SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported) December 24, 1997
HEALTHCARE CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Alberta, Canada 0-22367 Not applicable
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
111 S.W. Fifth Street, Suite 2390, Portland, Oregon 97204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 225-9152
<PAGE>
Item 1. Changes in Control of Registrant.
On December 24, 1997, HealthCare Capital Corp. (the
"Corporation") consummated the sale of 13,333,333 Series A Convertible Preferred
Shares (the "Convertible Shares"), together with warrants (the "Warrants") to
purchase 10,000,000 common shares of the Corporation (the "Common Shares") for
$2.40 per share, to Warburg, Pincus Ventures, L.P., a Delaware limited
partnership, for $18,000,000 in cash pursuant to a Securities Purchase Agreement
dated November 21, 1997. The source of funds for the purchase was liquid
investment funds held by Warburg, Pincus Ventures, L.P. The net proceeds of
approximately $16,000,000 after payment of investment banker fees and attorney
fees will be utilized for acquisitions of additional audiology-related
businesses and for working capital purposes.
As a result of the purchase of the Convertible Shares by
Warburg, Pincus Ventures, L.P., its general partner, Warburg, Pincus & Co.
("Warburg"), holds voting and investment power with respect to approximately 33
percent of the outstanding voting securities of the Corporation. The Convertible
Shares are entitled to one vote per share (or such other number of votes equal
to the number of Common Shares into which a Preferred Share shall be convertible
from time to time) on all matters presented for action by the Corporation's
shareholders. Including the Common Shares issuable upon exercise of the
Warrants, Warburg beneficially owns approximately 46 percent of the voting
securities of the Corporation.
For so long as Warburg beneficially owns a number of
outstanding Common Shares or Convertible Shares constituting at least 10 percent
of the outstanding Common Shares (including for this purpose the Common Shares
issuable upon conversion of the Convertible Shares but not the Common Shares
issuable upon exercise of the Warrants), the Corporation will be required to
nominate and use its reasonable best efforts to cause to be elected and remain
as directors two persons, reasonably satisfactory to the Corporation and
acceptable to The Alberta Stock Exchange, if applicable, designated by Warburg.
Such number will increase to three if and for so long as the number of positions
on the Board of Directors exceeds eight. Such number will decrease by one if
Warburg beneficially owns less than 10 percent of the outstanding Common Shares
(including for this purpose the Common Shares issuable upon conversion of the
Convertible Shares but not the Common Shares issuable upon exercise of the
Warrants) and will further decrease to none if Warburg beneficially owns less
than 3,333,333 outstanding Common Shares or Convertible Shares. As long as
Warburg beneficially owns at least 3,333,333 outstanding Common Shares or
Convertible Shares, the number of positions on the Board may not exceed 11. The
right to designate one nominee for director may be transferred by Warburg to a
single purchaser of at least 6,666,667 Convertible Shares or Common Shares
issued upon conversion thereof.
On December 24, 1997, Gene K. Balzer, Ph.D., resigned as a
director of the Corporation and Warburg's designee, Joel Ackerman, was appointed
to fill the resulting vacancy. Warburg has not yet determined the identity of
its second nominee to the Corporation's Board of Directors.
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Prior to issuance of the Convertible Shares, control of the
Corporation was effectively in the hands of the Corporation's directors,
particularly Douglas F. Good, Chairman of the Board, and Brandon M. Dawson,
President and Chief Executive Officer, who together owned 20% of the outstanding
Common Shares. Messrs. Good and Dawson now hold a total of 13% of the
outstanding voting securities of the Corporation.
As a result of Warburg's significant percentage share
ownership, as well as its right to designate nominees for director of the
Corporation as discussed above, Warburg will be able to exercise substantial
influence and control over the Corporation's affairs. In addition, for as long
as Warburg beneficially owns at least 3,333,333 outstanding Common Shares or
Convertible Shares, the Corporation will not be permitted to engage in specified
significant corporate transactions without Warburg's written consent.
The Convertible Shares may be converted at any time, in whole
or in part, into Common Shares. The conversion rate is one Common Share for each
Convertible Share surrendered for conversion. The conversion rate and other
share and share price references are subject to adjustment for stock dividends,
stock splits, reverse stock splits, recapitalizations, and other anti-dilution
provisions.
