AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 0-27998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(Exact name of registrant as specified in its charter)
_________
(3841)
CLASSIFICATION CODE NUMBER
MANITOBA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S.) EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER)
251 SAULTEAUX CRESCENT
WINNIPEG, MANITOBA R3J 3C7
(204) 885-5555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Donald J. Stoecklein, Esq.
Sperry Young & Stoecklein
1850 E. Flamingo Rd. Suite 111
Las Vegas, Nevada 89119
(702) 794-2590
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
THE COMMISSION IS REQUESTED TO SEND COPIES OF
ALL COMMUNICATIONS TO:
Donald J. Stoecklein, Esq.
Sperry Young & Stoecklein
1850 E. Flamingo Rd. Suite 111
Las Vegas, Nevada 89119
(702) 794-2590
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462 (c )
under the Securities Act, check the following box and list the Securities
Act Registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
Title of each class of Amount to Proposed Proposed Amount of
securities to be registered be maximum maximum registrati
Registered aggregate aggregate on fee
price per offering
unit price
<S> <C> <C> <C> <C>
Convertible Debentures w/
Warrants Common Shares US$6,750,0 US$6,750,0 US US
00 00 $6,750,000 $2,065.00
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED JUNE 18, 1998
Prospectus
US$6,750,000 Convertible Debentures
(UNLESS OTHERWISE DESIGNATED ALL DOLLARS IN CANADIAN)
National Healthcare Manufacturing Corporation
This Prospectus relates to US$6,750,000 aggregate principal amount of 6%
Convertible Debentures due 2000 (the "Registrable Debentures") or (the
"Convertible Debentures") of National Healthcare Manufacturing Corporation
("Issuer" or the "Company") which were originally sold by the Company in
March 1998 and 337,500 Convertible Debenture warrants (the "CD Warrants"),
(the "Original Offering") or ("CD Private Placement") in transactions
exempt from the registration requirements of the Securities Act, to persons
reasonably believed to be "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under Regulation D of the Securities Act) and
the shares of the Company's common stock, no par value ("Common Stock"),
issuable upon conversion of the Registrable Debentures. The Registrable
Debentures and the Common Stock issuable upon conversion thereof may be
offered and sold from time to time by the holders named from time to time
in one or more supplements hereto or by their transferees, pledgees, donees
or their successors (collectively, the "Selling Holders") pursuant to this
Prospectus. The Registration Statement of which this Prospectus is a part
has been filed with the Securities and Exchange Commission pursuant to a
registration rights agreement dated as of June 18, 1998 (the "Registration
Rights Agreement") between the Company and the Initial Purchaser, entered
into in connection with the Original Offering.
The Registrable Debentures are convertible to shares of Common Stock at any
time commencing with the Original Issue Date (as herein defined), unless
previously redeemed or repurchased, at a conversion price for each share of
common stock ("Conversion Rate") equal to the lesser of (i) $3.50, or (ii)
85% of the closing price of the Issuer's shares on NASDAQ on the converson
date. Unless exercised earlier by the holder, the Convertible Debenture
will be deemed to be converted to common stock without further action on
the part of the holder immediately prior to 4:00pm (Pacific Standard Time)
on the Debenture Maturity Date.
The Selling Holders will receive all of the net proceeds from the sale of
the Registrable Debentures and the Common Stock issuable upon conversion of
the Registrable Debentures and will pay all underwriting discounts and
selling commissions, if any, applicable to the sale of the Registrable
Debentures and the Common Stock issuable upon conversion of the Registrable
Debentures.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK
FACTORS" ON PAGE 43.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<TABLE>
Price to Selling Proceeds to
Investor Commissions( Company(2)
1)
<S> <C> <C> <C>
Total Convertible Debenture US US $337,500 US
$6,750,000 $6,412,500
</TABLE>
(1) In connection with the original offering, the Issuer paid the Finder a
commission of 5% of the total proceeds received from the sale of the
Convertible Debentures. (See "Details of the Offering - CD Private
Placement").
(2) Before deducting the balance of the expenses of the CD Private
Placement and this Prospectus, estimated at $50,000, which expenses
shall be borne by the Issuer.
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
The Company was incorporated on August 23, 1993 under The Corporations Act
(Manitoba) by registration of its Articles of Incorporation, and a
substantial portion of the Company's assets are located outside the United
States. In addition, members of the Management and Supervisory Boards of
the Company and certain experts named herein are residents of countries
other than the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such
persons or to enforce against such persons or the Company judgments of
courts of the United States predicated upon civil liabilities under the
United States federal securities laws. A final judgment for the payment of
money obtained in a U.S. court and not rendered by default, which is not
subject to appeal or any other means of contestation and is enforceable in
the United States, would in principle be upheld and be regarded by a
Manitoba court of competent jurisdiction as conclusive evidence when asked
to render a judgment in accordance with such final judgment by a U.S.
court, without substantive re-examination or re-litigation on the merits of
the subject matter thereof, provided that the competent Manitoba court
finds that the jurisdiction of the U.S. court has been based on grounds
which are internationally acceptable, that such judgment has been rendered
in accordance with rules of proper procedure, that it has not been rendered
in proceedings of a penal or revenue nature and that its content and
possible enforcement are not contrary to public policy or public order of
Manitoba. Notwithstanding the foregoing, there can be no assurance that
United States investors will be able to enforce against the Company, or
members of the Management or Supervisory Boards or certain experts named
herein who are residents of Manitoba or countries other than the United
States, any judgments in civil and commercial matters, including judgments
under the federal securities laws. In addition, there is doubt as to
whether a Manitoba court would impose civil liability on the Company or on
the members of the Management or Supervisory Boards of the Company and
certain experts named herein in an original action predicated solely upon
the federal securities laws of the United States brought in a court of
competent jurisdiction in Manitoba against the Company or such members.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable to
foreign private issuers, and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and
copied at the offices of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as the following
regional offices of the Commission: Northwestern Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
reports, proxy statements and other information concerning the Company may
be inspected at the office of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Commission
maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the Commission. The address of the site is
http://www.sec.gov. In addition, certain of the Company's securities are
listed on the Nasdaq National Market and the Vancouver Stock Exchange, and
the aforementioned material may also be inspected at the offices of such
exchanges.
The Company has filed with the Securities Exchange Commission a
registration statement on Form F-3 (herein, together with all amendments
and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to
the offering of the Registrable Debentures and the Common Stock issuable
upon conversion thereof made hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities, reference is hereby made to the Registration Statement.
In addition, the most recently filed annual report and audited statutory
annual accounts and a copy of the current Articles of Incorporation of the
Company are available upon request, free of charge, during normal business
hours at the offices of the Company.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
1. The Company's Annual Report on Form 20-F for the year ended June 30,
1997;
2. The Company's Report on Form 6-K dated May 1, 1998;
3. The Company's Report on Form 6-K dated April 28, 1998;
4. The Company's Report on Form 6-K dated April 7, 1998;
5. The Company's Report on Form 6-K dated April 7, 1998;
6. The Company's Report on Form 6-K dated March 18, 1998;
7. The Company's Report on Form 6-K dated March 3, 1998;
8. The Company's Report on Form 6-K dated February 10, 1998;
9. The Company's Report on Form 6-K dated February 3, 1998;
10. The Company's Annual Report on Form 20-F for the year ended June 30,
1996;
11. The Company's Report on Form 6-K dated October 9, 1997 relating to the
Company's public announcement of the Original Offering; and
12. The Company's Report on Form 6-K dated September 24, 1997
13. The Company's Report on Form 6-K dated August 30, 1997
14. The Company's Report on Form 6-K dated July 7, 1997
15. The Company's Report on Form 6-K dated June 14, 1997
16. The Company's Report on Form 6-K dated May 31, 1997
17. The Company's Report on Form 6-K dated May 3, 1997
18. The Company's Report on Form 6-K dated April 10, 1997
19. The Company's Report on Form 6-K dated March 1, 1997
20. The Company's Report on Form 6-K dated February 8, 1997
21. The Company's Report on Form 20-F dated February 4, 1997
22. The Company's Report on Form 6-K dated January 18, 1997
23. The Company's Report on Form 6-K dated January 15, 1997
24. The Company's Report on Form 6-K dated January 11, 1997
25. The Company's Report on Form 6-K dated December 6, 1996
26. The Company's Report on Form 6-K dated November 13, 1996
27. The Company's Report on Form 6-K dated October 23, 1996
28. The Company's Report on Form 6-K dated September 5, 1996
29. The Company's Report on Form 6-K dated September 5, 1996
30. The Company's Report on Form 6-K dated July 30, 1996
All documents filed by the Company pursuant to Section 13(a), 13(c) or
15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Debentures shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from
the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
<PAGE>
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or
all of the foregoing documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be directed to the Company's headquarters at, 251 Saulteaux
Crescent, Winnipeg, Manitoba R3J 3C7., Attention: Investor Relations
Manager.
Except as otherwise defined, all capitalized terms herein shall have the
same meanings set out in the Glossary of Terms.
This Prospectus is filed for the purpose of qualifying for distribution the
common shares converted from the convertible Debentures, ("CD Shares") and
the CD Warrants (the "Offering"). Details of the CD Private Placement are
as follows:
CD Private Placement
On March 31, 1998, Convertible Debentures in the amount of US$6,750,000
were issued on a private placement basis pursuant to the Convertible
Debenture Purchase Agreement. The Convertible Debentures bear cumulative
dividends at the rate of 6% per annum, payable in cash or in Class A
shares. The Convertible Debentures are convertible into the common shares
at a conversion price equal to the lower of (a) US$3.50, subject to a
pricing floor of $2.50 as defined in the Debenture or (b) 85% of the
closing price of the Issuer's Shares on NASDAQ on the conversion date.
A holder of a Convertible Debenture has the right to convert same at any
time during the Debenture Conversion Period, commencing on the date of the
first issuance of any of the Debentures set forth herein, (the "Original
Issuance Date").
Unless earlier converted by the holder, the Convertible Debentures will be
deemed to be converted without further action on the part of the holder
immediately prior to 4:00 p.m. (Pacific Standard Time) on the date (the
"Debenture Maturity Date") which is March 31, 2000.
Each CD Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of
US$2.83 per Share during the first year, and at a price of US$3.09 per
Share during the second year. (See "Details of the Offering - CD Private
Placement"). The following exhibits are attached hereto and incorporated
herein by this reference: Exhibit A - Convertible Debenture Purchase
Agreement; Exhibit B - Escrow Agreement; Exhibit C - US$ 250,000, 6%
Convertible Debenture March 31, 2000 (Diversified Strategies Fund, Ltd.);
Exhibit D - US$6,500,000, 6% Convertible Debenture March 31, 2000 (JNC
Opportunity Fund Ltd.); Exhibit E - Registration Rights Agreement.
No additional commission or fee will be paid to the Finder and no
additional proceeds will be received by the Issuer in connection with the
conversion or deemed conversion of the Convertible Debenture.
INVESTMENTS IN SMALL BUSINESSES INVOLVE A HIGH DEGREE OF RISK AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. (SEE "RISK FACTORS".)
<PAGE>
The aggregate number and percentage of outstanding voting securities held
by promoters, insiders, holders of performance or escrow securities and the
Agent as a group and by the public upon completion of the Offering is as
follows:
<TABLE>
Aggregate Number Percentage of
of Total Issued and
Voting Outstanding
Securities Voting
Securities
<S> <C> <C>
Public Shareholders 9,403,644 59.43%
Insiders and Agent 6,418,259 40.57%
</TABLE>
Previous CN Private Placement
On October 1, 1997, Convertible Notes in the amount of US$5,000,000 were
issued on a private placement basis pursuant to the Securities Purchase
Agreements. The Convertible Notes bear cumulative dividends at the rate of
6% per annum, payable in cash or in Class A shares. The Convertible Notes
entitle the holders to acquire, without additional payment, Convertible
Debentures in the aggregate principal amount of US$5,000,000 and an
aggregate of 250,000 CN Warrants. The Convertible Debentures are
convertible into Class A shares at a conversion price equal to the lower of
(a) US$4.33 or (b) 85% of the closing price of the Issuer's Shares on
NASDAQ on the conversion date.
Previous Special Warrant Private Placement ("SW Private Placement")
On January 8, 1997, 1,600,000 Special Warrants were issued on a private
placement basis pursuant to the Agency Agreement, at a price of $6.00 each.
Each Special Warrant entitles the holder to acquire, without additional
payment, one SW Unit. Each SW Unit consists of one SW Share and one SW
Warrant. Each SW Warrant entitles the holder to purchase one additional
Share at a price of $7.00 on or before the SW Warrant Expiry Date. As of
the date hereof, none of the SW Warrants have been exercised.
The Special Warrants and the SW Warrants are governed by the terms and
conditions contained in the Special Warrant Indenture and the SW Warrant
Indenture, respectively.
In connection with the SW Private Placement, 128,000 Agent's Special
Warrants were issued by the Issuer to the Agent. Each Agent's Special
Warrant entitles the holder to acquire, without additional consideration,
one Agent's Unit. Each Agent's Unit consists of one Agent's Share and one
Agent's Warrant. Each Agent's Warrant entitles the holder to purchase one
additional Share at a price of $7.00 on or before the SW Warrant Expiry
Date. As of the date of this Prospectus, none of the Agent's Warrants have
been exercised.
The Shares are listed and posted for trading on the Exchange and are quoted
on the NASDAQ "small-cap" market. As at November 25, 1996, the date on
which the SW Private Placement was announced, the closing price of the
Shares on the Exchange was $7.40. As at October 1, 1997, the date on which
the CN Private Placement was announced, the closing price of the Shares on
the Exchange was $6.05. As at the date of this Prospectus, the closing
price of the Shares on the Exchange was US$2.00 per Share. The purchase
price of $6.00 per Special Warrant was established by negotiation between
the Issuer and the Agent. The Special Warrants and Agent's Special Warrant
were issued pursuant to exemptions from the prospectus requirements of
applicable securities legislation.
Certain legal matters relating to the distribution of the Distributed
Securities will be passed upon on behalf of the Issuer by Sperry Young &
Stoecklein of Las Vegas, Nevada.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of the principal features of the Offering and is
qualified by the detailed information contained in the body of this
Exchange Offering Prospectus (the "Prospectus"). Certain capitalized terms
used but not defined in this Summary or the Glossary of Terms are defined
elsewhere in this Prospectus.
ISSUER:
National Healthcare Manufacturing Corporation (the "Issuer").
BUSINESS:
The Issuer is an automated medical products manufacturer, whose principal
business is the assembly and packaging of disposable kits and trays for
medical and surgical procedures, such as patient care trays, custom
procedure kits, diagnostic trays and homecare kits. Through two of its
subsidiaries, National Care Products Ltd. ("NCP") and National Healthcare
Manufacturing Corporation, U.S. ("NHMC US"), the Issuer is also involved in
manufacturing liquid products for use in the Issuer's kits and trays, and
for distribution to healthcare institutions throughout North America. (See
"Business of the Issuer - Description of Business and General Development -
Products".)
THE OFFERING:
This Prospectus qualifies the distribution by the Issuer of:
(a) Convertible Debentures in the amount of US$6,750,000, and upon the
conversion or deemed conversion of the Convertible Debentures, and
337,500 CD Warrants;
(b) the CD Shares to be issued upon the conversion of the Convertible
Debentures; and
(c) the CD Warrant Shares to be issued upon the exercise or deemed
exercise of the CD Warrants.
PRIOR ISSUE OF SECURITIES:
SW Private Placement - On January 8, 1997, 1,600,000 Special Warrants were
issued by the Issuer for a subscription price of $6.00 each pursuant to a
private placement raising gross proceeds of $9,600,000. Each Special
Warrant is exercisable, without additional payment, into one SW Unit. Each
SW Unit consists of one SW Share and one SW Warrant. Each SW Warrant
entitles the holder to purchase one SW Warrant Share at a price of $7.00
per SW Warrant Share on or before the SW Warrant Expiry Date. Any Special
Warrants unexercised at 4:00 p.m. (Pacific Standard Time) on the Special
Warrant Expiry Date shall be deemed to have been exercised by the holder
thereof without any further action on the holder's part, immediately prior
thereto. As of the date of this Prospectus, none of the SW Warrants have
been exercised.
In connection with the SW Private Placement, 128,000 Agent's Special
Warrants were issued by the Issuer to the Agent. Each Agent's Special
Warrant entitles the holder to acquire, without additional consideration,
one Agent's Unit. Each Agent's Unit consists of one Agent's Share and one
Agent's Warrant. Each Agent's Warrant entitles the holder to purchase one
additional Share at a price of $7.00 on or before the SW Warrant Expiry
Date. As of the date of this Prospectus, none of the Agent's Warrants have
been exercised.
<PAGE>
CN Private Placement - On October 1, 1997, Convertible Notes in the
aggregate of US$5,000,000 were issued by the Issuer pursuant to a private
placement. The Convertible Notes entitle the holders to acquire, without
additional payment, Convertible Debentures in the aggregate principal
amount of $5,000,000 and an aggregate of 250,000 CN Warrants. The
Convertible Debentures are convertible into Shares at a conversion price
equal to the lower of: (a) US$4.33 or (b) 85% of the closing price of the
Issuer's Shares on the Exchange on the conversion date.
A holder of a Convertible Debenture had the right to convert same at any
time during the Debenture Conversion Period, commencing the earlier of: (a)
December 30, 1997 or (b) the effective date of the Registration Statement,
and maturing on the Debenture Maturity Date.
Unless earlier converted by the holder, the Convertible Notes were deemed
to be converted without further action on the part of the holder
immediately prior to 4:00 p.m. (Pacific Standard Time) on the date (the
"Debenture Maturity Date") which was the earlier of: (a) October 2, 1998
and (b) the fifth business day following the date on which the last of the
Receipts for the Prospectus is issued by the British Columbia Securities
Commission.
Each CN Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of
US$4.76 per Share during the first twelve month period, and at a price of
US$5.20 per Share during the second twelve month period.
At March 31, 1998, US$3,425,000 of the Convertible Notes were converted to
Convertible Debentures which were converted into 1,475,572 Shares. The
remaining Convertible Notes outstanding together with accrued interest
thereon was repaid from the Net Proceeds of the CD Private Placement. The
CN Warrants were cancelled by mutual agreement.
CD Private Placement - On March 31, 1998, Convertible Debentures in the
amount of US$6,750,000 were issued on a private placement basis pursuant to
the Convertible Debenture Purchase Agreement. The Convertible Debentures
bear cumulative dividends at the rate of 6% per annum, payable in cash or
in Class A shares. The Convertible Debentures are convertible into the
common shares at a conversion price equal to the lower of (a) US$3.50,
subject to a pricing floor of $2.50 as defined in the Debenture or (b) 85%
of the closing price of the Issuer's Shares on NASDAQ on the conversion
date.
A holder of a Convertible Debenture has the right to convert same at any
time during the Debenture Conversion Period, commencing on the date of the
first issuance of any of the Debentures set forth herein, (the "Original
Issuance Date").
Unless earlier converted by the holder, the Convertible Debentures will be
deemed to be converted without further action on the part of the holder
immediately prior to 4:00 p.m. (Vancouver time) on the date (the "Debenture
Maturity Date") which is March 31, 2000.
Each CD Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of
US$2.83 per Share during the first year, and at a price of US$3.09 per
Share during the second year. (See "Details of the Offering - CD Private
Placement"). The following exhibits are attached hereto and incorporated
herein by this reference: Exhibit A - Convertible Debenture Purchase
Agreement; Exhibit B - Escrow Agreement; Exhibit C - US$ 250,000, 6%
Convertible Debenture March 31, 2000 (Diversified Strategies Fund, Ltd.);
Exhibit D - US$6,500,000, 6% Convertible Debenture March 31, 2000 (JNC
Opportunity Fund Ltd.); Exhibit E - Registration Rights Agreement.
USE OF PROCEEDS AND BUSINESS OBJECTIVES:
The Issuer will not receive any cash proceeds from, and no commission is
payable by the Issuer in respect of the conversion or deemed conversion of
the Convertible Debentures.
<PAGE>
The CD Net Proceeds of US$6,412,500 were received on March 31, 1998, and
US$1,899,450 were immediately utilized for reduction of the CN Private
Placement issued in October of 1997. The balance of the funds are to be
utilized for working capital.
Any funds received upon exercise of the PP Warrants, the Importex Warrant,
the CD Warrants, or the incentive stock options will be applied towards
general working capital.
SUMMARY OF FINANCIAL OPERATIONS:
For the nine months ended March 31, 1998 the Issuer had costs of sales of
$3,691,838 on sales of $6,749,773 for a gross profit before depreciation of
$3,057,935. Net Loss for the nine months ended March 31, 1998 was
$4,337,707 or $0.33 per Share. In the fiscal year ended June 30, 1997 the
Issuer had costs of sales of $2,637,315 on sales of $4,905,401 for a gross
profit before depreciation of $2,268,086. In the fiscal year ended June 30,
1996 the Issuer had costs of sales of $291,319 on sales of $556,105 for a
gross profit before depreciation of $264,786. As at March 31, 1998 the
Issuer had working capital of $4,246,426, which sum excludes the net
proceeds of $6,371,938 received on closing of the CD Private Placement.
(See "Business of the Issuer - Summary and Analysis of Financial
Operations".)
<PAE>
MANAGEMENT:
Unless otherwise noted below, the positions held by the following members
of management are positions with the Issuer:
Mahmood (Mac) Jamshidi Shahsavar President, Chief Executive Officer,
Director and Promoter
Jack Tapper Vice-President and Chief Financial
Officer
Reginald Adrian Ebbeling Chairman of the Board and Director
Morteza Seyed Torabian Executive Vice-President, Director
and Promoter
Alice Elaine Affleck Secretary-Treasurer and Director
Robert Alexander Jackson Executive Vice-President and
Director
Janice Marie Shahsavar Vice-President, Human Resources
Gordon John Farrimond Vice-President, Sales and Marketing
and Director
John Ryrie Stone Vice-President, Mertex and Mertex
Plus Surgical Division
Darrell Wayne Van Dyke Vice-President of NHMC US
Duane Jorgenson President, National Healthcare
Logistics Joe Smith Chief Executive Officer, National
Healthcare Logistics
(See "Business of the Issuer - Management".)
RISK FACTORS:
Investment in the securities offered under this Prospectus must be
considered highly speculative due to the nature of the Issuer's business
and its present stage of development. Specific risk factors to be
considered include, but are not limited to, the following:
(1) The market for the Issuer's products is highly competitive and subject
to increasing competition based on price. The Issuer has a limited
operating history and existing competitors may have greater financial
and managerial resources, operating histories and name recognition.
There is no assurance that the Issuer will be able to adapt to
evolving markets and technologies, develop new products, achieve and
maintain technological advances or maintain a unit selling price
competitive with other products. (See "Business of the Issuer -
Market and Competition".)
(2) The Issuer's operations currently rely upon the two computerized form-
fill seal units and two robotic units for the assembly and packaging
of its product.
(3) Receipt of the balance of the government financial assistance, and
repayment of the total amounts received, as disclosed under the
heading "Business of the Issuer - Summary and Analysis of Operations",
are subject to certain conditions.
(4) The Issuer is subject to government regulations in the jurisdictions
in which it distributes its products. Future changes in such
regulations may have an adverse impact on the operations of the
Issuer.
(5) Purchasers of the Special Warrants will suffer material dilution.
(See "Share and Loan Capital -Fully Diluted Share Capital".)
(6) Neither the Issuer nor Excelco has filed an application for patent
protection relating to the Robotic Technology.
(7) The Issuer is dependent upon the personal efforts and commitment of
its management team. The loss of senior management personnel may
adversely affect the Issuer.
<PAGE>
(8) The Issuer's business may be affected by other factors beyond its
control, such as economic recessions and adverse fluctuations in
foreign exchange rates.
(9) The Issuer has not paid dividends in the past and does not anticipate
paying dividends in the near future. The MG Agreement and the WEDD
Agreement place certain restrictions on the payment of dividends by
the Issuer. (See "Business of the Issuer - Summary and Analysis of
Financial Operations".)
(10)Certain of the Issuer's directors and officers may serve as directors
or officers of, or have shareholdings in, other companies and, to the
extent that such other companies may compete with the Issuer,
conflicts of interests may arise which may be harmful to the interests
of the Issuer. (See "Directors, Officers and Promoters - Related
Party Transactions".)
(11)The Issuer's business utilizes a new technology that is being
developed for the purpose of the Issuer's business. Accordingly, the
Issuer is subject to risks associated with start-up companies,
including start-up losses, uncertainty of revenues, markets and
profitability and the necessity of additional funding. In addition,
the technology acquired by the Issuer and being developed by the
Issuer has not yet been proven in a production environment on an
ongoing basis.
(12)The evolving nature of the healthcare industry in North America in
terms of cost containment is leading to changing purchasing practices
amongst purchasers at various institutions. This change in purchasing
environment (i.e. towards a more centralized buying approach) may put
additional pressure on the Issuer to compete on a price basis in order
to achieve adequate market penetration and maintain customer loyalty.
There can be no assurances that the Issuer will be able to implement
its business strategy with its current pricing structure.
<PAGE>
GLOSSARY OF TERMS
Except as otherwise defined, the following terms, when used herein, shall
have the following meanings:
"B.C. Act" the Securities Act (British
Columbia).
"CD Shares" the Shares to be issued upon
conversion or deemed conversion of
the Convertible Debentures.
"CN Private Placement" the private placement of the
Convertible Notes issued October 1,
1997 pursuant to the Securities
Purchase Agreements.
"CN Warrants" the share purchase warrants to be
issued, pursuant to the terms and
provisions of the Convertible Notes
and Debenture Certificate, upon
conversion or deemed conversion of
the Convertible Notes, which were
issued on October 1, 1997.
"CN Warrant Shares" 250,000 Shares to be issued upon
the exercise of the CN Warrants
issued on October 1, 1997.
"CD Private Placement" the private placement of the
Convertible Debentures issued March
31, 1998 pursuant to the
Convertible Debenture Purchase
Agreement
"CD Warrants" the share purchase warrants issued
pursuant to the terms of the
Debenture Purchase Agreement dated
March 31, 1998.
"CD Warrant Shares" 337,500 Shares to be issued upon
the exercise of the CD Warrants
issued on March 31, 1998.
"Commissions" jointly, the British Columbia
Securities Commission and the
Manitoba Securities Commission, the
Securities and Exchange Commission.
"Convertible Debentures" the convertible debentures
issuable, pursuant to the terms and
conditions of the Convertible
Debenture Purchase Agreement.
"Convertible Debenture Purchase Agreement" the Convertible Debenture
Purchase Agreement dated March 31,
1998, between the Issuer and the
investors in respect of the CD
Private Placement.
"Convertible Notes" the US$5,000,000 convertible note
previously issued under the CN
Private Placement, which notes are
convertible, for no additional
consideration, into convertible
debentures and CN Warrants.
"Debenture Conversion Period" commences on the Original Issue
Date.
<PAGE>
"Debenture Maturity Date" March 31, 2000, the maturity date
of the Convertible Debentures dated
March 31, 1998.
"Distributed Securities" collectively, the securities being
qualified for distribution under
this Prospectus, namely, the CD
Shares, and the CD Warrants.
"Exchange" the Vancouver Stock Exchange.
"Finder" CDC Consulting, Inc.
"Importex Warrant" the warrant issued to Importex
Corporation pursuant to the
Importex Assignment entitling the
holder to purchase 150,000 Shares
at a price of $6.90 per Share in
the first year and at a price of
$7.94 per Share in the second year,
expiring on February 3, 1999. (See
"Business of the Issuer -
Acquisitions and Dispositions -
Textile Rights - Importex
Corporation".)
"Importex Warrant Shares" 150,000 Shares issuable upon
exercise of the Importex Warrant.
"July/96 Warrants" warrants previously issued upon
exercise or deemed exercise of the
July/96 Special Warrants.
"July/96 Warrant Shares" 905,000 shares issuable upon
exercise of the July/96 Warrants.
"NASDAQ" National Association of Securities
Dealers Automated Quotation system.
"NCP" National Care Products Ltd., a
private Manitoba company of which
the Issuer owns 100% of the issued
and outstanding shares.
"NHLC" National Healthcare Logistics, LLC,
a Limited Liability Company, being
a private Nevada company of which
the Issuer owns 50% of the issued
and outstanding voting shares.
"NHMC US" National Healthcare Manufacturing
Corporation, U.S., a private
Delaware company, of which the
Issuer owns 100% of the issued and
outstanding shares.
"PP Shares" collectively, the SW Shares and the
Agent's Shares.
"PP Warrants" collectively, the SW Warrants and
the Agent's Warrants.
"Registration Statement" the registration statement to be
filed under the Securities Act of
1933 (United States) in connection
with the conversion or deemed
conversion of the Convertible
Debentures.
<PAGE>
"SW Agency Agreement" the agency agreement dated for
reference December 5, 1996, between
the Issuer and the Agent in respect
of the SW Private Placement.
"SW Private Placement" the private placement of the
Special Warrants issued January 8,
1997 pursuant to the Agency
Agreement.
"SW Qualification Deadline" May 8, 1997.
"SW Shares" 1,509,000 Shares to be issued upon
exercise of the Special Warrants.
"SW Units" 1,509,000 units of the Issuer, each
consisting of one SW Share and one
SW Warrant to be issued without
additional payment upon the
exercise of the Special Warrants.
"SW Warrants" 1,600,000 non-transferable share
purchase warrants of the Issuer to
be issued upon exercise of the
Special Warrants, each entitling
the holder to purchase one SW
Warrant Share at a price of $7.00
per SW Warrant Share on or before
the SW Warrant Expiry Date.
"SW Warrant Expiry Date" July 8, 1998.
<PAGE>
"SW Warrant Indenture" the agreement among the Issuer and
the Trustee, dated January 8, 1997,
which provides for the terms and
conditions of the creation,
issuance and exercise of the SW
Warrants.
"SW Warrant Share" the 1,600,000 Shares which may be
acquired upon exercise of the SW
Warrants.
"Securities Purchase Agreement" the securities purchase agreements
dated October 1, 1997, between the
Issuer and the investors in respect
of the CN Private Placement.
"Shares" the Class A shares without par
value in the capital stock of the
Issuer.
"Special Warrants" 1,600,000 special warrants of the
Issuer previously issued under the
SW Private Placement, each
entitling the holder to acquire,
for no additional consideration,
one SW Unit.
"Special Warrant Expiry Date" the earlier of: (a) January 9,
1998 and (b) the third business day
after the day on which the last of
the Receipts for this Prospectus is
issued by the Commissions.
"Special Warrant Indenture" the agreement among the Issuer and
the Trustee which provides for the
terms and conditions of the
creation, issuance and exercise of
the Special Warrants.
"Trustee" Pacific Corporate Trust Company, of
Vancouver, British Columbia.
"Units" jointly, the SW Units and the
Agent's Units.
<PAGE>
THE ISSUER
The Issuer was incorporated on August 23, 1993 under The Corporations Act
(Manitoba) by registration of its Articles of Incorporation. The address
of the head office of the Issuer is 251 Saulteaux Crescent, Winnipeg,
Manitoba, R3J 3C7, and the address of the registered office of the Issuer
is 30th Floor Commodity Exchange Tower, 360 Main Street, Winnipeg,
Manitoba, R3C 4G1. The Issuer was extra-provincially registered in the
Province of British Columbia on December 9, 1994.
The Issuer is a reporting issuer in the Provinces of British Columbia and
Manitoba and with the Securities and Exchange Commission. The Issuer's
Shares have been listed for trading on the senior board of the Exchange
since January 15, 1996 under the trading symbol "NHM". The Shares have
also been quoted on the Small Capital Market of the National Association of
Securities Dealers Automated Quotation system ("NASDAQ") since August 14,
1996 under the symbol "NHMCF".
The Issuer owns 100% of the issued and outstanding shares of National
Healthcare Manufacturing Corporation, U.S. ("NHMC US"), a private company
incorporated on October 25, 1994 under the Business Corporations Act
(Delaware). NHMC US was established for the purpose of entering into
certain lease arrangements (see "Business of the Issuer - Operations -
Equipment") and to carry on the medical products packaging operations of
the Issuer in the U.S. (see "Business of the Issuer - Operations -
General").
The Issuer owns 100% of the issued and outstanding shares of Associated
Healthcare Sales Ltd. ("AH Sales"), a private company incorporated on
October 4, 1994 under The Corporations Act (Manitoba). AH Sales is a non-
operating subsidiary of the Issuer.
The Issuer owns 100% of the issued and outstanding shares of National Care
Products Ltd. ("NCP"), a private company incorporated on May 6, 1996 under
The Corporations Act (Manitoba). NCP operates the business previously
operated by Arjo Canada Inc. as its Liquid Division (see "Business of the
Issuer - Acquisitions and Dispositions - Liquid Division of Arjo Canada
Inc.").
The Issuer owns 100% of the issued and outstanding shares of Medi Guard
Inc. ("Medi Guard"), a private company incorporated on May 30, 1996 under
the Business Corporations Act Ontario. Medi Guard is Canada's leading
manufacturer of single use cellulose based products for the physician
office and diagnostic imaging clinic segments of the health care market.
The company also markets a complete line of single use hygiene products for
the travel industry. (see "Business of the Issuer - Acquisitions and
Dispositions - Medi Guard Inc.").
The Issuer owns 50% of the issued and outstanding voting shares of National
Healthcare Logistics, LLC, a Limited Liability Company ("NHLC"), a private
company incorporated on March 26, 1997 under the Nevada Limited Liability
Company Act. The remaining 50% of NHLC's voting shares is owned by Joe
Smith and Duane Jorgenson, each as to 25%. NHLC was established to offer
material management and alternative distribution channels to integrated
hospital groups in the U.S.
The Issuer will own, upon completion of the acquisition, 100% of Budva
International, LLC, a Missouri limited liability company ("Budva"), a
leading manufacturer of disposable plastic products for the health care
industry. (see "Business of the Issuer - Acquisitions and Dispositions -
Budva International LLC").
<PAGE>
BUSINESS OF THE ISSUER
Description of Business and General Development
The Issuer is an automated medical products manufacturer, whose principal
business is the assembly and packaging of disposable kits and trays for
medical and surgical procedures, such as patient care trays, custom
procedure kits, diagnostic trays and homecare kits (see the subheading
"Products"). The market for the Issuer's products is comprised of users of
medical and surgical device products such as hospitals, outpatient surgery
centers, dental and medical clinics, retirement homes, homecare providers
and multi-level care facilities. The Issuer has marketed its kit and tray
products to various healthcare facilities throughout North America, through
an independent sales team and independent distributors. (See the
subheading "Market and Competition".)
Prior to the use of custom procedure kits, a healthcare facility would
order from a number of sources and maintain a substantial inventory of each
individual sterile product used in the procedures performed at that
facility. Each surgical procedure would require a lengthy set-up time in
which all products required for the surgical procedure would be manually
selected and organized by hospital staff. In addition to placing demands
on hospital personnel, this procedure had a greater risk of product
contamination and waste. Custom procedure kits increase efficiency and
productivity by consolidating the products used in a given surgical
procedure into a single package. Pre-assembled kits eliminate the opening
of many different packages of sterile materials and reduce the risk of
contamination. They also reduce the demand on hospital personnel and
facilities associated with the ordering and maintaining of inventory.
Custom procedure kits are particularly beneficial to facilities that have
limited storage space and limited investment in infrastructure and
personnel. In addition, the use of custom procedure kits allow for easier
identification of costs associated with specific procedures.
The Issuer acquired the Liquid Division of Arjo Canada Inc. ("Arjo") which
manufactures liquid medical products, such as disinfectants, shampoos and
skin creams, that add to the Issuer's range of products (see "Business of
the Issuer - Acquisitions and Dispositions - Liquid Division of Arjo Canada
Inc.") The Issuer has also acquired the on-going business and certain
assets of Huntington Laboratories Gam-Med Division, Inc. which packages
antimicrobial products in patented disposable plastic dispensers. (See
"Business of the Issuer - Acquisitions and Dispositions - Huntington
Laboratories Gam-Med Division, Inc.")
National Healthcare Logistics, LLC, a Limited Liability Company ("NHLC")
was created in April 1997 by the Issuer as an equal partner with two well-
respected U.S. authorities in materials management and medical distribution
systems. The Issuer owns 150 Class A voting shares of NHLC purchased at a
price of US$1.00 each and 833.3 Class C preferred non-voting shares of NHLC
purchased at a price of US$1,500 each. The Issuer intends to contribute
additional share capital to purchase a further 166.7 Class C preferred
shares of NHLC. NHLC is in the service business managing the purchasing
and distribution activities for multiple numbers of hospitals utilizing a
"hub and spoke" distribution system. The hub and spoke distribution system
is the state of the art in supply chain management for integrating hospital
systems. This concept has been developed by Duane Jorgenson, one of the
principals of NHLC, who is a highly regarded authority in material
management logistics. Mr. Jorgenson has also developed and implemented a
number of stockless inventory systems for hospitals throughout the U.S.
The formation of NHLC provides the Issuer with an entry to "alternative"
distribution channels, the fastest growing segment of the medical products
distribution market. This directly benefits the Issuer and its
subsidiaries by providing them with an excellent opportunity to market
their products directly to end user hospitals through hub and spoke
distribution systems managed by NHLC. In August 1997, NHLC entered into a
10-year agreement with Sysco Corporation, through which NHLC will bring in
supply management contracts for various integrated hospital systems, based
on hub and spoke distribution, while Sysco Corporation will provide the
capital for setting up the hubs and provide inventory and distribution. In
May 1998, NHLC announced that it had signed a letter of Intent to establish
and manage a second hub and spoke distribution center for an integrated
hospital system.
<PAGE>
The Issuer has acquired all of the issued and outstanding shares of Medi
Guard which manufactures single use cellulose based products for the
physician office and diagnostic imaging clinic segments of the health care
market. The company also markets a complete line of single use hygiene
products for the travel industry. The Issuer has also acquired all of the
issued and outstanding shares of Budva which manufacturers disposable
plastic products for the health care industry.
The Issuer markets all its products to hospitals, long term care facilities
and homecare providers in Canada through independent distributors. The
Issuer uses an independent sales team and its interest in NHLC to market
its products in the U.S. Through its 50% interest in the recently founded
NHLC, a medical products purchasing and distribution company, the Issuer is
further establishing its U.S. market presence. Also, as part of its
marketing strategy, the Issuer intends to introduce the "NCP" (standing for
"National Care Products") brand name.
