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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTHCARE CAPITAL CORP.
(Name of small business issuer in its charter)
Alberta, Canada
(State or other jurisdiction of
incorporation or
organization)
8049
(Primary standard industrial
classification code number)
Not Applicable
(I.R.S. Employer
Identification No.)
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
(503) 225-9152
(Address and telephone number of principal executive offices
and principal place of business)
Brandon M. Dawson
President
HealthCare Capital Corp.
111 S.W. Fifth Avenue
Suite 2390
Portland, Oregon 97204
(503) 225-9152
(Name, address, and telephone number of agent for service)
With Copies To:
Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204-3699
Attn: Mary Ann Frantz
(503) 224-5858
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
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Calculation of Registration Fee
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Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Shares to be Offering Price Per Aggregate Offering Registration
Registered Registered Share (1) Price (1) Fee
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<S> <C> <C> <C> <C>
Common stock, 25,312,814 $1.71 $43,284,912 $13,117
without nominal or
par value
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(c) based upon the high and low prices of the common
stock on The Alberta Stock Exchange on March 7, 1997.
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The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
HEALTHCARE CAPITAL CORP.
25,312,814 Shares
Common Stock
This Prospectus relates to 25,312,814 shares of Common Stock of
HealthCare Capital Corp. (the "Company") which may be offered for sale from time
to time by the selling shareholders identified under "Selling Shareholders." The
shares covered by this Prospectus include 15,395,216 shares of Common Stock
issuable upon the exercise of warrants or convertible securities acquired by
certain selling shareholders prior to the date of this Prospectus. This
Prospectus relates only to the shares of Common Stock issuable upon the exercise
of such warrants or convertible securities and not to the warrants or
convertible securities themselves.
The Company is an Alberta, Canada corporation. The Common Stock is
traded in Canada on The Alberta Stock Exchange (the "ASE"). The last reported
sale price of the Common Stock on the ASE on March __, 1997, was $____ per
share. There is currently no public market for the Common Stock in the United
States. The Company has been advised that the selling shareholders expect to
offer the Shares from time to time at prices and on terms then prevailing on the
ASE or at prices related to the then-current market prices, or in negotiated
transactions. See "Selling Shareholders" and "Plan of Distribution."
The selling shareholders and any broker-dealers who may participate in
sales of shares covered by this Prospectus may be deemed to be statutory
underwriters within the meaning of the Securities Act of 1933. See "Plan of
Distribution."
The Common Stock offered hereby involves a high degree of risk. See
"Risk Factors" beginning on page 7 for a discussion of certain factors that
should be considered by prospective purchasers of the Common Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is March __, 1997.
<PAGE>
[Map of United States and Canada Showing HealthCare Capital Corp.
Hearing Care Clinic Locations]
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<TABLE>
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TABLE OF CONTENTS
Page
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Prospectus Summary...............................................................................................3
Risk Factors.....................................................................................................7
Service and Enforcement of Legal Process........................................................................13
Special Note Regarding Forward-Looking Statements...............................................................13
Price Range of Common Stock.....................................................................................14
Dividend Policy.................................................................................................15
Capitalization..................................................................................................15
Selling Shareholders............................................................................................17
Management's Discussion and Analysis of Financial Condition and Results of Operations...........................28
Business........................................................................................................32
Management......................................................................................................41
Compensation of Executive Officers..............................................................................44
Certain Transactions............................................................................................48
Principal Shareholders..........................................................................................50
Description of Capital Stock....................................................................................52
Canadian Taxation...............................................................................................56
Investment Canada Act...........................................................................................58
Plan of Distribution............................................................................................58
Legal Matters...................................................................................................59
Experts.........................................................................................................60
Additional Information..........................................................................................60
Pro Forma Financial Information.................................................................................61
Index to Financial Statements..................................................................................F-1
</TABLE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Additionally, investors should carefully
consider the information set forth under "Risk Factors." All dollar amounts,
unless otherwise indicated, are expressed in United States dollars.
The Company
The Company, through its subsidiaries HC HealthCare Hearing Clinics
Ltd., an Alberta, Canada, corporation, and HealthCare Hearing Clinics, Inc., a
Washington corporation, currently owns and operates a network of 50 hearing care
clinics in the United States and Western Canada. The clinics are located
primarily in the metropolitan areas of Los Angeles, California; San Diego,
California; Chicago, Illinois; Lansing, Michigan; Albuquerque, New Mexico;
Vancouver, British Columbia; and Calgary, Alberta. The Company intends to expand
its network of hearing care clinics by acquiring clinics in its existing as well
as new geographic markets. Since October 1, 1996, the Company has acquired 33
hearing clinics.
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Each of the Company's hearing care clinics provides its hearing
impaired patients with a full range of audiological products and services. All
of the Company's hearing care clinics are staffed by audiologists, except for
one clinic that is staffed by a hearing instrument specialist ("HIS"). The
Company's operating strategy is to provide patients with high quality and
cost-effective hearing care while at the same time increasing its operating
margins by attracting and retaining patients, recruiting qualified and
productive audiologists, achieving economies of scale and administrative
efficiencies, and pursuing large group and managed care contracts. The Company
believes that it is well positioned to provide retail hearing rehabilitative
services to consumers while simultaneously serving the diagnostic needs of
referring physicians and meeting the access and cost concerns of managed care
providers and insurance companies.
The Company was incorporated under the laws of the Province of Alberta,
Canada in July 1993, under the name "575035 Alberta Ltd." The Company changed
its name to HealthCare Capital Corp. in October 1994. The Company's executive
offices are located at Suite 2390, 111 S.W. Fifth Avenue, Portland, Oregon 97204
(telephone (503) 225-9152) and an additional corporate office is located at
Suite 1120, 595 Howe Street, Vancouver, B.C. V6B 1NZ (telephone (604) 685-4854).
Summary Financial, Operating and Pro Forma Data
The summary historical financial data presented below for the years
ended July 31, 1995 and 1996 has been derived from the audited financial
statements of the Company included elsewhere in this Prospectus. The summary
historical financial data presented below for the three months ended October 31,
1995 and 1996 has been derived from the unaudited financial statements of the
Company. Such unaudited financial data has been prepared on the same basis as
the audited financial data and reflects all normal recurring adjustments that
are, in the opinion of management of the Company, necessary for a fair
presentation of the financial position of the Company and its results of
operations for the periods indicated. The summary historical financial data
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus. The summary pro forma data should be read
in conjunction with the information presented under "Pro Forma Financial
Information" herein.
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<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share and other data)
Year ended July 31, Three months ended October 31,
1996 Pro 1996 Pro
Forma, Forma,
including including
Acquired Acquired
1995 1996 Clinics(1) 1995 1996 Clinics(1)
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<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenue $ 1,720 $ 2,389 $ 10,054 $ 514 $ 1,281 $ 2,847
Cost of sales 773 1,018 3,557 233 492 1,010
Operating expenses 1,038 1,961 7,211 301 1,063 2,167
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Loss from operations (91) (590) (714) (20) (274) (330)
Other income (expense), net (3) 8 22 - (27) (19)
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Loss before income taxes $ (94) $ (582) $ (692) $ (20) $ (301) $ (349)
Income tax expense (benefit) - - 25 - - ( 31)
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Net Loss $ (94) $ (582) $ (717) $ (20) $ (301) $ (318)
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Net loss per common share $ (0.04) $ (0.03) $ (0.02) $ (0.01)
=========================== ============================
Weighted average number of
shares outstanding 14,211 23,974(2)(3) 17,024 26,787(2)(3)
=========================== ============================
Other Data:
Number of audiology clinics 9 15 41 9 41 41
</TABLE>
<TABLE>
<CAPTION>
July 31,
1996 October 31, 1996
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1996 Pro
Forma,
reflecting
Special
Warrant
Actual Offering(3)
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<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 12 $ 472 $ 5,394
Working capital 18 531 5,453
Total assets 2,322 9,876 14,418
Long-term debt, net of current portion 92 411 411
Convertible debt 129 2,736 2,736
Shareholders' equity 1,512 4,803 9,344
</TABLE>
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(1) Gives effect to the acquisitions of Hearing Care Associates Group and
the Midwest Division of Hearing Health Services, Inc., dba SONUS, and
the issuance of 2,389,536 shares in connection with the acquisition of
Hearing Care Associates Group, as if such events had occurred on August
1, 1995.
(2) Gives effect to the deemed issuance of 1,905,750 shares in connection
with the sale by the Company of 1,700,000 special warrants at Cdn$1.00
per special warrant on February 28, 1996, as if the shares had been
issued on August 1, 1995. Such shares have not been included in the
calculation of actual net loss per common share. See "Description of
Capital Stock."
(3) Gives effect to the deemed issuance of 5,467,410 shares in connection
with the sale by the Company of 4,959,000 special warrants at $1.25 per
special warrant in September and December 1996 as if the sale had
occurred on August 1, 1995. The special warrant offering was completed
on December 9, 1996, representing net proceeds of $5.9 million, of
which approximately $1.0 million were included in the historical
October 31, 1996, balance sheet. Such shares have not been included in
the calculation of actual net loss per common share. See "Description
of Capital Stock."
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<PAGE>
RISK FACTORS
The Company's Common Stock, without nominal or par value (the "Common
Stock"), offered hereby should be considered a highly speculative investment.
Prospective investors should carefully consider the following factors, in
addition to the other information contained herein, before deciding to purchase
the Common Stock. This Prospectus contains forward-looking statements within the
meaning of the federal securities laws. Such forward-looking statements involve
risks and uncertainties, and actual results may differ from those projected due
to a number of factors, including those set forth below and elsewhere in this
Prospectus. See "Special Note Regarding Forward-Looking Statements."
Short Operating History
The Company has a limited history of operations consisting primarily of
operating a limited number of hearing care clinics in British Columbia beginning
in October 1994. The Company did not begin operating in the United States until
it purchased two hearing care clinics in Santa Maria, California, in July 1996.
At March 1, 1997, the Company operated 37 hearing care clinics in the United
States and 13 clinics in Canada.
Operating Losses
For the fiscal year ended July 31, 1996, the Company sustained a net
loss of approximately $582,000. For the three months ended October 31, 1996, the
Company had a net loss of approximately $301,000. Further losses are anticipated
as a result of planned increases in the executive and general management staff
of the Company to support the Company's expansion plans, additional advertising
and public relations costs, amortization of goodwill related to past and future
acquisitions, and the development of a management information system. There can
be no assurance that the Company will achieve profitability in the near or long
term.
Expansion Program
Much of the Company's future success is dependent upon acquiring
hearing care clinics in new markets in which the Company has no previous
presence. There can be no assurance that the Company will be able to complete
acquisitions consistent with its expansion plans, that such acquisitions will be
on terms favorable to the Company or that the Company will be able to
successfully integrate the hearing care clinics that it acquires into its
business. The success of the Company's expansion is dependent upon its ability
to establish a market presence in geographic areas in which it is presently
unknown and where competitors with greater financial and other resources may be
operating and on a number of other factors, some of which are beyond the
Company's control. Unforeseen problems with future acquisitions and expansion
may have a material adverse effect on the business, financial condition, and
results of operations of the Company. In addition, clinics in areas of recent
expansion are not expected to be profitable for an indeterminate period of time
because of the time and capital required to develop
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a network of hearing care clinics that is sufficiently large to permit full
implementation of the Company's business strategy. The Company intends to issue
additional shares of its Common Stock in payment of all or a portion of the
purchase price of certain acquisitions. There can be no assurance that
fluctuations in the market price of the Common Stock will not adversely affect
the Company's ability to use its Common Stock for acquisitions.
Integration of Acquired Hearing Care Clinics
The Company's expansion into new markets will require the Company to
establish and maintain payor and customer relationships and to convert the
patient tracking and financial reporting systems of the hearing care clinics
that it acquires to the Company's systems. The failure to efficiently and
effectively establish and maintain payor and customer relationships, convert
management information systems, and integrate new hearing care clinics into its
existing network will have a material adverse effect on the Company's business,
financial condition, and results of operations.
Impact of Policy Changes by Third-Party Insurers
A portion of the hearing aids sold by the Company are paid for by
third-party insurers. Many of such insurers impose restrictions in their health
insurance policies on the frequency with which hearing instruments may be
upgraded or replaced on a reimbursable basis. Such restrictions have a negative
impact on hearing aid sales volume. There can be no guarantee that such insurers
will not implement other policy restrictions in the future in order to further
minimize reimbursement for hearing care. Such restrictions could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Managed Care
Managed care arrangements typically shift some of the economic risk of
providing patient care from the person who pays for the care to the provider of
the care by capping fees, requiring reduced fees, or paying a set fee per
patient irrespective of the amount of care delivered. With respect to hearing
care, such limits could result in reduced payments for services or restrictions
on the types of services for which reimbursement is available or the frequency
of replacements or upgrades of equipment. If managed care arrangements become
more prevalent in the hearing care field in the future, or the downward
pressures on fees associated with managed care increase, the Company's business,
financial condition, and results of operations may be materially adversely
affected.
Dependence on Key Personnel
The success of the Company is dependent to a significant degree on the
services of Brandon M. Dawson, president of the Company, and on the other
members of its executive management team. The loss of the services of any of
these key personnel could have a material adverse effect on the Company's
business, financial condition, and results of operations.
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<PAGE>
The Company's success is also substantially dependent upon its ability
to identify, attract and retain qualified employees, particularly audiologists,
who are primarily responsible for clinic profitability as well as for attracting
and retaining customers. The Company recruits such personnel from a limited pool
of available applicants. Although the Company attempts to enter into employment
contracts with its audiologists that contain non-competition covenants, such
audiologists may become competitors of the Company. The Company's failure to
attract and retain audiologists and other key employees would have a material
adverse effect on the business, financial condition, and results of operations
of the Company.
Uncertain Ability to Manage Growth
The Company's operations to date have principally consisted of the
operation of a limited number of hearing care clinics in British Columbia,
Alberta, and more recently in Southern California, Illinois, Michigan, and New
Mexico. The Company's expansion plans in the United States and Canada will place
additional demands on the Company's management. The Company has five executives
and eight other employees staffing its corporate headquarters. Significant
expansion could place a strain on the Company's managerial and other resources,
including its systems and controls, and could require the Company to recruit and
hire a number of new managerial and other personnel. The process of locating,
training, and successfully integrating such personnel into the Company's
operations is time-consuming and costly. There can be no assurance that the
Company will be successful in attracting, integrating, and retaining such
personnel. A failure to manage any expansion effectively or to provide
appropriate administrative support to the Company's hearing care clinics could
have a material adverse effect on the Company's business, financial condition,
and results of operations.
Concentration of Stock Ownership
The executive officers and directors of the Company beneficially own
approximately 7.8 million shares (not including shares subject to options), or
41% of the Common Stock presently outstanding. Accordingly, these individuals,
acting in concert, presently have substantial influence, if not control, over
most matters requiring shareholder approval, including the election of directors
and the approval of significant corporate transactions. Such concentration of
ownership could also permit substantial shareholders to delay or prevent a
change in control of the Company and may discourage third parties from
attempting to acquire such control.
Public Market; Volatility of Stock Price
The Common Stock is presently traded on The Alberta Stock Exchange in
Canada. However, there has been no public market for the Company's Common Stock
in the United States and there is no assurance that an active trading market
will develop or be sustained. Even if an active trading market does develop in
the United States, the market price of the Company's Common Stock could be
significantly affected by such factors as the Company's operating results,
changes in any earnings estimates publicly announced by the Company or by
analysts, announcements of technological or surgical innovations affecting
hearing care, the introduction
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<PAGE>
of new hearing care products or changes in existing hearing care products, and
various factors affecting the economy in general. In addition, the stock markets
in the United States and Canada have experienced a high level of price and
volume volatility and market prices for the stock of many companies have
experienced wide price fluctuations not necessarily related to the operating
performance of such companies.
Potential for Future Sales of Shares
This Prospectus relates to the offering for sale of a total of
25,312,814 shares of the Company's Common Stock from time to time by one or more
persons identified under the caption "Selling Shareholders" (the "Selling
Shareholders"), of which (i) 9,917,598 shares are presently outstanding, (ii)
13,395,216 shares are issuable upon the exercise of special warrants or related
purchase warrants, and (iii) 2,000,000 shares are issuable upon the exercise of
convertible notes. See "Selling Shareholders," "Principal Shareholders," and
"Plan of Distribution." An additional 4,493,630 shares of Common Stock which are
not covered by this Prospectus are issuable upon the exercise of options,
purchase warrants, and convertible securities, of which 1,404,630 were
exercisable at March 1, 1997. Also, approximately 9,840,000 shares of the
outstanding Common Stock which are not covered by this Prospectus are freely
transferable under the Canadian and U.S. federal securities laws. Sales of any
significant number of shares of Common Stock, or the potential for such sales,
in the public market could adversely affect the prevailing market price of the
Common Stock. See "Price Range of Common Stock."
Possible Adverse Effects of Economic Trends
Purchases of hearing instruments are largely discretionary,
particularly where third party reimbursement is not available or available as to
only a portion of hearing care expenses. Accordingly, general economic
conditions, particularly those affecting persons on fixed incomes, such as
changes in the interest rate environment, levels of taxation or the Social
Security system, may have a significant effect on the Company's business. A
decline in demand for the Company's services would have a material adverse
effect on the Company's business, financial condition, and results of
operations.
Competition
The market in which the Company operates is intensely competitive,
highly fragmented, and characterized by intense price competition and an
increasing number of new audiologists entering the market. The Company has
numerous competitors in each of the markets in which it operates hearing care
clinics. Some of its competitors are better known and have substantially greater
financial and marketing resources than the Company. In addition, other persons
or entities may seek to acquire hearing care clinics in the markets in which the
Company hopes to operate, thereby creating competitive pressures in connection
with the acquisition of hearing care clinics by the Company.
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<PAGE>
Labor Unions
Although there are no collective bargaining agreements in place with
respect to the Company's operations, there can be no assurance that the
Company's employees will not attempt to unionize. Certain individuals have
attempted to unionize the employees of HC Health Care Hearing Clinics Ltd., the
Company's Canadian operating subsidiary, in the past. Any unionization of the
Company's employees could have a material adverse effect on the business,
financial condition, and results of operations of the Company.
Additional Financing
The Company's strategy to acquire additional hearing care clinics will
require substantial additional funding. Moreover, funding will be needed for the
development of an on-line management information system that will link each
clinic with the Company's corporate headquarters and for additional working
capital. These funding requirements may result in the Company incurring
long-term and short-term indebtedness and in the public or private issuance,
from time to time, of additional equity or debt securities. There can be no
assurance that any such financing will be available to the Company or will be
available on terms acceptable to the Company.
Reputation of the Industry
Certain segments of the hearing care industry, in particular the sale
and fitting of hearing aids, have been the subject of governmental investigation
and adverse publicity due to unscrupulous sales practices by certain
organizations. Adverse publicity concerning the hearing care industry could have
a material adverse effect on the Company's business, financial condition, and
results of operations.
Regulation
The sale of hearing aid devices is regulated at the federal level in
the United States by the United States Food and Drug Administration ("FDA"),
which has been granted broad authority to regulate the hearing care industry.
Under federal law, hearing aids may only be sold to individuals who have first
obtained a medical evaluation from a licensed physician, although a fully
informed adult may waive a medical evaluation in certain instances. Regulations
promulgated by the FDA also presently require that dispensers of hearing aids
provide customers with certain warning statements and notices in connection with
the sale of hearing aids and that such sales be made in compliance with certain
labeling requirements.
Most states in the United States and provinces in Canada have
established formal licensing procedures that require the certification of
audiologists and/or HISs and although the extent of regulation varies by
jurisdiction, almost all states and provinces engage in some degree of oversight
of the industry. The Company has recently been advised that certain laws and
regulations in the states of California and Illinois may prohibit business
corporations such as the
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<PAGE>
Company from engaging in the practice of audiology. These laws and regulations,
which have been subject to limited judicial and regulatory interpretation, are
enforced by regulatory authorities with broad discretion. The Company is in the
process of determining whether its business operations are in compliance with
such laws and regulations. No assurance can be given that the Company's
activities will be found to be in compliance with such laws and regulations or
if its activities are not in compliance, that the operational structure of the
Company can be modified to permit compliance. In addition, no assurance can be
given that other states or provinces in which the Company presently operates
will not enact prohibitions on the corporate practice of audiology or that the
regulatory framework of certain jurisdictions will not limit the ability of the
Company to expand into such jurisdictions if the Company is unable to modify its
operational structure to comply with such prohibitions or to conform with such
regulatory framework. Additional laws and regulations may be adopted in the
future at the federal, state, or province level that could have a material
adverse effect on the business, financial condition, and results of operations
of the Company.
A small percentage of the revenues of the hearing care clinics operated
by the Company comes from Medicare and Medicaid programs. Federal law prohibits
the offer, payment, solicitation or receipt of any form of remuneration in
return for, or in order to induce, (i) the referral of a Medicare or Medicaid
patient, (ii) the furnishing or arranging for the furnishing of items or
services reimbursable under Medicare or Medicaid programs or (iii) the purchase,
lease or order of any item or service reimbursable under Medicare or Medicaid.
Noncompliance with the federal anti-kickback legislation can result in exclusion
from Medicare and Medicaid programs and civil and criminal penalties.
Potential Issuance of Preferred Stock and Additional Common Stock
The Board of Directors has the authority to issue an unlimited number
of preferred shares of the Company ("Preferred Stock") in one or more series and
to fix the number of shares of any such series and the designations, rights,
privileges, restrictions, and conditions attaching thereto, without any further
vote or action by the shareholders of the Company. The issuance of Preferred
Stock could adversely affect the rights of holders of Common Stock. For example,
the issuance of Preferred Stock could result in securities outstanding that
would have preference over the Common Stock with respect to dividends and in
liquidation and that could (upon conversion or otherwise) have all of the rights
of the Common Stock. The Board of Directors also has the authority to issue an
unlimited number of additional shares of Common Stock without any further vote
or action by the Company's shareholders, possibly causing the interests of the
existing shareholders to suffer substantial dilution. The issuance of Preferred
Stock or additional Common Stock could potentially be used to discourage
attempts by others to obtain control of the Company through merger, tender
offer, proxy or consent solicitation, or otherwise by making such attempts more
costly or more difficult to achieve.
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SERVICE AND ENFORCEMENT OF LEGAL PROCESS
The Company is incorporated under the laws of the Province of Alberta,
Canada. Some of the directors, controlling persons and officers of the Company,
as well as certain of the experts named herein, are residents of Canada and all
or a portion of the assets of such persons and of the Company are located
outside of the United States. As a result, it may be difficult for holders of
the Common Stock to effect service within the United States upon the Company
(although it may be possible to effect service upon the Company's United States
subsidiary) and those directors, controlling persons, officers and experts who
are not residents of the United States, or to realize in the United States upon
judgments of courts of the United States predicated upon the civil liability
provisions of the United States federal securities laws to the extent such
judgments exceed such person's United States assets. The Company has been
advised by its Canadian counsel, Ballem MacInnes, that there is doubt as to the
enforceability in Canada against the Company or against any of its directors,
controlling persons, officers or experts who are not residents of the United
States, in original actions or in actions for enforcement of judgments of United
States courts, of liabilities predicated solely upon United States federal
securities laws.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including
without limitation statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors with respect to the Company
include economic trends in the Company's market areas, the ability of the
Company to manage its growth and integrate new acquisitions into its network of
hearing care clinics, changes in the application or interpretation of applicable
governmental laws and regulations, the ability of the Company to complete
additional acquisitions of hearing care clinics on terms favorable to the
Company, the degree of consolidation in the hearing care industry, the Company's
success in attracting and retaining qualified audiologists and staff to operate
its hearing clinics, product and professional liability claims brought against
the Company that exceed the Company's insurance coverage, and the availability
of and costs associated with potential sources of financing. Certain of these
factors are discussed in more detail elsewhere in this Prospectus, including
without limitation under the captions "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Business."
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
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PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the ASE. The following table sets forth
the reported high and low sales prices in Canadian and United States dollars for
the Common Stock on the ASE for the periods indicated:
<TABLE>
<CAPTION>
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Canadian $ United States $(1)
==========================================================================================================================
Calendar Year Period High Low High Low
==========================================================================================================================
<C> <C> <C> <C> <C> <C>
1995 First Quarter 0.19 0.11 0.14 0.08
- --------------------------------------------------------------------------------------------------------------------------
Second Quarter 0.26 0.15 0.19 0.11
- --------------------------------------------------------------------------------------------------------------------------
Third Quarter 0.28 0.16 0.21 0.12
- --------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 0.65 0.14 0.48 0.11
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
1996 First Quarter 3.75 0.56 2.76 0.41
- --------------------------------------------------------------------------------------------------------------------------
Second Quarter 4.00 2.10 2.95 1.54
- --------------------------------------------------------------------------------------------------------------------------
Third Quarter 2.89 2.00 2.11 1.45
- --------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 2.47 1.80 1.83 1.32
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
1997 First Quarter 2.58 1.81 1.89 1.34
through
March 7, 1997
==========================================================================================================================
</TABLE>
(1) The high and low sales prices in United States dollars were calculated
using the spot exchange rate on the date of sale as quoted by the
Federal Reserve Bank of New York for the New York Interbank Market.
As of March 1, 1997, there were 46 holders of record of the Common
Stock.
- 14 -
<PAGE>
DIVIDEND POLICY
The payment of dividends is solely within the discretion of the
Company's board of directors. Since its inception the Company has not paid cash
dividends on its capital stock. The Company intends to retain any future
earnings for further development and growth of its business and does not
anticipate paying cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1996:
Long-term debt, net of current portion (1) $ 410,564
Convertible debt (2) 2,736,220
Shareholders' equity:
Preferred stock, no nominal or par value per share,
unlimited number of shares authorized; none
outstanding --
Common stock, no nominal or par value per share,
unlimited number of shares authorized; 18,636,536
shares issued and outstanding (3) 5,513,279
Retained deficit (695,313)
Cumulative translation adjustment (15,107)
---------
Total shareholders' equity $4,802,859
Total capitalization $7,949,643
=========
- ----------
(1) See Note 8 of the Notes to the Consolidated Financial Statements for a
description of the Company's long-term debt.
(2) Convertible debt includes the following: (a) $2,600,000 non-interest
bearing convertible subordinated notes due October 31, 1997,
immediately convertible into shares of Common Stock at the conversion
price of $1.30 principal amount for each share of Common Stock; and (b)
$136,220 convertible note due September 1, 1997, immediately
convertible into shares of Common Stock at the conversion price of
$1.00 principal amount for each share of Common Stock.