The Convertible Shares carry cumulative preferred dividends,
as well as a liquidation preference of at least $1.35 per share. The Corporation
will be prohibited from paying cash dividends to holders of Common Shares unless
the accumulated dividends on the Convertible Shares have been paid in full. Such
holders' right to receive a distribution of assets of the Corporation upon
liquidation will also be junior to the liquidation preference of the Convertible
Shares.
A copy of the news release dated December 29, 1997, in which
the Corporation announced the consummation of the foregoing transaction is
attached as Exhibit 99.1 hereto. A more complete summary of the terms of the
Convertible Shares is included in the description of Common Shares attached as
Exhibit 99.2 hereto and incorporated herein by reference.
Item 5. Other Events.
On December 24, 1997, the American Stock Exchange (the "AMEX")
granted conditional listing approval for the Common Shares, contingent upon
effectiveness of a one-for-five reverse stock split (consolidation) of the
Common Shares and a post-split share price which exceeds the AMEX's $3.00 per
share guideline. The Corporation has scheduled a special meeting of shareholders
for February 9, 1998, at which shareholders will be asked to approve the
proposed one-for-five reverse stock split. The news release dated December 29,
1997, attached hereto as Exhibit 99.1 contains additional details of the
proposed reverse stock split and AMEX listing.
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<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
Exhibit 99.1 News Release of HealthCare Capital
Corp. dated December 29, 1997
Exhibit 99.2 Description of Common Shares of
HealthCare Capital Corp.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
DATED: December 31, 1997 HEALTHCARE CAPITAL CORP.
By /s/ Edwin J. Kawasaki
Edwin J. Kawasaki
Vice President-Finance and
Chief Financial Officer
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EXHIBIT 99.1
HEALTHCARE CAPITAL CORP.
- --------------------------------------------------------------------------------
CONTACT: -OR- HCL'S INVESTOR RELATIONS COUNSEL:
HealthCare Capital Corp. The Equity Group
Edwin J. Kawasaki Devin Sullivan
Chief Financial Officer (212) 836-9608
(503) 225-9152
FOR IMMEDIATE RELEASE
---------------------
Portland, OR - December 29, 1997 - The Board of Directors of HealthCare Capital
Corp. (Alberta Stock Exchange: HCL)("HealthCare" or the "Company"), d/b/a SONUS,
a leading operator of audiology clinics in the United States and Canada, is
pleased to announce the following corporate developments:
HEALTHCARE RECEIVES CONDITIONAL LISTING APPROVAL
------------------------------------------------
TO TRADE COMMON STOCK ON AMERICAN STOCK EXCHANGE
------------------------------------------------
HealthCare today announced that the American Stock Exchange ("AMEX") has granted
conditional listing approval for the Company's common stock. Listing on the AMEX
is contingent upon the receipt by HealthCare of shareholder approval for a
proposed one-for-five reverse stock split (consolidation), the details of which
are outlined below, and a post-split share price which exceeds U.S. $3.00 per
share.
HEALTHCARE CLOSES SECURITIES PURCHASE AGREEMENT WITH
----------------------------------------------------
WARBURG, PINCUS VENTURES, L.P. FOR U.S. $18 MILLION
---------------------------------------------------
HealthCare also announced the closing of its previously announced $18 million
preferred stock private placement with Warburg, Pincus Ventures, L.P. In the
event the warrants issued in the transaction are exercised, HealthCare may
receive additional proceeds of up to $24 million.
Brandon M. Dawson, President and Chief Executive Officer of HealthCare,
commented, "The hearing health care industry is highly fragmented and populated
primarily by sole proprietor operations, many of which have been unable to
replicate the economic advantages derived from being part of a large,
multi-clinic organization. The net proceeds from the Warburg private placement,
coupled with HealthCare's growing reputation as a high quality provider of
hearing health services, will greatly assist us in achieving our goal of
becoming the premier hearing health care provider in North America's $2 billion
hearing health market."
HEALTHCARE PROPOSES ONE-FOR-FIVE REVERSE STOCK SPLIT (CONSOLIDATION)
--------------------------------------------------------------------
COMPANY TO CHANGE NAME TO SONUS CORP.
-------------------------------------
HealthCare's Board of Directors has proposed a one-for-five reverse stock split
(consolidation) of the outstanding shares of the Company's common stock.
