the issuance of 283,333 Voting Common Shares - Series Investor 1 for total consideration of $212,500.
On March 4, 2020, the Board of Directors authorized the issuance of 133,333 Voting Common Shares - Series Investor 1 for total consideration of $100,000.
Subscription and issuance of Voting Common Shares - Series Investor 2
On March 5, 2020, the Board of Directors authorized the issuance of 300,000 Voting Common Shares - Series Investor 2, for total consideration of $300,000.
On March 5, 2020, the Board of Directors authorized the issuance of 20,000 Voting Common Shares - Series Investor 2, for total consideration of $20,000.
Share option plan
On January 20, 2020, the Company has adopted a share option plan which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to key employees, consultants, advisors, officers and directors of the Company non-transferable options to purchase up to 2,266,666 Non-Voting Common Shares. No awards have been granted under the plan as at the reporting date.
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout Canada and around the world.
As of the date of this report, the Company did experience a disruption while they closed their offices. All employees are now working remotely. The Company has obtained new contracts during the global pandemic and continues to collect its receivables from the majority of its customers with few changes to its collection terms.
| F-27 |
Riopel Marine Inc.
Notes to Financial Statements
August 31, 2019 and 2018
| 24. | Subsequent events (continued) |
Although management cannot be certain of the impact of the pandemic on the financial statements and the duration of such a disruption at the date of the report, management does believe the implication will be temporary and that the Company will be able to continue its operations. As a result, management is unable to estimate the potential impact on the business as of the date of this report.
| F-28 |
Vision
Marine Technologies Inc.
(formerly known as Riopel Marine Inc.)
Amended Condensed Interim Financial Statements
For the Six-Month Periods Ended February 29, 2020 and February 28, 2019 (Unaudited)
| F-29 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Amended Condensed Interim Statements
of Financial Position
(Unaudited)
| As at February 29, 2020 | As at August 31, 2019 | |||||||||
| Note | $ | $ | ||||||||
| Assets | ||||||||||
| Current | ||||||||||
| Trade and other receivables | 90,946 | 101,784 | ||||||||
| Inventories | 1,102,864 | 818,811 | ||||||||
| Cash held in trust | 89,675 | 37,500 | ||||||||
| Prepaid expenses | 77,163 | 8,595 | ||||||||
| Grants and investment tax credits receivable | 494,382 | 400,079 | ||||||||
| Total current assets | 1,855,030 | 1,366,769 | ||||||||
| Non-current assets | ||||||||||
| Advances to related parties | - | 40,310 | ||||||||
| Property and equipment | 483,136 | 507,483 | ||||||||
| Right-of-use assets | 6 | 705,737 | - | |||||||
| Total non-current assets | 1,188,873 | 547,793 | ||||||||
| Total assets | 3,043,903 | 1,914,562 | ||||||||
| Liabilities | ||||||||||
| Current liabilities | ||||||||||
| Bank indebtedness | 278,683 | 283,813 | ||||||||
| Trade and other payables | 526,315 | 376,303 | ||||||||
| Contract liabilities | 585,060 | 180,072 | ||||||||
| Advances from related parties | 168,527 | 597,341 | ||||||||
| Advances payable, non-interest bearing and repayable on demand | 25,000 | - | ||||||||
| Current portion of long-term debt | 8 | 33,701 | 17,628 | |||||||
| Current portion of lease liabilities | 7 | 114,600 | - | |||||||
| Current portion of obligation under finance lease | - | 4,377 | ||||||||
| Total current liabilities | 1,731,886 | 1,459,534 | ||||||||
| Non-current liabilities | ||||||||||
| Advances from related parties | 11 | 793,556 | 452,723 | |||||||
| Long-term debt | 8 | 349,169 | 125,862 | |||||||
| Finance lease | - | 3,839 | ||||||||
| Deferred income taxes | 4,906 | 4,906 | ||||||||
| Lease liabilities | 7 | 599,410 | - | |||||||
| Total non-current liabilities | 1,747,041 | 587,330 | ||||||||
| Total liabilities | 3,478,927 | 2,046,864 | ||||||||
| Shareholders’ equity (deficit) | ||||||||||
| Capital stock | 9 | 213,100 | 525 | |||||||
| Capital stock to be issued | - | 37,500 | ||||||||
| Retained earnings (deficit) | (648,124 | ) | (170,327 | ) | ||||||
| Total shareholders’ equity (deficit) | (435,024 | ) | (132,302 | ) | ||||||
| Total liabilities and shareholders’ equity (deficit) | 3,043,903 | 1,914,562 | ||||||||
| Subsequent events | 15 | |||||||||
| F-30 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Amended Condensed Interim Statements
of Changes in Deficiency
(Unaudited)
| Capital stock | Capital stock to be issued | Deficit | Total | |||||||||||||||||||||
| Note | Units | $ | $ | $ | $ | |||||||||||||||||||
| Shareholders’ deficiency as at August 31, 2018 | 600 | 600 | - | (403,393 | ) | (402,793 | ) | |||||||||||||||||
| Net and comprehensive income | - | - | - | 54,647 | 54,647 | |||||||||||||||||||
| Shareholders’ deficiency as at February 28, 2019 | 600 | 600 | - | (348,746 | ) | (348,746 | ) | |||||||||||||||||
| Shareholders’ deficiency as at August 31, 2019 | 525 | 525 | 37,500 | (170,327 | ) | (132,302 | ) | |||||||||||||||||
| Share issuance (pre-conversion) | 9 | 75 | 75 | - | - | 75 | ||||||||||||||||||
| Share conversion | 9 | 3,743,491 | - | - | - | - | ||||||||||||||||||
| Share issuance | 9 | 77,291 | 212,500 | (37,500 | ) | 175,000 | ||||||||||||||||||
| Net and comprehensive loss | - | - | (477,797 | ) | (477,797 | ) | ||||||||||||||||||
| Shareholders’ deficiency as at February 29, 2020 | 3,820,782 | 213,100 | - | (648,124 | ) | (435,024 | ) | |||||||||||||||||
| F-31 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Amended Condensed Interim Statements
of Comprehensive Income (Loss)
(Unaudited)
| Three months ended February 29, 2020 | Three months ended February 28, 2019 | Six months ended February 29, 2020 | Six months ended February 28, 2019 | |||||||||||||||
| Note | $ | $ | $ | $ | ||||||||||||||
| Revenues | 11, 12 | 383,190 | 332,645 | 436,193 | 1,271,552 | |||||||||||||
| Cost of sales | 13 | 162,634 | 156,190 | 202,633 | 681,708 | |||||||||||||
| Gross profit | 220,556 | 176,455 | 233,560 | 589,844 | ||||||||||||||
| Expenses | ||||||||||||||||||
| Office salaries and benefits | 92,447 | 92,447 | 167,603 | 177,885 | ||||||||||||||
| Rent | 9,118 | 78,052 | 39,262 | 131,311 | ||||||||||||||
| Professional fees | 138,871 | 33,644 | 180,895 | 62,146 | ||||||||||||||
| Travel and entertainment | 16,044 | 9,256 | 37,945 | 13,738 | ||||||||||||||
| Advertising and promotion | 75,619 | 66,847 | 155,599 | 110,568 | ||||||||||||||
| Office and general | 39,668 | 18,417 | 59,602 | 33,244 | ||||||||||||||
| Interest and bank charges | 2,290 | 3,326 | 10,614 | 7,864 | ||||||||||||||
| Interest on long-term debt and finance lease | 16,049 | 861 | 29,744 | 1,773 | ||||||||||||||
| Foreign exchange | (3,016 | ) | (47,237 | ) | (35,260 | ) | (19,374 | ) | ||||||||||
| Depreciation of right-of-use asset | 32,437 | - | 64,076 | - | ||||||||||||||
| Depreciation | 639 | 445 | 1,277 | 622 | ||||||||||||||
| 420,166 | 256,058 | 711,357 | 519,777 | |||||||||||||||
| (Loss) earnings before income taxes | (199,609 | ) | (79,603 | ) | (477,797 | ) | 70,068 | |||||||||||
| Income taxes | ||||||||||||||||||
| Current | - | - | - | - | ||||||||||||||
| Deferred | - | - | - | 15,421 | ||||||||||||||
| - | - | - | 15,421 | |||||||||||||||
| Net and comprehensive (loss) income | (199,609 | ) | (79,603 | ) | (477,797 | ) | 54,647 | |||||||||||
| Basic and diluted weighted average number of shares outstanding | ||||||||||||||||||
| Basic | 3,778,314 | 3,743,491 | 3,755,760 | 3,743,491 | ||||||||||||||
| Diluted | 3,778,314 | 3,743,491 | 3,755,760 | 3,743,491 | ||||||||||||||
| Income (loss) per share | ||||||||||||||||||
| Basic | (0.05 | ) | (0.02 | ) | (0.13 | ) | 0.01 | |||||||||||
| Diluted | (0.05 | ) | (0.02 | ) | (0.13 | ) | -0.01 | |||||||||||
| F-32 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Amended Condensed Interim Statements
of Cash Flows
(Unaudited)
| Six months ended February 29, 2020 | Six months ended February 28, 2019 | |||||||||
| Note | $ | $ | ||||||||
| Operating activities | ||||||||||
| Net and comprehensive income (loss) | (477,797 | ) | 54,647 | |||||||
| Depreciation of property and equipment | 19,217 | 17,150 | ||||||||
| Depreciation of right-of-use asset | 64,076 | - | ||||||||
| Accretion on long-term debt and on lease liabilities | 22,913 | (227 | ) | |||||||
| Deferred income taxes | - | 15,421 | ||||||||
| (371,591 | ) | 86,991 | ||||||||
| Net change in non-cash working capital items | ||||||||||
| Trade and other receivables | 10,838 | (88,451 | ) | |||||||
| Inventories | (284,053 | ) | 135,751 | |||||||
| Grants and investment tax credits receivable | (94,303 | ) | 270,904 | |||||||
| Prepaid expenses | (68,568 | ) | (8,065 | ) | ||||||
| Trade and other payables | 150,012 | (142,297 | ) | |||||||
| Contract liabilities | 404,988 | (84,883 | ) | |||||||
| 118,914 | 82,959 | |||||||||
| Cash provided (used) by operating activities | (252,677 | ) | 169,950 | |||||||
| Investing activities | ||||||||||
| Additions to property and equipment | (5,750 | ) | (132,705 | ) | ||||||
| Advances to related parties | 40,310 | (1,600 | ) | |||||||
| Term deposit | - | 68,368 | ||||||||
| Cash provided (used) by investing activities | 34,560 | (65,937 | ) | |||||||
| Financing activities | ||||||||||
| Change in bank indebtedness | (5,130 | ) | (87,937 | ) | ||||||
| Increase in long-term debt | 250,000 | - | ||||||||
| Repayment of long-term debt | (10,620 | ) | (49,998 | ) | ||||||
| Repayment of obligation under finance lease | - | (1,039 | ) | |||||||
| Repayment of lease liability | (76,052 | ) | - | |||||||
| Advances from related parties | (87,981 | ) | 17,800 | |||||||
| Advance payable | 25,000 | 50,000 | ||||||||
| Capital stock issued | 175,075 | - | ||||||||
| Cash provided (used) by investing activities | 270,292 | (71,174 | ) | |||||||
| Increase in cash and cash equivalents | 52,175 | 32,839 | ||||||||
| Cash and cash equivalents – beginning of period | 37,500 | - | ||||||||
| Cash and cash equivalents – end of period | 89,675 | 32,839 | ||||||||
| Non-cash activities include: | ||||||||||
| Additions to property and equipment | (11,333 | ) | ||||||||
| Finance lease | 11,333 | |||||||||
| F-33 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim
Financial Statements
(Unaudited)
| 1. | Amended Condensed Interim Financial Statements |
The Condensed Interim Financial Statements originally issued on May 28, 2020 have been amended to include disclosures related to a share-based compensation agreement that was omitted from the Condensed Interim Financial Statements. The additional disclosure on the details of the share-based compensation agreement has been reflected in the capital stock note (note 9). In addition, the subsequent event note (note 15) was amended to disclose all other subsequent events that have occurred from May 29, 2020 to September 18, 2020.
| 2. | Incorporation and nature of business |
Vision Marine Technologies Inc. (the “Company”) was incorporated on August 29, 2012 as Riopel Marine Inc. The Company changed its name to Vision Marine Technologies Inc. on April 7,2020. The principal business of the Company is to manufacture and sell electric boats.
The head office and registered office of the Company is located at 730 Curé-Boivin boulevard, Boisbriand, Quebec, J7G 2A7.
| 3. | Basis of preparation |
Compliance with IFRS
These amended condensed interim financial statements are for the six-month period ended February 29, 2020 and have been prepared in accordance with IAS 34: Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with IFRS and should be read in conjunction with the financial statements for the year ended August 31, 2019.
The amended condensed interim financial statements were authorized for issuance by the Board of Directors on September 18, 2020.
Basis of measurement
These amended condensed interim financial statements are stated in Canadian dollars, which is also the Company’s functional currency, and were prepared on the historical cost basis.
| 4. | New standards adopted as at September 1, 2019 |
IFRS 16: Leases
The Company has adopted IFRS 16 as of September 1, 2019. The adoption of IFRS 16 has a significant impact as the Company recognized new assets and liabilities for its operating leases. In addition, the nature and timing of expenses related to those leases has changed as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for the right-of-use assets and interest expense on lease liabilities. The Company has elected to apply the modified retrospective method, under which the cumulative effect of initial application is recognized in retained earnings at September 1, 2019, by setting right-of-use assets based on the lease liability at the date of initial application, adjusted by the amount of any prepaid or accrued lease payments, and has applied the following practical expedients:
| - | Applied IFRS 16 exclusively to contracts that were previously identified as leases applying IAS 17 at the date of initial application; |
| - | Accounted for leases for which the lease term ended within 12 months of the date of initial application as short-term leases; |
| - | Did not recognize right-of-use assets and liabilities for leases of low value assets; |
| - | Relied on its assessment of whether leases are onerous applying IAS 37 immediately before the date of initial application as an alternative to performing an impairment review; and |
| - | Did not separate non-lease components from lease components, and instead accounted for each lease component and any associated non-lease components as a single lease component. |
| F-34 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 4. | New standards adopted as at September 1, 2019 (cont’d) |
IFRS 16: Leases (cont’d)
The effect of adoption of IFRS 16 as at September 1, 2019 is as follows:
| August 31, 2019 | Impact of adoption of IFRS 16 | September 1, 2019 | ||||||||||
| $ | $ | $ | ||||||||||
| Assets | ||||||||||||
| Noncurrent assets | ||||||||||||
| Property and equipment | 507,483 | (10,880 | ) | 496,603 | ||||||||
| Right-of-use assets | - | 760,217 | 760,217 | |||||||||
| Total noncurrent assets | 507,483 | 749,337 | 1,256,820 | |||||||||
| Total assets | 507,483 | 749,337 | 1,256,820 | |||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Current portion of obligation under finance lease | 4,377 | (4,377 | ) | - | ||||||||
| Current portion of lease liabilities | - | 106,724 | 106,724 | |||||||||
| Total current liabilities | 4,377 | 102,347 | 106,724 | |||||||||
| Noncurrent liabilities | ||||||||||||
| Finance lease | 3,839 | (3,839 | ) | - | ||||||||
| Lease liabilities | - | 650,829 | 650,829 | |||||||||
| Total noncurrent liabilities | 3,839 | 646,990 | 650,829 | |||||||||
| Total liabilities | 8,216 | 749,337 | 757,553 | |||||||||
The following table reconciles the Company’s operating lease commitments as at August 31, 2019 as previously disclosed in the audited financial statements of the Company, to the lease liability recognized on initial application of IFRS 16 on September 1, 2019:
| $ | ||||
| Operating lease commitments as at August 31, 2019 | 543,300 | |||
| Finance leases as at August 31, 2019 | 8,216 | |||
| Lease payments relating to periods not included in operating lease commitments as at August 31, 2019 | 367,065 | |||
| Effect of discounting using the weighted average incremental borrowing rate | (161,028 | ) | ||
| Lease liability recognized as at September 1, 2019 | 757,553 | |||
| F-35 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 4. | New standards adopted as at September 1, 2019 (cont’d) |
IFRIC 23: Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
| - | The Company to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution; |
| - | The Company to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and |
| - | If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations. |
The interpretation is effective for periods beginning on or after September 1, 2019. The Company has adopted the new interpretation with no impact on the financial statements.
| 5. | Significant accounting policies |
The Company has applied the same accounting policies and methods of computation in its amended condensed interim financial statements as in its 2019 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) September 1, 2019, as disclosed in note 3.
Revenue recognition
Revenue is recognized at an amount that reflects the consideration to which the Company is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Company:
| - | Identifies the contract with the customer; |
| - | Identifies the performance obligations in the contract; |
| - | Determines the transaction price which takes into account estimates of variable consideration and the time value of money; |
| - | Allocates the transaction price to separate performance obligations on the basis of relative standalone selling price of each distinct good or service to be delivered; and |
| - | Recognizes revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. |
The Company enters into contracts with customers, as well as distributor agreements with specific distributors for the sale of boats.
| F-36 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 5. | Significant accounting policies (cont’d) |
Revenue recognition (cont’d)
Sale of boats
Revenue from the sale of boats, including incidental shipping fees, is recognized at the point in time when the customer obtains control of the goods, which is generally at the shipping point. In the context of its distributor agreements, control is passed at the shipping point to the distributor as the Company has no further performance obligations at that point. The amount of consideration the Company receives, and the revenue recognized, varies with volume rebate programs offered to distributors. When the Company offers retrospective volume rebates, it estimates the expected volume rebates based on an analysis of historical experience, to the extent that it is highly probable that a significant reversal will not occur. The Company adjusts its estimate of revenue related to volume rebates at the earlier of when the most likely amount of consideration expected to be received changes or when the consideration becomes fixed.
The Company recognizes customer deposits on the sale of boats as contract liabilities.
Sales of parts and boat maintenance
Revenue from the sale of parts and related maintenance services are recognized at the point in time when the customer obtains control of the parts and when services are completed.
Commission
Commission income is recognized at the point in time when the underlying transaction is settled.
Other
Other revenue is recognized when it is received or when the right to receive payment is established.
Leases
Right-of-use assets
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
| F-37 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 5. | Significant accounting policies (cont’d) |
Leases (cont’d)
Lease liabilities
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. Interest accretion is recorded as interest expense in finance costs. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below $5,000). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.
| F-38 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 5. | Significant accounting policies (cont’d) |
Financial instruments
Classification and measurement of financial instruments
The Company measures its financial assets and financial liabilities at fair value on initial recognition, which is typically the transaction price unless a financial instrument contains a significant financing component. Subsequent measurement is dependent on the financial instrument’s classification which in the case of financial assets, is determined by the context of the Company’s business model and the contractual cash flow characteristics of the financial asset. Financial assets are classified into two categories: (1) measured at amortized cost and (2) fair value through profit and loss (“FVTPL”). Financial liabilities are subsequently measured at amortized cost at the effective interest rate, other than financial liabilities that are measured at FVTPL or designated as FVTPL where any change in fair value resulting from an entity’s own credit risk is recorded as other comprehensive income (“OCI”).
Amortized cost
The Company classifies trade and other receivables, trade and other payables, long-term debt and advances to/from related parties as financial instruments measured at amortized cost. The contractual cash flows received from the financial assets are solely payments of principal and interest and are held within a business model whose objective is to collect the contractual cash flows.
Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses on financial assets measured at amortized cost. The measurement of the loss allowance depends upon the Company’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has been a significant increase in exposure to credit risk, a 12-month expected credit loss allowance is estimated. The amount of expected credit loss recognized is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
Equity instruments
Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issuance costs.
The Company’s shares are classified as equity instruments.
Share based payments
The Company has a share option plan for key employees, consultants, advisors, officers and directors from which options to purchase common stock of the Company are issued. Share-based compensation costs are accounted for on a fair value basis, as measured at the grant date, using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. An individual is classified as an employee when the individual is an employee for legal or tax purposes or provides services similar to those performed by an employee. In situations where options have been issued to non-employees and some or all of the services received by the Company cannot be specifically identified, the options are measured at the fair value of the options issued.
| F-39 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 5. | Significant accounting policies (cont’d) |
Share based payments (cont’d)
All share-based remuneration is ultimately recognized as an expense in profit or loss with a corresponding credit to contributed surplus. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Any adjustment to cumulative share-based compensation resulting from a revision is recognized in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period.
| 6. | Right-of-use assets |
| Premises | Computer equipment | Rolling stock | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cost | ||||||||||||||||
| Balance at August 31, 2019 | - | - | - | - | ||||||||||||
| Impact of adoption of IFRS 16 | 737,066 | 11,333 | 12,271 | 760,670 | ||||||||||||
| Additions | - | - | 9,596 | 9,596 | ||||||||||||
| Balance at February 29, 2020 | 737,066 | 11,333 | 21,867 | 770,266 | ||||||||||||
| Accumulated depreciation | ||||||||||||||||
| Balance at August 31, 2019 | - | - | - | |||||||||||||
| Impact of adoption of IFRS 16 | - | 453 | - | 453 | ||||||||||||
| Depreciation | 58,903 | 227 | 4,946 | 64,076 | ||||||||||||
| Balance at February 29, 2020 | 58,903 | 680 | 4,946 | 64,529 | ||||||||||||
| Net carrying amount | ||||||||||||||||
| As at February 29, 2020 | 678,163 | 10,653 | 16,921 | 705,737 | ||||||||||||
|
7. | Lease liabilities |
| $ | ||||
| Balance at August 31, 2019 | - | |||
| Impact of adoption of IFRS 16 | 757,553 | |||
| Additions | 9,596 | |||
| Repayment | (76,052 | ) | ||
| Accretion of interest | 22,913 | |||
| Balance at February 29, 2020 | 714,010 | |||
| Current | 114,600 | |||
| Noncurrent | 599,510 | |||
| F-40 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 7. | Lease liabilities (cont’d) |
The minimum annual payments of the Company’s leases are approximately as follows:
| $ | ||||
| Less than one year | 151,024 | |||
| One year to five years | 583,185 | |||
| Greater than five years | 111,872 | |||
| 846,081 | ||||
| 8. | Long-term debt |
| As at February 29, 2020 | As at August 31, 2019 | |||||||
| $ | $ | |||||||
| Loan from Canada Economic Development for Quebec Regions, non-interest bearing, repayable in monthly instalments of $1,667 starting July 2018 and maturing in June 2023. The loan was discounted using an effective interest rate of 8.85% (a) | 52,829 | 58,672 | ||||||
| Term loan, bearing interest at 6.24%, repayable in monthly instalments of $630, including principal and interest, and maturing in December 2038 | 80,041 | 84,818 | ||||||
| Term loan, bearing interest at prime plus 3.68%, repayable in monthly principal payments of $4,165 starting 12 months after the original disbursement date (b) | 250,000 | - | ||||||
| 382,870 | 143,490 | |||||||
| Current portion of long-term debt | 33,701 | 17,628 | ||||||
| 349,169 | 125,862 | |||||||
| a) | As security for the loan, the Company has subordinated certain advances from related parties for $452,723. |
| b) | As security for the loan, the Company has subordinated certain advances from related parties for $793,556. In addition, the loan is guaranteed by a first ranking hypothec of $250,000 plus 20% on all of the assets of the Company, as well as personal guarantees from the ultimate shareholders of $125,000. |
| F-41 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 9. | Capital stock |
Authorized without limit as to number – Voting Common Shares
| As at February 29, 2020 | As at August 31, 2019 | |||||||
| $ | $ | |||||||
| 3,820,782 Voting Common Shares | 213,100 | - | ||||||
| Nil (2019 – 525) Class A shares | - | 525 | ||||||
| 213,100 | 525 | |||||||
Subscription and issuance of Class A common shares, share exchange and share consolidation
On September 3, 2019, the Board of Directors authorized the issuance of 75 Class A shares for total consideration of $75. On January 20, 2020, the Board of Directors amended the share capital of the Company. Immediately thereafter, the Board of Directors authorized the exchange of 600 Class A shares, being the entire share capital of the Company, for 13,850,916 Voting Common Shares – Series Founder, at a ratio of 23,084.86:1. Immediately thereafter, the Board of Directors authorized the issuance of 2,643 Voting Common Shares – Series Founder for total consideration of $0.11.