(3) Includes proceeds from the sale of special warrants received in
February 1996 and September 1996. Shares issued and outstanding do not
include the following: (a) 2,300,000 shares of Common Stock subject to
outstanding options at a weighted average exercise price of $1.09 per
share; (b) 2,830,750 shares of Common Stock issuable without additional
consideration upon the exercise or deemed exercise of special warrants
issued in February 1996 and September 1996; (c) 1,905,750 shares of
Common Stock
- 15 -
<PAGE>
issuable upon exercise of share purchase warrants at an exercise price
of Cdn$1.25 per share until February 28, 1997, and thereafter at
Cdn$1.50 per share until February 28, 1998; (d) 925,000 shares of
Common Stock issuable upon the exercise of share purchase warrants at
an exercise price of $2.00 per share; (e) 81,000 shares of Common Stock
issuable upon the exercise of share purchase warrants at an exercise
price of $1.25; and (f) up to 2,242,430 shares of Common Stock reserved
for issuance in respect of convertible notes and a purchase price
adjustment related to previous acquisitions.
- 16 -
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the name of each Selling Shareholder,
any position, office or other material relationship of such Selling Shareholder
with the Company within the past three years, the amount of Common Stock owned
by such Selling Shareholder on March 1, 1997, the number of shares to be offered
by the Selling Shareholder and the amount and percentage of Common Stock to be
owned by such Selling Shareholder after completion of the offering assuming all
the offered shares are sold.
<TABLE>
<CAPTION>
===============================================================================================================
Number of Shares Shares To Be
Name of Selling Owned Prior to Owned After
Shareholder Offering Shares Offered Offering
================================================================================================================
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gregory Frazer(7) 1,217,268 1,217,268 --
- ---------------------------------------------------------------------------------------------------------------
Douglas F. Good(8) 1,592,762 1,592,762 --
- ---------------------------------------------------------------------------------------------------------------
Karen D. Saito 6,600 6,600 --
- ---------------------------------------------------------------------------------------------------------------
Marilyn E. Marshall(24) 334,000 334,000 --
- ---------------------------------------------------------------------------------------------------------------
C. M. Oliver & 308,600(10) 308,600 --
Company Limited(31)
- ---------------------------------------------------------------------------------------------------------------
Bruce A. Ramsay(25) 33,400 33,400 --
- ---------------------------------------------------------------------------------------------------------------
Stephanie N. Saito 1,000 1,000 --
- ---------------------------------------------------------------------------------------------------------------
Kenneth O. Saito 2,000 2,000 --
- ---------------------------------------------------------------------------------------------------------------
Linda N. Saito 6,600 6,600 --
- ---------------------------------------------------------------------------------------------------------------
Jami Tanihana(11) 919,177 919,177 --
- ---------------------------------------------------------------------------------------------------------------
Craig R. Thomson(12) 68,900 68,900 --
- ---------------------------------------------------------------------------------------------------------------
Michael G. 128,700 128,700 --
Thomson(13)
- ---------------------------------------------------------------------------------------------------------------
Carissa Bennett(14) 253,091 253,091 --
- ---------------------------------------------------------------------------------------------------------------
Dr. Jim Clark & 1,000 1,000 --
Valerie Clark
- ---------------------------------------------------------------------------------------------------------------
James W. Dawson(15) 6,600 6,600 --
- ---------------------------------------------------------------------------------------------------------------
Deborah Law Cross(16) 408,000 408,000 --
- ---------------------------------------------------------------------------------------------------------------
William DeJong(17) 82,200 82,200 --
- ---------------------------------------------------------------------------------------------------------------
Murray T.A. 31,700 31,700 --
Campbell(18)
- 17 -
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Brandon M. Dawson(9) 4,000,000 4,000,000 --
- ---------------------------------------------------------------------------------------------------------------
Figtree Investments 250,000(26) 250,000 --
Limited
- ---------------------------------------------------------------------------------------------------------------
Baron & Darlene Cass 40,000(1) 40,000 --
"Family Foundation"
- ---------------------------------------------------------------------------------------------------------------
A. Baron Cass III 160,000(1) 160,000 --
"Childrens Trust"
- ---------------------------------------------------------------------------------------------------------------
A. Baron Cass III 867,664(3) 867,664 --
- ---------------------------------------------------------------------------------------------------------------
William J. Reik III 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
Philip H. Mabry 40,000(1) 40,000 --
- ---------------------------------------------------------------------------------------------------------------
Marcus R. Mutz 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
James T. Mathis 10,000(1) 10,000 --
- ---------------------------------------------------------------------------------------------------------------
Barton J. Cohen 160,000(1) 160,000 --
- ---------------------------------------------------------------------------------------------------------------
Barton J. Cohen 40,000(1) 40,000 --
"Family Foundation"
- ---------------------------------------------------------------------------------------------------------------
The Curran 467,666(4) 467,666 --
Companies, Inc.
- ---------------------------------------------------------------------------------------------------------------
Michael D. & Lisbeth 80,000(1) 80,000 --
H. Bickford
- ---------------------------------------------------------------------------------------------------------------
Gary B. Downey 16,000(1) 16,000 --
- ---------------------------------------------------------------------------------------------------------------
Howard Kaplan 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
Leonard M. Riggs Jr., 133,334(1) 133,334 --
M.D.
- ---------------------------------------------------------------------------------------------------------------
Peggy A. Riggs 66,666(1) 66,666 --
- ---------------------------------------------------------------------------------------------------------------
John L. Strauss 800,000(1) 800,000 --
- ---------------------------------------------------------------------------------------------------------------
Howard E. Rachofsky 800,000(1) 800,000 --
- ---------------------------------------------------------------------------------------------------------------
John C. Stinson 50,000(1) 50,000 --
- ---------------------------------------------------------------------------------------------------------------
Alan R. Kanuk 72,000(1) 72,000 --
- 18 -
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Paul Lappetito 20,000(1) 20,000 --
- ---------------------------------------------------------------------------------------------------------------
William Collins 150,000(1) 150,000 --
- ---------------------------------------------------------------------------------------------------------------
Mark W. Hill 100,000(1) 100,000 --
- ---------------------------------------------------------------------------------------------------------------
Hill A. Feinberg 40,000(1) 40,000 --
- ---------------------------------------------------------------------------------------------------------------
Alfa Life Insurance 400,000(1) 400,000 --
Co.
- ---------------------------------------------------------------------------------------------------------------
Alfa Mutual Insurance 600,000(1) 600,000 --
Co.
- ---------------------------------------------------------------------------------------------------------------
Alfa Mutual Fire 600,000(1) 600,000 --
Insurance Co.
- ---------------------------------------------------------------------------------------------------------------
John W. Holley 240,000(1) 240,000 --
Grantor Trust
- ---------------------------------------------------------------------------------------------------------------
Barbara Wilson and 56,000(1) 56,000 --
John W. Holley
- ---------------------------------------------------------------------------------------------------------------
Barbara Holley Art V 40,000(1) 40,000 --
Trust
- ---------------------------------------------------------------------------------------------------------------
Barbara Holley Art 96,000(1) 96,000 --
VII Trust
- ---------------------------------------------------------------------------------------------------------------
Rainbow Trading 160,000(1) 160,000 --
Partners, Ltd.
- ---------------------------------------------------------------------------------------------------------------
Rainbow Trading 176,000(1) 176,000 --
Venture Partners, L.P.
- ---------------------------------------------------------------------------------------------------------------
Stanford C. Finney, 160,000(1) 160,000 --
Jr.
- ---------------------------------------------------------------------------------------------------------------
Jerome Gabbert 48,000(1) 48,000 --
- ---------------------------------------------------------------------------------------------------------------
John Lemak 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
James P. Judge 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
Charles McKnight 16,000(1) 16,000 --
- ---------------------------------------------------------------------------------------------------------------
Gail King 40,000(1) 40,000 --
- 19 -
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Netta Sue King 16,000(1) 16,000 --
McNight
- ---------------------------------------------------------------------------------------------------------------
Netta Sue King Q-Tip 40,000(1) 40,000 --
Trust
- ---------------------------------------------------------------------------------------------------------------
Andrea P. Thau Profit 16,000(1) 16,000 --
Sharing Plan
- ---------------------------------------------------------------------------------------------------------------
Andrea Thau Money 8,000(1) 8,000 --
Purchase Plan
- ---------------------------------------------------------------------------------------------------------------
John R. Lieberman 8,000(1) 8,000 --
- ---------------------------------------------------------------------------------------------------------------
Donald J. Aho 16,000(1) 16,000 --
- ---------------------------------------------------------------------------------------------------------------
Marvin Kigler 8,000(1) 8,000 --
- ---------------------------------------------------------------------------------------------------------------
Stephen Rutledge 10,000(1) 10,000 --
- ---------------------------------------------------------------------------------------------------------------
Eli Jacobson 64,000(1) 64,000 --
- ---------------------------------------------------------------------------------------------------------------
David Stone 160,000(1) 160,000 --
- ---------------------------------------------------------------------------------------------------------------
State Capital Partners 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
Christine Ferrer 160,000(1) 160,000 --
- ---------------------------------------------------------------------------------------------------------------
Theodore Friedman 80,000(1) 80,000 --
- ---------------------------------------------------------------------------------------------------------------
Gross Foundation Inc. 400,000(1) 400,000 --
- ---------------------------------------------------------------------------------------------------------------
Howard Milstein 160,000(1) 160,000 --
- ---------------------------------------------------------------------------------------------------------------
Edward Milstein 160,000(1) 160,000 --
- ---------------------------------------------------------------------------------------------------------------
Paul Scharfer(39) 44,600(34) 44,600 --
- ---------------------------------------------------------------------------------------------------------------
Joe Pretlow 40,000(1) 40,000 --
- ---------------------------------------------------------------------------------------------------------------
Derek Caldwell(38) 89,200(35) 89,200 --
- ---------------------------------------------------------------------------------------------------------------
Richard Stone(20) 72,680(36) 72,680 --
- ---------------------------------------------------------------------------------------------------------------
Nathan Low(20) 269,137(33) 269,137 --
- ---------------------------------------------------------------------------------------------------------------
Dwight Miller(20) 227,727(41) 227,727 --
- ---------------------------------------------------------------------------------------------------------------
Alan Swerdoff(20) 18,376(6) 18,376 --
- 20 -
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Marc R. Still IRA(21) 136,000(5) 136,000 --
- ---------------------------------------------------------------------------------------------------------------
Aspen Limited 683,000(32) 683,000 --
Partnership(37)
- ---------------------------------------------------------------------------------------------------------------
Sagit Investment 2,860,000(2) 2,860,000 --
Management Ltd.
- ---------------------------------------------------------------------------------------------------------------
Sands Partnership 267,666(2) 267,666 --
No. 1 Money Purchase
Pension Plan
- ---------------------------------------------------------------------------------------------------------------
Richard Angus(19) 71,500(40) 71,500 --
- ---------------------------------------------------------------------------------------------------------------
Edwin J. Kawasaki(22) 100,000 100,000 --
- ---------------------------------------------------------------------------------------------------------------
Randall E. 250,000 250,000 --
Drullinger(23)
- ---------------------------------------------------------------------------------------------------------------
Brown's Creek, Inc. 900,000(27) 900,000 --
- ---------------------------------------------------------------------------------------------------------------
Business Development 285,120(28) 285,120 --
Capital Limited
Partnership III
- ---------------------------------------------------------------------------------------------------------------
Abbingdon Venture 743,600(29) 743,600 --
Partners Limited
Partnership
- ---------------------------------------------------------------------------------------------------------------
Abbingdon Venture 71,280(30) 71,280 --
Partners Limited
Partnership II
===============================================================================================================
</TABLE>
- -------------------------
(1) One-half of the number of shares shown are issuable to the Selling
Shareholder upon the exercise of the Company's September Warrants (as
defined below). Each September Warrant is exercisable for one share of
Common Stock at an exercise price of $2.00 per share until August 31,
1998. See "Description of Capital Stock--Warrants."
(2) One-half of the number of shares shown are issuable to the Selling
Shareholder upon the exercise of the Company's February Warrants (as
defined below). Each February
- 21 -
<PAGE>
Warrant is exercisable for one share of Common Stock at an exercise
price of Cdn$1.50 per share until February 28, 1998. See "Description
of Capital Stock--Warrants."
(3) The number of shares shown includes 133,832 shares issuable upon the
exercise of the Company's February Warrants and 300,000 shares issuable
upon the exercise of the Company's September Warrants. Each February
Warrant is exercisable for one share of Common Stock at an exercise
price of Cdn$1.50 per share until February 28, 1998. Each September
Warrant is exercisable for one share of Common Stock at an exercise
price of $2.00 per share until August 31, 1998. See "Description of
Capital Stock--Warrants."
(4) The number of shares shown includes 133,833 shares issuable upon the
exercise of the Company's February Warrants and 100,000 shares issuable
upon the exercise of the Company's September Warrants. Each February
Warrant is exercisable for one share of Common Stock at an exercise
price of Cdn$1.50 per share until February 28, 1998. Each September
Warrant is exercisable for one share of Common Stock at an exercise
price of $2.00 per share until August 31, 1998. See "Description of
Capital Stock--Warrants."
(5) The number of shares shown includes 52,000 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 32,000 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
(6) The number of shares shown includes 6,963 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 4,450 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
(7) Mr. Frazer is an officer and director of the Company and acquired his
shares in connection with the acquisition by the Company of certain
hearing care clinics in Southern California in October 1996. See
"Management," "Principal Shareholders," and "Certain Transactions."
(8) Mr. Good is a director of the Company. See "Management," "Principal
Shareholders," "Certain Transactions," and "Description of Capital
Stock--Escrowed Shares."
(9) Mr. Dawson is president and a director of the Company. See
"Management," "Principal Shareholders," "Certain Transactions," and
"Description of Capital Stock--Escrowed Shares."
- 22 -
<PAGE>
(10) The number of shares shown includes 34,000 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 81,000 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
(11) Ms. Tanihana has entered into a five-year employment contract with the
Company as an area administrator. She acquired her shares in connection
with the acquisition by the Company of certain hearing care clinics in
Southern California in October 1996. See "Certain Transactions."
(12) Mr. Thomson was one of the Company's original shareholders and a former
officer and director of the Company.
(13) Mr. Thomson is Vice President, Corporate Finance, of C.M. Oliver
Capital Corporation. C.M. Oliver Capital Corporation and C.M. Oliver &
Company Limited, which acted as placement agent in connection with the
private placement of the Company's special warrants in Canada, are
wholly owned subsidiaries of Planvest Capital Corp. See note 31 below.
In addition, Mr. Thomson was one of the Company's original shareholders
and a former officer and director of the Company. See "Certain
Transactions."
(14) Ms. Bennett has entered into a five-year employment contract with the
Company as an area administrator. She is married to Gregory Frazer, an
officer and director of the Company. She acquired her shares of Common
Stock in connection with the acquisition by the Company of certain
hearing care clinics in Southern California in October 1996. See
"Management," "Principal Shareholders," and "Certain Transactions."
(15) James W. Dawson is the father of Brandon M. Dawson, president and a
director of the Company.
(16) Ms. Cross has entered into a three-year employment contract with the
Company as an area administrator. She acquired her shares of Common
Stock in connection with the acquisition by the Company of Hearing
Dynamics in December 1996. Of the shares shown, a total of 118,000 are
subject to restrictions on sale or transfer. Such restrictions will
lapse on one-third of such shares on each of November 30, 1997,
November 30, 1998, and November 30, 1999. In addition, 80,000 of the
shares are being held by the Company (the "Contingent Shares"). If for
any of the three years ending on November 30, 1997, 1998 or 1999, the
income of Hearing Dynamics before interest, taxes, depreciation and
amortization and after a corporate overhead allocation falls below 20%
of the net revenues of the business for such year, Ms. Cross may elect
to pay the Company one dollar or cancel one Contingent Share for each
dollar of shortfall. A Contingent Share is also required to be
cancelled or a dollar retained for each $1.72 of
- 23 -
<PAGE>
long-term liabilities of the business as of the date of closing of the
acquisition and for each $1.72 of net accounts receivable that remains
uncollected after a specified time period.
(17) Mr. DeJong is a director of the Company. See "Management," "Principal
Shareholders," and "Certain Transactions."
(18) Mr. Campbell was one of the Company's original shareholders and a
former director of the Company.
(19) Richard Angus, through Wood Gundy, Inc., assisted in the private
placement of the Company's special warrants issued in February 1996,
and received 35,750 shares and 35,750 February Warrants in partial
payment for such placement services.
(20) The Selling Shareholder received the shares shown as the designee of
Sunrise Securities Corporation ("Sunrise"), which acted as a placement
agent in connection with the private placement of the Company's special
warrants in the United States in December 1996. Sunrise received a
selling commission equal to 9 percent of the gross proceeds of the
offering that was paid through the issuance of 193,410 special
warrants. Sunrise also received a $25,000 corporate finance fee and an
option to acquire 214,900 share purchase warrants. See "Description of
Capital Stock--Warrants."
(21) Marc R. Still was president of Dallas Research & Trading, Inc.
("Dallas"), and received the shares shown as the designee of Dallas
which acted as a placement agent in connection with the private
placement of the Company's special warrants in the United States in
December 1996. Dallas received a selling commission equal to 9 percent
of the gross proceeds of the offering that was paid through the
issuance of 180,000 special warrants. Dallas also received an
additional 20,000 special warrants in payment of its corporate finance
fee and an option to acquire 200,000 share purchase warrants. See
"Description of Capital Stock--Warrants."
(22) Mr. Kawasaki is an officer of the Company. See "Management" and
"Description of Capital Stock--Escrowed Shares."
(23) Mr. Drullinger is an officer of the Company. See "Management" and
"Description of Capital Stock--Escrowed Shares."
(24) Ms. Marshall shares the same household as Mr. Good, who is a director
of the Company. See "Principal Shareholders," "Certain Transactions,"
and "Description of Capital Stock--Escrowed Shares."
(25) Mr. Ramsay was one of the Company's original shareholders.
- 24 -
<PAGE>
(26) Consists of shares acquired by Strategic Equity Corp., which was
engaged to provide investor relations services to the Company from
November 1995 until January 1997.
(27) Consists of shares issuable upon the conversion of a convertible
subordinated promissory note issued by the Company in the amount of
$1,170,000 in connection with the acquisition by the Company of the
Midwest Division of Hearing Health Services, Inc., dba SONUS ("SONUS"),
on October 31, 1996.
(28) Consists of shares issuable upon the conversion of a convertible
subordinated promissory note issued by the Company in the amount of
$370,656 in connection with the acquisition by the Company of SONUS on
October 31, 1996.
(29) Consists of shares issuable upon the conversion of a convertible
subordinated promissory note issued by the Company in the amount of
$966,680 in connection with the acquisition by the Company of SONUS on
October 31, 1996.
(30) Consists of shares issuable upon the conversion of a convertible
subordinated promissory note issued by the Company in the amount of
$92,664 in connection with the acquisition by the Company of SONUS on
October 31, 1996.
(31) C.M. Oliver & Company Limited acted as placement agent in connection
with the private placement of the Company's special warrants in Canada
that closed in September 1996 and received a selling commission that
included $48,625 in cash and the receipt of 34,000 special warrants.
C.M. Oliver & Company Limited also received a $61,987 syndication fee,
a $37,097 corporate finance fee, and an option to acquire 81,000 share
purchase warrants. See "Description of Capital Stock--Warrants."
(32) The number of shares shown includes 38,500 shares issuable upon the
exercise of the Company's February Warrants and 219,000 shares issuable
upon the exercise of the Company's September Warrants. Each February
Warrant is exercisable for one share of Common Stock at an exercise
price of Cdn$1.50 per share until February 28, 1998. Each September
Warrant is exercisable for one share of Common Stock at an exercise
price of $2.00 per share until August 31, 1998. The number of shares
shown also includes 168,000 shares issuable upon the exercise of share
purchase warrants at an exercise price of $1.25 per share until August
31, 1998. See "Description of Capital Stock--Warrants."
(33) The number of shares shown includes 89,791 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share
- 25 -
<PAGE>
of Common Stock at an exercise price of $2.00 per share until August
31, 1998. The number of shares shown also includes 89,555 shares
issuable upon the exercise of share purchase warrants at an exercise
price of $1.25 per share until August 31, 1998. See "Description of
Capital Stock--Warrants."
(34) The number of shares shown includes 21,400 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 1,800 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
(35) The number of shares shown includes 42,800 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 3,600 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
(36) The number of shares shown includes 22,120 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 28,440 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
(37) Aspen Limited Partnership received 464,000 of the shares shown as the
designee of Dallas, which acted as a placement agent in connection with
the private placement of the Company's special warrants in the United
States in December 1996. See note 21 above and "Description of Capital
Stock--Warrants."
(38) Mr. Caldwell received 9,200 of the shares shown as the designee of
Sunrise, which acted as a placement agent in connection with the
private placement of the Company's special warrants in the United
States in December 1996. See note 20 above and "Description of Capital
Stock--Warrants."
(39) Mr. Sharfer received 4,600 of the shares shown as the designee of
Sunrise, which acted as a placement agent in connection with the
private placement of the Company's special
- 26 -
<PAGE>
warrants in the United States in December 1996. See note 20 above and
"Description of Capital Stock--Warrants."
(40) The number of shares shown includes 3,250 shares issuable upon exercise
of the Company's February Warrants. Each February Warrant is
exercisable for one share of Common Stock at an exercise price of
Cdn$1.50 per share until February 28, 1998. See "Description of Capital
Stock--Warrants."
(41) The number of shares shown includes 70,336 shares issuable upon the
exercise of the Company's September Warrants. Each September Warrant is
exercisable for one share of Common Stock at an exercise price of $2.00
per share until August 31, 1998. The number of shares shown also
includes 87,055 shares issuable upon the exercise of share purchase
warrants at an exercise price of $1.25 per share until August 31, 1998.
See "Description of Capital Stock--Warrants."
- 27 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
General
Since 1995, the Company has achieved significant growth in revenues,
primarily due to the acquisition and operation of additional hearing care
clinics. For the year ended July 31, 1996, and the three months ended October
31, 1996, the Company generated total revenues of $2.4 million and $1.3 million,
respectively. As of October 31, 1996, the Company's cumulative deficit was
$710,000 and its total shareholders' equity was $4.8 million. For the year ended
July 31, 1996, and the three months ended October 31, 1996, the Company
generated net losses of $582,000 and $301,000, respectively. On a pro forma
basis, giving effect to the acquisitions of Hearing Care Associates Group and
the Midwest Division of Hearing Health Services, Inc., dba SONUS ("SONUS"), as
if such acquisitions had occurred on August 1, 1995, the Company would have
generated net losses of $717,000 for the year ended July 31, 1996, and $318,000
for the three months ended October 31, 1996.
Revenues
The Company intends to increase its revenues by making additional
acquisitions of hearing care clinics and by providing high-quality service and
using targeted regional marketing at existing and newly acquired clinics. The
Company believes that, for the foreseeable future, the level of managed care and
third-party reimbursement will continue to be minimal and that its revenues will
be derived primarily from its private payor patient base.
Cost of Sales and Operating Expenses
The Company intends to lower its cost of sales as a percentage of
revenues by negotiating improved hearing aid manufacturer discounts. In
addition, the Company expects that operating expenses will decrease as a
percentage of revenues as revenues increase and economies of scale and
administrative efficiencies are realized. However, the amortization of goodwill
resulting from acquisitions will increase as more clinics are acquired by the
Company.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
audited and unaudited consolidated financial statements and the notes thereto
contained elsewhere in this Prospectus.
- 28 -
<PAGE>
Results of Operations
Three Months Ended October 31, 1996, Compared to Three Months ended October 31,
1995
Revenues. Total revenues for the three months ended October 31, 1996,
were $1,281,000, representing a 149% increase over revenues of $514,000 for the
comparable period in 1995. Substantially all of this increase resulted from the
acquisition of four clinics in Canada and fourteen clinics in the United States.
In contrast, total revenues for the three months ended October 31, 1995, were
generated from nine clinics in Canada.
Gross Profit. Gross profit for the three months ended October 31, 1996,
was $788,000 or 62% of revenue compared to $281,000 or 55% of revenue for the
comparable period in 1995. The improvement in gross profit percentage was
primarily due to the Company's access to greater volume discounts from
manufacturers as a result of increased hearing aid purchases.
Operating Expenses. Operating expenses for the three months ended
October 31, 1996, were $1,063,000, representing an increase of 253% over
operating expenses of $301,000 for the comparable period in 1995. As a
percentage of total revenues, operating expenses increased to 83% for the three
months ended October 31, 1996, from 59% for the comparable period in 1995. A
substantial portion of the increase was attributable to salaries and benefits of
the Company's new executive management team and related administrative and
overhead expenses.
Year Ended July 31, 1996, Compared to Year Ended July 31, 1995
Revenues. Total revenues for the fiscal year ended July 31, 1996, were
$2,389,000, representing a 39% increase over revenues of $1,720,000 for the
prior fiscal year. The increase was due to the acquisition in April 1995 of
Thomas H. Moore Audiology Consultants Ltd., which operated a hearing clinic in
Calgary, Alberta, the opening of a hearing and balance testing center in
Calgary, Alberta, in March 1996, and the purchase of two hearing clinics in the
greater Vancouver, British Columbia, area during the third quarter of fiscal
1996. During this same period, the Company was affected by a general downturn in
the total number of hearing aids sold in the British Columbia market area. This
drop was primarily attributable to policy changes adopted in 1994 and 1995 by
third party insurers such as the Workers' Compensation Board, the Department of
Veteran Affairs and certain provincial medical plans, which extended the time
before hearing aids could be upgraded or replaced. This change, coupled with
certain marketing restrictions relating to promoting such upgrades, is expected
to have a continued negative effect on replacement hearing aid sales in Canada
in the future.
Gross Profit. Gross profit for the fiscal year ended July 31, 1996, was
$1,372,000 or 57% of revenues compared to $947,000 or 55% of revenues for the
prior fiscal year. The improvement in gross profit percentage was primarily due
to higher volume discounts and improved product sales management.
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Operating Expenses. Operating expenses for the fiscal year ended July
31, 1996, were $1,961,000, representing an increase of 89% over operating
expenses of $1,038,000 for the prior fiscal year. As a percentage of total
revenues, operating expenses increased to 82% for the fiscal year ended July 31,
1996, from 60% for fiscal 1995. This increase was mainly due to (i) the addition
of public company related costs including investor relations activities and
compliance with regulatory reporting requirements; (ii) increased costs
associated with the continued integration of the various hearing clinics
acquired since October 1994 and the costs of negotiating additional
acquisitions; and (iii) the addition of key senior management personnel
beginning in December 1995 to assist in implementing the acquisition and
consolidation strategy of the Company.
Liquidity and Cash Reserves
From August to December 1995, the Company financed its operations mainly through
internally generated funds, borrowing under bank credit arrangements, and
advances from shareholders. Since that time, the Company has relied on the
issuance and sale of equity securities to repay shareholder loans, open a new
balance and hearing center in Calgary, Alberta, fund acquisitions, begin
development of a management information system, and provide additional working
capital.
During the three months ended October 31, 1996, the Company acquired 25 hearing
care clinics located in California, Illinois, and Michigan. The acquisitions
were funded primarily through the issuance of common stock valued at $2.4
million, the issuance of convertible subordinated notes in an aggregate
principal amount of $2.6 million, $635,000 in cash, and the assumption of
$360,000 of debt. In addition, the Company closed the Canadian tranche of an
offering of special warrants at a price of $1.25 per special warrant, generating
gross proceeds of $1,012,500. See "Description of Capital Stock--Warrants."