HealthCare has scheduled a Special Meeting of Shareholders for February 9, 1998,
where shareholders will be asked to approve the proposed reverse stock split, as
well as a change of the Company's name to Sonus Corp. Upon shareholder and
regulatory approvals of the proposed reverse stock split, the number of
outstanding common shares will be reduced to 5,456,903 from 27,284,517, the
number of outstanding preferred shares will be reduced to 2,666,666 from
13,333,333 and the number of fully diluted shares will be reduced to 12,625,631
from 63,128,158. The outstanding shares
<PAGE>
on a fully diluted basis include shares to be issued upon the exercise of
warrants and options. In the event that such warrants and options are exercised,
HealthCare may receive up to $41 million.
Mr. Dawson commented, "Listing on the AMEX will provide much broader exposure
for HealthCare and create greater opportunities for U.S.-based investment
professionals to purchase common shares on the open market. The AMEX is one of
the world's premier auction marketplaces, providing more than 800 companies with
greater visibility and access to the investment community. By increasing the
per-share price of HealthCare's common stock via the proposed reverse stock
split, the resulting shares should become more attractive to a larger number of
institutional investors. We believe that this increased interest, combined with
continued favorable operating results, such as a 319% increase in fiscal 1998
first quarter revenues from the same period in the prior fiscal year and two
consecutive quarters of positive EBITDA, and an aggressive North American
acquisition strategy, will translate into increased shareholder value and
enhanced visibility for HealthCare."
With respect to changing the Company's name to Sonus Corp., Mr. Dawson
continued, "The name SONUS, which is Latin for sound, more accurately reflects
the Company's focus on hearing health. Hearing is an important part of
communication, and it is the reason we have dedicated ourselves to becoming
North America's premier provider of hearing health services."
### #### ###
HealthCare owns the largest group of audiology based hearing clinics operating
in the United States and Canada. HealthCare's 52 hearing clinics provide a full
range of products and services to hearing impaired patients. The Company's
vision is to become the premier hearing care provider in North America.
HealthCare's strategy involves the consolidation of the industry through
acquisition of quality hearing care clinics.
This news release contains forward looking statements which may involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of HealthCare to be materially different
from any future results, performance or achievements expressed or implied by
such forward looking statements. Such factors with respect to HealthCare include
economic trends in HealthCare's market area, the ability of HealthCare to manage
its growth and integrate new acquisitions into its network of hearing care
clinics, the development of new or improved medical or surgical treatments for
hearing loss or of technological advancements in hearing instruments, changes in
the application or interpretation of applicable governmental laws and
regulations, the ability of HealthCare to complete additional acquisitions of
hearing care clinics on terms favorable to HealthCare, the degree of
consolidation in the hearing care industry, HealthCare's success in attracting
and retaining qualified audiologists and staff to operate its hearing clinics,
product and professional liability claims brought against HealthCare's insurance
coverage, and the availability of and costs associated with potential sources of
financing. HealthCare disclaims any obligation to update any such factors or to
publicly announce the results of any revision to the forward looking statements
contained herein to reflect future events or developments.
ON BEHALF OF THE BOARD OF DIRECTORS
"Brandon M. Dawson"
Brandon M. Dawson
President/CEO
"The Alberta Stock Exchange has neither approved nor disapproved the
information contained herein."
EXHIBIT 99.2
DESCRIPTION OF COMMON SHARES
OF HEALTHCARE CAPITAL CORP.
The authorized capital stock of HealthCare Capital Corp. (the
"Company") consists of an unlimited number of Common Shares, without nominal or
par value (the "Common Shares"), and an unlimited number of Preferred Shares,
without nominal or par value (the "Preferred Shares"). The Company is
incorporated under the laws of Alberta, Canada.
The Company's Board of Directors (the "Board") has the authority to
issue Preferred Shares in one or more series and to fix the number of shares
comprising any such series and the designations, rights, privileges,
restrictions, and conditions attaching thereto, including the rate or amount of
dividends or the method of calculating dividends, the dates of payment of
dividends, the redemption, purchase, and/or conversion price or prices and the
terms and conditions of any such redemption, purchase, and/or conversion, and
any sinking fund or other provisions, without any further vote or action by the
holders of Common Shares. The only outstanding series of Preferred Shares is a
series designated as Series A Convertible Preferred Shares, consisting of
13,333,333 shares issued on December 24, 1997. A summary of certain of the
preferences, limitations and relative rights of the Series A Convertible
Preferred Shares is set forth below.