The Issuer was inactive from incorporation until June 1994 when it began
raising capital for the acquisition and modification of its Winnipeg
facility for the packaging of medical supplies for the healthcare industry.
To date, the Issuer has accomplished the following:
* in October 1994, secured in excess of $10 million in lease financing
for three robotic multi-component packaging assembly lines (see
"Business of the Issuer - Operations - Equipment");
* in November and December 1994 entered into agreements with both the
Government of Manitoba and Government of Canada for financial
assistance of up to $4,611,852 (certain conditions apply, see
"Business of the Issuer - Summary and Analysis of Financial
Operations");
* in December 1994, acquired a 71,000 square foot manufacturing plant
sited on approximately 3.396 acres of land (the "Property") located in
Winnipeg, Manitoba (see "Business of the Issuer - Acquisitions and
Dispositions - Property");
* modified the Winnipeg manufacturing plant and upgraded its utility
systems to meet production requirements;
* purchased the necessary machinery and warehousing equipment to meet
operation requirements (see "Business of the Issuer - Operations -
Production Line Assembly Equipment");
* in May 1995, acquired the exclusive North American and European
licenses to use certain robotic technology to assemble, package and
market trays, packs and custom procedure kits in the Continental
U.S.A. and Canada (see "Business of the Issuer - Acquisitions and
Dispositions - Robotic Technology License Agreement");
* in July 1995 officially opened its Winnipeg manufacturing facility and
in September 1995 shipped its first order of kits and trays for
sterilization.
* obtained a listing as a 'senior board company' on the Vancouver Stock
Exchange on January 15, 1996;
<PAGE>
* obtained U.S. Food and Drug Administration ("FDA") designation of the
Issuer's Winnipeg manufacturing facility as a 'Class 10,000 clean
room', (see "Business of the Issuer - Operations - Regulatory
Process");
* obtained registration of its Shares in the U.S. with the Securities
and Exchange Commission;
* in August 1996, commenced trading on the NASDAQ Small Cap Market,
under symbol NHMCF;
* in September 1996, completed an upgrade to its robotic packaging
technology and developed new feeder assemblies for the placement of
various medical tray and kit components;
* in September 1996, acquired the Liquid Division of Arjo Canada Inc.
(see "Business of the Issuer - Acquisitions and Dispositions - Liquid
Division of Arjo Canada Inc.");
* in January 1997, completed the SW Private Placement;
* in February 1997, acquired the on-going business and certain assets of
Huntington Laboratories Gam-Med Division, Inc., including a 15,253
square foot manufacturing facility located in Antioch, Illinois,
U.S.A. (see "Business of the Issuer - Acquisitions and Dispositions -
Huntington Laboratories Gam-Med Division, Inc.");
* in March 1997, co-founded NHLC, a private Nevada company established
to manage the purchasing and distribution of medical products,
including those of the Issuer, to hospital groups in the U.S.;
* in August 1997, through its 50% interest in NHLC, entered into a 10-
year agreement with Sysco Corporation to provide material distribution
to integrated hospital systems (see "Business of the Issuer -
Acquisitions and Dispositions - National Healthcare Logistics, LLC";
* in September 1997, completed the acquisition of certain textile rights
from Importex (see "Business of the Issuer - Acquisitions and
Dispositions - Textile Rights - Importex Corporation");
* in October 1997, completed the CN Private Placement;
* effective November 1997, acquired all of the issued and outstanding
shares of Medi Guard;
* in March 1998, completed the CD Private Placement; and
* effective April 1998, acquired all of the issued and outstanding
shares of Budva.
<PAGE>
Summary and Analysis of Financial Operations
The following is a summary of the Issuer's financial operations during the
last two financial years. (For particulars, see the Financial Statements
attached to this Prospectus.)
<TABLE>
Year Ended Year Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Sales $ $
Other Revenue 4,905,401 556,105
Gross Profit Before Depreciation 166,196 51,339
2,268,086 264,786
Cost of Sales 2,637,315 291,319
Research and Development Expenses Nil Nil
Sales and Marketing Expenses 2,205,375 185,082
General and Administrative Expenses 2,219,207 1,703,270
Depreciation 1,576,975 1,188,053
Interest on Long-Term Debt 415,035 409,258
Other 56,026 42,208
Net Loss 4,248,043 3,211,746
Working Capital (Deficiency) 5,456,000 (926,575)
Investment in National Healthcare
Logistics, LLC 490,772 Nil
Property, Plant and Equipment Used
in Operations 7,698,374 6,916,680
Assets under Development 9,868,849 8,924,389
Deferred Foreign Exchange Gain 54,128 204,073
Other Intangibles Nil Nil
Long Term Liabilities (excluding 10,377,081 10,113,610
deferred foreign exchange gain)
Shareholders' Equity
Dollar Amount of Share Capital 9,318,163 8,677,351
Number of Shares 11,070,415 10,753,290
Dollar Amount of Warrants 12,093,206 Nil
Deficit (8,328,583)(4,080,540)
</TABLE>
There are 15,821,903 Shares issued and outstanding as of March 31, 1998, of
which 1,180,000 are performance shares releasable from escrow at the rate
of one share for each $0.09 of cumulative cash flow generated from
operations.
<PAGE>
<TABLE>
Year Ended Year Ended
June 30, June 30,
1997 1996
<S> <C> <C>
Sales to customers outside Canada 2,482,035 384,888
Sales to customers inside Canada 2,423,366 171,217
Gross Profit Before Depreciation on Total 2,268,086 264,786
Sales
</TABLE>
While sales volumes increased from 1996 to 1997, gross profit before
depreciation percentages of 47.6% for 1996 and 46.2% for 1997 remained
relatively the same.
Year Ended June 30, 1997
For the year ended June 30, 1997, the Issuer had cost of sales of
$2,637,315 on sales of $4,905,401. Gross profit before depreciation for
the year ended June 30, 1997 was $2,268,086. The Issuer recorded
depreciation and amortization of property, plant and equipment of
$1,576,975 and interest on long term debt of $415,035. These amounts were
expensed, as the Issuer was past the start-up stage and capable of
production. The Issuer also experienced a significant increase in selling,
distribution and administrative expenses which totalled $4,424,582. The
increase was due to increased activity in sales and marketing, the expenses
associated with investigating potential acquisitions, and the expenses
associated with the acquisition of the liquid division of Arjo Canada Inc.
Sales increased from $556,105 for 1996 to $4,905,401 for 1997, due to
increased sales and marketing activity and the addition of liquid and
antimicrobial products to the Issuer's product line.
On July 31, 1996, 905,000 special warrants were issued by the Issuer for a
subscription price of $3.00 each for gross proceeds of $2,715,000. After
deduction of the Agent's commission of $190,050 in respect of this private
placement, the Issuer received net proceeds of $2,524,950.
On January 8, 1997, 1,600,000 Special Warrants were issued by the Issuer
for a subscription price of $6.00 each for proceeds of $9,600,000. There
was no cash commission payable on the SW Private Placement, however, as
commission the Agent was issued Agent's Special Warrants (see "Details of
the Offering - SW Private Placement").
The long term liabilities of the Issuer as at June 30, 1997 included
obligations under capital leases of $5,504,985.
(For additional information on leased equipment, see "Business of the
Issuer - Operations - Equipment" and the Financial Statements appended
hereto.) As at June 30, 1997, inventories were valued at $2,850,012. The
Issuer's working capital was $5,456,000 and its asset base exceeded $27
million. The net loss for the year ended June 30, 1997 was $4,248,043.
<PAGE>
Year Ended June 30, 1996
For the year ended June 30, 1996, the Issuer had cost of sales of $291,319
on sales of $556,105. Gross profit before depreciation for the year ended
June 30, 1996 was $264,786. The Issuer recorded depreciation and
amortization of property, plant and equipment of $1,188,053 and interest on
long term debt of $409,258. These amounts were expensed as the Issuer was
past the start-up stage and capable of production. The Issuer also
experienced a significant increase in selling, distribution and
administrative expenses which totaled $1,888,352, including advertising
expenses of $185,082. The increase was due to increased activity in sales
and marketing, the expenses associated with investigating potential
acquisitions, and the expenses associated with the acquisition of the
liquid division of Arjo Canada Inc. which closed subsequent to this period.
General and administrative expenses included $328,019 in consulting fees,
$149,384 in business and property taxes, and $540,927 in wages and employee
benefits.
The long term liabilities of the Issuer as at June 30, 1996 included
obligations under capital leases of $7,223,699. As at June 30, 1996,
inventory was valued at $507,203. The Issuer's working capital deficiency
was $926,575 and its asset base exceeded $17,500,000. The net loss for the
year ended June 30, 1996 was $3,211,746.
Liquidity
Historically, the Issuer has relied on debt and equity financing to develop
and operate its business. On a prospective basis, the Issuer has not yet
achieved profitable operations and must continue to rely upon funding
through further private and public equity financings and by drawing upon
funds available under the MG Agreement and the WEDD Agreement (as
hereinafter defined). (For further information relating to the MG
Agreement and the WEDD Agreement, see subheading "Financial Assistance"
following.)
Prior to the initial public offering of the Issuer's Shares under its
prospectus bearing an effective date of November 30, 1995 (the "IPO
Prospectus"), liquidity was dependent upon cash invested by principals of
the Issuer and private investors. Additional funds were provided by
shareholder loans and funds advanced from the Manitoba and Federal
Governments pursuant to the MG Agreement and WEDD Agreement. In December
1995, the Issuer received net proceeds of approximately $1,800,000 from the
IPO Prospectus offering. As at June 30, 1997, the Issuer had received a
total of $1,613,146 under the MG Agreement and $1,654,180 under the WEDD
Agreement. Although these sources of funding were adequate for its initial
start-up expenses, the Issuer required additional funding from further
private equity financings in order to pursue its acquisition plans and
implement a sales and marketing program in Canada and the United States.
To that end, during its year ended June 30, 1997, the Issuer completed the
SW Private Placement, raising proceeds of $9,600,000 and, on October 1,
1997, closed the CN Private Placement, raising net proceeds of $6,543,600.
On March 31, 1998, the Issuer completed the CD Private Placement, raising
net proceeds of US$6,412,500. The Issuer will continue to require
additional funds, through private or public equity financings, in order to
maintain its objective of rapid growth.
<PAGE>
Financial Assistance
Manitoba Government
By agreement dated November 24, 1994, as amended September 21, 1995 and
November 14, 1995 (the "MG Agreement"), the Department of Industry Trade
and Tourism of the Manitoba Government, through its Crown Corporation and
agent, Manitoba Development Corporation ("MDC") agreed to provide the
Issuer with financial assistance equal to the lesser of $2,674,000 or 33%
of the costs excluding G.S.T. incurred and paid for the land and buildings
purchased, building improvements made, and equipment purchased at arms
length, all respecting the Issuer's production of automated packaged
medical and surgical devices, kits and procedural trays for the medical and
healthcare market (the "Eligible Project Costs"). The Issuer met
conditions sufficient for it to obtain a maximum of $2,174,000 of financial
assistance (the "MG Loan") from MDC.
The MG Agreement requires the creation and maintenance of a certain number
of jobs over a four-year period, starting in 1995, as follows:
<TABLE>
Calendar Year Number of New Jobs Number of Jobs
Required to be Required to be
Created Maintained
<S> <C> <C>
1995 5 5
1996 23 28
1997 18 46
1998 3 49
</TABLE>
During calendar 1999 and until the MG Loan is repaid in full, the Issuer is
required to maintain the number of jobs required to be maintained for
calendar 1998. The Issuer has created and maintained the requisite number
of jobs and currently employs 84 full-time employees.
The MG Loan is secured with a first-fixed charge against land, buildings
and certain equipment and certain second fixed charges, and will be subject
to interest (both before and after maturity) at a rate, compounded monthly,
equivalent to that being charged by the Province of Manitoba to its Crown
corporations for borrowings amortized over a ten year period. The MG Loan
is to be repaid as follows:
(a) six consecutive monthly payments of $30,000 from May 5, 1999 through
October 5, 1999; and
(b) the remaining principal payments must be made by way of 48 equal
consecutive monthly payments of $51,958.33 from November 5, 1999 up to
and including October 5, 2003.
In addition, a maximum 42 months' relief on interest has been granted to
the Issuer, subject to the Issuer providing a certain number of jobs per
year, as stated in the above table, until the MG Loan has been repaid.
However, the MG Agreement also provides for the acceleration of interest
and principal in the event the Issuer fails to provide the above stated
number of jobs per year. The accelerated payments shall be calculated
proportionally to the shortfall in jobs for a specific year. The MG Loan
is also repayable on demand in the event of default by the Issuer under any
of the security agreements.
<PAGE>
The Issuer received a total draw down pursuant to the MG Agreement in the
amount of $2,174,000 (of the $2,674,000 originally available to the
Issuer). Prior to advance of the final $500,000 of the possible maximum of
$2,674,000 from MDC, the Issuer was to achieve sales of $2,093,000 during
the 12 months ended June 30, 1996 and $16,884,000 during the 12 months
ended June 30, 1997. As such sales targets were not achieved, the Issuer
did not receive the final $500,000 from MDC.
The MG Agreement also places certain limitations on the payment of
dividends by the Issuer, including that the Issuer not pay any dividends
until October 5, 1998.
Pursuant to the MG Agreement, the following supporting documentation, all
dated September 5, 1995, was delivered by the Issuer to MDC:
(a) Real Property Mortgage and Security Agreement
The Issuer has granted to MDC a mortgage (the "Real Property
Mortgage") on the Property. Pursuant to an agreement (the "Security
Agreement"), the Issuer also granted to MDC a first security interest
in certain lands, buildings and equipment, and a second security
interest in receivables and inventory of the Issuer.
(b) Assignment/Postponement of Shareholder Loans Agreement
Pursuant to an agreement (the "Assignment/Postponement of Shareholder
Loans Agreement") among the Issuer, Excelco Systems Inc. ("Excelco"),
Mahmood (Mac) Shahsavar, Janice Shahsavar and MDC, it was agreed that
during the term of the MG Loan:
(i) neither Mahmood (Mac) Shahsavar nor Janice Shahsavar would sell,
transfer, assign or otherwise dispose of their respective
incentive stock options (see "Options and Other Rights to
Purchase Securities"),
(ii) neither Mahmood (Mac) Shahsavar nor Janice Shahsavar would sell,
transfer, assign or otherwise dispose of any Shares acquired
pursuant to an exercise of their respective incentive stock
options or acquired upon the release of shares from escrow (as
disclosed under the heading "Performance Shares"), and
(iii) the Issuer would not make any payments to Excelco or to any
other shareholders of the Issuer on account of any loans advanced
by them to the Issuer,
without the prior written consent of MDC.
(c) Equity Undertaking Agreement
Pursuant to an agreement (the "Equity Undertaking Agreement") with
Excelco, Mahmood (Mac) Shahsavar, Janice Shahsavar and MDC, as amended
October 8, 1996, the Issuer agreed that during the term of the MG Loan
it would:
(i) not repay any debts or liabilities owing to persons other than
MDC, except for debts and liabilities owing to Her Majesty The
Queen in Right of Canada under the WEDD Agreement and accounts
payable incurred by the Issuer in the ordinary course of
business; and
(ii) not issue any new shares or create any new class of shares, and
will not merge with any other entity, without first notifying
MDC.
<PAGE>
(d) Lease and Credit Undertaking Agreement
An agreement (the "Lease and Credit Undertaking Agreement") among the
Issuer, Excelco and MDC, whereby Excelco has agreed and undertaken
that, in the event the Issuer is unable or unwilling to meet any or
all of its obligations to the lessors under the Lease Agreements (as
disclosed under the heading "Business of the Issuer - Operations"),
Excelco shall advance such funds to the Issuer or the lessors directly
as are required to fulfil such obligations. Should the Issuer be in
default or fail to comply with any term of the Lease Agreements, MDC
has the right, but not the obligation, to assume the obligations of
the Issuer under the Lease Agreements.
(e) Excelco Guarantee
An agreement (the "Excelco Guarantee") among the Issuer, Excelco and
MDC, whereby Excelco has agreed to guarantee the repayment of the loan
by the Issuer to MDC.
Federal Government
By agreement dated December 5, 1994 (the "WEDD Agreement"), entered into
with the Government of Canada's Western Economic Diversification Program
("WEDP"), the Issuer received approval for non-interest bearing,
subordinated financial assistance in the aggregate amount of $1,937,852.
To date, $1,804,835 has been received under the WEDD Agreement, leaving a
balance of $133,017 available to be paid and expected to be drawn down
prior to June 1998.
Repayment of the loan, assuming the full amount of $1,937,852 is drawn
down, will be made by quarterly payments commencing September 1, 1998 and
ending September 1, 2000, as follows:
September 1, 1998 $100,000
December 1, 1998 $180,000
March 1, 1999 $180,000
June 1, 1999 $210,000
September 1, 1999 $210,000
December 1, 1999 $290,000
March 1, 2000 $290,000
June 1, 2000 $290,000
September 1, 2000 $187,852
The WEDD Agreement prohibits the Issuer from paying dividends without the
prior written approval of the WEDP until the WEDD loan is repaid in full.
The loan is also repayable on demand upon default by the Issuer of a term
or condition of the WEDD Agreement, including bankruptcy, insolvency or
winding-up of the Issuer or failure to operate in Western Canada until the
WEDD loan has been repaid in full.
Copies of the MG Agreement, WEDD Agreement, Real Property Mortgage and
Security Agreement, Assignment/Postponement of Shareholder Loans Agreement,
Equity Undertaking Agreement, Lease and Credit Undertaking Agreement, and
Guarantee Agreement are available for inspection as specified under the
heading "Material Contracts".
Stated Business Objectives
The primary objectives of the Issuer are:
* to develop and exploit the markets of Europe, Asia and South America;
* to acquire additional automated robotic units; and
<PAGE>
* to distribute its surgical gowns, on a lease basis, through joint
venture arrangements with distributors.
Milestones
The significant events that must occur for the business objectives of the
Issuer to be accomplished, and the specific time periods in which each
event is expected to occur and the estimated costs related to each event
are as follows:
<TABLE>
Significant Event Time Related Cost
Period
<S> <C> <C>
Satisfy ISO (International Standards 1 year nominal
Organization) that ISO 9000 Series
certification standards are met by Issuer
Hire key individual to develop and exploit 1 year $45,000
markets in Asia, South America and Europe per annum
Structure additional equity financing to 12-18 $6,000,000
acquire additional robotic packaging units months
Enter into joint venture arrangements with 12-18 $1,500,000
distributors to distribute the Issuer's months to
surgical gowns on a lease basis $2,000,000
for
initial
inventory
</TABLE>
Acquisitions and Dispositions
Property
Pursuant to an arms'-length agreement dated December 15, 1994, as amended
April 20, 1995 (the "Property Agreement"), the Issuer acquired from Otto
Bock Orthopaedic Industry of Canada ("Otto Bock") its Winnipeg
manufacturing plant, together with equipment located thereon, located at
251 Saulteaux Crescent, Winnipeg, Manitoba (the "Property"). The Property
consists of a one storey manufacturing building together with a two storey
office portion, altogether comprising a total building area in excess of
71,000 square feet sited on a land area of approximately 147,930 square
feet (3.396 acres).
The consideration paid by the Issuer to Otto Bock was $1,400,000 cash
together with 200,000 Shares issued at a deemed price of $1.75 per share,
for a total purchase price of $1,750,000. The Issuer also incurred
additional costs in the approximate amount of $40,000 in transfer taxes and
legal fees associated with this transaction.
Robotic Technology License
By agreement dated May 30, 1995 (the "Robotic Technology License
Agreement"), as amended, Excelco Systems Inc. ("Excelco") granted to the
Issuer the exclusive right and license (the "Licensed Rights") to use the
robotic technology (the "Robotic Technology") to manufacture and package
surgical custom procedure trays and kits, and to sell products to
healthcare institutions in Canada, Mexico and the U.S. The Robotic
Technology License Agreement is for an initial term of ten years, with an
automatic renewal for consecutive ten-year terms thereafter.
<PAGE>
Janice Shahsavar, the Vice-President Human Resources of the Issuer, owns
100% of the issued shares of Excelco. In addition, Mac Shahsavar, the
President, Chief Executive Officer, Promoter and a Director of the Issuer,
is also the President and Chief Executive Officer of Excelco. At the time
of entering into the Robotic Technology License Agreement, Seyed Torabian,
the Executive Vice-President and a Director of the Issuer, owned 5.78% of
the issued shares of Excelco.
The Issuer agreed to purchase all automated machinery from Excelco, subject
to the terms and conditions of an agreement dated October 21, 1994 (the
"Selectronics Agreement") entered into between Excelco and Selectronics
Robotics & Automation Inc. and Selectronics Brokerage, Inc. (jointly,
"Selectronics"), the manufacturer of the equipment and machinery. Pursuant
to the Selectronics Agreement, which is for a term of 20 years, Excelco has
granted to Selectronics the exclusive right to manufacture all machinery
and equipment which incorporate the Robotic Technology (the "Products"),
and Excelco has agreed to purchase Products only from Selectronics. The
Selectronics Agreement provides that the price to be paid for the Products
to be supplied by Selectronics to Excelco, or its designate, shall not
exceed 25% of the competitive market retail price for the Products.
Selectronics and Excelco have agreed to meet annually to negotiate the
price of the Products to be supplied. Excelco has agreed to sell the
Products under the Selectronics Agreement to the Issuer at cost. (For
information relating to the purchase of equipment by the Issuer from
Selectronics, see "Business of the Issuer - Operations - Equipment".)
The Robotic Technology License Agreement prohibits the Issuer from sub-
licensing the License Rights without first obtaining the consent of
Excelco, and then only under certain other conditions which Excelco may
impose as to equity ownership of the sub-licensee.
Liquid Division of Arjo Canada Inc.
Pursuant to an agreement dated May 14, 1996 (the "Arjo Agreement") between
the Issuer and Arjo Canada Inc. ("Arjo"), Arjo USA Inc. ("Arjo U.S.") and
3485367 Manitoba Ltd. (now known as National Care Products Ltd.) ("NCP"),
the Issuer acquired Arjo's Liquid Division by purchasing all the shares of
NCP. At the time of purchase, NCP was a wholly owned subsidiary of Arjo.
In consideration therefor, the Issuer paid to Arjo the sum of $10 and
assumed an unsecured promissory note payable to Arjo in the amount of
$896,447, representing payment for certain assets as set forth in the Arjo
Agreement. This promissory note was paid in full. The parties negotiated
the allocation of the purchase price to be as follows: $262,680 in fixed
assets; $633,768 in inventory; and $10 in goodwill, contract assignments,
licenses, records and intangibles. Ross Scavuzzo, a director of the
Issuer, was the President of Arjo as well as being a director of the Issuer
at the date of the Arjo Agreement.
The Arjo Agreement was accepted for filing by the Exchange on August 9,
1996.
Arjo, a wholly owned subsidiary of Getinge Industrict A.B. of Sweden, began
operations in 1975. From a manufacturing facility in Winnipeg, Arjo's
liquid division produced liquid disinfectant, shampoos, skin care ointments
and creams for sale in Canada as well as in the United States and in
Europe.
NCP has agreed that, subject only to certain limited circumstances, it
shall sell and distribute all of the products it manufactures under its own
label, distinct from the Arjo label.
Pursuant to the Arjo Agreement, Arjo and Arjo US have jointly and severally
agreed, until August 31, 1999 (the "Purchase Expiry Date"), to purchase
disinfectants used for bathtubs and whirlpools, shampoo and body wash
liquid soaps, bath oils and ArjosoundJ water conditioners (the "Selected
NCP Products") only from NCP, totaling in the aggregate not less than
$2,180,000 annually (the "Minimum Purchase"), failing which Arjo agrees to
pay annually to NCP an amount equal to the amount by which the Minimum
Purchase exceeds the amount of such liquid products actually purchased in a
particular year multiplied by the following:
(a) 33.75% in the first year;
(b) 20.00% in the second year; and
(c) 15.00% in the third year;
<PAGE>
provided that the Minimum Purchase shall be reduced by an amount, if any,
of sales by NCP (directly or through its distributors and/or agents) of the
Selected NCP Products not bearing the Arjo label to Arjo's customers in
North America. Upon the Purchase Expiry Date, NCP has the right of first
refusal to continue to supply the Selected NCP Products to Arjo and Arjo US
for an additional two years. No Minimum Purchase shall apply to the
extended term.
NCP has agreed to use its best efforts to cause delivery of at least 90% of
the Selected NCP Products sold to Arjo and Arjo US within three working
days of receipt of an order from Arjo, directly to customers located in the
greater Vancouver urban area, Calgary, Edmonton, Saskatoon, Regina,
Winnipeg, Hamilton, Toronto, Ottawa, Moncton, and Halifax, and within five
working days to any other location in Canada, Aurora, Nebraska, and
Chicago, Illinois (the "Delivery Deadlines"). If in any quarter less than
90% of the Selected NCP Products sold to Arjo and Arjo US are delivered
within the Delivery Deadlines, then the Minimum Purchase obligations of
Arjo and Arjo US shall be reduced during that and the following year by 2%
for each 1% drop in delivery performance level below 90% and if, during any
two consecutive quarters or during any two of four consecutive quarters,
such delivery service levels drop below 80%, then Arjo and Arjo US shall be
released from all further purchase obligations. Deficiencies in delivery
which are directly attributable to causes which are beyond the control or
direct influence of NCP and which are generally applicable to other
suppliers of comparable products in North America shall not be counted.
Pursuant to the provisions of the Arjo Agreement, the Issuer and NCP have
agreed that they shall not, without the prior written consent of Arjo,
until the Purchase Expiry Date, actively solicit sales of shampoos and body
wash liquids and bath oils from the specific locations of stated hospitals,
nursing homes or healthcare facilities located in North America and
serviced by Arjo, in competition with Arjo, or sell to or solicit to the
same facilities any water conditioners or disinfectants used only for the
purposes of bathtubs or whirlpools. Arjo and Arjo US have agreed that,
except as permitted pursuant to the Arjo Agreement, they shall not, or
cause anyone to, until the Purchase Expiry Date, sell or solicit sales for
skin cream products to anyone, and thereafter, until August 31, 2001, sell
or solicit sales for skin cream products to hospitals, anywhere in North
America, in competition with the Issuer and NCP, except for skin cream
products purchased from NCP.
The principal assets and operations of the Liquid Division are located at
the Issuer's manufacturing facility in Winnipeg.
<PAGE>
Huntington Laboratories Gam-Med Division, Inc.
By an arms'-length asset purchase agreement dated January 22, 1997 (the
"Gam-Med Agreement") among NHMC US, Huntington Laboratories Gam-Med
Division, Inc. ("Gam-Med") and Ecolab Inc. ("Ecolab"), the Issuer acquired
certain properties, assets, contracts and business of Gam-Med, including
land, building, machinery and equipment, accounts receivable, inventory,
proprietary patents and on-going business, in consideration of the payment
to Gam-Med of US $1,310,165 (the "Purchase Price"), and the assumption by
the Issuer of certain contractual obligations of Gam-Med. Gam-Med, a
wholly-owned subsidiary of Ecolab (listed on the New York Stock Exchange),
is a medical products packager and owns the proprietary right to a fusion
moulding process (the "Gam-Med Technology") which has been used to
manufacture various patented plastic disposable liquid-dispensing products
since 1989. On February 17, 1997, the Exchange approved the Gam-Med
Agreement and the acquisition closed on February 20, 1997.
Pursuant to and as part of the Gam-Med Agreement, the Issuer entered into a
supply agreement (the "Ecolab Supply Agreement") dated February 20, 1997
between NHMC US and Ecolab whereby NHMC US has committed to purchase a
minimum of 500 gallons of Ecolab iodine products every 6 months, at a price
of actual cost plus 15% (subject to certain allowances) over a term of two
years or unless earlier terminated by mutual consent, by NHMC US upon 90
days' written notice, by either party on written notice upon any material
breach of default and failure to cure such breach or default within 30 days
of such notice, or by Ecolab by written notice to NHMC US upon any failure
to meet its minimum purchase commitments for any six month period and
failure to cure such breach within 30 days of such notice.
Textile Rights
Mercana Industries Ltd.
By an arm's length letter of intent (the "Mercana LOI") dated October 18,
1996 with Mercana Industries Ltd. ("Mercana"), the Issuer agreed to acquire
all the issued and outstanding share capital of Mercana. The primary asset
of Mercana at the date of the Mercana LOI was the exclusive marketing
rights (the "Exclusive Rights") for two protective textiles "Mertex" and
"Mertex-Plus" used to manufacture reusable surgical gowns and drapes. The
Issuer had proposed to include surgical gowns and drapes in its custom
procedure kits. Pursuant to the Mercana LOI, the Issuer advanced a total
of $300,000 to Mercana. By a general security agreement (the "Mercana
GSA") dated October 16, 1996, Mercana granted to the Issuer, by way of a
subordinate fixed and specific mortgage and charge, a security interest in
the present and future undertaking, property and assets of Mercana, to
secure the funds advanced to Mercana.
The Mercana LOI expired without a binding agreement having been entered
into. Subsequently, Mercana ceased to hold the Exclusive Rights. The
$300,000 advanced by the Issuer to Mercana has been written off.
Importex Corporation
By an arms'-length agreement dated February 4, 1997 (the "Importex
Assignment") among the Issuer, Importex Corporation ("Importex") and
Mertexas Partnership ("Mertexas"), the Issuer was assigned: (a) Importex'
interest in an agreement between Importex and Nosawa & Co., Ltd. ("Nosawa")
dated January 31, 1997 (the "Nosawa Agreement"); and (b) a $225,000
debenture securing the assets of Mercana in favour of Mertexas (a
shareholder of Importex).
<PAGE>
Nosawa, with its manufacturing and administrative operations located in
Osaka, Japan, is the manufacturer of certain protective textiles, including
"Mertex" and "Mertex-Plus" (collectively, the "Textiles"). By virtue of
the Importex Agreement, the Issuer has the exclusive right under the Nosawa
agreement to distribute and sell the Textiles in North America, Mexico and
Europe (including the European Community).
Pursuant to the Importex Assignment, the Issuer paid and issued to
Importex: (a) $100,000 cash; (b) 225,000 Shares at a deemed price of $6.90
per Share; and (c) a warrant (the "Importex Warrant") entitling Importex to
purchase 150,000 Shares at a price of $6.90 per Share in the first year and
at a price of $7.94 per Share in the second year, expiring on February 3,
1999. Closing of the Importex Assignment occurred on September 8, 1997.
Pursuant to the Nosawa Agreement, the Issuer will be required to make
minimum purchases of the Textiles from Nosawa, as follows:
(a) 25,000 meters on or before January 31, 1998;
(b) 60,000 meters on or before January 31, 1999;
(c) 75,000 meters on or before January 31, 2000;
(d) 100,000 meters on or before January 31, 2001; and
(e) 125,000 meters on or before January 31, 2002;
and if the foregoing minimum purchases are not made, Nosawa may terminate
the agreement on 90 days' written notice. The Issuer has exceeded the
January 31, 1998 minimum purchase requirement.
The term of the Nosawa Agreement is five years, renewable for additional
one-year periods. The minimum textile purchase for each additional one-
year renewal period is negotiable.
Medi Guard Inc.
Pursuant to an agreement dated November 24, 1997 (the "Medi Guard
Agreement") and an amending agreement dated April 7, 1998 (the "Medi Guard
Amending Agreement")between the Issuer , Medi Guard and selling
shareholders of Medi Guard, the Issuer acquired all of the issued and
outstanding shares of Medi Guard together with Loans of $500,837 owing to
the selling shareholders of Medi Guard. In consideration therefor, the
Issuer agreed to pay to the selling shareholders of Medi Guard the greater
of $400,001 or 1.5 times the Annualized Earnings as defined in the Medi
Guard Agreement. The Purchase Price is to be paid by the Issuer issuing
Class A Common Shares at a per share value equal to the average closing
price for the five trading days preceding the anniversary of the closing
date of the Medi Guard Agreement.
Budva International LLC
Pursuant to an agreement dated April 11, 1998 (the "Budva Agreement")
between the Issuer , Budva and selling shareholders of Budva, the Issuer
acquired all of the issued and outstanding shares of Budva. In
consideration therefor, the Issuer agreed to pay to the selling
shareholders of Budva 2 times the Annualized Earnings as defined in the
Budva Agreement. The Purchase Price is to be paid by the Issuer issuing
Class A Common Shares at a per share value equal to the average closing
price for the five trading days preceding the 12 month anniversary of the
2nd month after the effective date of the Budva Agreement.
<PAGE>
Machinery and Equipment
As at March 31, 1998, the Issuer has expended in excess of $3,253,595
towards machinery and equipment purchases, office supplies and other set-up
costs related to production, and has expended in excess of $250,000 towards
modifying the utilities systems of its Winnipeg facility to establish air
quality to meet operational requirements. A further $397,523 has been
expended on machinery and equipment, furniture, furnishings and
accessories, and computer hardware in connection with the acquisition of
the liquid division. (See "Business of the Issuer - Acquisitions and
Dispositions - Liquid Division of Arjo Canada Inc.") A further $261,981
has been expended on machinery, equipment, furniture, furnishings and
accessories, and computer hardware in connection with the acquisition of
the antimicrobial packaging division. (See "Business of the Issuer -
Acquisitions and Dispositions - Huntington Laboratories Gam-Med Division,
Inc."). A further $1,725,757 has been expended on machinery, equipment,
furniture, furnishings and accessories, and computer hardware in connection
with the acquisition of Medi Guard. (See "Business of the Issuer -
Acquisitions and Dispositions - Medi Guard Inc."). Also, the Issuer has
arranged for a lease financing in excess of $10,000,000 for its robotic
assembly and packaging equipment. All production machinery purchased and
leased by the Issuer is from arms'-length parties. (See "Business of the
Issuer - Operations - Equipment".)
<PAGE>
Management
Unless otherwise noted below, the positions held by management are all
positions with the Issuer.
MAHMOOD (MAC) JAMSHIDI SHAHSAVAR, B.Sc. Engineering, P.Eng.
President, Chief Executive Officer, Director and Promoter Age: 41
Mac Shahsavar is involved in the Issuer's business on a full-time basis.
Since April 1991, Mr. Shahsavar has been the President and Chief Executive
Officer of Excelco Systems Inc. ("Excelco"). Excelco's main activity has
been the development of the robotic technology acquired by the Issuer under
the Robotic Technology License Agreement (see "Business of the Issuer -
Acquisitions and Dispositions"). In addition, Mr. Shahsavar has been the
President and Chief Executive Officer of Canex International Consultants
Inc. ("Canex"), a private international trade and trade financing company,
since July 1991. Prior thereto, Mr. Shahsavar's experience includes
contract work, through Precision Services and Engineering Ltd., for
companies such as Weldwood of Canada (Slave Lake Plant, Alberta) and Cameco
Uranium Plant (Key Lake, Saskatchewan). These projects consisted of new
construction and/or technology upgrades. In addition, Mr. Shahsavar was
the President and Chief Executive Officer of Ansco Management Group,
construction related manufacturing and service companies.
REGINALD ADRIAN EBBELING, M.B.A.
Chairman of the Board and Director Age: 67
Reginald Ebbeling is involved in the day-to-day operations of the Issuer on
a full-time basis. From 1973 to January 1995, Mr. Ebbeling was the
Managing Partner of Health Industry Development Initiative for the Province
of Manitoba, Department of Trade and Tourism. Mr. Ebbeling obtained his
Bachelor of Science in Pharmacy in 1953, from the University of Manitoba,
was the General Manager of Noco Drugs Manufacturing from 1970 to 1973, and
the President of Ebbeling Pharmacies Ltd. from 1953 to 1970.
JACK TAPPER, B.A., B.Comm (Hons.), Chartered Accountant
Vice-President and Chief Financial Officer Age: 44
Mr. Tapper joined the Issuer in July 1997. Prior to this, Mr. Tapper was
an associate of a public accounting firm headquartered in Winnipeg,
Manitoba. He brings to the Issuer over fifteen years of experience in
public accounting practice.
MORTEZA SEYED TORABIAN, B.Sc. Engineering, P.Eng.
Executive Vice-President, Director and Promoter Age: 41
Mr. Torabian is involved in the Issuer's business on a full-time basis.
From 1990 to 1993, Mr. Torabian was the Audit Team Leader for Westcoast
Energy Inc. ("Westcoast"), responsible for the company's environmental
audit program. From 1982 to 1990, Mr. Torabian was a process and field
engineer for Westcoast, responsible for project management, process
optimization, environmental control and maintenance management systems. In
addition, he has been the Regional Manager of Canex International
Consultants Inc., a private international trade and trade financing
company, since 1990.
<PAGE>
ALICE ELAINE AFFLECK
Secretary-Treasurer and Director Age: 66
Ms. Affleck is involved in the Issuer's business on a full-time basis.
Since August 1993, Ms. Affleck has been the Controller and Manager of
Administration for the Issuer. In addition, Ms. Affleck has been the
Executive Assistant to Mr. Shahsavar, the President of the Issuer, since
1986. Ms. Affleck's additional controllership experience, other than with
the Issuer and Excelco, includes four years (1987 through 1991) with EA
Computer Accounting & Tax Services, three years (1984 through 1987) with
Anesco Group (including administration and accounting for a group of
companies employing in excess of 175 personnel), and eight years (1971
through 1979) with Alpine Blasting Co. Ltd. (including responsibility for
expenditures and accounting for this corporation with a $10,000,000
budget).
ROBERT ALEXANDER JACKSON
Executive Vice-President and Director Age: 54
Mr. Jackson assists the Issuer with the sales, marketing and promotion
aspects of its business on a full-time basis. From 1979 to 1994, Mr.
Jackson was the Vice-President of Sales, marketing and Manufactured
Products with Ingram and Bell Inc., the second largest hospital supply
distributor in Canada. Previously, Mr. Jackson has held various managerial
positions with American Hospital Supply Canada Inc. (now Baxter
Corporation).
GORDON JOHN FARRIMOND, B.A.