On September 3, 2020, the Board of Directors authorized the consolidation of all the issued and outstanding Voting Common Shares on the basis on 1 post -consolidation Voting Common Shares for every 3.7 pre-consolidation Voting Common Shares. The impact of this adjustment has been reflected in the Company’s share capital and earnings per share.
Subscription and issuance of Voting Common Shares
On January 20, 2020, the Board of Directors authorized the issuance of 76,577 Voting Common Shares for total consideration of $212,500.
Share option plan
On January 20, 2020, the Company has adopted a share option plan which provides that the Board of Directors of the Company may from time to time, in its discretion, grant to key employees, consultants, advisors, officers and directors of the Company non-transferable options to purchase up to 612,612 Non-Voting Common Shares. No awards have been granted under the plan as at the reporting date.
Share based compensation
The Company signed an agreement with the CFO of the Company to grant a company controlled by the CFO Common Shares in exchange for services rendered by the CFO. The CFO will receive 41,178 Common Shares of the Company for every $500,000 tranche of qualified equity financing in which he directly assisted to raise up to a maximum of 205,795 Common Shares if $2,500,000 is raised. As at February 29, 2020 no milestone had been met and it was not considered probable that they would be met, therefore the Common Shares were not earned by the CFO. Consequently, the Company did not record a share-based compensation expense.
| 10. | Remuneration of directors and key management of the Company |
| Three months ended | Six months ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Salaries | 55,000 | 52,000 | 109,000 | 104,000 | ||||||||||||
| F-42 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 11. | Related party transactions |
The following table summarizes the Company’s related party transactions during the year:
| Three months ended | Six months ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenues | ||||||||||||||||
| Sale of boats | ||||||||||||||||
| EBR Ltd. | - | 22,851 | - | 100,866 | ||||||||||||
| Sales of parts and boat maintenance | ||||||||||||||||
| EBR Ltd. | 23,746 | - | 66,077 | 9,369 | ||||||||||||
| Expenses | ||||||||||||||||
| Rent expense | ||||||||||||||||
| California Electric Boat Company Inc. | - | 67,556 | - | 80,702 | ||||||||||||
At the end of the period, the amounts due to and from related parties are non-interest bearing and are due on demand, except for those subordinated to the Company’s lenders, and are as follows:
| As at February 29, 2020 | As at August 31, 2019 | |||||||
| $ | $ | |||||||
| Advances to a company under common control | ||||||||
| California Electric Boat Company Inc. | - | 40,310 | ||||||
| Non-current advances from shareholders or indirect shareholders subordinated in favor of the Company’s lender | ||||||||
| Alexandre Mongeon (subordinated in favor of the Company’s lenders) | 141,972 | 81,061 | ||||||
| Patrick Bobby (subordinated in favor of the Company’s lenders) | 139,472 | 82,534 | ||||||
| Robert Ghetti (subordinated in favor of the Company’s lenders) | 64,749 | 45,215 | ||||||
| Immobilier R. Ghetti Inc. (subordinated in favor of the Company’s lenders) | 16,487 | 1,487 | ||||||
| Société de Placement Robert Ghetti Inc. (subordinated in favor of the Company’s lenders) | 279,376 | 242,426 | ||||||
| Gestion Toyma (subordinated in favor of the Company’s lenders) | 151,500 | - | ||||||
| 793,556 | 452,723 | |||||||
| F-43 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 11. | Related party transactions (cont’d) |
| As at February 29, 2020 | As at August 31, 2019 | |||||||
| $ | $ | |||||||
| Current advances from shareholders or indirect shareholders | ||||||||
| 9335-1427 Quebec Inc. | 129,932 | 104,931 | ||||||
| Alexandre Mongeon | 14,201 | 60,911 | ||||||
| Patrick Bobby | - | 56,939 | ||||||
| Robert Ghetti | - | 19,535 | ||||||
| Immobilier R. Ghetti Inc. | - | 15,000 | ||||||
| Société de Placement Robert Ghetti Inc. | - | 36,950 | ||||||
| Gestion Toyma | 24,394 | 151,500 | ||||||
| Entreprises Claude Beaulac Inc. (former shareholder) | - | 151,575 | ||||||
| 168,527 | 597,341 | |||||||
| Due to shareholders and included in trade and other payables | ||||||||
| Alexandre Mongeon | 39,668 | - | ||||||
| Patrick Bobby | 5,091 | - | ||||||
| 44,759 | - | |||||||
| 12. | Revenues |
| Three months ended | Six months ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Sale of boats | 349,479 | 262,929 | 353,148 | 1,135,407 | ||||||||||||
| Sales of parts and boat maintenance | 33,711 | 69,716 | 83,045 | 105,929 | ||||||||||||
| Other | - | - | 30,216 | |||||||||||||
| 383,190 | 332,645 | 436,193 | 1,271,552 | |||||||||||||
| F-44 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial
Statements
(Unaudited)
| 13. | Cost of sales |
| Three months ended | Six months ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Inventories – beginning of period | 1,138,064 | 815,675 | 818,811 | 931,707 | ||||||||||||
| Purchases | 87,043 | 139,626 | 399,083 | 567,050 | ||||||||||||
| Salaries and benefits | 62,772 | 61,447 | 129,824 | 121,426 | ||||||||||||
| Transport costs | 16,433 | 19,891 | 31,496 | 32,634 | ||||||||||||
| Sub-contracting | 12,216 | 6,166 | 28,343 | 6,167 | ||||||||||||
| Depreciation | 8,970 | 8,264 | 17,940 | 16,528 | ||||||||||||
| Grants and investment tax credits | (60,000 | ) | (98,924 | ) | (120,000 | ) | (197,849 | ) | ||||||||
| 1,265,498 | 952,145 | 1,305,497 | 1,477,663 | |||||||||||||
| Inventories – end of period | (1,102,864 | ) | (795,955 | ) | (1,102,864 | ) | (795,955 | ) | ||||||||
| 162,634 | 156,190 | 202,633 | 681,708 | |||||||||||||
| 14. | Fair value measurement and hierarchy |
The fair value measurement of the Company’s financial and non-financial assets and liabilities utilizes market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorized into different levels based on how observable the inputs used in the valuation technique utilized are (the ‘fair value hierarchy’):
| - | Level 1: Quoted prices in active markets for identical items (unadjusted); |
| - | Level 2: Observable direct or indirect inputs other than Level 1 inputs; and |
| - | Level 3: Unobservable inputs (i.e., not derived from market data). |
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognized in the period they occur.
The carrying amount of trade and other receivables, advances to related parties, trade and other payables and advances from related parties are assumed to approximate their fair value due to their short-term nature.
The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities.
| F-45 |
Vision Marine Technologies
Inc.
(formerly known as Riopel Marine Inc.)
Notes to Amended Condensed Interim Financial Statements
(Unaudited)
| 15. | Subsequent events |
Subscription and issuance of Voting Common Shares
On March 4, 2020, the Board of Directors authorized the issuance of 36,036 Voting Common Shares – Series Investor 1 for total consideration of $100,000.
On March 5, 2020, the Board of Directors authorized the issuance of 86,486 Voting Common Shares for total consideration of $320,000.
In July 2020, the Board of Directors authorized the issuance of 357,973 Voting Common Shares, for total consideration of $1,324,500.
On April 10, 2020 and September 18, 2020, the Board of Directors authorized the issuance of 31,982 and 45,351 Voting Common Shares, respectively, for services provided to the Company. The services were valued at $3.70 per share for a total of $286,133.
In addition, the Board of Directors authorized the issuance of 39,189 Voting Common Shares in connection with transaction costs amounting to $145,000 directly attributable to the issuance of Common Shares.
In July 2020, the Board of Directors authorized the issuance of 205,795 Voting Common Shares to a company controlled by the CFO of the Company in connection with the share-based compensation agreement (Note 9). As at July 31, 2020, the Company has recorded a stock-based compensation expense in the amount of $761,441 as a result of the issuance of the Common Shares.
On September 2, 2020, the Board of Directors authorized the issuance of 554,054 Voting Common Shares, for total consideration of $2,050,000.
Stock options
On May 27, 2020, the Company granted 361,162 stock options at an exercise price of $3.70 per share and 162,162 stock options at an exercise price of $2.775 per share to directors, officers, employees and consultants of the Company. The stock options will expire 4 years from the grant date.
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout Canada and around the world.
As of September 18, 2020, the Company did experience a disruption while they closed their offices. The Company has obtained new contracts during the global pandemic and continues to collect its receivables from the majority of its customers with few changes to its collection terms.
Although management cannot be certain of the impact of the pandemic on the financial statements and the duration of such a disruption at the date of the report, management does believe the implication will be temporary and that the Company will be able to continue its operations. As a result, management is unable to estimate the potential impact on the business as of September 18, 2020.
| F-46 |
1,666,667 Common Shares
Vision Marine Technologies, Inc.
PROSPECTUS
ThinkEquity
a division of Fordham Financial Management, Inc.
, 2020
Through and including , 2020 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporate laws of Quebec and our By-laws require us (subject to the provisions of the Business Corporations Act noted below), to indemnify our directors and officers and former directors and officers, our mandataries, or any other person who acts or acted at our request as a director or an officer of another group, of all their costs and reasonable expenses incurred in the exercise of their functions, to the greatest extent permitted by Division VII of Chapter VI of the Business Corporations Act.
Notwithstanding the foregoing, we may not indemnify a person referred to in the preceding paragraph if a court or any other competent authority judges that the following conditions are not fulfilled:
(1) the person acted with honesty and loyalty in the interest of the corporation or, as the case may be, in the interest of the other group for which the person acted as director or officer or in a similar capacity at the corporation’s request; and
(2) in the case of a proceeding that is enforced by a monetary penalty, the person had reasonable grounds for believing that his or her conduct was lawful.
Furthermore, we may not indemnify a person referred to in the preceding paragraph if the court determines that the person has committed an intentional or gross fault.
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, we have issued and sold the securities described below without registering the securities under the Securities Act. None of these transactions involved any underwriters’ underwriting discounts or commissions, or any public offering. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation S promulgated under the Securities Act regarding sales by an issuer in offshore transactions, Regulation D under the Securities Act, Rule 701 under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.
On August 1, 2019, we entered into an agreement with an entity controlled by our Chief Financial Officer pursuant to which we agreed to issue, upon reaching certain milestones, up to 205,795 Voting Common Shares – Series Founders in exchange for services to be provided. These shares were issued in July 2020.
On September 9, 2019, we issued 467,937 Voting Common Shares – Series Founders to affiliates in exchange for $75.
On January 20, 2020, we issued 76,576 Voting Common Shares - Series Investor 1 for total consideration of $212,500.
On March 4, 2020, we issued 36,036 Voting Common Shares - Series Investor 1 for total consideration of $100,000.
On March 5, 2020, we issued 86,486 Voting Common Shares - Series Investor 2 for total consideration of $320,000.
On April 10, 2020, we issued 31,981 Voting Common Shares – Series Founders to two outside service providers in exchange for services to be provided.
On May 27, 2020, we issued 362,162 stock options to purchase common shares at $3.70 per common shares and 162,162 stock options to purchase common shares at $2.775 per common share.
In June and July 2020, we issued 357,973 Voting Common Shares – Series Founders to 17 persons for total consideration of $1,324,500. In connection with this private placement, we issued 31,189 Common Shares – Series Founders in July 2020 as finder’s fees.
In September 2020, we (i) issued 547,298 Voting Common Shares – Series Investor 2 to an investor for total consideration of $2,025,000, (ii) 6,757 Voting Common Shares – Series Investor 2 to an investor for consideration of $25,000 and (iii) 45,351 Voting Common Shares – Series Founders in exchange for legal services provided to date.
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed with this registration statement
II-1
Notes:
| (1) | Filed as an exhibit to our registration statement on Form F-1 as filed with the SEC on July 9, 2020 and incorporated herein by reference. |
ITEM 9. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales of securities are being made, a post-effective amendment to this registration statement to: |
| (i) | Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; | |
| (ii) | Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and | |
| (iii) | Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
II-2
| (4) | To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the Registrant includes in the prospectus, by means of a post- effective amendment, financial statements required pursuant to this paragraph (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of Regulation S- X if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. | |
| (5) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
| (6) | Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
II-3
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boisbriand, Province of Québec, Canada on September 22, 2020.
| VISION MARINE TECHNOLOGIES INC. | ||
| (Registrant) | ||
| By: | /s/ Alexandre Mongeon | |
| Alexandre Mongeon, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Each person whose signature appears below constitutes and appoints Alexandre Mongeon as attorney-in-fact with full power of substitution, for him or her in any and all capacities, to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act, and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the “Shares”), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the “Registration Statement”) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Alexandre Mongeon | Chief Executive Officer (Principal Executive Officer), Chairman | September 22, 2020 | ||
| Alexandre Mongeon | ||||
| /s/ Kulwant Sandher | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | September 22, 2020 | ||
| Kulwant Sandher | ||||
| /s/ Robert Ghetti | Director | September 22, 2020 | ||
| Robert Ghetti | ||||
| /s/ Patrick Bobby | Director | September 22, 2020 | ||
| Patrick Bobby | ||||
| /s/ Luisa Ingargiola | Director | September 22, 2020 | ||
| Luisa Ingargiola | ||||
| /s/ Steve Barrenechea | Director | September 22, 2020 | ||
| Steve Barrenechea | ||||
| /s/ Renaud Cloutier | Director | September 22, 2020 | ||
| Renaud Cloutier |
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of Vision Marine Technologies Inc., has signed this registration statement or amendment thereto in New York, New York, on September 22, 2020.
| Ortoli Rosenstadt LLP | ||
| By: | /s/ William S. Rosenstadt | |
| Name: William S. Rosenstadt | ||
| Title: Managing Partner | ||
Exhibit 1.1
UNDERWRITING AGREEMENT
between
VISION MARINE TECHNOLOGIES INC.
and
THINKEQUITY
A DIVISION OF FORDHAM FINANCIAL MANAGEMENT, INC.
as Representative of the Several Underwriters
VISION MARINE TECHNOLOGIES INC.
UNDERWRITING AGREEMENT
New York, New York
[•], 2020
ThinkEquity
A Division of Fordham Financial Management, Inc.
As Representative of the several Underwriters named on Schedule
1 attached hereto
17 State Street, 22nd Fl
New York, NY 10004
Ladies and Gentlemen:
The undersigned, Vision Marine Technologies Inc. (d/b/a Canadian Electric Boat Company), a corporation formed under the laws of Québec, Canada (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement (as hereinafter defined) as being subsidiaries or affiliates of Vision Marine Technologies Inc. (d/b/a Canadian Electric Boat Company), the “Company”), hereby confirms and enters into this agreement (this “Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc., (hereinafter referred to as “you” (including its correlatives) or the “Representative”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) as follows:
| 1. | Purchase and Sale of Shares. |
1.1 Firm Shares.
1.1.1. Nature and Purchase of Firm Shares.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, an aggregate of [•] shares (“Firm Shares”) of the Company’s common shares, no par value per share (the “Common Shares”).
(ii) The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price of US$[•] per share (93% of the per Firm Share offering price). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Shares Payment and Delivery.
(i) Delivery and payment for the Firm Shares shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Dentons US LLP, 1221 Avenue of the Americas, New York, NY 10020 (“Representative Counsel”), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares is called the “Closing Date.”
(ii) Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two (2) full Business Days prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Representative for all of the Firm Shares. The term “Business Day” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.
1.2 Over-allotment Option.
1.2.1. Option Shares. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Shares, the Company hereby grants to the Underwriters an option to purchase up to [•] additional Common Shares, representing fifteen percent (15%) of the Firm Shares sold in the offering, from the Company (the “Over-allotment Option”). Such [•] additional Common Shares, the net proceeds of which will be deposited with the Company’s account, are hereinafter referred to as “Option Shares.” The purchase price to be paid per Option Share shall be equal to the price per Firm Share set forth in Section 1.1.1 hereof. The Firm Shares and the Option Shares are hereinafter referred to together as the “Public Securities.” The offering and sale of the Public Securities is hereinafter referred to as the “Offering.”
1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares on or within 45 days after the Effective Date. The Underwriters shall not be under any obligation to purchase any Option Shares prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares to be purchased and the date and time for delivery of and payment for the Option Shares (the “Option Closing Date”), which shall not be later than one (1) full Business Days after the date of the notice and the written confirmation or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice and the written confirmation. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares specified in such notice and the written confirmation and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that pro-rata portion of the total number of Option Shares then being purchased with reference to the number of shares as set forth in “Number of Additional Shares to be Purchased if the Over-Allotment Option is Fully Exercised” on Schedule 1 opposite the name of such Underwriter.
1.2.3. Payment and Delivery. Payment for the Option Shares shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to the Representative of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares (or through the facilities of DTC) for the account of the Underwriters. The Option Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) full Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares except upon tender of payment by the Representative for applicable Option Shares. The Option Closing Date may be simultaneous with, but not earlier than, the Closing Date; and in the event that such time and date are simultaneous with the Closing Date, the term “Closing Date” shall refer to the time and date of delivery of the Firm Shares and Option Shares.
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1.3 Representative’s Warrants.
1.3.1. Purchase Warrants. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date an option (“Representative’s Warrant”) for the purchase of an aggregate of [•] Common Shares, representing 5.5% of the Public Securities, for an aggregate purchase price of US$100. The Representative’s Warrant agreement, in the form attached hereto as Exhibit A (the “Representative’s Warrant Agreement”), shall be exercisable, in whole or in part, commencing on a date which is one hundred eighty (180) days after the Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per Common Share of US$[•], which is equal to 125% of the initial public offering price of the Firm Shares. The Representative’s Warrant Agreement and the Common Shares issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrant Agreement and the underlying Common Shares during the one hundred eighty (180) days after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
1.3.2. Delivery. Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date and shall be issued in the name or names and in such authorized denominations as the Representative may request.
2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1 Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form F-1 (File No. 333-239777), including any related prospectus or prospectuses, for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
- 3 -
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [•], 2020, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
“Applicable Time” means [TIME] [a.m./p.m.], Eastern time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File Number 000-[•]) providing for the registration pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the Common Shares. The registration of the Common Shares under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Shares under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2 Stock Exchange Listing. The Common Shares have been approved for listing on the Nasdaq Capital Market (the “Exchange”) under the symbol “VMAR” and the Company has taken no action designed to, or likely to have the effect of, delisting the Common Shares from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
- 4 -
2.3 No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4 Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: (i) the disclosure under the headings “Discretionary Accounts,” “Price Stabilization, Short Positions and Penalty Bids” and “Electronic Offer, Sale and Distribution of Securities”, (ii) the disclosure regarding the Underwriter’s actions (or lack of actions) under the heading “Offer Restrictions Outside the United States” and (iii) the table showing the number of Firm Shares to be purchased by each Underwriter (the “Underwriters’ Information”); and
(iv) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
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2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. To the best of the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations.
2.4.3. Prior Securities Transactions. Within the three years prior to the Effective Date, no securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign regulation on the Offering and the Company’s business as currently contemplated are correct in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.5 Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company, nor any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
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2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
2.6 Independent Accountants. To the knowledge of the Company, BDO Canada LLP (the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
2.7 Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with International Financial Reporting Standards (“IFRS”), as adopted by the International Accounting Standards Board, consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by IFRS); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, or, other than in the course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.
2.8 Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued Common Shares of the Company or any security convertible or exercisable into Common Shares of the Company, or any contracts or commitments to issue or sell Common Shares or any such options, warrants, rights or convertible securities.
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2.9 Valid Issuance of Securities, etc.
2.9.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized Common Shares conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding Common Shares were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such Shares, exempt from such registration requirements.
2.9.2. Securities Sold Pursuant to this Agreement. The Public Securities and Representative’s Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s Securities has been duly and validly taken. The Public Securities and Representative’s Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and validly taken; the Common Shares issuable upon exercise of the Representative’s Warrant have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with the Representative’s Warrant and the Representative’s Warrant Agreement, such Common Shares will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; and such Common Shares are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.
2.10 Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
2.11 Validity and Binding Effect of Agreements. This Agreement and the Representative’s Warrant Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
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2.12 No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement, the Representative’s Warrant Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s Articles of Incorporation (as the same may be amended or restated from time to time, the “Charter”) or the by-laws of the Company; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof.
2.13 No Defaults; Violations. No material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not in violation of any term or provision of its Charter or by-laws, or in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity.
2.14 Corporate Power; Licenses; Consents.
2.14.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.14.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement and the Representative’s Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable federal and state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
2.15 D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
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2.16 Litigation; Governmental Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus or in connection with the Company’s listing application for the listing of the Public Securities on the Exchange.