COMMON SHARES
Voting Rights. Holders of Common Shares are entitled to one vote per
share at all meetings of shareholders of the Company. Except as otherwise
required by law or unless the Board determines otherwise with respect to a
particular series of Preferred Shares, the Common Shares and all series of the
Preferred Shares having voting rights will vote together as one class. Under the
Business Corporations Act (Alberta), the holders of each class of shares are
generally entitled to vote as a separate class (whether or not such class
otherwise has voting rights) upon any proposal to amend the Company's Articles
to (i) increase or decrease the maximum number of authorized shares of that
class, (ii) increase the maximum number of authorized shares of another class
having rights or privileges equal or superior to those of that class, (iii)
effect an exchange, reclassification or cancellation of all or a portion of the
shares of that class, (iv) add, change or remove the rights, privileges,
restrictions or conditions attached to that class, (v) increase the rights or
privileges of any class having rights or privileges equal or superior to those
of that class, (vi) create a new class having rights or privileges equal or
superior to those of that class, (vii) change the rights or privileges of any
class with inferior rights or privileges such that they are equal to or superior
to those of that class; (viii) effect an exchange of shares of another class
into the shares of that class, or (ix) restrict the issue or transfer of the
shares of that class or extend or remove that restriction.
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Other. All Common Shares rank ratably with regard to dividends (if and
when declared by the Board). In the event of a liquidation, dissolution, or
winding up of the Company, holders of Common Shares are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all liabilities of the Company and the liquidation preference of any
outstanding class or series of Preferred Shares. The Common Shares do not have
preemptive rights. All outstanding Common Shares are fully paid and
nonassessable.
SERIES A CONVERTIBLE PREFERRED SHARES
Certain of the preferences, limitations and relative rights of the
Series A Convertible Preferred Shares (the "Convertible Shares") are summarized
below.
Voting Rights. Each Convertible Share is entitled to one vote (or such
other number of votes equal to the number of Common Shares into which such
Convertible Share shall be convertible from time to time) in the election of
directors and any other matters presented to the shareholders of the Company for
their action or consideration. Except to the extent otherwise required by law or
the Company's Articles, holders of Convertible Shares and of any other
outstanding preferred shares will vote together with the holders of Common
Shares as a single class. See "Common Shares--Voting Rights." Any change in the
rights and preferences of the Convertible Shares will require the approval of
the holders of at least 66-2/3% of the outstanding Convertible Shares, voting
separately as a class.
Dividends. Each Convertible Share is entitled to receive, when, as and
if declared by the Board out of the Company's assets legally available for
payment, cumulative dividends from the date of original issuance, payable
annually at a rate of 5% per annum on a base amount of $1.35 per share (the
"Base Amount"). All accrued and unpaid dividends will be forfeited upon the
conversion of the Convertible Shares. The dividend rate will be subject to
increase on specified dates in the event that certain conditions (the
"Triggering Conditions") have not been met. The Triggering Conditions are as
follows:
(a) The Common Shares are listed on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq National Market
(each a "U.S. Principal Market");
(b) The Common Shares are traded on a U.S. Principal Market at
a daily closing price greater than $2.40 per Common Share on each of
the ten consecutive trading days preceding the applicable date; and
(c) The Company's net income before income taxes, dividends on
the Convertible Shares, and amortization of goodwill and covenants not
to compete for the three consecutive fiscal quarters preceding the
applicable date shall have averaged at least $0.07 per fully diluted
Common Share per fiscal quarter (for purposes of making this
calculation, the Common Shares issuable upon the exercise of the
Warrants will not be counted).
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<PAGE>
If the Triggering Conditions have not been met by:
(x) January 1, 2003, the dividend rate will thereafter be 15%
per annum of the Base Amount;
(y) January 1, 2004, the dividend rate will thereafter be 18%
per annum of the Base Amount; or
(z) January 1, 2005, the dividend rate will thereafter be 21%
per annum of the Base Amount.