Vice-President Sales and Marketing and Director Age: 47
Mr. Farrimond assists the Issuer with all aspects of sales and marketing,
both in Canada and the U.S., on a full-time basis. From June 1992 through
June 1996, Mr. Farrimond was the Director of Marketing, Medical Division,
for Johnson & Johnson Medical Products. Mr. Farrimond has previously held
other positions with Johnson & Johnson, including Director of New Business
Development (from November 1991 to June 1992) and Regional Sales Manager
(from September 1988 to November 1991).
JANICE SHAHSAVAR, M.E.S.
Vice-President Human Resources Age: 43
Ms. Shahsavar is employed by the Issuer on a full-time basis. She obtained
her Master of Environmental Studies from York University in 1981,
specializing in human resources, labor relations and negotiations and
arbitrations. From 1990 to 1992, Ms. Shahsavar held the position of
Manager of Employee Relations with the Saskatchewan Institute of Applied
Science and Technology (SIAST), which employs 1,800 personnel. At SIAST,
Ms. Shahsavar was responsible for organizing and providing leadership to
the Human Resources Division, providing training to management, and
advising the Board of Directors on union/management relations. From 1976
to 1990, Ms. Shahsavar was the Manager of Human Resources with Saskatchewan
Resource Council, Saskatoon Co-Operative and Federated Cooperative, and
Saskatoon Personnel Consultants. Ms. Shahsavar and Mr. Mac Shahsavar are
married.
JOHN RYRIE STONE, B.A.
Vice-President, Mertex and Mertex Plus Surgical Division Age: 50
Mr. Stone assists the Issuer with all aspects of sales and marketing for
its surgical textile division, in both Canada and the U.S., on a full-time
basis. Mr. Stone has 25 years' experience in Canadian healthcare products
marketing. From June 1991 to February 1997, Mr. Stone was Director of
Marketing, Suture Division with Johnson & Johnson Medical Products, a
supplier of medical products to the Canadian healthcare market. From
October 1986 to June 1991, Mr. Stone was General Manager of SSI Medical
Services of Canada Ltd., a supplier of therapeutic beds, nursing technology
and service support to Canadian hospitals.
<PAGE>
NANCY CLARK, M.B.A., R.N.
Manager of Product Development Age: 50
Ms. Clark is responsible, on a full-time basis, for the development of new
product lines, including the wound care kits and the mother/baby kits. Ms.
Clark has 25 years of experience in the healthcare industry, both as a
nursing instructor and in material management/purchasing with various
healthcare organizations. Prior to joining the Issuer, Ms. Clark was the
Director of Material Services at Langley Memorial Hospital (1991 to 1995);
Provincial Group Purchasing Coordinator at B.C. Health Services (1987 to
1991); Product Evaluation at Shaughnessy, Children's and Grace Hospitals
(1984 to 1987); Assistant Director of Nursing at the Vancouver General
Hospital (1980 to 1984); and Nursing Instructor at George Brown College
(1972 to 1980).
DARRELL WAYNE VAN DYKE, B.A.
Vice President of NHMC US Age: 54
Darrell Van Dyke, B.A., is employed by the Issuer's subsidiary, NHMC US, on
a full-time basis, as its Vice President. Mr. Van Dyke has over 32 years
of operational and general management experience, all in the healthcare
industry. He has held operational management positions with Johnson &
Johnson, Abbott Laboratories, Tower Products (DRG International) and
Medline Industries. From February 1994 to February 1997, Mr. Van Dyke was
General Manager of Huntington Laboratories, a medical products packager.
From August 1989 to February 1994, he was Chief Executive Officer of GAM-
MED Packaging Corporation, a company specializing in liquid delivery
systems which Mr. Van Dyke founded.
DUANE JORGENSON
President of National Healthcare Logistics Age: 55
Mr. Jorgenson began his career in medical products distribution with Bishop
Clarkson Memorial Hospital, a 550 bed tertiary care hospital in Omaha,
Nebraska where he developed an offsite materials management system
servicing the hospital in a stockless distribution fashion. This was one of
the first distributor based stockless systems developed. Mr. Jorgenson
joined Koley's Medical Supply, also located in Omaha, as Director -
Stockless Operations / Marketing where he developed and implemented 13
additional hospital systems. This company was transformed into a consulting
service developing stockless systems for 20+ hospitals and 5+ distributors
under Mr. Jorgenson's direction. Mr. Jorgenson then joined Stockless
Consultants, Inc. as President where he developed and implemented 17
stockless hospital systems including "spokes" for a Physicians Program,
Custom Product Kits, Transportation, Case cart systems, and a file storage
system for x-rays, medical records and files. Mr. Jorgenson then joined
United Custom Distribution Systems, Inc. where he implemented a stockless
distribution system for 7 hospitals and 27 affiliated clinics. Mr.
Jorgenson is a pioneer in the development of the "Hub and Spoke"
distribution system.
<PAGE>
JOE W. SMITH
Chief Executive Officer of National Healthcare Logistics Age: 50
Mr. Smith began his career in medical products distribution in 1972 when he
became field sales representative for American Hospital Supply in
Jacksonville Florida. After three successful years as a sales
representative, he was promoted to Area Sales Manager in Texas. In 1978,
Mr. Smith joined Gentec Hospital Supply as Vice President/Southeast Region
Manager in Birmingham Atlanta. In 190, Gentec began selling off branches to
exit the medical supply business. The Birmingham organisation was acquired
Br Bedsole Medical Supply. During 10 years with Bedsole, Mr. Smith worked
his way up from Branch Manager to Vice President Marketing to Vice
President Marketing and Sales to Executive Vice President & COO. Also in
this period, Mr. Smith served on various committees of the Health Industry
Distributors's Association ("HIDA") and a member of HIDA's board of
directors. In 1993, Mr. Smith became President of Abco Dealers, Inc., a co-
operative owned by its member distribution companies with annual sales
exceeding $2 billion.
The Issuer has not entered into formal employment contracts, or non-
competition or non-disclosure agreements with any of the foregoing
individuals. For information relating to management compensation, see
"Payments to Insiders and Promoters - Executive Compensation" and "Share
and Loan Capital - Options and Other Rights to Purchase Securities -
Incentive Stock Options".
<PAGE>
Organizational Structure
The Issuer currently employs 146 full-time employees, as follows:
National Healthcare Manufacturing Corporation 53
National Care Products Ltd. 25
National Healthcare Manufacturing Corporation, U.S. 19
National Healthcare Logistics, LLC 4
Medi Guard Inc. 45
The Issuer intends to augment its existing employees with additional
qualified personnel as needed. In addition, the Issuer intends to maintain
the minimum number of jobs required pursuant to the MG Agreement (see
"Business of the Issuer - Summary and Analysis of Financial Operations -
Financial Assistance - Manitoba Government").
Products
The Issuer's business consists of the assembly and packaging of sterile and
non-sterile ready-to-use custom procedure trays, packs and kits, containing
mostly disposable medical/surgical products, for hospitals, outpatient
surgery centers, dental and medical clinics, retirement homes, homecare
providers and multi-level care facilities. The Issuer produces medical and
surgical products under its own brand name.
The Issuer's product line is comprised of several hundred items, ranging in
price from $1.00 to $1,900 based on the complexity of each item. The
Issuer's production cost is estimated as follows:
<TABLE>
Patient Custom
Care Procedure
Trays Trays
<S> <C> <C>
Direct Cost (labor and materials) 55% to 40% to 55%
68%
Indirect Cost (indirect labor, manufacturing
supervision, etc.) 12% to 12% to 15%
15%
</TABLE>
To date, the Issuer's products include the following:
* patient care trays
* custom procedure kits
* medical, specialty and diagnostic trays
* wound care kits and mother/baby kits
* NCP liquid products
* surgical textiles
* antimicrobial products
Patient Care Trays
Sterile patient care trays include those for dressings, urinary
catheterization, irrigation, and suture removal. Non-sterile patient care
trays include those for mouth care, shave preparation and enema
administration.
<PAGE>
Custom Procedure Kits
All of the Issuer's custom procedure kits (which include orthopaedic kits,
eye packs, laparoscopy kits, anthroscopy kits and cardiovascular kits) are
sterile. The main custom procedure products have been developed. A custom
procedure kit is a single tray/package containing a procedure-ready set of
customer specified disposable supplies in a pre-determined configuration.
Typically, the product is aseptically wrapped, sterilized and delivered to
the customer as needed. The custom kits are designed to meet individual
customer specifications. Contents may be as simple as a double-wrapped
bowl, pitcher and cup with lid to a complex tray of items for open heart
surgery, including a bulky collection of towels, gowns and drapes. The
majority of the items included in the custom kits are disposable. As an
example, a typical custom kit for a cataract procedure would include all of
the following items:
* Latex Gloves * Mayo Stand Cover * Table Cover
* Med Cup * Suture Bag * Syringe 3cc L/L
* Saline * Wrap 23" x 24" * Tray
* Cotton Tip Applicators * Eye Pad * Sponge 3" x 3"
* Sponge 8" x 4" * Incise Drape * Wrap 54" x 54"
* Eye Spears
Medical, Specialty and Diagnostic Trays
Medical, specialty and diagnostic trays cover such procedures as regional
anesthesia, lumbar puncture and myelogram. This product line is still
under development.
Wound Care Kits and Mother/Baby Kits
The Issuer has introduced two new product lines, namely the wound care kits
and mother/baby kits, for the homecare market. The Issuer is not aware of
any current competition existing for these products. The mother/baby kits
each contain four days of supplies commonly required by mothers and
newborns upon their discharge from hospital following the infant's birth.
NCP Liquid Products
Pursuant to the Arjo Agreement (see "Business of the Issuer - Acquisitions
and Dispositions - Liquid Division of Arjo Canada Inc."), the following
lists the private label products (the "NCP Products") for which formulae
has been transferred by Arjo to NCP:
Mouthwash / Mouthrinse Shampoo and Body Wash
Hair Conditioner High Powered Cleanaway
Whirlclean Vita Health Vitamin E Cream
Hand and Body Lotion Tub Cleansers
All Purpose Disinfectant Medicated and Non-Medicated Skin
Creams
Antiseptic Liquid Hand Soaps Scrubs and Preps
Surgical Textiles
Pursuant to the Importex Assignment (see "Business of the Issuer -
Acquisitions and Dispositions - Importex Corporation"), the Issuer acquired
the exclusive rights to distribute and sell Mertex and Mertex Plus
protective textiles. These state-of-the-art textiles are used to
manufacture reusable surgical gowns and drapes. Mertex and Mertex Plus
offer technologically advanced protection from bodily fluids and bacterial
contamination. With a life expectancy of 80 uses, these fabrics are not
only economical, but reduce medical waste.
Antimicrobial Products
<PAGE>
Pursuant to the Gam-Med Agreement (see "Business of the Issuer -
Acquisitions and Dispositions - Huntington Laboratories Gam-Med Division,
Inc."), the Issuer's subsidiary has agreed to purchase Ecolab iodine
products, which will be sold by the Issuer both separately and as part of a
kit/tray.
Non Woven Disposable Medical Protective Products
Pursuant to the Medi Guard Agreement (see "Business of the Issuer -
Acquisitions and Dispositions -
Medi Guard Inc."), the following lists the cellulose based disposable
products which are sold by the Issuer both separately and as part of a
kit/tray.
Examination Gowns Examination Drapes
Table Paper Bibs
Towels Aprons
Proprietary Protection
Neither the Issuer nor Excelco has made application for patent protection
relating to the Robotic Technology.
The Arjo Agreement transferred any outstanding service marks, trademarks,
trade names and copyrights provided to NCP solely for the purpose of
manufacturing and distributing of products for the authorized person(s)
selling those products.
The Gam-Med Agreement transferred all proprietary patents relating to the
fusion moulding process technology acquired by NHMC US thereunder.
Operations
General
The Issuer owns a 71,000 square foot manufacturing plant, located on a
3.396 acre fully developed site at 251 Saulteaux Crescent, Winnipeg,
Manitoba. This facility is located in the Murray Industrial Park, close to
the Winnipeg International Airport. At the Winnipeg facility, kits and
trays are assembled, and liquid products are formulated and produced.
Where necessary, sterilization of the Issuer's kits and trays occurs
following assembly of the components in the Winnipeg facility.
Sterilization of the Issuer's kits and trays is provided under contract by
various companies at arms'-length to the Issuer. The sterilization process
currently utilizes technology associated with ethylene oxide gas.
The Issuer also owns a 15,253 square foot manufacturing plant, located on a
9.568 acre fully developed site at 712 Anita Street, Antioch, Illinois.
Using a proprietary plastic fusion molding process, NHMC US custom packages
a wide variety of antimicrobial solutions in patented disposable plastic
dispensers.
The Issuer has obtained general liability insurance in the amount of
$5,000,000. While the Issuer believes that its insurance provisions are
adequate for its operations, there can be no assurance that the coverage
maintained by the Issuer will be sufficient to cover any future claims or
will continue to be available in adequate amounts or at a reasonable cost.
Regulatory Process
<PAGE>
All phases of the Issuer's manufacturing, sterilization and distribution
process in Canada are governed by the Food and Drug Act, R.S., c.F-27, s.1
(the "CFDA"). The class of medical devices forming part of the Issuer's
products sold in Canada requires the filing of a medical device
notification form with the Bureau of Radiation and Medical Devices, Device
Evaluation Division (the "Bureau"), within 10 days of the first completed
sale of the device. The purpose of this filing is to inform the Bureau
that the Issuer is marketing a product which conforms with the Bureau's
requirements. To date, all requisite filings have been made by the Issuer
under the CFDA.
In addition, the export of certain products of the Issuer from Canada is
subject to further regulation.
Distribution of the Issuer's products in the U.S. is subject to FDA Good
Manufacturing Practices Regulations ("GMPR") CFR 801 and CFR 820. The main
elements of the GMPR cover quality assurance systems, building environment,
equipment and calibration thereof, components and raw materials, labeling,
packaging, distribution, quality control testing, quality control
documentation and product failure complaints. In the U.S., medical device
manufacturers and importers are required to file premarket notifications
under s. 510(k) of the Federal Food, Drug and Cosmetic Act for each type of
device with the FDA. As a general practice, for each new device that the
Issuer develops, the Issuer files a premarket notification with the FDA.
Effective May 20, 1997, the FDA established Interim Regulatory Guidance
("IRG") exempting pre-market notification for packs and trays. As a result
of the IRG, the Issuer is allowed to market all of its current packs and
trays in the U.S.
The Issuer's Winnipeg manufacturing facility has been designated by the FDA
as a 'Class 10,000 clean room'. Clean room classification specifies
concentration limits for airborne particles within the confines of a
designated space; the lower the classification number, the cleaner the
environment. Class 100,000 is the minimum requirement for the Issuer's
type of operation. The Issuer's Class 10,000 clean room designation means
its Winnipeg facility is 10 times cleaner than the minimum requirement.
Suppliers
There exist approximately 400 to 500 suppliers from which the Issuer may
purchase the components for its kits and trays. The Issuer purchases such
components from numerous North American suppliers based upon an evaluation
with emphasis on quality and pricing. Major product purchases of the
Issuer include procedural hospital tray components and packaging materials.
Equipment
The Issuer has purchased most of its automated insertion equipment,
together with two fully computerized Tiromat 3000 Form-Fill-Seal packaging
units (the "Tiromats"). The Issuer utilizes this equipment together with
two leased robotic units to assemble and package patient care trays and
procedural kits. The Tiromats form trays, seal packages, and print barcode
and product/customer related information. The robotic units pick and place
the tray components. The first robotic unit has been utilized since
commencement of production in July 1995 and the second robotic unit has
been in use since July 1997. The cost of leasing the robotic units is
covered under the existing Lease Agreements (referred to below).
As at March 31, 1998, the Issuer has spent $962,942 to install and upgrade
its robotic units. The Issuer is in the process of finalizing its fourth
generation robotic packaging units. These additional units will be used to
package operating room packs. The Issuer has allocated $250,000 from the
current Funds Available towards the upgrade and installation of its fourth
generation robotic units.
The Issuer leases specialized equipment (the "Equipment"), including the
robotic packaging units, under three capital leases (collectively, the
"Lease Agreements") from arms'-length parties, D & T Leasing, Inc. and D &
T Leasing Limited Partnership (jointly, the "Lessors"). The Lease
Agreements have been entered into by NHMC US, which was established for the
specific purpose of entering into the Lease Agreements on behalf of its
parent company, the Issuer. The Lease Agreements provide for the following
payments by NHMC US over the next five fiscal years of the Issuer
(converted from U.S. to Canadian dollars using the exchange rate as at June
30, 1997):
<PAGE>
<TABLE>
Lease Lease Lease Total
NHM#1094- NHM#1094- NHM#1194
001 002
<S> <C> <C> <C> <C>
1998 $1,131,226 $619,818 $765,705 $2,426,749
1999 1,131,226 619,818 619,400 2,370,444
2000 1,131,226 619,818 nil 1,751,044
2001 1,131,226 619,818 nil 1,751,044
2002 377,077 309,909 nil 686,986
Total Minimum Payments 4,901,981 2,789,181 1,295,105 8,986,267
Less Interest
approximating 10.5% to
11.5% 1,055,670 619,705 87,355 1,762,730
3,846,311 2,169,476 1,207,750 7,223,537
Less Current Portion 736,397 390,484 601,671 1,718,552
Balance of Obligations 3,119,914 1,778,992 606,079 5,504,985
</TABLE>
Upon expiration of the initial terms of the Lease Agreements, the Lease
Agreements will automatically renew for successive three-month terms unless
either party gives notice to the contrary. NHMC US has the option to
purchase the equipment leased under Leases NHM#1094-001 and NHM#1094-002 at
the expiry of their respective terms by paying the fair market value of the
equipment. NHMC US also has the option to purchase the equipment leased
under Lease NHM#1194 at the expiry of the term by paying the fair market
value of the equipment, which has been agreed to be nominal.
As the owner of the Robotic Technology incorporated into the Equipment,
Excelco has the right, pursuant to an agreement, dated October 26, 1994
(the "Guarantee Agreement") with the Lessor, to acquire the leased robotic
packaging unit for $100 if NHMC US does not exercise its option to acquire
the same upon expiration of Lease NHM#1094-001.
Reference is made to "Business of the Issuer - Acquisitions and
Dispositions - Robotic Technology License Agreement" for specific
information relating to the grant by Excelco to the Issuer of the exclusive
right to assemble, package and market custom procedure tray packaging in
North America using Excelco's Robotic Technology.
Copies of the Lease Agreements are available for inspection as specified
under "Material Contracts".
Market and Competition
The statistical information provided throughout this section has been
sourced from reports and public offering disclosure published by
competitors believed by Management of the Issuer to be accurate, from
common and general industry knowledge, and knowledge of the Issuer's
executive obtained through experience in the industry and related
activities.
<PAGE>
The Market
Kits and Trays Market
The Issuer has entered the procedure tray segment of the medical device
market. This segment is comprised of patient care trays, custom procedure
kits and diagnostic trays. The Issuer's management estimates that in North
America, the market for patient care trays is approximately $1.3 billion
annually and growing at a minimum rate of 5% per year, while the market for
custom procedure kits and diagnostic trays is approximately $1.8 billion
annually and growing at a minimum of 10% per year. The market for such
products in Europe and elsewhere cannot presently be determined.
The market for the Issuer's procedure tray products is comprised of users
of medical and surgical device products such as hospitals, outpatient
surgery centers, dental and medical clinics, retirement homes, homecare
providers and multi-level care facilities. The Issuer has marketed its
procedure tray products to various healthcare facilities throughout North
America, through independent distributors, and sales to date have been made
in Canada and Asia. Although the Issuer does not intend to provide
exclusive distribution rights to its procedure tray products to any party,
the Issuer's marketing efforts to date have resulted in alliances with the
following Canadian distributors to cover the Provinces noted:
* Medical Mart Supplies Limited - Quebec and Ontario
* Cascade Dismed - Quebec and Ontario
* Stevens and Sons - Western Canada and Ontario
* Associated Healthcare Systems Inc. - British Columbia and Alberta
* Can-Med Surgical Supplies Limited - Nova Scotia and Newfoundland
No formal written agreements have been entered into between the Issuer and
any of the above distributors, all of which are arms' length to the Issuer.
The United States is the Issuer's other primary target for all its
products. The Issuer is permitted by the FDA to market all its current
patient care trays and custom procedure kits in the U.S. The Issuer's
sales and marketing efforts have resulted in establishing an independent
national sales team in the U.S. The Issuer has also co-founded NHLC which
offers and manages alternative material distribution channels to integrated
hospital systems. In August 1997, NHLC signed a 10-year agreement with
Sysco Corporation to provide material management distribution systems to
hospitals throughout the U.S.
Liquid Products Market
NCP products currently compete in the $450 million consumable chemicals
segment of the $2.1 billion healthcare infection control market in North
America. NCP's current product mix is focused on the long term care
segment, with secondary applications in hospitals. NCP products are
currently supplied through Arjo Industries. The Issuer is seeking regional
and national distributors to facilitate access to all segments of the North
American market.
<PAGE>
Competition
Kits and Trays Competition
The Canadian market for kits and trays is dominated by two companies,
Baxter Canada Inc. and Ingram & Bell Inc. Baxter International Corporation
("Baxter") of Deerfield, Illinois, has more than 50% of the tray market in
both the U.S. and Canada in all market sub-segments. Baxter is positioned
as the leading manufacturer and marketer of products and services used in
healthcare settings. Ingram & Bell Inc. ("I & B"), a subsidiary of MDS
Health Group Ltd., is the leading Canadian owned distributor of
medical/surgical supplies and equipment. I & B only participates in the
Canadian market. In June 1997, the parent companies of Baxter and I & B
merged to form a new company, whose name has not yet been announced.
* Patient Care Trays
Baxter supplies 50% of the $50 million market in Canada by importing
trays that are private branded for them by a contract manufacturer. I
& B controls 30% of the market via their own manufacturing facility in
Canada. The balance of the market is very fragmented with five or six
small players. This market has achieved a substantial conversion to
single use product in hospitals but continues to grow at a minimum
rate of 5% per year due to market expansion in other areas.
* Custom Procedure Trays
I & B has a minor position in this segment in Canada. This market is
served by U.S. manufacturers exporting product and serving the market
by a direct sales force or via select distributors. In addition to
Baxter Custom Sterile, a division of Baxter, the major providers are
Maxxim and Deroyal. This market is in its infancy in Canada and
growing at a minimum rate of 20% per year. This market represents an
opportunity area for the Issuer.
* Medical Specialty and Diagnostic Trays
I & B and Preferred Medical Products of Thorald, Ontario, are the two
Canadian manufacturers of these products. I & B supplies their own
requirements for the Canadian market. Preferred Medical Products
markets their product directly in Canada and via specialty
distributors in the U.S. The other entrants are Baxter and Portex
(the trademark for Smith Industries Medical Systems), both of whom
have major market shares in Canada and the U.S. There are
manufacturers that supply only the U.S. market, such as Kendall
Healthcare Products Co.
This segment represents an area of innovation and relatively high
profit potential for the Issuer. The complexity of the product and
the direct decision making process by the end user removes this
product segment from the commodity area. While price is important in
the buying process, innovation, product design and personal rapport
are the key factors for success.
Liquid Products Competition
* Skincare Products
The major competitors in this segment are Sween, Calgon and Huntington
Laboratories. Skincare products are Sween's primary market focus,
whereas Calgon and Huntington access this segment as add on sales from
their handwashing customers.
* Bathing Products
Competition consists of Sween and Calgon, as well as companies such as
Chester Labs and Amada.
* Antimicrobial Handwashing Products
Calgon and Huntington Laboratories are the current market leaders.
<PAGE>
* Surgical Scrub Products
This is a highly fragmented component of the overall market, with
Purdue Fredrick, Becton-Dickenson, Baxter Healthcare, and Huntington
Laboratories being the key competitors.
Non Woven Disposable Medical Protective Products Competition
The Issuer's Medi Guard subsidiary is the leading manufacturer of
cellulose based disposable protective products in Canada. The Issuer
intends to market this product line throughout North America both
directly to end Users as well as in conjunction with its kits and
trays.
Pricing Policy
It is the Issuer's policy to price its products at a slight discount to
market.
Competitive Environment
Consolidation of the kit and tray industry has been occurring for the past
few years as distributors divest of manufacturing subsidiaries in order to
return to their core business and manufacturers acquire small regional
competitors to realize the benefits of increased economics of scale. This
is evidenced by the actions of several competitors in the industry: the
merger of the parent companies of Baxter and I & B; the sale by Owens and
Minor of its unprofitable tray business to Sterile Concepts in 1990; the
sale by Johnson & Johnson of Sterile Design to Maxxim Medical Inc. in 1993;
the purchase by Isolyser of MedSurg; the desire by I & B to divest of its
manufacturing facilities in Canada; and the purchase by Maxxim of Sterile
Concepts.
The following table indicates the current North American market share (with
respect to the kit and tray product segments in which the Issuer competes)
estimated by the Issuer to be held by certain competitors:
<TABLE>
Market Share
Name of Competitor
U.S. Canada
<S> <C> <C>
Baxter 44% 50%
Maxxim Medical 23% 4%
Deroyal 10% 10%
Ingram & Bell -- 30%
Others* 23% 6%
Total 100% 100%
</TABLE>
* Smaller manufacturing competitors include the Issuer, C.R. Bard,
Seamles, Cypress Medical Products and Trinity Laboratories.
The foregoing estimates are based upon the knowledge and experience within
the kit and tray industry possessed by management of the Issuer.
<PAGE>
Key Success Factors
Low Cost Producers
Price competition increases the importance of reducing production costs.
The Issuer intends to become the low cost producer of procedure trays with
its automated assembly line, allowing the Issuer to establish a cost
advantage over its U.S. competitors. In addition, a Canadian manufacturing
facility should reduce transportation and holding costs relative to U.S.
competitors.
Access to Distribution Networks
In attempting to achieve efficient distribution of product, existing
competitors have shown their commitment to developing sophisticated
material handling systems for their customers to achieve this goal by
introducing Just-In-Time ("JIT") inventory and practices.
The Issuer intends to access customers, through independent distributors,
in a quick and efficient manner in order to pass the benefits of lower
production costs on to the consumer. (See the foregoing subheading
"Acquisitions and Dispositions", for information relating to the Company's
recent acquisitions.)
Customer Service
A high commitment to service and a fast response to consumer demands are
critical to success in this market. The Issuer's automated production
allows it to achieve product turnaround in 45 days, as opposed to the
industry standard which management believes is 90 days.
Reference should be made to "Business of the Issuer - Products" for
additional information concerning the pricing of the Issuer's products. In
addition, reference should be made to disclosure under "Business of the
Issuer - Description of Business and General Development" with respect to
the Issuer's marketing plan.
Marketing Plans and Strategies
Management believes that the healthcare industry is currently undergoing
significant transformations driven not by legislation, but by major
purchasers of healthcare. One important element of this reform is the
continuous effort on the part of healthcare providers to streamline
routines and maximize efficiencies by eliminating labor intensive processes
and reducing procedural costs without negative impact on the outcome of
those procedures.
The Issuer's approach to serving the healthcare industry is to introduce
cost effective systems. New and progressive concepts for healthcare
industry supply and distribution will be continuously explored by the
Issuer in order to assist end users in reducing and having better control
over their costs. Although the Issuer expects to expand its growth in
Canada, its primary focus will be to the U.S. market where it believes that
the low Canadian dollar, low production cost and quick purchase order
turnaround will enable it to enter into strategic business alliances with
established North American marketing and distribution companies such as the
distribution agreement entered into August 1997 between NHLC and Sysco
Corporation.
<PAGE>
Since the date of the IPO Prospectus, the Issuer has added the following
key individuals to assist with its sales and marketing program:
* Gordon John Farrimond - Vice-President, Sales and Marketing, and a
Director;
* Nancy Clark - Manager of Product Development; and
* John Stone - Vice-President, Mertex and Mertex-Plus Surgical
Division.
* Darrell Wayne Van Dyke - Vice-President of NHMC US
* Duane Jorgenson - President, National Healthcare Logistics
* Joe Smith - Chief Executive Officer, National Healthcare Logistics
(See "Business of the Issuer - Management" for details of related
experience.)
Recent acquisitions have resulted in synergistic opportunities for sales
and marketing and have provided distribution channels to a broader and more
established market.
The Issuer advertises in trade magazines and has attended numerous trade
and investment shows throughout North America. Since the date of its IPO
Prospectus, the Issuer has expended $1,001,711 on administration costs to
cover the Issuer's marketing program. The Issuer anticipates that over the
next 12 months, $1,164,000 will be required to meet the costs of its
marketing program which is designed to meet its stated business objectives,
the major components of which are as follows:
<TABLE>
Marketing Component Monthly Cost
<S> <C>
Advertising $ 15,000
Brochures & Promotional 1,000
Conferences 2,000
Samples 2,000
Salaries & Consultants 75,000
Tradeshows 2,000
Total: $ 97,000
</TABLE>
USE OF PROCEEDS
Funds Available
The Issuer will not receive any cash proceeds from, and no commission is
payable by the Issuer in respect of, the issuance of the Units upon the
exercise or deemed exercise of the Special Warrants, or the conversion or
deemed conversion of the Convertible Debentures or the conversion of the
Convertible Debentures.
In January of 1997 the Issuer received net proceeds of $9,600,000 (the "SW
Net Proceeds") from the issue and sale of the Special Warrants. After
deduction of the Finder's commission of $344,400 (US$250,000) in respect of
the CN Private Placement, the Issuer received net proceeds of $6,543,600
(US$4,750,000) (the "CN Net Proceeds") from the issue and sale of the
Convertible Notes. The CN Net Proceeds were received on October 1, 1997.
On March 31, 1998, Net Proceeds of US$6,412,500 were received from the CD
Private Placement, of which US$1,899,450 were utilized to reduce the
convertible note obligation of October 1, 1997.
<PAGE>
As at March 31, 1998, the Issuer has expended all of the SW Net Proceeds
and $985,009 of the CN Net Proceeds as follows: $77,691 towards the
expenses of the SW Private Placement, $962,942 towards the upgrade and
installation of two additional automated feeders(1), $896,447 towards
acquisition of the Liquid Division of Arjo Canada Inc.(2) ("Arjo"),
$116,498 towards assimilation of Arjo's facilities with those of the
Issuer, $100,000 towards severance paid to certain Arjo employees,
$2,105,640 towards acquisition of the business and certain assets of, and
advances to, Huntington Laboratories Gam-Med Division, Inc.(3), $300,000 in
advances to Mercana Industries Ltd. against a registered general security
agreement(4), $100,000 toward the exclusive rights under the Nosawa
agreement to sell the Textiles in North America, Mexico and Europe(4),
$500,000 toward the Working Capital requirements of Medi Guard(6),
$1,681,406 towards contributed share capital in NHLC(5), $156,203 towards
general office and computer equipment, $2,082,748 towards general fixed
assets, and $1,505,434 in equipment lease payments(1).
(1) see "Business of the Issuer - Operations - Equipment".
(2) see "Business of the Issuer - Acquisitions and Dispositions -
Liquid Division of Arjo Canada Inc."
(3) see "Business of the Issuer - Acquisitions and Dispositions
- Huntington Laboratories Gam-Med Division".
(4) see "Business of the Issuer - Acquisitions and Dispositions
- Textile Rights".
(5) see "Business of the Issuer - Description of Business and
General Development".
(6) see "Business of the Issuer - Acquisitions and Dispositions
- Medi Guard".
After deduction of the foregoing expenses, the Issuer has approximately
$5,558,591 remaining from the CN Net Proceeds.
Principal Purposes
The remaining CN Net Proceeds and the CD Net Proceeds of $9,083,947
(US$6,412,500) (the "Funds Available") are intended to be utilized by the
Issuer as follows:
<TABLE>
Amount
<S> <C>
(a)To quarterly installments of the loan
repayment under the WEDD Agreement(1): $460,000
(b)To upgrade and install additional automated robotic units(2): 1,250,000
(c)To equipment lease payments(2): 1,800,000
(d)To further NHLC contributed share capital(4): 362,500
(e)Utilized to pay out a portion of CN Private Placement: 2,690,761
(f)Utilized to pay out Medi Guard Debt and Lease Obligations: 2,406,550
(g)Utilized for expenses for the CD Private Placement 50,000
(h)Reserved for working capital to fund ongoing operations: 5,622,727
TOTAL: $14,642,538
</TABLE>
(1) See "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Federal Government".
(2) See "Business of the Issuer - Operations - Equipment".
(3) See "Business of the Issuer - Acquisitions & Dispositions -
Textile Rights".
(4) See "Business of the Issuer - Description of Business and
General Development".
Also see "Business of the Issuer - Stated Business Objectives".
In addition to the Funds Available, a further $133,017 is available
pursuant to the WEDD Agreement. (See "Business of the Issuer - Summary and
Analysis of Financial Operations".)
<PAGE>
Any funds received upon the exercise of the PP Warrants, other share
purchase warrants, and incentive stock options, or under the WEDD Agreement
will be applied towards the Issuer's general working capital.
The board of directors of the Issuer is of the opinion that the funds
available to the Issuer from the Offering will be sufficient to provide the
Issuer with a reasonable opportunity of achieving its business objectives
set out in "Business of the Issuer - Stated Business Objectives" herein.
The Issuer will spend the funds available to it to further completion of
the Issuer's stated business objectives set out under "Business of the
Issuer - Stated Business Objectives". There may be circumstances where,
for sound business reasons, a reallocation of funds may be necessary in
order for the Issuer to achieve its stated business objectives.
Conflicts of Interest
The proceeds received from the SW Private Placement will not be applied for
the benefit of the Agent or any related party of the Agent apart from the
proceeds utilized to pay the Agent's commission and expenses pursuant to
the Agency Agreement.
RISK FACTORS
Investment in the securities offered under this Prospectus must be
considered speculative. In addition to the other information contained in
this Prospectus, a prospective investor should carefully consider the
following factors:
(1) The market for the Issuer's products is highly competitive and subject
to increasing competition based on price. The Issuer has a limited
operating history and existing competitors may have greater financial
and managerial resources, operating histories and name recognition.
These competitors may be able to institute and sustain price wars,
resulting in a reduction of the Issuer's share of the market and
reduced price levels and profit margins. There can be no assurance
that the market will consider the Issuer's products to be superior or
equivalent to existing or future competitive products or that the
Issuer will be able to adapt to evolving markets and technologies,
develop new products, achieve and maintain technological advances or
maintain a unit selling price competitive with other products. (See
"Business of the Issuer - Market and Competition".)
(2) The Issuer's operations currently rely upon the two Tiromats with two
robotic units for the assembly and packaging of the product.
(3) Receipt of the balance of the government financial assistance, and
repayment of the total amounts received, as disclosed under the
heading "Business of the Issuer - Summary and Analysis of Operations -
Financial Assistance", are subject to certain conditions.
(4) The Issuer is subject to government regulations in the jurisdictions
in which it distributes its products. Future changes in governmental
regulations may have an adverse impact on the operations of the
Issuer.
(5) The Issuer currently has 15,821,903 Shares issued and outstanding. In
addition, there are or will be outstanding options and warrants to acquire
a minimum of 3,426,404 Shares.
(6) Neither the Issuer nor Excelco has filed an application for patent or
copyright protection relating to the Robotic Technology.
<PAGE>
(7) The Issuer is dependent upon the personal efforts and commitment of
its management team. The loss of senior management personnel may
adversely affect the Issuer. Upon such loss, other individuals would
be required to manage and operate the business and there is no
assurance that individuals with suitable qualifications could be
found.
(8) The Issuer's business may be affected by other factors beyond its
control, such as economic recessions and adverse fluctuations in
foreign exchange rates.
(9) The Issuer has not paid dividends in the past and does not anticipate
paying dividends in the near future. The MG Agreement and the WEDD
Agreement place certain restrictions on the payment of dividends by
the Issuer. (See additional disclosure under "Business of the Issuer
- Summary and Analysis of Financial Operations".)
(10) The Issuer has a limited operating history. The Issuer's ability to
meet market demand will be a critical factor in the Issuer's success.
(11) Certain of the Issuer's directors and officers may serve as directors
or officers, or have shareholdings in other companies and accordingly,
conflicts of interest may arise. Reference should be made to specific
disclosure under "Payments to Insiders and Promoters - Related Party
Transactions". All such possible conflicts will be disclosed and
handled in accordance with the requirements of the Corporations Act
(Manitoba).
(12) The Issuer's business utilizes a new technology that is being
developed for the purpose of the Issuer's business. Accordingly, the
Issuer is subject to risks associated with start-up companies,
including start-up losses, uncertainty of revenues, markets and
profitability and the necessity of additional funding. In addition,
the technology acquired by the Issuer and being developed by the
Issuer has not yet been proved in a production environment on an
ongoing basis.
(13) The evolving nature of the healthcare industry in North America in
terms of cost containment is leading to changing purchasing practices
amongst purchasers at various institutions. This change in purchasing
environment (i.e. towards a more centralized buying approach) may put
additional pressure on the Issuer to compete on a price basis in order
to achieve adequate market penetration and maintain customer loyalty.
There can be no assurances that the Issuer will be able to implement
its business strategy with its current pricing structure.
<PAGE>
DIRECTORS, OFFICERS AND PROMOTERS
Name, Address, Occupation and Security Holdings
As at March 31, 1998, the names and municipality of residence of each of
the directors, officers and promoters of the Issuer (including its
operating subsidiaries), their principal occupations, and their respective
ownership of shares of the Issuer are as follows:
<TABLE>
Name and Principal Occupation Shares Percenta
Municipality Beneficial ge
Of Residence ly of Share
Owned or Ownershi
Over p on
Which Completi
Control or on of
Direction Offering
is (1)
Exercised
<S> <C> <C> <C>
MAHMOOD (MAC) President and Chief 15,600 4.46%
JAMSHIDI Executive Officer of the trading
SHAHSAVAR(3) Issuer since August 690,000
Winnipeg, Manitoba 1993; President and escrow
President, Chief Chief Executive Officer
Executive Officer, of Excelco Systems Inc.,
Director and a developer of robotic
Promoter of the packaging equipment,
Issuer; President, since April 1991.(4)
Secretary,
Treasurer &
Director of NHMC
US; President &
Director of NCP.
JACK TAPPER Vice-President and Chief Nil Nil
Winnipeg, Manitoba Financial Officer of the
Vice-President and Issuer since July 1997.