During the year ended July 31, 1996, the Company acquired four hearing care
clinics in Canada and two clinics in the United States. The acquisitions were
funded through the issuance of a convertible note in the amount of $129,000,
promissory notes in the aggregate principal amount of $77,700, and cash in the
amount of $4,264,063.
The Company has a revolving demand loan with the Royal Bank of Canada, providing
for borrowings up to $184,300. As of October 31, 1996, $119,700 was outstanding
against this line, compared to $33,200 as of July 31, 1996. Advances under the
line of credit bear interest at 1% above the Royal Bank of Canada prime rate,
which was 6% at October 31, 1996. Advances under the revolving line of credit
are secured by all the assets of HC HealthCare Hearing Clinics, Ltd, the
Company's Canadian operating subsidiary, and personally guaranteed by Marilyn
Marshall, a shareholder.
The Company expects to spend approximately $600,000 in fiscal 1997 to develop a
management information system that will link each clinic with the Company's
headquarters. Development costs will include system design, new hardware,
patient management and accounting software, and staff training. The Company is
seeking to finance a substantial portion of this cost. The Company also plans to
outsource the majority of its advertising and public relations functions
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at a cost of approximately $350,000 over the next 12 months, exclusive of direct
marketing costs such as printing, mailing, and media purchases.
The Company believes that its existing cash balances, amounts available under
the revolving line of credit, and cash from operations will be sufficient to
fund its operations and planned acquisitions over the next three months.
However, to execute its long-term business strategy, the Company will require
additional funding in order to acquire new clinics and to expand into other
geographic markets. The Company will attempt to obtain the necessary capital
through additional long-term and short-term borrowing arrangements and the
issuance of additional equity or debt securities. There can be no assurance that
any such financing will be available to the Company or will be available on
terms acceptable to the Company.
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<PAGE>
BUSINESS
Overview
The Company, through its subsidiaries HC HealthCare Hearing Clinics
Ltd., a British Columbia corporation, and HealthCare Hearing Clinics, Inc., a
Washington corporation, currently owns and operates a network of 50 hearing care
clinics in the United States and Western Canada. The clinics are located
primarily in the metropolitan areas of Los Angeles, California; San Diego,
California; Chicago, Illinois; Lansing, Michigan; Albuquerque, New Mexico;
Vancouver, British Columbia; and Calgary, Alberta. The Company intends to expand
its network of hearing care clinics by acquiring clinics in its existing as well
as new geographic markets. Since October 1, 1996, the Company has acquired 33
hearing clinics.
Each of the Company's hearing care clinics provides its hearing
impaired patients with a full range of audiological products and services. All
of the Company's hearing care clinics are staffed by audiologists, except for
one clinic that is staffed by a hearing instrument specialist ("HIS"). The
Company's operating strategy is to provide patients with high quality and
cost-effective hearing care while at the same time increasing its operating
margins by attracting and retaining patients, recruiting qualified and
productive audiologists, achieving economies of scale and administrative
efficiencies, and pursuing large group and managed care contracts. The Company
believes that it is well positioned to provide retail hearing rehabilitative
services to consumers while simultaneously serving the diagnostic needs of
referring physicians and meeting the access and cost concerns of managed care
providers and insurance companies.
Industry Background
Professionals and Clinics. Hearing aids may be dispensed by either
dispensing audiologists or HISs. Although both audiologists and HISs may be
licensed to dispense hearing aids, audiologists have advanced training in
audiology and hold either a masters, Ph.D. or Au.D. degree.
Overall, dispensing audiologists are much younger than HISs. The March
1996 issue of The Hearing Review, a hearing industry trade journal, indicates
that approximately 40% of HISs in the U.S. are at least 60 years of age, 24% are
50-60 years of age, 22% are 40-50 years of age and only 15% are under age 40,
compared to 1%, 11%, 37% and 52%, respectively, for dispensing audiologists. The
Company believes that many HISs are facing retirement with no formal
"exit-strategy," a situation that creates an attractive investment opportunity
for the Company.
The typical hearing care practice wields little purchasing power with
manufacturers, and must spread overhead over a relatively small revenue base. In
addition, a typical hearing care practice often has insufficient capital to
purchase new technologies and lacks the systems and size necessary to develop
economies of scale. As a result, the Company believes that dispensing
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audiologists and HISs will find it increasingly attractive to sell their
practices to or affiliate with larger organizations, such as the Company.
Another factor that may favor the consolidation of hearing care
practices is managed care. As managed care becomes more pervasive, hearing care
professionals will have an even greater need for the information resources,
management expertise, economies of scale, and access to managed care group
contracts that larger organizations such as the Company may be better able to
provide. However, managed care is not presently a large part of the hearing care
market and hearing care products and services are likely to continue to be
provided predominantly on a private pay basis for the next several years.
Notwithstanding the factors favoring consolidation of hearing care
practices, there are currently only a few multiple clinic networks operating in
more than one state or province in the United States or Canada with combined
annual revenues in excess of $5 million.
Hearing Impaired Population. The number of persons in the United States
who have hearing loss is estimated to be approximately 28 million. Approximately
12 million American adults have tinnitus (a ringing sensation in the ears) that
is severe enough to seek medical help. The percentage of individuals with a
hearing loss relative to the general population is approximately 2 percent for
those under 18 years of age, 5 percent for those between 18 and 44 years of age,
14 percent for those between 45 and 64 years of age, 23 percent for those
between 65 and 74 years of age and 32 percent for those over 75 years of age.
The Company believes that the widely recognized demographic trend
toward an aging population will increase the demand for hearing aid sales and
audiological services and that the demand for hearing aids that are less visible
and for newer and superior hearing aid technology, such as digital and
programmable hearing aids, will also contribute to market growth. In addition,
the Company believes that some individuals forgo hearing care because of the
stigma of aging that can be associated with wearing a hearing aid and that the
demand for hearing aid sales and hearing care services can be increased by
marketing and education designed to reduce that stigma.
Hearing Health Care Industry Segments. The hearing health care industry
serving patients with hearing and balance disorders is comprised of four
distinct service segments:
o hearing rehabilitation services, including the evaluation and
rehabilitation of persons with hearing impairments by assessing
communicative impairment and providing amplification;
o advanced audio-diagnostic services, including the neuro-audiologic
evaluation and non-medical diagnosis of hearing and balance
disorders;
o industrial and preventative audiological services, including noise
level measurements, dosimetry, and hearing screenings; and
o otolaryngologic services, including surgery and other medical
treatment.
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The Company's clinics primarily provide hearing rehabilitation services. The
Company has one facility, the Rockyview Hearing and Balance Clinic located in
Calgary, Alberta, that provides advanced audio-diagnostic services and one
clinic located in San Diego, California, that provides evaluation and treatment
for patients with tinnitus.
Hearing rehabilitation services include the assessment and
rehabilitation of persons with hearing impairments through the use of hearing
instruments and counseling. Rehabilitation services, including amplification
systems, are provided by audiologists and HISs. The services offered include the
diagnostic audiological testing, fitting and dispensing of hearing aids,
follow-up rehabilitative assistance, the sale of hearing aid batteries, hearing
aid repairs, and the sale of swim plugs, custom ear plugs, and assistive
listening devices.
Advanced audio-diagnostic services include the assessment and
non-medical treatment of vestibular and balance disorders and the evaluation of
patients with specific symptoms of an auditory or vestibular disorder, including
hearing loss, tinnitus, and balance problems. In order to make a differential
diagnosis of hearing disorders, an ear, nose and throat physician may employ or
refer patients to an audiologist to conduct special diagnostic hearing tests to
differentiate between conductive, sensory, and neural pathology. If the cause of
the hearing loss is a medical disorder in either the nervous system (neural) or
the middle ear (conductive), the physician proceeds with medical treatment.
However, if a non-treatable conductive or sensory loss is found, the physician
will generally refer the patient to an audiologist for rehabilitation.
Growth Strategy
The Company's growth strategy is to expand its operations through
the selective acquisition of hearing clinics located in existing as well as new
geographic markets. The Company believes that the fragmented nature of the
hearing care industry, the absence of industry-wide standards, and the
inexperience and limited capital resources of many hearing care providers,
combine to provide an opportunity to build an expanding network of hearing care
clinics devoted to providing high-quality hearing health care services. See
"Risk Factors--Expansion Program."
The Company plans to expand its network of clinics in each new market
by initially targeting for acquisition a significant hearing care practice in
order to secure a solid foundation upon which to build a regional network of
audiology practices. The Company will then seek to acquire additional individual
or group practices in order to realize economies of scale in management,
marketing, and administration, and hopes that its initial purchase in the region
will attract other practitioners interested in selling their businesses. Due to
the contacts of management with audiologists in the industry, the Company is
frequently presented with opportunities to acquire hearing care clinics. Since
October 1, 1996, the Company has acquired 33 clinics, all located in the United
States.
The Company looks at the following factors before acquiring clinics in
a particular geographic market: (a) population size and distribution; (b)
audiology practice density,
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saturation and average group size; (c) local competitors; (d) level of managed
care penetration; and (e) local industry and economy. In acquiring particular
clinics within a geographic market, the Company seeks clinics with the following
characteristics: (a) an established patient base drawing from a substantial
metropolitan population; (b) significant revenue and profitability prior to
acquisition; (c) above-average potential to enhance clinic profitability after
acquisition; and (d) if a clinic has an audiologist, a willingness by the
audiologist to enter into an employment agreement with the Company in order to
retain continuity in patient service and relationships and maintain the identity
of the clinic in the community where it is located.
The Company generally uses cash, Common Stock, promissory notes,
assumption of debt, or a combination of the foregoing to fund acquisitions. See
"Risk Factors--Additional Financing." The amount paid for each practice varies
on a case-by-case basis according to historical revenues, projected earnings
after integration into the Company, and transaction structure. In connection
with each acquisition, the Company acquires substantially all of the assets of
the practice, including its audiological equipment and supplies, office lease
and improvements, receivables and patient files.
At the time a practice is acquired, the audiologist associated with the
practice typically becomes an employee of the Company and enters into an
employment agreement with the Company with an initial term of three years and
annual renewals thereafter. The employment agreement usually includes a
three-year noncompete provision following termination of employment. If the
office of a retiring HIS is acquired, a six- to 12-month transition plan is
usually negotiated with the HIS. See "Risk Factors--Dependence on Key
Personnel."
Operating Strategy
The Company's operating strategy is to provide its patients with high
quality and cost effective hearing care products and services while at the same
time increasing its operating margins by attracting and retaining patients,
recruiting qualified and productive audiologists, achieving economies of scale
and administrative efficiencies, and pursuing large group and managed care
contracts.
Attracting and Retaining Patients. The Company seeks to attract new
patients and retain existing patients at each clinic by providing patients with
friendly, comprehensive, and cost-effective hearing care at convenient times and
locations. In addition, by educating patients about hearing health issues and by
providing quality service during office visits and consistent patient follow-up
and support, the Company hopes to foster patient loyalty and increase the
likelihood of obtaining referrals and repeat visits for examinations and product
purchases. See "Risk Factors--Competition" and "Risk Factors--Impact of Policy
Changes by Third-Party Insurers."
Recruiting Qualified and Productive Audiologists. The Company seeks to
employ audiologists who share the Company's goal of delivering high-quality
hearing care service and
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who are also dedicated to expanding and enhancing their practices. The Company
believes that it can offer significant benefits to audiologists by providing
assistance in administrative tasks associated with operating an audiology
practice, thereby allowing them to focus on serving patients and increasing
productivity. The Company also believes that its size and structure enable it to
offer financial resources for practice development and enhancement that solo and
small group practitioners find difficult to obtain independently. See "Risk
Factors--Dependence on Key Personnel."
Achieving Economies of Scale and Administrative Efficiencies. A key
operating strategy of the Company is to achieve increased economies of scale and
administrative efficiencies at each of its clinics. When a clinic is acquired by
the Company, it immediately has available to it terms and discounts with hearing
aid manufacturers that are generally more favorable than it could negotiate
independently. In addition, the Company believes that by centralizing certain
management and administrative functions such as marketing, billing, collections,
human resources, risk management, payroll, and general accounting services, the
profitability of a clinic can be improved by spreading the cost of such
functions over a larger revenue base. The Company is also developing an on-line
management information system that will link each clinic with the Company's
corporate headquarters in order to provide management with the ability to
collect and analyze clinic data, control overhead expenses, allow detailed
budgeting at the clinic level, and permit effective resource management. See
"Risk Factors--Integration of Acquired Hearing Care Clinics," and "Risk
Factors--Ability to Manage Growth" and "Risk Factors--Additional Financing."
Pursue Large Group and Managed Care Contracts. Although the Company
intends to continue to aggressively pursue private-payor business because it is
presently more pervasive and profitable than managed care business, the Company
believes that by providing comprehensive geographic coverage in a particular
market, it will be strongly positioned to offer group hearing care plans in that
market. At the present time, managed care penetration of the hearing care market
is limited. However, if managed care begins to play a larger role in hearing
care, the Company plans to develop information systems to improve productivity,
manage complex reimbursement methodologies, measure patient satisfaction and
outcomes of care, and integrate information from multiple sources. See "Risk
Factors--Competition" and "Risk Factors--Managed Care."
Clinic Staffing and Facilities
Typically, each Company hearing clinic is staffed with at least one
audiologist and one patient care coordinator, who handles reception, clerical,
and most bookkeeping functions. The Company has only one clinic that is not
staffed by an audiologist. Where volume warrants, a clinic may also be staffed
with additional audiologists and patient care coordinators. An audiologist
employed by the Company has a masters or Ph.D. degree in audiology. The
audiologist is licensed by the appropriate state or province to dispense hearing
aids and is a
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member of the Canadian Association of Speech/Language Pathologists and
Audiologists or the American Speech Language Hearing Association.
Each of the Company's hearing clinics operates in leased space that
ranges in size from 800 to 3,000 square feet depending on patient volume and the
extent of services provided by the clinic. Clinics generally have a reception
seating area, a reception work and filing area, an office for the audiologist, a
laboratory for hearing instrument repairs and modifications, a technology
demonstration room and an evaluation room. A properly equipped office offering
only hearing rehabilitation services requires equipment that costs $50,000 to
$75,000. The cost of equipment for a clinic offering advanced audio-diagnostic
services is much greater and ranges from $225,000 to $250,000.
Clinics owned by the Company currently employ a total of 94
audiologists at the following locations:
Alberta
Rockyview Hearing and Balance Clinic, Calgary
T.H. Moore Audiology, Calgary
British Columbia
Fraserview Hearing Clinic, Abbotsford
Fraserview Hearing Clinic, Chilliwack
Kamloops Hearing Clinic, Kamloops
Langley Hearing Clinic, Langley
Fraserview Hearing Clinic, Maple Ridge
Fraserview Hearing Clinic, New Westminster
Pacific Hearing Clinic, North Vancouver
Fraserview Hearing Clinic, Richmond
Terrace Hearing Clinic, Terrace
Fraserview Hearing Clinic (2 clinics), Vancouver
California
Hearing Care Associates Group, Alhambra
Hearing Dynamics, Alvarado
Hearing Care Associates Group, Arcadia
Allied Hearing, Arroyo Grande*
Hearing Care Associates Group, Burbank
Hearing Dynamics, Chula Vista
Hearing Dynamics, Coronado*
Hearing Care Associates Group, Fountain Valley*
Hearing Care Associates Group, Gardena*
Hearing Care Associates Group, Glendale
Hearing Care Associates Group, Glendora
Hearing Care Associates Group, Long Beach
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Hearing Care Associates Group, Los Angeles
Hearing Care Associates Group, Mission Hills
Hearing Care Associates Group, Montrose*
Hearing Care Associates Group, Northridge
Hearing Care Associates Group, Oxnard
Hearing Dynamics, San Diego
Hearing Care Associates Group, Santa Clarita Valley
Allied Hearing, Santa Maria
Santa Maria Hearing Associates, Santa Maria
Hearing Care Associates Group, Sherman Oaks
Illinois
SONUS, Berwyn
SONUS, Chicago
SONUS, Hinsdale
SONUS, Lombard*
SONUS, North Aurora
SONUS, North Cicero*
SONUS (2 clinics), Oak Lawn
SONUS, Oak Park
New Mexico
Family Hearing Centers, Albuquerque
Michigan
SONUS, Carson City*
SONUS, Hayes Green Beach*
SONUS, Grand Ledge
SONUS, Lansing
SONUS, Okemos
* Designates satellite clinic. Satellite clinics operate less than five days per
week and are generally located in doctors' offices or hospitals.
Products and Suppliers
The hearing aid manufacturing industry is highly competitive with
approximately 40 manufacturers serving the worldwide market. Few manufacturers
offer significant product differentiation. The Company currently purchases
hearing aids from a number of manufacturers based upon criteria that include
quality, price, and service. Over time, the Company intends to reduce the number
of manufacturers from whom it purchases hearing aids in order to achieve
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greater volume discounts. In addition to hearing aids, the Company's clinics
also offer a limited selection of other assistive listening devices and hearing
aid accessories.
Marketing
The Company's marketing program is designed to help its hearing care
clinics retain existing patients and expand the services they receive, attract
new patients, and develop contracts to serve large groups of patients.
The Company believes that patient satisfaction is the key to retaining
and expanding services to existing patients. The Company also believes that
delivering comfortable, high quality hearing care at times and locations that
are convenient for the patient will motivate patients to return to the Company's
clinics for their future hearing care needs. Educating patients about hearing
health, prescribing only necessary hearing enhancing products, ensuring that
each patient leaves a clinic with a future visit already scheduled, and
maintaining consistent patient follow-up and support are key elements of the
Company's plan to build patient loyalty and patronage.
After a patient has obtained a hearing instrument, ongoing revenues are
generated from battery purchases and routine maintenance of the instruments. The
Company believes that repeat revenues are attributable to the length of time
that a clinic has been established and the effectiveness of its patient
retention programs.
The Company believes that the same aspects of the Company's approach
that earn the loyalty of current patients will also generate new patients. The
Company's new patient marketing programs are designed to help the Company
generate referrals from physicians and existing patients and increase the
Company's visibility in the community. The Company seeks to foster such
visibility by developing marketing materials and information sources that
communicate the Company's philosophy of high quality patient-oriented hearing
care.
The Company's large group marketing approach is designed to enable the
Company to develop contacts with self-insured employers and with health plans in
the metropolitan areas it serves and emphasizes the convenience, quality of
care, and wide range of services offered by the Company. The economies of scale
available to the Company may also allow health plans and self-insured employers
served by the Company to reduce administrative burdens they might otherwise
face. The Company believes that it is well positioned to respond to challenges
presented by the growth of managed care arrangements as they arise.
Competition
The hearing care industry in the United States and Canada is highly
fragmented and intensely competitive. Many of the Company's competitors are
small retailers that focus primarily on the sale of hearing aids. However, the
Company also competes with other networks of hearing care clinics and with large
distributors of hearing aids such as Bausch &
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Lomb, a hearing aid manufacturer that distributes its products through a
national network of over 1,000 franchised stores (Miracle Ear), and Beltone
Electronic Corp., a privately-owned hearing aid manufacturer that distributes
its products primarily through its nationwide network of approximately 600
franchised dealers. These competitors are in many cases better known and owned
by companies having far greater financial and other resources than the Company.
There can be no assurance that one or more of these competitors will not seek to
compete directly in the markets targeted by the Company, nor can there be any
assurance that the largely fragmented hearing care market cannot be successfully
consolidated by other companies or through the establishment of co-operatives,
alliances, confederations or the like. See "Risk Factors--Competition."
Regulation
The sale of hearing aid devices is regulated at the federal level in
the United States by the United States Food and Drug Administration ("FDA"),
which has been granted broad authority to regulate the hearing care industry.
Under federal law, hearing aids may only be sold to individuals who have first
obtained a medical evaluation from a licensed physician, although a fully
informed adult may waive a medical evaluation in certain instances. Regulations
promulgated by the FDA also presently require that dispensers of hearing aids
provide customers with certain warning statements and notices in connection with
the sale of hearing aids and that such sales be made in compliance with certain
labeling requirements.
Most states in the United States and provinces in Canada have
established formal licensing procedures that require the certification of
audiologists and/or HISs and although the extent of regulation varies by
jurisdiction, almost all states and provinces engage in some degree of oversight
of the industry. The Company has recently been advised that certain laws and
regulations in the states of California and Illinois may prohibit business
corporations such as the Company from engaging in the practice of audiology.
These laws and regulations, which have been subject to limited judicial and
regulatory interpretation, are enforced by regulatory authorities with broad
discretion. The Company is in the process of determining whether its business
operations are in compliance with such laws and regulations. No assurance can be
given that the Company's activities will be found to be in compliance with such
laws and regulations or, if its activities are not in compliance, that the
operational structure of the Company can be modified to permit compliance. In
addition, no assurance can be given that other states or provinces in which the
Company presently operates will not enact prohibitions on the corporate practice
of audiology or that the regulatory framework of certain jurisdictions will not
limit the ability of the Company to expand into such jurisdictions if the
Company is unable to modify its operational structure to comply with such
prohibitions or to conform with such regulatory framework. Additional laws and
regulations may be adopted in the future at the federal, state, or province
level that could have a material adverse effect on the business, financial
condition, and results of operations of the Company.
A small percentage of the revenues of the hearing care clinics operated
by the Company comes from Medicare and Medicaid programs. Federal law prohibits
the offer, payment,
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solicitation or receipt of any form of remuneration in return for, or in order
to induce, (i) the referral of a Medicare or Medicaid patient, (ii) the
furnishing or arranging for the furnishing of items or services reimbursable
under Medicare or Medicaid programs or (iii) the purchase, lease or order of any
item or service reimbursable under Medicare or Medicaid. Noncompliance with the
federal anti-kickback legislation can result in exclusion from Medicare and
Medicaid programs and civil and criminal penalties.
Product and Professional Liability; Product Returns
In the ordinary course of its business, the Company may be subject to
product and professional liability claims alleging the failure of, or adverse
effects claimed to have been caused by, products sold or services provided by
the Company. The Company maintains insurance against such claims at a level that
the Company believes is adequate. A customer may return a hearing aid to the
Company and obtain a full refund up to 30 days after the date of purchase. Some
of the Company's clinics offer a 60-day refund period. In general, the Company
can return hearing aids returned by customers within 30 to 60 days to the
manufacturer for a full refund. The Company maintains a reserve based on
estimated returns to account for returns that cannot be passed through to the
manufacturers and must be absorbed by the Company.
Employees
At December 31, 1996, the Company had 146 full-time and 35 part-time
employees, of which 91 were practicing audiologists. None of the Company's
employees are represented by a labor union. Management believes it maintains
good relationships with its employees. See "Risk Factors--Labor Unions."
Properties
The Company's principal executive offices are located in approximately
3,000 square feet of leased office space in downtown Portland, Oregon. The lease
covering such space expires in August 1999 and provides for an annual rent of
$57,072. Each of the Company's hearing clinics operates in leased space that
ranges in size from 800 to 3,000 square feet. All of the locations are leased
for one to six year terms pursuant to generally non-cancelable leases (with
renewal options in some cases). The aggregate committed rental expense for
clinic leases for the five-year period beginning August 1, 1996, is
approximately $2.8 million.
MANAGEMENT
Information with respect to the directors and executive officers of the
Company, including their age, position with the Company, and principal business
experience during the previous five years, is set forth below:
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<TABLE>
<CAPTION>
======================================================================================================================
Name Age Position
======================================================================================================================
<S> <C> <C>
Brandon M. Dawson 28 President and Director
- ----------------------------------------------------------------------------------------------------------------------
Douglas F. Good 55 Chairman of the Board and Director
- ----------------------------------------------------------------------------------------------------------------------
Gregory Fraser, Ph.D. 44 Vice President, Business Development and Director
- ----------------------------------------------------------------------------------------------------------------------
William DeJong 38 Secretary and Director
- ----------------------------------------------------------------------------------------------------------------------
Gene K. Balzer, Ph.D. 40 Director
- ----------------------------------------------------------------------------------------------------------------------
Hugh T. Hornibrook 47 Director
- ----------------------------------------------------------------------------------------------------------------------
Randall E. Drullinger 33 Vice President, Marketing
- ----------------------------------------------------------------------------------------------------------------------
Edwin J. Kawasaki 38 Vice President, Finance
- ----------------------------------------------------------------------------------------------------------------------
Kathy A. Foltner, Au.D. 43 Vice President, Operations
======================================================================================================================
</TABLE>
Brandon M. Dawson. Mr. Dawson has served as President and as a director
of the Company since December 1995. From May 1992 to December 1995, he was
director of U. S. sales for Starkey Laboratories Inc. ("Starkey"), the largest
custom "in-the-ear" hearing aid manufacturer in the world. Prior to May 1992,
Mr. Dawson held a number of positions with Starkey, including Assistant Sales
Manager from December 1988 to October 1990 and National Sales Manager from
November 1990 to April 1992.
Douglas F. Good. Mr. Good has served as a director of the Company since
1994, and as Chairman of the Board since August 1996. From December 1995 to July
1996, he served as the Company's chief financial officer and as President of the
Company from October 1994 to December 1995. Prior to becoming President of the
Company, Mr. Good was chief financial officer and a director of International
Retail Systems Inc. of Dallas, Texas, a software and point of sale systems
company.
Gregory Frazer, Ph.D. Mr. Frazer has served as Vice President, Business
Development and as a director of the Company since October 1996. Prior to
becoming a director and an officer of the Company, Mr. Frazer was one of the
owners of Hearing Care Associates Group which operated 22 audiology based
hearing clinics in Southern California, 14 of which were recently acquired by
the Company. He received his doctoral degree in audiology from Wayne State
School of Medicine in 1981.
William DeJong. Mr. DeJong is a partner in the Calgary, Alberta, law
firm of Ballem MacInnes, which he joined in September 1987. He has served as
Secretary of the Company since shortly after its incorporation in 1993 and as a
director of the Company since 1994.
Gene K. Balzer, Ph.D. Mr. Balzer has served as a director of the
Company since 1995. He has a degree in audiology from the University of
Cincinnati with specialty training in clinical neurophysiology. Since 1991, Mr.
Balzer has been President of NeuroDynamic Systems, Inc., located in Bismarck,
North Dakota, which specializes in the provision of technicians, clinicians and
consultants for medical practices and hospitals.
- 42 -
<PAGE>
Hugh T. Hornibrook. Mr. Hornibrook has been a director of the Company
since April 1996. From April 1996 to January 1997 he was Vice President,
Corporate Development of the Company and from July 1994 to April 1996, he was an
independent business consultant. He served as director of corporate development
for The Loewen Group Inc., a large funeral home and cemetery operator with
operations throughout North America, from 1988 to June 1994.
Randall E. Drullinger. Mr. Drullinger has served as Vice President,
Marketing of the Company since April 1996. From August 1990 to April 1996, he
was director of financial management services at Starkey.