As soon as the Triggering Conditions have been satisfied, the dividend rate will
revert to 5% per annum of the Base Amount. All references to per share amounts
or prices with respect to the Triggering Conditions will be appropriately
adjusted for any subdivision, consolidation, or reclassification of the Common
Shares.
Dividends on the Convertible Shares may, in the discretion of the Board
and subject to applicable regulatory approvals at the time of payment, be paid
in Common Shares based on the market price of such shares. Accruals of dividends
on the Convertible Shares will not bear interest.
No dividends on the Common Shares or any other share capital ranking,
as to dividends, equal to or junior to the Convertible Shares as to dividends
may be declared or paid unless full accumulated dividends on the Convertible
Shares have been paid or declared and sufficient funds set aside for such
payment. The foregoing prohibition will not apply to dividends or distributions
payable in Common Shares or certain other comparable actions.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Company subject to the rights of
holders of any securities of the Company ranking senior to the Convertible
Shares upon liquidation, the holders of Convertible Shares will be entitled to
receive, out of the assets of the Company available for distribution to
shareholders, before any distribution of assets is made to holders of Common
Shares or any other securities ranking junior to the Convertible Shares upon
liquidation, a liquidating distribution in an amount equal to the greater of (i)
$1.35 per share plus any accrued and unpaid dividends or (ii) the amount that
would have been distributable to such holders if they had converted their
Convertible Shares into Common Shares immediately prior to such dissolution,
liquidation, or winding up, plus any accrued and unpaid dividends. The sale,
conveyance, mortgage, pledge or lease of all or substantially all the assets of
the Company will be deemed to be a liquidation of the Company for purposes of
the liquidation rights of the holders of Convertible Shares. After payment of
the full amount of the liquidating distribution to which they are entitled, the
holders of Convertible Shares will have no right to any of the remaining assets
of the Company.
Optional Redemption. The Convertible Shares may not be redeemed before
January 1, 2003. Thereafter, the Convertible Shares may be redeemed at the
option of the Company, in whole or in part. The redemption price will be an
amount equal to the greater of (i) $1.35 per share plus any accrued and unpaid
dividends or (ii) the fair market value of a
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<PAGE>
Convertible Share as determined by a nationally recognized independent
investment banking firm selected by mutual agreement of the Company and the
holder of a majority of the outstanding Convertible Shares. The Convertible
Shares are not subject to mandatory redemption or any sinking fund provisions.
Conversion Rights. The Convertible Shares may be converted at any time,
in whole or in part, at the option of the holder thereof, into Common Shares.
The conversion rate will be one Common Share for each Convertible Share
surrendered for conversion. The conversion rate is subject to adjustment for
stock dividends, stock splits, recapitalizations, and other anti-dilution
adjustments. Upon the conversion of any Convertible Shares, any accrued and
unpaid dividends with respect to such shares will be forfeited. The Company has
the right to force conversion of the Convertible Shares, in whole or in part,
upon satisfaction of all the Triggering Conditions. Common Shares issuable upon
conversion of the Convertible Shares will be fully paid and nonassessable and
will not have preemptive rights.
Preemptive Rights. The Convertible Shares do not have preemptive
rights.
WARRANTS
At December 31, 1997, the Company had outstanding share purchase
warrants as follows:
(1) 1,870,000 share purchase warrants (the "February
Warrants") governed by an indenture dated February 28, 1996, between
the Company and CIBC Mellon Trust Company, as trustee and warrant agent
(the "Trustee"). Each February Warrant entitles the holder thereof to
purchase one Common Share at an exercise price of $1.09 per share
(converted from Canadian dollars at December 31, 1997) until February
28, 1998.
(2) 5,467,410 share purchase warrants (the "September
Warrants") governed by an indenture dated September 17, 1996, between
the Company and the Trustee, as trustee and warrant agent. Each
September Warrant entitles the holder to purchase one Common Share at
an exercise price of $2.00 until August 31, 1998. If the closing bid
for the Common Shares is in excess of $3.00 per share on each of 20
consecutive trading days (as traded on The Alberta Stock Exchange (the
"ASE") or another more senior North American stock exchange), the
Company has the option, upon 45 days' prior written notice to the
holders, to force the exercise or cancellation of the September
Warrants.