2.17 Good Standing. The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of Québec, Canada as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.18 Insurance. The Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks which the Company believes are adequate, including, but not limited to, directors and officers insurance coverage at least equal to US$5,000,000 and the Company has included each Underwriter as an additional insured party to the directors and officers insurance coverage and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change.
2.19 Transactions Affecting Disclosure to FINRA.
2.19.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.19.2. Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.19.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.19.4. FINRA Affiliation. There is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company's securities or (iii) beneficial owner of the Company's unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
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2.19.5. Information. All information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.20 Foreign Corrupt Practices Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Compliance with OFAC. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22 Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
2.23 Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to the Representative or to Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.24 Lock-Up Agreements. Schedule 3 hereto contains a complete and accurate list of the Company’s officers, directors and each owner of the Company’s outstanding Common Shares (or securities convertible or exercisable into Common Shares) (collectively, the “Lock-Up Parties”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit B (the “Lock-Up Agreement”), prior to the execution of this Agreement.
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2.25 Subsidiaries. All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business or operations of the Company taken as a whole. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.26 Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required.
2.27 Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company, when formed on the Closing Date, will qualify as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.28 Sarbanes-Oxley Compliance.
2.28.1. Disclosure Controls. The Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.28.2. Compliance. The Company is, or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act.
2.29 Accounting Controls. The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with IFRS and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The Auditor has been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
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2.30 No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.31 No Labor Disputes. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
2.32 Intellectual Property Rights. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. To the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company. There is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change. The Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change. There is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change. To the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights of any persons..
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2.33 Taxes. Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiary. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.34 ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.35 Compliance with Laws. The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company, including but not limited to the standards of certification required by the Canadian Coast Guard, the United States Coast Guard, and the United States Boat Safety Act of 1971 (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws (“Authorizations”);(C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any governmental authority or third party alleging that any product operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such governmental authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (E) has not received notice that any governmental authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such governmental authority is considering such action; (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected or supplemented by a subsequent submission); and (G) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall, market withdrawal or replacement, safety alert, post-sale warning, or other notice or action relating to the alleged lack of safety or efficacy of any product or any alleged product defect or violation and, to the Company’s knowledge, no third party has initiated, conducted or intends to initiate any such notice or action.
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2.36 Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.37 Real Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
2.38 Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.
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2.39 Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.40 Smaller Reporting Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.41 Industry Data. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
2.42 Environmental Laws. The Company and the Subsidiaries are in compliance with any and all applicable federal, state, local, and foreign laws, rules, regulations, requirements, decisions and orders relating to the protection of human health and safety, the environment, or hazardous or toxic substances, wastes, pollutants, or contaminants (collectively the “Environmental Laws”), have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, and have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants, or contaminants, and there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its Subsidiaries.
2.43 Emerging Growth Company. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly in or through any Person authorized to act on its behalf in any Testing-the Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
2.44 Testing-the-Waters Communications. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule 2-C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
2.45 Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.46 Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Common Shares to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
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2.47 Foreign Private Issuer. From the time of initial confidential submission of the Registration Statement to the Commission (or if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is a “foreign private issuer” within the meaning of Rule 405 under the Securities Act.
2.48 Reverse Shares Split. The Company has taken all necessary corporate action to effectuate a reverse shares split of its Common Shares on the basis of one (1) such share for each three point seven (3.7) issued and outstanding shares thereof (the “Reverse Shares Split”), such Reverse Shares Split to be effective no later than September 14, 2020.
| 3. | Covenants of the Company. The Company covenants and agrees as follows: |
3.1 Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1. Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative’s Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities and Representative’s Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
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3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange Act Regulations within 48 hours prior to the Applicable Time. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
3.2.3. Exchange Act Registration. For a period of three (3) years after the date of this Agreement, the Company (a) shall use its best efforts to maintain the registration of the Common Shares under the Exchange Act and (b) shall not deregister the Common Shares under the Exchange Act without the prior written consent of the Representative.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
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3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3 Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and counsel for the Representative, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5 Effectiveness and Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus for at least nine (9) months after the Applicable Time, and shall notify the Representative immediately and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five (5) years after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.
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3.7 Listing. The Company shall use its best efforts to maintain the listing of the Common Shares (including the Public Securities) on the Exchange for at least three years from the date of this Agreement.
3.8 Financial Public Relations Firm. As of the Effective Date, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative and the Company, which shall initially be [PUBLIC RELATIONS FIRM - TBD], which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
3.9 Reports to the Representative.
3.9.1. Periodic Reports, etc. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) five copies of each registration statement filed by the Company under the Securities Act; and (v) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request; provided the Representative shall sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to the Representative and Representative Counsel in connection with the Representative’s receipt of such information. Documents filed with the Commission pursuant to its EDGAR system shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.1.
3.9.2. Transfer Agent; Transfer Sheets. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the “Transfer Agent”) and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. VStock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the Common Shares.
3.9.3. Trading Reports. During such time as the Public Securities are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request.
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3.10 Payment of Expenses
3.10.1. General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Common Shares to be sold in the Offering (including the Over-allotment Shares) with the Commission; (b) all Public Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of such Public Securities on the Exchange and such other stock exchanges as the Company and the Representative together determine; (d) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors in an amount not to exceed US$15,000 in the aggregate; (e) all fees, expenses and disbursements relating to the registration or qualification of the Public Securities under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate; (f) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (g) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement, Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (h) the costs and expenses of the public relations firm referred to in Section 3.8; (i) the costs of preparing, printing and delivering certificates representing the Public Securities; (j) fees and expenses of the transfer agent for the Common Shares; (k) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (l) to the extent approved by the Company in writing, the costs associated with post-Closing advertising the Offering in the national editions of the Wall Street Journal and New York Times; (m) the costs associated with one set of bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, each of which the Company or its designee shall provide within a reasonable time after the Closing Date in such quantities as the Representative may reasonably request in an amount not to exceed US$3,000; (n) the fees and expenses of the Company’s accountants; (o) the fees and expenses of the Company’s legal counsel and other agents and representatives; (p) fees and expenses of the Representative’s legal counsel not to exceed US$115,000; (q) the US$29,500 cost associated with the Underwriter’s use of Ipreo’s book-building, prospectus tracking and compliance software for the Offering; (r) US$10,000 for data services and communications expenses; and (s) up to US$20,000 of the Underwriters’ actual accountable “road show” expenses for the Offering. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
3.10.2. Non-accountable Expenses. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.10.1, on the Closing Date it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1%) of the gross proceeds received by the Company from the sale of the Firm Shares (excluding the Option Shares), less the Advance (as such term is defined in Section 8.3 hereof), provided, however, that in the event that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 8.3 hereof.
3.11 Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.12 Delivery of Earnings Statements to Security Holders. The Company shall make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth (15th) full calendar month following the date of this Agreement, an earnings statement (which need not be certified by independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.
3.13 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
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3.14 Internal Controls. The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with IFRS and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
3.15 Accountants. As of the date of this Agreement, the Company shall retain an independent registered public accounting firm reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative.
3.16 FINRA. For a period of 180 days from the later of the Closing Date or the Option Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company's securities or (iii) any beneficial owner of the Company's unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.17 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
3.18 Company Lock-Up Agreements.
3.18.1. Restriction on Sales of Capital Stock. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 180 days after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or caused to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
The restrictions contained in this Section 3.18.1 shall not apply to (i) the Common Shares to be sold hereunder, (ii) the issuance by the Company of Common Shares upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date hereof, which is disclosed in the Registration Statement, Disclosure Package and Prospectus, provided that such options, warrants, and securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities or to extend the term of such securities, (iii) the issuance by the Company of stock options or shares of capital stock of the Company under any equity compensation plan of the Company or (iv) capital stock issued or registered pursuant to acquisitions or strategic transactions, not primarily for the purposes of raising capital, and approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a person or company or an owner of an asset in a business synergistic with the business of the Company, provided that in each of (ii), (iii) and (iv) above, the underlying shares shall be restricted from sale during the entire Lock-Up Period.
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3.18.2. Restriction on Continuous Offerings. Notwithstanding the restrictions contained in Section 3.18.1, the Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 12 months after the date of this Agreement, directly or indirectly in any “at-the-market” or continuous equity transaction, offer to sell, sell, contract to sell, grant any option to sell or otherwise dispose of shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company.
3.19 Release of D&O Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.24 hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.20 Blue Sky Qualifications. The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.21 Reporting Requirements. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.
3.22 Emerging Growth Company Status. The Company shall promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Public Securities within the meaning of the Securities Act and (ii) fifteen (15) days following the completion of the Lock-Up Period.
3.23 Foreign Private Issuer Status. The Company shall promptly notify the Representative if the Company ceases to be Foreign Private Issuer at any time prior to three (3) years from the date of this Agreement.
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4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:00 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Stock Market Clearance. On the Closing Date, the Company’s Common Shares, including the Firm Shares, shall have been approved for listing on the Exchange, subject only to official notice of issuance. On the first Option Closing Date (if any), the Company’s Common Shares, including the Option Shares, shall have been approved for listing on the Exchange, subject only to official notice of issuance.
4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion of U.S. Counsel. On the Closing Date, the Representative shall have received the favorable opinion and negative assurance letter of Ortoli Rosenstadt LLP, U.S. counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.
4.2.2. Closing Date Opinion of Canadian Counsel. On the Closing Date, the Representative shall have received the favorable opinion and negative assurance letter of Renno & Co., Canadian counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.
4.2.3. Option Closing Date Opinions of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinions of each counsel listed in Sections 4.2.1 and 4.2.2, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsels in their respective opinions delivered on the Closing Date.
4.2.4. Reliance. In rendering such opinions, such counsel may rely: (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Representative Counsel if requested.
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4.3 Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed the Representative shall have received a cold comfort letter containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to the Representative and to the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) business days prior to the Closing Date or the Option Closing Date, as applicable.
4.4 Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer, its President and its Chief Financial Officer stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included or incorporated by reference in the Pricing Disclosure Package, any material adverse change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company, except as set forth in the Prospectus.
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4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Date, as the case may be, respectively, certifying: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no material adverse change or development involving a prospective material adverse change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
4.6 Delivery of Agreements.
4.6.1. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto.
4.6.2. Representative’s Warrant Agreement. On the Closing Date, the Company shall have delivered to the Representative executed copies of the Representative’s Warrant Agreement.
4.7 Additional Documents. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities and the Representative’s Securities as herein contemplated shall be satisfactory in form and substance to the Representative and Representative Counsel.
4.8 Reverse Shares Split. Not later than September 14, 2020, the Reverse Shares Split shall be effective.
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| 5. | Indemnification. |
5.1 Indemnification of the Underwriters.
5.1.1. General. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel, and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries (a “Claim”), (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (A) the Registration Statement, the Pricing Disclosure Package, any Preliminary Prospectus, the Prospectus, or in any Issuer Free Writing Prospectus or in any Written Testing-the-Waters Communication (as from time to time each may be amended and supplemented); (B) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (C) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities and Representative’s Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information or (ii) otherwise arising in connection with or allegedly in connection with the Offering. The Company also agrees that it will reimburse each Underwriter Indemnified Party for all fees and expenses (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) (collectively, the “Expenses”), and further agrees wherever and whenever possible to advance payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending any Claim.
5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the approval of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do so. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company, and shall be advanced by the Company provided however, that the Company shall not be obligated to bear the reasonable fees and expenses of more than one firm of attorneys selected by the Underwriter Indemnified Party (in addition to local counsel). The Company shall not be liable for any settlement of any action effected without its consent (which shall not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party.
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5.2 Indemnification of the Company. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the Offering of the Public Securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the Offering of the Public Securities purchased under this Agreement (before deducting expenses) received by the Company, as set forth in the table on the cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the Common Shares purchased under this Agreement, as set forth in the table on the cover page of the Prospectus, on the other hand. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5.3.1 in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the Offering of the Public Securities exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
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5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid 15 days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. Each Underwriter’s obligations to contribute pursuant to this Section 5.3 are several and not joint.
| 6. | Default by an Underwriter. |
6.1 Default Not Exceeding 10% of Firm Shares or Option Shares. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares or the Option Shares, if the Over-allotment Option is exercised hereunder, and if the number of the Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares or Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Shares or Option Shares. In the event that the default addressed in Section 6.1 relates to more than 10% of the Firm Shares or Option Shares, the Representative may in its discretion arrange for the Representative or for another party or parties to purchase such Firm Shares or Option Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the Firm Shares or Option Shares, the Representative does not arrange for the purchase of such Firm Shares or Option Shares, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to the Representative to purchase said Firm Shares or Option Shares on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Shares or Option Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3.9 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares, this Agreement will not terminate as to the Firm Shares; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
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6.3 Postponement of Closing Date. In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of counsel for the Underwriter may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Common Shares.
| 7. | Additional Covenants. |
7.1 Board Composition and Board Designations. The Company shall ensure that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board comply with the Sarbanes-Oxley Act, with the Exchange Act and with the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one member of the Audit Committee of the Board of Directors, when formed on the Closing Date, will qualify as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press Releases and Public Announcements. The Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the forty-fifth (45th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
7.3 Right of First Refusal. Provided that the Firm Shares are sold in accordance with the terms of this Agreement, the Representative shall have an irrevocable right of first refusal (the “Right of First Refusal”), for a period of twenty-four (24) months after the date the Offering is completed, to act as sole and exclusive investment banker, sole and exclusive book-runner, sole and exclusive financial advisor, sole and exclusive underwriter and/or sole and exclusive placement agent, at the Representative’s sole and exclusive discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject Transaction”), during such twenty-four (24) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary to the Representative for such Subject Transactions. For the avoidance of any doubt, the Company shall not retain, engage or solicit any additional investment banker, book-runner, financial advisor, underwriter and/or placement agent in a Subject Transaction without the express written consent of the Representative.
The Company shall notify the Representative of its intention to pursue a Subject Transaction, including the material terms thereof, by providing written notice thereof by registered mail or overnight courier service addressed to the Representative. If the Representative fails to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing of such written notice, then the Representative shall have no further claim or right with respect to the Subject Transaction. The Representative may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject Transaction; provided that any such election by the Representative shall not adversely affect the Representative’s Right of First Refusal with respect to any other Subject Transaction during the twenty-four (24) month period agreed to above.
| - 30 - |
| 8. | Effective Date of this Agreement and Termination Thereof. |
8.1 Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2 Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative’s opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative’s opinion, make it inadvisable to proceed with the delivery of the Firm Shares or Option Shares; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of such a material adverse change in the conditions or prospects of the Company, or such adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
8.3 Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel) up to US$200,000, inclusive of the US$40,000 advance for accountable expenses previously paid by the Company to the Representative (the “Advance”) and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).
8.4 Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
| - 31 - |
| 9. | Miscellaneous. |
9.1 Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by facsimile transmission and confirmed and shall be deemed given when so delivered or faxed and confirmed or if mailed, two (2) days after such mailing.
If to the Representative:
ThinkEquity
17 State Street, 22nd Fl
New York, NY 10004
Attn: Mr. Eric Lord, Head of Investment Banking
Fax: (212) 349-2550
with a copy (which shall not constitute notice) to:
Dentons US LLP
1221 Avenue of the Americas
New York, New York 10020
Attn: Rob Condon
Fax No.: (212) 768-6800
If to the Company:
Vision Marine Technologies Inc.
730 Boulevard du Cure-Boivin
Boisbriand, Québec J7G 2A7, Canada
Attention:
Fax No:
with a copy (which shall not constitute notice) to:
Ortoli Rosenstadt LLP
501 Madison Avenue, 14th Floor
New York, New York 10022
Attention: William Rosenstadt
Fax No: 212-826-9307
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
9.3 Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of that certain engagement letter between the Company and ThinkEquity, a division of Fordham Financial Management, Inc., dated December 20, 2019, shall remain in full force and effect.
| - 32 - |
9.5 Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.7 Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
| - 33 - |
If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
| Very truly yours, | ||
| VISION MARINE TECHNOLOGIES INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
| Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto: | ||
| THINKEQUITY | ||
| A Division of Fordham Financial Management, Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
[SIGNATURE PAGE]
VMAR – UNDERWRITING AGREEMENT
SCHEDULE 1
| Underwriter | Total Number of Firm Shares to be Purchased | Number of Additional Shares to be Purchased if the Over-Allotment Option is Fully Exercised | ||||||
| ThinkEquity, a division of Fordham Financial Management, Inc. . | ||||||||
| TOTAL | ||||||||
| Sch. 1-1 |
SCHEDULE 2-A
Pricing Information
Number of Firm Shares: [•]
Number of Option Shares: [•]
Public Offering Price per Share: US$[•]
Underwriting Discount per Share: US$[•]
Underwriting Non-accountable expense allowance per Share: US$[•]
Proceeds to Company per Share (before expenses): US$[•]
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
[None.]
SCHEDULE 2-C
Written Testing-the-Waters Communications
[None.]
| Sch. 2-1 |
SCHEDULE 3
List of Lock-Up Parties
Alexandre Mongeon
Patrick Bobby
Kulwant Sandher
Robert Ghetti
Michel Amyot
Renaud Cloutier
Steve P. Barrenechea
Luisa Ingargiola
9134-0489 Quebec Inc.
KPAC Holding Ltd.
Société de Placements Robert Ghetti Inc.
Gestion Toyma Inc
Immobilier R. Ghetti Inc.
9335-1427 Quebec Inc.
James Stafford
[Other shareholders to be added]
| Sch. 3-1 |
EXHIBIT A
Form of Representative’s Warrant Agreement
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) THINKEQUITY, A DIVISION OF FORDHAM FINANCIAL MANAGEMENT, INC., OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF THINKEQUITY, A DIVISION OF FORDHAM FINANCIAL MANAGEMENT, INC., OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [DATE THAT IS 180 DAYS FROM THE EFFECTIVE DATE OF THE OFFERING]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING].
WARRANT TO PURCHASE COMMON SHARES
VISION MARINE TECHNOLOGIES INC.
Warrant Shares: _______
Initial Exercise Date: ______, 2020
THIS WARRANT TO PURCHASE COMMON SHARES (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after ____, 2020 (the “Initial Exercise Date”) and, in accordance with FINRA Rule 5110(f)(2)(G)(i), prior to at 5:00 p.m. (New York time) on the date that is five (5) years following the Effective Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Vision Marine Technologies Inc. (d/b/a Canadian Electric Boat Company), a corporation formed under the laws of Québec, Canada (the “Company”), up to ______ common shares, no par value, of the Company (the “Warrant Shares”), as subject to adjustment hereunder. The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
| Ex. A-1 |
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Commission” means the United States Securities and Exchange Commission.
“Effective Date” means the effective date of the registration statement on Form F-1 (File No. 333-239777), including any related prospectus or prospectuses, for the registration of the Company’s common shares, no par value (the “Common Shares”) and the Warrant Shares under the Securities Act, that the Company has filed with the Commission.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Trading Day” means a day on which the Nasdaq Capital Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Trading Market on which the Common Shares is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of a share of the Common Shares for such date (or the nearest preceding date) on the OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on the OTCQB or OTCQX and if prices for Common Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Shares so reported, or (d) in all other cases, the fair market value of the Common Shares as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
| Ex. A-2 |
Section 2. Exercise.
a) Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within five (5) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within two (2) Business Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of the Common Shares under this Warrant shall be US$_______1, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. If at any time on or after the Initial Exercise Date, there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;
1 125% of the public offering price per common share in the offering.
| Ex. A-3 |
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a “cashless exercise,” the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 2(c).
Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by its transfer agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 and, in either case, the Warrant Shares have been sold by the Holder prior to the Warrant Share Delivery Date (as defined below), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is two (2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). If the Warrant Shares can be delivered via DWAC, the transfer agent shall have received from the Company, at the expense of the Company, any legal opinions or other documentation required by it to deliver such Warrant Shares without legend (subject to receipt by the Company of reasonable back up documentation from the Holder, including with respect to affiliate status) and, if applicable and requested by the Company prior to the Warrant Share Delivery Date, the transfer agent shall have received from the Holder a confirmation of sale of the Warrant Shares (provided the requirement of the Holder to provide a confirmation as to the sale of Warrant Shares shall not be applicable to the issuance of unlegended Warrant Shares upon a cashless exercise of this Warrant if the Warrant Shares are then eligible for resale pursuant to Rule 144(b)(1)). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the second Trading Day following the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each US$1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Shares on the date of the applicable Notice of Exercise), US$10 per Trading Day (increasing to US$20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after the second Trading Day following such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
| Ex. A-4 |
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause its transfer agent to deliver to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise; provided, however, that the Holder shall be required to return any Warrant Shares or Common Shares subject to any such rescinded exercise notice concurrently with the return to Holder of the aggregate Exercise Price paid to the Company for such Warrant Shares and the restoration of Holder’s right to acquire such Warrant Shares pursuant to this Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Common Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of US$11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of US$10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder US$1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Common Shares upon exercise of the Warrant as required pursuant to the terms hereof.
| Ex. A-5 |
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
viii. Signature. This Section 2 and the exercise form attached hereto set forth the totality of the procedures required of the Holder in order to exercise this Purchase Warrant. Without limiting the preceding sentences, no ink-original exercise form shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any exercise form be required in order to exercise this Purchase Warrant. No additional legal opinion, other information or instructions shall be required of the Holder to exercise this Purchase Warrant. The Company shall honor exercises of this Purchase Warrant and shall deliver Shares underlying this Purchase Warrant in accordance with the terms, conditions and time periods set forth herein.
| Ex. A-6 |
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates shall include the number of Common Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of Common Shares outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding. In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
| Ex. A-7 |
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on its Common Shares or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of Common Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. For the purposes of clarification, the Exercise Price of this Warrant will not be adjusted in the event that the Company or any Subsidiary thereof, as applicable, sells or grants any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Shares or Common Share Equivalents, at an effective price per share less than the Exercise Price then in effect.
b) [RESERVED]
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Shares (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
Ex. A- 8
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other than cash dividends) or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of shares or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable by holders of Common Shares as a result of such Fundamental Transaction for each share of Common Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Common Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Representative (as defined in the Underwriting Agreement) and approved by the Representative (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Common Shares acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the Common Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Representative. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
Ex. A- 9
f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.
g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Shares are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed a notice to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Shares of record shall be entitled to exchange their shares of the Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to provide such notice or any defect therein shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Ex. A- 10
Section 4. Transfer of Warrant.
a) Transferability. Pursuant to FINRA Rule 5110(g)(1), neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer of any security:
i. by operation of law or by reason of reorganization of the Company;
ii. to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period;
Ex. A- 11
iii. if the aggregate amount of securities of the Company held by the Holder or related person do not exceed 1% of the securities being offered;
iv. that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or
v. the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period.
