SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of
[ ] Definitive Proxy Statement the Commission Only (as
[ ] Definitive Additional Materials permitted by
[ ] Soliciting Material Pursuant to Rule 14a-6(e)(2))
Section 240.14a-11(c)
or Section 240.14a-12
HealthCare Capital Corp.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY
HEALTHCARE CAPITAL CORP.
111 S.W. FIFTH AVENUE, SUITE 2390
PORTLAND, OREGON 97204
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MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
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INTRODUCTION
On November 21, 1997, HealthCare Capital Corp. (the
"Corporation") entered into a definitive Securities Purchase Agreement (the
"Purchase Agreement") with Warburg Pincus Ventures, L.P., a Delaware limited
partnership ("Warburg"), pursuant to which Warburg has agreed to purchase
13,333,333 Series A Convertible Preferred Shares, without nominal or par value
(the "Convertible Shares"), to be issued by the Corporation, together with
warrants (the "Warrants") to purchase 10,000,000 common shares, without nominal
or par value, of the Corporation (the "Common Shares") in exchange for U.S.
$18,000,000 in cash (the "Warburg Transaction"). The Convertible Shares and the
Warrants are collectively referred to herein as the "Securities." As discussed
in more detail herein, consummation of the Warburg Transaction is subject to
various conditions, including approval by the holders of the Common Shares in
accordance with the policies of The Alberta Stock Exchange (the "ASE"). The
closing sale price for the Common Shares on the ASE on November 28, 1997, was
U.S. $-----.
All dollar amounts included in this Statement are expressed in
United States dollars. Amounts originally expressed in Canadian dollars, if any,
have been converted using the applicable spot exchange rate (as quoted by the
Federal Reserve Bank of New York for the New York Interbank Market) as of
December 1, 1997, or where appropriate, the applicable date of the specific
transaction or payment described. THE EXCHANGE RATE FOR CONVERTING CANADIAN
DOLLARS INTO U.S. DOLLARS AT DECEMBER 1, 1997, WAS -----------.
SOLICITATION OF CONSENTS
This Management Information Circular and Proxy Statement dated
December 8, 1997 (the "Statement"), is furnished in connection with the
solicitation by the management of HealthCare Capital Corp. (the "Corporation")
of written consents (the "Consents") from 47 shareholders approving the issuance
of the Securities. Such shareholders held approximately 59% of the outstanding
Common Shares at December 1, 1997. Delivery of the Consents by such shareholders
to the ASE will satisfy the ASE's shareholder approval requirement. This
Statement and accompanying form of Consent will first be released to
shareholders on approximately December 8, 1997.
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A FORM OF CONSENT IS ENCLOSED WITH THIS STATEMENT. YOUR
CONSENT, UPON DELIVERY TO THE CORPORATION, WILL BE IRREVOCABLE. YOU ARE
REQUESTED TO FILL IN THE NUMBER OF COMMON SHARES AS TO WHICH YOU HAVE THE RIGHT
TO VOTE AND TO SIGN, DATE, AND RETURN THE ENCLOSED CONSENT BY NO LATER THAN
FRIDAY, DECEMBER 19, 1997, TO JAMES CANESSA, HEALTHCARE CAPITAL CORP., 111 S.W.
FIFTH AVENUE, SUITE 2390, PORTLAND, OREGON 97204.
Shareholder approval of the Warburg Transaction or the
issuance of the Securities is not required by the Corporation's Articles or by
applicable law, and there are no dissenter's rights applicable with respect to
approval of the issuance of the Securities.
The solicitation of Consents will be made by mail, in person,
and by facsimile or telephone by directors, officers and agents of the
Corporation without additional compensation for such services. All costs of
solicitation of Consents by the Corporation, and of forwarding information
statements regarding the Warburg Transaction to all other shareholders of record
on December 1, 1997, in compliance with the proxy solicitation requirements
under the U.S. Securities Exchange Act of 1934 (the "Exchange Act"), will be
borne by the Corporation.
OUTSTANDING VOTING SECURITIES
On December 1, 1997, the Corporation had outstanding
27,284,517 Common Shares, each carrying the right to one vote per share. Common
Shares are the only outstanding voting securities of the Corporation.
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
STOCK OWNERSHIP TABLE
The following table gives information regarding the ownership
of Common Shares as of December 1, 1997, by the shareholders from whom Consents
are being solicited, including (i) each of the Corporation's directors and
executive officers, (ii) certain other members of senior management of the
Corporation, and (iii) each of the other shareholders who is being requested to
furnish a Consent to the Corporation. The table lists the address for each
person listed who beneficially owns more than 5% of the outstanding Common
Shares. Information as to stock ownership is based on data furnished by the
persons concerning whom such information is given. Unless otherwise indicated,
all shares listed as owned are held with sole voting and investment power.
<TABLE>
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Number of Shares Owned % of Common Shares
Issued and Beneficially Deemed
Name Outstanding(1) Owned(2) Outstanding(1) Outstanding(3)
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<S> <C> <C> <C> <C>
Alfa Life Insurance Co. 200,000 400,000 * 1.5%
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Alfa Mutual Insurance Co. 300,000 600,000 1.1% 2.2%
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Alfa Mutual Fire Insurance Co. 300,000 600,000 1.1% 2.2%
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Aspen Limited Partnership 257,500 683,000 * 2.5%
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Gene K. Balzer, Ph.D.** 200,000 200,000 * *
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A. Baron Cass III 572,832(4) 1,106,664(4) 2.1% 4.0%
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Chelsea Capital Corporation 399,900 399,900 1.5% 1.5%
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Chenin Blanc Partners 18,600 18,600 * *
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Barton J. Cohen 829,583(5) 829,583(5) 3.0% 3.0%
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Deborah Law Cross 408,000 408,000 1.5% 1.5%
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The Curran Companies 233,833 467,666 * 1.7%
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Brandon M. Dawson** 4,250,000 4,550,000 15.6% 16.5%
111 S.W. Fifth Avenue, Ste. 2390
Portland, Oregon 97204
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William DeJong** 82,200 157,200 * *
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Dillon Associates 27,300 27,300 * *
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Randall E. Drullinger** 250,000 450,000 * 1.6%
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Stanford C. Finney 398,000(6) 398,000(6) 1.5% 1.5%
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Kathy A. Foltner** 6,500 69,000 * *
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Gregory J. Frazer, Ph.D.** 1,461,959(7) 1,711,959(7) 5.4% 6.2%
18531 Roscoe Blvd., Ste. 201
Northridge, California 91324
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Douglas F. Good** 1,209,562 1,209,562 4.4% 4.4%
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Robert D. Good 140,600 140,600 * *
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Harris McLean Financial Group Ltd. 430,000 430,000 1.6% 1.6%
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John W. Holley 216,000(8) 432,000(8) * 1.6%
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Hugh T. Hornibrook** - 200,000 - *
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Frank Joseph 75,000 75,000 * *
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Edwin J. Kawasaki** 100,000 100,000 * *
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Thomas & Kathleen Kay 120,000 120,000 * *
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Marilyn E. Marshall 1,350,038 1,350,038 4.9% 4.9%
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Richard O'Connor 214,000 214,000 * *
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Howard E. Rachofsky 445,000 845,000 1.6% 3.1%
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Werner Roth 119,000 119,000 * *
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Marc R. Still 52,000 136,000 * *
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John L. Strauss 600,000 1,000,000 2.2% 3.6%
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Jami Tanihana 899,377 949,377 3.3% 3.5%
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All directors and executive officers 7,574,321 8,761,821 27.8% 30.8%
as a group (9 persons)
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All shareholders requested to provide 16,166,784 20,397,449 59.3% 63.6%
Consents (47 persons)
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</TABLE>
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*Less than 1% of the outstanding Common Shares.
**Director or executive officer of the Corporation.
(1) Calculated based solely on Common Shares issued and outstanding on December
1, 1997.
(2) Shares "beneficially owned" include Common Shares as to which the person has
the right to acquire beneficial ownership through the exercise or conversion of
options, purchase warrants or convertible securities within 60 days after
December 1, 1997, as follows: Alfa Life Insurance Co., 200,000 shares; Alfa
Mutual Insurance Co., 300,000 shares; Alfa Mutual Fire Insurance Co., 300,000
shares; Aspen Limited Partnership, 425,500 shares; A. Baron Cass III, 533,832
shares; The Curran Companies, 233,833 shares; Brandon M. Dawson, 300,000 shares;
William DeJong, 75,000 shares; Randall E. Drullinger, 200,000 shares; Kathy A.