Chief Financial Previously, he was an
Officer of the associate in a public
Issuer. accounting firm since
1979.
REGINALD ADRIAN Chairman of the Board of 15,000 0.09%
EBBELING the Issuer since January trading
Winnipeg, Manitoba 1995.(4)
Chairman of the
Board & Director of
the Issuer
MORTEZA SEYED Executive Vice-President 230,195 2.21%
TORABIAN of the Issuer since trading
Surrey, British February 1997; 120,000
Columbia previously, Vice- escrow
Executive Vice- President of the Issuer
President, Director (August 1993 to February
and Promoter of the 1997).(4)
Issuer
ALICE ELAINE Controller and Manager 107,700 1.19%
AFFLECK* of Administration for trading
Winnipeg, Manitoba the Issuer since August 80,000
Secretary-Treasurer 1993.(4) escrow
& Director of the
Issuer; Secretary
of NCP.
ROBERT ALEXANDER Principal of Jackson 2,900 0.33%
JACKSON Associates, which has trading
Unionville, Ontario provided sales and 50,000
Executive Vice- marketing consulting escrow
President and services to the Issuer
Director of the since June 1995.(4)
Issuer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ROSS SCAVUZZO Since July 1994, Mr. Nil Nil
Mississauga, Scavuzzo has been the
Ontario President of Arjo Canada
Director of the Inc., a supplier and
Issuer manufacturer of patient
hygiene and life-
transfer devices. Mr.
Scavuzzo was the Vice-
President Sales and
Marketing of the
Hospital Supply Division
of Baxter Corporation
from December 1992 to
June 1994, and the Vice-
President Sales, General
Manager of the Canlab
Division of Baxter
Corporation from
November 1987 through
November 1992. Previous
sales and marketing
positions have been held
with Dow-Corning Wright
and American Hospital
Supply Canada Inc.
GORDON JOHN Vice-President Sales and 9,800 0.06%
FARRIMOND* Marketing of the Issuer trading
Indian River, since May 1996.(4)
Ontario
Vice-President
Sales and Marketing
and Director of the
Issuer
ARISTOTLE (TELLY) Since July 1, 1964, Mr. 145,498 .92%
JOHN MERCURY* Mercury has been a trading
Winnipeg, Manitoba partner of Aikins,
Director of the MacAulay & Thorvaldson,
Issuer Barristers & Solicitors.
JANICE MARIE Vice-President, Human 4,271,805 27.76%(2
JAMSHIDI Resources of the Issuer trading(2) )
SHAHSAVAR(3) since August 1993.(4) 120,000
Winnipeg, Manitoba escrow
Vice-President
Human Resources of
the Issuer
JOHN RYRIE STONE Vice-President, Mertex 19,000 0.12%
Warsaw, ON and Mertex Plus Surgical trading
Vice-President, Division of the Issuer
Mertex and Mertex since February, 1997.(4)
Plus Surgical
Division of the
Issuer
DARRELL WAYNE VAN Vice President of NHMC Nil Nil
DYKE US since February
Libertyville, 1997.(4)
Illinois, U.S.A.
Vice President of
NHMC US
</TABLE>
* Member of the audit committee.
(1) Excluding the Shares which may be issued under this prospectus upon
the exercise of the CD Warrants (see "Details of the Offering"), other
share purchase warrants and incentive stock options (see "Share and
Loan Capital - Options and Other Rights to Purchase Securities").
(2) All of which are registered in the name of Excelco, a company which is
100% owned by Janice Shahsavar, and such shares will represent 27.00%
of the Issuer's issued and outstanding shares on completion of the
Offering.
(3) As Mac Shahsavar and Janice Shahsavar are married, they are deemed to
be "associates" as defined in the Securities Act (British Columbia).
(4) For additional occupational history, see "Business of the Issuer -
Management".
<PAGE>
Aggregate Ownership of Securities
As of March 31, 1998, and assuming exercise or deemed exercise of the SW
Warrants and the Agent's Warrants, but excluding the issuance of the
Importex Warrant Shares and the CD Warrant Shares, the aggregate number of
Shares that are beneficially owned, or directly or indirectly controlled,
by all directors, officers and other members of Management of the Issuer as
a group will be 5,877,498 Shares, representing approximately 32.59% of the
issued and outstanding Shares on completion of the Offering. The
directors, officers and other members of Management did not purchase any
Special Warrants under the SW Private Placement or the Convertible
Debentures under the CD Private Placement.
Corporate Cease Trade Orders or Bankruptcies
No director, officer or promoter of the Issuer is or has been, within the
preceding five years, a director, officer or promoter of any other issuer
that, while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an order
that denied the Issuer access to any statutory exemptions for a period
of more than 30 consecutive days, or
(b) was declared bankrupt or made a voluntary assignment in bankruptcy,
made a proposal under any legislation relating to bankruptcy or
insolvency or been subject to or instituted any proceedings,
arrangement, or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold its assets.
Penalties or Sanctions
No director, officer or promoter of the Issuer is or has, within the past
ten years, been subject to any penalties or sanctions imposed by a court or
securities regulatory authority relating to trading in securities,
promotion or management of a publicly traded issuer, or theft or fraud.
Individual Bankruptcies
No director, officer or promoter of the Issuer is or has, within the
preceding five years, been declared bankrupt or made a voluntary assignment
in bankruptcy, made a proposal under any legislation relating to bankruptcy
or insolvency or been subject to or instituted any proceedings,
arrangement, or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold the assets of that individual.
Conflicts of Interest
Certain of the directors, officers and shareholders of the Issuer are also
directors, officers and shareholders of other companies, and conflicts of
interest may arise between their duties as directors of the Issuer and
directors of other companies. Reference should be made to specific
disclosure under "Payments to Insiders and Promoters - Related Party
Transactions". All such possible conflicts will be disclosed in accordance
with the requirements of The Corporations Act (Manitoba) and the directors
concerned will govern themselves in respect thereof to the best of their
ability in accordance with the obligations imposed on them by law.
<PAGE>
INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND MANAGEMENT
No director, officer, promoter or member of management of the Issuer, or
any of their respective associates or affiliates, is or has been indebted
to the Issuer since the commencement of its 1995 financial year to date.
PAYMENTS TO INSIDERS AND PROMOTERS
Executive Compensation
For purposes of this section, "executive officer" of the Issuer means an
individual who at any time during the year was the chairman or a vice-
chairman of the board of directors, where such person performed the
functions of such office on a full-time basis, the president, any vice-
president in charge of a principal business unit such as sales, finance or
production, or any officer of the Issuer or of a subsidiary or other person
who performed a policy-making function in respect of the Issuer.
The following table is a summary of the compensation accrued and/or paid by
the Issuer to its six executive officers during each of the years ended
June 30, 1995, 1996 and 1997:
<TABLE>
Annual Long Term
Compensa Compensation
tion
Awards Payouts
Name and Period Salary Bon Othe Securit Restr LTIP( All
Principal ($) us r ies icted 1) Other
Position ($) Annu Under Share Payou Compe
al Options s of ts nsa-
Comp (1) Restr ($) tion
ensa- Granted icted
tion (#) Share
($) Units
($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAHMOOD Year Ended $60,000( Nil Nil 370,000 Nil Nil Nil
(MAC) June 30, 2)
JAMSHIDI 1995
SHAHSAVAR Year Ended Nil Nil Nil Nil Nil Nil
Chief June 30, $120,000
Executive 1996 (2)
Officer and Year Ended Nil Nil Nil Nil Nil Nil
President June 30,
1997 $120,000
(2)
MORTEZA Year Ended $48,000( Nil Nil 117,829 Nil Nil Nil
SEYED June 30, 2)
TORABIAN 1995
Executive Year Ended Nil Nil Nil Nil Nil Nil
Vice- June 30, $72,000(
President 1996 2)
Year Ended Nil Nil 102,950 Nil Nil Nil
June 30,
1997 $72,000(
2)
REGINALD Year Ended $18,195 Nil Nil 30,000 Nil Nil Nil
ADRIAN June 30,
EBBELING 1995
Chairman of Year Ended $36,000 Nil Nil Nil Nil Nil Nil
the Board June 30,
1996
Year Ended $36,000 Nil Nil 5,000 Nil Nil Nil
June 30,
1997
GORDON JOHN Year Ended Nil Nil Nil 30,000 Nil Nil Nil
FARRIMOND June 30,
Vice- 1995
President Year Ended Nil Nil Nil Nil Nil Nil Nil
Sales and June 30,
Marketing 1996
Year Ended Nil Nil Nil 17,500 Nil Nil Nil
June 30,
1997
ALICE Year Ended $32,683 Nil Nil 80,000 Nil Nil Nil
ELAINE June 30,
AFFLECK 1995
Secretary- Year Ended $30,000 Nil Nil Nil Nil Nil Nil
Treasurer June 30,
1996
Year Ended $30,000 Nil Nil 15,000 Nil Nil Nil
June 30,
1997
JANICE Year Ended $23,500 Nil Nil 100,000 Nil Nil Nil
SHAHSAVAR June 30,
Vice- 1995
President, Year Ended $56,400 Nil Nil Nil Nil Nil Nil
Human June 30,
Resources 1996
Year Ended $56,400 Nil Nil Nil Nil Nil Nil
June 30,
1997
ROBERT Year Ended $16,000 Nil Nil 30,000 Nil Nil Nil
JACKSON June 30,
Executive 1995
Vice- Year Ended $78,000 Nil Nil Nil Nil Nil Nil
President June 30,
1996
Year Ended $78,000 Nil Nil 12,500 Nil Nil Nil
June 30,
1997
DARRELL VAN Year Ended Nil Nil Nil Nil Nil Nil Nil
DYKE June 30,
Vice- 1995
President Year Ended Nil Nil Nil Nil Nil Nil Nil
of NHMC US June 30,
1996
Year Ended $56,700 Nil Nil 20,000 Nil Nil Nil
June 30,
1997
RICHARD Year Ended Nil Nil Nil Nil Nil Nil Nil
JOHNSON June 30,
Vice- 1995
President Year Ended Nil Nil Nil Nil Nil Nil Nil
of NCP June 30,
1996
Year Ended $14,875 Nil Nil 22,000 Nil Nil Nil
June 30,
1997
JOHN STONE Year Ended Nil Nil Nil Nil Nil Nil Nil
Vice- June 30,
President 1995
Mertex and Year Ended Nil Nil Nil Nil Nil Nil Nil
Mertex Plus June 30,
Surgical 1996
Division Year Ended $7,500 Nil Nil 10,000 Nil Nil Nil
June 30,
1997
</TABLE>
(1) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur
over a period longer than one financial year, but does not include
option or stock appreciation right plans.
(2) Although Mr. Shahsavar has not been paid any compensation by the
Issuer, salary in the aggregate amount of $300,000 has accrued but not
yet been paid. In addition, Morteza Seyed Torabian has been paid
$138,000 by the Issuer, leaving a balance of $54,000 accrued and
owing.
<PAGE>
The Issuer does not anticipate a material change in the compensation of its
executive officers during the 12 months following the date of this
prospectus.
The Issuer granted the following incentive stock options to its Executive
Officers during its most recently completed financial year ended June 30,
1997:
<TABLE>
OPTION GRANTS DURING THE YEAR ENDED JUNE 30, 1997
Market
Securiti Exerci Value of
es % of se Securiti
Granted Total or es Expiration
Name Under Options Base Underlyi Date
Options Granted Price ng
Granted to Options
Employee on
s Date of
in Grant
Twelve
Month
Period
<S> <C> <C> <C> <C> <C>
Morteza Seyed 94,000 19.0% $3.81 $4.55 August 11,
Torabian 8,950 $6.13 $6.00 2001
June 3, 2002
Reginald Adrian 5,000 0.9% $3.81 $4.55 August 11,
Ebbeling 2001
Gordon John Farrimond 10,000 3.3% $3.81 $4.55 August 11,
7,500 $6.13 $6.00 2001
June 3, 2002
Robert Jackson 5,000 2.3% $3.81 $4.55 August 11,
7,500 $6.13 $6.00 2001
June 3, 2002
Darrell Van Dyke 20,000 3.7% $6.13 $6.00 June 3, 2002
Richard Johnson 22,000 4.1% $6.13 $6.00 June 3, 2002
John Stone 10,000 1.9% $6.13 $6.00 June 3, 2002
</TABLE>
The following table sets out incentive stock options exercised by Executive
Officers during the fiscal year ended June 30, 1997, as well as the value
of stock options held by Executive Officers at June 30, 1997:
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES DURING THE
YEAR ENDED JUNE 30, 1997 AND OPTION VALUES
AS AT THE JUNE 30, 1997 YEAR END
Name Securities Aggregate Unexercis Value of
Acquired Value ed Unexercis
on Exercise Realized( Options ed
(#) 1) at Year in-the-
End (#) Money
Exercisab Options
le at
Year
End(2)
Exercisab
le
<S> <C> <C> <C> <C>
Mahmood (Mac) Jamshidi Nil Nil 370,000 $1,942,50
Shahsavar 0
Morteza Seyed Torabian Nil Nil 220,779 $1,122,12
6
Reginald Adrian Ebbeling 6,000 on $12,900 29,000 $
07/26/96 152,250
Gordon John Farrimond Nil Nil 47,500 $
218,400
Alice Elaine Affleck 20,000 on $118,000 75,000 $
12/02/96 323,400
Janice Shahsavar Nil Nil 100,000 $
525,000
Robert Jackson 2,000 on $ 4,200 30,500 $
10/09/96 $30,100 175,150
7,000 on $ 2,880
11/21/96
3,000 on
04/14/97
Darrell Van Dyke Nil Nil 20,000 $
22,400
Richard Johnson Nil Nil 22,000 $
24,640
John Stone Nil Nil 10,000 $
11,200
</TABLE>
(1) Based on the closing market price for the Shares on the Exchange
as at the respective exercise date.
(2) Based on the closing market price for the Shares on the Exchange
of $7.25.
Other than as disclosed above, there is no pension or other plan pursuant
to which cash or non-cash compensation was paid or distributed to the
Executive Officers during the year ended June 30, 1997.
The Executive Officers have not received any other compensation from the
Issuer.
The Issuer has no compensatory plan or arrangement in respect of
compensation received or that may be received by the Executive Officers in
the Issuer's most recently completed or current financial year to
compensate such Executive Officers in the event of the termination of
employment (resignation, retirement, change of control) or in the event of
a change in responsibilities following a change in control, where in
respect of the Executive Officers the value of such compensation exceeds
$100,000.
Compensation of Directors
None of the directors of the Issuer, in their role as directors, have
received any remuneration, other than reimbursement for travel and other
out-of-pocket expenses incurred for the benefit of the Issuer during the
most recently completed financial year ended June 30, 1997. Although the
Issuer does not presently have any non-cash compensation plans for its
directors; it is considering paying non-cash compensation during the
current financial year in addition to the granting of stock options.
However, the particulars of such non-cash compensation have not yet been
determined. (See "Share and Loan Capital - Options and Other Rights to
Purchase Securities - Incentive Stock Options".)
<PAGE>
Related Party Transactions
Ross Scavuzzo, a director of the Issuer, was the President of Arjo and a
director of the Issuer at the time the Issuer entered into an agreement
with Arjo whereby the Issuer has acquired Arjo's Liquid Division. (See
"Business of the Issuer - Acquisitions and Dispositions - Liquid Division
of Arjo Canada Inc.")
Janice Shahsavar, the Vice-President, Human Resources, of the Issuer, owns
100% of the issued and outstanding shares of Excelco. In addition, Mahmood
(Mac) Shahsavar, the President, Chief Executive Officer, Promoter and a
director of the Issuer, is the President and Chief Executive Officer of
Excelco. The Issuer has entered into an agreement whereby Excelco has
granted to the Issuer the right to use certain Robotic Technology. (See
"Business of the Issuer - Acquisitions and Dispositions - Robotic
Technology License Agreement".)
See "Business of the Issuer - Summary and Analysis of Financial Operations
- - Financial Assistance - Manitoba Government" for information relating to
certain restrictions and obligations placed upon Mahmood (Mac) Shahsavar
and Janice Shahsavar in order to provide security to MDC pursuant to the MG
Agreement.
Darrell Wayne Van Dyke, Vice President of NHMC US, was General Manager of
Huntington Laboratories Gam-Med Division, Inc. ("Gam-Med") at the time that
the Issuer entered into an agreement with Gam-Med whereby the Issuer
acquired the on-going business and certain assets of Gam-Med. (See
"Business of the Issuer - Acquisitions and Dispositions - Huntington
Laboratories Gam-Med Division, Inc.)
Except as disclosed herein, since the date of incorporation of the Issuer,
no insider of the Issuer or any associate or affiliate of such insider has
been materially interested in any transaction of the Issuer, nor is any
such person interested in any proposed transaction which has materially
affected or would materially affect the Issuer.
SHARE AND LOAN CAPITAL
Existing and Proposed Share Capital
The authorized capital of the Issuer consists of an unlimited number of
Shares. The following table sets out the Issuer's outstanding share
capital, including the Shares to be distributed under this Prospectus, as
of the most recent quarter end.
<TABLE>
Number of Price Total
Issued Per Considerati
Securities Securit on(2)
y
<S> <C> <C> <C>
Issued as of March 31, 1998 15,821,903( N/A $15,764,952
1)
Offering:
Issuable on Exercise of the CD 337,500 N/A N/A
Warrants
Total upon completion of the Offering 16,159,403( N/A $15,764,952
1)
</TABLE>
(1) Including the 1,180,000 Shares held in escrow. (See "Share and Loan
Capital - Escrow Shares".)
(2) Net of issue costs. (See Note 12 to the Financial Statements.)
<PAGE>
Loan Capital
<TABLE>
Designation of Security Amount Amount Amount
Authorized Outstandin Outstanding
or to be g as as
Authorized of June of March
30, 1997 31, 1998
<S> <C> <C> <C>
Shareholders' and Directors N/A $2,064,770 $
Loans(1) 555,497
Lease Agreements(2) Nil $7,223,537 $
6,105,618
Long-term Debt(3) Nil $3,267,326 $
14,748,960
</TABLE>
(1) As at March 31, 1998, the Issuer has received non-interest bearing
shareholder loans totaling $155,496 from Inscoca (the "Shareholders
Loans")and $400,001 from the selling Shareholders of Medi Guard (the
"Medi Guard Selling Shareholders Loans"). The Inscoca loan has no
fixed terms of repayment. The Medi Guard Selling Shareholders Loan is
due November 24, 1998 . The terms of certain loans received by the
Issuer under the MG Agreement and the WEDD Agreement require that the
Issuer obtain the consent of the Ministers of the WEDP and the MDC
prior to the repayment of the Shareholders Loans. The loan under the
MG Agreement is secured. (See "Business of the Issuer - Summary and
Analysis of Financial Operations - Financial Assistance" and "Payments
to Insiders and Promoters - Related Party Transactions".)
(2) The Lease Agreements amounts reflect the total lease obligation and
not just the long-term portion. (See "Business of the Issuer -
Operations - Equipment".)
(3) As at March 31, 1998, the long-term debt reflects the $1,804,835
unsecured, non-interest bearing loan from the WEDD, repayable
quarterly commencing September 1, 1998 and ending September 1, 2000,
the $2,174,000 MG Loan, bearing interest at a rate charged by the
Province of Manitoba to its Crown Corporations for borrowings
amortized over a ten year period (currently 8%), secured by a first
fixed charge against certain lands, buildings and equipment, repayable
monthly commencing May 1, 1999 and ending December 1, 2002, the
U.S.$6,750,000 (CDN$9,562,050) Convertible Notes issued March 31, 1998
under this Prospectus, the $460,649 Hongkong Bank term loans secured
by certain assets of Medi Guard, bearing interest at the rate of
Hongkong Bank Prime rate plus up to 3.0%, repayable monthly commencing
April 1, 1997 and ending June 1, 2001, the $247,300 Business
Development Bank of Canada term loans secured by certain equipment of
Medi Guard, bearing interest at the rate of Business Development Bank
of Canada Operational interest rate plus up to 3.5%, repayable monthly
commencing January 23, 1997 and ending December 1, 2002, and the
$500,000 Roynat Inc. subordinated debenture secured by a fixed and
floating charge debenture on all assets of Medi Guard, subject to all
other funded debt of Medi Guard, bearing interest at 10% per annum
payable monthly, due March 15, 2002,
Options and Other Rights to Purchase Securities
As at March 31, 1998, the Issuer has granted various persons rights to
purchase or acquire an aggregate of 3,426,404 comprised as follows and as
more particularly described in this section:
No. Shares
(a) to be issued on exercise of incentive stock options: 1,210,904
(b) to be issued on exercise of the SW Warrants: 1,600,000
(c) to be issued on exercise of the Agent's Warrants: 128,000
(d) to be issued on exercise of the Importex Warrants: 150,000
(e) to be issued on exercise of the CD Warrants: 337,500
Total: 3,426,404
In addition, on March 31, 1998 the Issuer granted various persons the right
to acquire further Shares upon the conversion of the Convertible
Debentures, the number of which cannot be calculated until the deemed price
per CD Share has been determined. (See "Details of the Offering - CD
Private Placement").
Incentive Stock Options
The following table sets forth details, as at March 31, 1998, of the
incentive stock options entitling the holders to purchase an aggregate of
1,210,904 Shares of the Issuer:
<PAGE>
<TABLE>
Name of No. of Date of Exerci Expiry Market Market
Optionees Shares Grant se Date Value Value
Subjec Price of on
t to Shares March
Option on 31,
Date of 1998
Grant
<S> <C> <C> <C> <C> <C> <C>
Mahmood (Mac) 370,00 June 29, $2.00 Nov. 30, n/a(2) $3.70
Shahsavar(1) 0 1995 2000
Seyed Torabian(1) 107,82 June 29, $2.00 Nov. 30, n/a(2) $3.70
9 1995 $3.81 2000 $4.55
94,000 Aug. 12, $6.13 Aug. 11, $6.00
8,950 1996 2001
June 3, June 3,
1997 2002
Janice Shahsavar 100,00 June 29, $2.00 Nov. 30, n/a(2) $3.70
0 1995 2000
Alice Elaine 60,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
Affleck(1) 15,000 1995 $6.13 2000 $6.00
June 3, June 3,
1997 2002
Robert Jackson(1) 16,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
5,000 1995 $3.81 2000 $4.55
7,500 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Reginald 12,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
Ebbeling(1) 5,000 1995 $3.81 2000 $4.55
Aug. 12, Aug. 11,
1996 2001
Gordon Farrimond(1) 30,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
10,000 1995 $3.81 2000 $4.55
7,500 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Aristotle (Telly) 30,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
Mercury(1) 1995 2000
Alex Tsakumis 29,500 June 29, $2.00 Nov. 30, n/a(2) $3.70
15,000 1995 $3.81 2000 $4.55
15,000 Aug. 12, $6.13 Aug. 11, $6.00
1996 2001
June 3, June 3,
1997 2002
Eve Torabian 30,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
1995 2000
Ross Scavuzzo(1) 20,000 June 29, $2.00 Nov. 30, n/a(2) $3.70
1995 2000
Pat Paterson 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $3.70
22,000 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Nancy Clark 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $3.70
15,000 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Simona Sordi 3,125 Aug. 12, $3.81 Aug. 11, $4.55 $3.70
1996 2001
Dominic Marrai 5,000 Aug. 12, $3.81 Aug. 11, $4.55 $3.70
7,500 1996 $6.13 2001 $6.00
June 3, June 3,
1997 2002
Darrell Van Dyke 20,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Joseph Gillies 15,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Monique Desrosiers 15,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Carol Scott 15,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Darren Van Dyke 7,500 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Dexter Talwar 11,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
May M. Alibango 15,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Carmelita Smith 11,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
John Stone 10,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Cecilia S. Chong 3,500 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Claudette C. 3,500 June 3, $6.13 June 3, $6.00 $3.70
Kartinen 1997 2002
Doug J. Stiff 3,500 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Agustin Bangsal 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Cherry Licup 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Lucia Pascual 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Teresita N. Ramos 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Flordeliza B. Reyes 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Matilde O. Tahimic 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Lina Sawit 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Anna Liza 2,000 June 3, $6.13 June 3, $6.00 $3.70
Encarnacion 1997 2002
Rufina Platon 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Caridad E. Padernal 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Carolina P. 2,000 June 3, $6.13 June 3, $6.00 $3.70
Bercasio 1997 2002
Roman A. Gonzales 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Aurora Trinidad 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Ma Merlyn Alibango 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
Mildred Nario 2,000 June 3, $6.13 June 3, $6.00 $3.70
1997 2002
</TABLE>
(1) Directors of the Issuer.
(2) There was no market for the Shares when the June 29, 1995 stock
options were granted. The exercise price was based on the public
offering price under the Issuer's IPO Prospectus.
<PAGE>
The options have been granted as incentives and not in lieu of any
compensation for services, and are subject to cancellation should the
optionee cease to act in a designated capacity.
See "Business of the Issuer - Summary and Analysis of Financial Operations
- - Financial Assistance - Manitoba Government" for information relating to
certain restrictions and obligations placed upon Mahmood (Mac) Shahsavar
and Janice Shahsavar with respect to the exercise of their incentive stock
options and the sale, transfer, assignment or other disposition of their
stock options or shares issued to them upon exercise of their stock
options.
SW Warrants
In connection with the SW Private Placement, Special Warrants were issued
exercisable into Units, which Units included SW Warrants. As of the date
of this Prospectus, 1,600,000 Special Warrants have been exercised,
resulting in the issuance of 1,600,000 SW Warrants. A total of 1,600,000
Shares are issuable upon exercise of SW Warrants, as follows.
<TABLE>
Name Number Exercis Market Expiry Date
of e Value of
Shares Price Shares
Availabl as at
e Date of
Upon Acquisit
Exercise ion(1)
<S> <C> <C> <C> <C>
BPI Canadian Small Companies 1,050,00 $7.00 $7.60 July 8,
Fund (A/C #5419-2616001) 0 1998
BPI Canadian Small Companies 100,000 $7.00 $7.60 July 8,
Fund (A/C #5419-2076601) 1998
Donald D. Sharp 40,000 $7.00 $7.60 July 8,
1998
Gibralt Holdings Ltd. 34,000 $7.00 $7.60 July 8,
1998
Roberto D. Chu 17,000 $7.00 $7.60 July 8,
1998
Diana Risling 17,000 $7.00 $7.60 July 8,
1998
Sherman Yee, Ltd. 17,000 $7.00 $7.60 July 8,
1998
John Heras 34,000 $7.00 $7.60 July 8,
1998
T.R. Lankester 17,000 $7.00 $7.60 July 8,
1998
Hepplewood Design Limited 100,000 $7.00 $7.60 July 8,
1998
Barry D. McKnight 36,000 $7.00 $7.60 July 8,
1998
Elizabeth Anne McKnight 17,000 $7.00 $7.60 July 8,
1998
Barry McMillan 17,000 $7.00 $7.60 July 8,
1998
Dave McMillan 36,000 $7.00 $7.60 July 8,
1998
Vito Enterprises Ltd. 17,000 $7.00 $7.60 July 8,
1998
Frank Mauro 17,000 $7.00 $7.60 July 8,
1998
Paymon Trading Inc. 17,000 $7.00 $7.60 July 8,
1998
P. Nancy Clark 17,000 $7.00 $7.60 July 8,
1998
</TABLE>
(1) As at the date of closing of the SW Private Placement. At the time
the SW Private Placement was announced the market value was $7.40.
Agent's Warrants
Pursuant to the terms of the Agency Agreement, the Issuer has issued to the
Agent 128,000 Agent's Special Warrants. Each Agent's Special Warrant
entitles the holder to acquire, without additional consideration, one
Agent's Unit. Each Agent's Unit consists of one Agent's Share and one
Agent's Warrant. Each Agent's Warrant entitles the holder to purchase one
additional Share at a price of $7.00 on or before the Warrant Expiry Date.
Importex Warrant
Pursuant to the terms of the Importex Assignment, the Issuer has issued to
Importex a warrant (the "Importex Warrant") entitling the holder to
purchase 150,000 Shares (the "Importex Warrant Shares") at a price of $6.90
per Share in the first year and at a price of $7.94 per Share in the second
year, expiring on February 3, 1999. (See "Business of the Issuer -
Acquisitions and Dispositions - Textile Rights - Importex Corporation".)
<PAGE>
CD Warrants
In connection with the $6,750,000 private placement, 337,500 Warrants were
issued which are exercisable at 110% and 120% of the average closing price
exercised within the first year or the second year of the Closing Date.
This private placement is executed through the issuance of 6% Convertible
Debentures. The Debentures are convertible into Class A shares at a
conversion price of 85% of the average closing bid price for the five
trading days immediately preceding the conversion notice. The Debentures
carry a maximum price of US $3.50 and a rolling floor price of US $2.50.
The Debentures are convertible upon registration with the SEC and 120 days
as required by the B.C. Securities Commission. A commission of 5% has been
paid in connection with this financing. (See "Details of the Offering - CD
Private Placement").
THERE ARE NO ASSURANCES THAT THE OPTIONS, SHARE PURCHASE WARRANTS OR OTHER
RIGHTS DESCRIBED ABOVE WILLBE EXERCISED IN WHOLE OR IN PART.
<PAGE>
Principal Holders of Voting Securities
As of the date hereof, the only persons or companies holding, as of record
or known to the Issuer to beneficially own, directly or indirectly, or to
have control or direction over, more than 10% of the issued shares of the
Issuer are as follows:
<TABLE>
Name and Municipality of Number of % of Class % of Class
Residence Securities Prior to the After the
Offering Offering
<S> <C> <C> <C>
EXCELCO SYSTEMS INC.(1) 4,271,805 27.00% 27.00%
Saskatoon, Saskatchewan
</TABLE>
(1) Excelco is a private company of which Janice Shahsavar, the Vice-
President, Human Resources of the Issuer, owns 100% of the issued
shares. Mrs. Shahsavar also directly holds 120,000 escrow shares
of the Issuer.
Escrow Shares
The Issuer has issued a total of 1,180,000 performance shares (the "Escrow
Shares"), at a price of $0.01 per share, to principals of the Issuer in
accordance with Local Policy Statement 3-07 of the British Columbia
Securities Commission (the "Policy"). The holders of the Escrow Shares
(the "Escrow Holders") are as follows:
Name of Escrow Holders No. Shares
Mahmood (Mac) Shahsavar 690,000
Seyed Torabian 120,000
Janice Shahsavar 120,000
Alice Elaine Affleck 80,000
Robert Jackson 50,000
Eve Torabian 30,000
Frank Klemmer* 30,000
Mahmoud Torabian 20,000
Murray Laird* 20,000
Don Affleck 20,000
* Frank Klemmer and Murray Laird are no longer principals (as
that term is defined in the Policy) of the Issuer and,
accordingly, are obligated to transfer their respective
Escrow Shares pursuant to the terms of the Escrow Agreement.
The Escrow Shares are being held in escrow pursuant to the terms of an
agreement dated June 29, 1995 (the "Escrow Agreement") among the Issuer,
Pacific Corporate Trust Company (the "Escrow Agent"), and the Escrow
Holders. The escrow restrictions contained in the Escrow Agreement provide
that the shares may not be traded in, dealt with in any manner whatsoever,
or released, nor may the Issuer, the Escrow Agent or Escrow Holders make
any transfer or record any trading of the shares without the consent of the
Superintendent of Brokers for British Columbia (the "Superintendent") or,
while the shares are listed on the Exchange, the consent of the Exchange.
The Escrow Shares may be released from escrow, on a pro-rata basis, based
upon the cumulative cash flow of the Issuer, as evidenced by the Issuer's
annual audited financial statements. "Cash Flow" is defined in the Policy
to mean net income or loss before tax, adjusted for certain add-backs. For
each $0.09 of cumulative cash flow generated by the Issuer from its
operations, one Escrow Share may be released from escrow. Any shares not
released from escrow before November 30, 2005, shall be cancelled.
<PAGE>
Should an Escrow Holder cease to be a Principal as that term is defined in
Local Policy Statement 3-07, or should he die or become bankrupt while he
owns the Escrow Shares, the Escrow Holder or the representative(s) of his
estate shall sell and transfer the Escrow Shares to such principal or
principals of the Issuer as may be approved by the Board of Directors and
the Superintendent or the Exchange at a price equal to an amount equal to
the greater of 7% of the simple average of the closing price of the Shares
for each of the business days on which there was a closing price falling
not more than 10 business days before the date the Escrow Holder ceases to
be a principal, dies or becomes bankrupt, as the case may be, and $0.01.
Upon completion of the Offering (see "Details of the Offering - Issuance of
Special Warrants"), the Escrow Shares will represent approximately 7.5% of
the issued and outstanding Shares of the Issuer.
The complete text of the Escrow Agreement is available for inspection at
the office of the Issuer's legal counsel, Maitland & Company, at the times
specified under "Material Contracts".
<PAGE>
PRIOR SALES AND TRADING INFORMATION
During the 12 months ended March 31, 1998, the Issuer has sold for cash a
total of 4,756,988 Shares as follows:
<TABLE>
Number of Shares Price per Commission Net Cash
Share Received
<S> <C> <C> <C>
34,500(1) $2.00 Nil $69,000
5,750(2) $3.81 Nil $21,907.50
2,750(3) $6.13 Nil $16,857.50
980,416 (4) $3.00 Nil $226,248
1,600,000 (5) N/A Nil Nil
305,000(6) $3.50 Nil $1,067,500
225,000(7) N/A Nil Nil
128,000(8) N/A Nil Nil
1,475,572(9) N/A Nil Nil
</TABLE>
(1) On exercises of incentive stock options at $2.00 per Share.
(2) On exercises of incentive stock options at $3.81 per Share.
(3) On exercises of incentive stock options at $6.13 per Share.
(4) 905,000 Shares were issued on exercise of the July/96 Special
Warrants, at a deemed price of $3.00 per Share. No additional
consideration was required to exercise the July/96 Warrants. The
balance of 75,416 Shares were issued to the Agent upon exercise
of a compensation warrant, at a price of $3.00 per Share, issued
in connection with the July/96 Private Placement.
(5) On partial exercise of the Special Warrants, at a deemed price of
$6.00 per Share. No additional consideration was required to
exercise the Special Warrants.
(6) On exercise of the July/96 Warrants.
(7) Issued at a deemed price of $6.90 per Share as partial
consideration payable by the Issuer under the Importex
Assignment. (See "Business of the Issuer - Acquisitions and
Dispositions - Textile Rights - Importex Corporation".)
(8) On exercise of the Agent's Special Warrants in connection
with the SW Private Placement. No additional consideration was
required to exercise the Agents Special Warrants.
(9) On conversion of the Convertible Debentures in connection
with the CN Private Placement. No additional consideration was
required to convert the Debentures.
<PAGE>
The following table sets out the market price, range and trading volume of
the Shares on both the on the NASDAQ Small Capital Market for the 12 months
(where applicable) and for the six weeks prior to the date of this
Prospectus:
NASDAQ Small Capital Market
The Issuer was first listed on NASDAQ on August 14, 1996.
<TABLE>
Year Monthly Summary High (US$) Low Volume
(US (shares)
$)
<S> <C> <C> <C> <C>
1998 March 3.00 2.38 1,113,861
February 3.13 2.31 1,882,979
January 3.28 2.38 1,466,943
1997 December 3.81 2.63 1,676,140
November 4.13 2.50 1,568,775
October 4.50 3.63 721,325
September 4.81 4.13 551,898
August 5.56 4.00 1,876,260
July 6.00 4.88 1,753,500
June 5.94 3.88 852,698
May 5.13 4.25 176,078
April 5.19 4.13 148,925
March 5.25 4.25 321,800
February 5.50 4.62 220,100
January 6.00 5.00 694,100
1996 December 6.00 4.87 534,700
November 6.62 3.00 2,403,900
October 3.25 2.75 34,800
</TABLE>
DETAILS OF THE OFFERING
CD Private Placement
Pursuant to the Debenture Purchase Agreement, Convertible Debentures in the
amount of US$6,750,000 were issued on a private placement basis. The
Convertible Debentures bear cumulative dividends at the rate of 6% per
annum, payable in cash or in Shares. The Convertible Debentures are
convertible into Shares at a conversion price equal to the lower of: (a)
US$3.50 subject to a floor price of $2.50 as defined in the Debenture or
(b) 85% of the closing price of the Issuer's Shares on NASDAQ on the
conversion date.
A holder of a Convertible Debenture has the right to convert same at any
time during the Debenture Conversion Period, commencing on the Original
Issuance Date as herein defined.
Unless converted earlier by the holder, the Convertible Debentures will be
deemed to be converted without further action on the part of the holder
immediately prior to 4:00 p.m. (Pacific Standard Time) on the Debenture
Maturity Date. If the Debenture Certificate is issued prior to the
Debenture Maturity Date, the securities represented thereby will be subject
to a hold period except as permitted by the Securities Act (B.C.) or the
Regulations or Rules made thereunder, or pursuant to the Securities Act of
1933.
The Issuer has the right to require, by at least 10 days' written notice to
the holder of a Convertible Debenture, that the holder of a Convertible
Debenture exercise its right of conversion with respect to all or that
portion of the principal amount and interest outstanding on the Debenture
Maturity Date.
<PAGE>
Each CD Warrant is exercisable for a period of two years from the date of
issuance, and entitles the holder to purchase one Share at a price of
US$2.83 during the first year, and at a price of US$3.09 per Share during
the second year.
The Finder arranged for purchasers of the Convertible Debentures and, in
consideration therefor, the Issuer paid to the Finder a cash commission of
US$337,500, equal to 5% of the aggregate gross proceeds raised from the CD
Private Placement, which was paid on closing of the CD Private Placement.
This Prospectus qualifies the distribution of the CD Shares and the CD
Warrant Shares.
The CD Warrants may be exercised by surrendering to the Issuer the
certificate or certificates representing the CD Warrants together with a
duly completed and executed exercise notice in the form attached to such
certificate(s) and the applicable purchase price.
On any exercise of the CD Warrants by a holder, the person to whom the CD
Warrant Shares issuable upon such exercise are to be issued shall be deemed
to have become the holder of record as of the close of business on the day
upon which the holder delivers the CD Warrants for exercise, together with
full payment of the exercise price, in accordance with the provisions of
the certificate representing the CD Warrants.