Subject to the foregoing restriction, any applicable securities laws and the conditions set forth in Section 4(d), this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Ex. A- 12
Section 5. Registration Rights.
5.1. Demand Registration.
5.1.1 Grant of Right. If at any time on or after the Initial Exercise Date, there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder or if Rule 144 for the resale of the Warrant Shares is not available to the Holder without any volume or other limitations, the Company, upon written demand (a “Demand Notice”) of the Holder(s) of at least 51% of the Warrants and/or the underlying Warrant Shares, agrees to register, on one occasion, all or any portion of the Warrant Shares underlying the Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 5.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time beginning on the Initial Exercise Date and expiring on the fifth anniversary of the Effective Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
5.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 5.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal shareholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 5.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the Warrant Shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 5.1.2, the Holder shall be entitled to a demand registration under this Section 5.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the date of the Underwriting Agreement (as defined below) in accordance with FINRA Rule 5110(f)(2)(G)(iv).
Ex. A- 13
5.2 “Piggy-Back” Registration.
5.2.1 Grant of Right. In addition to the demand right of registration described in Section 5.1 hereof, the Holder shall have the right, for a period of no more than two (2) years from the Initial Exercise Date in accordance with FINRA Rule 5110(f)(2)(G)(v), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form F-4, Form S-4 or Form S-8 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Shares which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
5.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 5.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company during the two (2) year period following the Initial Exercise Date until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 5.2.2; provided, however, that such registration rights shall terminate on the second anniversary of the Initial Exercise Date.
5.3 General Terms
5.3.1 Indemnification. The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Exchange Act against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [___], 2020. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
Ex. A- 14
5.3.2 Exercise of Warrants. Nothing contained in this Warrant shall be construed as requiring the Holder(s) to exercise their Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
5.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
5.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 5, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Warrant Shares and their intended methods of distribution.
Ex. A- 15
5.3.5 Documents to be Delivered by Holder(s). Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
5.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 5.1 and 5.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
Section 6. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Shares a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Ex. A- 16
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the underwriting agreement, dated ___, 2020, by and between the Company and ThinkEquity, a division of Fordham Financial Management, Inc., as representatives of the underwriters set forth therein (the “Underwriting Agreement”).
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered or otherwise able to be resold or transferred without restriction pursuant to an exemption from registration under the Securities Act, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws. Any certificates representing, or book entry for, such Warrant Shares shall contain a legend to the following effect: “The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), or applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law which, in the opinion of counsel to the Company, is available.”
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Underwriting Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
Ex. A- 17
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Underwriting Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
Ex. A- 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| VISION MARINE TECHNOLOGIES INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
Ex. A- 19
NOTICE OF EXERCISE
TO: ViSION MARINE TECHNOLOGIES INC.
_________________________
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
¨ in lawful money of the United States; or
¨ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please register and issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. If the Warrant is being exercised via cash exercise, the undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended
[SIGNATURE OF HOLDER]
| Name of Investing Entity: | |
| Signature of Authorized Signatory of Investing Entity: | |
| Name of Authorized Signatory: | |
| Title of Authorized Signatory: | |
| Date: | |
Ex. A- 20
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder’s Signature: _____________________________
Holder’s Address: _____________________________
_____________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
Ex. A- 21
EXHIBIT B
Lock-Up Agreement
[•], 2020
ThinkEquity
A Division of Fordham Financial Management, Inc.
17 State Street, 22nd Floor
New York, NY 10004
As Representative of the several Underwriters named on Schedule
1 to the Underwriting Agreement referenced below.
Ladies and Gentlemen:
The undersigned understands that ThinkEquity, a Division of Fordham Financial Management, Inc. (the “Representative”), proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Vision Marine Technologies Inc., a corporation organized under the laws of Québec, Canada, doing business as Canadian Electric Boat Company (the “Company”), providing for the initial public offering (the “Public Offering”) of common shares, no par value per share, of the Company (the “Common Shares”).
| Ex. B-1 |
To induce the Representative to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the date hereof and ending on the date which is 180 days after the date of the Underwriting Agreement relating to the Public Offering (the “Lock-Up Period”), (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other public announcement shall be required or shall be voluntarily made in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of the undersigned or a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; (d) if the undersigned is a corporation, partnership, limited liability company or other business entity, (i) any transfers of Lock-Up Securities to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the undersigned or (ii) distributions of Lock-Up Securities to members, partners, stockholders, subsidiaries or affiliates (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned; (e) if the undersigned is a trust, to a trustee or beneficiary of the trust; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) (d) or (e), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Representative a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made; (f) the receipt by the undersigned from the Company of Common Shares upon the vesting of restricted stock awards or stock units or upon the exercise of options to purchase the Company’s Common Shares issued under an equity incentive plan of the Company or an employment arrangement described in the Pricing Prospectus (as defined in the Underwriting Agreement) (the “Plan Shares”) or the transfer of Common Shares or any securities convertible into Common Shares to the Company upon a vesting event of the Company’s securities or upon the exercise of options to purchase the Company’s securities, in each case on a “cashless” or “net exercise” basis or to cover tax obligations of the undersigned in connection with such vesting or exercise, but only to the extent such right expires during the Lock-up Period, provided that no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made within 180 days after the date of the Underwriting Agreement, and after such 180th day, if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Common Shares during the Lock-Up Period, the undersigned shall include a statement in such schedule or report to the effect that the purpose of such transfer was to cover tax withholding obligations of the undersigned in connection with such vesting or exercise and, provided further, that the Plan Shares shall be subject to the terms of this lock-up agreement; (g) the transfer of Lock-Up Securities pursuant to agreements described in the Pricing Prospectus under which the Company has the option to repurchase such securities or a right of first refusal with respect to the transfer of such securities, provided that if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Common Shares during the Lock-Up Period, the undersigned shall include a statement in such schedule or report describing the purpose of the transaction; (h) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Lock-Up Securities, provided that (1) such plan does not provide for the transfer of Lock-Up Securities during the Lock-Up Period and (2) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such public announcement or filing shall include a statement to the effect that no transfer of Lock-Up Securities may be made under such plan during the Lock-Up Period; (i) the transfer of Lock-Up Securities that occurs by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that the transferee agrees to sign and deliver a lock-up agreement substantially in the form of this lock-up agreement for the balance of the Lock-Up Period, and provided further, that any filing under Section 13 or Section 16(a) of the Exchange Act that is required to be made during the Lock-Up Period as a result of such transfer shall include a statement that such transfer has occurred by operation of law; and (j) the transfer of Lock-Up Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Common Shares involving a change of control (as defined below) of the Company after the closing of the Public Offering and approved by the Company’s board of directors; provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the Lock-Up Securities owned by the undersigned shall remain subject to the restrictions contained in this lock-up agreement. For purposes of clause (j) above, “change of control” shall mean the consummation of any bona fide third party tender offer, merger, amalgamation, consolidation or other similar transaction the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of a majority of total voting power of the voting stock of the Company. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.
| Ex. B-2 |
The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date hereof to and including the 34th day following the expiration of the Lock-Up Period, the undersigned will give notice thereof to the Company and will not consummate any such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period has expired.
If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” Securities that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.
The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
The undersigned understands
that, if the Underwriting Agreement is not executed by December 31, 2020, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Shares to be
sold thereunder, then this lock-up agreement shall be void and of no further force or effect.
| Ex. B-3 |
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Representative.
| Very truly yours, | |
| (Name - Please Print) | |
| (Signature) | |
| (Name of Signatory, in the case of entities - Please Print) | |
| (Title of Signatory, in the case of entities - Please Print) | |
| Address: | |
| Ex. B-4 |
EXHIBIT C
Form of Press Release
VISION MARINE TECHNOLOGIES INC.
[Date]
Vision Marine Technologies Inc. (the “Company”) announced today that ThinkEquity, a division of Fordham Financial Management, Inc., acting as representative for the underwriters in the Company’s recent public offering of _______ common shares of the Company, is [waiving] [releasing] a lock-up restriction with respect to _________ common shares held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on _________, 20___, and the shares may be sold on or after such date.
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
Ex. C- 1
Exhibit 4.1
NUMBER Vision Marine Technologies Inc. SHARES **** INCORPORATED UNDER THE LAWS OF QUEBEC **** CUSIP C96657116 COMMON STOCK THIS CERTIFIES THAT * SPECIMEN * Is The Owner of **** FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF Vision Marine Technologies Inc. Transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Dated: **** COUNTERSIGNED AND REGISTERED: VSTOCK TRANSFER, LLC Transfer Agent and Registrar By:____________________________ Chief Financial Officer AUTHORIZED SIGNATURE
Exhibit 5.1
September 22, 2020
VISION MARINE TECHNOLOGIES INC.
730 Boulevard du Curé-Boivin
Boisbriand, Québec J7G 2A7
Canada
Attention: Board of Directors
| Re: | Vision Marine Technologies Inc. |
| Registration Statement on Form F-1 | |
| (Our File: 1022-00049) |
Dear Sirs:
We have acted as special legal counsel to Vision Marine Technologies Inc., a Québec corporation (the “Company”), in connection with the Company’s Registration Statement on Form F-1 (Registration Statement No. 333-239777) (as amended and supplemented to date, the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”) under the U.S. Securities Act of 1933, as amended (the “Securities Act”) including a related prospectus filed with the Registration Statement (the “Prospectus”), covering the offering (the “Offering”) for sale to ThinkEquity, a division of Fordham Financial Management Inc. (the “Underwriter”) of an aggregate of up to US$15,000,000 of common shares, without nominal or par value (each a “Share”), plus an additional US$2,250,000 of Shares pursuant to an over-allotment option granted to the Underwriter, at an offering price to be determined by the Company and the Underwriter (the “Offering Price”), and the public offering of such securities by the Underwriter.
Pursuant to the underwriting agreement to be entered into among the Company and the Underwriter, substantially in the form filed as an exhibit to the Registration Statement, the Company agrees to issue to the Underwriter, as partial compensation for their services, common share purchase warrants (each, an “Underwriter Warrant”) in an amount equal to 5.5% of the Shares sold in the Offering. Each Underwriter Warrant will entitle the holder to purchase one Share (each, an “Underwriter Warrant Share”) commencing six months after the effective date of the Registration Statement (the “Effective Date”) at a price per Underwriter Warrant Share equal to 125% of the final Offering Price of the Shares sold in the Offering and expiring five years following the Effective Date.
In connection with this opinion, we have reviewed and relied upon the Registration Statement and Prospectus, the Company’s Articles of Incorporation (as amended), by-laws, records of the Company’s corporate proceedings in connection with the Offering, and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion. With respect to the foregoing documents, we have assumed: (i) the authenticity of all records, documents, and instruments submitted to us as originals; (ii) the genuineness of all signatures on all agreements, instruments and other documents submitted to us; (iii) the legal capacity and authority of all persons or entities (other than the Company) executing all agreements, instruments or other documents submitted to us; (iv) the authenticity and the conformity to the originals of all records, documents, and instruments submitted to us as copies; (v) that the statements contained in the certificates and comparable documents of public officials, officers and representatives of the Company and other persons on which we have relied for purposes of this opinion are true and correct; and (vi) the due authorization, execution and delivery of all agreements, instruments and other documents by all parties thereto (other than the due authorization, execution and delivery of each such agreement, instrument and document by the Company). We have also obtained from officers of the Company certificates as to certain factual matters and, insofar as this opinion is based on matters of fact, we have relied on such certificates without independent investigation.
Our opinion is limited to law of the Province of Québec, including all applicable provisions of the Business Corporations Act (Québec) (the “Business Corporations Act”), and the federal laws of Canada applicable in the Province of Québec, and as it relates to the Underwriter Warrants and Underwriter Warrant Shares, the laws of the State of New York. We have not considered, and have not expressed any opinion with regard to, or as to the effect of, any other law, rule, or regulation, state or federal, applicable to the Company. In particular, we express no opinion as to United States federal securities laws.
Based upon the foregoing and in reliance thereon, and subject to the qualifications and limitations set forth herein, we are of the opinion that:
| 1. | The Shares have been duly authorized and, when the Shares are issued and sold in the manner and under the terms described in the Registration Statement, will be validly issued, fully paid and non-assessable; |
| 2. | The Underwriter Warrants have been duly authorized and, when issued and sold in accordance with and in the manner described in the Registration Statement, will constitute a valid and binding agreement of the Company enforceable against the Company in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, winding-up, moratorium, liquidation, fraudulent conveyance, or other similar law affecting creditors’ rights, and subject to general principles of equity and to limitations on availability of equitable relief, including specific performance; |
| 3. | The Underwriter Warrant Shares have been duly authorized and, when issued and paid for upon exercise of the Underwriter Warrants as contemplated by the Underwriter Warrants, will be validly issued, fully paid and non-assessable. |
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our firm’s name in the section of the Registration Statement and the Prospectus included therein entitled “Legal Matters”. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations of the Commission.
This opinion is furnished in accordance with the requirements of Item 8.a. of Form F-1 and Item 601(b)(5)(i) of Regulation S-K of the Securities Act in connection with the filing of the Registration Statement and the related Prospectus, and is not to be used, circulated, quoted or otherwise relied upon for any other purpose. This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We disclaim any obligation to advise you of facts, circumstances, events or developments that hereafter may be brought to our attention and that may alter, affect or modify the opinion expressed herein after the effective date of the Registration Statement.
Yours truly,
/s/ Robert Zalcman
Robert Zalcman
Renno & Co. Inc.
Exhibit 10.8
VISION MARINE TECHNOLOGIES INC.
SUBSCRIPTION AGREEMENT
Instructions to Complete Subscription Agreement:
| The following items in this Subscription Agreement must be completed. Please initial each applicable box. If the Subscriber is acting on behalf of more than one disclosed principal, a separate subscription agreement must be completed for each disclosed principal. | ||
| All Subscribers | ||
| All Subscriber and subscription information in the boxes on pp. 1-2. | ||
| Accredited Investors | ||
| Schedule A – Representation Letter (including Exhibit A and B thereto) | ||
| Family, Friends and Business Associates | ||
| Schedule B – Representation Letter | ||
| Ontario Family, Friends and Business Associates | ||
| Schedule C – Risk acknowledgement Form for Ontario Family, Friends and Business Associates | ||
| Saskatchewan Family, Friends and Business Associates | ||
| Schedule D –Risk acknowledgement Form for Saskatchewan Family, Friends and Business Associates | ||
| If the Subscribers is not resident in Canada or the United States | ||
| Schedule E – Offshore Purchaser Certificate | ||
| If the Subscribers is a resident in the United States | ||
| Schedule F – U.S. Purchaser Certificate | ||
| All Subscribers | ||
| Schedule G – Information regarding the Subscriber | ||
| Schedule H – Wire Instructions (CAD) | ||
| Schedule I – Wire Instructions (USD) | ||
|
You may not change any part of this Subscription Agreement without the consent of the Issuer. | ||
Instructions for Delivery of Completed Subscription Agreement and Payment of Aggregate Subscription Price:
A duly completed and originally executed copy of this Agreement and the other documents required to be delivered with this Agreement must be delivered, forty-eight (48) hours prior to the Closing Date, to Renno & Co Inc. c/o Toufic Adlouni, 3 Place Ville-Marie, suite 400, Montreal, Quebec, H3B 2E3, (514) 898-9576, Email: toufic@rennoco.com
VISION MARINE TECHNOLOGIES INC.
SUBSCRIPTION AGREEMENT FOR SHARES
| TO: |
VISION MARINE TECHNOLOGIES INC. (the “Issuer”)
|
The undersigned (the “Subscriber”) hereby irrevocably subscribes for and agrees to purchase from the Issuer the number of shares of the Issuer (the “Shares”) set forth below, each share being (1) Voting Common Share - Series Investor 2 in the capital of the Corporation (a “Share”), for the aggregate consideration set forth below, representing a subscription price of [------------] ($[----] CAD) per Share, upon and subject to the terms and conditions set forth in this Subscription Agreement (hereafter: the “Agreement”), and the term sheet with respect to the offering of the Shares attached hereto. The Subscriber further agrees, without limitation, that the Issuer may rely upon the Subscriber's representations, warranties and covenants contained in this Agreement.
SUBSCRIBER AND SUBSCRIPTION INFORMATION
Please print all information (other than signatures), as applicable, in the space provided below.
|
(Name of Subscriber)
Signature:
(Official Capacity or Title – if the Subscriber is not an individual)
(Name of individual whose signature appears above if different than the name of the Subscriber printed above.)
(Subscriber’s Residential Address, including municipality, province and postal code)
|
Beneficial Subscriber Information (Please complete if purchasing as agent or trustee for a principal (a "Beneficial Subscriber") and not purchasing as agent or trustee for accounts fully managed by the Subscriber)
(Name of Beneficial Subscriber for whom Subscriber is contracting)
(Beneficial Subscriber’s Residential Address, including municipality, province and postal code)
(Telephone Number)
(Social Insurance Number, Corporate/Business Number or Tax
Identification Number)
(Fax Number)
(Email Address) | |
|
Number of Shares:
Subscription Price Per Share: CAD $[----]
Aggregate Subscription Price:
(# of Shares x CAD $[----])
|
||
|
Account Registration Information:
(Name)
(Account Reference, if applicable)
(Address, including Municipality, Province and Postal Code) |
Delivery Instructions as set forth below:
¨ same as Registered Address (otherwise complete below)
(Name)
(Account Reference, if applicable)
(Address, including Municipality, Province and Postal Code) | |
(Contact Name) (Telephone Number) |
- 1 -
| A. | Present Ownership of Securities |
The Subscriber either [check appropriate box]:
| ¨ | owns directly or indirectly, or exercises control or direction over, no common shares of the Issuer or securities convertible into common shares in the capital of the Issuer (excluding the securities subscribed for herein); or |
| ¨ | owns directly or indirectly, or exercises control or direction over, common shares of the Issuer and convertible securities entitling the Subscriber to acquire an additional common share in the capital of the Issuer (excluding the securities subscribed for herein). |
| B. | “Insider” Status |
The Subscriber either [check appropriate box]:
| ¨ |
is an “Insider” of the Issuer by virtue of being:
(a) a director or senior officer of the Issuer;
(b) a director or senior officer of an issuer that is an Insider or subsidiary of the Issuer;
(c) a person that beneficially owns or controls, directly or indirectly, voting shares of the Issuer carrying more than 10% of the voting rights attached to all the Issuer’s outstanding voting shares; or
(d) the Issuer itself if it holds any of its own securities; or |
| ¨ | is not an Insider of the Issuer. |
| C. | Member of “Pro Group” |
The Subscriber either [check appropriate box]:
| ¨ |
is a member of the “Pro Group” as either individually or as a group:
(a) the member (i.e. a member of the Exchange under the Exchange requirements);
(b) employees of the member;
(c) partners, officers and directors of the member;
(d) affiliates of the member; or
(e) associates of any parties referred to in subparagraphs (a) through (d); or |
| ¨ | is not a member of the “Pro Group.” |
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ACCEPTANCE
The Issuer hereby accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement (including all applicable Schedules).