Foltner, 62,500 shares; Gregory J. Frazer, 250,000 shares; John W. Holley,
216,000 shares; Hugh T. Hornibrook, 200,000 shares; Howard E. Rachofsky, 400,000
shares; Marc R. Still, 84,000 shares; John L. Strauss, 400,000 shares; and Jami
Tanihana, 50,000 shares.
(3) Calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act,
pursuant to which shares as to which a person has the right to acquire
beneficial ownership through the exercise or conversion of options, purchase
warrants, or convertible securities within 60 days after December 1, 1997, have
been included in shares deemed to be outstanding for purposes of computing
percentage ownership by such person.
(4) Includes Common Shares beneficially owned by the Cass Family Foundation, the
Cass Childrens Trust, and the Prime Petroleum Profit Sharing Trust.
(5) Includes Common Shares beneficially owned by Sands Partnership #1, Sands
Partnership Money Pension Trust, Cascoh Inc., the Cohen Family Foundation and C3
Holdings LLC.
(6) Includes Common Shares beneficially owned by Rainbow Trading Partners, Ltd.,
and Rainbow Trading Venture Partners, Ltd.
(7) Includes 246,491 Common Shares held by Carissa Bennett, Mr. Frazer's wife,
whose Consent is also being solicited.
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(8) Includes Common Shares beneficially owned by the John W. Holley Grantor
Trust, Barbara Wilson, Barbara Holley Art V Trust and Barbara Holley Art VII
Trust.
In addition to the share ownership reflected in the foregoing
table, Hearing Health Services, Inc., 1018 W. Ninth Ave., Ste. 310, King of
Prussia, Pennsylvania 19406, "beneficially owns" 2,000,000 Common Shares which
may be acquired upon the conversion of convertible subordinated notes issued by
the Corporation. Of these shares, 900,000 Common Shares are beneficially owned
by Brown's Creek, Inc., 285,120 by Business Development Capital Limited
Partnership III, 743,600 by Abbingdon Venture Partners Limited Partnership, and
71,280 by Abbingdon Venture Partners Limited Partnership II, each of which is an
affiliate of Hearing Health Services, Inc. Such 2,000,000 Common Shares
represents 6.8% of the Common Shares outstanding at December 1, 1997, including
for purposes of such percentage calculation the 2,000,000 shares.
TERMS OF PROPOSED WARBURG TRANSACTION
BACKGROUND
For several months, management of the Corporation has been
seeking additional capital. To assist in this endeavor, the Corporation retained
a nationally-recognized investment banking firm, Salomon Brothers Inc, to
provide financial advisory services. After reviewing offers from several
potential investors, management concluded that the terms proposed by Warburg
were the most favorable overall to the Corporation.
Consummation of the Warburg Transaction is subject to (i)
approval by holders of the Common Shares in accordance with the policies of the
ASE, (ii) conditional approval of the ASE, (iii) termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and (iv)
other conditions customary in similar transactions. The transaction is expected
to close on December 24, 1997, or as soon as practicable thereafter.
PROCEEDS AND EXPENSES OF WARBURG TRANSACTION
The net proceeds of the sale of the Securities to Warburg,
estimated at $16,000,000, will be used in making acquisitions of additional
audiology-related businesses and for working capital purposes. In the event that
Warburg exercises the Warrants in full, the Corporation will receive additional
net proceeds of approximately $23,500,000.
Pursuant to the Purchase Agreement, the Corporation has agreed
to pay, or reimburse Warburg for, all reasonable out-of-pocket expenses incurred
by Warburg in connection with the Warburg Transaction. The Corporation has also
agreed to pay fees to its financial advisors, Salomon Brothers Inc and RN
Capital, totaling 9.5% of the gross proceeds of the sale of the Securities, or
$1,710,000, of which the $630,000 payable to RN Capital may be paid in Common
Shares of the Corporation in lieu of cash. To the extent that Warburg exercises
the Warrants for cash, the Corporation will also pay to RN Capital a fee equal
to 2% of the gross exercise price of the exercised Warrants.
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EFFECTS OF WARBURG TRANSACTION
Capitalization. The issuance of the Securities in exchange for
$18,000,000 in cash will more than double the assets of the Corporation, which
totalled $16,544,000 at July 31, 1997. The issuance of the Convertible Shares
will also substantially increase the Corporation's shareholders' equity. The
following table sets forth the short-term debt and the capitalization of the
Corporation at July 31, 1997, and as adjusted to reflect the sale of 13,333,333
Convertible Shares.
<TABLE>
As of July 31, 1997
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Actual As Adjusted
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(in thousands)
Short-term debt and capital lease obligations:
<S> <C> <C>
Bank loans and short-term notes payable $ 59 $ 59
Convertible notes payable (1) 2,600 2,600
Current portion of long-term debt and capital lease obligations 458 458
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Total short-term debt and capital lease obligations $ 3,117 $ 3,117
=========== ===========
Long-term debt and capital lease obligations:
Long-term debt and capital lease obligations, non-current
portion $ 1,070 $ 1,070
Convertible notes payable 127 127
Shareholders' equity:
Preferred shares, without nominal or par value, unlimited number of shares
authorized; Series A Convertible Preferred Shares, actual none;
as adjusted 13,333,333 shares (2) -- 16,008
Common shares, without nominal or par value,
unlimited number of shares authorized;
27,138,288 shares issued and outstanding (3) 11,131 11,131
Notes receivable from shareholders (124) (124)
Accumulated deficit (2,117) (2,117)
Treasury shares, 19,800 shares at cost (33) (33)
Cumulative translation adjustment (22) (22)
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Total shareholders' equity 8,835 24,843
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Total capitalization $ 10,032 $ 26,040
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</TABLE>
(1) Convertible debt consists of $2,600,000 convertible subordinated notes, of
which $1,170,000 principal amount is due on December 31, 1997, and bears
interest at 8% per annum and $1,430,000 principal amount is due on July 31,
1998, and is non-interest-bearing. The notes are immediately convertible into
Common Shares at the conversion price of $1.30 principal amount per share.
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<PAGE>
(2) The Series A Convertible Preferred Shares and Warrants to purchase
10,000,000 Common Shares at a price of $2.40 per share were issued for gross
proceeds of $18,000,000 less estimated offering expenses of $1,992,000.
(3) Shares issued and outstanding do not include the following: (i) 7,833,308
Common Shares issuable upon the exercise of share purchase warrants outstanding
at July 31, 1997; (ii) 2,000,000 Common Shares issuable upon the conversion of
convertible subordinated notes; and (iii) 2,442,000 Common Shares issuable upon
the exercise of stock options held by employees, directors, and officers of, and
consultants to, the Corporation.
Rights of Common Shareholders. As discussed below under "Terms
of Convertible Shares--Voting Rights," holders of the Convertible Shares will
have the right to vote on all matters presented for action by the Corporation's
shareholders. Following consummation of the purchase of the Convertible Shares
by Warburg, such shares will represent approximately 33% of the outstanding
voting securities of the Corporation. Including the Common Shares issuable upon
exercise of the Warrants, Warburg will "beneficially own" approximately 46% of
the voting securities of the Corporation upon consummation of the Warburg
Transaction. As a result of Warburg's significant percentage share ownership, as
well as its right to designate two directors of the Corporation as discussed
below under "Election of Directors," Warburg will be able to exercise
substantial influence over most matters requiring shareholder approval. In
addition, as discussed below under "Limitations on Corporate Action," the
Corporation will not be permitted to engage in specified significant corporate
transactions without Warburg's written consent.
As discussed in more detail below under "Terms of Convertible
Shares," 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.
TERMS OF CONVERTIBLE SHARES
Pursuant to the Purchase Agreement, the Corporation has agreed
to create a series of preferred shares designated as the Series A Convertible
Preferred Shares and Warburg has agreed to purchase 13,333,333 such shares,
together with Warrants to purchase 10,000,000 Common Shares at a price of $2.40
per share. The Convertible Shares will have no preemptive rights. The complete
terms of the Convertible Shares are attached to this Statement as Appendix A and
are incorporated herein by reference. The following summary of the proposed
material terms of the Convertible Shares does not purport to be fully
descriptive. Please see Appendix A for more detailed information.
Voting Rights. Each Convertible Share will be 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
Corporation for their action or consideration. Except to the extent
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otherwise required by law or the Corporation'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. Any change in the
rights and preferences of the Convertible Shares would require the approval of
the holders of at least 66-2/3% of the outstanding Convertible Shares, voting
separately as a class. Upon issuance of the Convertible Shares to Warburg,
Warburg will possess approximately 33% of the combined voting power of the
Convertible Shares and Common Shares outstanding.
Dividends. Each Convertible Share will be entitled to receive,
when, as and if declared by the Board out of assets of the Corporation 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 Corporation'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).