Edwin J. Kawasaki. Mr. Kawasaki has served as Vice President, Finance
of the Company since August 1996. Mr. Kawasaki was a principal of Stafford
Capital Corp., an investment buy-out firm, from September 1995 to July 1996, and
was a senior vice president at Peregrine Holdings Ltd., an investment banking
boutique firm, from January 1994 to September 1995. From 1987 to 1993, he was
the controller of Lewis and Clark College. Prior to 1987, Mr. Kawasaki was a
supervising senior accountant with KPMG Peat Marwick LLP.
Kathy A. Foltner, Au.D. Ms. Foltner was appointed Vice President,
Operations of the Company in November 1996, when the Company acquired
substantially all of the assets of SONUS. Ms. Foltner served as vice president
of Hearing Health Services, Inc., since January 1995 and as director of Michigan
operations, from July 1994 to December 1994. Prior to July 1994, Ms. Foltner was
the owner and president of Audio-Vestibular Testing Center, Inc.
Term of Directors and Board Committees
The Company's articles of incorporation provide for six directors until
the directors of the Company increase or decrease that number in accordance with
the articles of incorporation. Directors are elected annually. The board of
directors maintains an audit committee, consisting of Messrs. Balzer and
Hornibrook, which oversees actions taken by the Company's independent auditors
and reviews the Company's internal controls.
Compensation of Directors
The directors of the Company do not receive any fees for attending
board meetings but are reimbursed for out-of-pocket and travel expenses incurred
in attending board meetings. The Company has no other standard arrangement
pursuant to which directors are compensated by the Company for their services in
their capacity as directors. The Company may from time to time, as it has in the
past, grant stock options to directors in accordance with the policies of the
ASE and the Alberta Securities Commission and the securities laws and
regulations of the jurisdictions where the directors reside. In addition to the
options disclosed under "Compensation of Executive Officers" below, the
following directors were granted options to purchase Common Stock during the
fiscal year ended July 31, 1996: an option to Gene K. Balzer, Ph.D. for 200,000
shares with an exercise price of Cdn$0.38 expiring December 19, 2000; an option
to William DeJong for 75,000 shares with an exercise price of Cdn$1.00 expiring
February 14,
- 43 -
<PAGE>
2001; and an option to Hugh T. Hornibrook for 200,000 shares with an exercise
price of Cdn$2.75 expiring April 1, 2001.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation
The following table sets forth the compensation of Douglas F. Good, who
served as the Company's chief executive officer from October 1994 until December
1995, and Brandon M. Dawson, who succeeded Mr. Good as chief executive officer
(collectively, the "Named Executive Officers"). There were no other executive
officers of the Company whose total salary and bonus exceeded $100,000 during
the fiscal year ended July 31, 1996.
- 44 -
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Summary Compensation Table
================================================================================================================
Long-Term
Annual Compensation
Compensation(1) Awards
================================================================================================================
Number of Shares
Name and Principal Position Year Salary(2) Underlying Options
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Douglas F. Good 1996 $67,661 225,000
President ------------------------------------------------------------------------
1995 $19,644 --
- ----------------------------------------------------------------------------------------------------------------
Brandon M. Dawson 1996 $86,667 650,000
President
================================================================================================================
</TABLE>
(1) Includes all compensation paid or accrued by the Company
during the fiscal year.
(2) Converted to United States dollars using the spot exchange
rate on July 31, 1996, as quoted by the Federal Reserve Bank
of New York for the New York Interbank Market.
Option Grants
The following table sets forth certain information concerning grants of
options to purchase Common Stock to the Named Executive Officers during the
fiscal year ended July 31, 1996:
<TABLE>
<CAPTION>
===========================================================================================================================
Option Grants in Last Fiscal Year
===========================================================================================================================
Number of Shares Percentage of Total
Underlying Options Granted to Exercise
Options Employees in Fiscal Price
Name Granted(1) Year ($/share)(2) Expiration Date
===========================================================================================================================
<S> <C> <C> <C> <C>
Douglas F. Good 225,000 14.8% $0.73 February 14, 2001
- ---------------------------------------------------------------------------------------------------------------------------
Brandon M. Dawson 650,000 42.6 0.28 December 19, 2000
===========================================================================================================================
</TABLE>
(1) The options became exercisable in full on the date of the grant.
(2) Converted to United States dollars using the spot exchange rate
on July 31, 1996, as quoted by the Federal Reserve Board of New
York for the New York Interbank Market.
- 45 -
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information regarding option
exercises during the fiscal year ended July 31, 1996, and the fiscal year-end
value of unexercised options held by the Named Executive Officers:
<TABLE>
<CAPTION>
==================================================================================================================================
Aggregated Option Exercises in Last Fiscal Year
and
Fiscal Year-End Option Values
==================================================================================================================================
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money Options
Options at at July 31, 1996(2)
July 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Douglas F. -- -- 225,000 -- $180,065 --
Good
- ----------------------------------------------------------------------------------------------------------------------------------
Brandon M. 100,000 $219,156 550,000 -- $688,701 --
Dawson
==================================================================================================================================
</TABLE>
(1) The value realized has been calculated based on the difference between
Cdn$3.35, which was the closing sale price of the Common Stock reported
on The Alberta Stock Exchange on April 1, 1996, the date of exercise,
and the applicable exercise price, and converted to United States
dollars using the spot exchange rate on April 1, 1996, as quoted by the
Federal Reserve Bank of New York for the New York Interbank Market.
(2) The values shown have been calculated based on the difference between
Cdn$2.10, which was the closing sale price of the Common Stock reported
on The Alberta Stock Exchange on July 31, 1996, and the per share
exercise price of unexercised options, and converted to United States
dollars using the spot exchange rate on July 31, 1996, as quoted by the
Federal Reserve Bank of New York for the New York Interbank Market.
Employment and Consulting Agreements
On October 1, 1996, the Company entered into a five-year employment
agreement with Gregory J. Frazer, its Vice President, Business Development, that
provides for a base salary of $110,000 per year and for a bonus based on the
aggregate net income of the hearing clinics acquired by the Company that were
previously owned, in part, by Mr. Frazer. The employment
- 46 -
<PAGE>
agreement provides Mr. Frazer with certain fringe benefits such as medical and
dental insurance, vacation, professional liability insurance, an automobile
allowance, reimbursement of certain expenses, and options to purchase up to
200,000 shares of Common Stock at $1.30 per share. Mr. Frazer also received an
additional 200,000 options to purchase Common Stock at $1.30 per share upon his
election as a director of the Company. Mr. Frazer's employment agreement
contains covenants of nonsolicitation of employees, clients or customers of the
Company and of noncompetition during his period of employment and for three
years following termination of employment.
Effective January 1, 1997, the Company entered into a five-year
consulting agreement with Hugh T. Hornibrook, a director of the Company, under
which the Company will pay Mr. Hornibrook a retainer of Cdn$100 per month and
Cdn$125 per hour for consulting services on an as-needed basis.
Option Plans
Effective November 18, 1993, the board of directors of the Company
adopted and the shareholders of the Company approved a stock option plan (the
"1993 Plan") that provides for the grant of options to officers, directors and
key employees in an aggregate number equal to 10% of the outstanding Common
Stock. The exercise price of options granted under the Plan may not be less than
that permitted by the ASE. Individual options granted may have a term of up to
five years and may cover a number of shares up to 5% of the outstanding Common
Stock. All options under the 1993 Plan are non-transferable and non-assignable.
The option agreements vary as to vesting, with the majority providing for
vesting in installments. A total of 3,475,000 options have been granted under
the 1993 Plan, of which 925,000 have been exercised, 1,975,000 are outstanding,
and 575,000 have been canceled or terminated.
Effective December 10, 1996, the board of directors of the Company
adopted a stock award plan, which was amended and restated as of February 5,
1997 (the "1996 Plan"), providing for the grant of options covering up to
1,500,000 shares of Common Stock. The adoption of the 1996 Plan and the option
awards granted under the 1996 Plan are subject to approval by the Company's
shareholders at its 1997 annual general meeting. Options granted under the 1996
Plan may have a term of up to five years. The option exercise price must equal
or exceed 100% of the fair market value of the Common Stock on the date of
grant. The board of directors has granted incentive stock options to purchase a
total of 607,000 shares of Common Stock to eight employees under the 1996 Plan,
subject to shareholder approval. The options granted vest over varying periods
of time and certain options may become exercisable earlier if specified
production goals are met. If the 1996 Plan is approved by the shareholders, the
board of directors does not intend to grant any further options under the 1993
Plan.
- 47 -
<PAGE>
CERTAIN TRANSACTIONS
From its inception in 1994 through July 31, 1996, Douglas F. Good, a
shareholder and director of the Company and its former chief executive officer,
advanced funds to the Company for short-term working capital and acquisitions.
The Company paid Mr. Good aggregate interest of Cdn$59,114 for the three-year
period ended July 31, 1996. As of July 31, 1996, the total of the advances and
all accrued interest were repaid.
HC HealthCare Hearing Clinics Ltd., the Company's Canadian operating
subsidiary, maintains a revolving bank loan bearing interest at the bank's prime
rate plus 1% per annum and secured by a general security agreement covering all
assets of the Company and the guarantee and postponement of claim of Marilyn
Marshall, who is a shareholder of the Company and shares the same household as
Mr. Good.
William DeJong is a partner in the Calgary, Alberta law firm of Ballem
MacInnes and a director of the Company. During the period from October 15, 1994,
to October 15, 1996, total fees, disbursements and government sales tax paid to
Ballem MacInnes by the Company for legal services was Cdn$145,595. Mr. DeJong
exercised 50,000 options at Cdn$.10 per share on February 22, 1996. Total
consideration received by the Company was Cdn$5,000.
On October 1, 1996, the Company acquired Hearing Care Associates Group
through the acquisition of all of the outstanding shares of three corporations
owned by Gregory J. Frazer, who was subsequently appointed Vice President,
Business Development and a director of the Company, his wife, Carissa Bennett,
and Jami Tanihana (the "HCA Shareholders"). The consideration paid by the
Company consisted of $314,724 in cash and 2,389,536 shares of Common Stock of
which Mr. Frazer and Ms. Bennett received a total of 1,470,359 shares. Mr.
Frazer and Ms. Bennett also received a total of $314,724 in payment for
covenants not to compete.
Twenty-five percent, or 597,384, of the shares of Common Stock issued
to the HCA Shareholders are being held by the Company (the "Retained Shares").
One share of Common Stock will be issued to the HCA Shareholders on a pro rata
basis from the Retained Shares for each dollar by which net current assets (as
defined in the acquisition agreement) of the acquired corporations exceed
certain target amounts. To the extent that such net current assets do not exceed
the target amounts, the HCA Shareholders may elect to either pay the Company one
dollar or cancel one Retained Share for each dollar of shortfall. A Retained
Share is also required to be canceled or a dollar paid to the Company for each
dollar by which long term liabilities of the acquired corporations exceed a
specified amount, or certain accounts receivable remain uncollected after
specified time periods.
The HCA Shareholders have the right, until September 30, 2001, to
require the Company to redeem an aggregate of 15,000 of their shares of Common
Stock as of the last day of each calendar quarter at a price of $1.67 per share.
The redemption right is noncumulative and expires if not exercised as of the end
of any calendar quarter as to such quarter. The Company also agreed to register
the shares received by the HCA Shareholders in October 1996 under the Securities
Act. Such shares are covered by this Prospectus.
- 48 -
<PAGE>
On October 31, 1996, the Company acquired SONUS in exchange for
convertible subordinated notes made payable to certain affiliates of SONUS in
the aggregate amount of $2,600,000 convertible into 2,000,000 shares of Common
Stock and the assumption of certain liabilities in the amount of $510,000.
Included in the liabilities assumed by the Company was an obligation of SONUS to
pay Kathy Foltner, Vice President, Operations of the Company, $50,000 in each of
1997, 1998, and 1999, if specified production goals are met, and a promissory
note with a balance of $360,000 payable to Ms. Foltner. The promissory note is
payable in equal annual installments of $120,000 beginning July 1, 1997, and
bears interest at 6% per annum. The Company also agreed to register the shares
issuable upon conversion of the convertible subordinated notes under the
Securities Act. Such shares are covered by this Prospectus.
On January 10, 1997, the Company, through its subsidiary HealthCare
Hearing Clinics, Inc. ("HCC"), acquired all of the outstanding shares of Hearing
Care Associates-Los Angeles, Inc., for $301,000 in cash, of which Gregory J.
Frazer received $150,000. Mr. Frazer also received $37,500 in payment for a
covenant not to compete.
On February 28, 1997, the Company, through HCC, acquired all of the
outstanding shares of Hearing Care Associates-Arcadia, Inc. for $410,338 in
cash, of which Gregory J. Frazer received $205,169. Mr. Frazer also received
$43,390 in payment for a covenant not to compete.
On March 6, 1997, the Company, through HHC, acquired all of the
outstanding shares of Hearing Care Associates-Sherman Oaks, Inc., for $26,568 in
cash, of which Gregory J. Frazer received $13,284. Mr. Frazer also received
$11,261 in payment for a covenant not to compete.
The Company has entered into an employment agreement with Gregory J.
Frazer and a consulting agreement with Hugh T. Hornibrook. See
"Management--Employment and Consulting Agreements."
On January 11, 1996, Michael G. Thomson, one of the Company's original
shareholders, exercised options for 200,000 shares of Common Stock at Cdn$.10
per share. In connection with such exercise Mr. Thomson paid the Company
Cdn$20,000.
Dr. Eddison G.N. Sinanan, an advisory director of the Company,
exercised options for 50,000 shares of Common Stock at Cdn$.25 per share on
January 18, 1996, and options for an additional 100,000 shares at Cdn$.25 per
share on July 31, 1996. In connection with these exercises, the Company received
aggregate consideration of Cdn$37,500.
On April 1, 1996, Brandon M. Dawson, President of the Company,
exercised options for 100,000 shares of Common Stock at a price of Cdn$.38 per
share. In connection with such exercise, Mr. Dawson paid the Company Cdn$38,000.
- 49 -
<PAGE>
Roger Larose, formerly the Company's chief operating officer, exercised
options for 100,000 shares of Common Stock at Cdn$.38 per share on July 31,
1996, and options for an additional 100,000 shares of Common Stock at Cdn$.38
per share on October 1, 1996. The Company received total consideration of
Cdn$76,000 from Mr. Larose.
On August 16, 1996, Douglas F. Good, a director of the Company,
exercised options for 225,000 shares of Common Stock at Cdn$1.00 per share. In
connection with such exercise, Mr. Good paid the Company Cdn$225,000.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership, as of February 1, 1997, of the Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each director of the Company, (iii) the Named Executive Officers,
and (iv) all directors and executive officers as a group. Unless otherwise
indicated, the Company believes that the persons listed have sole investment and
voting power with respect to the Common Stock owned by them. Shares shown as
beneficially owned include shares which such persons have the right to acquire
within 60 days of February 1, 1997.
- 50 -
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
Name and Address Amount and Nature % of
of Beneficial Owner of Beneficial Ownership Common Stock
=================================================================================================================
<S> <C> <C>
Brandon M. Dawson 4,550,000(1) 23.0%
111 S.W. Fifth Avenue
Suite 2390
Portland, Oregon 97204
- -----------------------------------------------------------------------------------------------------------------
Douglas F. Good 1,926,762(2) 10.0%
595 Howe Street
Suite 1120
Vancouver, B.C. V6C-2T5
- -----------------------------------------------------------------------------------------------------------------
Gregory Frazer, Ph.D. 1,470,359(3) 7.7%
18531 Roscoe Boulevard
Suite 201
Northridge, California 91324
- -----------------------------------------------------------------------------------------------------------------
Gene K. Balzer, Ph.D 150,000(4) *
1000 East Rosser Avenue
Suite D2
Bismark, North Dakota 58501
- -----------------------------------------------------------------------------------------------------------------
Hugh T. Hornibrook 200,000(5) 1.0%
2631 West 13th Avenue
Vancouver, B.C. V6K-2T3
- -----------------------------------------------------------------------------------------------------------------
William DeJong 157,200(6) *
1800 First Canadian Centre
350 7th Avenue, S.W.
Calgary, Alberta T2P-3N9
- -----------------------------------------------------------------------------------------------------------------
Hearing Health Services, Inc. 2,000,000(7) 9.4%
1018 W. Ninth Avenue
Suite 310
King of Prussia, Pennsylvania 19406
- -----------------------------------------------------------------------------------------------------------------
Sagit Investment Management Ltd. 2,860,000(8) 13.0%
789 West Pender Street, Suite 900
Vancouver, B.C. V6H 1H2
- -----------------------------------------------------------------------------------------------------------------
All directors and executive officers 9,010,821(9) 44.2%
as a group (9 persons)
=================================================================================================================
</TABLE>
- -------------
* Less than 1% of the outstanding Common Stock
(1) Includes 3,900,000 shares subject to an escrow agreement dated October
7, 1994, of which 1,900,000 shares are subject to an Assignment and
Novation Agreement dated
- 51 -
<PAGE>
August 28, 1996, between Mr. Dawson and Roger W. Larose, a former
officer of the Company. See "Description of Capital Stock--Escrowed
Shares." Also includes 550,000 shares of Common Stock issuable upon the
exercise of stock options.
(2) Includes 334,000 shares held by Marilyn Marshall, who shares the same
household as Mr. Good.
(3) Includes 253,091 shares held by Carissa Bennett, Mr. Frazer's wife.
(4) Consists of 150,000 shares of Common Stock issuable upon the exercise
of stock options.
(5) Consists of 200,000 shares of Common Stock issuable upon the exercise
of stock options.
(6) Includes 75,000 shares of Common Stock issuable upon the exercise of
stock options.
(7) Consists of, upon conversion of convertible subordinated notes issued
by the Company, 900,000 shares held by Brown's Creek, Inc., 285,120
shares held by Business Development Capital Limited Partnership III,
743,600 shares held by Abbingdon Venture Partners Limited Partnership,
and 71,280 shares held by Abbingdon Venture Partners Limited
Partnership II, each of whom is an affiliate of Hearing Health
Services, Inc.
(8) Includes 1,430,000 shares to be issued upon the exercise of the
Company's February Warrants. See "Description of Capital
Stock--Warrants."
(9) Includes 1,175,000 shares of Common Stock issuable upon the exercise of
stock options.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of an unlimited
number of shares of Common Stock and an unlimited number of shares of Preferred
Stock.
Common Stock
The Company is authorized to issue an unlimited number of shares of
Common Stock. Holders of Common Stock are entitled to one vote per share at all
meetings of holders of the Common Stock. All shares of Common Stock rank ratably
with regard to dividends (if and when declared by the board of directors of the
Company). In the event of a liquidation, dissolution, or winding up of the
Company, holders of Common Stock are entitled to share equally and ratably in
the assets of the Company, if any, remaining after the payment of all
liabilities of the Company and the liquidation preference of any outstanding
class or series of Preferred Stock. The holders of Common Stock have no
preemptive rights under Alberta law or the Company's Articles of Incorporation.
- 52 -
<PAGE>
At March 1, 1997, 19,222,336 shares of Common Stock were issued and
outstanding and were fully paid and non-assessable, with 5,250,000 of such
shares subject to escrow provisions (see "-Escrowed Shares"). An additional
1,873,250 shares of Common Stock are issuable without additional consideration
in connection with the Company's special warrants that were issued in February
1996 (the "February Special Warrants"), and 5,467,410 shares of Common Stock
will be issuable without additional consideration upon the exercise of the
Company's special warrants that were issued in September 1996 and December 1996
(together, the "September Special Warrants"). In addition, 1,873,250 shares are
issuable upon the exercise of share purchase warrants issued upon the exercise
or deemed exercise of the February Special Warrants at an exercise price of
Cdn$1.50 per share until February 28, 1998 (the "February Warrants"), and
5,467,410 shares will be issuable upon the exercise of share purchase warrants
to be issued upon the exercise or deemed exercise of the September Special
Warrants at a price of $2.00 per share until August 31, 1998 (the "September
Warrants"). If the closing bid for the Company's Common Stock is in excess of
$3.00 per share on each of 20 consecutive trading days (as traded on the ASE or
another more senior North American stock exchange) after the day on which a
receipt is issued for the prospectus for the September Special Warrants and all
deficiencies are cleared by the securities commissions in Alberta and British
Columbia, the Company has the option, upon 45 days' prior written notice to the
holders, to force the exercise or cancellation of the September Warrants.
In connection with certain acquisitions made by the Company, 136,200
shares of Common Stock are issuable pursuant to the terms of a convertible
promissory note due September 1, 1997, and 2,000,000 shares are issuable
pursuant to convertible subordinated notes due October 31, 1997. Up to 576,900
shares of Common Stock will be issuable at a price of $1.25 per share pursuant
to share purchase warrants to be issued by the Company that will expire on
August 31, 1998. Upon the acceptance for listing or quotation of the Common
Stock on a recognized stock exchange or national trading market in the United
States, the Company will have the option upon 45 days' prior written notice to
force the exercise or cancellation of the warrants if the closing bid for the
Common Stock is at least $3.00 per share on each of 20 consecutive trading days.
In addition, an aggregate of 2.6 million shares of Common Stock are issuable
upon the exercise of stock options granted to the Company's officers,
employees and directors.
The Board of Directors may issue an unlimited number of additional
shares of Common Stock without any further vote or action by the Company's
shareholders, which may cause the interests of existing shareholders to suffer
substantial dilution. See "Risk Factors--Potential Issuance of Preferred Stock
and Additional Common Stock."
Preferred Stock
The Company is authorized to issue an unlimited number of shares of
Preferred Stock. The board of directors has the authority to issue Preferred
Stock in one or more series and to fix the number of shares comprising any such
series and the designations, rights, privileges, restrictions, and conditions
attaching thereto, including the rate or amount of dividends or the
- 53 -
<PAGE>
method of calculating dividends, the dates of payment of dividends, the
redemption, purchase, and/or conversion price or prices and the terms and
conditions of any such redemption, purchase, and/or conversion, and any sinking
fund or other provisions, without any further vote or action by the shareholders
of the Company. The issuance of Preferred Stock by the board of directors could
adversely affect the voting power and other rights of holders of Common Stock.
For example, the issuance of shares of Preferred Stock could result in
securities outstanding that would have preference over the Common Stock with
respect to dividends and upon liquidation and that could (upon conversion or
otherwise) enjoy all of the rights of the Common Stock.
The authority possessed by the board of directors to issue Preferred
Stock could potentially be used to discourage attempts by others to obtain
control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise by making such attempts more costly or more difficult
to achieve. There are no agreements or understandings for the issuance of
Preferred Stock, and the Company has no plans to issue any shares of Preferred
Stock. See "Risk Factors--Potential Issuance of Preferred Stock and Additional
Common Stock."
Warrants
At March 1, 1997, the Company had outstanding 1,873,250 February
Warrants governed by an indenture dated February 28, 1996 (the "February Warrant
Indenture"), between the Company and The R-M Trust Company, as trustee and
warrant agent (the "Trustee"). Each February Warrant entitles the holder thereof
to purchase one share of Common Stock at an exercise price of Cdn$1.50 per share
until February 28, 1998.
At March 1, 1997, the Company had outstanding 5,386,410 September
Special Warrants issued pursuant to a special warrant indenture between the
Company and the Trustee dated September 17, 1996 (the "September Special Warrant
Indenture"). Each of 4,576,410 of such September Special Warrants entitles the
holder thereof to acquire, upon the exercise or deemed exercise thereof, with no
additional consideration, one share of Common Stock and one September Warrant at
any time until the earlier of (i) five days from the date of issuance by the
securities commission in each of Alberta and British Columbia of a receipt for a
prospectus of the Company in relation to the September Special Warrants or (ii)
one year following the date on which the Company issues a certificate to a
subscriber in respect of the September Special Warrants subscribed for under the
September Special Warrant Indenture (the "September Expiry Time"). Each of the
remaining 810,000 September Special Warrants entitles the holder thereof to
acquire, upon the exercise or deemed exercise thereof, with no additional
consideration, 1.1 shares of Common Stock and 1.1 September Warrants at any time
until the September Expiry Time. Any September Special Warrants that have not
been exercised prior to the September Expiry Time will be deemed to have been
exercised at the September Expiry Time without any further action on the part of
the holder. In the event that a receipt for a prospectus for the September
Special Warrants is not issued in each of Alberta and British Columbia on or
before April 8, 1997, holders of September Special Warrants currently entitled
to receive one share of Common Stock and one September Warrant will, after such
date, be entitled to receive upon the
- 54 -
<PAGE>
exercise or deemed exercise of each September Special Warrant, 1.1 shares of
Common Stock and 1.1 September Warrants.
The September Warrants will be issued to the holders of the September
Special Warrants upon the exercise or deemed exercise thereof and will be
subject to an indenture dated September 17, 1996 (the "September Warrant
Indenture"), between the Company and the Trustee, as trustee and warrant agent.
Each September Warrant entitles the holder to subscribe for one share of Common
Stock of the Company at a subscription price of US$2.00 until the expiry
thereof. The September Warrants will expire on August 31, 1998. If the closing
bid for the Company's Common Stock is in excess of $3.00 per share on each of 20
consecutive trading days (as traded on the ASE or another more senior North
American stock exchange) after the day on which a receipt is issued for the
prospectus for the September Special Warrants and all deficiencies are cleared
by the securities commissions in Alberta and British Columbia, the Company has
the option, upon 45 days' prior written notice to the holders, to force the
exercise or cancellation of the September Warrants.
The February Warrant Indenture and September Warrant Indenture each
provides that the exercise price per share of Common Stock thereunder is subject
to adjustment under certain circumstances, including any subdivision,
consolidation, or reclassification of the Common Stock or any reorganization of
the Company including amalgamation, merger, or arrangement.
To the extent that a holder of a February Warrant or September Warrant
is entitled to purchase a fraction of a share of Common Stock, such right may be
exercised only in combination with other rights which in the aggregate entitle
the holder to purchase a whole number of shares of Common Stock. Holders of such
warrants are not entitled to any cash payment or other compensation in respect
of fractional entitlements. Holders of such warrants do not have any voting or
preemptive rights or any other rights as shareholders of the Company.
In connection with the placement of the September Special Warrants, the
Company has agreed to issue 576,900 share purchase warrants each of which is
exercisable for one share of Common Stock at an exercise price of $1.25 per
share until August 31, 1998. Upon acceptance for listing or quotation of the
Common Stock on a recognized stock exchange or national trading market in the
United States, the Company will have the option upon 45 days' prior written
notice to force the exercise or cancellation of the warrants if the closing bid
for the Common Stock is at least $3.00 per share on each of 20 consecutive
trading days.
The Company agreed to register the shares issuable upon exercise of the
September Special Warrants, September Warrants, and related share purchase
warrants under the Securities Act. Such shares are covered by this Prospectus.
- 55 -
<PAGE>
Escrowed Shares
Pursuant to certain requirements of the Alberta securities commission
(the "ASC") and the ASE, certain shares of Common Stock are subject to escrow
agreements entered into by the Company and various shareholders.