Other than as disclosed in this Prospectus, there are no payments in cash,
securities or other consideration being made, or to be made, to a promoter,
finder or any other person or company in connection with the CD Private
Placement.
General
The PP Shares and the Warrants are also subject to adjustment upon the
occurrence of certain stated events including the subdivision or
consolidation of the Shares, certain distributions of Shares, or of
securities convertible into or exchangeable for Shares, or of other
securities or assets of the Issuer, certain offerings of rights, warrants
or options and certain capital reorganizations.
The Special Warrants and Convertible Debentures have been issued pursuant
to exemptions from the prospectus requirements of applicable securities
legislation. The Prospectus qualifies the distribution of the PP Shares
and the Warrants. If the Special Warrants or Convertible Debentures are
exercised prior to the date of the Effectiveness of a Registration
Statement, the securities derived therefrom will be subject to hold periods
and other resale restrictions under applicable securities legislation.
DESCRIPTION OF SECURITIES OFFERED
The authorized capital of the Issuer consists of an unlimited number of
Shares without par value. At March 31, 1998, 15,821,903 Shares are issued
and outstanding. All of the authorized shares of the Issuer are of the
same class and, once issued, rank equally as to dividends, voting powers
and participation in assets. No Shares have been issued subject to call or
assessment. There are no pre-emptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or
sinking or purchase funds. The modification, amendment or variation of any
such rights or provisions are subject to The Corporations Act (Manitoba)
and the Issuer's by-laws.
Once issued, the CD Shares and CD Warrants will not be subject to any
further call or assessments and will not have any preemptive rights,
conversion rights or redemption rights.
<PAGE>
INVESTOR RELATIONS ARRANGEMENTS
Certain of the Issuer's employees are responsible for the preparation of
any investor relations materials containing the Issuer's corporate profile,
management and director profiles, corporate information and product sheet.
These individuals also coordinate communications with shareholders on a
continuing basis to keep them advised of the Issuer's plans and activities
by providing them with news releases, financial information and annual
reports.
Other than services provided by its employees, the Issuer has not entered
into any written or oral agreement or understanding with any person to
provide any promotional or investor relations services for the Issuer or
its securities, or to engage in activities for the purposes of stabilizing
the market, either now or in the future.
RELATIONSHIP BETWEEN THE ISSUER AND PROFESSIONAL PERSONS
Aikins MacAulay & Thorvaldson is a Manitoba law firm of which Aristotle
(Telly) Mercury, a director of the Issuer, is a partner. During the year
ended June 30, 1997, Aikins MacAulay & Thorvaldson received $48,331 for
legal services rendered to the Issuer. (See "Share and Loan Capital -
Options and Other Rights to Purchase Securities - Incentive Stock Options"
for information relating to an incentive stock option granted to Mr.
Mercury. In addition, see "Directors, Officers and Promoters - Name,
Address, Occupation and Security Holdings" for disclosure of Shares owned
by Mr. Mercury.)
Other than as disclosed herein, there is no beneficial interest, direct or
indirect, in any securities or property, of the Issuer or of an associate
or affiliate of the Issuer, held by a professional person as referred to in
section 106(2) of the Rules, a responsible solicitor or any partner of a
responsible solicitor's firm.
LEGAL PROCEEDINGS
The Issuer is not a party to any outstanding legal proceedings and the
directors of the Issuer do not have any knowledge of any contemplated legal
proceedings that are material to the business and affairs of the Issuer.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the
Convertible Debentures and the common stock offered hereby are being passed
upon by its counsel, Sperry, Young & Stoecklein, Las Vegas, Nevada.
EXPERTS
The Consolidated Financial Statements included in this prospectus and
elsewhere in the registration statement, to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen & Co. and
Deloitte & Touche, Independent Chartered Accountants, and are included
herein in reliance upon the authority of said firm as experts as giving
said reports.
REGISTRAR AND TRANSFER AGENT
The Issuer's registrar and transfer agent is Pacific Corporate Trust
Company, of Suite 830, 625 Howe Street, Vancouver, British Columbia, V6C
3B8.
<PAGE>
MATERIAL CONTRACTS
The material contracts to which the Issuer is a party are as follows:
(a) MG Agreement between the Issuer and the Department of Industry, Trade
and Tourism, through its Crown corporation and agent, Manitoba
Development Corporation, of the Manitoba Government, as referred to
under "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Manitoba Government";
(b) Real Property Mortgage and Security Agreement between the Issuer and
MDC, as referred to under "Business of the Issuer - Summary and
Analysis of Financial Operations - Financial Assistance - Manitoba
Government";
(c) Assignment/Postponement of Shareholder Loan Agreement among the
Issuer, Excelco, Mahmood (Mac) Shahsavar, Janice Shahsavar and MDC, as
referred to under "Business of the Issuer - Summary and Analysis of
Financial Operations - Financial Assistance - Manitoba Government";
(d) Equity Undertaking Agreement among the Issuer, Excelco, Mahmood (Mac)
Shahsavar, Janice Shahsavar and MDC, as referred to under "Business of
the Issuer - Summary and Analysis of Financial Operations - Financial
Assistance - Manitoba Government".
(e) Lease and Credit Undertaking Agreement among the Issuer, Excelco and
MDC, as referred to under "Business of the Issuer - Summary and
Analysis of Financial Operations - Financial Assistance - Manitoba
Government".
(f) Guarantee Agreement among the Issuer, Excelco and MDC, as referred to
under "Business of the Issuer - Summary and Analysis of Financial
Operations - Financial Assistance - Manitoba Government".
(g) WEDD Agreement between the Issuer and the Federal Government's Western
Economic Diversification Department, as referred to under "Business of
the Issuer - Summary and Analysis of Financial Operations - Financial
Assistance - Federal Government";
(h) Robotic Technology License Agreement between the Issuer and Excelco
Systems Inc., as referred to under "Business of the Issuer -
Acquisitions and Dispositions - Robotic Technology License Agreement";
(i) Arjo Agreement among the Issuer, Arjo Canada Inc., Arjo USA Inc. and
3485367 Manitoba Ltd. (now, NCP) as referred to under "Business of the
Issuer - Acquisitions and Dispositions - Liquid Division of Arjo
Canada Inc.";
(j) Gam-Med Agreement among NHMC US, Huntington Laboratories Gam-Med
Division, Inc. and Ecolab Inc. referred to under "Business of the Issuer -
Acquisitions and Dispositions - Huntington Laboratories Gam-Med Division,
Inc.";
(k) Ecolab Supply Agreement between NHMC US and Ecolab referred to under
"Business of the Issuer - Acquisitions and Dispositions - Huntington
Laboratories Gam-Med Division, Inc."
(l) Mercana General Security Agreement between the Issuer and Mercana
Industries Ltd. referred to under "Business of the Issuer -
Acquisition and Dispositions - Textile Rights";
<PAGE>
(m) Importex Assignment among the Issuer, Importex Corporation and
Mertexas Partnership referred to under "Business of the Issuer -
Acquisition and Dispositions - Textile Rights";
(n) Lease Agreements among NHMC US, D & T Leasing, Inc. and D & T Leasing
Limited Partnership, as referred to under "Business of the Issuer -
Operations - Equipment";
(o) Settlement Agreement among NHMC US, D & T Leasing, Inc., D & T Leasing
Limited Partnership, Excelco and Selectronics, as referred to under
"Business of the Issuer - Operations -Equipment";
(p) Stock Option Agreements between the Issuer and certain of its
directors and employees, as referred to under "Share and Loan Capital
- Options and Other Rights to Purchase Securities - Incentive Stock
Options";
(q) Escrow Agreement among the Issuer, Pacific Corporate Trust Company and
the Escrow Holders, as referred to under "Share and Loan Capital -
Escrow Shares";
(r) Agency Agreement between the Issuer and the Agent, as referred to
under "Details of the Offering - SW Private Placement";
(s) Special Warrant Indenture between the Issuer and Pacific Corporate
Trust Company;
(t) Securities Purchase Agreements, CN Private Placement (US$5,000,000)
between the Issuer and certain investors;
(u) Distribution Agreement between NHLC and Sysco Corporation, as referred
to under "Business of the Issuer - Description of Business and General
Development";
(v) Medi Guard Agreement among the Issuer, Medi Guard Inc. and former
shareholders of Medi Guard as referred to under "Business of the Issuer -
Acquisitions and Dispositions - Medi Guard Inc.";
(w) Budva Agreement among the Issuer, and former shareholders of Budva as
referred to under "Business of the Issuer - Acquisitions and Dispositions -
Budva International LLC"; and
(x) Convertible Debenture Purchase Agreement, CD Private Placement
(US$6,750,000) between the Issuer and certain investors; and
(y) Medi Guard Amending Agreement among the Issuer, Medi Guard Inc. and
former shareholders of Medi Guard as referred to under "Business of the
Issuer - Acquisitions and Dispositions - Medi Guard Inc.";
The above agreements may be inspected at the office of counsel for the
Issuer, Maitland & Company, at Suite 700, 625 Howe Street, Vancouver, B.C.,
during normal business hours while the distribution of the securities
hereunder is in progress and for a period of 30 days thereafter.
OTHER MATERIAL FACTS
There are no other material facts not disclosed elsewhere herein.
<PAGE>
Exhibit A - Convertible Debenture Purchase Agreement
Exhibit B - Escrow Agreement
Exhibit C - US$ 250,000, 6% Convertible Debenture March 31, 2000
(Diversified Strategies Fund, Ltd.)
Exhibit D - $6,500,000, 6% Convertible Debenture March 31, 2000 (JNC
Opportunity Fund Ltd.)
Exhibit E - Registration Rights Agreement.
F-1 Report of Independent Chartered Accountants
F-2 Balance Sheet as June 30, 1997
F-3 Statement of Operations for the year ended June 30, 1997
F-4 Statement of Shareholders' Equity for the year ending June 30, 1997
F-5 Statement of Changes in Financial Position for the year ending June
30, 1997
F-6 Notes to Financial Statements
<PAGE>
EXHIBIT A
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of March 31, 1998
(this "Agreement"), among National Healthcare Manufacturing Corporation, a
Manitoba, Canada, corporation (the "Company"), JNC Opportunity Fund Ltd., a
Cayman Islands Company ("JNC"), and Diversified Strategies Fund, L.P., an
Illinois limited partnership ("DSF"). Each of JNC and DSF is a "Purchaser"
and, collectively JNC and DSF are the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase an aggregate
principal amount of $6,750,000 of the Company's 6% Convertible Debentures,
due March 31, 2000 (the "Debentures"), which are convertible into shares of
the Company's Class A common stock, no par value (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchasers
and the Purchasers shall purchase, severally and not jointly, the
Debentures for an aggregate purchase price of $6,750,000. The closing of
the purchase and sale of the Debentures (the "Closing") shall take place at
the offices of Robinson Silverman Pearce Aronsohn & Berman LLP (the "Escrow
Agent"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall
agree. The date of the Closing is hereinafter referred to as the "Closing
Date."
(ii) Prior to the Closing, the parties shall deliver or
shall cause to be delivered to the Escrow Agent such items as are required
to be delivered by them in accordance with and subject to the terms and
conditions of the Escrow Agreement, dated as of the date hereof, by and
among the Company, the Purchasers and the Escrow Agent (the "Escrow
Agreement"), including the following: (A) the Company shall deliver (1)
Debentures, registered in the name of JNC, with an aggregate principal
amount of $6,500,000, (2) Debentures, registered in the name of the DSF,
with an aggregate principal amount of $250,000, (3) a Common Stock purchase
warrant, registered in the name of JNC, to purchase 325,000 shares of
Common Stock, in the form of Exhibit D (the "JNC Warrant"), (4) a Common
Stock purchase warrant, registered in the name of DSF, to purchase 12,500
shares of Common Stock, in the form of Exhibit D (the "DSF Warrant" and,
together with the JNC Warrant, the "Warrants"), and (5) the legal opinions
of Sperry Young and Stoecklein and Aikins, MacAulay & Thorvaldson,
substantially in the forms of Exhibit C-1 and C-2 (collectively, the "Legal
Opinions"); (B) JNC shall deliver $6,500,000; (C) DSF shall deliver
$250,000; and (D) each party hereto shall deliver all other executed
instruments, agreements and certificates as are required to be delivered
hereunder by or on their behalf at the Closing.
<PAGE>
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date" "Trading Day" and "Per Share Market Value"
shall have the meanings set forth in the Debentures; "Market Price" as at
any date shall mean the average Per Share Market Value for the five (5)
Trading Days immediately preceding such date, and "Business Day" shall mean
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of New York or
in Manitoba, Canada are authorized or required by law or other governmental
action to close. Unless otherwise specified, all references herein to
dollars or $ shall be to U.S. dollars (U.S. $).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under
the laws of Manitoba, Canada, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other
than as set forth in Schedule 2.1(a) attached hereto (collectively, the
"Subsidiaries"). Each of the Subsidiaries is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the full power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. Each of the Company and the Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of this Agreement, the Escrow Agreement, the
Debentures, the Warrants or the Registration Rights Agreement, dated the
date hereof, between the Company and the Purchasers (the "Registration
Rights Agreement" and, together with this Agreement, the Escrow Agreement,
the Debentures and the Warrants, the "Transaction Documents"), (y) have a
material adverse effect on the results of operations, assets, prospects, or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole, or (z) adversely impair the Company's ability to perform
fully on a timely basis its obligations under any Transaction Document (any
of the foregoing, a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution and delivery of each
of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company. Each of the Transaction
Documents has been duly executed by the Company and when delivered in
accordance with the terms thereof shall constitute the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any
of the provisions of its respective articles of incorporation, by-laws or
other charter documents.
<PAGE>
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising
out of any agreement or understanding with the Company by virtue of any of
the Transaction Documents. Except as disclosed in Schedule 2.1(c), there
are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or, except as a
result of the purchase and sale of the Debentures and the Warrants
hereunder, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is
or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, except as specifically disclosed
in the SEC Documents (as defined below) or Schedule 2.1(c), no Person (as
defined below) beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or has the right to acquire by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of
5% of the Common Stock. Other than pursuant to the Registration Rights
Agreement between certain third parties and of the Company, dated October
1, 1997 (the "October Financing Agreement"), there are no agreements or
arrangements under which the Company or any Subsidiary is obligated to
register the sale or resale of any of their securities under the Securities
Act (other than as contemplated in the Registration Rights Agreement). A
"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.
(d) Issuance of Debentures and the Warrants. The Debentures and
the Warrants are duly authorized, and, when issued in accordance with the
terms hereof, shall be validly issued, fully paid and nonassessable, free
and clear of all liens, encumbrances and rights of first refusals of any
kind (collectively, "Liens"). The Company has and at all times while the
Debentures and the Warrants are outstanding will maintain an adequate
reserve of duly authorized shares of Common Stock to enable it to perform
its conversion, exercise and other obligations under this Agreement, the
Warrants and the Debentures and in no circumstances shall such reserved and
available shares of Common Stock be less than the sum of (i) two times the
number of shares of Common Stock as would be issuable upon conversion in
full of the Debentures, assuming such conversion were effected on the
Original Issue Date or the Filing Date (as defined in the Registration
Rights Agreement), whichever yields a lower Conversion Price, (ii) the
number of shares of Common Stock as are issuable as payment of interest on
the Debentures, assuming all such interest is permitted to be paid and is
paid in shares of Common Stock, and (iii) the number of shares of Common
Stock as are issuable upon exercise in full of the Warrants. The shares of
Common Stock issuable upon conversion of the Debentures, as payment of
interest in respect thereof and upon exercise of the Warrants are sometimes
referred to herein as the "Underlying Shares," and the Debentures, the
Warrants and Underlying Shares are, collectively, the "Securities." When
issued in accordance with the terms of the Debentures and the Warrants, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
<PAGE>
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of the Company's articles of
incorporation, bylaws or other charter documents (each as amended through
the date hereof) or (ii) subject to obtaining the consents referred to in
Section 2.1(f), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument (evidencing a
Company debt or otherwise) to which the Company is a party or by which any
property or asset of the Company is bound or affected (including, without
limitation, the October Financing Agreement and the documents and
agreements related thereto), or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including federal, state and foreign securities laws and regulations), or
by which any property or asset of the Company is bound or affected, except
in the case of each of clauses (ii) and (iii), as could not, individually
or in the aggregate, have or result in a Material Adverse Effect. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, or make any filing
or registration with, any court or other federal, state, local, foreign or
other governmental authority or other Person in connection with the execu
tion, delivery and performance by the Company of the Transaction Documents
other than (i) the filing of a registration statement covering the resale
of the Underlying Shares by the Purchasers (the "Underlying Securities
Registration Statement") with the Securities and Exchange Commission (the
"Commission") and, if required under applicable law, the British Columbia
Securities Commission, which shall be filed in the time period set forth in
the Registration Rights Agreement, (ii) the application for the listing of
the Underlying Shares on or with the Nasdaq SmallCap Market, the Vancouver
Stock Exchange and any national securities exchange, market or quotation
system on which the Common Stock is hereafter listed for trading, (iii)
blue sky securities filings as contemplated by Section 3.5 hereof and by
the Registration Rights Agreement, (iv) the filing of a Form D with the
Commission and (v) other than, in all other cases, where the failure to
obtain such consent, waiver, authorization or order, or to give or make
such notice or filing, could not have or result in, individually or in the
aggregate, a Material Adverse Effect (together with the consents, waivers,
authorizations, orders, notices and filings referred to in Schedule 2.1(f),
the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined), there is no action,
suit, notice of violation, proceeding or investigation pending or, to the
best knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries or any of their respective properties before or
by any court, governmental or administrative agency or regulatory authority
(Federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has
occurred which has not been waived which, with notice or lapse of time or
both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is in violation of any statute, rule or regulation of any
governmental authority, except as could not individually or in the
aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect. The Company is not in default of any of its conversion
obligations under the October Financing Agreement or the agreements or
instruments executed in connection therewith.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Section
2.2(b)-(f), the issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act and any Canadian Securities laws. Neither the Company nor
any Person acting on its behalf has taken or will take any action which
might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act or any Canadian Securities
laws.
<PAGE>
(j) SEC Documents. Since January 1, 1996, the Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof (such reports, the "SEC
Documents" and, together with the Schedules to this Agreement and any other
documents and information furnished by or on behalf of the Company to the
Purchasers at any time prior to the Closing, the "Disclosure Materials") on
a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Documents prior to the expiration of any such
extension. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and
the rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles in Canada and reconciled to such principles
in the U.S. ("GAAP"), applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements
or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal year-end audit adjustments.
Since December 31, 1997, except as specifically disclosed in the SEC
Documents, (a) there has been no event, occurrence or development that has
had or that could have or result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other
than (x) liabilities incurred in the ordinary course of business consistent
with past practice and (y) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP, (c) the Company has not
altered its method of accounting or the identity of its auditors and (d)
the Company has not declared or made any payment or distribution of cash or
other property to stockholders or officers or directors (other than in
compliance with existing Company stock option plans) with respect to its
capital stock, or purchased, redeemed (or made any agreements to purchase
or redeem) any shares of capital stock. The Company last filed audited
financial statements with the Commission on December 31, 1997, and has not
received any comments from the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(l) Certain Fees. Except for fees payable to CDC Consultants,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank with respect to the
transactions contemplated hereby. The Purchasers shall have no obligation
with respect to such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated hereby.
The Company shall indemnify and hold harmless each Purchaser, its
respective employees, officers, directors, agents, and partners, and their
respective Affiliates (as such term is defined under Rule 405 promulgated
under the Securities Act), from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and expenses
suffered in respect of any such claimed or existing fees.
(m) Solicitation Materials. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) Listing and Maintenance Requirements Compliance. The
Company has not in the two years preceding the date hereof received written
notice from The Nasdaq Stock Market, the Vancouver Stock Exchange or any
other stock exchange, market or trading facility on which the Common Stock
is or has been listed or quoted to the effect that the Company is not in
compliance with the listing, maintenance or other requirements of such
exchange, market, trading or quotation facility. The Company currently
meets and has no reason to believe that it will not in the future meet any
such requirements.
<PAGE>
(o) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are
necessary for use in connection with its business and which the failure to
so have would have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). To the best knowledge of the Company,
there is no existing infringement of any of the Intellectual Property
Rights.
(p) Seniority. Except as set forth in Schedule 2.1(q), no
indebtedness of the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation, dissolution
or otherwise.
(q) Form F-3 Eligibility. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the
Commission under Form F-3 promulgated under the Securities Act.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the
Purchasers or their representatives and counsel in connection with the
transactions contemplated hereby is true and correct in all material
respects and does not fail to state any material fact necessary in order to
make the statements herein or therein, in light of the circumstances under
which they were made, not misleading. The Company confirms that it has not
provided to any of the Purchasers or any of their agents or counsel any
information that constitutes or might constitute material nonpublic
information. The Company understands and confirms that the Purchasers
shall be relying on the foregoing representation in effecting transactions
in securities of the Company.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby makes the following representations and warranties to the Company.
(a) Organization; Authority. Such Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to
enter into and to consummate the transactions contemplated by the
Transaction Documents and to carry out its obligations thereunder. The
acquisition of the Securities has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement, the
Registration Rights Agreement and the Escrow Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) Investment Intent. Such Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part
thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of
all or any part of such Securities pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, at the date hereof, it is, and at the Closing Date,
it will be, an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
(d) Experience of Purchaser. Such Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
<PAGE>
(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time,
is able to afford a complete loss of such investment. No Person has made a
representation to such Purchaser as to the future price or value of the
Securities, or, except as may be required under the Transaction Documents,
that any Person will resell or repurchase the Securities or refund the
purchase price of the Securities.
(f) Access to Information. Such Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities, and
the merits and risks of investing in the Securities, (ii) access to
information about the Company and the Company's financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment, and (iii) the opportu
nity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to
make an informed investment decision with respect to the investment and to
verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or
counsel shall modify, amend or affect such Purchaser's right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the
Company's representations and warranties contained in the Transaction
Documents.
(g) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities to be acquired by it hereunder are being offered and
sold to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities
Act and (ii) the availability of such exemption, depends in part on, and
the Company will rely upon the accuracy and truthfulness of, the foregoing
representations and such Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
<PAGE>
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act,
to the Company or pursuant to an available exemption from or in a
transaction not subject to the registration requirements thereof. In
connection with any transfer of any Securities other than pursuant to an
effective registration statement or to the Company, the Company may require
the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall
be reasonably satisfactory to the Company, to the effect that such transfer
does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company hereby consents to and agrees to register on the
books and records of the Company or on the register of any transfer agent
for the Securities (i) any transfer of Securities by one Purchaser to
another Purchaser, and agrees that no documentation other than executed
transfer documents shall be required for any such transfer, and (ii) any
transfer by any Purchaser to an Affiliate (as such term is defined under
Rule 405 promulgated under the Securities Act) of such Purchaser or to an
Affiliate of another Purchaser, or any transfers among any such Affiliates
provided the transferee certifies to the Company that it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and that it is
acquiring any such Securities in accordance with the representation
provided by the original Purchaser in Section 2.2(b). Any such Purchaser
or Affiliate transferee shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES AND THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN
BRITISH COLUMBIA, CANADA, UNTIL MIDNIGHT ON JULY 30, 1998, EXCEPT AS
PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) OR THE REGULATIONS
OR RULES MADE THEREUNDER.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN
RESTRICTIONS ON CONVERSION SET FORTH IN SECTION 3.8 OF A CONVERTIBLE
DEBENTURE PURCHASE AGREEMENT, DATED AS OF MARCH 31, 1998, BETWEEN
NATIONAL HEALTHCARE MANUFACTURING CORP. (THE "COMPANY") AND THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
<PAGE>
Underlying Shares shall not contain the legend set forth above
(or any other legend) if the conversion of Debentures, exercise of the
Warrants or other issuances of Underlying Shares as contemplated hereby, as
the case may be, occurs at any time while an Underlying Securities
Registration Statement is effective under the Securities Act or, in the
event there is not an effective Underlying Securities Registration
Statement at such time, if in the opinion of counsel to the Company such
legend is not required under applicable requirements of the Securities Act
or the British Columbia Securities Act, as the case may be (including
judicial interpretations and pronouncements issued by the staff of the
Commission or Canadian securities commissions). The Company shall cause
its counsel to issue the Transfer Agent Instructions attached hereto as
Exhibit E to the Company's transfer agent on the day that the Underlying
Securities Registration Statement is declared effective. In the event the
legend referenced above is required pursuant to this Section 3.1(b) at the
time of the initial issuance of Underlying Shares, the Company agrees that
it will provide each Purchaser, upon request, with a certificate or
certificates representing Underlying Shares, free from such legend at such
time as such legend is no longer required hereunder. The Company may not
make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in this
Section 3.1(b).
3.2 Acknowledgement of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further
acknowledges that its obligation to issue Underlying Shares in accordance
with the terms of the Debentures and the Warrants is unconditional and
absolute regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act. If at any time prior to the
date on which the Purchasers may resell all of their Underlying Shares
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act (as determined by counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the
Company's transfer agent for the benefit of and enforceable by the
Purchasers) the Company is not required to file reports pursuant to such
sections, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) promulgated under the Securities
Act annual and quarterly financial statements, together with a discussion
and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act
in the time period that such filings would have been required to have been
made under the Exchange Act. The Company further covenants that it will
take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person
to sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this
Section. Upon the request of any such Person, the Company shall deliver to
such Person a written certification of a duly authorized officer as to
whether it has complied with such requirements.
3.4 Use of Disclosure Materials. The Company consents to the use of
the Disclosure Materials and any information provided by or on behalf of
the Company pursuant to Section 3.3, and any amendments and supplements
thereto, in connection with resales of the Securities other than pursuant
to an effective registration statement.
<PAGE>
3.5 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the
securities or Blue Sky laws of such jurisdictions as the Purchasers may
request and shall continue such qualification at all times until the
Purchasers notify the Company in writing that they no longer own
Securities; provided, however, that neither the Company nor its
Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any
action that would subject the Company to general service of process in any
such jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated with the offer
or sale of the Securities in a manner that would require the registration
under the Securities Act of the offer, issue or sale of the Securities to
the Purchasers.
3.7 Increase in Authorized Shares. At such time as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting 125% of the full
outstanding principal amount of Debentures (and paying any accrued but
unpaid interest in respect thereof in shares of Common Stock) that remain
unconverted at such date or (b) honoring the exercise in full of the
Warrants due to the unavailability of a sufficient number of shares of
authorized but unissued or re-acquired Common Stock, the Board of Directors
of the Company shall promptly (and in any case within 30 Business Days from
such date) prepare and mail to the shareholders of the Company proxy
materials requesting authorization to amend the Company's restated
certificate of incorporation to increase the number of shares of Common
Stock which the Company is authorized to issue to at least such number of
shares as reasonably requested by the Purchasers in order to provide for
such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its conversion, exercise and reservation of shares
obligations as set forth in this Agreement, the Debentures and the
Warrants. In connection therewith, the Board of Directors shall (a) adopt
proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain stockholder
approval to carry out such resolutions (and hold a special meeting of the
shareholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 Business Days of
obtaining such shareholder authorization, file an appropriate amendment to
the Company's certificate of incorporation to evidence such increase.
3.8 Purchasers Ownership of Common Stock. Each Purchaser agrees not
to convert Debentures or exercise its Warrants to the extent such
conversion or exercise would result in it beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the
rules thereunder) in excess of 4.999% of the then issued and outstanding
shares of Common Stock, including shares issuable upon conversion of the
Debentures held by it after application of this Section. To the extent
that the limitation contained in this Section applies, the determination of
whether Debentures are convertible (in relation to other securities owned
by a Purchaser) and of which portion of the principal amount of such
Debentures are convertible shall be in the sole discretion of such
Purchaser, and the submission of Debentures for conversion shall be deemed
to be such Purchaser's determination of whether such Debentures are
convertible (in relation to other securities owned by a Purchaser) and of
which portion of such Debentures are convertible, in each case subject to
such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a
Purchaser to convert Debentures at such time as such conversion will not
violate the provisions of this Section. The provisions of this Section may
be waived by the Purchaser upon not less than 75 days prior notice to the
Company, and the provisions of this Section shall continue to apply until
such 75th day (or later, if stated in the notice of waiver). The
provisions of this Section shall not apply upon any conversion pursuant to
Section 4(a)(ii) of the Debentures.
<PAGE>
3.9 Listing and Reservation of Underlying Shares. (a) The Company
shall (i) not later than the fifth Business Day following the Closing Date,
prepare and file with the Nasdaq SmallCap Market (as well as any other
national securities exchange or market on which the Common Stock is then
listed, including the Vancouver Stock Exchange) an additional shares
listing application covering at least the sum of (A) two times the number
of Underlying Shares as would be issuable upon a conversion in full of the
Debentures, assuming such conversion occurred on the Original Issue Date,
(B) the number of Underlying Shares required to pay interest in respect of
the Debentures in stock, assuming all such interest is paid in shares of
Common Stock, and (C) the number of Underlying Shares issuable upon
exercise in full of the Warrants, (ii) take all steps necessary to cause
the such shares to be approved for listing on such exchanges and markets as
soon as possible thereafter, and (iii) provide to the Purchaser evidence of
such listing, and the Company shall maintain the listing of its Common
Stock on such exchange or market. The Company shall prepare and file all
documentation necessary to satisfy the requirements of any stock exchange
in connection with the transactions contemplated hereby and the Purchasers
shall execute and deliver such documents as are reasonably required by such
exchanges to be provided.
(b) The Company shall maintain a reserve of Common Stock for the
issuance upon conversion of Debentures (and for payment of interest
thereon) and upon exercise of the Warrants in such amount as to enable the
Company to perform its obligations in full under the Transaction Documents,
which reserve shall include a number of shares of Common Stock equal to not
less than two times the number of shares of Common Stock as would be
issuable upon the conversion in full of the Debentures and interest
thereon, assuming such conversion occurred on the Original Issue Date
(subject to increase as required).
3.10 Conversion Procedures. Exhibit E sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be reasonably
necessary to enable the Purchaser to exercise its right of conversion
smoothly and expeditiously.
3.11 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital and to pay down,
extinguish and redeem not more than $1,750,000 (plus interest thereon not
to exceed $149,450) the Company's indebtedness. The parties hereto agree
that such amount shall be paid at the Closing from the net proceeds
otherwise payable to the Company from the sale of Securities hereunder in
accordance with the letter from Weil, Gotshal & Manges LLP, dated March 31,
1998.
3.12 Notice of Breaches. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date
hereof, which would reasonably be likely to cause any representation or
warranty or other agreement of such party, as the case may be, contained in
the Transaction Document to be incorrect or breached as of such Closing
Date. However, no disclosure by either party pursuant to this Section
shall be deemed to cure any breach of any representation, warranty or other
agreement contained in any Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchasers of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between
such lender and the Company, and the Company shall promptly furnish by
facsimile to the holders of the Debentures a copy of any written statement
in support of or relating to such claim or notice.
3.13 Conversion Obligations of the Company. The Company shall honor
conversions of the Debentures and exercises of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms and
conditions and time periods set forth in the Debentures and the Warrants.
<PAGE>
3.14 Right of First Refusal; Subsequent Registrations; Certain
Corporate Actions. (a) The Company shall not, directly or indirectly,
without the prior written consent of Encore Capital Management, L.L.C.
("Encore"), offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire
Common Stock at any time over the life of the security or investment at a
price that is less than the market price of the Common Stock at the time of
issuance of such security or investment (a "Subsequent Financing") for a
period of 180 days after the Closing Date, except (i) the granting of
options or warrants to employees, officers and directors, and the issuance
of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares issued
upon exercise of any currently outstanding warrants and upon conversion of
any currently outstanding convertible preferred stock in each case
disclosed in Schedule 3.1(c), (iii) shares of Common Stock issued upon
conversion of Debentures, as payment of interest thereon, or upon exercise
of the Warrants in accordance with their respective terms and (iv) shares
of Common Stock issued in an underwritten secondary offering of the
Company's securities on behalf of the Company (as opposed to stockholders
thereof), unless (A) the Company delivers to Encore a written notice (the
"Subsequent Financing Notice") of its intention effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing shall be affected, and attached to which shall be a
term sheet or similar document relating thereto and (B) Encore shall not
have notified the Company by 5:00 p.m. (New York City time) on the
fifteenth (15th) Trading Day after its receipt of the Subsequent Financing
Notice of its willingness to cause either or both of the Purchasers to
provide (or to cause its sole designee to provide), subject to completion
of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice. If
Encore shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Financing substantially upon the terms and to the Persons (or Affiliates of
such Persons) set forth in the Subsequent Financing Notice; provided, that
the Company shall provide Encore with a second Subsequent Financing Notice,
and Encore shall again have the right of first refusal set forth above in
this paragraph (a), if the Subsequent Financing subject to the initial
Subsequent Financing Notice shall not have been consummated for any reason
on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice
with the Person (or an Affiliate of such Person) identified in the
Subsequent Financing Notice.
(b) Except for Underlying Shares and other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement)
to be registered in accordance with the Registration Rights Agreement, and
other than Company securities to be registered for resale in connection
with financings permitted pursuant to paragraph (a)(i) through (iii) of
this Section (other than the registration of securities on behalf of
investment consultants of the Company), the Company shall not, without the
prior written consent of the Purchasers, (i) issue or sell any of its or
any of its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for a period of not less than 90
Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that a
Purchaser is unable to sell Underlying Shares under the Underlying
Securities Registration Statement shall be added to such 90 Trading Day
period for the purposes of (i) and (ii) above.
(c) As long as there are Debentures outstanding, the
Company shall not and shall cause the Subsidiaries not to, without the
consent of the holders of the Debentures, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect
any rights of the holders of Debentures; (ii) except as and to the extent
permitted pursuant to Section 3.11, repay, repurchase or offer to repay,
repurchase or otherwise acquire shares of its Common Stock other than as to
the Underlying Shares; or (iii) enter into any agreement with respect to
any of the foregoing.
<PAGE>
3.15 Transfer of Intellectual Property Rights. Except in connection
with the sale of all or substantially all of the assets of the Company that
are covered under the Debentures, the Company shall not transfer, sell or
otherwise dispose of, any Intellectual Property Rights, or allow the
Intellectual Property Rights to become subject to any Liens, or fail to
renew such Intellectual Property Rights (if renewable and would otherwise
expire), without the prior written consent of the Purchasers.
3.16 Certain Securities Laws Disclosures; Publicity. The Company
shall timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the
Securities Act and provide a copy thereof to the Purchasers promptly after
the filing thereof. The Company shall file with the Commission (i) a press
release acceptable to the Purchasers disclosing the transactions
contemplated hereby within three (3) Business Days after the Closing Date
and (ii) a Report on Form 6-K disclosing this Agreement and the
transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. The Company shall pay the Purchasers at
the Closing $15,000 for their legal fees and disbursements in connection
with the preparation and negotiation of the Transaction Documents. Other
than the amounts contemplated by the immediately preceding sentence, and
except as set forth in the Registration Rights Agreement, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of the Debentures pursuant hereto.
The Purchasers shall be responsible for their own respective tax liability
that may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Debentures and the Warrants contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 7:00 p.m. (New York City time) on a Business Day, (ii) the Business Day
after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 7:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
<PAGE>
If to the Company: National Healthcare Manufacturing Corporation
251 Saulteaux Crescent
Winnepeg, Manitoba R3J 3C7
Facsimile No.: (204) 897-8366
Attn: Chief Financial Officer
With copies to: Donald J. Stoecklein, Esq.
1850 E. Flamingo Road, Suite 111
Las Vegas, Nevada 89119
Facsimile No.: (702) 794-0744
If to JNC: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive
either Purchaser): Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchasers; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or require
ment of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
<PAGE>
4.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the
Purchasers. Except as set forth in Section 3.1(a), a Purchaser may assign
this Agreement or any rights or obligations hereunder without the prior
written consent of the Company. The assignment by a party of this
Agreement or any rights hereunder shall not affect the obligations of such
party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns and, other than with respect to Encore, who is an
intended beneficiary of the provisions of Section 3.14 entitled to enforce
such provisions against the parties hereto, and permitted assignees under
Section 4.6, is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
4.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect
as if such facsimile signature page were an original thereof.
4.11 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the
validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision which
shall be a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
4.12 Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law, in which
such case the disclosing party shall provide the other parties with prior
notice of such public statement. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of the Purchasers without the
prior written consent of the Purchasers, except to the extent required by
law, in which case the Company shall provide the Purchasers with prior
written notice of such public disclosure.
<PAGE>
4.13 Remedies. Each of the parties to this Agreement
acknowledges and agrees that the other party would be damaged irreparably
in the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties hereto agrees that the other party shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions of this Agreement in any action instituted in any
court of the United States of America or any state thereof having
jurisdiction over the parties to this Agreement and the matter, in addition
to any other remedy to which they may be entitled, at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed by their
respective authorized persons as of the date first indicated above.
NATIONAL HEALTHCARE MANUFACTURING
CORPORATION
By:/s/Mac Shahsavar
___________________________
JNC OPPORTUNITY FUND LTD.
By:/s/Neil Chau
___________________________
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:/s/Neil Chau
___________________________
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of March 31, 1998,
by and among National Healthcare Manufacturing Corporation (the "Company"),
JNC Opportunity Fund Ltd. ("JNC"), Diversified Strategies Fund, L.P.
("DSF"), and Robinson Silverman Pearce Aronsohn & Berman LLP (the "Escrow
Agent"). Each of JNC and DSF are sometimes referred to herein as a
"Purchaser" and collectively are the "Purchaser."
Recitals
A. Simultaneously with the execution of this Agreement, the
Company and the Purchasers have entered into a Convertible Debenture
Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"),
pursuant to which the Company is selling to the Purchasers certain 6%
Convertible Debentures Due March 31, 2000 (the "Debentures") and certain of
the Company's common stock purchase warrants (the "Warrants"). Capitalized
terms that are used and not otherwise defined in this Agreement that are
defined in the Purchase Agreement shall have the meaning set forth in the
Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant
to the terms of this Agreement with respect to the receipt and then
delivery of the Purchase Price (as described in Section 1.1 of the Purchase
Agreement) to be paid for the Debentures pursuant to Section 1.1 of the
Purchase Agreement less any amounts the Purchasers are to be reimbursed by
the Company under the Purchase Agreement (the "Purchase Price") and the
delivery of the Debentures and the Warrants, together with the Ancillary
Closing Documents (as defined below) and the Purchase Price, the
"Consideration").