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.
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Dividends on the Convertible Shares may, in the discretion of
the Corporation's Board of Directors (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. The Board presently does not intend to declare
dividends on the Convertible Shares; such dividends will simply accumulate.
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 Corporation, subject
to the rights of holders of any securities of the Corporation ranking senior to
the Convertible Shares upon liquidation, the holders of Convertible Shares will
be entitled to receive, out of the assets of the Corporation 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 Corporation will be deemed to be a
liquidation of the Corporation 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 Corporation.
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 Corporation, 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 Convertible
Share as determined by a nationally recognized independent investment banking
firm selected by mutual agreement of the Corporation 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 Corporation
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.
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WARRANTS TO PURCHASE COMMON SHARES
In connection with the purchase of the Convertible Shares,
Warburg will also receive the Warrants to purchase 10,000,000 Common Shares (the
"Warrant Shares") at a price (the "Warrant Price") of $2.40 per share, subject
to adjustment for stock splits, stock dividends, recapitalizations, and other
anti-dilution adjustments. The Warrants will be issued pursuant to a Warrant
Agreement to be entered into between Warburg and the Corporation. The Warrants
will not be transferable by Warburg without the express written consent of the
Corporation. The Warrants will be exercisable for three years following the date
of issuance, which period is extendable to five years upon receipt of applicable
regulatory approvals. The Corporation may force the exercise of the Warrants by
Warburg upon satisfaction of all the Triggering Conditions. Common Shares
issuable upon payment in full of the Warrant Price will be fully paid and
nonassessable and will not have preemptive rights.
The Warrant Price will be payable in cash or, upon voluntary
exercise at any time following the first anniversary of issuance of the Warrants
or upon forced exercise, Warburg may effect a "cashless exercise" of Warrants by
surrendering a sufficient number of Warrants such that the total Market Price
(as defined in the Warrant Agreement) of the Common Shares to be received on
exercise equals the total "spread" (the excess of the Market Price of the
underlying shares over the Warrant Price of the surrendered Warrants) of the
surrendered Warrants. If the Market Price of the Common Shares is greater than
$3.20 per share, the maximum number of Common Shares which may be received by
Warburg in a "cashless exercise" will be 2,500,000 shares and any remaining
Warrants must be exercised for cash. If Warburg utilizes the "cashless exercise"
feature in connection with a voluntary exercise of Warrants, it will be required
to simultaneously convert all Convertible Shares owned by it into Common Shares.
REGISTRATION RIGHTS
The Convertible Shares and the Common Shares issuable upon
conversion of the Convertible Shares or exercise of the Warrants will not be
permitted to be sold or transferred by Warburg for 180 days following
consummation of the purchase of the Convertible Shares. Thereafter, the
Corporation will be obligated, under certain circumstances and subject to
specified terms and conditions, to use its reasonable best efforts to register
for sale under the U.S. federal and state securities laws the Common Shares
issuable upon conversion of the Convertible Shares or exercise of the Warrants
(together with securities issued with respect thereto as a result of any change
in capitalization). Warburg may request one such registration with respect to
Common Shares issued upon conversion of the Convertible Shares and a second such
registration with respect to Common Shares issued upon exercise of the Warrants;
provided that Warburg may preserve its demand registration right where a
proposed sale of shares does not close by reimbursing the Corporation for its
expenses of registration. The Corporation has also agreed to permit Warburg to
include such securities in certain other registrations of Common Shares
undertaken by the Corporation. In general, all expenses of any such
registration, other than underwriters' discounts and commissions applicable to
the Common Shares to be sold by Warburg, will be paid by the Corporation. The
Purchase Agreement also contains certain indemnification provisions.
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<PAGE>
LIMITATIONS ON CORPORATE ACTIONS
For as long as Warburg beneficially owns at least 3,333,333
outstanding Common Shares or Convertible Shares, the Corporation will not,
without Warburg's consent, (i) sell, lease, exchange or transfer all or
substantially all of its assets to any third party, (ii) amalgamate the
Corporation with another corporation such that the then existing shareholders of
the Corporation hold less than 51% of the combined voting power of the
amalgamated corporation, (iii) materially change the nature of the Corporation's
business, (iv) effect a liquidation, amalgamation or sale of the Corporation or
sell substantially all of its or its subsidiaries' assets, or (v) with certain
exceptions, redeem or pay a dividend or distribution on its Common Shares.
ELECTION OF DIRECTORS
Upon consummation of the purchase of the Convertible Shares,
and for so long as Warburg beneficially owns a number of outstanding Common
Shares or Convertible Shares constituting at least 10% 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 to remain as directors two persons,
reasonably satisfactory to the Corporation and acceptable to the ASE, designated
by Warburg. Such number will increase to three if and for so long as the number
of positions on the Board exceeds eight. Such number will decrease by one if
Warburg beneficially owns a number of outstanding Common Shares or Convertible
Shares constituting less than 10% 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
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.
In order to comply with the foregoing requirements, the Board
presently intends to increase the number of positions on the Board to eight
effective upon consummation of the Warburg Transaction. Under the Business
Corporations Act (Alberta), at least one-half of the directors of the
Corporation must be Canadian residents. Consequently, the Corporation may also
find it necessary to request the resignation of one of its directors who is a
U.S. resident and to fill the vacancy created with a Canadian resident.
Warburg has advised the Corporation that it plans to designate
Joel Ackerman, age 32 and a vice president of E.M. Warburg, Pincus & Co., LLC,
as one of its nominees to the Board for election effective upon purchase of the
Convertible Shares. E.M. Warburg, Pincus & Co., LLC, is the general partner of
Warburg Pincus Ventures, L.P., and is an international venture banking firm with
headquarters at 466 Lexington Avenue, New York, New York 10017-3147. From 1990
to 1993, Mr. Ackerman served as an associate at Mercer
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Management Consulting, a strategic management consulting company. Warburg has
not yet determined the identity of its other nominee to the Board.
EMPLOYMENT AGREEMENTS
Among the conditions to the closing of the Warburg Transaction
is that the Corporation enter into employment agreements with each of Brandon M.
Dawson, President and Chief Executive Officer of the Corporation, Edwin J.
Kawasaki, Vice President-Finance and Chief Financial Officer of the Corporation,
and Randall E. Drullinger, Vice President-Marketing of the Corporation, on terms
to be mutually agreed upon in good faith by Warburg, the Corporation and such
executive officers. The terms of any such employment agreement have not been
finalized, but are expected to include the agreement of each individual not to
compete with the Corporation in the event his employment with the Corporation is
terminated. The agreements may also include provisions for various employee
benefits, such as life insurance, automobile allowances, annual incentive
bonuses, awards of stock options under the Corporation's 1996 Stock Award Plan,
and severance benefits upon termination of employment during the term of the
agreement.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals submitted for inclusion in the 1998
proxy materials and consideration at the 1998 annual general meeting of
shareholders must be received by the Corporation by July 1, 1998. Any such
proposal should comply with the rules of the Securities and Exchange Commission
governing shareholder proposals submitted for inclusion in proxy materials.
Portland, Oregon BY ORDER OF THE BOARD OF DIRECTORS
December 8, 1997
Brandon M. Dawson
President and Chief Executive Officer
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APPENDIX A
HEALTHCARE CAPITAL CORP.
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
(Without Par Value)
We, the undersigned, Brandon M. Dawson and William DeJong, being,
respectively, the President and the Secretary of HealthCare Capital Corp., a
corporation organized and existing under the laws of Alberta (hereinafter called
the "Corporation"), DO HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent dated November 20, 1997, has duly adopted the following
resolutions providing for the issuance of a series of preferred shares of the
Corporation:
"RESOLVED that the Board of Directors of the Corporation (the
"Board") hereby authorizes the issuance of a series of preferred shares
of the Corporation and hereby fixes the designation, powers and
preferences, and the relative, participating, optional and other special
rights and qualifications, limitations and restrictions thereof, in
addition to those set forth in the Corporation's Articles, as amended,
as follows:
"1. Number and Designation. The number of shares to constitute
this series shall be 13,333,333 and the designation of such shares shall
be the "Series A Convertible Preferred Shares" (hereinafter called "this
Series"). The number of shares constituting this Series may be decreased
from time to time by action of the Board, but not below the number of
shares of this Series then outstanding. All shares of this Series shall
be identical with each other in all respects. The shares of this Series
shall rank senior to the common shares (the "Common Shares") of the
Corporation as to cash dividends and upon liquidation, as described
below. Any amounts herein referencing share prices or numbers of shares
shall be subject to appropriate adjustments in the event of any stock
splits, consolidations or the like.