Under the terms of an escrow agreement dated January 14, 1994, among
the Company, the Trustee, and certain shareholders of the Company, 3,000,000
shares of Common Stock were deposited in escrow with the Trustee. Two million
shares have been released from escrow and the last 1,000,000 shares are subject
to release on October 21, 1997, upon application to the executive director of
the ASC.
Douglas F. Good, Marilyn E. Marshall, and Trudy McCaffery (the
"Original Shareholders"), the Company, and the Trustee are parties to an escrow
agreement dated October 7, 1994 (the "Performance Escrow Agreement"), with
respect to 4,250,000 shares of Common Stock (the "Performance Shares") that were
issued to the Original Shareholders in connection with the Company's acquisition
of Fraserview Hearing & Speech Clinic Ltd. The terms of the Performance Escrow
Agreement specify that one share of Common Stock is eligible for release from
escrow, upon application to the ASE, for each Cdn$0.11 of "cash flow" generated
by the Company. For purposes of the Performance Escrow Agreement, "cash flow" is
defined as the Company's net income as shown on the Company's audited financial
statements, plus depreciation, depletion, deferred taxes, and amortization of
goodwill and research and development costs. All of the Performance Shares
remain subject to the Performance Escrow Agreement.
Pursuant to a purchase and sale agreement (the "Share Purchase
Agreement") dated as of April 15, 1996, between the Original Shareholders and
Brandon M. Dawson, Roger W. Larose, Randall E. Drullinger and Hugh T. Hornibrook
(the "Purchasers"), the Original Shareholders sold all of the Performance Shares
to the Purchasers for an aggregate consideration of Cdn$816,000. Pursuant to an
assignment and novation agreement dated as of August 28, 1996, Roger W. Larose
agreed to assign all of his right, title and interest in the Share Purchase
Agreement to Brandon M. Dawson, thereby giving Mr. Dawson an additional
1,900,000 shares of Common Stock. In addition, pursuant to an assignment and
novation agreement dated as of February 27, 1997, Mr. Hornibrook agreed to
assign all of his right, title, and interest in the Share Purchase Agreement to
Edwin J. Kawasaki, thereby giving Mr. Kawasaki 100,000 shares of Common Stock.
The assignments are subject to the approval of the ASE.
CANADIAN TAXATION
The following is a summary of the principal Canadian income
tax considerations generally applicable to nonresidents of Canada who hold
Common Stock as capital property, deal at arm's length with the Company and do
not use or hold and are deemed not to use or hold their Common Stock in the
course of carrying on a business in Canada and do not carry on an insurance
business in Canada. This summary has been prepared by reference to the existing
- 56 -
<PAGE>
provisions of the Income Tax Act (Canada) (the "Act"), the Income Tax
Regulations (the "Regulations"), all published proposals for the amendment of
the Act and the Regulations to the date hereof and the published administrative
practices of Revenue Canada, the agency that administers the Act. Although this
summary does not specifically address the provincial income tax consequences of
an investment in Common Stock, generally speaking, provincial taxation does not
apply to persons who are not resident in Canada and who do not own or hold
property in the course of carrying on a business in Canada. Apart from changes
to the Act and the Regulations which have been publicly announced to the date
hereof, this summary does not consider the potential for any future alterations
to Canadian income tax legislation.
Dispositions of Common Shares
A nonresident of Canada will only be subject to taxation in Canada
under the Act in respect of a disposition of Common Stock if such shares
constitute "taxable Canadian property" to such nonresident. Provided that the
Common Stock is listed on a recognized stock exchange in Canada at the time of a
disposition, they will only constitute "taxable Canadian property" to a holder
if the holder, either alone or together with persons with whom the holder does
not deal at arm's length, owns or at any time in the five years prior to the
date of disposition, has owned in excess of 25% of the issued and outstanding
shares of a class or series of the capital of the Company. Persons who are
related by blood or marriage or are subject to common control are deemed to deal
otherwise than at arm's length; other persons may also be considered to be
dealing otherwise than at arm's length in certain circumstances. For the
purposes of determining the 25% threshold, rights or options to acquire Common
Stock will be treated as ownership thereof. Subject to the comments set out
below in respect of the application of the U.S. - Canada Income Tax Convention
(the "Convention") to U.S. resident holders, nonresidents whose shares
constitute "taxable Canadian property" will be subject to taxation thereon on
the same basis as Canadian residents. Generally speaking, three-quarters of the
excess of the holder's proceeds of disposition over the adjusted cost basis of
the Common Stock, must be included in income as a taxable capital gain, to be
taxed at prevailing federal Canadian rates, which range from approximately 25%
to 39%.
Nonresidents whose shares are repurchased by the Company, except in
respect of certain purchases made by the Company in the open market, will give
rise to the deemed payment of a dividend by the Company to the former holder of
Common Stock in an amount equal to the excess paid over the paid-up capital of
the Common Stock so repurchased. Such deemed dividend will be excluded from the
former holder's proceeds of disposition of his Common Stock for the purposes of
computing any capital gain but will be subject to Canadian nonresident
withholding tax in the manner described below under "Dividends." In certain
limited circumstances, a sale by a holder of the Common Stock to a corporation
resident in Canada with which the holder does not deal at arm's length may give
rise to the deemed payment of a dividend, to the extent the amount received in
consideration therefor exceeds the paid-up capital of the Common Stock disposed
of.
- 57 -
<PAGE>
Pursuant to the Convention, shareholders of the Company who are
resident in the U.S. for the purposes of the Convention and whose shares might
otherwise be "taxable Canadian property" may be exempt from Canadian taxation in
respect of any gains on the Common Stock provided the principal value of the
Company is not derived from real property located in Canada at the time of the
disposition.
Dividends
Under the Act, withholding tax is imposed at the rate of 25% on the
amount of any dividends paid or credited on the Common Stock to a person not
resident in Canada. Pursuant to the Convention, the rate of tax on such
dividends is reduced to 6% for dividends received in 1996 and 5% thereafter by
any U.S. resident corporation who owns in excess of 10% of the voting shares of
the corporation, and to 15% in all other instances.
INVESTMENT CANADA ACT
The Investment Canada Act (the "ICA") prohibits the acquisition of
control of a Canadian business by non-Canadians without review and approval of
the Investment Review Division of Industry Canada, the agency that administers
the ICA, unless such acquisition is exempt from review under the provisions of
the ICA. The Investment Review Division of Industry Canada must be notified of
such exempt acquisitions. The ICA covers acquisitions of control of corporate
enterprises, whether by purchase of assets, shares or "voting interests" of an
entity that controls, directly or indirectly, another entity carrying on a
Canadian business. The ICA will have no effect on the acquisition of shares
covered by this Prospectus.
Apart from the ICA, there are no other limitations on the
right of nonresident or foreign owners to hold or vote securities imposed by
Canadian law or the Company's Articles of Incorporation. There are no other
decrees or regulations in Canada that restrict the export or import of capital,
including foreign exchange controls, or that affect the remittance of dividends,
interest or other payments to nonresident holders of the Company's Common Stock,
except as discussed elsewhere herein.
PLAN OF DISTRIBUTION
The shares offered hereby may be offered and sold from time to time by
the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest. Such offers and sales may be made from time to time at
prices and on terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. The methods by which such shares
may be sold may include, but not be limited to, the following: (a) a block trade
in which the broker or dealer so engaged will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account; (c) an exchange distribution in
accordance with the rules of such exchange; (d) ordinary brokerage transactions
- 58 -
<PAGE>
and transactions in which the broker solicits purchasers; (e) privately
negotiated transactions; (f) short sales; and (g) a combination of any such
methods of sale. In effecting sales, brokers or dealers engaged by the Selling
Shareholders may receive commissions or discounts from the Selling Shareholders
or from the purchasers in amounts to be negotiated immediately prior to the
sale. The Selling Shareholders may also sell shares in accordance with Rule 144
under the Securities Act. The Company reserves the right to suspend transfers of
the shares offered hereby if, in its reasonable judgment, such suspension is
necessary to ensure that all material information about the Company has been
properly disseminated to the public.
The Company has advised each Selling Shareholder that he or she and any
such brokers, dealers or agents who effect a sale of the shares offered hereby
are subject to the prospectus delivery requirements under the Securities Act.
The Company also had advised each Selling Shareholder that in the event of a
"distribution" of his shares, such Selling Shareholder and any broker, dealer or
agent who participates in such distribution may be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, including without limitation, the anti-manipulation rules under the
Securities Exchange Act of 1934.
The Selling Shareholders and any brokers participating in such sales
may be deemed to be underwriters within the meaning of the Securities Act. There
can be no assurance that the Selling Shareholders will sell any or all of the
shares offered hereby.
The Company has agreed to register the shares of certain Selling
Shareholders under the Securities Act pursuant to various agreements, and all of
such shares are covered by this Prospectus. The Company is bearing substantially
all of the costs relating to the registration of the shares offered hereby,
except commissions, discounts or other fees payable to a broker, dealer,
underwriter, agent or market maker in connection with the sale of any of such
shares and the legal fees incurred by the Selling Shareholders, all of which
will be borne by the Selling Shareholders. The Company will not receive any of
the proceeds from the sale of the shares offered hereby.
Any commission paid or any discounts or concessions allowed to any
broker, dealer, underwriter, agent or market maker and, if any such broker,
dealer, underwriter, agent or market maker purchases any of the shares offered
hereby as principal, any profits received on the resale of such shares, may be
deemed to be underwriting commissions or discounts under the Securities Act.
LEGAL MATTERS
The legality of the shares offered hereby has been passed upon for the
Company by Ballem MacInnes, Calgary, Alberta. William DeJong, a partner in
Ballem MacInnes, is a director of the Company.
- 59 -
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of July 31,
1996, and 1995, and for each of the years in the two-year period ended July 31,
1996, have been included in this Prospectus in reliance upon the report of
Shikaze Ralston, Chartered Accountants, appearing elsewhere herein and upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Hearing Care Associates Group as of July
31, 1996, and for each of the years in the two-year period ended July 31, 1996,
and the financial statements of the Midwest Division of Hearing Health Services,
Inc., dba SONUS, as of June 30, 1996, and for each of the years in the two-year
period ended June 30, 1996, have been included in this Prospectus in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
Effective December 20, 1996, upon the recommendation of the board of
directors and approval by the shareholders, the Company retained KPMG Peat
Marwick LLP as its independent auditors, replacing Shikaze Ralston. The Company
made the change in independent auditors due to its significant and growing
operations in the United States and its need to draw upon the services and
expertise of a large international accounting and auditing firm. The report of
Shikaze Ralston on the consolidated financial statements of the Company referred
to above does not contain an adverse opinion or disclaimer of opinion and is not
qualified as to uncertainty, audit scope, or accounting principles. In addition,
there were no disagreements with Shikaze Ralston on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Shikaze
Ralston, would have caused them to make reference to the subject matter of the
disagreements in connection with their report. Before engaging KPMG Peat Marwick
LLP as its new independent certified public accountants, the Company did not
consult with them regarding any matters related to the application of accounting
principles, the type of audit opinion that might be rendered on the Company's
financial statements or any other such matters.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2 relating to the shares offered
hereby has been filed by the Company with the Securities and Exchange Commission
(the "Commission"). This Prospectus does not contain all of the information set
forth in such Registration Statement and the exhibits thereto. For further
information with respect to the Company and the shares of Common Stock offered
hereby, reference is made to such Registration Statement and exhibits. A copy of
the Registration Statement may be inspected and copied at the offices of the
Commission at 450 Fifth Street, N. W., Washington, D. C. 20549 and at regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part of the Registration Statement
may be obtained from the Public Reference Section of the Commission, Washington,
D. C., upon the payment of the fees prescribed by the
- 60 -
<PAGE>
Commission. The Commission also maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
The Company is not currently subject to the periodic reporting
requirements of the Securities Exchange Act of 1934. The Company intends to
furnish to its shareholders annual reports containing financial statements
audited by an independent public accounting firm.
PRO FORMA FINANCIAL INFORMATION
The "HealthCare Combined" column set forth in the unaudited pro forma
condensed combined statement of operations for the year ended July 31, 1996,
assumes that the acquisition of Hearing Care Associates Group on October 1,
1996, and the acquisition of the Midwest Division of Hearing Health Services,
Inc., dba SONUS on October 31, 1996 (the "Acquisitions"), and application of the
estimated net proceeds of the offering by the Company of 4,149,000 September
Special Warrants in the United States in December 1996 (the "U.S Offering") had
occurred on August 1, 1995. The U.S. Offering was closed and proceeds raised on
December 9, 1996.
The "HealthCare Combined" column set forth in the unaudited pro forma
condensed combined statement of operations for the three months ended October
31, 1996, assumes that the Acquisitions and application of the estimated net
proceeds of the Offering had occurred on August 1, 1995.
The unaudited pro forma condensed combined financial information set
forth below is not necessarily indicative of the Company's combined financial
position or the results of operations that actually would have occurred if the
transactions had been consummated on such dates. In addition, such information
is not intended to be a projection of results of operations that may be obtained
by the Company in the future. The unaudited pro forma combined financial
information should be read in conjunction with the consolidated financial
statements and related notes thereto included elsewhere in this Prospectus.
- 61 -
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
OCTOBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
HealthCare
before
Pro Forma U.S. U.S. Offering HealthCare
HealthCare Adjustments Offering Proceeds Combined
Assets
Current assets:
<S> <C> <C> <C> <C> <C>
Cash $ 472 $ $ 472 $ 4,922(b) $ 5,394
Accounts receivable 1,577 1,577 1,577
Inventory 302 302 302
Prepaid expenses 98 98 98
Income taxes recoverable 9 9 9
--------- ----------- ----------- ----------- -----------
Total current assets 2,458 - 2,458 4,922 7,380
--------- ----------- ----------- ----------- -----------
Capital assets 1,217 1,217 1,217
Names, files, reputations and covenants
not to compete 5,898 (252)(a) 5,583 5,583
(63)(a)
Trademarks 2 2 2
Deferred acquisition costs 236 236 236
Deferred financing costs 65 65 (65)(b) -
--------- ----------- ----------- ----------- -----------
Total assets $ 9,876 $ (315) $ 9,561 $ 4,857 $ 14,418
========= =========== =========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan $ 120 $ $ 120 $ $ 120
Accounts payable and accrued liabilities 1,603 1,603 1,603
Current portion of long-term debt 204 204 204
--------- ----------- ----------- ----------- -----------
Total current liabilities 1,927 - 1,927 - 1,927
Long-term debt, less current portion 411 411 411
Convertible notes payable 2,736 2,736 2,736
--------- ----------- ----------- ----------- -----------
Total liabilities 5,074 - 5,074 - 5,074
--------- ----------- ----------- ----------- -----------
Shareholders' equity:
Common stock 5,513 5,513 4,857(b) 10,370
Retained earnings (deficit) (695) (252)(a) (1,010) (1,010)
(63)(a)
Cumulative translation adjustment (16) (16) (16)
--------- ----------- ----------- ----------- -----------
Total shareholders' equity 4,802 (315) 4,487 4,857 9,344
--------- ----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity $ 9,876 $ (315) $ 9,561 $ 4,857 $ 14,418
========= =========== =========== =========== ===========
</TABLE>
- 62 -
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Acquired Pro Forma HealthCare
HealthCare Clinics(d) Adjustments Combined
---------- ---------- ----------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 2,389 $ 7,665 $ $10,054
Expenses:
Cost of revenues 1,018 2,539 3,557
Operational expenses 1,836 5,372 (556)(c) 6,652
Depreciation and amortization 125 182 252 (a) 559
--------- ----------- ---------- --------
Total operating expenses 2,979 8,093 (304) 10,768
--------- ----------- ---------- --------
Income (loss) from
operations (590) (428) 304 (714)
Other income 8 14 - 22
Income (loss) before income
taxes (582) (414) 304 (692)
Income tax expense (benefit) - 25 - 25
--------- ----------- ---------- --------
Net income (loss) $ (582) $ (439) $ 304 $ (717)
========= =========== ========== ========
Pro forma:
Net loss per common share $ (0.03)
========
Weighted average number of
shares outstanding 23,974 (e)
========
</TABLE>
- 63 -
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
Acquired Pro Forma HealthCare
HealthCare Clinics(d) Adjustments Combined
---------- ---------- ----------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 1,281 $ 1,566 $ $ 2,847
Expenses:
Cost of revenues 493 517 1,010
Operational expenses 1,010 1,265 (276)(f) 1,999
Depreciation and amortization 52 53 63 (a) 168
--------- ----------- ---------- ------------
Total operating expenses 1,555 1,835 (213) 3,177
--------- ----------- ---------- ------------
Income (loss) from
operations (274) (269) 213 (330)
Other income (expense):
Interest income 1 - 1
Other, net (28) 8 - (20)
--------- ----------- ---------- ------------
Net other income (expense) (27) 8 - (19)
--------- ----------- ---------- ------------
Income (loss) before income
taxes (301) (261) 213 (349)
Income tax benefit (31) (31)
--------- ----------- ---------- ------------
Net income (loss) $ (301) $ (230) $ 213 $ (318)
========= =========== ========== ============
Pro forma:
Net loss per common share $ (0.01)
============
Weighted average number of
shares outstanding 26,787 (e)
============
</TABLE>
- 64 -
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION
(1) Basis of Presentation
The "HealthCare Combined" column set forth in the audited pro forma
condensed combined statements of operations (i) for the year ended July 31,
1996, gives effect to the Acquisitions and application of the net proceeds of
the U.S. Offering as if such transactions had occurred on August 1, 1995 and
(ii) for the three months ended October 31, 1996, gives effect to the
Acquisitions and application of the net proceeds of the U.S. Offering as if such
transactions had occurred on August 1, 1995.
(2) Pro Forma Adjustments
(a) To record amortization of goodwill for the Acquisitions in the
amount of $252,000 and $63,000 for the year ended July 31, 1996,
and the three months ended October 31, 1996, respectively, as if
the Acquisitions had occurred on August 1, 1995.
(b) To record the sale of 4,149,000 September Special Warrants
representing the United States tranche sold by the Company and the
receipt of net proceeds of $4,922,000, based on the offering price
of $1.25 per September Special Warrant and fees, commissions and
offering expenses of $265,000. Associated deferred financing costs
of $65,000 are being written off against the net proceeds.
(c) To record the elimination of year-end bonuses paid to the prior
owners of Hearing Care Associates Group in the amount of $556,000,
which expense would not have been recognized by the Company under
the prior employment contracts with the prior owners.
(d) Reflects the historical operations of the acquired clinics prior
to their acquisition by the Company.
(e) Includes (i) 2,389,536 shares issued in connection with the
acquisition of Hearing Care Associates Group, (ii) 1,905,750
shares to be issued in connection with the sale by the Company of
1,700,000 February Special Warrants, and (iii) 5,467,410 shares to
be issued in connection with the sale by the Company of 4,959,000
September Special Warrants.
(f) To record the elimination of non-recurring acquisition bonuses in
the amount of $276,000 paid to certain employees of the acquired
clinics immediately prior to the closing date.
- 65 -
<PAGE>
Acquisitions (for the year ended July 31,1996)
<TABLE>
<CAPTION>
Hearing Care
Associates SONUS Total
---------- ----- -----
(in thousands)
Statement of Operations Data:
<S> <C> <C> <C>
Revenues $ 4,153 $ 3,512 $ 7,665
Expenses:
Cost of revenues 1,491 1,048 2,539
Operational expenses 3,105 2,267 5,372
Depreciation and amortization 68 114 182
----------- ---------- ------------
Total operating expenses 4,664 3,429 8,093
----------- ---------- ------------
Income (loss) from
operations (511) 83 (428)
Other income, net 12 2 14
----------- ---------- ------------
Net income (loss) before income (499) 85 (414)
taxes
Income expense (benefit) (23) 48 25
----------- ---------- ------------
Net income (loss) $ (476) $ 37 $ (439)
=========== ========== ============
</TABLE>
Acquisitions (for periods from August 1, 1996 to date of acquisition)
<TABLE>
<CAPTION>
Hearing Care
Associates SONUS
August 1, 1996 August 1, 1996
through through
September 30, October 31,
1996 1996 Total
---- ---- -----
(in thousands)
Statement of Operations Data:
<S> <C> <C> <C>
Revenues $ 790 $ 776 $ 1,566
Expenses:
Cost of revenues 248 269 517
Operational expenses 697 568 1,265
Depreciation and amortization 20 33 53
----------- ----------- -----------
Total operating expenses 965 870 1,835
----------- ----------- -----------
Income (loss) from
operations (175) (94) (269)
Other income, net 8 - 8
----------- ----------- -----------
Net income (loss) before income (167) (94) (261)
taxes
Income tax expense (benefit) - (31) (31)
----------- ----------- -----------
Net loss $ (167) $ (63) $ (230)
=========== =========== ===========
</TABLE>
- 66 -
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
HealthCare Capital Corp.
<S> <C>
Independent Auditors' Report....................................................................................F-2
Consolidated Balance Sheets as of July 31, 1996 and October 31, 1996 (unaudited)................................F-3
Consolidated Statements of Operations and Retained Earnings (Deficit) for the years
ended July 31, 1996 and 1995, and for the three months ended October 31, 1996
and 1995 (unaudited)...........................................................................................F-4
Consolidated Statements of Cash Flows for the years ended July 31, 1996 and 1995
and the three months ended October 31, 1996 and 1995 (unaudited)...............................................F-5
Consolidated Statement of Shareholders' Equity for the years ended July 31, 1996
and 1995 and the three months ended October 31, 1996 (unaudited)...............................................F-6
Notes to Consolidated Financial Statements......................................................................F-7
Hearing Care Associates Group
Independent Auditors' Report...................................................................................F-15
Balance Sheet as of July 31, 1996..............................................................................F-16
Statements of Operations for the years ended July 31, 1996 and 1995............................................F-17
Statements of Stockholders' Equity (Deficit) for the years ended July 31, 1996 and 1995........................F-18
Statements of Cash Flows for the years ended July 31, 1996 and 1995............................................F-19
Notes to Consolidated Financial Statements.....................................................................F-20
The Midwest Division of Hearing Health Services, Inc., dba SONUS
Independent Auditors' Report...................................................................................F-24
Balance Sheets as of June 30, 1996 and October 31, 1996 (unaudited)............................................F-25
Statements of Operations and Accumulated Earnings for the years ended June 30,
1996 and 1995, and the four months ended October 31, 1996 and 1995 (unaudited)................................F-26
Statements of Cash Flows for the years ended June 30, 1996 and 1995, and the
four months ended October 31, 1996 and 1995 (unaudited).......................................................F-27
Notes to Consolidated Financial Statements.....................................................................F-28
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Shareholders of
HealthCare Capital Corp.
We have audited the consolidated balance sheet of HealthCare Capital Corp. as at
July 31, 1996, and the consolidated statements of operations and retained
earnings (deficit) and changes in cash position for the years ended July 31,
1996 and 1995. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at July 31, 1996 and
the results of its operations and the changes in its cash position for the years
ended July 31, 1996 and 1995 in accordance with generally accepted accounting
principles as adopted in the United States of America.