Signed this day of , 20___.
| VISION MARINE TECHNOLOGIES INC. | ||
| By: | ||
|
|
Mr. Alexandre Mongeon | |
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TERMS AND CONDITIONS OF SUBSCRIPTION FOR SHARES OF
VISION MARINE TECHNOLOGIES INC.
| 1. | Interpretation |
| 1.1 | Definitions. Unless the context otherwise requires, the following terms have the following meanings: |
| (a) | “$” means lawful money of Canada; |
| (b) | “Act” means the Income Tax Act (Canada), together with any and all regulations promulgated thereunder, as amended from time to time and including any specific proposals to amend the Act that are publicly announced by the Minister of Finance (Canada) to have effect prior to the date hereof; |
| (c) | “Agreement” or “Subscription Agreement” means this subscription agreement as the same may be amended, supplemented or restated from time to time; |
| (d) | “Business Day” means a day on which Canadian chartered banks are open for the transaction of regular business in the City of Montreal, Quebec; |
| (e) | “Closing” means the closing on the Closing Date of the issue and sale of the Shares as contemplated by this Subscription Agreement; |
| (f) | “Closing Date” means on or about August 30th, 2019, or such other date as may be determined by the Issuer; |
| (g) | “Closing Time” means 10:00 a.m. (Montreal time) on the Closing Date or such other time as may be determined by the Issuer; |
| (h) | “Person” means an individual, a firm, a corporation, a syndicate, a partnership, a trust, an association, an unincorporated organization, a joint venture, an investment club, a government or an agency or political subdivision thereof and every other form of legal or business entity of whatsoever nature or kind; |
| (i) | “Securities” means the common shares of the Issuer comprising the Shares; |
| (j) | “Securities Laws” means the securities laws, regulations and rules, and the blanket rulings and policies and written interpretations of, and multilateral or national instruments adopted by, the Securities Regulators of all of the Selling Jurisdictions or, as the context may require, any one or more of the Selling Jurisdictions; |
| (k) | “Securities Regulators” means the securities commissions or other securities regulatory authorities of all of the Selling Jurisdictions or the relevant Selling Jurisdiction as the context so requires; |
| (l) | “Selling Jurisdictions” means all of the provinces of Canada and such additional jurisdictions in Canada and elsewhere as may be determined by the Issuer; and “Selling Jurisdiction” means, in the case of any Subscriber, the province of Canada or other jurisdiction in which such Subscriber resides; |
| (m) | “Tax Act” means the Income Tax Act (Canada), as amended; |
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| (n) | “Transaction Agreements” means this Agreement and all schedules and exhibits attached hereto; and |
| (o) | “U.S. Purchaser” is (a) any “U.S. person” as defined in Regulation S of the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), (b) any person purchasing securities on behalf of any “U.S. Person” or any person in the United States, (c) any person that receives or received an offer of the securities while in the United States, (d) any person that is in the United States at the time the purchaser’s buy order was made or this subscription agreement was executed or delivered. “U.S. person” includes but is not limited to (i) any natural person resident in the United States; (ii) any partnership or corporation organized or incorporated under the laws of the United States; (iii) any partnership or corporation organized outside the United States by a U.S. person principally for the purpose of investing in securities not registered under the U.S. Securities Act, unless it is organized or incorporated, and owned, by accredited investors who are not natural persons, estates or trusts; (iv) any estate or trust of which any executor or administrator or trustee is a U.S. person. |
| 2. | Terms of the Offering |
| 2.1 | The Subscriber acknowledges (on its own behalf and, if applicable, on behalf of each Beneficial Subscriber on whose behalf the Subscriber is contracting) that this subscription is subject to rejection or allotment by the Issuer in whole or in part. |
| 2.2 | If this Subscription Agreement is rejected in whole, any payment delivered by or on behalf of the Subscriber on account of the aggregate subscription price for the Shares subscribed for will be promptly returned without interest or deduction. If this Subscription Agreement is accepted only in part, payment representing the amount by which the payment delivered by or on behalf of the Subscriber exceeds the subscription price of the number of Shares sold to the Subscriber pursuant to a partial acceptance of this Subscription Agreement will be promptly delivered to the Subscriber without interest or deduction. |
| 3. | Representations, Warranties and Covenants of the Subscriber |
By executing this Subscription Agreement, the Subscriber (on its own behalf and, if applicable, on behalf of each Beneficial Subscriber for whom it is contracting hereunder) represents, warrants, and covenants to the Issuer (and acknowledges that the Issuer and its counsel are relying thereon) that:
| 3.1 | it has been independently advised as to restrictions with respect to trading in and the restricted period or statutory hold period applicable to the Securities imposed by applicable Securities Laws in the jurisdiction in which it resides and the policies of any stock exchange to which they are subject, confirms that no representation has been made to it by or on behalf of the Issuer with respect thereto, acknowledges that it is aware of the characteristics of the Shares, the risks relating to an investment therein, and that it may not be able to resell the Securities until the expiration of the applicable hold period except in accordance with limited exemptions under applicable Securities Laws and it agrees that any certificates representing the Securities may bear a legend indicating that the sale of such securities is restricted. The Subscriber further acknowledges that it should consult its own legal counsel in its jurisdiction for full particulars of applicable resale restrictions; |
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| 3.2 | it has not received, nor has it requested, nor does it have any need to receive, any prospectus, sales or advertising literature, offering memorandum or any other document describing the business and affairs of the Issuer which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Shares, and it has not become aware of any advertisement in printed public media, radio, television or telecommunications, including electronic display such as the Internet (including without limitation the Issuer's web site) with respect to the distribution of the Shares or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| 3.3 | if less than a complete copy of this Subscription Agreement is delivered to the Issuer or its counsel, the Issuer and its advisors are entitled to assume that the Subscriber accepts and agrees to all of the terms and conditions of the pages not delivered, unaltered; |
| 3.4 | the Subscriber and, if applicable, each Beneficial Subscriber is resident, or if not an individual, has a head office, in the jurisdiction indicated on page (ii) of this Subscription Agreement as the “Subscriber's Residential Address” and the “Beneficial Subscriber's Residential Address”, respectively, and such address was not created and is not used solely for the purpose of acquiring Shares. The Subscriber intends that the applicable laws of that jurisdiction govern the Subscriber's purchase of the Shares and is not aware of any reason why the laws of such jurisdiction would not govern such purchase. The purchase by and sale to the Subscriber of the Shares, and any act, solicitation, conduct or negotiation directly or indirectly in furtherance of such purchase or sale (whether with or with respect to the Subscriber or any Beneficial Subscriber) has occurred only in such jurisdiction; |
| 3.5 | if the Subscriber is resident in Canada or otherwise subject to applicable Securities Laws and it is purchasing the Shares as principal or deemed to be purchasing as principal in accordance with applicable Securities Laws, it is either (i) an “accredited investor” as defined in Regulation 45-106 respecting Prospectus Exemptions (Quebec) (“Regulation 45-106”) and has concurrently executed and delivered to counsel to the Issuer a Representation Letter in the form attached as Schedule A to this Subscription Agreement indicating that the Subscriber fits within one of the categories of “accredited investor” set forth in such definition; (ii) an individual qualified as “Family, Friends and Business Associates” as defined in Regulation 45-106 respecting Prospectus Exemptions and has concurrently executed and delivered to counsel to the Issuer a Representation Letter in the form attached as Schedule B to this Subscription Agreement indicating that the Subscriber fits within one of the categories of “Family, Friends and Business Associates” set forth in such definition; (iii) not an individual, is subscribing for Shares with an aggregate acquisition cost of not less than $150,000 paid in cash at Closing, and was not created and is not used solely to purchase or hold securities in reliance on the exemption from the prospectus requirement of Securities Laws contained in Section 2.10 of Regulation 45-106; or (iv) is not a resident of Canada or the United States and Section 3.7 applies to it; or (v) is a U.S. Purchaser and Section 3.8 applies to it. |
| 3.6 | if the Subscriber is resident in Canada or otherwise subject to applicable Securities Laws and it is neither purchasing as principal nor deemed to be purchasing as principal in accordance with applicable Securities Laws, it is duly authorized to enter into and deliver this Subscription Agreement and to execute all documentation in connection with the purchase on behalf of and as agent for each Beneficial Subscriber, each of whom is named under “Name of Beneficial Subscriber for whom Subscriber is contracting” on page 1 of this Agreement, and to provide and agree to each Subscriber’s representations, warranties and covenants on behalf of such Beneficial Subscriber, it acknowledges that the Issuer may be required by law to disclose to certain regulatory authorities the identity of each Beneficial Subscriber of Shares for whom it may be acting, and if it is acting as agent for one or more Beneficial Subscribers, each of such Beneficial Subscribers is purchasing as principal for its own account, and all of the representations, warranties and covenants, excluding this paragraph are also given in respect of such Beneficial Subscriber. The Beneficial Subscriber is either (i) an “accredited investor” as defined in Regulation 45-106 and the Subscriber has concurrently executed and delivered to the Issuer a Representation Letter in the form attached as Schedule A to this Subscription Agreement indicating that the Beneficial Subscriber fits within one of the categories of “accredited investor” set forth in such definition; or (ii) not an individual, is subscribing for Shares with an aggregate acquisition cost of not less than $150,000 paid in cash at Closing, and was not created and is not used solely to purchase or hold securities in reliance on the exemption from the prospectus requirement of Securities Laws contained in Section 2.10 of Regulation 45-106; |
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| 3.7 | if the Subscriber (or any Beneficial Subscriber) is not resident of Canada or the United States: |
| (i) | the Subscriber is knowledgeable of, or has been independently advised as to, the applicable securities laws of the jurisdiction in which the Subscriber is resident (the “International Jurisdiction”) and which would apply to the acquisition of the Securities. |
| (ii) | the Subscriber is purchasing the Securities pursuant to exemptions from prospectus and registration requirements or equivalent requirements under applicable securities laws or, if such is not applicable, the Subscriber is permitted to purchase the Securities under the applicable securities laws of the International Jurisdiction without the need to rely on any exemptions. |
| (iii) | the applicable securities laws of the International Jurisdiction do not require the Issuer to make any filings or seek any approvals of any kind whatsoever from any securities regulator of any kind whatsoever in the International Jurisdiction in connection with the issue and sale or resale of the Subscriber’s Securities. |
| (iv) | the purchase of the Securities by the Subscriber does not trigger: |
| (A) | any obligation to prepare and file a prospectus or similar document, or any other report with respect to such purchase in the International Jurisdiction; or |
| (B) | any continuous disclosure reporting obligation of the Issuer in the International Jurisdiction. |
| (v) | the Subscriber will, if requested by the Company, prior to the Closing Date, deliver to the Company a certificate or opinion of local counsel from the International Jurisdiction which will confirm the matters referred to in the entirety of Section 3.7 above, acting reasonably. |
| (vi) | The Subscriber has completed, executed and delivered to the Company within the applicable time period the Offshore Subscriber Certificate attached as Schedule E. |
| 3.8 | if it is a “U.S. Purchaser”, it and each person on whose behalf the Subscriber is contracting is a resident in the United States, it has concurrently executed and delivered the “Certification of U.S. Purchaser” in the form attached hereto as Schedule F and will provide such evidence of compliance with all matters described in such Certification of U.S. Purchaser as the Issuer or its counsel may request including that: (a) the purchase of the Shares does not contravene any of the applicable securities laws in the Subscriber’s jurisdiction of residence and does not trigger (i) any obligation to prepare and file a prospectus, an offering memorandum or similar document, or any other ongoing reporting requirements with respect to such purchase or otherwise, or (ii) any registration or other obligation on the part of the Issuer; and (b) the sale of the Shares as contemplated in this Subscription Agreement would, if completed, be made pursuant to an exemption from the prospectus and registration requirements under applicable securities legislation of the Subscriber’s jurisdiction of residence; |
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| 3.9 | the Subscriber is aware that the Securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or the securities laws of any state and that the Securities may not be offered or sold, directly or indirectly, in the United States without registration under the U.S. Securities Act or applicable state laws or compliance with requirements of an exemption from registration and it acknowledges that the Issuer has no present intention of filing a registration statement under the U.S. Securities Act or applicable state laws in respect of the Securities; |
| 3.10 | the Subscriber undertakes and agrees that it will not offer or sell any of the Securities in the United States unless such securities are registered under the U.S. Securities Act and the securities laws of all applicable states of the United States, or an exemption from such registration requirements is available; |
| 3.11 | in connection with any underwritten public offering by the Issuer of its equity securities pursuant to a registration statement filed under the U.S. Securities Act, upon the request of the Issuer or the underwriters managing such offering, during the Lock-up Period (as defined below) the Subscriber shall not, without the prior written consent of the Issuer or its underwriters, directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Securities. For this purpose, the “Lock-up Period” means such period of time after the effective date of the registration as is requested by the Issuer or the underwriters; provided that such period shall not exceed six (6) months and a day (or such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports or (ii) analyst recommendations and opinions, including (without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers, as amended, or any similar successor rules). The Issuer’s underwriters shall be beneficiaries of the provisions set forth in this Section 3.11, and the Subscriber shall execute and deliver such agreements as may be reasonably requested by the Issuer or the underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In addition, if requested by the Issuer or the underwriters of common shares (or other securities) of the Issuer, the Subscriber shall provide, within ten (10) days of such request, such information as may be required or reasonably requested by the Issuer or the underwriters in connection with the completion of any public offering of the Issuer’s securities pursuant to a registration statement filed under the U.S. Securities Act. The Issuer may impose stop-transfer instructions with respect to the Securities subject to the foregoing restriction until the end of said six (6) month and one day (or other) period. The Subscriber agrees, and will cause any transferee to agree, that any transferee of the Securities shall be bound by this Section 3.11; |
| 3.12 | it undertakes to immediately notify the Issuer of any change in any statement or other information set forth herein relating to the Subscriber or any person for whom it is contracting which takes place prior to the Closing Time; |
| 3.13 | it acknowledges that: |
| (a) | no Securities Regulator, securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities; |
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| (b) | there is no government or other insurance covering the Securities; |
| (c) | there are restrictions on the Subscriber’s ability to resell the Securities and it is the responsibility of the Subscriber to find out what those restrictions are and to comply with them before selling the Securities; |
| (d) | the Subscriber will comply with all applicable Securities Laws concerning the subscription, purchase, holding, exercise and resale of the Securities and will not resell any of the Securities except in accordance with the provisions of applicable Securities Laws; |
| (e) | the Issuer has advised the Subscriber that the Issuer is relying on an exemption from the requirements to provide the Subscriber with a prospectus or offering memorandum and to sell securities through a person or Issuer registered to sell securities under the applicable Securities Laws and, as a consequence of acquiring securities under this exemption, certain protections, rights and remedies provided by applicable Securities Laws, including statutory rights of rescission or damages, will not be available to the Subscriber; |
| (f) | the common law may not provide the Subscriber with an adequate remedy in the event that the Subscriber suffers investment losses in connection with securities acquired in a private placement; |
| (g) | the Subscriber may not receive information that would otherwise be required to be provided to it under applicable Securities Laws; |
| (h) | an investment in the Shares involves a high degree of risk and the Subscriber may lose its entire investment; |
| (i) | the Subscriber is aware of the characteristics of the Shares in general and the Shares in particular, and the risks relating to an investment in the Shares, and has the sophistication and experience in business and financial matters (or has received appropriate independent advice) to be capable of evaluating the merits and risks of the investment in the Shares. The Subscriber is able, without impairing the Subscriber’s financial condition, to bear the economic risk of, and withstand a complete loss of, the investment in the Shares; |
| (j) | the Issuer may complete additional financings in the future in order to develop the business of the Issuer and fund its ongoing development, and such future financings may have a dilutive effect on current shareholders or security holders of the Issuer, including the Subscriber; |
| (k) | the offer, issuance, sale and delivery of the Shares is conditional upon such sale being exempt from the prospectus filing or registration requirements and the requirement to deliver an offering memorandum in connection with the distribution of the Shares under the Securities Laws of the Selling Jurisdictions or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus; |
| (l) | the Subscriber has relied solely upon publicly available information relating to the Issuer and not upon any verbal or written representation as to fact or otherwise made by or on behalf of the Issuer; |
| (m) | the Issuer and each of its officers, directors, employees, agents and representatives and its legal counsel assume no responsibility or liability of any nature whatsoever for the accuracy or adequacy of the publicly available information available to the Subscribers or as to whether all information concerning the Issuer required to be disclosed by the Issuer or filed by the Issuer under Securities Laws has been disclosed or filed; and the Subscriber acknowledges that the decision to purchase the Shares was made solely on the basis of currently available public information and this Subscription Agreement; |
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| (n) | the Issuer has the right to accept or reject the Subscriber’s subscription in whole or in part; |
| (o) | the Issuer’s counsel are acting as counsel to the Issuer, and not as counsel to the Subscriber; |
| 3.14 | If the Issuer is not a resident of Canada, the Issuer hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Issuer's subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable Securities Laws or other laws of the Issuer's jurisdiction. |
| 3.15 | if the Subscriber is an individual, the Subscriber is of the full age of majority and is legally competent to execute, deliver and be bound by this Subscription Agreement, to perform all of its obligations hereunder and to take all action required pursuant hereto; |
| 3.16 | if the Subscriber is acting as principal, this Subscription Agreement has been duly and validly authorized, executed and delivered by and, when accepted by the Issuer, will constitute a legal, valid, binding and enforceable obligation of the Subscriber; |
| 3.17 | if the Subscriber is acting as agent for a Beneficial Subscriber, this Subscription Agreement has been duly and validly authorized, executed and delivered by and on behalf of, and when accepted by the Issuer, will constitute a legal, valid, binding and enforceable obligations of such Beneficial Subscriber; |
| 3.18 | if it is not an individual, it has the requisite power, authority, legal capacity and competence to enter into, deliver and be bound by this Subscription Agreement, to perform all of its obligations hereunder and to undertake all actions required of the Subscriber hereunder and further certifies that all necessary approvals of directors, shareholders, partners, trustees or otherwise have been given and obtained, it was not created solely and is not being used solely to purchase or hold securities as an “accredited investor” as described in paragraph (m) of the definition of “accredited investor” in Section 1.1 of Regulation 45-106 or in reliance on the prospectus exemption provided in Section 2.10 of Regulation 45-106 (as applicable) and the individual signing this Subscription Agreement has been duly authorized to execute and deliver this Subscription Agreement; |
| 3.19 | if the Subscriber is not an individual, the Subscriber has been duly organized and is validly existing under the laws of its jurisdiction of incorporation or formation and the laws of any other jurisdiction in which its properties or operations require qualification; |
| 3.20 | it is capable of assessing the proposed investment in the Shares as a result of the Subscriber's own experience or as a result of advice received from a person registered under applicable Securities Laws; |
| 3.21 | it is aware of the characteristics of the Shares and acknowledges that there are risks relating to the purchase of the Shares and an investment therein; |
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| 3.22 | it is not acting jointly or in concert with any other subscriber for Shares for the purpose of the acquisition of the Shares; |
| 3.23 | if required by applicable Securities Laws, regulations, rules, policies or orders or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute, deliver, file and otherwise assist the Issuer in filing, such reports, undertakings and other documents with respect to the issue of the Shares; |
| 3.24 | the entering into and delivery of this Subscription Agreement, the performance and compliance with the terms hereof, the subscription for the Shares and the completion of the transactions contemplated hereby will not result in a violation of, or create a state of facts which, after notice or lapse of time, or both, would constitute a violation of any of the terms or provisions of any law, statute, regulation, rule, judgment, decree, order or ruling applicable to the Subscriber (including applicable Securities Laws) or any agreement to which the Subscriber is a party or by which it is bound, or if the Subscriber is not an individual, any of the Subscriber’s constating documents; |
| 3.25 | the Subscriber acknowledges that it has been encouraged to and should obtain independent legal, tax and investment advice with respect to its subscription for these Shares and accordingly, has been independently advised as to the meanings of all terms contained herein relevant to the Subscriber for purposes of giving representations, warranties and covenants under this Subscription Agreement; |
| 3.26 | it acknowledges the offer of the Shares does not constitute a recommendation to purchase the Shares or financial product advice and the Subscriber acknowledges that the Issuer has had no regard to the Subscriber's particular objectives, financial situation and needs; |
| 3.27 | it acknowledges and confirms that no representation has been made to it with respect to the future value or price of any of the Securities, that any person will resell or repurchase the Securities or that any person will refund all or any part of the aggregate subscription price of the Shares other than as provided in this Subscription Agreement; |
| 3.28 | The Subscriber is aware that: (a) the Corporation is not a "reporting issuer" or the equivalent in any jurisdiction and, accordingly, the Shares will be subject to an indefinite hold period under Securities Laws; (b) the Shares are not listed on any stock exchange and no public market exists for the Shares; (c) the Shares are subject to transfer restrictions contained in the Corporation's constating documents and this Agreement; and (d) the Subscriber may not be able to resell the Shares except in accordance with limited exemptions under Securities Laws. |
| 3.29 | it acknowledges that the certificates representing the Securities may bear restrictive legends if required by applicable Securities Laws and stock exchange rules; |
| 3.30 | the funds which will be advanced by the Subscriber to the Issuer hereunder will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (the “PCMLA”) and the Subscriber acknowledges that the Issuer may in the future be required by law to disclose the Subscriber’s name and other information relating to this Subscription Agreement and the Subscriber’s subscription hereunder, on a confidential basis, under the PCMLA. To the best of the knowledge of the Subscriber: (a) none of the subscription funds to be provided by the Subscriber: (i) have been or will be derived from or related to any activity that is deemed criminal under the laws of Canada, the United States, or any other jurisdiction; or (ii) are being tendered on behalf of a person or entity who has not been identified to the Subscriber; and (b) it shall promptly notify the Issuer if the Subscriber discovers that any of such representations ceases to be true, and will provide the Issuer with appropriate information in connection therewith; |
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| 3.31 | the Subscriber has no knowledge of a “material fact” or “material change” (as those terms are defined in the applicable Securities Laws) in the affairs of the Issuer that has not been generally disclosed to the public; |
| 3.32 | the Subscriber has not received and does not expect to receive any financial assistance from the Issuer, directly or indirectly, in respect of the Subscriber's purchase of Shares; |
| 3.33 | there is no person acting or purporting to act on behalf of the Subscriber (including any Beneficial Subscriber), in connection with the transactions contemplated herein who is entitled to any brokerage or finder's fee. If any other person establishes a claim that any fee or other compensation is payable in connection with this subscription for Shares on account of the Subscriber's subscription, the Subscriber covenants to indemnify and hold harmless the Issuer with respect thereto and with respect to all costs reasonably incurred in the defence thereof; |
| 3.34 | The Subscriber has had an opportunity to discuss the Corporation's business, management, financial affairs and the terms and conditions of the offering of the Shares with the Corporation's management and has had an opportunity to review the Corporation's facilities. The foregoing, however, does not limit or modify the representations and warranties of the Issuer in Section 4 of this Agreement or the right of the Subscriber to rely thereon. |
| 3.35 | Neither the Subscriber, nor any of its officers, directors, employees, agents, attorneys, shareholders or partners has either directly or indirectly, including, through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the Shares. |
| 3.36 | The Subscriber acknowledges that it is not relying upon any Person, other than the Issuer and its officers and directors, in making its investment or decision to invest in the Issuer. The Subscriber agrees that neither any Subscriber nor the respective controlling Persons, officers, directors, partners, agents, attorneys or employees of any Subscriber shall be liable to any other Subcriber for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the Shares. |
| 3.37 | If the Subscriber is an individual, then the Subscriber resides in the province, territory or country identified in the address of the Subscriber set forth on Page 1 of this Agreement ; if the Subscriber is a partnership, corporation, limited liability company or other entity, then the Subscriber resides in the province, territory or country in which the office or offices of the Subscriber's principal place of business is located as set out in Page 1 of this Agreement. |
| 3.38 | the representations, warranties, covenants and acknowledgments of the Subscriber herein are made with the intent that they be relied upon in determining the suitability of a purchaser of Shares and will be true and correct at the Closing Time on the Closing Date and will survive the completion of the issuance of the Shares. The Subscriber agrees to indemnify the Issuer and its directors, officers, employees, advisers, affiliates, shareholders and agents (including its legal counsel) from and against any and all losses, claims, costs, expenses, damages or liabilities whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) which any of them may suffer or incur based upon, arising out of or caused by reliance on such representations, warranties, acknowledgments and covenants. The Subscriber undertakes to immediately notify the Issuer of any change in any statement or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time; |
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| 3.39 | the Subscriber agrees to indemnify and hold harmless the Issuer and its directors, officers, employees, advisers, affiliates, shareholders and agents (including their respective legal counsel) from and against any and all losses, claims, costs, expenses, damages or liabilities whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) which any of them may suffer or incur based upon, arising out of or caused by any false representation or warranty of the Subscriber contained herein or in any document furnished by the Subscriber to the Issuer in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or in any document furnished by the Subscriber to the Issuer in connection herewith. |
| 4. | Representations, Warranties and Covenants of the Issuer |
The Issuer hereby represents, warrants, and covenants and agrees to and with the Subscriber (and acknowledges that the Subscriber is relying thereon) that:
| 4.1 | the Issuer has the full corporate right, power and authority to execute and deliver this Subscription Agreement and to issue the Securities to the Subscriber; |
| 4.2 | each of the Issuer, and any subsidiary it may have, is licensed, registered or qualified as an extra- provincial or foreign corporation in all jurisdictions where the character of the property or assets thereof owned or leased or the nature of the activities conducted by it make licensing, registration or qualification necessary and is carrying on the business thereof in compliance with all applicable laws, rules and regulations of each such jurisdiction; | |
| 4.3 | upon acceptance this Subscription Agreement constitutes a binding obligation of the Issuer enforceable in accordance with its terms; |
| 4.4 | the Issuer will make all necessary filings (including Form 45-106F1 – Report of Exempt Distribution and, if applicable, Form 45-106F6 – British Columbia Report of Exempt Distribution), obtain all necessary regulatory consents and approvals (if any), and pay all filing fees required to be paid in connection with the transactions contemplated by this Subscription Agreement; |
| 4.5 | the Issuer is a "private issuer" as that term is defined in National Instrument 45-106 of the Canadian Securities Administrators ("NI 45 106") or Regulation 45-106 in the Province of Québec; |
| 4.6 | the Issuer has been since its incorporation and will be, immediately after the Closing, a Canadian-controlled private corporation as defined in the Tax Act; |
| 4.7 | the Issuer, if applicable, is in compliance with all timely and continuous disclosure obligations under applicable Securities Laws and the policies, rules and regulations of any stock exchange, and, without limiting the generality of the foregoing, there has been no adverse material change (actual, proposed or prospective, whether financial or otherwise) in the business, results of operations, prospects, assets, liabilities (contingent or otherwise) or capital or financial condition of the Issuer on a consolidated basis which has not been publicly disclosed and all the statements set forth in all documents publicly filed by or on behalf of the Issuer pursuant to applicable Securities Laws were true, correct and complete and did not contain any misrepresentation as of the date of such statements and the Issuer has not filed any confidential material change reports since the date of such statements which remains confidential as of the date hereof; |
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| 4.8 | Assuming the accuracy of the representations made by the Subscriber in Section 3 of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal or provincial governmental authority is required on the part of the Issuer in connection with the consummation of the transactions contemplated by this Agreement, except for (i) the filing of the Articles of Amendment, which will have been filed as of the Initial Closing, and (ii) any applicable filings pursuant to Section 4.4 and 4.7 of this Agreement; and |
| 4.9 | the Issuer will ensure that the common shares issued hereunder comprising the Shares shall, upon issuance in accordance with the terms hereof, be duly issued as fully paid and non-assessable common shares in the capital of the Issuer. |
| 5. | Closing |
| 5.1 | The Subscriber agrees to deliver to the Issuer in accordance with the delivery instructions set out on the cover page: |
| (a) | this duly completed and executed Subscription Agreement; |
| (b) | if the Subscriber is an accredited investor, a fully executed and completed Representation Letter in the form of Schedule A; |
| (c) | if the Subscriber is either a family member, a friend or a business associate, a fully executed and completed Representation Letter in the form of Schedule B; |
| (d) | if the Subscriber is either a family member, a friend or a business associate and resides in Ontario, and if required, a fully executed and completed Risk Acknowledgement Form in the form of Schedule C in addition to the Representation Letter in the form of Schedule B; |
| (e) | if the Subscriber is either a family member, a friend or a business associate and resides in Saskatchewan, and if required, a fully executed and completed Risk Acknowledgement Form in the form of Schedule D in addition to the Representation Letter in the form of Schedule B; |
| (f) | if the Subscriber is not resident in Canada or the United States, a fully executed and completed Offshore Subscriber Certificate in the form of Schedule E; |
| (g) | if the Subscriber is a resident in the United States, a fully executed and completed U.S. Purchaser Certificate in the form of Schedule F; |
| (h) | a fully executed and completed Subscriber Information Form in the form of Schedule G; |
| (i) | a wire transfer payable to the Issuer’s counsel in an amount equal to the aggregate subscription price to the following account (or payment of the same amount in such other manner as may be acceptable to the Issuer), as per the wire instructions provided in Schedule H or Schedule I, as applicable. |
| 5.2 | The Closing will be held at the Issuer’s offices at the Closing Time on the Closing Date, or at such other time and place as the Issuer and the Subscribers mutually agree upon, orally or in writing (which time and place are designated as the "Initial Closing"). If there is more than one closing, the term "Closing" applies to each such closing unless otherwise specified. |
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| 5.3 | If, prior to the Closing Time, the terms and conditions contained in this Subscription Agreement (other than delivery by the Issuer of the certificates representing the common shares) have not been complied with to the satisfaction of the Issuer, or otherwise waived by the Issuer, the Issuer and the Subscriber will have no further obligations under this Subscription Agreement. |
| 5.4 | Upon Closing and following the issuance of the certificates representing the common shares, each of such certificates representing the common shares subscribed for hereunder shall be delivered to the Subscriber. |
| 5.5 | The Issuer shall be entitled to rely on delivery of a facsimile or scanned copy of executed Subscription Agreements, and acceptance by the Issuer of such agreements shall be legally effective to create a valid and binding agreement between the Subscriber and the Issuer in accordance with the terms hereof. Notwithstanding the foregoing, the Subscriber shall deliver originally executed copies of the documents listed in Section 5.1 hereof to the Issuer’s counsel within five Business Days of the Closing Date. In addition, this Subscription Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same document. |
| 6. | Privacy Legislation |
The Subscriber acknowledges and consents to the fact that the Issuer is collecting the Subscriber’s (and any beneficial purchaser for which the Subscriber is contracting hereunder) personal information (as that term is defined under applicable privacy legislation, including, without limitation, the Personal Information Protection and Electronic Documents Act (Canada) and any other applicable similar replacement or supplemental provincial or federal legislation or laws in effect from time to time) for the purpose of completing the Subscriber’s subscription. The Subscriber acknowledges and consents to the Issuer retaining the personal information for so long as permitted or required by applicable law or business practices. The Subscriber further acknowledges and consents to the fact that the Issuer may be required by applicable securities laws, stock exchange rules and/or the Investment Industry Regulatory Organization of Canada rules to provide regulatory authorities any personal information provided by the Subscriber respecting itself (and any beneficial purchaser for which the Subscriber is contracting hereunder). The Subscriber represents and warrants that it has the authority to provide the consents and acknowledgements set out in this paragraph on behalf of any beneficial purchasers for which the Subscriber is contracting.