"2. Dividend Rights.
(a) Subject to the provisions of this Section 2, the holders of
shares of this Series shall be entitled to receive when, as and if
declared by the Board, out of assets legally available therefor,
cumulative dividends ("Dividends") at the
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applicable rate per annum specified in Section 2(b) hereof from the date
of issuance and payable in accordance with Section 2(c) hereof.
Dividends shall be cumulative from the date of initial issuance of the
shares of this Series (the "Initial Issuance Date"), whether or not
there shall be assets legally available for the payment of such
Dividends. In the event that the Board shall declare a Dividend, subject
to applicable regulatory approvals, such Dividend may, at the discretion
of the Board, be payable in Common Shares. The number of Common Shares
to be issued to the holders of shares of this Series upon the payment of
a Dividend in Common Shares shall be the amount of the Dividends payable
to such holder pursuant to this Section 2 divided by either (i) (if the
Common Shares are not traded on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market) U.S. $1.35 or
(ii) (if the Common Shares are traded on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market) the average
Market Price of the Common Shares as such term is defined below for the
ten (10) trading days immediately preceding the Record Date as such term
is defined in Section 2(c) hereof.
For all purposes hereof, the term "Market Price of the
Common Shares" as of any specified date shall mean: (i) if the Common
Shares are listed or admitted for trading on one or more United States
national securities exchanges, the daily closing price for the Common
Shares on the principal exchange in the United States on which the
Common Shares are listed; (ii) if the Common Shares are not listed or
admitted for trading on any United States national securities exchange,
the daily closing price for the Common Shares on the Nasdaq National or
Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common Shares are not
listed or admitted for trading on a United States national securities
exchange or on Nasdaq, the daily closing price of the Common Shares on
the principal stock exchange in Canada on which the Common Shares are
listed (expressed in United States dollars based upon the noon buying
rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York);
(iv) if the Common Shares are not listed or admitted to trading on any
United States national or Canadian national securities exchange or on
Nasdaq, the average of the reported bid and asked prices on the trading
day preceding such date in the over-the-counter market as furnished by
the National Quotation Bureau, Inc., or, if such firm is not then
engaged in the business of reporting such prices, as furnished by any
member of the National Association of Securities Dealers, Inc. selected
by the Company; or (v) if the Common Shares are not publicly traded, the
Market Price for such day shall be the fair market value thereof
determined jointly by the Company and the holder of a majority of the
shares of this Series then outstanding; provided, however, that if such
parties are unable to reach agreement within a reasonable period of
time, the Market Price shall be determined in good faith by the
independent investment banking firm selected jointly by the Company and
the holder of a majority of the shares of this Series then outstanding
or, if that selection cannot be made within an additional 15
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days, by an independent investment banking firm selected by the American
Arbitration Association in accordance with its rules.
"(b) The Dividend per share of this Series shall be computed
based upon a rate per annum of 5% on a base amount of U.S. $1.35 per
share of this Series (the "Base Amount"). The Dividend rate per annum
shall be subject to increase in the event that all of the following
conditions (the "Triggering Conditions") have not been satisfied by the
dates specified below: (i) the Common Shares are listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; (ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at a
Market Price greater than U.S. $2.40 per Common Share on each of the 10
consecutive trading days preceding such date; and (iii) the
Corporation's net income (excluding profit or loss on disposal of a
significant part of the Company's assets or separate segment thereof,
gains on restructuring payables, gains or losses on the extinguishment
of debt, expropriations of property, gains or losses that are the direct
result of a major casualty, or one-time losses resulting from
prohibition under a newly-enacted law or regulation) before income
taxes, Dividends on the shares of this Series and amortization of
goodwill and covenants not to compete for the three consecutive fiscal
quarters preceding such date, as reported in or derived from the
Corporation's quarterly or annual reports filed with the Securities and
Exchange Commission, shall have averaged at least U.S. $0.07 per fully
diluted Common Share per fiscal quarter, provided, however, in making
such calculation, the Common Shares issuable upon exercise of the
warrants issued to Warburg Pincus Ventures, L.P. ("Warburg"), pursuant
to that certain Warrant Agreement between the Corporation and Warburg
relating to warrants to purchase 10,000,000 Common Shares (the "Warrant
Agreement"), shall be excluded but Common Shares issuable upon the
conversion of the shares of this Series shall not. All references to per
share amounts or prices with respect to the Triggering Conditions shall
be appropriately adjusted for any subdivision, consolidation, or
reclassification of the Common Shares. Until the Triggering Conditions
have been satisfied, the Dividend rate per annum shall be (A)15% of the
Base Amount per share of this Series from and after January 1, 2003 and
payable in accordance with Section 2(c) hereof commencing January 1,
2004; (B) 18% of the Base Amount per share of this Series from and after
January 1, 2004 and payable in accordance with Section 2(c) hereof
commencing January 1, 2005; and (C) thereafter, 21% of the Base Amount
per share of this Series from and after January 1, 2005 and payable in
accordance with Section 2(c) hereof commencing January 1, 2006. Upon the
satisfaction of all the Triggering Conditions, the Dividend per share of
this Series shall be computed based upon a rate per annum of 5% of the
Base Amount. Accruals of Dividends shall not bear interest. All
Dividends declared upon the shares of this Series shall be declared pro
rata per share.
"(c) The record date for the determination of the holders of
shares of this Series who shall be entitled to receive Dividends (the
"Record Date") shall be the first business day of each calendar year,
and only the holders of shares of this
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Series of record on the Record Date shall be entitled to receive such
Dividends. All Dividends payable to such holders of record shall be paid
on the tenth business day following the Record Date on each issued and
outstanding share of this Series.
"(d) Dividends payable on shares of this Series for any period
other than a full dividend period shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Any Dividend payment
made on shares of this Series shall first be credited against the
earliest accumulated but unpaid Dividends due with respect to the shares
of this Series.
"(e) No dividends shall be declared or paid or set aside for
payment on any share capital of the Corporation ranking, as to
dividends, on a parity with or subordinate to the shares of this Series
for any period unless full accumulated Dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set aside for such payment on the shares of this
Series for all Dividend periods terminating on or prior to the date of
payment of such dividends. When Dividends are not paid in full on the
shares of this Series and any other preferred shares of the Corporation
ranking with respect to payment of dividends on a parity with the shares
of this Series, all dividends declared or paid upon shares of this
Series and such other preferred shares shall be declared and paid pro
rata so that the amount of dividends declared and paid on the shares of
this Series and such other preferred shares shall in all cases bear to
each other the same ratio that accumulated dividends per share (which in
the case of noncumulative preferred shares shall not include any
accumulation in respect of unpaid dividends for prior dividend periods)
on shares of this Series and such other preferred shares bear to each
other. Except as provided in the preceding sentence, unless full
accumulated Dividends have been paid or declared and a sum sufficient
for the payment thereof set aside for payment, no dividends (other than
dividends or distributions paid in Common Shares, or options, warrants
or rights to subscribe for or purchase Common Shares, or, in each case,
any other series of shares of the Corporation ranking subordinate to the
shares of this Series as to dividends and upon liquidation) shall be
declared and paid or a sum sufficient for the payment thereof set aside
for payment or any other distribution declared or made upon the Common
Shares or any other class of shares of the Corporation ranking
subordinate to or on a parity with the shares of this Series as to
dividends or upon liquidation. No Common Shares or shares of any other
class of shares of the Corporation ranking subordinate to or on a parity
with the shares of this Series as to dividends or upon liquidation shall
be redeemed, purchased or otherwise acquired for any consideration (and
no funds shall be paid to or made available for a sinking fund for the
redemption of any such share capital) by the Corporation (except by
conversion into or exchange for shares of the Corporation ranking
subordinate to the shares of this Series as to dividends and upon
liquidation or except with respect to Common Shares that the Corporation
has become obligated to redeem prior to the issuance of any shares of
this Series upon the occurrence of specified circumstances) unless, in
each case, the full accumulated Dividends shall
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have been paid or declared and a sum sufficient for the payment thereof
set aside for payment. Holders of shares of this Series shall not be
entitled to any dividend, whether payable in cash, property or stock, in
excess of the full Dividends on such shares.
"(f) Upon conversion of any shares of this Series by any holder
thereof pursuant to Section 7 hereof, any Dividends accrued and payable
to such holder shall be forfeited and the Corporation shall have no
further obligation to such holder of shares of this Series for such
accumulated Dividends.