Vancouver, Canada /s/ Shikaze Ralston
October 8, 1996 Chartered Accountants
F-2
<PAGE>
HEALTHCARE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
July 31 October 31
------- ----------
1996 1996
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash $ 11,196 472,444
Accounts receivable 402,836 1,577,222
Inventory 143,597 302,089
Prepaid expenses 40,996 97,662
Income taxes recoverable 8,724 8,766
---------- ----------
607,349 2,458,183
Capital Assets (Note 5) 593,192 1,217,181
Names, Files, Reputations and
Covenants Not To Compete (Note 6) 810,806 5,897,864
Trademarks 5,384 2,226
Deferred Acquisition Costs 263,443 236,015
Deferred Financing Costs 41,940 64,709
---------- ----------
$2,322,114 $9,876,178
========== ==========
LIABILITIES
Current Liabilities
Bank loan (Note 7) $ 33,170 $ 119,678
Accounts payable and accrued liabilities 462,561 1,602,596
Current portion of long term debt (Note 8) 92,946 204,261
---------- ----------
588,677 1,926,535
Long Term Debt (Note 8) 92,474 410,564
Convertible Notes Payable (Note 9) 128,993 2,736,220
---------- ----------
810,144 5,073,319
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital (Note 10) 1,925,318 5,513,279
Deficit (394,405) (695,313)
Cumulative Translation Adjustment (Note 11) (18,943) (15,107)
---------- ----------
1,511,970 4,802,859
---------- ----------
$2,322,114 $9,876,178
========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
HEALTHCARE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Three Month Period
Year Ended July 31 Ended October 31
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $2,389,453 $1,719,884 $1,281,060 $513,846
Cost Of Sales 1,017,414 772,973 492,649 233,032
---------- ---------- ---------- --------
Gross Profit 1,372,039 946,911 788,411 280,814
---------- ---------- ---------- --------
Expenses
Advertising and promotion 207,109 44,021 49,853 5,616
Amortization 124,920 77,706 52,483 19,431
Bad debts 11,832 1,283 1,260 -
Bank charges and interest 19,839 17,906 10,265 5,275
Insurance 6,551 2,728 2,858 221
Interest on long term debt 15,177 20,635 745 5,344
Legal and accounting 77,911 24,514 61,169 4,344
Management and consulting fees 143,993 41,387 36,965 19,283
Office and miscellaneous 121,268 47,191 53,675 20,109
Rent 207,679 146,471 114,520 37,808
Salaries and benefits 882,705 561,888 605,200 167,193
Telephone 50,814 32,444 35,974 9,929
Training 15,770 3,441 1,565 478
Travel 75,821 16,768 36,419 5,969
---------- ---------- ---------- --------
1,961,389 1,038,383 1,062,951 301,000
---------- ---------- ---------- --------
Loss From Operations (589,350) (91,472) (274,540) (20,186)
Interest Income 7,684 - 1,327 -
Foreign Exchange Loss - - (27,695) -
Loss On Disposal Of Capital Assets - (3,493) - -
---------- ---------- ---------- --------
Loss Before Income Taxes Recovery (581,666) (94,965) (300,908) (20,186)
Income Taxes Recovery - (13,967) - -
---------- ---------- ---------- --------
Net Loss (Note 12) (581,666) (80,998) (300,908) (20,186)
Retained Earnings (Deficit), beginning of period 187,261 268,259 (394,405) 268,259
---------- ---------- ---------- --------
Retained Earnings (Deficit), end of period $ (394,405) $ 187,261 $ (695,313) $248,073
========== ========== ========== ========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
HEALTHCARE
CAPITAL
CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Three Month Period
Year Ended July 31 Ended October 31
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash (Bank Indebtedness) Provided By (Used For)
Operating Activities
Net loss for the period $ (581,666) $ (80,998) $ (300,908) $(20,186)
Items not involving cash - - - -
Amortization 124,920 77,706 52,483 19,431
Loss on disposal of capital assets - 3,493 - -
----------- --------- ----------- --------
(456,746) 201 (248,425) (755)
----------- --------- ----------- --------
Changes in non-cash working capital
Accounts receivable (6,890) 77,707 23,765 56,861
Inventory (16,481) 18,588 (64,673) (937)
Prepaid expenses (25,178) 1,236 22,330 (11,277)
Income taxes 14,353 (33,981) - -
Accounts payable and accrued liabilities 44,987 (16,385) 192,293 (65,522)
Deferred purchase discounts (23,476) 23,148 - (5,839)
----------- --------- ----------- --------
(12,685) 70,313 173,715 (26,714)
----------- --------- ----------- --------
(469,431) 70,514 (74,710) (27,469)
----------- --------- ----------- --------
Investing Activities
Purchase of capital assets (293,034) (21,227) (121,089) (19,831)
Purchases of names, files, reputations and
covenants not to compete (5,340) - 20,769 -
Trademarks (5,374) - 3,188 -
Incurrance of deferred acquisition costs (262,943) - 28,746 (4,764)
Current liabilities assumed on reverse takeover - 7,039 - -
Net assets acquired in business acquisitions (Note 3) (440,889) (244,755) (6,089,566) -
----------- --------- ----------- --------
(1,007,580) (258,943) (6,157,952) (24,595)
----------- --------- ----------- --------
Financing Activities
Net proceeds (payments) of long term debt 104,468 (10,150) 460,522 (22,662)
Incurrance of deferred financing costs (41,861) - (22,588) -
Advances from (payments to) shareholders (234,649) (139,132) - 2,525
Issuance (redemption) of convertible notes (31,635) 158,137 2,609,413 -
Net proceeds on issuance of shares and warrants 1,749,935 175,217 3,587,961 92,698
----------- --------- ----------- --------
1,546,258 184,072 6,635,308 72,561
----------- --------- ----------- --------
Increase (Decrease) In Cash 69,247 (4,357) 402,646 20,497
Effect On Cash Of Changes In Foreign Translation Rate (710) (785) 19,087 (4,095)
Cash (Bank Indebtedness), beginning of period (90,511) (85,369) (68,967) (85,369)
----------- --------- ----------- --------
Cash (Bank Indebtedness), end of period $ (21,974) $ (90,511) $ 352,766 $(68,967)
=========== ========= =========== ========
Cash (Bank Indebtedness) Consists Of:
Cash 11,196 16,113 472,444 13,027
Bank loan (33,170) (106,624) (119,678) (81,994)
----------- --------- ----------- --------
$ (21,974) $ (90,511) $ 352,766 $(68,967)
=========== ========= =========== ========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
HEALTHCARE CAPITAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Stated in U.S. Dollars)
<TABLE>
<CAPTION>
Retained Total
Common Stock Special Warrants Earnings Translation Shareholders'
Number Amount Number Amount (Deficit) Adjustment Equity
------ ------ ------ ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1995 11,450,000 $ 175,383 - $ $ 187,261 $(24,319) $ 338,325
-
Issue of Equity 4,472,000 678,277 1,700,000 1,071,658 - - 1,749,935
Net Loss For The Year - - - - (581,666) - (581,666)
Translation Adjustment - - - - - 5,376 5,376
---------- ---------- --------- ---------- --------- -------- ----------
Balance, July 31, 1996 15,922,000 853,660 1,700,000 1,071,658 (394,405) (18,943) 1,511,970
Issue of Equity 2,714,536 2,604,705 844,000 961,493 - - 3,566,198
R&D Tax Credits - 21,763 - - - - 21,763
Net Loss For The Period - - - - (300,908) (300,908)
Translation Adjustment - - - - - 3,836 3,836
---------- ---------- --------- ---------- --------- -------- ----------
Balance, October 31, 1996 18,636,536 $3,480,128 2,544,000 $2,033,151 $(695,313) $(15,107) $4,802,859
(Unaudited) ========== ========== ========= ========== ========= ======== ==========
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
1. Operations
The Company is in the initial stages of embarking on a major expansion
program in the United States through mergers and acquisitions of
audiology-based hearing clinics. As such, the proportion of deferred costs
to total assets is relatively high in 1996 due to the size and volume of
acquisitions completed.
2. Basis of Consolidation
These consolidated financial statements report the financial position and
results of operations of HealthCare Capital Corp. and its 100% owned
Canadian subsidiaries, HC HealthCare Hearing Clinics Ltd., Pacific Hearing
Clinics Inc. and Oakridge Hearing Clinics Inc., and its U.S.A.
subsidiaries Hearing Clinics, Inc., Hearing Care Associates - Glendale,
Inc., Hearing Care Associates - Glendora, Inc. and Hearing Care Associates
- Northridge, Inc.
3. Business Acquisitions
Total net assets acquired in all acquisitions during the year ended July
31, 1996 and three month period ended October 31, 1996 consist of:
<TABLE>
<CAPTION>
July 31 October 31
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Non cash working capital $ 25,987 $ 543,996
Capital assets 156,865 543,754
--------------- --------------
182,852 1,087,750
Names, patient files, reputations and covenants not to compete 258,036 5,118,763
--------------- --------------
$ 440,888 $ 6,206,513
=============== ==============
</TABLE>
The Company's acquisitions have been accounted for using the purchase
method.
a) Langley Hearing Clinic
On January 2, 1996 HC Hearing Clinics Ltd. acquired certain assets of
Langley Hearing Clinic at a cost of $158,762 plus acquisition costs
of $6,842. In accordance with the terms of the agreement,
consideration consisted of cash in the amount of $106,676 upon
closing and a $52,086 note payable bearing interest at 11% per annum.
Net assets acquired consist of:
<TABLE>
<CAPTION>
<S> <C>
Non cash working capital $ 40,094
Capital assets 69,082
----------------
109,176
Names, patient files, reputations and covenants not to compete 56,428
----------------
$ 165,604
================
</TABLE>
b) Pacific Hearing Clinics Inc. and Oakridge Hearing Clinics Inc.
On May 1, 1996 the Company acquired 100% of the issued and
outstanding shares of Pacific Hearing Clinics Inc. and Oakridge
Hearing Clinics Inc., British Columbia corporations operating hearing
clinics in Vancouver, British Columbia, at a cost of $165,531 plus
acquisition costs of $9,200. In accordance with the terms of the
agreement, consideration consisted of cash in the amount of $36,785
and a $128,746 convertible, non-interest bearing promissory note with
a term of sixteen months. The promissory note is convertible into
common shares of the Company at $1.00 per share during the term of
the note.
F-7
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
3. Business Acquisitions (...continued)
Net assets acquired consist of:
<TABLE>
<CAPTION>
<S> <C>
Non cash working capital $ (18,067)
Capital assets 42,287
----------------
24,220
Names, patient files, reputations and covenants not to compete 150,511
----------------
$ 174,731
================
</TABLE>
c) Allied Hearing Aid Service
On July 4, 1996 HealthCare Hearing Clinics, Inc. acquired certain
assets of Allied Hearing Aid Service, at a cost of $95,104 plus
acquisition costs of $5,449. In accordance with the terms of the
agreement, consideration consisted of cash in the amount of $69,538
upon closing with the balance due January 5, 1997.
<TABLE>
<CAPTION>
Net assets acquired consist of:
<S> <C>
Non cash working capital $ 3,960
Capital assets 45,496
----------------
49,456
Names, patient files, reputations and covenants not to compete 51,097
----------------
$ 100,553
================
d) Santa Maria Hearing Associates (Unaudited)
On August 1, 1996 HealthCare Hearing Clinics, Inc. acquired for cash
certain assets of Santa Maria Hearing Associates at a cost of $51,164
plus acquisition costs of $10,412.
Net assets acquired consist of:
Non cash working capital $ 5,116
Capital assets 3,070
----------------
8,186
Names, patient files, reputations and covenants not to compete 53,390
----------------
$ 61,576
================
e) Hearing Care Associates (Unaudited)
On October 1, 1996 HealthCare Hearing Clinics, Inc. completed the
merger of Hearing Care Associates ("HCA") through a merger of three
HCA affiliate corporations at a cost of $3,044,465 plus acquisition
costs of $129,756. As consideration for this merger, the Company paid
cash of $629,448 and issued 2,389,536 common shares of the Company.
Net assets acquired consist of:
Non cash working capital $ 440,952
Capital assets 150,186
----------------
591,138
Names, patient files, reputations and covenants not to compete 2,583,083
----------------
$ 3,174,221
================
</TABLE>
3. Business Acquisitions (...continued)
f) Hearing Health Services, Inc. doing business as "Sonus" (Unaudited)
On October 31, 1996, HealthCare Hearing Clinics, Inc. purchased
substantially all the assets of Hearing Health Services, Inc. doing
business as "Sonus" at a cost of $2,970,716. Sonus operates 12
audiology based clinics in the Chicago, Illinois and Lansing,
Michigan greater metropolitan areas. Consideration for this
acquisition was in the form of a secured $2,600,000 convertible note
payable due October 31, 1997 and a $360,000 note payable. The former
note is convertible into 2,000,000 common shares of the Company at
the rate of $1.30 per share.
F-8
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
<TABLE>
<CAPTION>
Net assets acquired consist of:
<S> <C>
Non cash working capital $ 97,928
Capital assets 390,498
----------------
488,426
Names, patient files, reputations and covenants not to compete 2,482,290
----------------
$ 2,970,716
================
</TABLE>
4. Significant Accounting Policies
a) Inventory
Inventory is recorded at the lower of cost or net realizable value.
b) Capital Assets
Capital assets are recorded at cost and are amortized in the
following manner:
Audiology equipment 20% Declining balance
Office equipment 20% Declining balance
Computer equipment 30% Declining balance
Leasehold improvements Straight line over five years
Computer software 30% Declining balance
In the year of acquisition, amortization is calculated at one-half of
the above-noted rates.
c) Names, Patient Files, Reputations and Covenants Not To Compete
The amounts paid for the names, patient files and reputations
acquired are equivalent to the purchase price over the fair value of
identifiable net assets acquired, as determined by management. These
costs are amortized over 40 years using the straight line method.
Covenants not to compete represent amounts prepaid under
non-competition agreements with certain key management personnel of
acquired operations. These costs are amortized using the straight
line method over the life of each agreement.
d) Trademarks
Trademarks are amortized over 40 years using the straight line
method.
e) Deferred Acquisition Costs
Costs related to the acquisition of clinics are deferred and, upon
successful completion of acquisitions, are allocated to the assets
acquired and are subject to the accounting policies outlined above.
f) Deferred Financing Costs
Costs related to issuing shares are deferred. Upon the issuance of
the related shares, the deferred costs are applied to reduce the net
proceeds of the issue.
F-9
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
5. Capital Assets
<TABLE>
<CAPTION>
Net Net
Accumulated October 31 July 31
Cost Amortization 1996 1996
--------------- --------------- ---------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Audiology equipment $ 936,415 $ 147,187 $ 789,228 $ 339,188
Office equipment 240,941 69,946 170,995 91,258
Computer equipment 164,255 65,857 98,398 34,247
Leasehold improvements 201,093 61,226 139,867 109,896
Computer software 18,693 - 18,693 18,603
--------------- --------------- ---------------- ---------------
$ 1,561,397 $ 344,216 $ 1,217,181 $ 593,192
=============== =============== ================ ===============
</TABLE>
6. Names, Patient Files, Reputations and Covenants Not To Compete
<TABLE>
<CAPTION>
July 31 October 31
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Cost $ 861,012 $ 5,957,710
Accumulated amortization 50,206 59,846
--------------- --------------
Net book value $ 810,806 $ 5,897,864
=============== ==============
</TABLE>
7. Bank Loan
HC HealthCare Hearing Clinics Ltd. maintains a revolving bank demand loan
bearing interest at the bank's prime rate plus 1% per annum, secured by a
general security agreement covering all assets of the Company, the
postponement of claim by the shareholders and the guarantee of a
shareholder. The loan provides for a maximum credit limit of $184,275.
8. Long Term Debt
<TABLE>
<CAPTION>
July 31 October 31
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
A secured bank loan payable in instalments of $737 per month plus interest calculated
at the bank prime rate plus 1 1/2% per annum. $ 16,216 $ 14,073
A non-interest bearing equipment loan from a supplier. The loan requires
monthly instalments of $1,268 which may be reduced by up to 50% through
the application of
purchase discounts. 24,847 22,737
An equipment loan from a supplier. The loan requires fifty-two equal instalments every
four weeks of $2,167 including interest calculated at the rate of 10% per annum. 92,137 92,588
A note payable in quarterly instalments of $13,954 including interest calculated at 11%
per annum. 26,790 -
A note payable requiring annual instalments of $120,000, commencing July 1, 1997,
plus interest calculated at the rate of 6% per annum - 362,693
------------- --------------
$ 159,990 $ 492,091
============= ==============
F-10
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
8. Long Term Debt (...Continued)
</TABLE>
<TABLE>
<CAPTION>
July 31 October 31
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Balance Forward $ 159,990 $ 492,091
Equipment loans from a supplier. The loans require total monthly
installments of $2,000 including interest calculated at the rate of 9% per
annum. - 97,670
A non-interest bearing note payable due January 5, 1997. 25,430 25,064
---------------- ---------------
185,420 614,825
Current portion 92,946 204,261
---------------- ---------------
$ 92,474 $ 410,564
================ ===============
</TABLE>
9. Convertible Notes Payable
<TABLE>
<CAPTION>
July 31 October 31
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
A non-interest bearing note due September 1, 1997. The note is convertible into
common shares of the Company at a rate of $1.00 per share during the term of the note. $ 128,993 $ 136,220
A note due October 31, 1997. The note is convertible into common shares of the
Company at a rate of $1.30 per share. - 2,600,000
---------------- ---------------
$ 128,993 $ 2,736,220
================ ===============
</TABLE>
The non-interest bearing convertible note payable may be converted to
common shares of the Company at a conversion rate of $1.00 per share
during the term of the note. The note is due September 1, 1997.
10. Share Capital
a) Authorized
Unlimited common shares without par value
b) Issued
<TABLE>
<CAPTION>
Number Issue Net
Of Shares Price Proceeds
--------- ----- --------
<S> <C> <C> <C>
Balance, July 31, 1995 11,450,000 $ 175,383
Private placement for cash 3,000,000 $0.14 416,014
Exercise of options 600,000 $0.07 to $0.28 101,889
Conversion of notes payable 872,000 $0.18 160,374
Special Warrants (Note 10c) 1,071,658
---------- -------------- ---------------
Balance, July 31, 1996 15,922,000 $ 1,925,318
Exercise of options 325,000 $0.28 to $0.74 195,001
Acquisition of subsidiary 2,389,536 $1.01 2,409,704
R&D Tax Credits (Note 10d) 21,763
Special Warrants (Note 10c) 961,493
---------- -------------- ---------------
Balance, October 31, 1996 (Unaudited) 18,636,536 $ 5,513,279
========== ===============
</TABLE>
F-11
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
10. Share Capital (...Continued)
c) Special Warrants
On February 28, 1996 the Company issued 1,700,000 Special Warrants at
a price of $0.74 for gross proceeds of $1,250,690. The Special
Warrants provide for the following:
Conversion of each Special Warrant to one and one-tenth Units.
Each Unit consists of one common share and one share purchase
warrant. The Special Warrants are convertible at no additional
cost to the holder at the earlier of (i) five business days
after the issuance of receipt of a final prospectus from the
Securities Commissions in both Alberta and British Columbia or
(ii ) February 28, 1997.
Each share purchase warrant represents the right to purchase one
common share at a price of $0.93 to February 28, 1997 and
thereafter at a price of $1.10 until expiry on February 28,
1998.
Finders fees totalling $71,371 were paid in connection with the
issue, of which $47,821 was paid in cash and $23,910 by issue of
Special Warrants at a deemed price of $0.74.
On September 23, 1996, the Company closed the first tranche of the
September Special Warrant offering, as described in Note 16b, by
issuing 844,000 September Special Warrants for gross proceeds of
$1,055,000.
d) Research and Development Tax Credits
An additional 112,800 shares were reserved for issuance at a price of
$0.19, in connection with the purchase of T.H. Moore Audiology
Consultants Ltd. These shares were issued upon receipt of the
Scientific and Research Development Tax Credits applied for by T.H.
Moore Audiology Consultants Ltd. subsequent to the period end.
e) Options
Stock options exercisable at prices representing fair market value at
the time the options were granted are as follows:
<TABLE>
<CAPTION>
Number Of Exercise Expiry
Shares Price Date
<S> <C> <C> <C>
Balance, July 31, 1995 450,000 $0.07 to $0.28 November 21, 1998
to March 29, 2000
Granted in the period 1,050,000 $0.28 December 19, 2000
350,000 $0.74 February 14, 2001
400,000 $2.02 April 1, 2001
50,000 $2.10 April 29, 2001
Exercised in the period (600,000) $0.07 to $0.28
-----------
Balance, July 31, 1996 1,700,000
Granted in the period 325,000 $1.54 August 22, 2001
600,000 $1.30 October 7, 2001
Exercised in the period (325,000) $0.28 and $0.74
-----------
Balance, October 31, 1996 (Unaudited) 2,300,000
===========
</TABLE>
f) Escrow Shares
A total of 5,250,000 issued shares were held in escrow at October 31,
1996. The release of 1,000,000 shares is subject to time provisions
and will be released on October 7, 1997. The release of the remaining
4,250,000 shares is subject to performance provisions.
F-12
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
11. Foreign Currency Translation
These financial statements have been translated to U.S. dollars from the
Company's functional currency, the Canadian dollar, using the current rate
method.
12. Earnings (Loss) Per Share
<TABLE>
<CAPTION>
Three Month Period Ended
Year Ended July 31 October 31
----------------------------------------------------------------------------
1996 1995 1996 1995
-------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings (loss) per share $ (0.04) $ (0.01) $ (0.02) $ (0.00)
============== ============== =============== ==============
Weighted average number of
shares outstanding during the period 14,210,765 10,102,740 16,937,225 11,450,000
============== ============== =============== ==============
</TABLE>
13. Related Party Transactions
A total of $7,725 of management fees were paid or payable to a company
controlled by a director and shareholder of the Company during the year
ended July 31, 1996.
14. Income Taxes
Components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
July 31 October 31
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Deferred tax assets $ 463,000 $ 463,000
Deferred tax liabilities 148,000 148,000
---------------- ---------------
315,000 315,000
Valuation allowance 315,000 315,000
---------------- ---------------
$ - $ -
================ ===============
</TABLE>
15. Commitments
The Company has entered into long term leases for premises which require
approximate minimum payments during the next five years as follows:
(Unaudited)
1997 $ 170,360
1998 157,605
1999 136,973
2000 59,426
2001 31,722
F-13
<PAGE>
HEALTHCARE CAPITAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated In U.S. Dollars)
16. Subsequent Events
a) Business Acquisitions
FHC, Inc. doing business as "Family Hearing Centers"
On December 17, 1996, HealthCare Hearing Clinics, Inc. acquired all the
outstanding shares of FHC, Inc., a New Mexico corporation. FHC, Inc.
operates one clinic in Albuquerque, New Mexico. Consideration for this
acquisition was $250,000 in cash paid on closing and three year promissory
notes for $150,000 bearing interest at 9% per annum.
Hearing Dynamics, Inc.
On December 6, 1996, HealthCare Hearing Clinics, Inc. merged with Hearing
Dynamic, Inc. ("HDI") a California corporation. The merger of HDI into
Hearing Clinics, Inc. was consummated as a tax-free merger whereby shares
of the Company were exchanged for all the issued and outstanding shares of
HDI. HDI operates 3 hearing clinics in the San Diego, California area.
Consideration for this acquisition was $102,600 in cash paid on closing
and 408,000 common shares of the Company.
The purchase price of all acquisitions are subject to adjustment should
the actual amount of net current assets acquired as of the closing date
vary from the agreed amounts.
b) Share Capital
The Company entered into an Agency Agreement on August 22, 1996 to offer
for sale on a best efforts basis 4,800,000 September Special Warrants at a
price of $1.25 per September Special Warrant. Each September Special
Warrant will entitle the holder to acquire upon exercise one common share
and one September Warrant. Each September Warrant is exercisable for one
common share at a price of $2.00 until August 31, 1998, subject to the
right of the Company, upon satisfaction of certain conditions, to force
early exercise or cancellation.
Costs of the issue payable to the agents under the Agency Agreement
include a $36,855 corporate finance fee, a syndication fee equal to 1% of
the proceeds raised payable in cash or September Special Warrants and a
commission equal to 9% of the subscriptions proceeds actually raised.
In addition, the agents will receive a special option entitling them to
acquire purchase warrants equal to 10% of the number of September Special
Warrants sold, each of which will be exercisable for one common share of
the Company at a price of $1.25 until August 31, 1998, subject to certain
rights of the Company to force early exercise or cancellation.
17. Comparative Figures
Certain of the prior year's comparative figures have been reclassified to
conform with the presentation adopted for the current period.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
HealthCare Capital Corp.:
We have audited the accompanying balance sheet of Hearing Care Associates Group
as of July 31, 1996, and the related statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the two years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hearing Care Associates Group
as of July 31, 1996, and the results of its operations and its cash flows for
each of the years in the two year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
February 14, 1997
F-15
<PAGE>
HEARING CARE ASSOCIATES GROUP
Balance Sheet
July 31, 1996
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 243,167
Trade accounts receivable, net of allowance for doubtful
accounts of $22,130 711,028
Related party receivable 97,372
Prepaid expenses and other current assets 22,013
----------
Total current assets 1,073,580
Equipment and fixtures, net 209,717
Intangible assets, at cost, less accumulated amortization 163,387
Deferred taxes 20,600
Other assets, net 9,678
----------
Total assets $ 1,476,962
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 575,362
Notes payable 106,438
Related party payable 437,512
Accrued payroll and related costs 141,175
Other accrued expenses and current liabilities 261,719
---------
Total current liabilities 1,522,206
Stockholders' equity (deficit):
Common stock; authorized 24,000 shares;
issued and outstanding 2,600 shares 70,000
Accumulated deficit (115,244)
----------
Total stockholders' deficit (45,244)
----------
$ 1,476,962
==========
See accompanying notes to financial statements.
</TABLE>
F-16
<PAGE>
HEARING CARE ASSOCIATES GROUP
Statements of Operations
Years ended July 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Sales, net $ 4,153,171 3,253,741
Cost of sales 1,490,534 739,371
---------- ----------
Gross profit 2,662,637 2,514,370
---------- ----------
Expenses:
Selling expenses 2,949,340 2,147,185
General and administrative expenses 223,783 72,003
---------- ----------
3,173,123 2,219,188
---------- ----------
(Loss) income from operations (510,486) 295,182
Other income (expense) net 11,727 (9,817)
---------- ----------
(Loss) income before income taxes (498,759) 285,365
---------- ----------
Income tax (benefit) expense (22,900) 108,883
---------- ----------
Net (loss) income $ (475,859) 176,482
========== ==========
See accompanying notes to financial statements.
</TABLE>
F-17
<PAGE>
HEARING CARE ASSOCIATES GROUP
Statements of Stockholders' Equity (Deficit)
Years ended July 31, 1996 and 1995
<TABLE>
<CAPTION>
Total
stockholders'
Common Stock Accumulated equity
Shares Par Value Deficit (Deficit)
------ --------- ------- ---------
<S> <C> <C> <C> <C>
Balances at July 31, 1994 2,600 $ 70,000 184,133 254,133
Net income - - 176,482 176,482
------- ------- -------- --------
Balances at July 31, 1995 2,600 70,000 360,615 430,615
Net loss - - (475,859) (475,859)
------- ------- ------- -------
Balances at July 31, 1996 2,600 $ 70,000 (115,244) (45,244)
======= ======= ======= ========
See accompanying notes to financial statements.
</TABLE>
F-18
<PAGE>
HEARING CARE ASSOCIATES GROUP
Statements of Cash Flows
Years ended July 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (475,859) 176,482
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operations:
Depreciation and amortization 68,091 61,422
Deferred income taxes 54,000 (34,178)
Changes in current assets and liabilities:
Increase in accounts receivable (147,794) (358,299)
Decrease (increase) notes receivable - related party 57,067 (20,131)
(Increase) decrease in prepaid
expenses and other current assets (37,548) 13,568
Increase in accounts payable 173,483 56,197
Increase in accrued expenses and
other current liabilities 223,671 71,144
-------- --------
Net cash used in operating activities (84,889) (33,795)
------- --------
Cash flows from investing activities:
Purchases of equipment and fixtures (66,597) (17,313)
Acquisition of intangible assets (17,493) (3,245)
-------- --------
Net cash used in investing activities (84,090) (20,558)
-------- --------
Cash flows from financing activities:
Net proceeds from related parties 248,578 255,095
Repayments on notes payable (85,176) (71,800)
-------- --------
Net cash provided by financing activities 163,402 183,295
-------- --------
Net increase (decrease) in cash and
cash equivalents (5,577) 128,942
Cash and cash equivalents at beginning of year 248,744 119,802
-------- --------
Cash and cash equivalents at end of year $ 243,167 248,744
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 21,104 13,349
======== ========
Income taxes paid $ 0 143,061
======== ========
See accompanying notes to financial statements.
</TABLE>
F-19
<PAGE>
HEARING CARE ASSOCIATES GROUP
Notes to Financial Statements
July 31, 1996
(1) ORGANIZATION AND OPERATIONS
Hearing Care Associates Group (the "Company") consists of Hearing Care
Associates - Northridge, Inc., Hearing Care Associates - Glendale, Inc., and
Hearing Care Associates - Glendora, Inc., and provides hearing
rehabilitation services through a network of clinics located in the Los
Angeles, California, metropolitan area. Each entity is a California
corporation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and short-term investments with original maturities of 90
days or less.
(b) NET REVENUES
Revenues from the sale of hearing aid products are recognized at the time
of delivery. Revenues from the provision of hearing care diagnostic
services are recognized at the time that such services are performed.
(c) EQUIPMENT AND FIXTURES
Equipment and fixtures are stated at cost less accumulated depreciation
and amortization. Additions and betterments are capitalized, and
maintenance and repairs are charged to current operations as incurred. The
cost of assets retired or otherwise disposed of and the related
accumulated depreciation and amortization are removed from the accounts,
and the gain or loss on such dispositions is reflected in current
operations. Amortization of leasehold improvements is provided on an
accelerated basis over the term of the lease or estimated useful lives of
the assets, whichever is less. Depreciation is provided on an accelerated
basis. Estimated useful lives of the assets are:
Professional equipment 7 - 10 years
Furniture and fixtures 7 - 10 years
Office equipment 5 - 7 years
Leasehold improvements 7 years
(d) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(Continued)
F-20
<PAGE>
HEARING CARE ASSOCIATES GROUP
Notes to Financial Statements
(e) INTANGIBLE ASSETS
Intangible assets consist of non-compete agreements, purchased patient
listings and goodwill (the cost in excess of net assets acquired in a
purchase tranasaction). Goodwill and patient listings are being amortized
on a straight-line basis over 15 years. Non-compete agreements are
amortized on a straight-line basis over the life of the contract.