(3) 495,900 share purchase warrants issued as part of the fees
paid to the Company's placement agents in private placements of the
Company's securities in Canada and the United States during 1996. Each
such share purchase warrant is exercisable for one Common Share at an
exercise price of $1.25 per share until August 31, 1998. Upon
acceptance for listing or quotation of the Common Shares on a national
stock exchange or trading market in the United States, the Company will
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have the option upon 45 days' prior written notice to force the
exercise or cancellation of the warrants if the closing bid for the
Common Shares is at least $3.00 per share on each of 20 consecutive
trading days.
(4) 10,000,000 share purchase warrants issued in connection
with the private placement of the Convertible Shares in December 1997.
Each such share purchase warrant is exercisable for one Common Share at
an exercise price of $2.40 per share until December 24, 2000 (to be
extended to December 24, 2002, upon receipt of applicable regulatory
approvals). The Company may force the exercise of the warrants upon
satisfaction of all the Triggering Conditions.
The share amounts and exercise prices of all outstanding share purchase
warrants are subject to adjustment under certain circumstances, including any
subdivision, consolidation, or reclassification of the Common Shares or any
reorganization of the Company.
CONVERTIBLE SECURITIES AND STOCK OPTIONS
At December 31, 1997, the Company had outstanding convertible
subordinated notes in an aggregate principal amount of $2,600,000 convertible
into 2,000,000 Common Shares, 13,333,333 Convertible Shares convertible into an
equal number of Common Shares, and stock options held by employees, directors
and officers of, and consultants to, the Company exercisable for a total of
2,677,000 Common Shares.
ESCROWED SHARES
Pursuant to certain requirements of the Alberta Securities Commission
and the ASE, Douglas F. Good, Marilyn Marshall, and Trudy McCaffery (the
"Fraserview Shareholders"), the Company, and the Trustee are parties to an
escrow agreement dated October 7, 1994 (the "Performance Escrow Agreement"),
with respect to 4,250,000 Common Shares (the "Performance Shares") that were
issued to the Fraserview Shareholders in connection with the Company's
acquisition of Fraserview Hearing & Speech Clinic Ltd. The terms of the
Performance Escrow Agreement specify that one Common Share is eligible for
release from escrow, upon application to the ASE, for each $0.08 (converted from
Canadian dollars at December 31, 1997) of "cash flow" generated by the Company.
For purposes of the Performance Escrow Agreement, "cash flow" is defined as the
Company's net income as shown on the Company's audited financial statements,
plus depreciation, depletion, deferred taxes, and amortization of goodwill and
research and development costs. All of the Performance Shares remain subject to
the Performance Escrow Agreement.
Pursuant to a purchase and sale agreement (the "Share Purchase
Agreement") dated as of April 15, 1996, between the Fraserview Shareholders and
Brandon M. Dawson, President of the Company, Roger W. Larose, Randall E.
Drullinger, Vice President-Marketing of the Company, and Hugh T. Hornibrook (the
"Purchasers"), the Fraserview Shareholders sold all of the Performance Shares to
the Purchasers for an aggregate consideration of $601,637 (converted from
Canadian dollars at April 15, 1996). Pursuant to an assignment and
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<PAGE>
novation agreement dated as of August 28, 1996, Mr. Larose agreed to assign all
of his right, title and interest in the Share Purchase Agreement to Mr. Dawson.
In addition, pursuant to an assignment and novation agreement dated as of
February 27, 1997, Mr. Hornibrook agreed to assign all of his right, title, and
interest in the Share Purchase Agreement to Edwin J. Kawasaki, Vice
President-Finance of the Company. The assignments are subject to the approval of
the ASE. As a result of the Share Purchase Agreement and assignments, Messrs.
Dawson, Drullinger and Kawasaki hold 3,900,000, 250,000 and 100,000 Performance
Shares, respectively.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Following is a summary of the principal Canadian federal income tax
consequences pursuant to the Income Tax Act (Canada) (the "Tax Act") and the
regulations thereunder generally applicable to a person who holds Common Shares
as capital property and deals at arm's length with the Company. Generally,
Common Shares will be considered to be capital property provided the holder does
not hold the Common Shares in the course of carrying on a business and has not
acquired it in one or more transactions considered to be an adventure in the
nature of trade. Special rules apply to non-resident insurers that carry on an
insurance business in Canada and elsewhere.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER.