C. Upon the closing of the transaction contemplated by the
Purchase Agreement (the "Closing") and the occurrence of an event described
in Section 2 below, the Escrow Agent shall cause the distribution of the
Consideration in accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Consideration.
a. Concurrently with the execution of this Agreement, each
Purchaser shall deposit with the Escrow Agent the portion of the Purchase
Price due for the Debentures and the Warrant to be purchased by it at the
Closing in accordance with Section 1.1(a)(ii) of the Purchase Agreement and
the Company shall deliver to the Escrow Agent the Debentures and the
Warrants, registered in the name of the appropriate Purchaser, in
accordance with Section 1.1(a)(ii) of the Purchasers Agreement and wiring
instructions for transfer of the Purchase Price by the Escrow Agent into an
account specified by the Company for such purpose. In addition, the
Purchaser and the Company shall deposit with the Escrow Agent all other
certificates and other documents required under the Purchase Agreement to
be delivered by them at the Closing (such certificates and other documents
being hereinafter referred to as the "Ancillary Closing Documents").
<PAGE>
(i) The Purchase Price shall be delivered by the
Purchasers to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Trust Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: National Healthcare Manufacturing Corporation
(10849-17)
(ii) The Debentures, Warrants and the Ancillary
Documents shall be delivered to the Escrow Agent at its address for notice
indicated in Section 5(a).
b. Until termination of this Agreement as set forth in
Section 2, all additional Consideration paid by or which becomes payable
between the Company and the Purchasers shall be deposited with the Escrow
Agent.
c. The Purchasers and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a) shall
be held in escrow in the Escrow Agent's interest bearing business account
until the Closing. After the Purchase Price has been received by the
Escrow Agent and all other conditions of Closing are met, the parties
hereto hereby authorize and instruct the Escrow Agent to promptly effect
the Closing.
d. At the Closing, Escrow Agent is authorized and directed
to deduct from the Purchase Price (i) $337,500 which will be paid to CDC
Consulting, Inc. ("CDC") in accordance with the engagement letter between
the Company and CDC to the transactions contemplated by the Purchase
Agreement (the "Engagement Letter"), for remittance to CDC in accordance
with its instructions, (ii) $15,000 which will be retained by the Escrow
Agent in accordance with the Purchase Agreement and (iii) $1,899,450 to be
remitted in accordance with the letter from Weil, Gotshal & Manges LLP
(attached hereto) (the "October Financing Redemption Letter"). In
addition, the portion of the Purchase Price released to the Company
hereunder shall be reduced by all wire transfer fees incurred thereupon.
2. Terms of Escrow.
a. The Escrow Agent shall hold the Consideration in escrow
until the earlier to occur of (i) the receipt by the Escrow Agent of the
Purchase Price, the Debentures, the Warrants and the Ancillary Closing
Documents and a writing instructing the Closing and (ii) the receipt by the
Escrow Agent of a written notice, executed by the Company or the
Purchasers, stating that the Purchase Agreement has been terminated in
accordance with its terms and instructing the Escrow Agent with respect to
the Purchase Price, the Debentures, the Warrants and the Ancillary Closing
Documents.
b. If the Escrow Agent receives the items referenced in
clause (i) of Section 2(a) prior to its receipt of the notice referenced in
clause (ii) of Section 2(a), then, promptly thereafter, the Escrow Agent
shall deliver (i) the Debentures, the Warrants, any interest earned on
account of the Purchase Price through the Closing and the amounts payable
to the Purchasers pursuant to Section 1(d) on the Consideration to the
Purchasers entitled to the same, (ii) the Purchase Price (net of amounts
described under Section 1(d)) to the Company, (iii) the amounts payable to
CDC under the Engagement Letter to CDC or in accordance with its
instructions, (iv) $1,899,450 in accordance with the October Financing
Redemption Letter, and (v) the Ancillary Closing Documents to the party
entitled to receive the same. In addition, the Escrow Agent shall retain
$15,000 of the Purchase Price on account of its fees pursuant to the
Purchase Agreement.
c. If the Escrow Agent receives the notice referenced in
clause (ii) of Section 2(a) prior to its receipt of the items referenced in
clause (i) of Section 2(a), then the Escrow Agent shall promptly upon
receipt of such notice return (i) the Purchase Price (together with any
interest earned thereon through such date) to the Purchasers, (ii) the
Debentures and Warrants to the Company and (iii) the Ancillary Closing
Documents to the party that delivered the same.
<PAGE>
d. If the Escrow Agent, prior to delivering or causing to
be delivered the Consideration in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the
provisions of this Agreement, the Escrow Agent shall continue to hold the
Consideration until such time as the Escrow Agent shall receive (i) written
instructions jointly executed by the Purchasers and the Company, directing
distribution of such Consideration, or (ii) a certified copy of a judgment,
order or decree of a court of competent jurisdiction, final beyond the
right of appeal, directing the Escrow Agent to distribute said
Consideration to any party hereto or as such judgment, order or decree
shall otherwise specify (including any such order directing the Escrow
Agent to deposit the Consideration into the court rendering such order,
pending determination of any dispute between any of the parties). In
addition, the Escrow Agent shall have the right to deposit any of the
Consideration with a court of competent jurisdiction pursuant to Section
1006 of the New York Civil Practice Law and Rules without liability to any
party if said dispute is not resolved within 30 days of receipt of any such
notice of objection, dispute or otherwise.
3. Duties and Obligations of the Escrow Agent.
a. The parties hereto agree that the duties and
obligations of the Escrow Agent are only such as are herein specifically
provided and no other. The Escrow Agent's duties are as a depositary only,
and the Escrow Agent shall incur no liability whatsoever, except as a
direct result of its willful misconduct.
b. The Escrow Agent may consult with counsel of its
choice, and shall not be liable for any action taken, suffered or omitted
by it in accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by the
terms of any other agreement to which the Purchasers and the Company are
parties, whether or not it has knowledge thereof, and the Escrow Agent
shall not in any way be required to determine whether or not any other
agreement has been complied with by the Purchasers and the Company, or any
other party thereto. The Escrow Agent shall not be bound by any
modification, amendment, termination, cancellation, rescission or
supersession of this Agreement unless the same shall be in writing and
signed by each of the Purchasers and the Company, and agreed to in writing
by the Escrow Agent.
d. In the event that the Escrow Agent shall be uncertain
as to its duties or rights hereunder or shall receive instructions, claims
or demands which, in its opinion, are in conflict with any of the
provisions of this Agreement, it shall be entitled to refrain from taking
any action, other than to keep safely, all Considerations held in escrow
until it shall jointly be directed otherwise in writing by the Purchasers
and the Company or by a final judgment of a court of competent
jurisdiction.
e. The Escrow Agent shall be fully protected in relying
upon any written notice, demand, certificate or document which it, in good
faith, believes to be genuine. The Escrow Agent shall not be responsible
for the sufficiency or accuracy of the form, execution, validity or
genuineness of documents or securities now or hereafter deposited
hereunder, or of any endorsement thereon, or for any lack of endorsement
thereon, or for any description therein; nor shall the Escrow Agent be
responsible or liable in any respect on account of the identity, authority
or rights of the persons executing or delivering or purporting to execute
or deliver any such document, security or endorsement.
f. The Escrow Agent shall not be required to institute
legal proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
<PAGE>
g. If the Escrow Agent at any time, in its sole
discretion, deems it necessary or advisable to relinquish custody of the
Consideration, it may do so by giving five (5) days written notice to the
parties of its intention and thereafter delivering the consideration to any
other escrow agent mutually agreeable to the Purchasers and the Company
and, if no such escrow agent shall be selected within three days of the
Escrow Agent's notification to the Purchasers and the Company of its desire
to so relinquish custody of the Consideration, then the Escrow Agent may do
so by delivering the Consideration (a) to any bank or trust company in the
Borough of Manhattan, City and State of New York, which is willing to act
as escrow agent thereunder in place and instead of the Escrow Agent, or (b)
to the clerk or other proper officer of a court of competent jurisdiction
as may be permitted by law within the State, County and City of New York.
The fee of any such bank or trust company or court officer shall be borne
one-half by the Purchasers and one-half by the Company. Upon such
delivery, the Escrow Agent shall be discharged from any and all
responsibility or liability with respect to the Consideration and the
Company and the Purchasers shall promptly pay to the Escrow Agent all
monies which may be owed it for its services hereunder, including, but not
limited to, reimbursement of its out-of-pocket expenses pursuant to
paragraph (i) below.
h. This Agreement shall not create any fiduciary duty on
the Escrow Agent's part to the Purchasers or the Company, nor disqualify
the Escrow Agent from representing either party hereto in any dispute with
the other, including any dispute with respect to the Consideration. The
Company understands that the Escrow Agent has acted and will continue to
act as counsel to the Purchasers.
i. The reasonable out-of-pocket expenses paid or incurred
by the Escrow Agent in the administration of its duties hereunder,
including, but not limited to, all counsel and advisors' and agents' fees
and all taxes or other governmental charges, if any, shall be paid by one-
half by the Purchasers and one-half by the Company.
4. Indemnification. The Purchasers and the Company, jointly
and severally, hereby indemnify and hold the Escrow Agent, its employees,
partners, members and representatives harmless from and against any and all
losses, damages, taxes, liabilities and expenses that may be incurred,
directly or indirectly, by the Escrow Agent and/or any such person, arising
out of or in connection with its acceptance of appointment as the Escrow
Agent hereunder and/or the performance of its duties pursuant to this
Agreement, including, but not limited to, all legal costs and expenses of
the Escrow Agent and any such person incurred defending itself against any
claim or liability in connection with its performance hereunder and the
costs of recovery of amounts pursuant to this Section 4.
5. Miscellaneous.
a. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto,
and shall be deemed to have been duly given when (i) if delivered by hand,
upon receipt, (ii) if sent by facsimile, upon receipt of proof of sending
thereof, (iii) if sent by nationally recognized overnight delivery service
(receipt requested), the next business day or (iv) if mailed by first-class
registered or certified mail, return receipt requested, postage prepaid,
four days after posting in the U.S. mails, in each case if delivered to the
following addresses:
<PAGE>
If to the Company: National Healthcare Manufacturing Corporation
251 Saulteaux Crescent
Winnepeg, Manitoba R3J 3C7
Facsimile No.: (204) 897-8366
Attn: Chief Financial Officer
With copies to: Donald J. Stoecklein, Esq.
1850 E. Flamingo Road, Suite 111
Las Vegas, Nevada 89119
Facsimile No.: (702) 794-0744
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Encore Capital Management, L.L.C.
(for communications 12007 Sunrise Valley Drive, Suite 460
to either Purchasers) Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
If to the Escrow Agent Robinson Silverman Pearce Aronsohn &
(the Escrow Agent shall Berman LLP
receive copies of all 1290 Avenue of the Americas
communications under New York, NY 10104
this Agreement) Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or at such other address as any of the parties to this Agreement may
hereafter designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in
accordance with the law of the State of New York applicable to contracts
entered into and performed entirely within New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
NATIONAL HEALTHCARE
MANUFACTURING CORPORATION
By:/s/Mac Shahsavar
___________________________
JNC OPPORTUNITY FUND LTD.
By:/s/Neil Chau
___________________________
DIVERSIFIED STRATEGIES FUND, L.P.
By:Encore Capital Management, L.L.C.
By:/s/Neil Chau
___________________________
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By:/s/Eric Cohen
___________________________
A Member of the Firm
<PAGE>
EXHIBIT C
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE AND THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH
COLUMBIA, CANADA, UNTIL MIDNIGHT ON JULY 30, 1998, EXCEPT AS PERMITTED BY
THE SECURITIES ACT (BRITISH COLUMBIA) OR THE REGULATIONS OR RULES MADE
THEREUNDER.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET
FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED
AS OF MARCH 31, 1998, BETWEEN NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
No. B-1 U.S. $250,000
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
6% CONVERTIBLE DEBENTURE MARCH 31, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures
of National Healthcare Manufacturing Corporation, a corporation organized
under the laws of the Manitoba, Canada and having a principal place of
business at 251 Saulteaux Crescent, Winnipeg, Manitoba R3J 3C7 (the
"Company"), designated as its 6% Convertible Debentures, due March 31, 2000
(the "Debentures"), in an aggregate principal amount of $250,000.
FOR VALUE RECEIVED, the Company promises to pay to Diversified
Strategies Fund, Ltd., or registered assigns (the "Holder"), the principal
sum of Two Hundred and Fifty Thousand Dollars ($250,000), on or prior to
March 31, 2000 or such earlier date as the Debentures are required to be
repaid as provided hereunder (the "Maturity Date") and to pay interest to
the Holder on the principal sum at the rate of 6% per annum, payable
quarterly in arrears commencing June 30, 1998, but in no event later than
the earlier to occur of a Conversion Date (as defined in Section 4(a)(i))
for such principal amount or the Maturity Date. Interest shall accrue
daily commencing on the Original Issue Date (as defined in Section 6) until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for the
actual number of days elapsed. Interest hereunder will be paid to the
Person (as defined in Section 6) in whose name this Debenture (or one or
more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum (to accrue
daily) from the date such interest is due hereunder through and including
the date of payment. The principal of, and interest on, this Debenture are
payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, at
the address of the Holder last appearing on the Debenture Register, except
that interest due on the principal amount (but not overdue interest) may,
at the Company's option, be paid in shares of Common Stock (as defined in
Section 6) calculated based upon the Conversion Price (as defined below) on
the date such interest was due. All amounts due hereunder other than such
<PAGE>
interest shall be paid in cash. Notwithstanding anything to the contrary
contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all
purposes, or held as treasury stock, is insufficient to pay interest
hereunder in shares of Common Stock; (ii) such shares are not either
registered for resale pursuant to an Underlying Securities Registration
Statement (as defined in Section 6) or freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the U.S. Securities
Act of 1933, as amended (the "Securities Act"), as determined by counsel to
the Company pursuant to a written opinion letter addressed and in form and
substance acceptable to the Holder and the transfer agent for such shares;
(iii) such shares are not listed or quoted on the Nasdaq SmallCap Market
(or the Nasdaq National Market, the American Stock Exchange or the New York
Stock Exchange) and any other exchange or market on which the Common Stock
is then listed or quoted; or (iv) the issuance of such shares would result
in the recipient thereof beneficially owning more than 4.999% of the issued
and outstanding shares of Common Stock as determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
Unless otherwise specified, all references herein to dollars or $
shall be to U.S. dollars (U.S.$).
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for
such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement. Prior to due presentment to the Company for transfer
of this Debenture, the Company and any agent of the Company may treat the
person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, a
Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been
remedied within 10 days after the date on which notice of such failure
or breach shall have been given;
(iii) the Company or any of its subsidiaries that represent
greater than 5% of the Company's gross sales or assets shall commence,
or there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
<PAGE>
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 60 days; or the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
or any subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or
any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall be delisted from the Nasdaq SmallCap
Market or any other national securities exchange or market on which
such Common Stock is listed for trading or suspended from trading
thereon without resuming trading and/or being relisted (as the case
may be) thereon or on the Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange or having such suspension
lifted, as the case may be, within three (3) days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or,
if the Company is the surviving entity, the Company shall issue or
sell to another Person, or group thereof, in excess of 50% of the
Common Stock) or shall dispose of in excess of 50% of its assets in
one or more transactions, or shall redeem more than a de minimis
number of shares of Common Stock (other than redemptions of Underlying
Shares);
(vii) an Underlying Securities Registration Statement shall
not have been declared effective by the Securities and Exchange
Commission (the "Commission") on or prior to the 180th day after the
Original Issue Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as hereinafter defined) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the Effective Date (as defined in the
Registration Rights Agreement); or
(ix) the Company shall fail to deliver certificates to the Holder
prior to the 15th day after the Conversion Date pursuant to Section
4(b).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other
amounts owing in respect thereof, to the date of acceleration, to be, shall
become, immediately due and payable in cash. The aggregate amount payable
upon an Event of Default in respect of the Debentures shall be equal to the
sum of (i) the Mandatory Prepayment Amount plus (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions or as payment
of interest hereunder and then held by the Holder and (B) the Per Share
<PAGE>
Market Value on the date prepayment is demanded or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on
the prepayment amount hereunder from the seventh day after such amount is
due (being the date of an Event of Default) through the payment in full
thereof at the rate of 15% per annum. The Holder need not provide and the
Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration
may be rescinded and annulled by Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder in whole or in part at any time
and from time to time after the Original Issue Date. The number of shares
of Common Stock as shall be issuable upon a conversion hereunder shall be
determined by dividing the outstanding principal amount of this Debenture
and the accrued interest, if any, thereon to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below),
each as subject to adjustment as provided hereunder. The Holder shall
effect conversions by surrendering the Debentures (or such portions
thereof) to be converted, together with the form of conversion notice
attached hereto as Exhibit A (a "Conversion Notice") to the Company. Each
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which
date may not be prior to the date such Conversion Notice is deemed to have
been delivered hereunder (a "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date
that such Conversion Notice is deemed delivered hereunder. Subject to
Section 4(b) hereof and Section 3.8 of the Purchase Agreement, each
Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set
forth in Section 4(b)) a new Debenture for such principal amount as has not
been converted.
(ii) Automatic Conversion. Subject to the provisions in this
paragraph, the principal amount of Debentures for which conversion notices
have not previously been received or for which prepayment has not been or
required hereunder shall be automatically converted on the second
anniversary of the Original Issue Date at the Conversion Price on such
date; provided, that, for such purposes the Floor will have no effect. The
conversion contemplated by this paragraph shall not occur if (a) either (1)
an Underlying Securities Registration Statement is not then effective that
names the Holder as a selling stockholder thereunder or (2) the Holder is
permitted to resell Underlying Shares pursuant to Rule 144(k) promulgated
under the Securities Act, without volume restrictions, as evidenced by an
opinion letter of counsel to the Company and acceptable to the Holder and
the transfer agent for the Common Stock; (b) there are not sufficient
shares of Common Stock authorized and reserved for issuance upon such
conversion; and (c) the Company shall not have defaulted on its covenants
and obligations hereunder or under the Purchase Agreement or Registration
Rights Agreement. Further, the principal amount of Debentures that are
subject to conversion pursuant to this section shall be limited to the
number of Underlying Shares which may be issued upon such conversion at the
prevailing Conversion Price in accordance with Rule 4460(i) promulgated
under the Rules of the Nasdaq Stock Market. Any portion of the principal
amount of the Debentures which cannot be converted at the then Conversion
Price as a result of such rule shall be subject to the provisions of
Section 4(a)(iii).
(iii) Certain Regulatory Approval. If on any Conversion Date
(A) the Common Stock is listed for trading on the Nasdaq National Market or
the Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such
that the aggregate number of shares of Common Stock that would then be
issuable upon conversion in full of the aggregate principal amount of all
then outstanding Debentures, together with any shares of the Common Stock
previously issued upon conversion of Debentures and as payment of interest
thereon, would equal or exceed 20% of the number of shares of the Common
Stock outstanding on the Original Issue Date (such number of shares as
would not equal or exceed such 20% limit, the "Issuable Maximum"), and (C)
the Company shall not have previously obtained the vote of shareholders
<PAGE>
(the "Shareholder Approval"), if any, as may be required by the rules and
regulations of The Nasdaq Stock Market applicable to approve the issuance
of Common Stock in excess of the Issuable Maximum in a private placement
whereby shares of Common Stock are deemed to have been issued at a price
that is less than the greater of book or fair market value of the Common
Stock, then the Company shall issue to the Holder so requesting a
conversion a number of shares of Common Stock equal to the Issuable Maximum
and, with respect to the remainder of the principal amount of Debentures
then held by such Holder for which a conversion in accordance with the
Conversion Price would result in an issuance of Common Stock in excess of
the Issuable Maximum, the converting Holder shall have the option to
require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible,
but in any event not later than the 60th day after such request, or (2)(i)
issue and deliver to such Holder a number of shares of Common Stock as
equals (x) the principal amount of Debentures tendered for conversion in
respect of the Conversion Notice at issue but for which a conversion in
accordance with the other terms hereof would result in an issuance of
Common Stock in excess of the Issuable Maximum, divided by (y) the Initial
Conversion Price (as defined below), and (ii) cash in an amount equal to
the product of (x) the Per Share Market Value on the Conversion Date and
(y) the number of shares of Common Stock in excess of such Holder's pro
rata portion of the Issuable Maximum that would have otherwise been
issuable to the Holder in respect of such conversion but for the provisions
of this Section (such amount of cash being hereinafter referred to as the
"Discount Equivalent"), or (3) pay cash to the converting Holder in an
amount equal to the Mandatory Prepayment Amount for the number of
Underlying Shares in or issuable upon such conversion is excess of the
Issuable Maximum. If the Company fails to pay the Discount Equivalent or
the Mandatory Prepayment Amount, as the case may be, in full pursuant to
this Section within seven (7) days after the date payable, the Company will
pay interest thereon at a rate of 15% per annum to the converting holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full.
(b) (i) Not later than three Trading Days after the Conversion
Date, the Company will deliver or cause to be delivered to the Holder (i) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of the Common Stock
being acquired upon the conversion of Debentures (subject to reduction
pursuant to Section 3.8 of the Purchase Agreement), (ii) Debentures in a
principal amount equal to the principal amount of Debentures not converted;
(iii) a bank check in the amount of all accrued and unpaid interest (if the
Company has elected to pay accrued interest in cash), together with all
other amounts then due and payable in accordance with the terms hereof, in
respect of Debentures tendered for conversion, and (iv) if the Company has
elected and is permitted hereunder to pay accrued interest in shares of the
Common Stock, certificates, which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the Common Stock
as equals such interest divided by the Conversion Price calculated on the
Conversion Date; provided, however, that the Company shall not be obligated
to issue certificates evidencing the shares of the Common Stock issuable
upon conversion of the principal amount of Debentures until Debentures are
delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and
complies with Section 9 hereof. If in the case of any Conversion Notice
such certificate or certificates, including for purposes hereof, any shares
of the Common Stock to be issued on the Conversion Date on account of
accrued but unpaid interest hereunder, are not delivered to or as directed
by the Holder by the fourth Trading Day after a Conversion Date, the Holder
shall be entitled by written notice to the Company at any time on or before
its receipt of such certificate or certificates thereafter, to rescind such
conversion (whether subject to a Holder or a Company Conversion Notice), in
which event the Company shall immediately return the Debentures tendered
for conversion. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, prior
to the fourth Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, $1,500
for each day thereafter until the Company delivers such certificates (such
amount shall be also be due for each Trading Day after the date that the
Holder may rescind such conversion until such date as the Holder shall have
received the return of the principal amount of Debentures relating to such
rescission).
(ii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of
Common Stock to be issued on the Conversion Date on account of accrued but
<PAGE>
unpaid interest hereunder, prior to the fourth Trading Day after the
Conversion Date, and if after such the fourth Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion (a "Buy-
In"), then the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the aggregate principal
amount of Debentures for which such conversion was not timely honored. For
example, if the Holder purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 aggregate principal amount of Debentures, the Company
shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In. If the Company fails to deliver to the Holder such
certificate or certificates in accordance with this Section 5(b)(iii) prior
to the 12th day after the Conversion Date or if the Company shall fail for
any reason to pay any amounts due in respect of a Buy-In within seven days
after notice thereof is deemed delivered hereunder, then the Company shall,
upon notice from the Holder, repay the aggregate principal amount of
Debentures then held by such Holder, as requested by such Holder, at a
price equal to the Mandatory Prepayment Amount, in cash. If any portion of
the Mandatory Prepayment Amount pursuant to this Section is not paid within
seven days after notice therefor is deemed delivered hereunder, the Company
will pay interest on the Mandatory Prepayment Amount at a rate of 15% per
annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest
thereon, is paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect
on any Conversion Date shall be the lesser of (A) $3.50 (the "Initial
Conversion Price") and (B) .85 multiplied by the Average Price immediately
preceding the Conversion Date; provided, that, except as specified herein,
the Conversion Price shall not be less than the "Floor" (as defined in
Section 6), provided, that, if (a) an Underlying Securities Registration
Statement is not filed on or prior to the 30th business day after the
Original Issue Date, (for purposes hereof, in the event the Company files
such Underlying Securities Registration Statement without complying with
the requirements of Section 3(a) of the Registration Rights Agreement,
then such filing shall not be deemed to have occurred) or (b) the Company
fails to file with the Commission a request for acceleration in accordance
with Rule 12d1-2 promulgated under the Securities Exchange Act of 1934, as
amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed" or is
not subject to further review or comment by the Commission, or (c) the
Underlying Securities Registration Statement is not declared effective by
the Commission on or prior to the Effective Date (as defined under the
Registration Rights Agreement), or (d) such Underlying Securities
Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement)
at any time prior to the expiration of the "Effectiveness Period" (as such
term as defined in the Registration Rights Agreement), without being
succeeded by a subsequent Underlying Securities Registration Statement
filed with and declared effective by the Commission within ten (10) days,
or (e) if trading in the Common Stock shall be suspended for more than
three (3) Trading Days, or (f) the conversion rights of the Holders of
Debentures are suspended for any reason or if the Holder is not permitted
to resell Registrable Securities under the Underlying Securities
Registration Statement, or (g) an amendment to the Underlying Securities
Registration Statement is not filed by the Company with the Commission
within ten (10) days of the Commission's notifying the Company that such
amendment is required in order for the Underlying Securities Registration
Statement to be declared effective (any such failure being referred to as
an "Event," and for purposes of clauses (a), (c) and (f) the date on which
such Event occurs, or for purposes of clause (b) the date on which such
five (5) day period is exceeded, or for purposes of clauses (d) and (g) the
date which such ten (10) day period is exceeded, or for purposes of clause
(e) the date on which such three (3) day period is exceeded, being referred
to as "Event Date"), the Conversion Price shall be decreased by 1% on the
Event Date and each monthly anniversary thereof until the earlier to occur
of the second month anniversary after the Event Date and such time as the
applicable Event is cured (i.e., the Conversion Price would decrease by 1%
as of the Event Date and 2% as of the one month anniversary of such Event
Date). Commencing the second month anniversary after the Event Date, at
<PAGE>
the option of the Holder for each applicable monthly period either (a) the
Company shall pay to the Holder 1% of the product of the principal amount
of outstanding Debentures, in cash or (b) the Conversion Price shall be
decreased by 1% for each additional such month (to be effective in full on
the monthly applicable Event Date) as liquidated damages, and not as a
penalty on the first day of each monthly anniversary of the Event Date in
either case until such time as the applicable Event is cured. Any decrease
in the Conversion Price pursuant to this Section shall remain in effect
notwithstanding the fact that the Event causing such decrease has been
subsequently cured and further monthly decreases have ceased. The
provisions of this Section are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of the Common
Stock, (b) subdivide outstanding shares of the Common Stock into a larger
number of shares, (c) combine outstanding shares of the Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of the
Common Stock any shares of capital stock of the Company, the Initial
Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator
shall be the number of shares of the Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 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.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below,
the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of the Common
Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of
the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant
to purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in
the Initial Conversion Price made pursuant to the provisions of this
Section 4 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that number of shares of the Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not
to Holders of Debentures) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security, then in each such
case the Initial Conversion Price at which Debentures shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Per Share Market Value of the Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event
of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in
<PAGE>
interest of Debentures then outstanding; and provided, further, that the
Company, after receipt of the determination by such Appraiser shall have
the right to select an additional Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described
in a statement provided to the holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of the Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder of this
Debenture shall have the right thereafter to, at its option, (A) convert
the then outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of this
Debenture only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holders of
the Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to
such reclassification or share exchange would have been entitled or (B)
require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount
of Debentures, plus all interest and other amounts due and payable thereon,
at a price determined in accordance with Section 3(b). The entire
prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail
to each Holder of Debentures a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, 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, of
any compulsory share of exchange whereby the
Common Stock is 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;
<PAGE>
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Debentures, and shall cause
to be mailed to the Holders of Debentures at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice 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 Stock 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 Stock of record shall be entitled
to exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the Common
Stock solely for the purpose of issuance upon conversion of the Debentures
and payment of interest on the Debentures, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of
persons other than the Holders, not less than such number of shares of the
Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 4(c)) upon the conversion of the outstanding
principal amount of the Debentures and payment of interest hereunder. The
Company covenants that all shares of the Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of
the Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Per Share Market
Value at such time. If the Company elects not, or is unable, to make such
a cash payment, the holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock
on conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such tax
has been paid.
(g) Any and all notices or other communications or deliveries to
be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to the Company, at 251 Saulteaux Crescent, Winnepeg, Manitoba R3J 3C7
(facsimile number (204) 897-8366, attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 7:00 p.m. (New York City time), (ii) the date after the date of
<PAGE>
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by
nationally recognized overnight courier service, or (v) upon actual receipt
by the party to whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time
from and after the date that is 90 Trading Days after the date that an
Underlying Securities Registration Statement has been declared effective by
the Commission, upon thirty (30) Trading Days prior written notice to the
Holders of the Debentures to be prepaid (the "Optional Prepayment Notice"),
to prepay, from funds legally available therefor at the time of such
prepayment, all or any portion of the outstanding principal amount of the
Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to
the Optional Prepayment Price (as defined below). Any such prepayment by
the Company shall be in cash and shall be free of any claim of
subordination. The Holders shall have the right to tender, and the Company
shall honor, Conversion Notices delivered prior to the expiration of the
thirtieth (30th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date"). If the Underlying Securities Registration Statement shall have
been declared effective by the Commission and thereafter shall either be
suspended (or a Holder is prohibited from selling thereunder), the right of
the Company to prepay Debentures, under this Section shall not commence
until the Underlying Securities Registration Statement shall have been
effective, and the Holder permitted to sell thereunder, for 90 Trading
Days.
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional
Prepayment Price shall be increased by 15% per annum (to accrue daily)
until paid (which amount shall be paid as liquidated damages and not as a
penalty). In addition, if any portion of the optional Prepayment Price
remains unpaid through the expiration of the Optional Prepayment Date, the
Holder subject to such prepayment may elect by written notice to the
Company to either (i) demand conversion in accordance with the formula and
the time period therefor set forth in Section 4 of any portion of the
principal amount of Debentures for which the Optional Prepayment Price,
plus accrued liquidated damages thereof, has not been paid in full (the
"Unpaid Prepayment Principal Amount"), in which event the applicable Per
Share Market Value shall be the lower of the Per Share Market Value
calculated on the Optional Prepayment Date and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii) invalidate ab
initio such optional redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall
within three (3) Trading Days such election is deemed delivered hereunder
to the Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Amount subject to such conversion demand and otherwise
perform its obligations hereunder with respect thereto; or, if the Holder
elects option (ii) above, the Company shall promptly, and in any event not
later than three Trading Days from receipt of notice of such election,
return to the Holder new Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i) above, the Company
fails to deliver the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Principal Amount within the time period set forth in this
Section, the Company shall pay to the Holder in cash, as liquidated damages
and not as a penalty, $1,500 per day until the Company delivers such Common
Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall
equal the sum of (i) the principal amount of Debentures to be prepaid, plus
all accrued and unpaid interest thereon, divided by the Conversion Price on
(x) the Optional Prepayment Date or (y) the date the Optional Prepayment
Price is paid in full, whichever is less, multiplied by the Average Price
on (x) the Optional Prepayment Date or (y) the date the Optional Prepayment
Price is paid in full, whichever is greater, and (ii) all other amounts,
expenses, costs and liquidated damages due in respect of such principal
amount.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
<PAGE>
"Average Price" on any date means the average Per Share Market
Value for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the Company's Class A common stock, no par
value, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Floor" initially means $2.50, provided, that, the Floor shall be
reset if at any time after the Original Issue Date the rolling average
closing sales price per share of the Common Stock calculated on any date
shall be equal to or less than $2.50 for any 30 days. In such event, the
Floor shall be reset to 85% of such average closing sales price for such
period. Subsequent resets, if any, shall be based upon the then most
recent reset Floor.
"Mandatory Prepayment Amount" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x)
the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is less, multiplied
by the Average Price on (x) the date the Mandatory Prepayment Amount is
demanded or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance
of any Debentures regardless of the number of transfers of any Debenture
and regardless of the number of instruments which may be issued to evidence
such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap or Nasdaq National Market, as the case may be, or any other U.S.
stock exchange or quotation system on which the Common Stock is then listed
or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on the Nasdaq Small Cap or
Nasdaq National Market or any U.S. stock exchange or quotation system, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common Stock
is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share
of Common Stock as determined by an Appraiser selected in good faith by the
Holders of a majority of the aggregate principal amount of Debentures then
outstanding; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case, the fair market value shall be equal
to the average of the determinations by each such Appraiser; and provided,
further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
<PAGE>
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded
on the Nasdaq Stock Market or other U.S. stock exchange or market on which
the Common Stock has been listed, or (b) if the Common Stock is not listed
on the Nasdaq Stock Market or any U.S. stock exchange or market, a day on
which the Common Stock is traded on the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted
on the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices).
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with
the terms hereof.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering among other things the resale of
the Underlying Shares and naming the Holder as a "selling stockholder"
thereunder.
Section 7. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of the Company. This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein.
The Company may only voluntarily prepay the outstanding principal amount on
the Debentures in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the
extent converted into shares of Common Stock in accordance with the terms
hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft
or destruction of such Debenture, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect
to conflicts of laws thereof. The Company hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. The Company hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy
thereof sent to the Company at the address in effect for notices to it
under this instrument and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the
Holder to insist upon strict adherence to any term of this Debenture on one
or more occasions shall not be considered a waiver or deprive that party of
<PAGE>
the right thereafter to insist upon strict adherence to that term or any
other term of this Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and
circumstances.
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day (or, if such next succeeding Business
Day falls in the next calendar month, the preceding Business Day in the
appropriate calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed by a duly authorized officer as of the date first above
indicated.
NATIONAL HEALTHCARE MANUFACTURING
CORPORATION
By:/s/Mac Shahsavar
________________________________
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. B-1 into shares of
Class A Common Stock, no par value (the "Common Stock"), of NATIONAL
HEALTHCARE MANUFACTURING CORPORATION (the "Company") according to the
conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the
Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
<PAGE>
EXHIBIT D
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE AND THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH
COLUMBIA, CANADA, UNTIL MIDNIGHT ON JULY 30, 1998, EXCEPT AS PERMITTED BY
THE SECURITIES ACT (BRITISH COLUMBIA) OR THE REGULATIONS OR RULES MADE
THEREUNDER.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET
FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED
AS OF MARCH 31, 1998, BETWEEN NATIONAL HEALTHCARE MANUFACTURING CORPORATION
(THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
No. A-1 U.S. $500,000
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
6% CONVERTIBLE DEBENTURE MARCH 31, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures
of National Healthcare Manufacturing Corporation, a corporation organized
under the laws of the Manitoba, Canada and having a principal place of
business at 251 Saulteaux Crescent, Winnipeg, Manitoba R3J 3C7 (the
"Company"), designated as its 6% Convertible Debentures, due March 31, 2000
(the "Debentures"), in an aggregate principal amount of $6,500,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC Opportunity
Fund Ltd., or registered assigns (the "Holder"), the principal sum of Five
Hundred Thousand Dollars ($500,000), on or prior to March 31, 2000 or such
earlier date as the Debentures are required to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on the
principal sum at the rate of 6% per annum, payable quarterly in arrears
commencing June 30, 1998, but in no event later than the earlier to occur
of a Conversion Date (as defined in Section 4(a)(i)) for such principal
amount or the Maturity Date. Interest shall accrue daily commencing on the
Original Issue Date (as defined in Section 6) until payment in full of the
principal sum, together with all accrued and unpaid interest and other
amounts which may become due hereunder, has been made. Interest shall be
calculated on the basis of a 360-day year and for the actual number of days
elapsed. Interest hereunder will be paid to the Person (as defined in
Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register").
All overdue, accrued and unpaid interest and other amounts due hereunder
shall bear interest at the rate of 15% per annum (to accrue daily) from the
date such interest is due hereunder through and including the date of
payment. The principal of, and interest on, this Debenture are payable in
such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts, at the
address of the Holder last appearing on the Debenture Register, except that
interest due on the principal amount (but not overdue interest) may, at the
Company's option, be paid in shares of Common Stock (as defined in Section
6) calculated based upon the Conversion Price (as defined below) on the
date such interest was due. All amounts due hereunder other than such
interest shall be paid in cash. Notwithstanding anything to the contrary
contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
<PAGE>
Common Stock at the time authorized, unissued and unreserved for all
purposes, or held as treasury stock, is insufficient to pay interest
hereunder in shares of Common Stock; (ii) such shares are not either
registered for resale pursuant to an Underlying Securities Registration
Statement (as defined in Section 6) or freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the U.S. Securities
Act of 1933, as amended (the "Securities Act"), as determined by counsel to
the Company pursuant to a written opinion letter addressed and in form and
substance acceptable to the Holder and the transfer agent for such shares;
(iii) such shares are not listed or quoted on the Nasdaq SmallCap Market
(or the Nasdaq National Market, the American Stock Exchange or the New York
Stock Exchange) and any other exchange or market on which the Common Stock
is then listed or quoted; or (iv) the issuance of such shares would result
in the recipient thereof beneficially owning more than 4.999% of the issued
and outstanding shares of Common Stock as determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
Unless otherwise specified, all references herein to dollars or $
shall be to U.S. dollars (U.S.$).