(f) CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and trade
receivables. The Company places its cash with high credit quality
institutions. At times such amounts may be in excess of the FDIC insurance
limits. The Company's trade accounts receivable are derived from numerous
private payors, insurance carriers, health maintenance organizations and
government agencies. Concentration of credit risk relating to trade
accounts receivable is limited due to the diversity and number of patients
and payors.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, notes receivable, trade payables and notes
payable, approximate their fair value.
(h) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(3) EQUIPMENT AND FIXTURES
Equipment and fixtures consist of the following at July 31, 1996:
Professional equipment $ 254,431
Office equipment 193,736
Furniture and fixtures 143,921
Leasehold improvements 76,627
----------
668,715
Less accumulated depreciation 458,998
----------
$ 209,717
==========
Depreciation expense for fiscal 1996 and 1995 was $57,172 and $49,236,
respectively.
(Continued)
F-21
<PAGE>
HEARING CARE ASSOCIATES GROUP
Notes to Financial Statements
(4) NOTES PAYABLE
Equipment loans payable to supplier.
The loans are due April 15, 1998, and
require total monthly installments of
$2,000, including interest calculated
at the rate of 9 percent per annum. $ 106,438
==========
(5) INCOME TAXES
The components of the 1996 and 1995 provision (benefit) for income taxes are
as follows:
Year ended
July 31
-----------------------
1996 1995
-------- --------
Current:
Federal $(76,900) $120,449
State 0 22,612
-------- --------
(76,900) 143,061
-------- --------
Deferred:
Federal 45,465 (28,776)
State 8,535 (5,402)
-------- --------
54,000 (34,178)
-------- --------
Total $(22,900) $108,883
======== ========
At July 31, 1995, the difference between the total income tax expense and
the income tax expense computed using the statutory federal income tax rate
was due primarily to state tax expense, net of federal tax benefit. At July
31, 1996, the difference between the total income tax benefit and the income
tax benefit computed using the statutory federal income tax rate was due
primarily to state tax benefit, net of federal effect, as well as an
increase in the valuation allowance.
The net deferred tax asset of $20,600 at July 31, 1996, consists primarily
of net operating loss carryovers and differences resulting from using the
cash method of accounting for income tax purposes. No valuation allowance
was deemed necessary at July 31, 1995. An increase in the valuation
allowance during the year resulted in a valuation allowance at July 31, 1996
of approximately $156,000.
At July 31, 1996, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $274,000.
(Continued)
F-22
<PAGE>
HEARING CARE ASSOCIATES GROUP
Notes to Financial Statements
(6) OPERATING LEASES
The Company leases offices and equipment under noncancelable operating
leases which require future minimum annual rentals as follows:
Year ending July 31:
1997 $ 241,139
1998 207,000
1999 208,908
2000 212,731
2001 216,665
Thereafter 376,956
----------
$1,463,399
==========
Certain of the leases contain renewal options and escalation clauses which
require payments of additional rent to the extent of increases in related
operating costs. Rent expense for fiscal 1996 and 1995 was $208,868 and
$236,293, respectively.
(7) RELATED PARTY TRANSACTIONS
The Company receives advances to fund operations from stockholders who are
also employees and officers of the Company. The balance due to these
stockholders is $437,512 at July 31, 1996. Employees who are stockholders
have also received periodic advances from the Company. The total amount due
to the Company from these employees is $97,372 at July 31, 1996, all of
which is due within the next fiscal year.
(8) SUBSEQUENT EVENT
As of October 1, 1996, the Company was acquired by HealthCare Hearing
Clinics, Inc., a Washington corporation and a wholly-owned subsidiary of
HealthCare Capital Corp., a corporation organized under the laws of the
province of Alberta, Canada.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
HealthCare Capital Corp.:
We have audited the accompanying balance sheet of the Midwest Division of
Hearing Health Services, Inc. dba Sonus as of June 30, 1996, and the related
statements of operations and accumulated earnings and cash flows for each of the
years in the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Midwest Division of Hearing
Health Services, Inc. dba Sonus as of June 30, 1996, and the results of its
operations and cash flows for each of the years in the two year period then
ended in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
January 16, 1997
F-24
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Balance Sheets
June 30, 1996
<TABLE>
<CAPTION>
June 30, October 31,
ASSETS 1996 1996
------ ---- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 139,396 108,240
Trade accounts receivable, net of allowance
for doubtful accounts of $57,297 313,614 301,567
Accounts receivable - other 965 512
Inventory 62,619 43,161
Prepaid expenses and other current assets 11,049 35,808
-------- --------
Total current assets 527,643 489,288
Equipment and fixtures, net 389,523 364,879
Deferred taxes 39,179 39,179
Other assets, net 25,628 24,212
-------- --------
454,330 428,270
-------- --------
Total assets $ 981,973 917,558
======== ========
LIABILITIES AND RETAINED EARNINGS
Current liabilities:
Accounts payable 221,399 224,238
Accrued payroll and related costs 127,164 101,433
Patient deposits 23,927 36,330
Other accrued expenses 23,538 27,937
Capital lease obligations 8,875 1,775
-------- --------
Total current liabilities 404,903 391,713
Related party payable 277,923 279,126
-------- --------
Total liabilities 682,826 670,839
-------- --------
Retained earnings 299,147 246,719
-------- --------
Total liabilities and retained earnings $ 981,973 917,558
======== ========
See accompanying notes to financial statements.
</TABLE>
F-25
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Statements of Operations and Accumulated Earnings
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Years ended Four months ended
June 30 October 31
------- ----------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Sales, net $ 3,462,657 3,342,369 1,105,839 1,314,008
Cost of sales 1,018,371 1,119,018 370,323 378,919
---------- ---------- ---------- ----------
Gross profit 2,444,286 2,223,351 735,516 935,089
---------- ---------- ---------- ----------
Expenses:
Selling expenses 1,981,736 1,827,201 709,106 687,539
General and administrative expenses 340,610 269,390 110,122 102,902
---------- ---------- ---------- ----------
2,322,346 2,096,591 819,228 790,441
---------- ---------- ---------- ----------
Income (loss) from operations 121,940 126,760 (83,712) 144,648
---------- ---------- ---------- ----------
Interest income 1,593 - 485 -
---------- ---------- ---------- ---------
1,593 - 485 -
---------- ---------- ---------- ---------
Net income (loss) before
income taxes 123,533 126,760 (83,227) 144,648
---------- ---------- ---------- ----------
Income tax expense (benefit) 47,687 41,024 (30,799) 57,298
---------- ---------- ---------- ----------
Net income (loss) 75,846 85,736 (52,428) 87,350
Accumulated earnings, beginning of period 223,301 137,565 299,147 223,301
---------- ---------- ---------- ----------
Accumulated earnings, end of period $ 299,147 223,301 246,719 310,651
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
F-26
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Years ended Four months ended
June 30 October 31
------- ----------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $ 75,846 85,736 (52,428) 87,350
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation 108,430 90,677 41,200 16,218
Deferred taxes (13,471) 7,226 - -
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (18,170) (199,543) 12,047 53,717
Decrease (increase) in inventory 49,179 (9,676) 19,458 46,672
Decrease (increase) in prepaids and other assets 11,302 (27,126) (22,890) 1,144
(Decrease) increase in accounts payable (80,598) 94,897 2,839 (117,433)
Increase (decrease) in accrued liabilities 15,918 (2,906) (25,731) (3,536)
(Decrease) increase in patient deposits (20,926) 18,439 12,403 8,897
(Decrease) increase in other liabilities (1,037) 58,974 (26,400) 43,115
-------- -------- --------- --------
Net cash provided by (used in)
operating activities 126,473 116,698 (39,502) 136,144
-------- -------- --------- --------
Cash flows from investing activities:
Purchases of equipment and fixtures (103,853) (202,904) (16,556) (41,243)
------- ------- --------- --------
Net cash used in investing activities (103,853) (202,904) (16,556) (41,243)
------- ------- --------- --------
Cash flows from financing activities:
Net payments on capital leases (24,556) - (7,100) (10,356)
Net (repayments to) proceeds from related parties (6,188) 180,497 32,002 (19,799)
-------- -------- --------- --------
Net cash (used in) provided by
financing activities (30,744) 180,497 24,902 (30,155)
-------- -------- --------- --------
Net (decrease) increase in cash and cash equivalents (8,124) 94,291 (31,156) 64,746
Cash and cash equivalents at beginning of period 147,520 53,229 139,396 147,520
-------- -------- --------- --------
Cash and cash equivalents at end of period $ 139,396 147,520 108,240 212,266
======== ======== ========= ========
Supplemental disclosures of cash flow information:
Interest paid $ 4,068 14,437 820 1,025
======== ======== ========= ========
Income taxes paid $ 61,158 33,798 0 57,298
Schedule of non cash investing and financing activities:
Capital lease obligation $ - 33,431 - -
======== ======== ========= ========
See accompanying notes to financial statements.
</TABLE>
F-27
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Notes to Financial Statements
June 30, 1996
(1) ORGANIZATION AND OPERATIONS
The Midwest Division of Hearing Health Services, Inc. dba Sonus (the
Company) consists of the Michigan and Illinois operations of Hearing Health
Services, Inc., which was organized under the laws of the State of Delaware
on February 19, 1991 for the purpose of providing diagnostic, rehabilitation
and preventative hearing health care products and services to patients.
Certain investment partnerships managed by Foster Management, a related
party and major stockholder, own a controlling interest in the Company.
Prior to July 11, 1991, the Company was organized under the laws of the
State of Michigan doing business as Audio Vestibular Testing Centers, Inc.,
and in the state of Illinois doing business as Integrated Health Services,
Inc. The Company's activities were limited to certain organizational
activities. The Company presently conducts the majority of its operations in
the states of Michigan and Illinois.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on-hand and short-term investments with original maturities of 90
days or less.
(b) NET REVENUES
Revenues from the sale of hearing aid products are recognized at the
time of delivery. Revenues from the provision of hearing care diagnostic
services are recognized at the time that such services are performed.
(c) INVENTORY
Inventory is stated at the lower of cost, determined on the first-in,
first-out method, or market value. Inventory consists of hearing aids
and batteries, which have been purchased from vendors for resale to
customers.
(Continued)
F-28
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Notes to Financial Statements
(d) EQUIPMENT AND FIXTURES
Equipment and fixtures are stated at cost less accumulated depreciation
and amortization. Additions and betterments are capitalized, and
maintenance and repairs are charged to current operations as incurred.
The cost of assets retired or otherwise disposed of and the related
accumulated depreciation and amortization are removed from the accounts,
and the gain or loss on such dispositions is reflected in current
operations. Amortization of leasehold improvements is provided on the
straight-line method over the term of the lease or estimated useful
lives of the assets, whichever is less. Depreciation is provided on the
straight-line method. Estimated useful lives of the assets are:
Professional equipment 7 years
Furniture and fixtures 5 years
Office equipment 5 years
Leasehold improvements 1 - 5 years
(e) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(f) CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and trade
receivables. The Company places its cash with high credit quality
financial institutions. At times such amounts may be in excess of the
FDIC insurance limits. The Company's trade accounts receivable are
derived from numerous private payors, insurance carriers, health
maintenance organizations and government agencies. Concentration of
credit risk relating to trade accounts receivable is limited due to the
diversity and number of patients and payors.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, notes payable and trade payables,
approximate their fair value.
(h) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(Continued)
F-29
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Notes to Financial Statements
(3) EQUIPMENT AND FIXTURES
Equipment and fixtures consist of the following at June 30, 1996:
Professional equipment $ 329,453
Office equipment 194,327
Furniture and fixtures 74,445
Leasehold improvements 64,480
----------
662,705
Less accumulated depreciation and amortization (273,182)
----------
$ 389,523
==========
Property and equipment at June 30, 1996 includes assets acquired under
capital leases of $23,402, net of accumulated depreciation of $10,029.
Depreciation expense for fiscal years 1996 and 1995 was $108,430 and
$90,677, respectively.
(4) INCOME TAXES
The Company is a division of, and its operations are included in the tax
return for, Hearing Health Services, Inc. Income taxes on the accompanying
financial statements are provided on a stand-alone basis as if the Company
filed its own tax return.
The components of the 1996 and 1995 provision (benefit) for income taxes are
as follows:
Year
Ended
June 30,
--------
1996 1995
---- ----
Current:
Federal $51,492 $28,456
State 9,666 5,342
------- -------
61,158 33,798
------- -------
Deferred:
Federal (11,342) 6,083
State (2,129) 1,143
------- -------
(13,471) 7,226
------- -------
Total $47,687 $41,024
======= =======
The difference between the total income tax expense and the income tax
expense computed using the statutory federal income tax rate for years ended
June 30, 1996 and 1995 is as follows:
Computed tax expense at
statutory rate 34.0% 34.0%
State tax expense, net of
federal taxes 4.0% 2.1%
Nondeductible expenses 0.6% 4.2%
----- -----
Total 38.6% 40.3%
===== =====
The deferred income tax asset of $39,179 at June 30, 1996 relates primarily
to certain reserves not currently deductible for tax purposes. No valuation
allowance was deemed necessary and there was no change in the valuation
allowance from the prior year. It is more likely than not that the entire
amount of the deferred tax asset will be realized due to the taxable income
from the carryback availability in prior years.
(Continued)
F-30
<PAGE>
THE MIDWEST DIVISION OF HEARING
HEALTH SERVICES, INC. dba SONUS
Notes to Financial Statements
(5) LEASES
(a) OPERATING LEASES
The Company leases office and equipment under noncancellable operating
leases which require future minimum annual rentals as follows:
Year ending June 30
1997 $ 171,811
1998 152,483
1999 101,023
2000 54,387
2001 50,156
Thereafter 89,090
--------
$ 618,950
==========
Certain of the leases contain renewal options and escalation clauses
which require payments of additional rent to the extent of increases in
related operating costs. Rent expense for fiscal 1996 and 1995 was
$195,369 and $194,821, respectively.
(b) CAPITAL LEASES
The Company leases certain professional equipment under capital leases
expiring through 1996. Future minimum lease payments related to capital
leases at June 30, 1996 are as follows:
Total minimum lease payments
(payable in fiscal year 1997) $ 9,900
Amounts representing interest 1,025
------
Present value of net minimum lease payments $ 8,875
======
(6) RELATED PARTY TRANSACTIONS
The Company receives advances to fund operations from related partnerships
managed by Foster Management. The balance due from the Company to these
partnerships is $277,923 at June 30, 1996.
The balance of the related party payable was not assumed by HealthCare
Hearing Clinics, Inc., in its acquisition of the Company subsequent to
year-end (see note 8). Therefore, the related party payable balance is
reflected as a non-current liability on the accompanying financial
statements.
The Company also leases corporate office space from a related party under an
agreement which expires in February, 2003. Rent expense recorded for fiscal
1996 was $12,528.
(7) DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan that provides eligible
employees (employees that have been employed for 12 months from their date
of hire) the opportunity to accumulate funds for their retirement. The plan
does not require Company contributions, nor have any contributions been made
by the Company for the years ended June 30, 1996 and 1995.
(8) SUBSEQUENT EVENT
As of October 31, 1996, the Company was acquired by HealthCare Hearing
Clinics, Inc., a Washington corporation and a wholly-owned subsidiary of
HealthCare Capital Corp., a corporation organized under the laws of the
Province of Alberta, Canada.
F-31
<PAGE>
Part II - Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers
Part 8 of the Registrant's bylaws requires the Registrant to indemnify,
to the extent permitted by the Business Corporations Act (Alberta) (the "Act"),
directors and officers, former directors and officers, and any person who acts
or acted at the Registrant's request as a director or officer of a body
corporate of which the Registrant is or was a shareholder or a creditor, and his
heirs and legal representatives, from and against:
(a) all costs, charges, and expenses, including any amount to
settle an action or satisfy a judgment reasonably incurred by him in
respect of any civil, criminal, or administrative action or proceeding
to which he is made a party by reason of being or having been a
director or officer of the Registrant; and
(b) all other costs, charges, and expenses incurred in connection
with the defense of any civil, criminal, or administrative action or
proceeding to which he is made a party by reason of being or having
been a director or officer of the Registrant.
The effect of this provision of the Registrant's bylaws when considered
in light of Part 9, Section 119 of the Act is to grant a right of
indemnification to the above referenced individuals against all expenses
(including attorney fees and settlement costs) reasonably incurred in each of
the following circumstances:
(a) the individual (i) acted honestly and in good faith with a
view to the best interests of the Registrant and (ii) in the case of a
criminal or administrative action or proceeding that is enforced by a
monetary penalty, had reasonable grounds to believe that his conduct
was lawful;
(b) the individual was substantially successful on the merits on
his defense of the action or proceeding and acted honestly and in good
faith with a view to the best interests of the Registrant, and in the
case of a criminal or administrative action, had reasonable grounds for
believing his conduct was lawful; and
(c) in the case of an action on behalf of the Registrant to
procure a judgment in its favor, to which the individual is made a
party by reason of being or having been a director or officer of the
Registrant, the individual acted honestly and in good faith with a view
to the best interests of the Registrant, and the court approves such
indemnification.
The Act also permits the Registrant to purchase and maintain insurance
for the protection of (i) its directors and officers and (ii) any director or
officer of another body corporate acting at the request of the Registrant,
against liabilities incurred in such person's capacity as a director or officer
of the Registrant or of such other body corporate, except when such liability
relates to such person's failure to act honestly and in good faith with a view
to the best interests of the Registrant or such other body corporate.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemized statement of expenses of the
Registrant in connection with the sale of the Common Stock being registered
hereby. All of the expenses are estimated, except for the SEC registration fee.
II-1
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
Statement of Expenses of Registrant
=======================================================================================================================
<S> <C>
SEC registration fee $13,117
- -----------------------------------------------------------------------------------------------------------------------
Printing and engraving expenses 10,000*
- -----------------------------------------------------------------------------------------------------------------------
Legal fees and expenses 90,000*
- -----------------------------------------------------------------------------------------------------------------------
Auditors' fees and expenses 120,000*
- -----------------------------------------------------------------------------------------------------------------------
Transfer Agent and Registrar fees 5,000*
- -----------------------------------------------------------------------------------------------------------------------
Miscellaneous expenses 11,883*
- -----------------------------------------------------------------------------------------------------------------------
Total $250,000
=======================================================================================================================
</TABLE>
* Estimated
Item 26. Recent Sales of Unregistered Securities
Within the last three years the Registrant has sold securities without
registration under the Securities Act of 1933 (the "1933 Act") in the
transactions and in reliance on the exemptions described below.
Special Warrants
During 1996, the Registrant undertook two separate offerings of Special
Warrants. The first warrant offering was a private placement in Canada and the
U.S. of 1,700,000 special warrants (the "February Special Warrants") that closed
in February 1996. The aggregate offering price for the February Special Warrants
was Cdn $1,700,000. Each February Special Warrant entitled the holder to acquire
1.1 shares of the Registrant's Common Stock and a share purchase warrant to
purchase 1.1 additional shares of the Registrant's Common Stock. The number of
February Special Warrants issued to U.S. holders totaled 400,000 and were sold
to one individual and three entities as set forth below. The private placement
to U.S. investors of February Special Warrants was made in reliance on the
exemption from registration contained in Section 4(2) of the 1933 Act. The
issuance of shares and purchase warrants upon the exercise or deemed exercise of
the February Special Warrants occurred on February 28, 1997.
The February Special Warrants were issued with the assistance of Wood
Gundy, Inc. ("Wood Gundy"). In consideration for its services, Wood Gundy was
granted 32,500 February Special Warrants at a deemed issue price of Cdn$1.00 per
February Special Warrant and also received $65,000 in cash.
The purchasers of the February Special Warrants were as follows:
Purchaser Number of
Special
Warrants
--------
Sagit Investment Management Ltd. 1,300,000
A. Baron Cass III 121,666
Sands Partnership No. I Money Purchase Pension Plan 121,667
The Curran Companies, Inc. 121,667
Aspen Limited Partnership 35,000
---------
1,700,000
=========
II-2
<PAGE>
The second warrant offering related to a private placement in Canada of
810,000 special warrants consummated in September 1996 and a private placement
in the U.S. of 4,149,000 special warrants consummated in December 1996. Such
special warrants are collectively referred to herein as the "September Special
Warrants." The aggregate offering price for the September Special Warrants was
U.S.$1,012,500 for those sold in Canada and $5,186,250 for those sold in the
United States. Each of the September Special Warrants placed in the United
States entitles the holder to acquire one share of the Registrant's Common Stock
and one share purchase warrant to purchase one additional share of the
Registrant's Common Stock for U.S.$2.00 per share exercisable for one share of
the Registrant's Common Stock and a share purchase warrant to purchase an
additional share. Each of the September Special Warrants placed in Canada
entitles the holder to acquire 1.1 shares of the Registrant's Common Stock and a
share purchase warrant to purchase 1.1 additional shares of the Registrant's
Common Stock for U.S.$2.00 per share exercisable for one share of the
Registrant's Common Stock and a share purchase warrant to purchase an additional
share. The September Special Warrants issued to U.S. holders were sold through
two placement agents to the individuals and entities set forth below. The
private placement to U.S. investors of September Special Warrants was made in
reliance on Rule 506 of Regulation D under the 1933 Act.
C.M. Oliver & Company Limited (the "Canadian Agent") acted as agent for
the Registrant in connection with the offering of the September Special Warrants
in Canada. The Canadian Agent received 34,000 September Special Warrants
exercisable for one share of the Registrant's Common Stock and a share purchase
warrant to purchase an additional share for U.S.$2.00 per share in partial
payment of its selling commission and was granted an option to acquire 81,000
share purchase warrants (the "Agent's Option"), each exercisable for one share
of Common Stock at a price of US$1.25 per share. The warrants are subject to
certain rights of the Registrant to force exercise or cancellation of the
Agent's Option.
Sunrise Securities Corporation ("Sunrise") and Dallas Research &
Trading, Inc. ("Dallas Research"), served as placement agents in connection with
the placement of the September Special Warrants in the United States. Sunrise
and Dallas Research each received a selling commission equal to 9 percent of the
gross proceeds in the form of September Special Warrants, or a total of 373,410
September Special Warrants. Dallas Research also received 20,000 September
Special Warrants in payment of its corporate finance fee. Such September Special
Warrants are exercisable for one share of Common Stock and a share purchase
warrant to purchase one additional share of Common Stock for $2.00 per share. In
addition, Sunrise and Dallas Research received an option to acquire 214,900 and
200,000 share purchase warrants, respectively, with each warrant exercisable for
one share of Common Stock at a price of $1.25 per share. The warrants are
subject to certain rights of the Registrant to force the exercise or
cancellation of the warrants.
The purchasers of the September Special Warrants were as follows:
United States
Purchaser Number of Special
Warrants Issued
---------------
Baron & Darlene Cass "Family Foundation" 20,000
A. Baron Cass III "Childrens Trust" 80,000
A. Baron Cass III 300,000
William J. Reik III 40,000
Philip H. Mabry 20,000
Marcus R. Mutz 40,000
James T. Mathis 5,000
II-3
<PAGE>
Barton J. Cohen 80,000
Barton J. Cohen "Family Foundation" 20,000
The Curran Companies, Inc. 100,000
Michael D. & Lisbeth H. Bickford 40,000
Gary B. Downey 8,000
Howard Kaplan 40,000
Leonard M. Riggs Jr., M.D. 66,667
Peggy A. Riggs 33,333
John L. Strauss 400,000
Howard E. Rachofsky 400,000
John C. Stinson 25,000
Alan R. Kanuk 36,000
Paul Lappetito 10,000
William Collins 75,000
Mark W. Hill 50,000
Hill A. Feinberg 20,000
Alfa Life Insurance Co. 200,000
Alfa Mutual Insurance Co. 300,000
Alfa Mutual Fire Insurance Co. 300,000
John W. Holley Grantor Trust 120,000
Barbara Wilson and John W. Holley 28,000
Barbara Holley Art V Trust 20,000
Barbara Holley Art VII Trust 48,000
Rainbow Trading Partners, Ltd. 80,000
Rainbow Trading Venture Partners, L.P. 88,000
Stanford C. Finney, Jr. 80,000
Jerome Gabbert 24,000
John Lemak 40,000
James P. Judge 40,000
Charles McKnight 8,000
Gail King 20,000
Netta Sue King McNight 8,000
II-4
<PAGE>
Netta Sue King Q-Tip Trust 20,000
Andrea P. Thau Profit Sharing Plan 8,000
Andrea Thau Money Purchase Plan 4,000
John R. Lieberman 4,000
Donald J. Aho 8,000
Marvin Kigler 4,000
Stephen Rutledge 5,000
Eli Jacobson 32,000
David Stone 80,000
State Capital Partners 40,000
Christine Ferrer 80,000
Theodore Friedman 40,000
Gross Foundation Inc. 200,000
Howard Milstein 80,000
Edward Milstein 80,000
Paul Scharfer 20,000
Joe Pretlow 20,000
Derek Caldwell 40,000
Aspen Limited Partnership 71,000
---------
4,149,000
=========
Canada
Purchaser Number of Special
Warrants Issued
Sharon Woodward 60,000
Tom Kay RRSP 60,000
Kathleen Margaret Kay 60,000
Sandy Pascuzzi 60,000
John B. Lansdell 60,000
Carl Vandenbrink 60,000
230666 Alberta Ltd. 60,000
Denise Nobert 60,000
Clint Stewart 60,000
II-5
<PAGE>
Fulton Park 90,000
Jim Bresett 60,000
523905 B.C. Ltd. 120,000
-------
810,000
=======
Private Placement in Canada
The Registrant issued 3,000,000 shares of Common Stock in a private
offering in Canada that was completed on December 14, 1995. The following
individuals and corporations received shares of Common Stock:
Number of
Shares of
Purchaser Common Stock
Douglas F. Good 160,000
Donald Risk 40,000
Marilyn E. Marshall 750,000
Carsam Investments 250,000
Chelsea Capital Corporation 300,000
Harris McLean Financial Group Ltd. 500,000
Pacific Growth Ventures Corp. 250,000
Figtree Investments Limited 750,000
---------
3,000,000
=========
Common Shares Issued in Acquisitions
On December 5, 1996, the Registrant issued 408,000 shares to Deborah
Law Cross in connection with the acquisition of Hearing Dynamics, Inc. In
connection with the acquisition of certain hearing care clinics on October 31,
1996, the Registrant issued promissory notes in the aggregate principal amount
of $2,600,000 to four affiliates of Hearing Health Services, Inc. The notes are
due October 31, 1997, and are convertible into shares of Common Stock at $1.30
principal amount per share. On October 1, 1996, the Registrant issued 1,217,268
shares of Common Stock to Gregory J. Frazer, 253,091 shares to Carissa Bennett,
and 919,177 shares to Jami Tanihana, to acquire certain hearing care clinics
located in Southern California. The Registrant relied on the exemption provided
by Section 4(2) of the 1933 Act with respect to the securities issued in the
above acquisitions.