| 7. | Subscriber Acknowledgement |
In addition, the Subscriber agrees and acknowledges that:
| 7.1 | the Issuer will deliver certain personal information, including information regarding the name, address, telephone number and amount subscribed for, to the securities regulatory authorities, including the Securities Regulators; |
| 7.2 | the information is being collected indirectly by the Securities Regulators under authority granted to them in securities legislation; |
| 7.3 | the information is being collected for the purposes of the administration and enforcement of such securities legislation; | |
| 7.4 | the Subscriber can contact the Support Clerk to the Director of Corporate Finance at the Ontario Securities Commission at Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario, 416-593-8177 for information regarding the collection and use of this personal information by the Ontario Securities Commission or the Corporate Finance Branch of the Authorité des marchés financiers at financementdessocietes@lautorite.qc.ca, 514-395-0337, 800 Rue du Square-Victoria, 22e étage, Montréal, QC, H4Z 1A1. |
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| 8. | Nature of Subscription |
This subscription is irrevocable.
| 9. | Delivery of Certificates |
The Subscriber hereby authorizes and directs the Issuer to deliver certificates representing the Securities comprising the Shares to the residential or business address indicated in this subscription.
| 10. | Return of Subscription Funds |
The Subscriber hereby authorizes and directs the Issuer to return any funds for unaccepted subscriptions to the same account from which the funds were drawn, without interest or penalty.
| 11. | Acceptance of Subscription |
This subscription may be accepted in whole or in part by the Issuer at its sole discretion and the right is reserved to the Issuer at its sole discretion to allot to any Subscriber a number of Shares that is lower than that subscribed for. Confirmation of acceptance or rejection of this subscription will be forwarded to the Subscriber promptly after the acceptance or rejection of the subscription by the Issuer. If this subscription is rejected in whole, the funds delivered by the Subscriber representing the purchase price for the Shares subscribed for herein will be promptly returned to the Subscriber, without interest. If this subscription is accepted only in part, the portion of the purchase price representing that portion of the Shares which is not accepted will promptly be returned to the Subscriber, in accordance with Section 10 hereof.
| 12. | Miscellaneous |
| 12.1 | Survival of Warranties. Unless otherwise set forth in this Agreement, the representations and warranties of the Issuer and the Subscribers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of the Subscribers of the Issuer. |
| 12.2 | Further Assurances. A party shall promptly do, sign, deliver or cause to be done, signed and delivered all further acts, documents and things that another party may reasonably require for the purpose of giving effect to this Agreement. |
| 12.3 | Subscriber's Costs. The Subscriber acknowledges and agrees that all costs incurred by the Subscriber (including any fees and disbursements of any counsel retained by the Subscriber) relating to the sale of the Shares to the Subscriber will be borne by the Subscriber. |
| 12.4 | Notice. Any notice, consent or other communication under this Agreement shall be given in writing and delivered by hand or by bailiff or sent by email, and addressed as follows: |
| (a) | if to the Subscriber, at the address indicated on page (ii) of this Agreement; |
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| (b) | if to the Issuer: |
VISION MARINE TECHNOLOGIES INC.
730 Boulevard du Curé-Boivin, Broisbriand, Québec, J7G 2A7, Canada
Attention: Mr. Alexandre Mongeon, President
Tel: 1-450-951-7009
Email: am@electricboats.ca
with copy to:
RENNO & CO INC.,
3 Place Ville-Marie, Suite 400 Montreal, Quebec, H3B 2E3
Attention: Me Toufic Adlouni
Email: toufic@rennoco.com
Such notice, consent or other communication will be deemed to have been given and received on the day it is actually delivered or sent (or if that day is not a Business Day, on the following Business Day), unless it is delivered or sent after 4:30 p.m., in which case it will be deemed to have been given and received on the next Business Day. A party may, from time to time, designate another address in accordance with this Section 12.4.
| 12.5 | Severability. Each provision of this Agreement is separate and distinct and, if a provision of this Agreement is determined to be invalid, illegal or unenforceable, all other provisions will remain in full force and effect. |
| 12.6 | Waivers. A failure to act or delay in acting by a party with respect to a non-performance, or the non exercise of a right, under this Agreement will not operate as a waiver of that performance or of that right. The waiver of a right under this Agreement by a party will not be effective unless it is given in a signed writing, in which case it will be effective in the specific instance and for the specific purpose given. |
| 12.7 | Default. The debtor of an obligation under this Agreement will be in default of that obligation by the mere lapse of time for performing it. |
| 12.8 | Successors and Assigns. This Agreement will bind and be for the benefit of a party’s successor or permitted assign, solidarily between them. |
| 12.9 | Non-Assignment. No party may assign or delegate any right or obligation under this Agreement without the prior consent of each other party, which consent may not be unreasonably withheld or delayed. |
| 12.10 | Amendment. This Agreement may be amended only in a writing signed by each party. |
| 12.11 | Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. |
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| 12.12 | Entire Agreement. This Agreement (including the Exhibits), the Articles of Amendment and the other Transaction Agreements constitute the full and entire understanding and agreement between the parties with respect to its subject matter, and any other written or oral agreement relating to its subject matter existing between the parties are expressly cancelled. |
| 12.13 | Dispute Resolution. Any unresolved controversy or claim arising out of or relating to this Agreement, except as (i) otherwise provided in this Agreement, or (ii) any such controversies or claims arising out of either party's intellectual property rights for which a provisional remedy or equitable relief is sought, shall be submitted to arbitration by one arbitrator mutually agreed upon by the parties, and if no agreement can be reached within 30 days after names of potential arbitrators have been proposed by the Canadian Arbitration Association (the "CAA"), then by one arbitrator having reasonable experience in corporate finance transactions of the type provided for in this Agreement and who is chosen by the CAA. The arbitration shall take place in Montreal, Quebec in accordance with the CAA rules then in effect, and judgment upon any award rendered in such arbitration will be binding and may be entered in any court having jurisdiction thereof. There shall be limited discovery prior to the arbitration hearing as follows: (a) exchange of witness lists and copies of documentary evidence and documents relating to or arising out of the issues to be arbitrated, (b) depositions of all party witnesses, and (c) such other depositions as may be allowed by the arbitrators upon a showing of good cause. The arbitrator shall be required to provide in writing to the parties the basis for the award or order of such arbitrator, and a court reporter shall record all hearings, with such record constituting the official transcript of such proceedings. Each party will bear its own costs in respect of any disputes arising under this Agreement. |
| 12.14 | Governing Law and Jurisdiction. This Agreement is governed by the laws of the province of Québec and the laws of Canada applicable therein (without regard to conflicts of law principles). Subject to Section 12.13, the Parties irrevocably submit all disputes arising out of or relating to this Agreement to the courts of the province of Québec, in the judicial district of Montréal. |
| 12.15 | Interpretation. The headings used in this Subscription Agreement have been inserted for convenience of reference only and will not affect the meaning or interpretation of this Subscription Agreement or any provision hereof. Words importing the singular number only will include the plural and vice versa. |
| 12.16 | No Partnership. Nothing herein will constitute or be construed to constitute a partnership of any kind whatsoever between the Subscriber and the Issuer. |
| 12.17 | Counterparts. This Agreement may be signed in any number of counterparts, each of which is deemed to be an original and all of which when taken together are deemed to constitute one and the same instrument. Each counterpart may be delivered by fax or email and a faxed or emailed copy is as effective as an original. |
| 12.18 | Language. The Parties expressly acknowledge that they have requested that this Agreement and all ancillary and related documents hereto be drafted in the English language only. Les parties aux présentes reconnaissent avoir exigé que la présente entente et tous les documents qui y sont accessoires soient rédigés en anglais seulement. |
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SCHEDULE A
REPRESENTATION LETTER
TO BE COMPLETED BY ACCREDITED INVESTORS
| TO: | VISION MARINE TECHNOLOGIES INC. (the "Issuer") |
In connection with the purchase of Shares of the Issuer by the undersigned subscriber or, if applicable, the principal on whose behalf the undersigned is purchasing as agent (the “Subscriber” for the purposes of this Schedule A), the Subscriber hereby represents, warrants, covenants and certifies to the Issuer that:
1. The Subscriber is purchasing the Shares as principal for its own account or is deemed to be acting as principal under Regulation 45-106 respecting Prospectus Exemptions (Quebec) (“Regulation 45-106”);
2. The Subscriber is an “accredited investor” within the meaning of Regulation 45-106 by virtue of satisfying the indicated criterion as set out in Exhibit A to this Representation Letter; and
3. If the Subscriber indicates the criterion set out in paragraph (m) of Exhibit A, the Subscriber was not created and is not used solely to purchase or hold securities as an accredited investor as described in that paragraph.
Upon execution of this Schedule A by the Subscriber, this Schedule A shall be incorporated into and form a part of the Subscription Agreement.
Dated: , 20___.
| Print name of Subscriber | ||
| By: | ||
| Signature | ||
| Print name of Signatory | ||
| (if different from Subscriber) | ||
| IMPORTANT |
| PLEASE COMPLETE THE EXHIBITS TO THIS REPRESENTATION LETTER |
| - A-1 - |
EXHIBIT A TO SCHEDULE A
TO BE COMPLETED BY ACCREDITED INVESTORS
| PLEASE MARK YOUR INITIALS BESIDE THE CATEGORY BELOW TO WHICH YOU BELONG |
Please complete the Representation Letter to the Corporation by marking your initials beside the category of "accredited investor" to which you belong within the meaning of Section 1.1 of NI 45-106 and Section 73.3(1) of the Securities Act (Ontario), as applicable:
Meaning of "Accredited Investor"
"Accredited investor" is defined in Section 1.1 of NI 45-106 to mean any person who fits within any of the following categories at the time of the sale of securities to that person:
| (a) | (i) | except in Ontario, a Canadian financial institution, or a bank listed in Schedule III of the Bank Act (Canada), |
| (ii) | in Ontario, (A) a bank listed in Schedule I, II or III to the Bank Act (Canada); (B) an association to which the Cooperative Credit Associations Act (Canada) applies or a central cooperative credit society for which an order has been made under subsection 473 (1) of that Act; or (C) a loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union, caisse populaire, financial services cooperative or credit union league or federation that is authorized by a statute of Canada or Ontario to carry on business in Canada or Ontario, as the case may be, |
| (b) | (i) | except in Ontario, the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada), | ||
| (ii) | in Ontario, the Business Development Bank of Canada, |
| (c) | (i) | except in Ontario, a subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary, |
| (ii) | in Ontario, a subsidiary of any person referred to in paragraphs (a) through (e) above, if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary, |
| (d) | (i) | except in Ontario, a person registered under the securities legislation of a jurisdiction of Canada as an adviser or dealer, |
| (ii) | in Ontario, a person or company registered under the securities legislation of a province or territory of Canada as an adviser or dealer, except as otherwise prescribed by the regulations under the Securities Act (Ontario), |
| (e) | an individual registered under the securities legislation of a jurisdiction of Canada as a representative of a person referred to in paragraph (d), | |||
| (e.1) | an individual formerly registered under the securities legislation of a jurisdiction of Canada, other than an individual formerly registered solely as a representative of a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador), | |||
| (f) | (i) | except in Ontario, the Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the government of Canada or a jurisdiction of Canada, |
| (ii) | in Ontario, the Government of Canada, the government of a province or territory of Canada, or any Crown corporation, agency or wholly owned entity of the Government of Canada or the government of a province or territory of Canada, |
| - A-2 - |
| (g) | (i) | except in Ontario, a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec, |
| (ii) | in Ontario, a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l’île de Montréal or an intermunicipal management board in Québec, |
| (h) | (i) | except in Ontario, any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government, |
| (ii) | in Ontario, any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government, |
| (i) | (i) | except in Ontario, a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a jurisdiction of Canada, |
| (ii) | in Ontario, a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada) or a pension commission or similar regulatory authority of a province or territory of Canada, |
| (j) | an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that, before taxes, but net of any related liabilities, exceeds $1,000,000, |
[Note: Financial assets include cash and securities, but do not include a personal residence – see the definition of "financial assets" later in this certificate. Financial assets are generally liquid or relatively easy to liquidate. You must subtract any liabilities related to your financial assets to calculate your net financial assets—see the definition of "related liabilities". Financial assets held in a group RRSP under which you do not have the ability to acquire the financial assets and deal with them directly are not considered to be beneficially owned by you. If you meet the higher financial asset threshold set out in paragraph (j.1), then initial paragraph (j.1) instead of this paragraph (j).]
[Note: If you are an accredited investor described in this paragraph (j), and do not meet the higher financial asset threshold set out in paragraph (j.1), you must deliver a completed Form 45-106F9 – Form for Individual Accredited Investors (See Exhibit B hereto).]
| (j.1) | an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5,000,000, |
[Note: The financial assets of your spouse (including financial assets in a spousal RRSP) cannot be included in the calculation of net financial assets under this paragraph (j.1). See definition of "financial assets" below. If you meet the financial asset threshold set out in this paragraph (j.1), you are not required to complete Exhibit B.]
| (k) | an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year, [Note: You are required to complete Exhibit B] |
| - A-3 - |
[Note: If individual accredited investors wish to purchase through wholly-owned holding companies or similar entities, such purchasing entities must qualify under section (t) below, which must be initialed and complete. If you are an accredited investor described in this paragraph (k), you must deliver a completed Form 45-106F9 – Form for Individual Accredited Investors (See Exhibit B hereto).]
| (l) | an individual who, either alone or with a spouse, has net assets of at least $5,000,000, |
[Note: To calculate net assets, take the value of your total assets (which may include a personal residence) and subtract your total liabilities (which may include a mortgage). The value attributed to assets should reasonably reflect their estimated fair value. Income tax should be considered a liability if the obligation to pay it is outstanding at the time of the subscription.]