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for
such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement. Prior to due presentment to the Company for transfer
of this Debenture, the Company and any agent of the Company may treat the
person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, a
Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been
remedied within 10 days after the date on which notice of such failure
or breach shall have been given;
(iii) the Company or any of its subsidiaries that represent
greater than 5% of the Company's gross sales or assets shall commence,
or there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 60 days; or the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
or any subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment for the
<PAGE>
benefit of creditors; or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or
any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall be delisted from the Nasdaq SmallCap
Market or any other national securities exchange or market on which
such Common Stock is listed for trading or suspended from trading
thereon without resuming trading and/or being relisted (as the case
may be) thereon or on the Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange or having such suspension
lifted, as the case may be, within three (3) days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or,
if the Company is the surviving entity, the Company shall issue or
sell to another Person, or group thereof, in excess of 50% of the
Common Stock) or shall dispose of in excess of 50% of its assets in
one or more transactions, or shall redeem more than a de minimis
number of shares of Common Stock (other than redemptions of Underlying
Shares);
(vii) an Underlying Securities Registration Statement shall
not have been declared effective by the Securities and Exchange
Commission (the "Commission") on or prior to the 180th day after the
Original Issue Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as hereinafter defined) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the Effective Date (as defined in the
Registration Rights Agreement); or
(ix) the Company shall fail to deliver certificates to the Holder
prior to the 15th day after the Conversion Date pursuant to Section
4(b).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other
amounts owing in respect thereof, to the date of acceleration, to be, shall
become, immediately due and payable in cash. The aggregate amount payable
upon an Event of Default in respect of the Debentures shall be equal to the
sum of (i) the Mandatory Prepayment Amount plus (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions or as payment
of interest hereunder and then held by the Holder and (B) the Per Share
Market Value on the date prepayment is demanded or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on
the prepayment amount hereunder from the seventh day after such amount is
due (being the date of an Event of Default) through the payment in full
thereof at the rate of 15% per annum. The Holder need not provide and the
<PAGE>
Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration
may be rescinded and annulled by Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder in whole or in part at any time
and from time to time after the Original Issue Date. The number of shares
of Common Stock as shall be issuable upon a conversion hereunder shall be
determined by dividing the outstanding principal amount of this Debenture
and the accrued interest, if any, thereon to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below),
each as subject to adjustment as provided hereunder. The Holder shall
effect conversions by surrendering the Debentures (or such portions
thereof) to be converted, together with the form of conversion notice
attached hereto as Exhibit A (a "Conversion Notice") to the Company. Each
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which
date may not be prior to the date such Conversion Notice is deemed to have
been delivered hereunder (a "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date
that such Conversion Notice is deemed delivered hereunder. Subject to
Section 4(b) hereof and Section 3.8 of the Purchase Agreement, each
Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set
forth in Section 4(b)) a new Debenture for such principal amount as has not
been converted.
(ii) Automatic Conversion. Subject to the provisions in this
paragraph, the principal amount of Debentures for which conversion notices
have not previously been received or for which prepayment has not been or
required hereunder shall be automatically converted on the second
anniversary of the Original Issue Date at the Conversion Price on such
date; provided, that, for such purposes the Floor will have no effect. The
conversion contemplated by this paragraph shall not occur if (a) either (1)
an Underlying Securities Registration Statement is not then effective that
names the Holder as a selling stockholder thereunder or (2) the Holder is
permitted to resell Underlying Shares pursuant to Rule 144(k) promulgated
under the Securities Act, without volume restrictions, as evidenced by an
opinion letter of counsel to the Company and acceptable to the Holder and
the transfer agent for the Common Stock; (b) there are not sufficient
shares of Common Stock authorized and reserved for issuance upon such
conversion; and (c) the Company shall not have defaulted on its covenants
and obligations hereunder or under the Purchase Agreement or Registration
Rights Agreement. Further, the principal amount of Debentures that are
subject to conversion pursuant to this section shall be limited to the
number of Underlying Shares which may be issued upon such conversion at the
prevailing Conversion Price in accordance with Rule 4460(i) promulgated
under the Rules of the Nasdaq Stock Market. Any portion of the principal
amount of the Debentures which cannot be converted at the then Conversion
Price as a result of such rule shall be subject to the provisions of
Section 4(a)(iii).
(iii) Certain Regulatory Approval. If on any Conversion Date
(A) the Common Stock is listed for trading on the Nasdaq National Market or
the Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such
that the aggregate number of shares of Common Stock that would then be
issuable upon conversion in full of the aggregate principal amount of all
then outstanding Debentures, together with any shares of the Common Stock
previously issued upon conversion of Debentures and as payment of interest
thereon, would equal or exceed 20% of the number of shares of the Common
Stock outstanding on the Original Issue Date (such number of shares as
would not equal or exceed such 20% limit, the "Issuable Maximum"), and (C)
the Company shall not have previously obtained the vote of shareholders
(the "Shareholder Approval"), if any, as may be required by the rules and
regulations of The Nasdaq Stock Market applicable to approve the issuance
of Common Stock in excess of the Issuable Maximum in a private placement
whereby shares of Common Stock are deemed to have been issued at a price
that is less than the greater of book or fair market value of the Common
Stock, then the Company shall issue to the Holder so requesting a
conversion a number of shares of Common Stock equal to the Issuable Maximum
and, with respect to the remainder of the principal amount of Debentures
then held by such Holder for which a conversion in accordance with the
Conversion Price would result in an issuance of Common Stock in excess of
the Issuable Maximum, the converting Holder shall have the option to
require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible,
but in any event not later than the 60th day after such request, or (2)(i)
<PAGE>
issue and deliver to such Holder a number of shares of Common Stock as
equals (x) the principal amount of Debentures tendered for conversion in
respect of the Conversion Notice at issue but for which a conversion in
accordance with the other terms hereof would result in an issuance of
Common Stock in excess of the Issuable Maximum, divided by (y) the Initial
Conversion Price (as defined below), and (ii) cash in an amount equal to
the product of (x) the Per Share Market Value on the Conversion Date and
(y) the number of shares of Common Stock in excess of such Holder's pro
rata portion of the Issuable Maximum that would have otherwise been
issuable to the Holder in respect of such conversion but for the provisions
of this Section (such amount of cash being hereinafter referred to as the
"Discount Equivalent"), or (3) pay cash to the converting Holder in an
amount equal to the Mandatory Prepayment Amount for the number of
Underlying Shares in or issuable upon such conversion is excess of the
Issuable Maximum. If the Company fails to pay the Discount Equivalent or
the Mandatory Prepayment Amount, as the case may be, in full pursuant to
this Section within seven (7) days after the date payable, the Company will
pay interest thereon at a rate of 15% per annum to the converting holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full.
(b) (i) Not later than three Trading Days after the Conversion
Date, the Company will deliver or cause to be delivered to the Holder (i) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement) representing the number of shares of the Common Stock
being acquired upon the conversion of Debentures (subject to reduction
pursuant to Section 3.8 of the Purchase Agreement), (ii) Debentures in a
principal amount equal to the principal amount of Debentures not converted;
(iii) a bank check in the amount of all accrued and unpaid interest (if the
Company has elected to pay accrued interest in cash), together with all
other amounts then due and payable in accordance with the terms hereof, in
respect of Debentures tendered for conversion, and (iv) if the Company has
elected and is permitted hereunder to pay accrued interest in shares of the
Common Stock, certificates, which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the Common Stock
as equals such interest divided by the Conversion Price calculated on the
Conversion Date; provided, however, that the Company shall not be obligated
to issue certificates evidencing the shares of the Common Stock issuable
upon conversion of the principal amount of Debentures until Debentures are
delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and
complies with Section 9 hereof. If in the case of any Conversion Notice
such certificate or certificates, including for purposes hereof, any shares
of the Common Stock to be issued on the Conversion Date on account of
accrued but unpaid interest hereunder, are not delivered to or as directed
by the Holder by the fourth Trading Day after a Conversion Date, the Holder
shall be entitled by written notice to the Company at any time on or before
its receipt of such certificate or certificates thereafter, to rescind such
conversion (whether subject to a Holder or a Company Conversion Notice), in
which event the Company shall immediately return the Debentures tendered
for conversion. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, prior
to the fourth Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, $1,500
for each day thereafter until the Company delivers such certificates (such
amount shall be also be due for each Trading Day after the date that the
Holder may rescind such conversion until such date as the Holder shall have
received the return of the principal amount of Debentures relating to such
rescission).
(ii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of
Common Stock to be issued on the Conversion Date on account of accrued but
unpaid interest hereunder, prior to the fourth Trading Day after the
Conversion Date, and if after such the fourth Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion (a "Buy-
In"), then the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the aggregate principal
amount of Debentures for which such conversion was not timely honored. For
example, if the Holder purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 aggregate principal amount of Debentures, the Company
shall be required to pay the Holder $1,000. The Holder shall provide the
<PAGE>
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In. If the Company fails to deliver to the Holder such
certificate or certificates in accordance with this Section 5(b)(iii) prior
to the 12th day after the Conversion Date or if the Company shall fail for
any reason to pay any amounts due in respect of a Buy-In within seven days
after notice thereof is deemed delivered hereunder, then the Company shall,
upon notice from the Holder, repay the aggregate principal amount of
Debentures then held by such Holder, as requested by such Holder, at a
price equal to the Mandatory Prepayment Amount, in cash. If any portion of
the Mandatory Prepayment Amount pursuant to this Section is not paid within
seven days after notice therefor is deemed delivered hereunder, the Company
will pay interest on the Mandatory Prepayment Amount at a rate of 15% per
annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest
thereon, is paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect
on any Conversion Date shall be the lesser of (A) $3.50 (the "Initial
Conversion Price") and (B) .85 multiplied by the Average Price immediately
preceding the Conversion Date; provided, that, except as specified herein,
the Conversion Price shall not be less than the "Floor" (as defined in
Section 6), provided, that, if (a) an Underlying Securities Registration
Statement is not filed on or prior to the 30th business day after the
Original Issue Date, (for purposes hereof, in the event the Company files
such Underlying Securities Registration Statement without complying with
the requirements of Section 3(a) of the Registration Rights Agreement,
then such filing shall not be deemed to have occurred) or (b) the Company
fails to file with the Commission a request for acceleration in accordance
with Rule 12d1-2 promulgated under the Securities Exchange Act of 1934, as
amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed" or is
not subject to further review or comment by the Commission, or (c) the
Underlying Securities Registration Statement is not declared effective by
the Commission on or prior to the Effective Date (as defined under the
Registration Rights Agreement), or (d) such Underlying Securities
Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement)
at any time prior to the expiration of the "Effectiveness Period" (as such
term as defined in the Registration Rights Agreement), without being
succeeded by a subsequent Underlying Securities Registration Statement
filed with and declared effective by the Commission within ten (10) days,
or (e) if trading in the Common Stock shall be suspended for more than
three (3) Trading Days, or (f) the conversion rights of the Holders of
Debentures are suspended for any reason or if the Holder is not permitted
to resell Registrable Securities under the Underlying Securities
Registration Statement, or (g) an amendment to the Underlying Securities
Registration Statement is not filed by the Company with the Commission
within ten (10) days of the Commission's notifying the Company that such
amendment is required in order for the Underlying Securities Registration
Statement to be declared effective (any such failure being referred to as
an "Event," and for purposes of clauses (a), (c) and (f) the date on which
such Event occurs, or for purposes of clause (b) the date on which such
five (5) day period is exceeded, or for purposes of clauses (d) and (g) the
date which such ten (10) day period is exceeded, or for purposes of clause
(e) the date on which such three (3) day period is exceeded, being referred
to as "Event Date"), the Conversion Price shall be decreased by 1% on the
Event Date and each monthly anniversary thereof until the earlier to occur
of the second month anniversary after the Event Date and such time as the
applicable Event is cured (i.e., the Conversion Price would decrease by 1%
as of the Event Date and 2% as of the one month anniversary of such Event
Date). Commencing the second month anniversary after the Event Date, at
the option of the Holder for each applicable monthly period either (a) the
Company shall pay to the Holder 1% of the product of the principal amount
of outstanding Debentures, in cash or (b) the Conversion Price shall be
decreased by 1% for each additional such month (to be effective in full on
the monthly applicable Event Date) as liquidated damages, and not as a
penalty on the first day of each monthly anniversary of the Event Date in
either case until such time as the applicable Event is cured. Any decrease
in the Conversion Price pursuant to this Section shall remain in effect
notwithstanding the fact that the Event causing such decrease has been
subsequently cured and further monthly decreases have ceased. The
provisions of this Section are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of the Common
Stock, (b) subdivide outstanding shares of the Common Stock into a larger
number of shares, (c) combine outstanding shares of the Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of the
<PAGE>
Common Stock any shares of capital stock of the Company, the Initial
Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator
shall be the number of shares of the Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 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.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below,
the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of the Common
Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of
the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant
to purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in
the Initial Conversion Price made pursuant to the provisions of this
Section 4 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that number of shares of the Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not
to Holders of Debentures) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security, then in each such
case the Initial Conversion Price at which Debentures shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Per Share Market Value of the Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event
of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in
interest of Debentures then outstanding; and provided, further, that the
Company, after receipt of the determination by such Appraiser shall have
the right to select an additional Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described
in a statement provided to the holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of the Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder of this
Debenture shall have the right thereafter to, at its option, (A) convert
the then outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of this
Debenture only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the Holders of
the Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
<PAGE>
Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to
such reclassification or share exchange would have been entitled or (B)
require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount
of Debentures, plus all interest and other amounts due and payable thereon,
at a price determined in accordance with Section 3(b). The entire
prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail
to each Holder of Debentures a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, 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, of
any compulsory share of exchange whereby the
Common Stock is 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 the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Debentures, and shall cause
to be mailed to the Holders of Debentures at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice 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 Stock 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 Stock of record shall be entitled
to exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
<PAGE>
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the Common
Stock solely for the purpose of issuance upon conversion of the Debentures
and payment of interest on the Debentures, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of
persons other than the Holders, not less than such number of shares of the
Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 4(c)) upon the conversion of the outstanding
principal amount of the Debentures and payment of interest hereunder. The
Company covenants that all shares of the Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of
the Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Per Share Market
Value at such time. If the Company elects not, or is unable, to make such
a cash payment, the holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock
on conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such tax
has been paid.
(g) Any and all notices or other communications or deliveries to
be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to the Company, at 251 Saulteaux Crescent, Winnepeg, Manitoba R3J 3C7
(facsimile number (204) 897-8366, attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 7:00 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by
nationally recognized overnight courier service, or (v) upon actual receipt
by the party to whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time
from and after the date that is 90 Trading Days after the date that an
Underlying Securities Registration Statement has been declared effective by
the Commission, upon thirty (30) Trading Days prior written notice to the
Holders of the Debentures to be prepaid (the "Optional Prepayment Notice"),
to prepay, from funds legally available therefor at the time of such
prepayment, all or any portion of the outstanding principal amount of the
Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to
the Optional Prepayment Price (as defined below). Any such prepayment by
the Company shall be in cash and shall be free of any claim of
subordination. The Holders shall have the right to tender, and the Company
shall honor, Conversion Notices delivered prior to the expiration of the
thirtieth (30th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date"). If the Underlying Securities Registration Statement shall have
<PAGE>
been declared effective by the Commission and thereafter shall either be
suspended (or a Holder is prohibited from selling thereunder), the right of
the Company to prepay Debentures, under this Section shall not commence
until the Underlying Securities Registration Statement shall have been
effective, and the Holder permitted to sell thereunder, for 90 Trading
Days.
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional
Prepayment Price shall be increased by 15% per annum (to accrue daily)
until paid (which amount shall be paid as liquidated damages and not as a
penalty). In addition, if any portion of the optional Prepayment Price
remains unpaid through the expiration of the Optional Prepayment Date, the
Holder subject to such prepayment may elect by written notice to the
Company to either (i) demand conversion in accordance with the formula and
the time period therefor set forth in Section 4 of any portion of the
principal amount of Debentures for which the Optional Prepayment Price,
plus accrued liquidated damages thereof, has not been paid in full (the
"Unpaid Prepayment Principal Amount"), in which event the applicable Per
Share Market Value shall be the lower of the Per Share Market Value
calculated on the Optional Prepayment Date and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii) invalidate ab
initio such optional redemption, notwithstanding anything herein contained
to the contrary. If the Holder elects option (i) above, the Company shall
within three (3) Trading Days such election is deemed delivered hereunder
to the Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Amount subject to such conversion demand and otherwise
perform its obligations hereunder with respect thereto; or, if the Holder
elects option (ii) above, the Company shall promptly, and in any event not
later than three Trading Days from receipt of notice of such election,
return to the Holder new Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i) above, the Company
fails to deliver the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Principal Amount within the time period set forth in this
Section, the Company shall pay to the Holder in cash, as liquidated damages
and not as a penalty, $1,500 per day until the Company delivers such Common
Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall
equal the sum of (i) the principal amount of Debentures to be prepaid, plus
all accrued and unpaid interest thereon, divided by the Conversion Price on
(x) the Optional Prepayment Date or (y) the date the Optional Prepayment
Price is paid in full, whichever is less, multiplied by the Average Price
on (x) the Optional Prepayment Date or (y) the date the Optional Prepayment
Price is paid in full, whichever is greater, and (ii) all other amounts,
expenses, costs and liquidated damages due in respect of such principal
amount.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Average Price" on any date means the average Per Share Market
Value for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the Company's Class A common stock, no par
value, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Floor" initially means $2.50, provided, that, the Floor shall be
reset if at any time after the Original Issue Date the rolling average
closing sales price per share of the Common Stock calculated on any date
shall be equal to or less than $2.50 for any 30 days. In such event, the
Floor shall be reset to 85% of such average closing sales price for such
period. Subsequent resets, if any, shall be based upon the then most
recent reset Floor.
"Mandatory Prepayment Amount" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x)
the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is less, multiplied
by the Average Price on (x) the date the Mandatory Prepayment Amount is
demanded or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
<PAGE>
"Original Issue Date" shall mean the date of the first issuance
of any Debentures regardless of the number of transfers of any Debenture
and regardless of the number of instruments which may be issued to evidence
such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap or Nasdaq National Market, as the case may be, or any other U.S.
stock exchange or quotation system on which the Common Stock is then listed
or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on the Nasdaq Small Cap or
Nasdaq National Market or any U.S. stock exchange or quotation system, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common Stock
is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share
of Common Stock as determined by an Appraiser selected in good faith by the
Holders of a majority of the aggregate principal amount of Debentures then
outstanding; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case, the fair market value shall be equal
to the average of the determinations by each such Appraiser; and provided,
further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded
on the Nasdaq Stock Market or other U.S. stock exchange or market on which
the Common Stock has been listed, or (b) if the Common Stock is not listed
on the Nasdaq Stock Market or any U.S. stock exchange or market, a day on
which the Common Stock is traded on the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted
on the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices).
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with
the terms hereof.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering among other things the resale of
the Underlying Shares and naming the Holder as a "selling stockholder"
thereunder.
Section 7. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of the Company. This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein.
The Company may only voluntarily prepay the outstanding principal amount on
the Debentures in accordance with Section 5 hereof.
<PAGE>
Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the
extent converted into shares of Common Stock in accordance with the terms
hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft
or destruction of such Debenture, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect
to conflicts of laws thereof. The Company hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. The Company hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy
thereof sent to the Company at the address in effect for notices to it
under this instrument and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the
Holder to insist upon strict adherence to any term of this Debenture on one
or more occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any
other term of this Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and
circumstances.
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day (or, if such next succeeding Business
Day falls in the next calendar month, the preceding Business Day in the
appropriate calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed by a duly authorized officer as of the date first above
indicated.
NATIONAL HEALTHCARE MANUFACTURING
CORPORATION
By:/s/Mac Shahsavar
________________________________
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. _-1 into shares of
Class A Common Stock, no par value (the "Common Stock"), of NATIONAL
HEALTHCARE MANUFACTURING CORPORATION (the "Company") according to the
conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the
Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
<PAGE>
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 31, 1998, by and between National Healthcare
Manufacturing Corporation, a Manitoba, Canada corporation (the "Company")
and JNC Opportunity Fund Ltd., a Cayman Islands company ("JNC"), and
Diversified Strategies Fund, L.P., an Illinois limited partnership ("DSF").
JNC and DSF are each a "Purchaser" and are, collectively, the "Purchasers."
This Agreement is made pursuant to the Convertible Debenture
Purchase Agreement, dated as of the date hereof between the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control,"
when used with respect to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms of "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Company's Class A Common Stock, no par
value per share.
"Debentures" means Company's 6% Convertible Debentures due March
31, 2000 issued to the Purchasers pursuant to the Purchase Agreement.
"Effectiveness Date" means the 120th day following the Closing
Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th Business Day following the Closing
Date.
<PAGE>
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"New York Courts" shall have the meaning set forth in Section
7(j).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable upon (a) conversion in full of the Debentures, (b) exercise of the
Warrants and (c) payment of interest in respect of the Debentures (assuming
all such interest is paid in shares of Common Stock); provided, however
that in order to account for the fact that the number of shares of Common
Stock that are issuable upon conversion of Debentures is determined in part
upon the market price of the Common Stock at the time of conversion,
Registrable Securities contemplated by clause (a) of this definition shall
be deemed to include not less than 200% of the number of shares of Common
Stock into which the Debentures are convertible, assuming such conversion
occurred on the Closing Date or the Filing Date (whichever date yields a
lower Conversion Price, as such term is defined in the Debentures). The
initial Registration Statement shall cover at least such number of shares
of Common Stock as equals the sum of (x) 200% of the number of shares of
Common Stock into which the Debentures are convertible, assuming such
conversion occurred on the Closing Date or the Filing Date (whichever date
yields a lower Conversion Price), (y) interest thereon and (z) 337,500
shares of Common Stock in respect of the Warrants. The Company shall be
required to file additional Registration Statements to the extent the
actual number of shares of Common Stock into which Debentures are
convertible (together with interest thereon) and the Warrants are
exercisable exceeds the number of shares of Common Stock initially
registered in accordance with the immediately prior sentence. The Company
shall have 10 Business Days to file such additional Registration Statement
after notice of the requirement thereof, which the Holders may give at such
time when the number of shares of Common Stock as are issuable upon
conversion of Debentures exceeds 175% of the number of shares of Common
Stock into which Debentures are convertible, assuming such conversion
occurred on the Closing Date or the Filing Date (whichever yields a lower
Conversion Price.
"Registration Statement" means the registration statement
contemplated by Section 2(a) (covering such number of Registrable
Securities and any additional Registration Statements contemplated in the
definition of Registrable Securities), including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
<PAGE>
"Rule 158" means Rule 158 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the United States Securities Act of 1933,
as amended.
"Special Counsel" means one law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant
to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to
an underwriter for reoffering to the public pursuant to an effective
registration statement.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers on the Closing Date.
2. Shelf Registration
(a) On or prior to the Filing Date the Company shall prepare and
file with the Commission and, if required, the British Columbia Securities
Commission a "Shelf" Registration Statement covering all Registrable Securi
ties for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form F-3 (or, if the Company is not
permitted to register the resale of the Registrable Securities on Form F-3,
the Registration Statement shall be on such other appropriate form in
accordance herewith as the Holders of a majority in interest of the
Registrable Securities may consent). The Company shall use its best
efforts to cause the Registration Statement to be declared effective under
the Securities Act as promptly as possible after the filing thereof, but in
any event prior to the Effectiveness Date, and shall use its best efforts
to keep such Registration Statement continuously effective under the
Securities Act until the date which is three years after the date that such
Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act, as determined
by the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent (the
"Effectiveness Period"); provided, however, that the Company shall not be
deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any
action that would result in the Holders not being able to sell the
Registrable Securities covered by such Registration Statement during the
Effectiveness Period, unless such action is required under applicable law
or the Company has filed a post-effective amendment to the Registration
Statement and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the
Registration Statement may be effected in the form of an Underwritten
Offering. In such event, and if the managing underwriters advise the
Company and such Holders in writing that in their opinion the amount of
Registrable Securities proposed to be sold in such Underwritten Offering
exceeds the amount of Registrable Securities which can be sold in such
Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of
such managing underwriters can be sold, and such amount shall be allocated
pro rata among the Holders proposing to sell Registrable Securities in such
Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will
administer the offering will be selected by the Holders of a majority of
the Registrable Securities included in such offering upon consultation with
the Company. No Holder may participate in any Underwritten Offering
hereunder unless such Person (i) agrees to sell its Registrable Securities
on the basis provided in any underwriting agreements approved by the
Persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of
such arrangements.
<PAGE>
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission and, if required, the
British Columbia Securities Commission on or prior to the Filing Date, a
Registration Statement (and any additional Registration Statements as may
be required) in accordance with Section 2(a), and cause the Registration
Statement to become effective and remain effective as provided herein;
provided, however, that not less than five (5) Business Days prior to the
filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the
Company shall (i) furnish to each of the Holders, their Special Counsel and
any managing underwriters, copies of all such documents proposed to be
filed (in the form proposed to be filed), which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to
the review of such Holders, their Special Counsel and such managing under
writers, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be
necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of
the Securities Act. The Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which
the Holders of a majority of the Registrable Securities, their Special
Counsel, or any managing underwriters, shall reasonably object on a timely
basis.
(b) (i) Prepare and file with the Commission and, if required,
the British Columbia Securities Commission such amendments, including
post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to
the applicable Registrable Securities for the Effectiveness Period and
prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act and, if
required, the Securities Act (British Columbia) all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by any required Prospectus supplement, and as so supplemented or amended to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act (and, if required, under any similar
provisions or rules under the Securities Act (British Columbia); (iii)
respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment
thereto and promptly provide the Holders true and complete copies of all
correspondence from and to the Commission and the British Columbia
Securities Commission relating to the Registration Statement; and (iv)
comply with the provisions of the Securities Act and the Exchange Act (and,
if required, any applicable Canadian Securities laws) with respect to the
disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Holders thereof set forth in the Registration
Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in
the case of (i)(A) below, not less than five (5) days prior to such filing)
and (if requested by any such Person) confirm such notice in writing no
later than one (1) Business Day following the day (i)(A) when a Prospectus
or any Prospectus supplement or post-effective amendment to the Regis
tration Statement is proposed to be filed; (B) when the Commission (and
British Columbia Securities Commission) notifies the Company whether there
will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company
shall provide true and complete copies thereof and all written responses
thereto to each of the Holders) and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the Commission or the British Columbia Securities
Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) if at any time any
of the representations and warranties of the Company contained in any
agreement (including any underwriting agreement) contemplated hereby ceases
to be true and correct in all material respects; (v) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening
of any Proceeding for such purpose; and (vi) of the occurrence of any event
that makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the case may be,
it will not 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.
<PAGE>
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification
(or exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to
be incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any
action pursuant to this Section 3(e) that would, in the opinion of counsel
for the Company, violate applicable law or be materially detrimental to the
business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent
reasonably requested by such Person (including those previously furnished
or incorporated by reference) promptly after the filing of such documents
with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and
any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(h) The Company shall qualify or register (or procure any
necessary exceptions from such qualification or registration) of such
Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as any Holder or underwriter requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not, other than with
respect to the Commonwealth of Virginia, be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to
take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to
any material tax in any such jurisdiction where it is not then so subject.
<PAGE>
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement,
which certificates shall be free of all restrictive legends, and to enable
such Registrable Securities to be in such denominations and registered in
such names as any such managing underwriters or Holders may request at
least three Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain 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, in light of the
circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on any securities
exchange, quotation system, market or over-the-counter bulletin board, if
any, on which similar securities issued by the Company are then listed as
and when required pursuant to the Purchase Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and
substance as is customary in Underwritten Offerings) and take all such
other actions in connection therewith (including those reasonably requested
by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the
same if and when requested; (ii) obtain and deliver copies thereof to each
Holder and the managing underwriters, if any, of opinions of counsel to the
Company and updates thereof addressed to each selling Holder and each such
underwriter, in form, scope and substance reasonably satisfactory to any
such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in
Underwritten Offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) immediately prior
to the effectiveness of the Registration Statement or at the time of
delivery of any Registrable Securities sold pursuant thereto (at the option
of the underwriters), obtain and deliver copies to the Holders and the
managing underwriters, if any, of "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the Company
for which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each Person and in
such form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the underwriters, if any, than those set forth
in Section 7 (or such other provisions and procedures acceptable to the
managing underwriters, if any, and holders of a majority of Registrable
Securities participating in such Underwritten Offering; and (v) deliver
such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their
Special Counsel and any managing underwriters to evidence the continued
validity of the representations and warranties made pursuant to clause
3(l)(i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any
disposition of Registrable Securities, and an attorney or accountant
retained by such selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and
its subsidiaries, and cause the officers, directors, agents and employees
of the Company and its subsidiaries to supply all information in each case
requested by any such Holder, representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided,
however, that any information that is determined in good faith by the
Company in writing to be of a confidential nature at the time of delivery
of such information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person,
is required by law; (iii) such information becomes generally available to
the public other than as a result of a disclosure or failure to safeguard
by such Person; or (iv) such information becomes available to such Person
from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
<PAGE>
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act
and Rule 158 not later than 45 days after the end of any 12-month period
(or 90 days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which
statement shall cover said 12-month period, or end shorter periods as is
consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such
selling Holder as is required by law to be disclosed in the Registration
Statement and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name
or otherwise is not required by the Securities Act or any similar Federal
statute then in force) the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable
Securities that (i) it will not offer or sell any Registrable Securities
under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g)
and notice from the Company that such Registration Statement and any post-
effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with
sales of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(c)(ii),
3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will forthwith discon
tinue disposition of such Registrable Securities until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised
in writing (the "Advice") by the Company that the use of the applicable Pro
spectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
<PAGE>
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the
extent specified in Section 4(c), be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be
made with The Nasdaq Stock Market, Inc. and each other securities exchange
or market on which Registrable Securities are required hereunder to be
listed and (B) in compliance with state securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel for the
underwriters or Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Regis
trable Securities for investment under the laws of such jurisdictions as
the managing underwriters, if any, or the Holders of a majority of
Registrable Securities may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable
Securities and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriters, if any, or by the holders of a
majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with
the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers
and employees performing legal or accounting duties), the expense of any
annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required
hereunder.
(b) If the Holders require an Underwritten Offering pursuant to
the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of
the Underwriters (including any underwriting commissions and discounts) and
their legal counsel and accountants. By way of illustration which is not
intended to diminish from the provisions of Section 4(a), the Holders shall
not be responsible for, and the Company shall be required to pay the fees
or disbursements incurred by the Company (including by its legal counsel
and accountants) in connection with, the preparation and filing of a
Registration Statement and related Prospectus for such offering, the
maintenance of such Registration Statement in accordance with the terms
hereof, the listing of the Registrable Securities in accordance with the
requirements hereof, and printing expenses incurred to comply with the
requirements hereof.
<PAGE>
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer and sale
of Registrable Securities), brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities,
settlements, judgments, costs (including, without limitation, costs of
preparation and attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the
extent, but only to the extent, that such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writ
ing to the Company by or on behalf of such Holder expressly for use
therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and
was reviewed and expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of
the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or review) arising
solely out of or based solely upon any untrue statement of a material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for
inclusion in the Registration Statement or such Prospectus or to the extent
that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus. In no
event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party promptly shall
notify the Person from whom indemnity is sought (the "Indemnifying Party")
in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
<PAGE>
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; or (2) the Indemnifying Party
shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any
such Proceeding; or (3) the named parties to any such Proceeding (including
any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indem
nifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake
to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as
a result of such Losses, in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in ques
tion, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission of a material fact, has been taken or made
by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses
shall be deemed to include, subject to the limitations set forth in Section
5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5(d),
no Purchaser shall not be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by
such Purchaser from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Purchaser 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.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
<PAGE>
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise
all rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would
not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect
of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the
Company nor any of its subsidiaries has, as of the date hereof, nor shall
the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the
extent specifically set forth in Schedule 6(b) attached hereto, neither the
Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the
then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights in full of the Holders set forth
herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the
Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities, and the
Company shall not enter into any agreement providing any such right to any
of its securityholders.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall determine
to prepare and file with the Commission a registration statement relating
to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans,
then the Company shall send to each holder of Registrable Securities
written notice of such determination and, if within twenty (20) days after
receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Registrable Securities such holder requests to be registered. No right to
registration of Registrable Securities under this Section shall be
construed to limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and the Holders of at least a majority of the then outstanding
Registrable Securities; provided, however, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or indirectly, by
the Company, or an Affiliate of the Company are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of
the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
<PAGE>
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 7:00 p.m. (New York City time) on a Business Day, (ii) the Business Day
after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 7:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: National Healthcare Manufacturing Corporation
251 Saulteaux Crescent
Winnepeg, Manitoba R3J 3C7
Facsimile No.: (204) 897-8366
Attn: Chief Financial Officer
With copies to: Donald J. Stoecklein, Esq.
1850 E. Flamingo Road, Suite 111
Las Vegas, Nevada 89119
Facsimile No.: (702) 794-0744
If to JNC: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Encore Capital Management, L.L.C.
(for communication to 12007 Sunrise Valley Drive, Suite 460
either Purchaser) Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
<PAGE>
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior
written consent of each Holder. The Purchasers may assign their respective
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(h) Assignment of Registration Rights. The rights of a
Purchaser hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this
Agreement, shall be automatically assignable by such Purchaser to any
assignee or transferee of all or a portion of the Debentures, the Warrants
and other Common Stock warrants referenced in the definition of Registrable
Securities or Registrable Securities without the consent of the Company if:
(i) such Purchaser agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (ii) the Company
is, within a reasonable time after such transfer or assignment, furnished
with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to such registration rights
are being transferred or assigned, (iii) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section,
the transferee or assignee agrees in writing with the Company to be bound
by all of the provisions of this Agreement, and (iv) such transfer shall
have been made in accordance with the applicable requirements of the
Purchase Agreement. The rights to assignment shall apply to the
Purchasers' (and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.
(j) Governing Law; Submission to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State
of New York, without regard to principles of conflicts of law. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of any New
York state court sitting in the Borough of Manhattan, the state and federal
courts sitting in the City of New York or any federal court sitting in the
Borough of Manhattan in the City of New York (collectively, the "New York
Courts") in respect of any Proceeding arising out of or relating to this
Agreement, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the New York
Courts. The Company irrevocably waives to the fullest extent it may
effectively do so under applicable law any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in
any New York Court and any claim that any such Proceeding brought in any
New York Court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any Holder. Each party hereby irrevocably waives
personal service of process and consents to process being served in any
such suit, action or proceeding by receiving a copy thereof sent to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
<PAGE>
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their reasonable efforts to
find and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of
the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the
Company or its Affiliates (other than the Purchasers or transferees or
successors or assigns thereof if such Persons are deemed to be Affiliates
solely by reason of their holdings of such Registrable Securities) shall
not be counted in determining whether such consent or approval was given by
the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
NATIONAL HEALTHCARE MANUFACTURING
CORPORATION
By:/s/Mac Shahsavar
___________________________
JNC OPPORTUNITY FUND LTD.
By:/s/Neil Chau
___________________________
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:/s/Neil Chau
___________________________
<PAGE>
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To: NATIONAL HEALTHCARE MANUFACTURING CORPORATION:
We have audited the consolidated balance sheet of NATIONAL HEALTHCARE
MANUFACTURING CORPORATION (a Manitoba corporation) as at June 30, 1997 and
the consolidated statement of operations, shareholders' equity and changes
in financial position for the year then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada, which are in substantial agreement with those in the
United States of America. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at June 30,
1997 and the results of its operations and the changes in its financial
position for the year then ended in accordance with generally accepted
accounting principles in Canada.
Accounting practices of the Company used in preparing the accompanying
consolidated financial statements conform with generally accepted
accounting principles applicable to consolidated financial statements in
Canada ("Canadian GAAP"), but do not conform with accounting principles
generally accepted in the United States of America ("U.S. GAAP"). A
description of the significant differences between Canadian GAAP and U.S.
GAAP and the approximate effect of those differences on consolidated net
loss and shareholders' equity are set forth in Note 19 of the Notes to
consolidated financial statements.
Arthur Andersen & Co.
Winnipeg, Manitoba
October 6, 1997
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(with comparative balances as at June 30, 1996)
ASSETS
<TABLE>
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $4,213,255 $958,568
Accounts receivable (Note 8) 1,827,239 153,322
Inventories (Notes 4 and 8) 2,850,012 507,203
Prepaid expenses 364,998 73,808
9,255,504 1,692,901
INVESTMENT IN NATIONAL
HEALTHCARE LOGISTICS LLC (Note 5) 490,772 -
PROPERTY, PLANT AND EQUIPMENT
USED IN OPERATIONS (Notes 6, 8 and 9) 7,698,374 6,916,680
ASSETS UNDER DEVELOPMENT (Notes 7, 8 and 9) 9,868,849 8,924,389
$27,313,499 $17,533,970
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Cheques issued in excess of amounts on deposit $349,336 $68,448
Accounts payable and accrued liabilities 1,271,616 1,123,986
Current portion of long-term debt (Note 8) 460,000 -
Current portion of obligations
under capital leases (Note 9) 1,718,552 1,427,042
3,799,504 2,619,476
LONG-TERM DEBT (Note 8) 2,807,326 2,169,085
OBLIGATIONS UNDER CAPITAL LEASES (Note 9) 5,504,985 7,223,699
DEFERRED FOREIGN EXCHANGE GAIN 54,128 204,073
LOANS PAYABLE TO SHAREHOLDERS
AND DIRECTOR-RELATED COMPANIES (Note 10) 2,064,770 720,826
14,230,713 12,937,159
SHAREHOLDERS' EQUITY
Share capital (Note 11) 9,318,163 8,677,351
Warrants (Note 12) 12,093,206 -
Deficit (8,328,583) (4,080,540)
13,082,786 4,596,811
$27,313,499 $17,533,970
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(with comparative balances for the years ended June 30, 1996 and 1995)
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
REVENUES
Sales (Note 14) $4,905,401 $556,105 $-
Other 166,196 51,339 25,659
5,071,597 607,444 25,659
COSTS AND EXPENSES
Cost of sales 2,637,315 291,319 -
Depreciation and amortization
of property, plant and equipment 1,576,975 1,188,053 -
Interest on long-term debt 415,035 409,258 -
Other 56,026 42,208 -
Selling, distribution and 4,424,582 1,888,352 894,453
administrative
9,109,933 3,819,190 894,453
LOSS FROM OPERATIONS 4,038,336 3,211,746 868,794
LOSS FROM INVESTEE 209,707 - -
NET LOSS $4,248,043 $3,211,746 $868,794
BASIC LOSS PER SHARE $0.39 $0.32 $0.15
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 10,925,842 10,088,419 5,767,530
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1997
(with comparative balances for the years ended June 30, 1996 and 1995)
<TABLE>
Class A Common Shares
Shares Amount Paid in Deficit Total
Capital
<S> <C> <C> <C> <C> <C>
Balanc - $ $ $ $
es at - - - -
June
30,
1994
Issue 13,472 6,339,864 - - 6,339,864
of
shares
for
cash
Issue 350 350,000 - - 350,000
of
shares
for
proper
ty
Share 7,884,468 - - - -
split
Issue 1,680,000 136,600 - - 136,800
of
shares
for
cash
Net - - - (868,794) (868,794)
loss
Balanc 9,578,290 6,826,664 - (868,794) (868,794)
es at
June
30,
1995
Issue 1,175,000 2,306,250 - - 2,306,250
of
shares
for
cash
Share - (455,563) - - (455,563)
issue
costs
Net - - - (3,211,746) (3,211,746)
loss
Balanc 10,753,290 8,677,351 - (4,080,540) 4,596,811
es at
June
30,
1996
Issue 67,125 8,677,351 - (4,080,540) 4,596,811
of
shares
for
cash
Issue - - 12,315,000 - 12,315,000
of
specia
l
warran
ts
(Note
12)
Warran - - (221,794) - (221,794)
t
issue
costs
Exerci 250,000 500,000 - - 500,000
se of
warran
ts
(Note
12)
Net - - - (4,248,043) (4,248,043)
loss
Balanc 11,070,415 $9,318,163 $12,093,206 $(8,328,583) $13,082,786
es at
June
30,0
1997
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED JUNE 30, 1997
(with comparative balances for the years ended June 30, 1996 and 1995)
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss $(4,248,043) $(3,211,746) $(868,794)
Items not affecting cash
Amortization of deferred
foreign exchange gain (15,950) - -
Depreciation and amortization 1,576,975 1,188,053 -
Loss from investee 209,707 - -
(2,477,311) (2,023,693) (868,794)
Net change in non-cash
operating assets and
liabilities
Accounts receivable (1,416,063) (104,443) (48,879)
Inventories (1,377,116) (507,203) -
Prepaid expenses (291,190) 7,904 (81,712)
Accounts payable and accrued 147,630 393,833 730,153
liabilities
(5,414,050) (2,233,602) (269,232)
INVESTING ACTIVITIES
Acquisition of shares in
National Healthcare Logistics (700,479) - -
LLC
Acquisition of property, plant (1,476,066) (1,583,214) (14,692,122)
and equipment
Deposit on specialized equipment - - (753,786)
Interest capitalized on (475,404) - -
equipment
Acquisition of National Care (896,447) - -
Products Ltd.