"3. Liquidation Rights. (a) In the event of any voluntary or
involuntary dissolution, liquidation, or winding up of the affairs of
the Corporation, after payment or provision for payment of the debts and
other liabilities of the Corporation and any preferential amounts
payable with respect to securities of the Corporation ranking prior to
the shares of this Series ("Senior Preferred Shares"), the holders of
shares of this Series shall be entitled to receive out of the assets of
the Corporation available for distribution to shareholders, before any
distribution of assets is made to holders of the Common Shares or any
other share capital of the Corporation ranking subordinate to the shares
of this Series, a liquidating distribution in an amount equal to the
greater of (i) U.S. $1.35 per share of this Series plus an amount equal
to any accrued and unpaid Dividends (including accumulated Dividends,
whether or not declared) to and including the date of distribution or
(ii) the amount distributable to the holders of shares of this Series as
if such holders had converted their shares of this Series into Common
Shares pursuant to Section 7 hereof immediately prior to such
dissolution, liquidation or winding up of the affairs of the Corporation
(plus accumulated Dividends, whether or not declared). Amounts payable
pursuant to clause (i) or (ii) of this Section 3(a) shall be distributed
ratably among the holders of shares of this Series in proportion to the
number of shares of this Series held. After payment to the holders of
shares of this Series of the full amount to which such holders are
entitled as set forth above, the holders of shares of this Series shall
have no right or claim to any of the remaining assets of the
Corporation.
"(b) If upon any such dissolution, liquidation or winding up of
the affairs of the Corporation, the assets of the Corporation
distributable among the holders of shares of this Series and the holders
of all other classes or series of shares of the Corporation ranking on a
parity with the shares of this Series shall be insufficient to permit
the payment to them of the full preferential amounts to which they are
entitled, then the entire assets of the Corporation so to be distributed
shall be distributed ratably among the holders of shares of this Series
and such other classes or series of shares of the Corporation in
proportion to the sum of the accumulated dividends and the liquidation
preferences per share.
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"(c) The sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes
of this Section 3.
"4. Optional Redemption. (a) The shares of this Series may not be
redeemed before the fifth anniversary of the Initial Issuance Date.
Thereafter, the shares of this Series shall be redeemable (subject to
subsection 4(d) below) at the option of the Corporation, in whole or in
part, at the redemption price, which shall be an amount equal to the
greater of (i) U.S. $1.35 per share of this Series plus the amount of
any accrued and unpaid Dividends per share of this Series (including
accumulated Dividends, whether or not declared) or (ii) the Fair Market
Value of a share of this Series (as defined below). For purposes hereof,
the Fair Market Value shall be determined by a nationally recognized
independent investment banking firm mutually agreed to by the
Corporation and the holder of a majority of the shares of this Series
then outstanding, whose determination shall be conclusive.
"(b) (i) In case the Corporation shall desire to exercise its
right to redeem any shares of this Series, it shall give notice of such
redemption to holders of the shares of this Series to be redeemed as
hereinafter provided in this Section 4(b).
"(ii) Notice of redemption shall be given to the holders
of shares of this Series to be redeemed by mailing such notice by
first-class mail to their last addresses as they shall appear
upon the register for the shares of this Series not less than 120
calendar days prior to the date fixed for redemption.
"(iii) Each such notice of redemption (A) shall specify
the date fixed for redemption and the redemption price at which
shares of this Series are to be redeemed, (B) shall state that
payment of the redemption price for the shares of this Series to
be redeemed will be made at the principal executive offices of
the Corporation, upon presentation and surrender of certificates
representing such shares of this Series, and (C) if less than all
the shares of this Series are to be redeemed, shall specify the
number of shares of this Series held by each holder to be
redeemed. In case any certificate representing shares of this
Series is to be redeemed in part only, the notice of redemption
which relates to such certificate shall state the number of
shares of this Series represented by such certificate to be
redeemed and shall state that on and after the redemption date,
upon surrender of such certificate, a new certificate or
certificates for a number of shares of this Series equal to the
unredeemed portion thereof will be issued.
"(iv) If less than all the shares of this Series are to
be redeemed, the Corporation shall effect such redemption pro
rata among the holders
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thereof (based on the number of shares of this Series held on the
date of notice of redemption).
"(c) (i) If the giving of notice of redemption shall have been
completed as provided above, the shares of this Series specified in such
notice shall become redeemable, and shall be redeemed by the Corporation
upon presentation and surrender of the certificate representing such
shares, on the date and at the place stated in such notice at the
redemption price, and on and after such date fixed for redemption,
notwithstanding that any certificate for shares of this Series so called
for redemption shall not have been surrendered for cancellation, unless
there shall have been a default in payment of the redemption price, all
shares of this Series called for redemption shall no longer be deemed to
be outstanding, and all rights with respect to such shares of this
Series shall forthwith cease and terminate except only the right of the
holders thereof to receive from the Corporation the redemption price,
without interest, of the shares to be redeemed, and such shares shall
not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever.
"(ii) Upon presentation of any certificate representing
shares of this Series only a portion of which are to be redeemed,
the Corporation shall immediately issue, at its expense, a new
certificate or certificates representing the shares of this
Series not redeemed.
"(d) Except as provided in paragraph (a) above, the Corporation
shall have no right to redeem the shares of this Series. Any shares of
this Series so redeemed shall be permanently retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized shares of
this Series accordingly. Nothing herein contained shall prevent or
restrict the purchase by the Corporation, from time to time either at
public or private sale, of the whole or any part of the shares of this
Series at such price or prices as the Corporation may determine, subject
to the provisions of applicable law.
"5. No Mandatory Redemption. The shares of this Series shall not
be subject to mandatory redemption by the Corporation.
"6. Voting Rights. (a) Each issued and outstanding share of this
Series shall be entitled to the number of votes equal to the number of
Common Shares of the Corporation into which each such share of this
Series is convertible (as adjusted from time to time pursuant to Section
7(a) hereof), at each meeting of shareholders of the Corporation with
respect to any and all matters presented to the shareholders of the
Corporation for their action or consideration. Except as provided by
law, by the provisions of paragraph (b) below or by the provisions
establishing any other series of preferred stock of the Corporation,
holders of the
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shares of this Series and of any other outstanding preferred stock shall
vote together with the holders of Common Shares as a single class.
(b) In addition to any other rights provided by law, the
Corporation shall not amend, alter or repeal the preferences, special
rights or other powers of the shares of this Series or any other
provision of the Corporation's constating documents that would adversely
affect the rights of the holders of the shares of this Series,
including, without limitation, any increase in the number of shares of
this Series, without the written consent or affirmative vote of the
holders of at least 66-2/3% of the then outstanding aggregate number of
such adversely affected shares of this Series, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately
as a class. For this purpose, the authorization or issuance of any
series of preferred stock of the Corporation with preference or priority
over, or being on a parity with the shares of this Series as to the
right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be
deemed to adversely affect the shares of this Series.
"7. Conversion. (a) Each share of this Series may be converted at
any time, at the option of the holder thereof, in the manner hereinafter
provided, into fully-paid and nonassessable Common Shares, provided,
however, that on any redemption of any shares of this Series or any
liquidation of the Corporation, the right of conversion shall terminate
at the close of business on the full business day next preceding the
date fixed for such redemption or for the payment of any amounts
distributable on liquidation to the holders of the shares of this
Series. The initial conversion rate for shares of this Series shall be
one Common Share for each one share of this Series surrendered for
conversion, representing an initial conversion price (for purposes of
Section 7(g)) of U.S. $1.35 per share of the Corporation's Common Shares
(hereinafter, the "Conversion Price"). The applicable conversion rate
and Conversion Price from time to time in effect are subject to
adjustment as hereinafter provided.
"(b) Whenever the Conversion Price shall be adjusted as provided
in Section 7(g) hereof, the Corporation shall forthwith file at each
office designated for the conversion of the shares of this Series, a
statement, signed by any of the Chairman of the Board, the President,
any Vice President or the Treasurer of the Corporation, showing in
reasonable detail the facts requiring such adjustment. The Corporation
shall also cause a notice setting forth any such adjustments to be sent
by mail, first class, postage prepaid, to each record holder of shares
of this Series at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to
in paragraph 7(g)(vii), such notice shall be included as part of the
notice required to be mailed and published under the provisions of
paragraph 7(g)(vii) hereof.
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"(c) The right of conversion shall be exercised by the holder by
the surrender of the certificates representing shares of this Series to
be converted to the Corporation at any time during normal business hours
at the office or agency then maintained by it for the conversion of
shares of this Series (the "Conversion Office"), accompanied by written
notice to the Corporation of such holder's election to convert and, if
so required by the Corporation or any conversion agent, by an instrument
of transfer, in form satisfactory to the Corporation and to any
conversion agent, duly executed by the registered holder or by such
holder's duly authorized attorney, and transfer tax stamps or funds
therefor, if required pursuant to Section 7(k).