[Note: If you are an accredited investor described in this paragraph (l), you must deliver a completed Form 45-106F9 – Form for Individual Accredited Investors (See Exhibit B hereto).]
| (m) | a person, other than an individual or an investment fund, that has net assets of at least $5,000,000, as shown on its most recently prepared financial statements, |
| (n) | an investment fund that distributes or has distributed its securities only to: |
| (i) | a person that is or was an accredited investor at the time of the distribution, | |
| (ii) | a person that acquires or acquired securities in the circumstances referred to in section 2.10 of National Instrument 45-106 (where the person subscribes for a minimum amount investment) and Section 2.19 of National Instrument 45-106 (where the person makes an additional investment in investment funds), or | |
| (iii) | a person described in paragraph (i) or (ii) that acquires or acquired securities under section 2.18 of National Instrument 45-106 (investment fund reinvestment), |
| (o) | an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Quebec, the securities regulatory authority, has issued a receipt, | |||
| (p) | a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be, | |||
| (q) | a person acting on behalf of a fully managed account managed by that person, if that person is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction, | |||
| (r) | a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser or an adviser registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded, | |||
| (s) | an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) to (d) or paragraph (i) in form and function, | |||
| (t) | a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors, |
Note: If you initialled (t), then indicate the name and category of accredited investor (by reference to the applicable letter of this Exhibit A) of each of the owners of interests (attach additional pages if more than three):
| Name | Category of Accredited Investor | ||
| - A-4 - |
| (u) | an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser, | |||
| (v) | a person that is recognized or designated by the securities regulatory authority or, except in and Québec, the regulator as an accredited investor, or | |||
| (w) | a trust established by an accredited investor for the benefit of the accredited investor’s family members of which a majority of the trustees are accredited investors and all of the beneficiaries are the accredited investor’s spouse, a former spouse of the accredited investor or a parent |
Note: If you initialed (w), then indicate the name and category of accredited investor (by reference to the applicable letter of this Exhibit A) of each of the following (attach additional pages if more than three trustees):
| Name | Category of Accredited Investor | |||
Individual who established trust: |
| |||
| Trustee | ||||
| Trustee | ||||
| Trustee |
| PLEASE MARK YOUR INITIALS BESIDE THE CATEGORY ABOVE TO WHICH YOU BELONG |
Interpretative Aids
The following definitions relate to certain of the categories set forth above:
| (a) | "Canadian financial institution" means: | |
| (i) | an association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative credit society for which an order has been made under section 473(1) of that Act, or | |
| (ii) | a bank, loan corporation, trust company, trust corporation, insurance company, treasury branch, credit union, caisse populaire, financial services cooperative, or league that, in each case, is authorized by an enactment of Canada or a jurisdiction of Canada to carry on business in Canada or a jurisdiction of Canada; | |
| (b) | "Canadian securities regulatory authorities" means the securities commissions and similar regulatory authorities of each of the provinces or territories of Canada; | |
| (c) | "eligibility adviser" means: | |
| (i) | a person that is registered as an investment dealer or in an equivalent category of registration under the securities legislation of the jurisdiction of a purchaser and authorized to give advice with respect to the type of security being distributed; and | |
| (ii) | in Saskatchewan or Manitoba, also means a lawyer who is a practicing member in good standing with a law society of a jurisdiction of Canada or a public accountant who is a member in good standing of an institute or association of chartered accountants, certified general accountants or certified management accountants in a jurisdiction of Canada provided that the lawyer or public accountant must not: |
| (A) | have a professional, business or personal relationship with the issuer, or any of its directors, executive officers, founders, or control persons; and |
| - A-5 - |
| (B) | have acted for or been retained personally or otherwise as an employee, executive officer, director, associate or partner of a person that has acted for or been retained by the issuer or any of its directors, executive officers, founders or control persons within the previous 12 months; | |
| (d) | "EVCC" means an employee venture capital corporation that does not have a restricted constitution, and is registered under Part 2 of the Employee Investment Act (British Columbia), R.S.B.C. 1996 c. 112, and whose business objective is making multiple investments; | |
| (e) | "financial assets" means: | |
| (i) | cash; | |
| (ii) | securities; or | |
| (iii) | a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation; | |
| (f) | "foreign jurisdiction" means a country other than Canada or a political subdivision of a country other than Canada; | |
| (g) | "fully managed account" means an account for which a person or company makes the investment decisions if that person or company has full discretion to trade in securities for the account without requiring the client's express consent to a transaction; | |
| (h) | "investment fund" means a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes an EVCC and a VCC; | |
| (i) | "jurisdiction" means a province or territory of Canada; | |
| (j) | "non-redeemable investment fund" means an issuer, (i) whose primary purpose is to invest money provided by its securityholders; (ii) that does not invest (A) for the purpose of exercising or seeking to exercise control of an issuer, other than an issuer that is a mutual fund or a non-redeemable investment fund, or (B) for the purpose of being actively involved in the management of any issuer in which it invests, other than an issuer that is a mutual fund or a non-redeemable investment fund; and (iii) that is not a mutual fund; | |
| (k) | "person" includes: | |
| (i) | an individual, | |
| (ii) | a corporation, | |
| (iii) | a partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not, and | |
| (iv) | an individual or other person in that person's capacity as a trustee, executor, administrator or personal or other legal representative; | |
| (l) | "related liabilities" means: | |
| (i) | liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets, or | |
| (ii) | liabilities that are secured by financial assets; |
| (m) | "securities legislation" means, for the local jurisdiction, the statute and other instruments issued by the securities regulator authority of the local jurisdiction; |
| (n) | "subsidiary" means an issuer that is controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary; and | |
| (o) | "VCC" means a venture capital corporation registered under Part 1 of the Small Business Venture Capital Act (British Columbia), R.S.B.C. 1996 c. 429 whose business objective is making multiple investments. |
All monetary references in this Schedule A are in Canadian dollars.
| - A-6 - |
EXHIBIT B TO SCHEDULE A
FORM 45-106F9
FORM FOR INDIVIDUAL ACCREDITED INVESTORS
| WARNING! |
| This investment is risky. Don’t invest unless you can afford to lose all the money you pay for this investment. |
| SECTION 1 TO BE COMPLETED BY THE ISSUER OR SELLING SECURITY HOLDER | ||
| 1. About your investment | ||
| Type of securities: one Voting Common Share – Series Investor 2 | Issuer: VISION MARINE TECHNOLOGIES INC. | |
| SECTIONS 2 TO 4 TO BE COMPLETED BY THE PURCHASER | ||
| 2. Risk acknowledgement | ||
| This investment is risky. Initial that you understand that: | Your initials | |
| Risk of loss – You could lose your entire investment of $ . | ||
| Liquidity risk – You may not be able to sell your investment quickly – or at all. | ||
| Lack of information – You may receive little or no information about your investment. | ||
| Lack of advice – You will not receive advice from the salesperson about whether this investment is suitable for you unless the salesperson is registered. The salesperson is the person who meets with, or provides information to, you about making this investment. To check whether the salesperson is registered, go to www.aretheyregistered.ca. | ||
| 3. Accredited investor status | ||
| You must meet at least one of the following criteria to be able to make this investment. Initial the statement that applies to you. (You may initial more than one statement.) The person identified in section 6 is responsible for ensuring that you meet the definition of accredited investor. That person, or the salesperson identified in section 5, can help you if you have questions about whether you meet these criteria. | Your initials | |
| • Your net income before taxes was more than $200,000 in each of the 2 most recent calendar years, and you expect it to be more than $200,000 in the current calendar year. (You can find your net income before taxes on your personal income tax return.) | ||
| • Your net income before taxes combined with your spouse’s was more than $300,000 in each of the 2 most recent calendar years, and you expect your combined net income before taxes to be more than $300,000 in the current calendar year. | ||
| • Either alone or with your spouse, you own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities. | ||
| • Either alone or with your spouse, you have net assets worth more than $5 million. (Your net assets are your total assets (including real estate) minus your total debt.) | ||
| 4. Your name and signature | ||
| By signing this form, you confirm that you have read this form and you understand the risks of making this investment as identified in this form. | ||
| First and last name: | ||
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| Signature: | Date: | |
| SECTION 5 TO BE COMPLETED BY THE SALESPERSON | ||
| 5. Salesperson information | ||
| First and last name of salesperson: | ||
| Telephone: | Email: | |
| Name of firm (if registered): | ||
| SECTION 6 TO BE COMPLETED BY THE ISSUER OR SELLING SECURITY HOLDER | ||
| 6. For more information about this investment | ||
|
Contact: VISION MARINE TECHNOLOGIES INC. 730 Boulevard du Curé-Boivin, Boisbriand, Québec J7G 2A7 Attention: Alexandre Mongeon, President Tel: (450) 951-7009 Email: am@electricboats.ca | ||
| For more information about prospectus exemptions, contact your local securities regulator. You can find contact information at www.securities-administrators.ca. | ||
Form instructions:
| 1. | This form does not mandate the use of a specific font size or style but the font must be legible. |
| 2. | The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs the form. |
| 3. | The purchaser must sign this form. Each of the purchaser and the issuer or selling security holder must receive a copy of this form signed by the purchaser. The issuer or selling security holder is required to keep a copy of this form for 8 years after the distribution. |
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SCHEDULE B
REPRESENTATION LETTER
TO BE COMPLETED BY SUBSCRIBERS WHO ARE FAMILY MEMBERS, CLOSE PERSONAL FRIENDS OR CLOSE PERSONAL BUSINESS ASSOCIATES
| TO: | VISION MARINE TECHNOLOGIES INC. (the "Corporation") |
(Capitalized terms not specifically defined in this Schedule have the meaning ascribed to them in the Subscription Agreement to which this Schedule is attached)
In connection with the execution by the undersigned Subscriber of the Subscription Agreement which this Representation Letter forms a part of, the undersigned Subscriber hereby represents, warrants, covenants and certifies to the Corporation that:
| 1. | The Subscriber is resident in the jurisdiction described on the face page of this Subscription Agreement; |
| 2. | The Subscriber is purchasing the Shares as principal for its own account; |
| 3. | In connection with the purchase of Shares of the Corporation by the Subscriber, the Subscriber hereby represents and warrants that the Subscriber is: |
| ¨ | (a) | a director, executive officer or control person of the Corporation or an affiliate of the Corporation; |
| ¨ | (b) | a spouse, parent, grandparent, brother, sister, child or grandchild of a director, executive officer or control person of the Corporation, or affiliate of the Corporation; |
| ¨ | (c) | a parent, grandparent, brother, sister, child or grandchild of the spouse of a director, executive officer or control person of the Corporation, or affiliate of the Corporation; |
| ¨ | (d) | a close personal friend of director, executive officer or control person of the Corporation, or affiliate of the Corporation; |
| ¨ | (e) | a close business associate of director, executive officer or control person of the Corporation, or affiliate of the Corporation; |
| ¨ | (f) | a founder of the Corporation or a spouse, parent, grandparent, brother, sister, child, grandchild, close personal friend or close business associate of a founder of the Corporation; |
| ¨ | (g) | a parent, grandparent, brother, sister, child or grandchild of the spouse of a founder of the Corporation; |
| ¨ | (h) | a person of which a majority of the voting securities are beneficially owned by, or a majority of the directors are, persons described in paragraphs (a) to (g); or |
| ¨ | (i) | a trust or estate of which all of the beneficiaries or a majority of the trustees or executors are persons described in paragraphs (a) to (g). |
| 4. | If the Subscriber is a resident in the Province of Ontario, the Subscriber hereby represents and warrants that the Subscriber is: |
| ¨ | (a) a founder of the Corporation; |
| ¨ | (b) an affiliate of a founder of the Corporation; |
| ¨ | (c) a spouse, parent, grandparent, brother, sister, child or grandchild of an executive officer, director or founder of the Corporation; or |
| ¨ | (d) a person that is a control person of the Corporation. |
| PLEASE MARK YOUR INITIALS BESIDE THE CATEGORY TO WHICH YOU BELONG |
Please briefly describe the nature of the relationship and name of the person to whom you are related:
Interpretive Aids
"Close Personal Friend" is an individual who has known the director, executive officer, founder or control person well enough and for a sufficient period of time to be in a position to assess their capabilities and trustworthiness. The term "close personal friend" can include family members not already specifically identified in the exemption if the family member satisfies the criteria described above. An individual is not a close personal friend solely because the individual is a relative; a member of the same club, organization, association or religious group; a co-worker, colleague or associate at the same workplace; a client, customer or former client or customer; a mere acquaintance; or connected through some form of social media such as Facebook, Twitter or LinkedIn. The relationship between the purchaser and director, executive officer, founder or control person must be direct. For example, the exemption is not available for a close personal friend of a close personal friend of the director, executive officer, founder or control person.
"Close Business Associate" is an individual who has had sufficient prior business dealings with the director, executive officer, founder or control person to be in a position to assess their capabilities and trustworthiness. An individual is not a close business associate solely because the individual is a member of the same club, organization, association or religious group; a co-worker, colleague or associate at the same workplace; a client, customer or former client or customer; a mere acquaintance; or connected through some form of social media such as Facebook, Twitter or LinkedIn. The relationship between the purchaser and director, executive officer, founder or control person must be direct. For example, the exemption is not available for a close business associate of a close business associate of a director, executive officer, founder or control person.
"Control Person" means any person that holds or is one of a combination of persons that holds: (a)a sufficient number of any of the securities of the Corporation so as to affect materially the control of the Corporation; or (b) more than 20% of the voting shares of the Corporation except where there is evidence showing the holding of the shares does not affect materially the control of the Corporation.
"Executive Officer" means, for the Corporation, an individual who is:
| (a) | a chair, vice-chair or president; |
| (b) | a vice-president in charge of a principal business unit, division or function including sales, finance or production, |
| (c) | an officer of the Corporation or any of its subsidiaries and who performs a policy-making function in respect of the Corporation, or |
| (d) | performing a policy-making function in respect of the Corporation. "Founder" means a person or company who, |
| (a) | acting alone, in conjunction or in concert with one or more other persons or companies, directly or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of the Corporation, and |
| (b) | at the time of the proposed trade, is actively involved in the business of the Corporation. |
"Person" includes:
| (a) | an individual; |
| (b) | a corporation; |
| (c) | a partnership, trust, fund and an association, syndicate, organization or other organized group of persons, whether incorporated or not; and |
| (d) | an individual or other person in that person's capacity as a trustee, executor, administrator or personal or other legal representative. |
| Name of Subscriber (please print) | ||
| By: | ||
| Authorized Signature | ||
| Official Title or Capacity (please print) | ||
|
Name of Signatory (please print name of individual whose signature appears above different than name of Subscriber) | ||
DATED at this day of , 20___.
SCHEDULE C
Ontario Investors Only
FORM 45-106F12
RISK ACKNOWLEDGEMENT FORM FOR ONTARIO FAMILY, FRIENDS AND BUSINESS ASSOCIATES
| WARNING!
This investment is risky. Don’t invest unless you can afford to lose all the money you pay for this investment |
| SECTION 1 TO BE COMPLETED BY THE ISSUER | ||
| 1. About your investment | ||
| Type of securities: Shares | Issuer: VISION MARINE TECHNOLOGIES INC. | |
| Purchased from: VISION MARINE TECHNOLOGIES INC. (the Issuer of the Shares) | ||
| SECTIONS 2 TO 4 TO BE COMPLETED BY THE PURCHASER | ||
| 2. Risk acknowledgement [Instruction: initial all boxes in Section 2] | ||
|
This investment is risky. Initial that you understand that: |
Your initials | |
| Risk of loss – You could lose your entire investment of $ . [Instruction: Insert the total dollar amount of the investment.] | ||
| Liquidity risk – You may not be able to sell your investment quickly – or at all. | ||
| Lack of information – You may receive little or no information about your investment. The information you receive may be limited to the information provided to you by the family member, friend or close business associate specified in section 3 of this form. | ||
| 3. Family, friend or business associate status [Instruction: initial one or more boxes that apply] | ||
| You must meet at least one of the following criteria to be able to make this investment. Initial the statement that applies to you. | Your initials | |
|
A) You are:
1. [check all applicable boxes]
¨ a director of the issuer or an affiliate of the issuer
¨ an executive officer of the issuer or an affiliate of the
¨ issuer a control person of the issuer or an affiliate of the
¨ issuer
¨ a founder of the issuer
OR |
||
|
2. [check all applicable boxes]
¨ a person of which a majority of the voting securities are beneficially owned by, or a majority of the directors are, (i) individuals listed in (1) above and/or (ii) family members, close personal friends or close business associates of individuals listed in (1) above
¨ a trust or estate of which all of the beneficiaries or a majority of the trustees or executors are (i) individuals listed in (1) above and/or (ii) family members, close personal friends or close business associates of individuals listed in (1) above |
||
|
B) You are a family member of [Instruction: Insert the name of the person who is your relative either directly or through his or her spouse], who holds the following position at the issuer or an affiliate of the issuer:
|
||
|
You are the of that person or that person’s spouse.
[Instruction: To qualify for this investment, the person listed above must be (a) your spouse or (b) your or your spouse’s parent, grandparent, brother, sister, child or grandchild.] |
||
|
C) You are a close personal friend of [Instruction: Insert the name of your close personal friend], who holds the following position at the issuer or an affiliate of the issuer: .
You have known that person for years. |
||
|
D) You are a close business associate of [Instruction: Insert the name of your close business associate], who holds the following position at the issuer or an affiliate of the issuer: .
You have known that person for years. |
||
| 4. Your name and signature | ||
| By signing this form, you confirm that you have read this form and you understand the risks of making this investment as identified in this form. You also confirm that you are eligible to make this investment because you are a family member, close personal friend or close business associate of the person identified in section 5 of this form. | ||
| First and last name (please print): | ||
| Signature: | Date: | |
| SECTION 5 TO BE COMPLETED BY PERSON WHO CLAIMS THE CLOSE PERSONAL RELATIONSHIP, IF APPLICABLE | ||
| 5. Contact person at the issuer or an affiliate of the issuer | ||
| [Instruction: To be completed by the director, executive officer, control person or founder with whom the purchaser has a close personal relationship indicated under sections 3B, C or D of this form.] | ||
|
By signing this form, you confirm that you have, or your spouse has, the following relationship with the purchaser: [check the box that applies]
¨ family relationship as set out in section 3B of this form
¨ close personal friendship as set out in section 3C of this form
¨ close business associate relationship as set out in section 3D of this form | ||
| First and last name of contact person (please print): | ||
| Position with the issuer or affiliate of the issuer (director, executive officer, control person or founder): | ||
| Telephone: | Email: | |
| Signature: | Date: | |
| SECTION 6 TO BE COMPLETED BY THE ISSUER | ||
| 6. For more information about this investment | ||
|
Contact:
VISION MARINE TECHNOLOGIES INC. 730 Boulevard du Curé-Boivin, Boisbriand, Québec J7G 2A7
Attention: Alexandre Mongeon, President Tel: (450) 951-7009 Email: am@electricboats.ca | ||
| For more information about prospectus exemptions, contact your local securities regulator. You can find contact information at www.securities-administrators.ca. | ||
|
Signature of executive officer of the issuer (other than the purchaser): |
Date: | |
Form instructions:
| 1. | The information in sections 1, 5 and 6 must be completed before the purchaser completes and signs the form. |
| 2. | The purchaser, an executive officer who is not the purchaser and, if applicable, the person who claims the close personal relationship to the purchaser must sign this form. Each of the purchaser, contact person at the issuer and the issuer must receive a copy of this form signed by the purchaser. The issuer is required to keep a copy of this form for 8 years after the distribution. |
| 3. | The detailed relationships required to purchase securities under this exemption are set out in section 2.5 of National Instrument 45-106 Prospectus Exemptions. For guidance on the meaning of “close personal friend” and “close business associate”, please refer to sections 2.7 and 2.8, respectively, of Companion Policy 45-106CP Prospectus Exemptions |
SCHEDULE D
RISK ACKNOWLEDGEMENT FORM
TO BE COMPLETED BY SUBSCRIBERS RESIDENT IN SASKATCHEWAN
WHO ARE FAMILY MEMBERS, CLOSE PERSONAL FRIENDS OR CLOSE PERSONAL BUSINESS ASSOCIATES BUT ARE NOT ACCREDITED INVESTORS AS PER SCHEDULE A
|
Risk Acknowledgement Form Saskatchewan Close Personal Friends and Close Business Associates
I acknowledge this is a risky investment:
· I am investing entirely at my own risk.
· No securities regulatory authority or regulator has evaluated or endorsed the merits of these securities.
· The person selling me these securities is not registered with a securities regulatory authority or regulator and has no duty to tell me whether this investment is suitable for me.
· I will not be able to sell these securities for 4 months.
· I could lose all the money I invest.
· I do not have a 2-day right to cancel my purchase of these securities or the statutory rights of action for misrepresentation I would have if I were purchasing the securities under a prospectus. I do have a 2-day right to cancel my purchase of these securities if I receive an amended offering document.
I am investing $ [total consideration] in total; this includes any amount I am obliged to pay in future.
I am a close personal friend or close business associate of [state name], who is a [state title – founder, director, senior officer or control person] of VISION MARINE TECHNOLOGIES INC. or its affiliate .
I acknowledge that I am purchasing based on my close relationship with [state name of founder, director, senior officer or control person] whom I know well enough and for a sufficient period of time to be able to assess her/his capabilities and trustworthiness.
I acknowledge that this is a risky investment and that I could lose all the money I invest.
Date Signature of Purchaser
Print name of Purchaser
Sign 2 copies of this document. Keep one copy for your records. |
 |
You are buying Exempt Market Securities
They are called exempt market securities because two parts of securities law do not apply to them. If an issuer wants to sell exempt market securities to you:
| · | the issuer does not have to give you a prospectus (a document that describes the investment in detail and gives you some legal protections), and |
| · | the securities do not have to be sold by an investment dealer registered with a securities regulatory authority. |
There are restrictions on your ability to resell exempt market securities. Exempt market securities are more risky than other securities.
| · | You may not receive any written information about the issuer or its business |
If you have any questions about the issuer or its business, ask for written clarification before you purchase the securities. You should consult your own professional advisers before investing in the securities.
| · | You will not receive advice |
Unless you consult your own professional advisers, you will not get professional advice about whether the investment is suitable for you.
For more information on the exempt market, refer to the Saskatchewan Financial Services Commission’s website at http://www.sfsc.gov.sk.ca.
SCHEDULE E
OFFSHORE SUBSCRIBER’S CERTIFICATE
TO BE COMPLETED BY SUBSCRIBERS RESIDENT IN A JURISDICTION OUTSIDE OF CANADA AND THE UNITED STATES
TO: VISION MARINE TECHNOLOGIES INC. (the “Corporation”)
All terms not otherwise defined herein shall have the meaning ascribed thereto in the Subscription Agreement to which this Schedule F is attached.
The undersigned subscriber (the “Subscriber”) hereby represents, covenants and certifies to the Corporation that:
| (i) | the Subscriber (or any Beneficial Purchaser) is not a resident of Canada or the United States or subject to applicable Canadian securities laws and the decision to purchase the Securities was taken in the Subscriber’s jurisdiction of residence; |
| (ii) | the issuance of the Securities to the Subscriber (or any Beneficial Purchaser) may be effected by the Corporation without the necessity of the filing of a prospectus or any document with or obtaining any approval from or effecting any registration with any governmental entity or similar regulatory authority having jurisdiction over the Subscriber (or any Beneficial Purchaser) and will not cause the Corporation to become subject to, or require it to comply with, any disclosure, prospectus, filing, registration or reporting requirements under any applicable laws of the Subscriber’s jurisdiction of residence; |
| (iii) | the Subscriber (or any Beneficial Purchaser) is knowledgeable of, or has been independently advised as to, the application or jurisdiction of the securities laws of the Subscriber’s jurisdiction of residence which would apply to the purchase of the Securities (other than the securities laws of Canada and the United States); |
| (iv) | the Subscriber (or any Beneficial Purchaser), is purchasing the Securities pursuant to exemptions from the prospectus and registration requirements (or their equivalent) under the applicable securities laws of the Subscriber’s jurisdiction of residence or, if such is not applicable, each is permitted to purchase the Securities under the applicable securities laws of the Subscriber’s jurisdiction of residence without the need to rely on an exemption; |
| (v) | the Subscriber (or any Beneficial Purchaser), will not sell, transfer, exercise or dispose of the Securities except in accordance with all applicable laws, including applicable securities laws of Canada and the United States, and the Subscriber acknowledges that the Corporation shall have no obligation to register any such purported sale, transfer, exercise or disposition which violates applicable Canadian or United States securities laws; |
| (vi) | the issuance of the Securities to the Subscriber (or any Beneficial Purchaser) complies with the requirements of all applicable laws in the jurisdiction of its residence; and |
| (vii) | the Subscriber will provide such evidence of compliance with all such matters as the Corporation or its legal counsel may request. |
The foregoing representations contained in this certificate are true and accurate as of the date of this certificate and will be true and accurate as of the Closing Date (as defined in the Subscription Agreement to which this Schedule F is attached) and the Subscriber acknowledges that this certificate is incorporated into and forms a part of the Subscription Agreement to which it is attached. If any such representations shall not be true and accurate prior to the Closing Date, the undersigned shall give immediate written notice of such fact to the Corporation prior to the Closing Date.
| Dated: | Signed: | |||
| Witness (If Subscriber is an Individual) | Print the name of Subscriber | |||
| Print Name of Witness |
If Subscriber is a corporation, print name and title of Authorized Signing Officer | |||
SCHEDULE F
PROVISIONS APPLICABLE
TO A UNITED STATES PURCHASER
CERTIFICATION OF U.S. PURCHASER
NOTE: the provisions on this page are applicable ONLY if the Purchaser is in the United States or is a "U.S. person" as defined in Regulation S under the United States Securities Act of 1933, as amended.