Acquisition of Gam-Med Division (1,678,728) - -
(5,227,124) (1,583,214) (15,445,908)
FINANCING ACTIVITIES
Proceeds from (repayment of)
obligations under capital (1,427,204) (186,189) 8,836,930
leases
Proceeds from long-term debt 1,098,241 2,169,085 -
Deferred foreign exchange gain (134,026) 9,772 194,301
Advances from shareholders
and director-related companies 1,343,944 517,717 203,109
Net proceeds from issuance of
Class A common shares 640,812 1,850,687 6,826,664
Net proceeds from issuance of 12,093,206 - -
warrants
13,614,973 4,361,072 16,061,004
INCREASE IN CASH 2,973,799 544,256 345,864
CASH, beginning of year 890,120 345,864 -
CASH, end of year $3,863,919 $890,120 $345,864
Represented by:
Cash and short-term investments $4,213,255 $958,568 $345,864
Cheques issued in excess of (349,336) (68,448) -
funds on deposit
$3,863,919 $890,120 $345,864
Supplemental disclosure of
cashflow information
Cash paid for: Interest (net of $415,035 $184,241 $-
amount capitalized)
Income taxes $- $- $-
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
1. DESCRIPTION OF BUSINESS
National Healthcare Manufacturing Corporation (the "Company") was
incorporated on August 23, 1993 under the Manitoba Corporations Act
and registered as an extra provincial company in the Province of
British Columbia on December 9, 1994. The Company is primarily engaged
in the manufacturing, assembly and packaging of medical supplies for
the healthcare industry. Its shares are traded on the Vancouver Stock
Exchange. As of August 14, 1996, the shares of the Company were
listed on the Small Cap board of NASDAQ Stock Market.
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada and
conform in all material respects with accounting principles generally
accepted in the United States, except as described in Note 19. All
amounts are stated in Canadian dollars.
2. BUSINESS CONSIDERATIONS
The Company has incurred significant upfront costs to establish an
automated plant for the assembly and packaging of medical supplies
which management believes is necessary to establish a strong market
presence as a new entrant to the healthcare industry. The Company's
objective is to produce and distribute custom products to users of
medical and surgical devices throughout North America. During fiscal
1997, the Company successfully obtained certification for distribution
of products in the United States from the Food and Drug
Administration. Management's plans for fiscal 1998 are to obtain ISO
9001 certification, develop electronic data interchange, undertake
research and development to streamline operations and expand product
lines, and evaluate the acquisition of business with existing
distribution networks in order to consolidate sales and marketing
activities. The Company anticipates manufacturing products for
national and regional distributing companies and intends to sell
directly to homecare providers across Canada and the United States.
The long-term growth plan of the Company includes the targeting of
additional markets. The Company expects that private/original
equipment manufacturers' branding of products for other manufacturers
and/or distributors will be handled directly by the Company. No
formal agreements are in place at this time.
The Company has incurred significant operating losses and business
development costs to date and had a consolidated deficit from
operations of $8,328,583 as at June 30, 1997. As at June 30, 1997,
the Company had positive working capital, primarily due to additional
funds raised through two private placements (see Note 12). The
Company's ability to continue as a going concern is dependent upon
developing profitable operations and obtaining additional funds needed
to finance these development activities.
These consolidated financial statements have been prepared on the
going concern basis, which assumes that the Company will realize its
assets and discharge its liabilities in the normal course of
operations.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
3. ACCOUNTING POLICIES
Basis of Consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries National Healthcare
Manufacturing Corporation, U.S. and National Care Products Ltd. All
significant intercompany transactions and balances have been
eliminated upon consolidation. The Company accounts for its
investments in non-controlled investees using the equity method.
Cash and Short-term Investments
Cash and short-term investments consist principally of deposit
instruments which are highly liquid and have original maturities of 90
days or less.
Inventories
Raw materials are valued at the lower of cost and replacement cost.
Finished goods are valued at the lower of cost and net realizable
value. Cost is determined on the first in, first out basis.
Property, Plant and Equipment Used in Operations
Property, plant and equipment used in operations is recorded at cost
less accumulated depreciation. Costs of additions, betterments,
renewals and interest during development are capitalized.
Depreciation is being provided for by the declining balance method at
the following annual rates:
<TABLE>
<S> <C>
Building, improvements and paving 4 - 8%
Furniture and fixtures 20%
Computer equipment 20 - 30%
Machinery and equipment 20 - 30%
Equipment under capital lease 30%
</TABLE>
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Assets under Development
Assets under development are recorded at cost. Cost includes all
expenditures incurred in acquiring the asset and preparing it for use.
Interest costs on related debt obligations are capitalized until the
asset is substantially completed and ready for its intended and
productive use.
Leases
Leases entered into are classified as either capital or operating
leases. Leases that transfer substantially all of the benefits and
risks of ownership to the Company are accounted for as capital leases.
At the time a capital lease is entered into, an asset is recorded
together with a related long-term obligation. Equipment acquired
under capital leases is being depreciated on the same basis as other
fixed assets.
Rental payments under operating leases are charged to expenses as
incurred.
Deferred Foreign Exchange Gain
The deferred foreign exchange gain relates to the obligations under
capital leases and is being amortized over the term of the respective
leases.
Revenue Recognition
Sales revenues are recognized at the time of product shipment to
distributors or customers.
Foreign Currency Translation
Foreign currency transactions are translated to Canadian dollars at
the rate of exchange in effect on the dates they occur. Monetary
assets and liabilities are subsequently adjusted to reflect the rate
of exchange in effect at the balance sheet date. Exchange gains and
losses arising on translation of monetary assets and liabilities are
included in income, except for unrealized exchange gains and losses
relating to the translation of the obligations under capital leases
which are deferred and amortized over the remaining term of the
leases.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss Per Share
Loss per share data has been computed by dividing net loss by the
weighted average number of common shares outstanding during the year.
4. INVENTORIES
<TABLE>
1997 1996
<S> <C> <C>
Raw Materials $912,681 $280,542
Finished goods and samples 1,937,331 226,661
$2,850,012 $507,203
</TABLE>
5. INVESTMENT IN NATIONAL HEALTHCARE LOGISTICS LLC
During fiscal 1997, the Company acquired 150 Class A common voting
shares, representing a 50% interest, and 333 1/3 Class C non-voting
preferred shares of National Healthcare Logistics LLC. This
investment is being accounted for under the equity method.
6. PROPERTY, PLANT AND EQUIPMENT USED IN OPERATIONS
<TABLE>
1997 1996
Accumulate
d
Cost Depreciati Net Net
on
<S> <C> <C> <C> <C>
Land $565,461 $- $565,461 $125,000
Building,
improvements 2,331,828 126,618 2,205,210 1,742,117
and paving
Furniture and 254,897 61,286 193,611 139,872
fixtures
Computer equipment 216,783 27,989 188,794 36,198
Machinery and 2,882,646 821,094 2,061,552 1,889,932
equipment
Equipment under
capital 4,211,479 1,727,733 2,483,746 2,983,561
lease
$10,463,094 $2,764,720 $7,698,374 $6,916,680
</TABLE>
In fiscal 1997, no interest was capitalized to the equipment under capital lease
(1996 - $89,034).
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June 30,
1996 and 1995)
7. ASSETS UNDER DEVELOPMENT
<TABLE>
1997 1996
<S> <C> <C>
Machinery and equipment in storage $408,562 $408,562
Refundable deposit on equipment lease (Note - 753,786
9)
Equipment under capital lease (1194) 2,313,245 2,432,299
Equipment under capital lease (1094 - 001) 7,147,042 5,329,742
$9,868,849 $8,924,389
</TABLE>
In fiscal 1997, the refundable deposit on equipment lease was applied
against obligations under capital lease, in connection with the settlement
as described in Note 9.
Interest of $475,404 (1996 - $505,668) has been capitalized to the
equipment under capital lease 1094-001.
8. LONG-TERM DEBT
<TABLE>
1997 1996
<S> <C> <C>
Western Economic Diversification, term loan,
matures December 1, 1999, unsecured, non-
interest bearing, repayable in variable
quarterly payments commencing December 1, 1997 $1,654,180 $918,347
Province of Manitoba, term loan, bears interest
at the rate charged to Manitoba Crown
Corporations for borrowings amortized over a ten
year period (currently 8%), secured by a first
fixed charge against land, buildings and
equipment, and a second charge over accounts
receivable and inventories, repayable in six
consecutive monthly installments of $30,000 each
commencing May, 1999 and consecutive monthly 1,613,146 1,250,738
installments of $51,958 each thereafter, until
fully repaid
3,267,326 2,169,085
Less: current portion (460,000) -
$2,807,326 $2,169,085
</TABLE>
The Western Economic Diversification loan represents subordinated financial
assistance to a maximum of $1,937,852, to assist in capital costs,
marketing cost, and working capital requirements. Under the terms of the
loan agreement, the Company has agreed to maintain equity of not less than
$2,200,000 and to postpone the repayment of shareholder loans and
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
8. LONG-TERM DEBT (continued)
dividends until the loan is repaid in full. Subsequent to June 30,
1997, a further advance of $150,655 was received by the Company (See
Note 18).
The Company has entered into an agreement with the Province of
Manitoba for a term loan. The loan is subject to certain conditions
which include minimum capital expenditures of $5,000,000, equity
contributions of $4,700,000, achievement of certain sales targets and
a minimum level of new job creation. A maximum of 42 months relief on
interest has been granted to the Company, subject to the Company
providing a certain number of new jobs per year. A final advance of
$561,000 was received by the Company subsequent to June 30, 1997 (See
Note 18).
The agreement provides for the acceleration of interest and principal
in the event the Company fails to provide a certain number of jobs per
year. Under the terms of the loan agreement, the Company has agreed
to postpone the repayment of shareholder loans and dividends.
Minimum principal repayments required under the terms of the debt
agreements are as follows (including amounts advanced subsequent to
June 30, 1997):
1998 $460,000
1999 $1,060,000
2000 $880,502
2001 $623,500
2002 $623,500
2003 $331,479
9. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases specialized equipment under three capital leases.
The leases are held in U.S. dollars in the name of National Healthcare
Manufacturing Corporation, U.S. and are converted to Canadian dollars
using the exchange rate as at June 30, 1997 as follows:
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended
June 30, 1996 and 1995)
9. OBLIGATIONS UNDER CAPITAL LEASES (continued)
<TABLE>
Lease Lease Lease
1094-001 1094-002 1194 Total
<S> <C> <C> <C> <C>
1998 $1,131,226 $619,818 $675,705 $2,426,749
1999 1,131,226 619,818 619,400 2,370,444
2000 1,131,226 619,818 - 1,751,044
2001 1,131,226 619,818 - 1,751,044
2002 377,077 309,909 - 686,986
Total minimum lease payments 4,901,981 2,789,181 1,295,105 8,986,267
Less: amount
representing interest 1,055,670 619,705 87,355 1,762,730
approximating 10.4% to
11.5%
3,846,311 2,169,476 1,207,750 7,223,537
Less: current portion 726,397 390,484 601,671 1,718,552
$3,119,914 $1,778,992 $606,079 $5,504,985
</TABLE>
Since fiscal 1995, the Company was in dispute with the original lessor in
respect of capital leases 1094 001, 1094-002 and 1194. The lessor did not
recognize the validity of a settlement agreement signed in fiscal 1995.
The Company believed that it had strong arguments to support the validity
of the settlement agreement. As a result, certain adjustments were made in
1995 to the various equipment under capital leases and the lease
obligations based on the then interpretation of the settlement terms.
During fiscal 1997, the dispute was finally settled and the leases
were assumed by a new lessor. The terms were similar to the 1995
settlement agreement except for the following:
i) The refundable deposit on equipment paid by the Company was applied
against the lease liability by the lessor.
ii) The implicit interest rate of the capital lease obligations was
reduced as a result of the settlement.
Accordingly, the capital lease obligations, the respective equipment
under capital leases and the refundable deposit on equipment were
adjusted accordingly.
The above lease obligations reflect the new lease terms after
settlement of the dispute with the lessor.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended
June 30, 1996 and 1995)
10.LOANS PAYABLE TO SHAREHOLDERS AND DIRECTOR-RELATED COMPANIES
<TABLE>
1997 1996
<S> <C> <C>
Loans payable, shareholders $1,187,551 $720,826
Loans payable, director-related companies 877,219 -
$2,064,770 $720,826
</TABLE>
The loans payable to shareholders and director-related companies are
unsecured, non-interest bearing, with no fixed terms of repayment.
The terms of the government assistance agreement with Western Economic
Diversification require that the Company obtain the consent of both
the Minister of Western Economic Diversification and Manitoba
Development Corporation prior to the repayment of shareholders' loans.
The shareholders and director-related companies have agreed to not
demand repayment within fiscal 1998; accordingly these loans have been
classified as non-current.
11. SHARE CAPITAL
<TABLE>
1997 1996
<S> <C> <C>
Common Shares
Authorized
Unlimited Class A common shares, voting
Issued
11,070,415 Class A common shares,
net of issue costs (1996 - 10,753,290) $9,318,163 $8,677,351
</TABLE>
Performance Shares
The Company has issued 1,180,000 performance shares at a price of $.01
per share which are currently held in escrow pursuant to an Escrow
Agreement dated June 29, 1995. The escrow restrictions contained in
the Escrow Agreement provide that the shares may not be traded in,
dealt with in any manner whatsoever, or released, nor may the Company,
its transfer agent or escrow holder make any transfer or record any
trading of the shares without the consent of the Superintendent of
Brokers for British Columbia or, while the shares are listed on the
Vancouver Stock Exchange, the consent of the Exchange. For each $.09
of cumulative cash flow generated by the Company from its operations,
one performance share may be released from escrow.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended
June 30, 1996 and 1995)
11.SHARE CAPITAL (continued)
Stock Options
The Company has issued options to certain directors and employees of
the Company and its subsidiaries to purchase common shares of the
Company, as follows:
<TABLE>
Date of Issuance
1997 1996 1995
<S> <C> <C> <C>
Options outstanding, beginning 957,829 987,829 -
of year
Options granted 536,950 - 987,829
Options exercised (67,125) - -
Options cancelled or expired (60,000) (30,000) -
Options outstanding, end of 1,367,654 957,829 987,829
year
Exercise prices of options
granted during the year $3.81 - $6.13 $2.00
Expiry date of options Aug 11, 2001 November
granted during the year and 30, 2000
June 3, 2002
</TABLE>
Certain restrictions and obligations have been placed upon certain
management personnel with respect to the exercise of their stock
options and the sale, transfer, assignment or other disposition of
their stock options or shares issued to them upon exercise of their
stock options, as a condition of the government assistance received
from the Province of Manitoba.
12.WARRANTS
The Company has issued various types of warrants, as follows:
Agent's Warrants
In connection with its initial public offering the Company issued to
an agent non-transferable share purchase warrants entitling the agent
to purchase up to 250,000 shares at any time up to the close of
business two years from the date the shares are listed, posted and
called for trading on the Vancouver Stock Exchange, at a price of
$2.00 per share in the first year and at a price of $2.30 per share in
the second year. As at June 30, 1997, all agents' warrants had been
exercised.
Special Warrants
On June 26, 1996, the Board of Directors passed a resolution
authorizing a private placement of up to 1,200,000 special warrants at
a price of $3.00 per warrant. On July 31, 1996, a total of 905,000
special warrants were issued for gross proceeds of $2,715,000. The
special warrants
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
12.WARRANTS (continued)
Special Warrants (continued)
were issued as a fully paid security and each special warrant is
exercisable into one Class A common share and one transferable Class A
share purchase warrant. Each Class A share purchase warrant entitles
the holder to purchase one additional Class A share at a price of
$3.50 per share. The warrants are exercisable at the earlier of
eighteen months from the closing date or six months after the date of
the last receipt for the prospectus.
The Company paid the agent commission equal to 7% of the aggregate
proceeds and issued 75,416 broker's warrants which represent 8.3333%
of the special warrants sold pursuant to the offering. Each broker's
warrant is exercisable into one compensation warrant. Each
compensation warrant entitles the broker to purchase one Class A share
at a price of $3.00 per share.
On January 8, 1997, the Company closed a second private placement of
1,600,000 special warrants at a price of $6.00 per special warrant.
Each special warrant entitled the holder, upon exercise, to acquire
one unit consisting of one Class A share and one-half of one non-
transferable share purchase warrant. Each whole warrant entitled the
holder to purchase one additional Class A share at a price of $7.00
per share. Because receipts for the prospectus filed by the Company
to qualify the units were not obtained from all relevant regulatory
authorities within 120 days from the date of closing the private
placement, each unit now consists of one Class A share and one (rather
than one-half) non-transferable share purchase warrant. The Company
raised gross proceeds of $9,600,000 from this private placement and
incurred a commission of 8% of gross proceeds which was paid by the
issuance of 128,000 special warrants at a deemed price of $6.00 per
special warrant.
All of the above special warrants and broker's warrants were
outstanding at June 30, 1997.
13.INCOME TAXES
The Company has non-capital losses carried forward of approximately
$10,990,000 (1996 - $4,883,000) which can be utilized to reduce the
taxable income of future years. The Company is also entitled to tax
credits of approximately $244,000 (1996 - $227,000) which are
creditable against provincial income taxes.
The benefits relating to the losses and the tax credits have not been
recognized in the financial statements and the losses expire as
follows:
2002 $ 1,887,000
2003 2,996,000
2004 6,006,000
2012 101,000
$10,990,000
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
13. INCOME TAXES (continued)
The tax credits available to the Company begin to expire in 2002.
14. SEGMENTED INFORMATION
The Company operates primarily in, and derives revenue from, the
automated packaging and sale of surgical and custom procedure trays
and liquid products for the healthcare industry segment.
A significant portion of the Company's sales during the year were to
customers in a foreign country:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Sales to customers outside Canada $2,482,035 $384,888 $-
Sales to customers within Canada 2,423,366 171,217 -
$4,905,401 $556,105 $-
</TABLE>
15. RELATED PARTY TRANSACTIONS
The President and Chief Executive Officer of the Company also serves
as President and Chief Executive Officer of another company which has
granted National Healthcare Manufacturing Corporation rights to
certain technology under a licensing agreement made under similar
terms and conditions as transactions with unrelated entities. The
license agreement, dated May 30, 1995, is for an initial term of ten
years with provisions for renewal for consecutive ten-year terms
thereafter. National Healthcare Manufacturing Corporation has agreed
to purchase all automated machinery from this related company, subject
to the terms of a twenty-year agreement between the related company
and a manufacturer. The related company has granted the manufacturer
the exclusive right to manufacture all machinery and equipment which
incorporates the said technology, and the related company has agreed
to purchase products only from the manufacturer. The related party
has agreed to sell machinery and equipment to National Healthcare
Manufacturing Corporation at its cost. During the year, the Company
paid $804,832 (1996 - $314,228 and 1995 - $345,890) for such machinery
and equipment.
The above transactions are measured at the exchange amount, which is
the amount of consideration established and agreed to by the related
parties.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
13. BUSINESS ACQUISITIONS
Acquisition of National Care Products Ltd.
Effective September 1, 1996, the Company acquired all of the issued
and outstanding shares of National Care Products Ltd., the wholly
owned liquid products subsidiary of Arjo Canada Inc. The acquisition
was accounted for using the purchase method and the total
consideration paid was allocated, based on the estimated fair value of
the net assets at the date of acquisition, as follows:
Inventory $633,768
Property, plant and equipment 262,679
Total cash consideration $896,447
The results of operations have been included in the accounts of the
Company from the effective date of acquisition. Pro-forma results of
operations have not been presented for the full year as it would not
be materially different from the 1997 results of operations.
Under the terms of the purchase agreement, Arjo Canada Inc. has given
a three year commitment to certain minimum levels of purchases of
liquid products at agreed-upon prices.
Acquisition of Gam-Med Division
Effective February 21, 1997, the Company (through its wholly-owned
subsidiary National Healthcare Manufacturing Corporation, U.S.)
acquired certain properties, assets, contracts and business of Gam-
Med, a division of Huntington Laboratories Inc., including land,
building, machinery and equipment, accounts receivable, inventory,
proprietary patents and on-going business. The total consideration
paid was allocated, based on the estimated fair value of the net
assets acquired at the date of acquisition, as follows:
Accounts receivable $257,824
Inventory 331,925
Property, plant and equipment 1,088,979
Total cash consideration $1,678,728
The results of operations have been included in the accounts of the
Company from the effective date of acquisition. Pro-forma results of
operations have not been presented for the full year as it would not
be materially different from the 1997 results of operations.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
17. COMPARATIVE FIGURES
Certain of the prior years figures have been reclassified to conform
to the current year's presentation.
18. SUBSEQUENT EVENTS
Additional Investment in National Healthcare Logistics LLC
Subsequent to June 30, 1997, the Company acquired an additional 166
2/3 Class C preferred shares of National Healthcare Logistics LLC, for
cash consideration of $347,875.
Exercise of Warrants and Stock Options
Subsequent to June 30, 1997, 306,416 warrants and 37,500 stock options
were exercised in exchange for the issuance of common shares.
Agreement with Importex Corp.
Effective September 8, 1997 the Company entered into an agreement with
Importex Corp. to acquire the rights to distribute the Mertex and
Mertex-Plus fabrics and miscellaneous other assets. As consideration
for the purchase, the Company agreed to pay $100,000 cash, 225,000
shares of the Company and a warrant entitling Importex to purchase
150,000 Class A common shares of the Company at $6.90. The agreement
requires the Company to make certain minimum purchases of the fabrics
from the manufacturer.
Issuance of Convertible Debentures
Subsequent to June 30, 1997, the Company issued U.S. $5,000,000 in
Convertible Debentures. The Convertible Debentures bear interest of
6% annually and are convertible, upon approval by securities
authorities, into Class A common shares of the Company at the lessor
of the average quoted market price prior to conversion and $6.01. All
debentures must be converted within one year from the closing day. In
addition, the debenture holder received a two-year warrant to purchase
50,000 Class A common shares at $6.61 for the first year and $7.21 for
the second year.
The Company is in the process of filing a registration statement with
respect to this issuance with the appropriate securities authorities.
Government Loans
Subsequent to June 30, 1997, the Company received additional advances
of $150,655 and $561,000 from Western Economic Diversification and the
Province of Manitoba respectively, under the respective agreements
(See Note 8).
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
19.UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
The Company has applied for registration under the 1934 Act with the
United States Securities and Exchange Commission. Effective July 31,
1996, the Company obtained formal approval for quotation of its
securities on NASDAQ in the United States.
A description of the Company's accounting principles which differ
significantly from U.S. GAAP follows:
Foreign Currency Translation
Unrealized exchange gains and losses relating to the translation of
the obligation under capital leases are deferred and amortized over
the remaining term of the leases. Under U.S. GAAP, these exchange
gains and losses would be recognized in income currently.
Earnings Per Share
Under U.S. GAAP, the Company would not include the 1,180,000
performance shares held in escrow in the calculation of the weighted
average number of shares used to determine earnings per share. The
release of these performance shares will result in recognition of
compensation expense under U.S. GAAP based on market value of the
shares when released from escrow.
Deferred Taxes
Under U.S. GAAP, deferred taxes are provided on all temporary
differences. Temporary differences encompass timing differences and
other events that create differences between the tax basis of an asset
or liability and its reported amount in the financial statements. A
deferred tax asset is recorded in a loss period and is reduced by a
valuation allowance to the extent it is more likely than not that the
deferred tax asset will not be realized. For U.S. GAAP purposes, a
valuation allowance equal to the tax loss benefits referred to in Note
13 would be disclosed.
Fair Value of Other Financial Instruments and Other Disclosures
The carrying amount of the following instruments approximate fair
value because of the short maturity of these instruments - cash,
accounts receivable, accounts payable and accrued liabilities, and
current portion of obligations under capital leases.
The application of U.S. GAAP, as described above, would have had the
following effects on net loss, loss per share and shareholders'
equity.
<PAGE>
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(with comparative balances as at June 30, 1996 and for the years ended June
30, 1996 and 1995)
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
(continued)
Fair Value of Other Financial Instruments and Other Disclosures
(continued)
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Net loss as reported $(4,248,043) $(3,211,746) $(868,794)
Deferred foreign exchange gain (134,026) 9,772 194,301
(loss)
Net loss - U.S. GAAP $(4,382,069) $(3,201,974) $(674,493)
Weighted average shares 9,745,842 8,908,419 5,751,366
outstanding - U.S. GAAP
Loss per share - U.S. GAAP $(0.45) $(0.36) $(0.12)
Shareholders' equity as reported $13,082,786 $4,596,811 $5,957,870
Deferred foreign exchange gain 54,128 9,772 194,301
Shareholders' equity - U.S. GAAP $13,136,914 $4,606,583 $6,152,171
</TABLE>
Newly issued, but not yet adopted, U.S. accounting principles are not
expected to have a material impact on these consolidated financial
statements.
<PAGE>
No dealer, salesman or any other person
has been authorized to give any
information or to make any
representation other than those $5,000,000
contained in this Prospectus and, if
given or made, such information or NATIONAL HEALTHCARE MANUFACTURING
representation must not be relied upon CORPORATION
as having been authorized by the
Company. This Prospectus does not
constitute an offer to sell or a
solicitation of any offer to buy any
security other than the Shares of
Common Stock offered by this Offering,
nor does it constitute an offer to sell
or a solicitation of any offer to buy
the Shares of a Common Stock by anyone
in any jurisdiction in which such offer
or solicitation is not authorized, or
in which the person making such offer
or solicitation is not qualified to do
so, or to any person to whom it is
unlawful to make such offer or
solicitation. Neither the delivery of
this Prospectus nor any sale made
hereunder shall, under any
circumstances create any implication
that information contained herein is
correct as of any time subsequent to
the date hereof.
___________________________
__________________ PROSPECTUS
TABLE OF CONTENTS
Page
Enforceabilty of Civil
Liabilities 2
Available Information 2
Incorporation of Certain
Documents by Reference 3
Prospectus Summary 6
Glossary of Terms 11
The Issuer 15
Business of the Issuer 15
Use of Proceeds 41
Risk Factors 43
Directors, Officer and
Promoters 45
Indebtedness of Directors,
Officers, Promoters and
Management 48 _____________, 1997
Payments to Insiders and
Promoters 48
Share and Loan Capital 51
Prior Sales and Trading
Information 59
Details of the Offering 61
Description of Securities
Offered 62
Relationship between Issuer or
Selling Security Holder and
Agent 63
Relationship Between the Issuer
and Professional Persons 63
Legal Proceedings 63
Legal Matters 63
Experts 64
Registrar and Transfer Agent 64
Material Contracts 64
Other Material Facts 65
Exhibits
Report of Independent
Chartered Accountants F-1
Balance Sheet 6/30/97 F-2
Statement of Operations F-3
Statement of Stockholders F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF REGISTRATION AND DISTRIBUTION.
The following table sets forth the estimated expenses of the Registrant in
connection with the offering described in this Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission
registration fee............. $ 2,065.00
Legal fees and
expenses...................................... 50,000.00
Total......................................... $52,065.00
</TABLE>
The balance of any expenses are being paid by the Issuer.
ITEM 15. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------------ -----------------------------------------------------------
4 Articles of Incorporation and Bylaws of National Healthcare
Manufacturing Corporation incorporated by reference to the Company's Form
20-F dated March 11, 1996
5 Legal Opinion of Sperry Young & Stoecklein
23 Consent of Sperry Young & Stoecklein
23.1 Consent of Arthur Andersen & Co.
ITEM 16. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. 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 and 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 percent change in the maximum
aggregate offering price, set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-
3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference
into 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.
<PAGE>
(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.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
(c) 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 foregoing provisions, 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
such 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 Act and will be governed by the final
adjudication of such issue.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 30TH DAY OF OCTOBER,
1997.
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
By:/s/ Mahmood Jamshidi Shahsavar
--------------------------------
Mahmood Jamshidi Shahsavar
President and Chief Executive Officer
<PAGE>
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.
<TABLE>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Mahmood Jamshidi Shahsavar President/Chief Executive Officer 10/30/97
MAHMOOD JAMSHIDI SHAHSAVAR Director
/s/ Reginald Adrian Ebbeling Chairman of the Board 10/30/97
REGINALD ADRIAN EBBELING Director
/s/ Morteza Seyed Torabian Executive Vice President 10/30/97
MORTEZA SEYED TORABIAN Director
/s/ Alice Elaine Affleck Secretary/Treasurer 10/30/97
ALICE ELAINE AFFLECK Director
/s/ Jack Tapper Vice President/Chief 10/30/97
JACK TAPPER Financial Officer
/s/ Robert Alexander Jackson Executive Vice President 10/30/97
ROBERT ALEXANDER JACKSON Director
/s/ Ross Scavuzzo Director 10/30/97
ROSS SCAVUZZO
/s/ Gordon John Farrimond Vice President Sales & Marketing 10/30/97
GORDON JOHN FARRIMOND Director
/s/ Aristotle John Mercury Director 10/30/97
ARISTOTLE JOHN MERCURY
/s/ Darrell Wayne Van Dyke Vice President NHMC US 10/30/97
DARRELL WAYNE VAN DYKE
<PAGE>
EXHIBIT 5
SPERRY YOUNG & STOECKLEIN
DONALD J. STOECKLEIN Telephone (702) 794-2590
Facsimile (702) 794-0744
ATTORNEY AT LAW
Practice Limited to Federal Securities
_____________________________________________________________
1850 E. Flamingo Rd., Suite 111, Las Vegas, Nevada 89119
March 31, 1998
JNC Opportunity Fund Ltd.
c/oOlympia Capital (Cayman) Ltd.
Williams
20 Reid Street
Hamilton Hm11
Bermuda
Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 10191
Re: National Healthcare Manufacturing Corporation
Ladies and Gentlemen:
We have acted as counsel to National Healthcare Manufacturing Corporation,
a corporation incorporated under the Manitoba Corporations Act (the
"Company"), in connection with the proposed issuance and sale of
Convertible Debentures (the "Securities") pursuant to the Convertible
Debenture Purchase Agreement (including all Exhibits and Schedules
thereto), Registration Rights Agreement, Escrow Agreement, Debentures, and
Warrants, (collectively the "Agreements") with JNC Opportunity Fund Ltd.,
and Diversified Strategies Fund, L.P., ("Purchasers"), dated March 31, 1998
between the Company and the Purchasers.
In connection with rendering the opinions set forth herein, we have
examined the Agreements, the Company's Certificate of Incorporation, and
its Bylaws, each as amended to date, the Annual Report 95'/96'/97,'the
proceedings of the Company's Board of Directors taken in connection with
entering into the Agreements, and such other documents, agreements,
records, and questions of law as we deemed necessary to render the opinions
set forth below. Capitalized terms used herein, and not otherwise defined,
have the meaning set forth in the Purchase Agreement.
<PAGE>
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in
the same form as the forms which we have examined, (ii) the genuineness of
all signatures, the legal capacity of natural persons, the authenticity and
accuracy of all documents submitted to us as originals, and the conformity
to originals of all documents submitted to us as copies, (iii) that each of
the Agreements has been duly and validly authorized, executed, and
delivered by the party or parties thereto other than the Company, and (iv)
that each of the Agreements constitutes the valid and binding agreement of
the party or parties thereto other than the Company, enforceable against
such party or parties in accordance with the Agreements' terms.
Based upon and subject to the foregoing, we are of the opinion that:
1. Each of the Company and its Subsidiaries is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other
than the Subsidiaries. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary.
2. The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of the
Agreements and otherwise to carry out its obligations thereunder. The
execution and delivery of each of the Agreements by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. Each of the
Agreements has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
3. No shares of common stock of the Company, no par value ("Common
Stock") are entitled to preemptive or similar rights. Except as
specifically disclosed in paragraph 2.1(c ) and Schedule 2.1(c) to the
Purchase Agreement, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the
Debentures, securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is
or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock.
4. The Debentures and the Warrants have been duly authorized and,
when paid for and issued in accordance with the terms of the Purchase Agreement,
shall have been validly issued, fully paid and nonassessable.
5. The Company has duly authorized and reserved for issuance such
number of Underlying Shares as are issuable upon conversion of the Debentures,
aspayment of interest thereon, and upon exercise of the Warrant, as required
pursuant to the Purchase Agreement, the Debentures and the Warrants. When
issued by the Company in accordance with the terms of the Purchase
Agreement, the Debentures and the Warrants (as the case may be), the
Underlying Shares will be validly issued, fully paid and nonassessable.
<PAGE>
6. The execution, delivery and performance of the Agreements by the
Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provisions of its Articles of Incorporation or Bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or other written instrument relating to indebtedness of the
Company or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the
Company is subject, or by which any property or asset of the Company is
bound or affected. To our knowledge, the business of the Company is not
being conducted in violation of any law, ordinance or regulation or any
governmental authority.
7. Other than the Required Approvals, neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or
order of, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other person in
connection with the execution, delivery and performance by the Company of
the Transaction Documents.
8. To our knowledge, the Company has filed all reports required to
be filed by it under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereto (or such shorter period as the
Company was required by law to file such material) (collectively, the "SEC
Documents") on a timely basis, or has received a valid extension of such
time of filing and made such filing within the applicable grace period. As
of their respective dates, the SEC Documents complied in all material
respects as to form with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder. To our knowledge, the Company has been
in compliance with its filing and reporting requirements under applicable
Canadian securities and stock exchange laws, rules and regulations.
9. Assuming the accuracy of the representations and warranties
of the Company set forth in Section 2.1 of the Purchase agreement and of
the Purchaser set forth in Section 2.2 of the Purchase Agreement, the
offer, issuance and sale of the Debentures and the Warrants and the offer
and sale of the Underlying Shares to the Purchaser pursuant to the Purchase
Agreement, the Debentures and the Warrants are exempt from the registration
requirements of the Securities Act and applicable Canadian Securities laws.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they
be inferred. This opinion is based solely upon the laws of the United
States, as currently in effect, and does not include an interpretation or
statement concerning the laws of any state or jurisdiction.
Notwithstanding the above, insofar as the enforceability of the Agreements
may be governed by the laws of other states, we have assumed that such laws
are identical in all respects to the laws of the State of California.
<PAGE>
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Agreements and may not
be relied upon by any other person or entity or for any other purpose
without prior consent.
S/Donald J. Stoecklein
Sperry Young & Stoecklein
<PAGE>
EXHIBIT 23
SPERRY YOUNG & STOECKLEIN
DONALD J. STOECKLEIN Telephone (702) 794-2590
Facsimile (702) 794-0744
ATTORNEY AT LAW
Practice Limited to Federal Securities
_____________________________________________________________
1850 E. Flamingo Rd., Suite 111, Las Vegas, Nevada 89119
June 1, 1998
National Healthcare Manufacturing Corporation
409 Granville Street, Suite 1455
Vancouver, B.C. V6C1T2
RE: National Healthcare Manufacturing Corporation/F3 Filing CD
$6,750,000
Ladies and Gentlemen:
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form F-3) and related Prospectus of National
Healthcare Manufacturing Corporation for the registration of 6% Convertible
Debentures due March 2000 and shares of common stock issuable on conversion
thereof and to the utilization in the Registration Statement being filed
with the Securities Exchange Commission, of our legal opinion.
S/Donald J. Stoecklein
Sperry Young & Stoecklein
<PAGE>
EXHIBIT 23.1
ARTHUR
ANDERSEN
------------------------------------------------
Arthur Andersen & Co.
Chartered Accountants
------------------------------------------------
500-330 St. Mary Avenue
Winnipeg Manitoba R3C375
204 942-6541
204 956-0830
Consent of Independent Chartered Accountants
As independent chartered accountants, we hereby consent to the use of our
report and to all references to our firm included in, or made a part of,
this registration statement.
/s/ Arthur Andersen & Co.
Arthur Andersen & Co.
Winnipeg, Manitoba, Canada
June 19, 1998
</TABLE>