"(d) As promptly as practicable after the surrender for
conversion of one or more certificates representing any shares of this
Series in the manner provided in Section 7(c) and the payment in cash of
any amount required by the provisions of Section 7(k), the Corporation
will deliver or cause to be delivered at the Conversion Office to or
upon the written order of the holder of such shares, a certificate or
certificates representing the number of full Common Shares issuable upon
such conversion, issued in such name or names as such holder may direct,
subject to any applicable contractual restrictions and any restrictions
imposed by applicable securities laws. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date
of such surrender of certificates representing shares of this Series in
proper order for conversion, and all rights of the holder of such shares
as a holder of such shares shall cease at such time, and the person or
persons in whose name or names the certificates for such Common Shares
are to be issued shall be treated for all purposes as having become the
record holder or holders thereof at such time; provided, however, that
any such surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such Common Shares are to be
issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day on
which such stock transfer books are opened.
"(e) "Upon conversion in the manner provided in this Section 7 of
only a portion of the number of shares of this Series represented by a
certificate so surrendered for conversion, the Corporation shall issue
and deliver or cause to be delivered at the Conversion Office to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate or
certificates representing the number of shares of this Series
representing the unconverted portion of the certificate so surrendered,
issued in such name or names as such holder may direct, subject to any
applicable contractual restrictions and any restrictions imposed by
applicable securities laws.
"(f) All shares of this Series which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall forthwith cease
and terminate except only the right of the holder
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thereof to receive Common Shares in exchange therefor. Any shares of
this Series so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized shares
of this Series accordingly.
(g) Anti-Dilution Provisions.
(i) In order to prevent dilution of the right granted hereunder,
the Conversion Price shall be subject to adjustment from time to time in
accordance with this paragraph 7(g)(i). At any given time the Conversion Price
shall be that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one Common Share of the Corporation upon
conversion of shares of this Series. Upon each adjustment of the Conversion
Price pursuant to this Section 7(g), the registered holder of shares of this
Series shall thereafter be entitled to acquire upon exercise, at the Conversion
Price resulting from such adjustment, the number of Common Shares of the
Corporation obtainable by multiplying the Conversion Price in effect immediately
prior to such adjustment by the number of shares of Common Shares of the
Corporation acquirable immediately prior to such adjustment and dividing the
product thereof by the Conversion Price resulting from such adjustment. For
purposes of this Section 7(g), the term "Number of Common Shares Deemed
Outstanding" at any given time shall mean the sum of (x) the number of shares of
the Corporation's Common Shares outstanding at such time, (y) the number of
Common Shares of the Corporation issuable assuming conversion at such time of
all outstanding shares of the Corporation's other series of convertible
preferred stock, if any, and (z) the number of Common Shares of the Corporation
deemed to be outstanding at such time under subparagraphs 7(g)(ii)(1) to (8),
inclusive.
(ii) Except as provided in paragraph 7(g)(iii) or 7(g)(vi) below,
if and whenever on or after the Initial Issuance Date, the Corporation shall
issue or sell, or shall in accordance with subparagraphs 7(g)(ii)(1) to (8),
inclusive, be deemed to have issued or sold (such issuance or sale, whether
actual or deemed, the "Triggering Transaction") any Common Shares for a
consideration per share less than
(I) (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) the
Conversion Price in effect immediately prior to the time of such
issuance or sale, then forthwith upon such issuance or sale the
Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by dividing: (i) an amount equal to
the sum of (x) the product derived by multiplying the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction by the Conversion Price then in effect, plus (y) the
consideration, if any, received by the Company upon consummation of such
Triggering Transaction, by (ii) an amount equal to the sum of (x) the
Number of Common Shares Deemed Outstanding immediately prior to such
Triggering Transaction plus (y) the number of Common Shares issued (or
deemed to be issued in accordance
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<PAGE>
with subparagraphs 7(g)(ii)(1) to (8)) in connection with the Triggering
Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) the
average Market Price for the ten trading days immediately preceding such
issuance or sale, then forthwith upon such Triggering Transaction, the
Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by multiplying the Conversion Price
in effect immediately prior to the time of such Triggering Transaction
by a fraction, the numerator of which shall be the sum of (x) the Number
of Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction and (y) the number of Common Shares which the aggregate
consideration received by the Company upon such Triggering Transaction
would purchase at the average Market Price for the ten trading days
immediately preceding such Triggering Transaction, and the denominator
of which shall be the Number of Common Shares Deemed Outstanding
immediately after such Triggering Transaction.
For purposes of determining the adjusted Conversion Price under
this paragraph 7(g)(ii), the following subsections (1) to (8), inclusive, shall
be applicable:
(1) In case the Corporation at any time shall in any
manner grant (whether directly or by assumption in an
amalgamation or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Shares or
any stock or other securities convertible into or exchangeable
for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether
or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price
per share for which the Common Shares are issuable upon exercise,
conversion or exchange (determined by dividing (x) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the
aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (y) the total maximum
number of Common Shares issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities) shall be less than the average Market Price in effect
for the ten trading days immediately prior to the time of the
granting of such Option (if the Common Shares are traded on the
New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market) or the
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Conversion Price in effect immediately prior to the time of such
issuance or sale (if the Common Shares are not traded on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market), then the total maximum amount of Common Shares
issuable upon the exercise of such Options or, in the case of
Options for Convertible Securities, upon the conversion or
exchange of such Convertible Securities, shall (as of the date of
granting of such Options) be deemed to be outstanding and to have
been issued and sold by the Corporation for such price per share.
No adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Shares or such Convertible
Securities upon the exercise of such Options, except as otherwise
provided in subparagraph (3) below.
(2) In case the Corporation at any time shall in any
manner issue (whether directly or by assumption in an
amalgamation or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common
Shares are issuable upon such conversion or exchange (determined
by dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (y) the total maximum number
of Common Shares issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the average
Market Price in effect for the ten-day trading period immediately
prior to the time of such issue or sale (if the Common Shares are
traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) or the Conversion Price
in effect immediately prior to the time of such issuance or sale
(if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National
Market), then the total maximum number of Common Shares issuable
upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been issued
and sold by the Corporation for such price per share. No
adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Shares upon exercise of the rights to
exchange or convert under such Convertible Securities, except as
otherwise provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraphs (1) or (2), or the rate
at which any Convertible Securities referred to in subparagraph
(1) or (2) are convertible into or exchangeable
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<PAGE>
for Common Shares shall change at any time (other than under or
by reason of provisions designed to protect against dilution of
the type set forth in paragraphs 7(g)(ii) or 7(g)(iv)), the
Conversion Price in effect at the time of such change shall
forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase
price, additional consideration or rate, as the case may be, at
the time initially granted, issued or sold. If the purchase price
provided for in any Option referred to in subparagraph (1) or the
rate at which any Convertible Securities referred to in
subparagraphs (1) or (2) are convertible into or exchangeable for
Common Shares, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Shares upon the
exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be adjusted to such respective amount
as would have been obtained had such Option or Convertible
Security never been issued as to such Common Shares and had
adjustments been made upon the issuance of the Common Shares
delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is
hereby reduced.
(4) On the expiration of any Option or the termination of
any right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(6) In case any Common Shares, Options or Convertible
Securities shall be issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor
(before deduction for expenses or underwriters' discounts or
commissions related to such issue or sale). In case any Common
Shares, Options or Convertible Securities shall be issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall
be the fair value of such consideration as determined in good
faith by the Board of Directors of the Corporation.
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(7) In case the Corporation shall declare a dividend or
make any other distribution upon the share capital of the
Corporation payable in Common Shares, Options, or Convertible
Securities, then in such case any Common Shares, Options or
Convertible Securities, as the case may be, issuable in payment
of such dividend or distribution shall be deemed to have been
issued or sold without consideration.
(8) For purposes of this paragraph 7(g)(ii), in case the
Corporation shall take a record of the holders of its Common
Shares for the purpose of entitling them (x) to receive a
dividend or other distribution payable in Common Shares, Options
or in Convertible Securities, or (y) to subscribe for or purchase
Common Shares, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale
of the Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right or
subscription or purchase, as the case may be.
(iii) In the event the Corporation shall declare a dividend upon
the Common Shares (other than a dividend payable in Common Shares covered by
subparagraph 7(g)(ii)(7)) payable otherwise than out of earnings or earned
surplus, determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries (herein referred to as "Liquidating Dividends"), then, as soon
as possible after the conversion of any shares of this Series, the Corporation
shall, subject to applicable law, pay to the person converting such shares of
this Series an amount equal to the aggregate value at the time of such exercise
of all Liquidating Dividends (including but not limited to the Common Shares
which would have been issued at the time of such earlier exercise and all other
securities which would have been issued with respect to such Common Shares by
reason of stock splits, stock dividends, amalgamations or reorganizations, or
for any other reason). For the purposes of this paragraph 7(g)(iii), a dividend
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as determined in good faith by the
Board.