TO:VISION MARINE TECHNOLOGIES INC. (the "Corporation")
(Capitalized terms not specifically defined in this Certification have the meaning ascribed to them in the Subscription Agreement to which this Schedule is attached.)
In connection with the execution of the Subscription Agreement to which this Schedule is attached, the undersigned (the "Purchaser") represents, warrants and covenants (which representations, warranties and covenants shall survive the Closing) to the Corporation (and acknowledges that the Corporation and its counsel are relying thereon) that:
| (a) | it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment and it is able to bear the economic risk of loss of the investment in the Shares; |
| (b) | the Corporation has provided to it the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and it has had access to such information concerning the Corporation as it has considered necessary or appropriate in connection with its investment decision to acquire the Shares, including access to the Corporation’s public filings available on the Internet at www.sedar.com, and that any answers to questions and any request for information have been complied with to the Purchaser’s satisfaction; |
| (c) | it is purchasing the Shares for its own account or for the account of one or more persons for whom it is exercising sole investment discretion, (a "Beneficial Purchaser"), for investment purposes only and not with a view to resale or distribution in violation of applicable securities laws and, in particular, neither it nor any Beneficial Purchaser for whose account it is purchasing the Shares has any intention to distribute either directly or indirectly any of the Shares in the United States; provided, however, that this paragraph shall not restrict the Purchaser from selling or otherwise disposing of any of the Shares pursuant to registration thereof pursuant to the United States Securities Act of 1933, as amended (the "1933 Act") and any applicable state securities laws or under an exemption from such registration requirements; |
| (d) | it, and if applicable, each Beneficial Purchaser for whose account it is purchasing the Shares is a U.S. Accredited Investor that satisfies one or more of the categories of U.S. Accredited Investor indicated below (the Purchaser must initial "SUB" for the Purchaser, and "BP" for each Beneficial Purchaser, if any, on the appropriate line(s)): |
| Category 1. | A bank, as defined in Section 3(a)(2) of the 1933 Act, whether acting in its individual or fiduciary capacity; or |
| Category 2. | A savings and loan association or other institution as definedin Section 3(a)(5)(A) of the 1933 Act, whether acting in its individual or fiduciary capacity; or |
| Category 3. | A broker or dealer registered pursuant to Section 15 of theUnited States Securities Exchange Act of 1934, as amended; or |
| Category 4. | An insurance company as defined in Section 2(13) of the 1933 Act; or |
| Category 5. | An investment company registered under the United States Investment Company Act of 1940; or |
| Category 6. | A business development company as defined in Section 2(a)(48) of the United States Investment Company Act of 1940; or |
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| Category 7. | A small business investment company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the United States Small Business Investment Act of 1958; or | |
| Category 8. | A plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of U.S. $5,000,000; or | |
| Category 9. | An employee benefit plan within the meaning of the United States Employee Retirement Income Security Act of 1974 in which the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or an employee benefit plan with total assets in excess of U.S. $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons who are accredited investors; or | |
| Category 10. | A private business development company as defined in Section 202(a)(22) of the United States Investment Advisers Act of 1940; or | |
| Category 11. | An organization described in Section 501(c)(3) of the United States Internal Revenue Code of 1986, as amended, a corporation, a Massachusetts or similar business trust, or a partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of U.S. $5,000,000; or | |
| Category 12. | Any director or executive officer of the Corporation; or | |
| Category 13. | A natural person whose individual net worth, or joint net worth with his or her spouse, excluding the value of his or her primary residence net of any mortgage obligation secured by the property, exceeds US$1,000,000. For purposes of this calculation, if the mortgage or other indebtedness secured by the Purchaser’s primary residence exceeds its value and the mortgagee or other lender has recourse to the Purchaser personally for any deficiency, the amount of any excess must be considered a liability and deducted from the Purchaser’s net worth; or | |
| Category 14. | A natural person who had an individual income in excess of U.S. $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of U.S. | |
| $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or | ||
| Category 15. | A trust, with total assets in excess of U.S. $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the 1933 Act; or | |
| Category 16. | Any entity in which all of the equity owners meet the requirements of at least one of the above categories; | |
| (e) | it understands that upon the issuance thereof, and until such time as the same is no longer required under the applicable requirements of the 1933 Act or applicable U.S. state laws and regulations, the certificates representing the Shares, and all securities issued in exchange therefor or in substitution thereof, will bear a legend in substantially the following form: |
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THESE SECURITIES, AGREES FOR THE BENEFIT OF CONSOLIDATED BANKINGHOLDING INC. (THE "COMPANY") THAT THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S ("REGULATION S") UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE CANADIAN LAWS AND REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, A LEGAL OPINION SATISFACTORY TO THE COMPANY MUST FIRST BE PROVIDED TO THE CORPORATION’S TRANSFER AGENT.
THESE SECURITIES MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON CANADIAN STOCK EXCHANGES. IF THE COMPANY IS A "FOREIGN ISSUER" WITHIN THE MEANING OF REGULATION S AT THE TIME OF TRANSFER PURSUANT TO RULE 904 OF REGULATION S, A NEW CERTIFICATE, BEARING NO LEGEND, MAY BE OBTAINED FROM ODYSSEY TRUST LLC. UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO ODYSSEY TRUST LLC. AND, IF SO REQUIRED BY THE CORPORATION’S TRANSFER AGENT, AN OPINION OF COUNSEL, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT";
provided that, if any Shares are being sold in accordance with Rule 904 of Regulation S, and if the Corporation is a "foreign issuer" within the meaning of Regulation S at the time of sale, the legend may be removed by providing to the Corporation’s transfer agent (i) a declaration in the form attached hereto as Appendix A (or as the Corporation may prescribe from time to time) and (ii) if required by the Corporation’s transfer agent, an opinion of counsel, of recognized standing reasonably satisfactory to the Corporation, or other evidence reasonably satisfactory to the Corporation, that the proposed transfer may be effected without registration under the 1933 Act;
and provided, further, that, if any Shares are being sold under Rule 144, the legend may be removed by delivering to the Corporation’s transfer agent an opinion of counsel of recognized standing reasonably satisfactory to the Corporation, that the legend is no longer required under applicable requirements of the 1933 Act or state securities laws;
| (f) | it acknowledges that the Shares are "restricted securities", as such term is defined under Rule 144 under the 1933 Act, and may not be offered, sold, pledged, or otherwise transferred, directly or indirectly, without prior registration under the 1933 Act and applicable state securities laws, and it agrees that if it decides to offer, sell, pledge or otherwise transfer, directly or indirectly, any of the Shares absent such registration, it will not offer, sell, pledge or otherwise transfer, directly or indirectly, any of the Shares, directly or indirectly, except as permitted by paragraph (e) above and the legend included therein; |
| (g) | it understands and acknowledges that (i) if the Corporation is deemed to have been at any time previously an issuer with no or nominal operations and no or nominal assets other than cash and cash equivalents, Rule 144 under the 1933 Act may not be available for resales of the Shares and (ii) the Corporation is not obligated to make Rule 144 under the 1933 Act available for resales of such Shares; |
| (h) | it understands and acknowledges that the Corporation has no obligation or present intention of filing with the United States Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resales of the Shares in the United States; |
| (i) | the office or other address of the Purchaser at which the Purchaser received and accepted the offer to purchase the Shares is the address listed on this Agreement on the first page of this Agreement; |
| (j) | it understands and agrees that there may be material tax consequences to the Purchaser of an acquisition, disposition or exercise of any of the Shares; the Corporation gives no opinion and makes no representation with respect to the tax consequences to the Purchaser under United States, state, local or foreign tax law of the Purchaser’s acquisition or disposition of such Shares; |
| (k) | it understands and acknowledges that the Corporation (i) is not obligated to remain a "foreign issuer" within the meaning of Regulation S, (ii) may not, at the time the Shares are resold by it or at any other time, be a foreign issuer, and (iii) may engage in one or more transactions which could cause the Corporation not to be a foreign issuer, and if the Corporation is not a foreign issuer at the time of sale or transfer of the Shares pursuant to Rule 904 of Regulation S, the certificates representing the Shares may continue to bear the legend described above by paragraph (e); |
| (l) | it understands and agrees that the Shares have not been and will not be registered under the 1933 Act, or applicable state securities laws, and the Shares are being offered and sold to the Purchaser in reliance upon exemptions available under Rule 506 of Regulation D under the 1933 Act and/or Section 4(2) of the 1933 Act; |
| (m) | it understands and agrees that the financial statements of the Corporation have been prepared in accordance with Canadian generally accepted accounting principles, which differ in some respects from United States generally accepted accounting principles, and thus may not be comparable to financial statements of United States companies; |
| (n) | it has not purchased the Shares as a result of any form of "general solicitation" or "general advertising" (as defined under Regulation D of the 1933 Act), including any advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television or internet or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| (o) | it understands and acknowledges that the Corporation is incorporated outside the United States and its properties are located outside the United States. Consequently, it may be difficult to provide service of process on the Corporation for court proceedings in the United States and it may be difficult to enforce any judgment against the Corporation in the United States; and |
| (p) | it acknowledges that the representations, warranties and covenants hereto are made by it with the intent that they may be relied upon by the Corporation in determining its eligibility or the eligibility of others on whose behalf it is contracting thereunder to purchase the Shares. It agrees that by accepting Shares it shall be representing and warranting that the representations and warranties above are true as at the Closing with the same force and effect as if they had been made by it at the Closing and that they shall survive the purchase by it of Shares and shall continue in full force and effect notwithstanding any subsequent disposition by it of such securities. |
The Purchaser undertakes to notify the Corporation immediately of any change in any representation, warranty or other information relating to the Purchaser or any Beneficial Purchaser set forth herein which takes place prior to the Closing.
Dated: , 20___.
| If a Corporation, Partnership or Other Entity: | If an Individual: | |
| Name of Entity | ||
| Type of Entity | Signature | |
| Signature of Person Signing | Print or Type Name | |
| Print or Type Name and Title of Person Signing |
APPENDIX "A" TO SCHEDULE "F"
Declaration for Removal of Legend
TO: The registrar and transfer agent for the common shares of Vision Marine Technologies Inc. (the "Corporation").
The undersigned (A) acknowledges that the sale of the common shares represented by certificate number , to which this declaration relates, is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the "1933 Act"), and (B) certifies that (1) the undersigned is not an "affiliate" (as defined in Rule 405 under the 1933 Act) of the Corporation; (2) the offer of such securities was not made to a person in the United States and either (a) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer was outside the United States, or (b) the transaction was executed on or through the facilities of a designated offshore securities market within the meaning of Rule 902(b) under the 1933 Act, and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (3) neither the seller nor any person acting on its behalf engaged in any directed selling efforts in connection with the offer and sale of such securities; and (4) the sale is bona fide and not for the purpose of "washing off" the resale restrictions imposed because the securities are "restricted securities" (as that term is defined in Rule 144(a)(3) under the 1933 Act); (5) the seller does not intend to replace such securities with fungible unrestricted securities; and (6) the contemplated sale is not a transaction, or part of a series of transactions, which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the 1933 Act. Terms used herein have the meanings given to them by Regulation S under the 1933 Act.
| By: | Dated: | |||
| Signature | ||||
| Name (please print) | ||||
SCHEDULE G
FOR
COMPLETION BY ALL SUBSCRIBERS
INFORMATION REGARDING THE SUBSCRIBER
Please check the appropriate box (and complete the required information, if applicable) in each section:
| 1. | Security Holdings. The Subscriber and all persons acting jointly and in concert with the Subscriber own, directly or indirectly, or exercises control or direction over (provide additional detail as applicable): |
| ¨ | Securities of Vision Marine Technologies Inc. (the "Corporation") and/or the following other kinds of shares and convertible securities (including but not limited to convertible debt, warrants and options) entitling the Subscriber to acquire additional shares or other kinds of securities of the Corporation: |
| ¨ | No shares of the Corporation or securities convertible into shares of the Corporation. |
| 2. | Insider Status. The Subscriber either: |
| ¨ | Is an "Insider" of the Corporation, by virtue of being: |
| (a) | a director or senior officer of the Corporation; |
| (b) | a director or senior officer of a company that is an Insider or subsidiary of the Corporation; |
| (c) | a person that beneficially owns or controls, directly or indirectly, voting shares of the Corporation carrying more than 10% of the voting rights attached to all the Issuer’s outstanding voting shares; |
| (d) | the Corporation itself if it holds any of its own securities. |
| ¨ | Is not an Insider of the Corporation. |
| 3. | Pro Group Status. The Subscriber either: |
| ¨ | Is a Member of the "Pro Group", which is defined in the Rules of the Exchange as either individually or as a group: |
| 1. | the member (i.e. a member of the Exchange under the Exchange requirements); |
| 2. | employees of the member; |
| 3. | partners, officers and directors of the member; |
| 4. | affiliates of the member; and |
| 5. | associates of any parties referred to in subparagraphs 1 through 5; |
| ¨ | Is not a member of the Pro Group. |
Dated at this day of , 20___.
| (Name of Subscriber – please print) | |
| (Telephone Number of Subscriber) | |
| (e-mail address) | |
| (Signature of Subscriber or Authorized Signatory, as applicable) | |
| (If applicable, print name of Authorized Signatory and Office) |
SCHEDULE “H”
CAD WIRE INSTRUCTIONS
| BENEFICIAIRY INFORMATION | |
| VISION MARINE TECHNOLOGIES INC. | |
| Also doing business under the name of: | |
| LA COMPAGNIE CANADIENNE DE BATEAUX ÉLECTRIQUES CANADIAN ELECTRIC BOAT COMPANY | |
| 730 Boul. Cure-Boivin | |
| Boisbriand (Qc) Canada J7G 2A7 |
| CANADIAN FUNDS ACCOUNT |
| BENEFICIARY'S ACCOUNT- | ||||||||||||||||
| Institution No. | Branch No. | Account No. | ||||||||||||||
Ordering Customer (Remitter) Required Information
The full legal name, address and account number or other reference number, if any, of the Ordering Customer (Remitter) is required. This is as per Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act and in accordance with the Financial Action Task Force Special Recommendation VII.
[END OF SUBSCRIPTION AGREEMENT]
Exhibit 14.1
VISION MARINE TECHNOLOGIES INC.
Code of Ethics and Business Conduct
1. Introduction.
1.1 The Board of Directors (the “Board”) of Vision Marine Technologies Inc. (the "Company") has adopted this Code of Ethics and Business Conduct (the "Code") in order to:
(a) promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;
(b) promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by the Company;
(c) promote compliance with applicable governmental laws, rules and regulations;
(d) promote the protection of Company assets, including corporate opportunities and confidential information;
(e) promote fair dealing practices;
(f) deter wrongdoing; and
(g) ensure accountability for adherence to the Code.
1.2 All directors, officers and employees are required to be familiar with the Code, comply with its provisions and report any suspected violations as described below in Section 10, Reporting and Enforcement.
2. Honest and Ethical Conduct.
2.1 The Company's policy is to promote high standards of integrity by conducting its affairs honestly and ethically.
2.2 Each director, officer and employee must act with integrity and observe the highest ethical standards of business conduct in his or her dealings with the Company's customers, suppliers, partners, service providers, competitors, employees and anyone else with whom he or she has contact in the course of performing his or her job.
3. Conflicts of Interest.
3.1 A conflict of interest occurs when an individual's private interest (or the interest of a member of his or her family) interferes, or even appears to interfere, with the interests of the Company as a whole. A conflict of interest can arise when an employee, officer or director (or a member of his or her family) takes actions or has interests that may make it difficult to perform his or her work for the Company objectively and effectively. Conflicts of interest also arise when an employee, officer or director (or a member of his or her family) receives improper personal benefits as a result of his or her position in the Company.
3.2 Loans by the Company to, or guarantees by the Company of obligations of, employees or their family members are of special concern and could constitute improper personal benefits to the recipients of such loans or guarantees, depending on the facts and circumstances. Loans by the Company to, or guarantees by the Company of obligations of, any director or executive officer or their family members are expressly prohibited.
3.3 Whether or not a conflict of interest exists or will exist can be unclear. Conflicts of interest should be avoided unless specifically authorized as described in Section 3.4.
3.4 Persons other than directors and executive officers who have questions about a potential conflict of interest or who become aware of an actual or potential conflict should discuss the matter with, and seek a determination and prior authorization or approval from, their supervisor or the Chief Financial Officer. A supervisor may not authorize or approve conflict of interest matters or make determinations as to whether a problematic conflict of interest exists without first providing the Chief Financial Officer with a written description of the activity and seeking the Chief Financial Officer's written approval. If the supervisor is himself involved in the potential or actual conflict, the matter should instead be discussed directly with the Chief Financial Officer.
Directors and executive officers must seek determinations and prior authorizations or approvals of potential conflicts of interest exclusively from the Audit Committee.
4. Compliance.
4.1 Employees, officers and directors should comply, both in letter and spirit, with all applicable laws, rules and regulations in the cities, states and countries in which the Company operates.
4.2 Although not all employees, officers and directors are expected to know the details of all applicable laws, rules and regulations, it is important to know enough to determine when to seek advice from appropriate personnel. Questions about compliance should be addressed to the Legal Department.
4.3 No director, officer or employee may purchase or sell any Company securities while in possession of material nonpublic information regarding the Company, nor may any director, officer or employee purchase or sell another company's securities while in possession of material nonpublic information regarding that company. It is against Company policies and illegal for any director, officer or employee to use material nonpublic information regarding the Company or any other company to:
(a) obtain profit for himself or herself; or
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(b) directly or indirectly "tip" others who might make an investment decision on the basis of that information.
5. Disclosure.
5.1 The Company's periodic reports and other documents filed with the SEC, including all financial statements and other financial information, must comply with applicable federal securities laws and SEC rules.
5.2 Each director, officer and employee who contributes in any way to the preparation or verification of the Company's financial statements and other financial information must ensure that the Company's books, records and accounts are accurately maintained. Each director, officer and employee must cooperate fully with the Company's accounting and internal audit departments, as well as the Company's independent public accountants and counsel.
5.3 Each director, officer and employee who is involved in the Company's disclosure process must:
(a) be familiar with and comply with the Company's disclosure controls and procedures and its internal control over financial reporting; and
(b) take all necessary steps to ensure that all filings with the SEC and all other public communications about the financial and business condition of the Company provide full, fair, accurate, timely and understandable disclosure.
6. Protection and Proper Use of Company Assets.
6.1 All directors, officers and employees should protect the Company's assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company's profitability and are prohibited.
6.2 All Company assets should be used only for legitimate business purposes. Any suspected incident of fraud or theft should be reported for investigation immediately.
6.3 The obligation to protect Company assets includes the Company's proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business and marketing plans, engineering and manufacturing ideas, designs, databases, records and any nonpublic financial data or reports. Unauthorized use or distribution of this information is prohibited and could also be illegal and result in civil or criminal penalties.
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7. Corporate Opportunities. All directors, officers and employees owe a duty to the Company to advance its interests when the opportunity arises. Directors, officers and employees are prohibited from taking for themselves personally (or for the benefit of friends or family members) opportunities that are discovered through the use of Company assets, property, information or position. Directors, officers and employees may not use Company assets, property, information or position for personal gain (including gain of friends or family members). In addition, no director, officer or employee may compete with the Company.
8. Confidentiality. Directors, officers and employees should maintain the confidentiality of information entrusted to them by the Company or by its customers, suppliers or partners, except when disclosure is expressly authorized or is required or permitted by law. Confidential information includes all nonpublic information (regardless of its source) that might be of use to the Company's competitors or harmful to the Company or its customers, suppliers or partners if disclosed.
9. Fair Dealing. Each director, officer and employee must deal fairly with the Company's customers, suppliers, partners, service providers, competitors, employees and anyone else with whom he or she has contact in the course of performing his or her job. No director, officer or employee may take unfair advantage of anyone through manipulation, concealment, abuse or privileged information, misrepresentation of facts or any other unfair dealing practice.
10. Reporting and Enforcement.
10.1 Reporting and Investigation of Violations.
(a) Actions prohibited by this Code involving directors or executive officers must be reported to the Audit Committee.
(b) Actions prohibited by this Code involving anyone other than a director or executive officer must be reported to the reporting person's supervisor or the Chief Financial Officer.
(c) After receiving a report of an alleged prohibited action, the Audit Committee, the relevant supervisor or the Chief Financial Officer must promptly take all appropriate actions necessary to investigate.
(d) All directors, officers and employees are expected to cooperate in any internal investigation of misconduct.
10.2 Enforcement.
(a) The Company must ensure prompt and consistent action against violations of this Code.
(b) If, after investigating a report of an alleged prohibited action by a director or executive officer, the Audit Committee determines that a violation of this Code has occurred, the Audit Committee will report such determination to the Board.
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(c) If, after investigating a report of an alleged prohibited action by any other person, the relevant supervisor or the Chief Financial Officer determines that a violation of this Code has occurred, the supervisor or the Chief Financial Officer will report such determination to the Board.
(d) Upon receipt of a determination that there has been a violation of this Code, the Board will take such preventative or disciplinary action as it deems appropriate, including, but not limited to, reassignment, demotion, dismissal and, in the event of criminal conduct or other serious violations of the law, notification of appropriate governmental authorities.
10.3 Waivers.
(a) The Board may, in its discretion, waive any violation of this Code.
(b) Any waiver for a director or an executive officer shall be disclosed as required by SEC and Nasdaq rules.
10.4 Prohibition on Retaliation.
The Company does not tolerate acts of retaliation against any director, officer or employee who makes a good faith report of known or suspected acts of misconduct or other violations of this Code.
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Vision Marine Technologies Inc.
Montréal, Québec
We hereby consent to the use in the prospectus constituting a part of this Amendment No. 2 to the Registration Statement on Form F-1 of our report dated April 24, 2020, relating to the financial statements of Vision Marine Technologies Inc. (formerly known as Riopel Marine Inc.) as of August 31, 2019 and 2018 and for the years ended August 31, 2019 and 2018, which is contained in that prospectus.
We also consent to the reference to us under the caption “Experts” in the prospectus.
/s/ BDO Canada s.r.l./S.E.N.C.R.L/LLP
BDO Canada LLP
Montréal, Québec
September 22, 2020