ACCORDINGLY, HOLDERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISERS FOR ADVICE
WITH RESPECT TO THE INCOME TAX CONSEQUENCES RELEVANT TO THEIR PARTICULAR
CIRCUMSTANCES.
The following applies to holders who are not resident in Canada for
purposes of the Tax Act and who do not use or hold and are not deemed to use or
hold their Common Shares in, or in the course of, carrying on a business in
Canada.
Dispositions of Common Shares. A non-resident holder will, upon a
disposition or deemed disposition of Common Shares, not be subject to taxation
in Canada on any gain realized on the disposition unless the share is "taxable
Canadian property" for the purposes of the Tax Act and no relief is afforded
under an applicable tax convention between Canada and the country of residence
of the holder. Since the Common Shares are listed on a prescribed stock exchange
for the purposes of the Tax Act, Common Shares held by a non-resident holder
will generally not be "taxable Canadian property" unless, at any time during the
five-year period immediately preceding the disposition, the non-resident holder,
persons with whom the non-resident holder did not deal at arm's length, or the
non-resident holder together with such persons, owned or had the right to
acquire 25% or more of the issued shares of any class of the capital of the
Company. Any interest in shares or options in respect of shares will be
considered to be the equivalent of ownership of such shares for purposes of the
definition of taxable Canadian property.
Subject to the discussion below regarding the application of the
Canada-United States Income Tax Convention, 1980 (the "Convention") to U.S.
resident holders, non-residents
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whose shares constitute "taxable Canadian property" will be subject to taxation
thereon on the same basis as Canadian residents unless otherwise exempted by an
applicable tax convention between Canada and the country of residence of the
holder.
Pursuant to the Convention, shareholders of the Company that are
residents in the U.S. for the purposes of the Convention and whose shares might
otherwise be "taxable Canadian property" may be exempt from Canadian taxation in
respect of any gains on the disposition of the Common Shares, provided the
principal value of the Company is not derived from real property located in
Canada at the time of disposition.
Non-resident holders who might hold their Common Shares as "taxable
Canadian property" should consult their own tax advisers with respect to the
income tax consequences of a disposition of their Common Shares.
Non-resident holders whose shares are repurchased by the Company,
except in respect of certain purchases made by the Company in the open market,
will be deemed to have received the payment of a dividend by the Company in an
amount equal to the excess paid over the paid-up capital of the Common Shares so
purchased. Such deemed dividend will be excluded from the holder's proceeds of
disposition of such Common Shares for the purposes of computing any capital gain
or loss but will be subject to Canadian non-resident withholding tax in the
manner described below under "--Dividends."
Dividends. Dividends received by a non-resident holder of Common Shares
will be subject to Canadian withholding tax at the rate of 25% of the amount
thereof unless the rate is reduced under the provisions of an applicable tax
convention between Canada and the country of residence of the holder. The
provisions of the Convention generally reduce the rate to 15%. A further
reduction to 5% under the Convention will be available if the recipient is a
company which owns at least 10% of the voting securities of the Company.
INVESTMENT CANADA ACT
The Investment Canada Act (the "ICA") prohibits the acquisition of
control of a Canadian business by non-Canadians without review and approval of
the Investment Review Division of Industry Canada, the agency that administers
the ICA, unless such acquisition is exempt from review under the provisions of
the ICA. The Investment Review Division of Industry Canada must be notified of
such exempt acquisitions. The ICA covers acquisitions of control of corporate
enterprises, whether by purchase of assets, shares or "voting interests" of an
entity that controls, directly or indirectly, another entity carrying on a
Canadian business.
Apart from the ICA, there are no other limitations on the right of
nonresident or foreign owners to hold or vote securities imposed by Canadian law
or the Company's Articles. There are no other decrees or regulations in Canada
that restrict the export or import of capital, including foreign exchange
controls, or that affect the remittance of
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<PAGE>
dividends, interest or other payments to nonresident holders of the Common
Shares, except as discussed above under "Canadian Federal Income Tax
Consequences."
OTHER
The foregoing is only a brief description of the rights and limitations
of the Common Shares and is subject to and qualified by reference to all
applicable provisions of the Business Corporations Act (Alberta) and the
Company's Articles.
CIBC Mellon Trust Company and ChaseMellon Shareholder Services L.L.C.
are co-transfer agents and co-registrars for the Common Shares.
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