(iv) In case the Corporation shall at any time subdivide (other
than by means of a dividend payable in Common Shares covered by paragraph
7(g)(ii)(7)) its outstanding Common Shares into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding Common Shares
of the Corporation shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
A-14
<PAGE>
(v) If any capital reorganization or reclassification of the
share capital of the Corporation, or amalgamation of the Corporation with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common
Shares shall be entitled to receive stock, securities, cash or other property
with respect to or in exchange for Common Shares, then, as a condition of such
reorganization, reclassification, amalgamation or sale, lawful and adequate
provision shall be made whereby the holders of shares of this Series shall have
the right to acquire and receive upon conversion of the shares of this Series,
which right shall be prior to the rights of the holders of stock ranking on
liquidation junior to this Series (but after and subject to the rights of
holders of Senior Preferred Shares, if any), such shares of stock, securities,
cash or other property issuable or payable (as part of the reorganization,
reclassification, amalgamation or sale) with respect to or in exchange for such
number of outstanding Common Shares of the Corporation as would have been
received upon conversion of the shares of this Series at the Conversion Price
then in effect. The Corporation will not effect any such amalgamation or sale,
unless prior to the consummation thereof the amalgamated corporation or the
corporation purchasing such assets shall assume by written instrument mailed or
delivered to the holders of the shares of this Series at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding Common Shares of the Corporation,
the Corporation shall not effect any amalgamation or sale with the person having
made such offer or with any Affiliate (as defined below) of such person, unless
prior to the consummation of such amalgamation or sale the holders of the shares
of this Series shall have been given a reasonable opportunity to then elect to
receive upon the conversion of the shares of this Series either the stock,
securities or assets then issuable with respect to the Common Shares of the
Corporation or the stock, securities or assets, or the equivalent, issued to
previous holders of the Common Shares in accordance with such offer. For
purposes hereof, the term "Affiliate" with respect to any given person shall
mean any person controlling, controlled by or under common control with the
given person.
(vi) The provisions of this Section 7(g) shall not apply to any
Common Shares issued, issuable or deemed outstanding under subparagraphs
7(g)(ii)(1) to (8) inclusive: (i) to any person pursuant to any stock option,
stock purchase or similar plan or arrangement for the benefit of employees of
the Corporation or its subsidiaries in effect on the Initial Issuance Date or
thereafter adopted by the Board of Directors of the Corporation, (ii) pursuant
to options, warrants and conversion rights in existence on the Initial Issuance
Date, (iii) upon exercise of the warrants of the Corporation issued to Warburg
pursuant to the Warrant Agreement or (iv) on conversion of the shares of this
Series or the sale of any additional shares of this Series.
(vii) In the event that:
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<PAGE>
(1) the Corporation shall declare any cash dividend upon its
Common Shares, or
(2) the Corporation shall declare any dividend upon its Common
Shares payable in stock or make any special dividend or other
distribution to the holders of its Common Shares, or
(3) the Corporation shall offer for subscription pro rata to the
holders of its Common Shares any additional shares of stock of any class
or other rights, or
(4) there shall be any capital reorganization or reclassification
of the share capital of the Corporation, including any subdivision or
combination of its outstanding Common Shares, or amalgamation of the
Corporation with, or sale of all or substantially all of its assets to,
another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the shares of this Series:
(A) at least twenty (20) days' prior written notice of the
date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding
up; and
(B) in the case of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding
up, at least twenty (20) days' prior written notice of
the date when the same shall take place.
Such notice in accordance with the foregoing clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, amalgamation, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of the shares of this Series at the
address of each such holder as shown on the books of the Corporation.
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<PAGE>
(viii) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities or rights to purchase property (the "Purchase Rights")
pro rata to the record holders of the Common Shares of the Corporation and such
grants, issuances or sales do not result in an adjustment of the Conversion
Price under paragraph 7(g)(ii) hereof, then each holder of shares of this Series
shall be entitled to acquire (within thirty (30) days after the later to occur
of the initial exercise date of such Purchase Rights or receipt by such holder
of the notice concerning Purchase Rights to which such holder shall be entitled
under paragraph 7(g)(vii)) and upon the terms applicable to such Purchase Rights
either:
(A) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of Common Shares
acquirable upon conversion of shares of this Series
immediately before the grant, issuance or sale of such
Purchase Rights; provided that if any Purchase Rights
were distributed to holders of Common Shares without the
payment of additional consideration by such holders,
corresponding Purchase Rights shall be distributed to the
exercising holders of the shares of this Series as soon
as possible after such exercise and it shall not be
necessary for the exercising holder of the shares of this
Series specifically to request delivery of such rights;
or
(B) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said thirty
(30) day period, the number of Common Shares or the
amount of property which such holder could have acquired
upon such exercise at the time or times at which the
Corporation granted, issued or sold such expired Purchase
Rights.
(ix) If any event occurs as to which, in the opinion of the
Board, the provisions of this Section 7(g) are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holders of the
shares of this Series in accordance with the essential intent and principles of
such provisions, then the Board shall make an adjustment in the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such rights as aforesaid, but in no event shall any adjustment have
the effect of increasing the Conversion Price as otherwise determined pursuant
to any of the provisions of this Section 7(g) except in the case of a
combination of shares of a type contemplated in paragraph 7(g)(iv) and then in
no event to an amount larger than the Conversion Price as adjusted pursuant to
paragraph 7(g)(iv).
"(h) No fractional Common Shares shall be issued upon the
conversion of any share or shares of this Series. If any fractional
interest in a Common Share would, except for the provisions of this
Section 7(h), be deliverable upon the conversion of any share or shares
of this Series, the Corporation shall in lieu of delivering the
fractional Common Share therefor satisfy such fractional interest by
A-17
<PAGE>
payment to the holder of such surrendered share or shares of this Series
of an amount in cash equal (computed to the nearest cent) to the current
market value of such fractional interest, computed on the basis of the
Market Price of the Common Shares on the date of such conversion,
provided, however, that no amount shall be paid by the Corporation to
such holder of less than U.S. $5.00.
"(i) The Corporation shall be entitled to effect the mandatory
conversion, in whole or in part, of the shares of this Series in
accordance with this Section 7 if all of the Triggering Conditions (set
forth in Section 2(b) hereof) shall have been satisfied as of the date
of the notice described below. Upon such mandatory conversion, each
share of this Series subject to such conversion shall be converted into
Common Shares at the then effective Conversion Price for such shares. In
case the Corporation shall desire to exercise the right to convert all
or, as the case may be, any shares of this Series in accordance with the
right to do so, it shall provide notice to the holders of the shares of
this Series to be converted as hereinafter provided in this Section
7(i).
"(i) A notice of conversion shall be given to the holders
of shares of this Series to be converted by mailing by first-class mail
to their last addresses as they shall appear upon the register for
shares of this Series not less than 120 calendar days prior to the date
fixed for conversion.
"(ii) Each such notice of conversion (A) shall specify
the date fixed for conversion and the number of Common Shares issuable
to the holder of a share of this Series upon such conversion, (B) shall
state the offices or agencies to be maintained by the Corporation for
the purpose of such conversion, upon presentation and surrender of such
shares of this Series and (C) if less than all the shares of this Series
are to be converted, shall specify the number of shares of this Series
held by each holder, and the serial numbers of the certificates thereof,
to be converted. In case any certificate representing shares of this
Series is to be converted in part only, the notice of conversion which
relates to such certificate shall state the number of shares of this
Series represented by such certificate to be converted and shall state
that on and after the conversion date, upon surrender of such
certificate, a new certificate or certificates for a number of shares of
this Series equal to the unconverted portion thereof will be issued.
"(j) The Corporation will at all times reserve and keep
available, solely for the purposes of the issuance of Common Shares upon
conversion of the shares of this Series, the full number of Common
Shares as shall be issuable upon the conversion of all such outstanding
shares of this Series.
"The Corporation will endeavor to comply with all securities laws
regulating the offer and delivery of Common Shares upon conversion of
the shares of this Series and, that if any Common Shares required to be
reserved for purposes of conversion of the shares hereunder require
registration with or approval of any
A-18
<PAGE>
governmental authority under any U.S. (federal or state) or Canadian law
before such Common Shares may be validly issued or delivered upon
conversion, the Corporation will, in good faith and as expeditiously as
possible, endeavor to secure such registration or approval, as the case
may be.
"All Common Shares which shall be issued upon conversion of the
shares of this Series will upon issuance be fully paid and nonassessable
and not subject to preemptive rights.
"(k) The issuance of certificates for Common Shares upon
conversion of shares of this Series shall be made without charge for any
stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder
of record of the share or shares of this Series so converted, the holder
thereof shall pay to the Corporation the amount of any tax which may be
payable in respect of any transfer involved in such issuance or shall
establish to the satisfaction of the Corporation that such tax has been
paid or is not payable.
"(l) In case (A) the Corporation shall take any action which
would require an adjustment in the number of Common Shares issuable to
holders of shares of this Series upon conversion thereof pursuant to
Section 7(g) above; or (B) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Corporation;
then the Corporation shall cause to be given to the holders of the
shares of this Series at least ten days prior to the applicable record
date hereinafter specified, a notice of (X) the date on which a record
is to be taken for the purpose of any dividend, distribution or grant to
holders of Common Shares which would require such an adjustment, or, if
a record is not to be taken, the date as of which the holders of Common
Shares of record to be entitled to such dividend, distribution, or grant
are to be determined or (Y) the date on which such reorganization,
reclassification, amalgamation, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which
it is expected that holders of Common Shares of record shall be entitled
to exchange their Common Shares for securities or other property or
other assets deliverable upon such reorganization, reclassification,
amalgamation, sale, transfer, dissolution, liquidation, or winding up.
Failure to give such notice or any defect therein shall not affect the
legality or validity of any proceedings described in subparagraphs (A)
or (B) of this Section 7(l).
"8. Hold Period. A holder of shares of this Series shall in no
event sell or otherwise transfer any of the shares of this Series, or any Common
Shares issued upon the due conversion of any shares of this Series, for a period
of six months from the Initial Issuance Date. The Corporation shall issue or
cause to be issued certificates representing shares of this Series, and of
Common Shares issued upon due conversion of any shares of
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this Series, which contain such legends as the Corporation in its discretion
deems adequate to reflect the hold period described in this Section 8.
"9. Miscellaneous.
"(a) For the purposes hereof:
"(i) the term "outstanding", when used in reference to
shares of this Series, shall mean issued shares of this Series,
excluding shares of this Series called for redemption; and
"(ii) the term "subsidiary" shall mean any company a
majority of whose outstanding voting capital stock (other than
directors' qualifying shares), at the time as of which any
determination is being made, shall be owned by the parent of such
company either directly or through other subsidiaries; and
"(iii) any shares of a series or class of shares of the
Corporation shall be deemed to rank:
"(A) prior to shares of this Series, whether or
not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of shares of this Series, if the
holders of such shares of a series or class of shares
shall be entitled to receipt from the Corporation of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, in preference or priority to
the holders of shares of this Series, as the case may be;
"(B) on a parity with or equal to shares of this
Series, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per
share thereof be different from those of shares of this
Series, if the holders of such shares of a series or
class of shares shall be entitled to the receipt from the
Corporation of dividends or of amounts distributable upon
liquidation to their respective dividend rates or
liquidation prices, without preference or priority one
over the other as between the holders of such shares of a
series or class of shares and the holders of shares of
this Series; and
"(C) subordinate to shares of this Series, whether
or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of shares of this Series, if the
rights of the holders of such shares of a series or class
of shares shall be subordinate to the rights of the
holders of
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shares of this Series in respect of the receipt from the
Corporation of dividends and of amounts distributable
upon liquidation, dissolution or winding up, including,
without limitation, the Common Shares of the Corporation.
"(b) So long as any shares of this Series are outstanding, in the
event of any conflict between the provisions hereof and any corporate
document of the Corporation (both as presently existing or hereafter
amended and supplemented) the provisions hereof, as the same may be
amended or supplemented, shall be and remain controlling.
"(c) The holders of the shares of this Series shall have no
preemptive rights.
SECOND: That such determination of the designation, powers, preferences
and the relative participating, optional and other special rights and
qualifications, limitations and restrictions thereof relating to such Series A
Convertible Preferred Shares was duly made by the Board of Directors of the
Corporation in accordance with the provisions of Section 27 of the Business
Corporations Act (Alberta).
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<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed by the President
and the Secretary of HealthCare Capital Corp, and the Corporation has caused its
corporate seal to be hereunto affixed, all as of the ____ day of January, 1998.
HEALTHCARE CAPITAL CORP.
By:
Brandon M. Dawson
Title: President
[Corporate Seal]
Attest:
- ----------------------------------
William DeJong
Secretary
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PRELIMINARY COPY
IRREVOCABLE CONSENT OF SHAREHOLDER
WHEREAS on November 21, 1997, HealthCare Capital Corp. (the
"Corporation") entered into a definitive Securities Purchase Agreement (the
"Purchase Agreement") with Warburg Pincus Ventures, L.P., a Delaware limited
partnership (the "Investor"), whereby the Investor has agreed to purchase from
the Corporation and the Corporation has agreed to sell to the Investor, by way
of a private placement, up to 13,333,333 Series A Convertible Preferred Shares
of the Corporation (the "Convertible Shares") and 10,000,000 Common Share
purchase warrants of the Corporation (the "Warrants") for an aggregate purchase
price of U.S. $18,000,000 (the "Private Placement");
AND WHEREAS each Convertible Share, subject to such
anti-dilution adjustments as are specified in Exhibit C to the Purchase
Agreement, shall be convertible into one Common Share of the Corporation, at no
additional cost;
AND WHEREAS pursuant to the terms of the Purchase Agreement,
the Investor shall have the ability under specified circumstances to designate
up to two (2) additional directors to be added to the existing six (6) directors
currently elected to the Board of Directors of the Corporation, and, further, in
the event that the number of directors on the Board of Directors is increased in
excess of eight (8) directors, the Investor shall have the ability to then
designate an additional director;
AND WHEREAS each Warrant, subject to such anti-dilution
adjustments as are included in a definitive Warrant Agreement to be entered into
between the Corporation and the Investor in substantially the form of Exhibit A
to the Purchase Agreement, shall be exercisable for a term of three (3) years
from the closing of the Private Placement (which
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<PAGE>
term may be extended up to five (5) years subject to the receipt of approval of
the regulatory authority having jurisdiction at that time) to purchase one
additional Common Share of the Corporation at U.S. $2.40 per Common Share;
AND WHEREAS the Warrant Agreement shall contain a provision
such that the Investor shall have the ability to receive up to 2,500,000 Common
Shares of the Corporation on the basis of a "cashless" exercise of Warrants
whereunder the Investor shall be required to surrender a sufficient number of
Warrants to the Corporation for cancellation, based on the trading price of the
Common Shares of the Corporation;
AND WHEREAS in conjunction with the Private Placement the
Corporation has committed to pay advisory fees to (i) Salomon Brothers Inc equal
to 6% of the gross proceeds of U.S. $18,000,000 and (ii) RN Capital equal to
3.5% of the gross proceeds, plus, in the case of RN Capital, an additional fee
equal to 2% of the cash proceeds, if any, received by the Corporation upon the
exercise of the Warrants;
AND WHEREAS the Corporation intends to use the net proceeds of
the Private Placement for the funding of further growth of the Corporation by
way of acquisitions of hearing clinics and for general working capital purposes;
AND WHEREAS the Corporation has 27,284,517 Common Shares
outstanding as at December 1, 1997 and, after issuance of the Convertible
Shares, the Convertible Shares shall comprise approximately 33% of the issued
and outstanding voting securities of the Corporation;
AND WHEREAS The Alberta Stock Exchange has issued its
conditional approval of the Private Placement and the additional listing of
23,333,333 Common Shares of the Corporation;
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<PAGE>
AND WHEREAS the conditional approval of The Alberta Stock
Exchange includes a requirement that written consents be obtained from holders
of at least 50.01% of the Common Shares of the Corporation, confirming that such
shareholders would have voted in favour of the Private Placement, substantially
as outlined above, had approval been sought at a formal meeting of the
shareholders of the Corporation;
I, ----------------------------, do hereby irrevocably consent
to the Private Placement substantially as outlined above, without the necessity
of a formal meeting of shareholders of the Corporation, and further do
irrevocably confirm that all of my beneficially owned Common Shares of the
Corporation would have been voted in favour of the Private Placement, had such
approval been sought from me at a formal meeting of the holders of Common Shares
of the Corporation.
DATED at ----------------------------, this --- day of
December, 1997.
----------------------------
Signature of Shareholder
----------------------------
Number of HealthCare Capital
Corp. Common Shares owned by
the Shareholder with present voting
power
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