On May 1, 1996, the Registrant issued a non-interest bearing promissory
note in the principal amount of Cdn$175,000 that is due September 1, 1997, to a
Canadian resident in connection with the acquisition of all of the issued and
outstanding shares of Pacific Hearing Clinics, Inc., and Oakridge Hearing
Clinics, Inc., which operated hearing care clinics in Vancouver, British
Columbia. The note is convertible into shares of Common Stock at Cdn$1.35 per
share. In January 1995, the Registrant issued convertible notes in aggregate
principal amount of $246,200 to three Canadian residents in connection with the
Registrant's acquisition of Thomas H. Moore Audiology Ltd. These notes were
converted in December 1995, July 1996, and November 1996 into 984,800 shares of
Common Stock at Cdn$.25 per share.
II-6
<PAGE>
On July 31, 1994, the Registrant issued 6,250,000 Common Shares to
Marilyn E. Marshall, Trudy McCaffery, and Douglas F. Good (the "Fraserview
Shareholders"), as part of the acquisition of Fraserview Hearing and Speech
Clinic Ltd. Each of the Fraserview Shareholders was a Canadian resident.
Employee Stock Options
In reliance on Rule 701 under the 1933 Act, the Registrant has granted
options for 3,475,000 shares of Common Stock to certain employees, officers, and
directors under the Registrant's Stock Option Plan ("1993 Plan"). The option
prices range from Cdn$.10 per share to Cdn$2.85 per share. In addition, the
Registrant has granted 607,000 options exercisable at prices ranging from $1.45
to $1.50 per share to eight United States employees pursuant to its Stock Award
Plan adopted in 1996 (the "1996 Plan") and has relied on Rule 701 to exempt
these option grants. The Registrant has issued a total of 1,575,000 shares of
Common Stock to employees, officers, and directors upon exercise of stock
options granted pursuant to the 1993 Plan. No shares of Common Stock have been
issued pursuant to the exercise of options granted under the 1996 Plan.
Item 27. Exhibits
The exhibits to this registration statement required by Item 601 of
Regulation S-B are listed in the accompanying index to exhibits.
Item 28. Undertakings
The Registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section
10(a)(3) of the 1933 Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the 1933 Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
II-7
<PAGE>
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue. The undertaking of the Registrant in the preceding
sentence does not apply to insurance against liability arising under the 1933
Act.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Portland, State of Oregon, on the 10th day of March,
1997.
HEALTHCARE CAPITAL CORP.
By /s/ Edwin J. Kawasaki
Edwin J. Kawasaki
Vice President, Finance
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 has been signed by the following persons in
the capacities indicated on March 10, 1997:
Signature Title
PRINCIPAL EXECUTIVE OFFICER:
BRANDON M. DAWSON* President and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Edwin J. Kawasaki Vice President, Finance
Edwin J. Kawasaki
A MAJORITY OF THE BOARD OF DIRECTORS:
HUGH T. HORNIBROOK* Director
GENE K. BALZER, Ph.D.* Director
WILLIAM DeJONG* Director
DOUGLAS F. GOOD* Director
GREGORY FRAZER, Ph.D.* Director
*By /s/ Edwin J. Kawasaki
Edwin J. Kawasaki
Attorney-in-fact
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
5 Opinion of Ballem MacInnes.
10.1 Form of agreement for purchase of February Special Warrants.
10.2 Special Warrant Indenture between the Registrant and The R-M Trust Company dated February 28,
1996.
10.3 Warrant Indenture between the Registrant and The R-M Trust Company dated February 28, 1996.
10.4 Form of agreement for purchase of September Special Warrants (British Columbia).
10.5 Form of agreement for purchase of September Special Warrants (United States).
10.6 Special Warrant Indenture between the Registrant and The R-M Trust Company dated September
17, 1996 ("September Special Warrant Indenture").
10.7 Supplemental Indenture to September Special Warrant Indenture.
10.8 Second Supplemental Indenture to September Special Warrant Indenture.
10.9 Warrant Indenture between the Registrant and the R-M Trust Company dated September 17, 1996.
("September Warrant Indenture").
10.10 Supplemental Indenture to September Warrant Indenture.
10.11 Sponsorship Agreement dated March 13, 1996.
10.12 Escrow Agreement dated January 14, 1994, between the Registrant, The R-M Trust Company,
Michael G. Thomson, Craig R. Thomson, Murray T.A. Campbell, William DeJong, and Bruce A.
Ramsay.
10.13 Escrow Agreement dated October 7, 1994, among the Registrant, The R-M Trust Company,
Marilyn E. Marshall, Douglas F. Good, and Trudy McCaffery.
10.14 Bill of Sale, Security Agreement and Promissory Note between HC HealthCare Hearing Clinics
Ltd. ("HC HealthCare") and Claude C. Fuller, R. Patrick Greenwood and Robert A. Hunter
carrying on business in a partnership under the trade name Langley Hearing Clinic dated effective
January 2, 1996.
II-10
<PAGE>
10.15 Share Purchase Agreement between HC HealthCare, the Registrant, and Neil C. Walton dated for
reference April 15, 1996, respecting the purchase by the Registrant and HC HealthCare of all of the
issued and outstanding shares of Pacific Hearing Clinic Inc. and Oakridge Hearing Clinic Inc.
10.16 Agency Agreement dated for reference August 22, 1996, between the Registrant and the C.M.
Oliver & Company Limited.
10.17 U.S. Placement Agreement dated for reference October 14, 1996, between the Registrant and
Dallas Research & Trading, Inc.
10.18 U.S. Placement Agreement dated for reference October 14, 1996, between the Registrant and
Sunrise Securities Corporation.
10.19 Stock Purchase and Sale Agreement dated as of February 28, 1997, between Gregory J. Frazer and
Laurie Van Duivenbode and HealthCare Hearing Clinics, Inc.
10.20 Merger Agreement dated as of October 1, 1996, among the Registrant, Hearing Care Associates-
Glendale, Inc., Hearing Care Associates-Glendora, Inc., and Hearing Care Associates-Northridge,
Inc., and Gregory J. Frazer, Carissa Bennett, and Jami Tanihana.
10.21 Asset Purchase Agreement effective as of October 31, 1996,
among the Registrant, HealthCare Hearing Clinics, Inc., and
Hearing Health Services, Inc., and Audio-Vestibular Testing
Center, Inc. ("SONUS Agreement").
10.22 Merger Agreement dated as of December 2, 1996, by and among the
Registrant, HealthCare Hearing Clinics, Inc., and Hearing
Dynamics and Deborah Law Cross.
10.23 Stock Purchase and Sale Agreement dated as of December 17, 1996, by and between certain selling
shareholders and HealthCare Hearing Clinics, Inc.
10.24 Stock Purchase and Sale Agreement dated as of January 9, 1997, by and between Gregory J. Frazer
and Stephen Martinez and HealthCare Hearing Clinics, Inc.
10.25 Form of Convertible Subordinated Note relating to the SONUS Agreement.
10.26 1993 Stock Option Plan.
10.27 Amended and Restated Stock Award Plan.
10.28 Employment Agreement dated October 1, 1996, between HealthCare Hearing Clinics, Inc., and
Gregory J. Frazer.
10.29 Employment Agreement dated as of November 1, 1996, among the Registrant, HealthCare Hearing
Clinics, Inc., and Kathy Foltner.
10.30 Terms of employment between the Registrant and Edwin J. Kawasaki dated August 8, 1996.
10.31 Revolving Demand Loan Agreement between Fraserview Hearing and Speech Clinics Ltd and
Royal Bank of Canada, dated August 21, 1995.
10.32 Revolving Demand Loan Agreement between HC HealthCare and Royal Bank of Canada, dated February 12, 1997.
II-11
<PAGE>
10.33 Consulting Agreement effective as of January 1, 1997, between the Registrant and Hugh T.
Hornibrook.
10.34 Stock Purchase and Sale Agreement dated as of March 6, 1997, between Gregory J. Frazer,
Alfred S. Gaston and HealthCare Hearing Clinics, Inc.
16 Letter of Shikaze Ralston, Chartered Accountants, regarding change in certifying accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Shikaze Ralston, Chartered Accountants.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ballem MacInnes (included in Exhibit 5).
24 Power of attorney of certain officers and directors.
27 Financial Data Schedule.
- ----------------------------
Other exhibits listed in Item 601 of Regulation S-B are not applicable.
</TABLE>
II-12
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
ARTICLES OF AMENDMENT
1. NAME OF CORPORATION: HEALTHCARE CAPITAL CORPORATION
2. CORPORATE ACCESS NUMBER: 20575035
3. ITEM NO. 2 OF THE ARTICLES OF THE ABOVE-NAMED CORPORATION IS
AMENDED IN ACCORDANCE WITH SECTION 167(1)(d) OF THE BUSINESS
CORPORATIONS ACT OF ALBERTA.
The authorized capital of the Corporation be increased by the creation
of an unlimited number of Preferred Shares without nominal or par value
that shall have attached thereto the rights, privileges, restrictions
and conditions hereinafter set forth:
PROVISIONS ATTACHING TO THE PREFERRED SHARES
Directors' Authority to Issue in One or More Series
i) The Preferred Shares may from time to time be issued in one or
more series and subject to the following provisions, and
subject to the sending of articles of amendment in prescribed
form, and the issuance of a certificate of amendment in
respect thereof, the directors may fix from time to time
before such issue the number of shares which is to comprise
each series and the designation, rights, privileges,
restrictions and conditions attaching to each series of
Preferred Shares including, without limiting the generality of
the foregoing, the rate or amount of dividends or the method
of calculating dividends, the dates of payment thereof, the
redemption, purchase and/or conversion prices and terms and
conditions of redemption, purchase and/or conversion, and any
sinking fund or other provisions;
ii) The Preferred Shares of each series shall, with respect to the
payment of dividends and the distribution of assets or return
of capital in the event of liquidation, dissolution or
winding-up of the Corporation, whether voluntary or
involuntary, or any other return of capital or distribution of
assets of the Corporation among its shareholders for the
purpose of winding up its affairs, rank on a parity with the
Preferred Shares of every other series and be entitled to
preference over the Common Shares and over any other shares of
the Corporation ranking junior to the Preferred Shares. The
Preferred Shares of any series may also be given such other
preferences, not inconsistent with
- 1 -
<PAGE>
these articles, over the Common Shares and any other shares of
the Corporation ranking junior to such Preferred Shares as may
be fixed in accordance with clause (i) above;
iii) If any cumulative dividends or amounts payable on the return
of capital in respect of a series of Preferred Shares are not
paid in full, all series of Preferred Shares participate
rateably in respect of accumulated dividends and return of
accumulated dividends and return of capital; and
iv) Unless the directors otherwise determine in the articles of
amendment designating a series, the holder of each share of a
series of Preferred Shares shall not, except as otherwise
specifically provided in the Business Corporations Act
(Alberta), be entitled to receive notice of or vote at any
meeting of the shareholders.
ITEM NO. 6 OF THE ARTICLES OF THE ABOVE-NAMED
CORPORATION IS AMENDED IN ACCORDANCE WITH
SECTION 167(1) OF THE BUSINESS CORPORATIONS ACT OF
ALBERTA BY THE ADDITION OF THE FOLLOWING PROVISION:
"6. OTHER PROVISIONS IF ANY:
Meetings of shareholders of the Corporation may be held in the
province of Alberta, in Vancouver, British Columbia or in
Portland, Oregon, U.S.A. as the directors may designate in the
notice relating to such meeting."
DATE SIGNATURE TITLE
- 2 -
<PAGE>
January 30, 1997 Director
FOR DEPARTMENTAL USE ONLY FILED
- 3 -
<PAGE>
ARTICLES OF AMENDMENT
1. NAME OF CORPORATION: ADVENTURE CAPITAL CORPORATION
2. CORPORATE ACCESS NO.: 20575035
3. ITEM NO. 1 OF THE ARTICLES OF THE ABOVE-NAMED CORPORATION IS
AMENDED IN ACCORDANCE WITH SECTION 167(1)(a) OF THE BUSINESS
CORPORATIONS ACT.
(i) The name of the Corporation as set forth in Item No. 1 is changed
to HEALTHCARE CAPITAL CORP.
DATE SIGNATURE TITLE
October 7, 1994 /s/ William DeJong Director
FOR DEPARTMENTAL USE ONLY FILED
- 1 -
<PAGE>
ARTICLES OF AMENDMENT
1. NAME OF CORPORATION: ADVENTURE CAPITAL CORPORATION
2. CORPORATE ACCESS NO.: 20575035
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS
FOLLOWS:
Pursuant to a Special Resolution duly passed by all of the Shareholders of the
Corporation and pursuant to sections 167(1)(c), (e) and (k) of the Business
Corporations Act of Alberta the Articles of the Corporation are amended as
follows:
1. The authorized Redeemable Preferred Shares of the Corporation
are eliminated by the cancellation thereof in their entirety;
2. The rights, privileges, restrictions and conditions attaching
to the authorized and issued Common Shares of the Corporation
be altered and changed to the rights, privileges, restrictions
and conditions set forth in new item No. 2 of the Articles of
the Corporation which is added to the Articles by virtue of
paragraph 3 below;
3. Item No. 2 of the Articles of the Corporation is hereby
amended by deleting the current Item No. 2 in its entirety and
substituting therefor the following:
"2. The Corporation is authorized to issue an unlimited number
of Common Shares without nominal or par value. The Common
Shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
Voting Rights
(a) At all meetings of the shareholders of the Corporation,
the holders of the Common Shares shall be entitled to one (1)
vote for each such share so held.
Dividends and Other Distributions
(b) The holders of the Common Shares shall be entitled to
receive such dividends as the directors of the Corporation
may, in their discretion, declare thereon.
(c) In the event of the liquidation, dissolution or winding-up
of the Corporation or other distribution of its assets among
the shareholders, the
- 1 -
<PAGE>
holders of the Common Shares shall be entitled to receive the
remaining property of the Corporation."
4. Item No. 4 of the Articles of the Corporation, as amended
on November 18, 1993, is hereby further amended by the
deletion thereof in its entirety and the substitution therefor
of the following:
"4. Number (or Minimum and Maximum Number) of Directors:
The Corporation shall have not less than three (3) directors
nor more than eleven (11) directors. Subject to the provisions
of the Business Corporations Act of Alberta, the directors
may, between annual general meetings, appoint one or more
additional directors of the Corporation to serve until the
next annual general meeting of the Corporation provided that
the total number of directors shall not at any time exceed the
maximum hereinbefore prescribed."
DATE SIGNATURE TITLE
January 25, 1994
William DeJong Secretary
FOR DEPARTMENTAL USE ONLY FILED
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ARTICLES OF AMENDMENT
1. NAME OF CORPORATION: 575035 ALBERTA LTD.
2. CORPORATE ACCESS NO.: 20575035
3. ITEM NO. 1 OF THE ARTICLES OF THE ABOVE-NAMED CORPORATION IS
AMENDED IN ACCORDANCE WITH SECTION 167(1)(a) OF THE BUSINESS
CORPORATIONS ACT.
The name of the Corporation as set forth in Item No. 1 is changed to
ADVENTURE CAPITAL CORPORATION.
ITEM NO. 3 OF THE ARTICLES OF THE ABOVE-NAMED CORPORATION IS
AMENDED IN ACCORDANCE WITH SECTION 167(1)(l) OF THE BUSINESS
CORPORATIONS ACT BY DELETING THIS ITEM IN ITS ENTIRETY AND
REPLACING IT AS FOLLOWS:
RESTRICTIONS IF ANY ON SHARE TRANSFERS:
None.
ITEM NO. 4 OF THE ARTICLES OF THE ABOVE-NAMED CORPORATION IS
AMENDED IN ACCORDANCE WITH SECTION 167(1)(k) OF THE BUSINESS
CORPORATIONS ACT BY DELETING THIS ITEM IN ITS ENTIRETY AND
REPLACING IT AS FOLLOWS:
NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS:
The Corporation shall have not less than three (3) directors nor more
than Eleven (11) directors.
ITEM NO. 6 OF THE ARTICLES OF THE ABOVE-NAMED CORPORATION IS
AMENDED IN ACCORDANCE WITH SECTION 167(l)(m) OF THE BUSINESS
CORPORATIONS ACT BY DELETING THIS ITEM IN ITS ENTIRETY AND
REPLACING IT AS FOLLOWS:
OTHER PROVISIONS IF ANY:
None.
DATE SIGNATURE TITLE
October 26, 1993 /s/ Michael G. Thomson Director
FOR DEPARTMENTAL USE ONLY FILED
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ARTICLES OF INCORPORATION
1. NAME OF CORPORATION: 575035 ALBERTA LTD.
2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
CORPORATION IS AUTHORIZED TO ISSUE:
The Corporation is authorized to issue an unlimited number of Common
Shares without nominal or par value and an unlimited number of
Redeemable Preferred Shares without nominal or par value. The Common
Shares and the Redeemable Preferred Shares shall have attached thereto
the following rights, privileges, restrictions and conditions:
Voting Rights
(a) At all meetings of the shareholders of the Corporation the holders
of the Common Shares shall be entitled to one (1) vote for each such
share so held.
(b) Subject to the provisions of the Business Corporations Act of
Alberta, the holders of the Redeemable Preferred Shares shall not be
entitled to notice of or to vote at meetings of the shareholders of the
Corporation.
Dividends and Other Distributions
(c) The Redeemable Preferred Shares shall not confer upon their holders
any rights to dividends. Subject to the provisions of contained herein,
the holders of the Common Shares shall be entitled to receive such
dividends as the directors may, in their discretion, declare thereon.
In no event shall dividends be paid on the Common shares where the
payment of such dividends would result in the Corporation having
insufficient assets to enable it to redeem all of the issued and
outstanding Redeemable Preferred Shares at a price of One Dollar
($1.00) per share in accordance with the provisions of the Business
Corporations Act of Alberta. The price of One Dollar ($1.00) per share
is hereinafter referred to as the "Redemption Amount".
(d) In the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of its assets among the shareholders:
(i) the holders of the Redeemable Preferred Shares shall be
entitled to receive in priority to the holders of the Common
Shares an amount of assets having a value equal to the
Redemption Amount of each such share so held. Except as
provided for in this sub-clause 2(d) the holders of the
Redeemable Preferred Shares shall not be entitled to share in
any distribution of the property or assets of the Corporation.
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(ii) the holders of the Common Shares shall be entitled to receive
the remaining property of the Corporation, if any, after
payment or distribution of property to the holders of the
Redeemable Preferred Shares as provided for in this subclause
2(d).
Restriction on Purchase by Corporation of Common Shares
(e) In no event shall the Corporation make any payment to purchase or
otherwise acquire any of the Common Shares if such payment would result
in the Corporation having insufficient assets to enable it to redeem
all of the issued and outstanding Redeemable Preferred Shares at the
Redemption Amount per share in accordance with the provisions of the
Business Corporations Act of Alberta.
Redemption of Redeemable Preferred Shares
(f) The Redeemable Preferred Shares shall be redeemable in whole or in
part at the option of either the holder thereof or the directors of the
Corporation at a price per share equal to the Redemption Amount. In the
event that a part only of the then outstanding Redeemable Preferred
Shares is at any time to be redeemed at the option of the directors of
the Corporation, the number of such shares so to be redeemed shall be
selected by lot, in such manner as the directors in their discretion
shall decide, or, if the directors so determine, may be redeemed pro
rata, disregarding fractions, and the directors may make such
adjustments as may be necessary to avoid the redemption of fractional
shares. Not less than thirty (30) days' notice in writing of any
redemption of the Redeemable Preferred Shares at the option of the
directors shall be given by mailing such notice to the registered
holders of the Redeemable Preferred Shares to be redeemed, specifying
the date and place or places of such redemption. If notice of any such
redemption be given by the Corporation in the manner aforesaid and an
amount sufficient to redeem the shares shall have been deposited in any
chartered bank in Canada, trust company, or Province of Alberta
Treasury Branches as specified in the notice on or before the date
fixed for redemption, the holders thereof shall have no rights against
the Corporation in respect thereof except, upon the surrender of
certificates for such Redeemable Preferred Shares, to receive payment
therefor out of the monies deposited. After the Redemption Amount of
such shares has been deposited in any chartered bank in Canada, trust
company or Province of Alberta Treasury Branches, as aforesaid, notice
shall be given to the holders of any Redeemable Preferred Shares called
for redemption who have failed to present the certificates representing
such shares within two (2) months of the date specified for redemption
that the money has been so deposited and may be obtained by the holders
of the said Redeemable Preferred Shares upon presentation of the
certificates representing such shares called for redemption at any
chartered bank in Canada, trust company or Province of Alberta Treasury
Branches, as the case may be; where a holder of Redeemable Preferred
Shares desires that all or a portion of such shares held by him be
redeemed, he shall give notice in writing to the Corporation specifying
the number of Redeemable Preferred Shares that he wishes to
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be redeemed. Within sixty (60) days of receipt of such notice, the
Corporation shall, subject to the provisions of the Business
Corporations Act of Alberta, redeem the number of Redeemable Preferred
Shares specified in such notice, and upon surrender of the certificate
or certificates for such Redeemable Preferred Shares the Corporation
shall pay to the holder thereof the Redemption Amount in respect of
each such Redeemable Preferred Share so redeemed.
Variance of Shareholders' Rights
(g) The rights, privileges, restrictions and conditions attached to the
Common Shares or the Redeemable Preferred Shares may only be varied if
the variation is consented to by all of the holders of all the Common
shares and the Redeemable Preferred Shares which are outstanding. The
Corporation shall not without the approval of all of the holders of the
Common Shares and the Redeemable Preferred Shares create or issue any
class of shares ranking as to capital or dividends prior to or on a
parity with the Common Shares and the Redeemable Preferred Shares.
3. RESTRICTIONS IF ANY ON SHARE TRANSFERS:
The right of shareholders to transfer or dispose of their shares in the
Corporation shall be subject to the following restrictions:
(a) Except where a transfer is made pursuant to the provisions of
sub-clause 3(b) below, any transfer of shares in the
Corporation shall require a resolution of the Board of
directors of the Corporation approving such transfer.
(b) Any share of a deceased shareholder may be transferred by his
executors or administrators to any child or other issue,
son-in-law, daughter-in-law, father, mother, brother, sister,
nephew, niece, widow or widower of such deceased shareholder
or to any other beneficiary named in the Will of such deceased
shareholder and any shares of the Corporation standing in the
name of the trustees of the Will of any deceased shareholder
may be transferred upon any change of trustees to the trustees
for the time being of such Will.
4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS:
The Corporation shall have not less than one (1) director nor more than
nine (9) directors. Subject to the provisions of the Business
Corporations Act of Alberta, the directors may, between annual general
meetings, appoint one or more additional directors of the Corporation
to serve until the next annual general meeting of the Corporation
provided that the total number of directors shall not at any time
exceed the maximum hereinbefore prescribed.
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5. RESTRICTIONS IF ANY ON BUSINESSES THE CORPORATION MAY CARRY
ON:
There shall be no restrictions as to the businesses which the
Corporation may carry on.
6. OTHER PROVISIONS IF ANY:
(a) The number of shareholders of the Corporation shall be limited
to not more than fifty (50) persons, (exclusive of persons who
are in the employment of the Corporation or that of an
affiliate within the meaning of the Business Corporations Act
of Alberta and also exclusive of persons who, having been
formerly in the Corporation's employment or that of an
affiliate, were, while in that employment, shareholders of the
Corporation and have continued to be shareholders of the
Corporation after termination of that employment); provided
that where two (2) or more persons hold one or more shares in
the Corporation jointly they shall, for the purpose of this
sub-clause 6(a), be treated as a single shareholder.
(b) No invitation shall be made to the public to subscribe for
securities of the Corporation.
(c) The Corporation shall have a lien on shares registered in the
name of any shareholder who is indebted to the Corporation for
any amount.
7. INCORPORATORS
Date: July 26, 1993
NAMES ADDRESS SIGNATURE
Deborah L. Watson 40th Floor, West Tower /s/ Deborah L. Watson
Petro-Canada Centre
150 - 6th Avenue S.W.
Calgary, Alberta
T2P 3Y7
FOR DEPARTMENTAL USE ONLY
CORPORATE ACCESS NO. INCORPORATION DATE
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BY-LAW NO. 1A
A BY-LAW RELATING GENERALLY TO THE CONDUCT OF THE BUSINESS AND AFFAIRS
OF ADVENTURE CAPITAL CORPORATION (HEREINAFTER CALLED THE "CORPORATION").
PART I
INTERPRETATION
1.01 In this By-law and all other By-laws of the Corporation, unless the context
otherwise specifies or requires:
"ACT" means the Business Corporations Act (Alberta), as from time to time
amended, and every statute in substitution thereof;
"ARTICLES" means, as the case may require, the original or restated articles of
incorporation, articles of amendment, articles of amalgamation, articles of
continuance, articles of reorganization, articles of arrangement, articles of
dissolution and articles of revival of the Corporation, and includes an
amendment to any of them;
"BOARD" means the board of Directors, as such board may be constituted from time
to time;
"BY-LAW" means this by-law and all other by-laws of the Corporation from time to
time in force and effect;
"DIRECTORS" means the directors of the Corporation;
"MEETING OF SHAREHOLDERS" includes an annual or other general meeting of
Shareholders and a meeting of any class or classes of Shareholders;
"SHAREHOLDER" means a shareholder of the Corporation;
"CHIEF EXECUTIVE OFFICER" means the President or, if the Corporation does not
have a President or if the office of President is vacant, the officer of the
Corporation holding the paramount office.
PART 2
DIRECTORS
2.01 BORROWING POWERS OF DIRECTORS: Without limiting the powers of the Directors
as set forth in the Act, but subject to the Articles, the Directors may from
time to time on behalf of the Corporation, without authorization of the
Shareholders:
(a) borrow money upon the credit of the Corporation;
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(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidences of indebtedness or guarantee of the Corporation, whether
secured or unsecured;
(c) to the extent permitted by the Act, give a guarantee on behalf of the
Corporation to secure performance of an obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create an interest in or
charge on all or any currently owned or subsequently acquired property
of the Corporation to secure payment of a debt or performance of any
other obligation of the Corporation.
2.02 DELEGATION: Subject to the Articles, the Directors may from time to time,
by resolution, delegate to a committee of Directors, a single Director or an
officer or officers of the Corporation, all or any of the powers conferred on
the Directors by the preceding section of this By-law or by the Act.
2.03 POWER TO ADOPT SEAL AND AUTHORIZE USE: The Directors may, by resolution,
adopt a seal for the Corporation, and authorize persons to affix the seal and to
attest by their signatures that the seal was duly affixed.
2.04 DIRECTORS' POWER TO ISSUE SHARES: Subject to the Articles, the
Directors may, by resolution, issue shares of the Corporation at such time, to
such persons and, subject to the Act, for such consideration as the Directors
may from time to time determine.
2.05 DIRECTORS' POWER TO MAKE. AMEND OR REPEAL BY-LAWS: Subject to the
Articles and the Act, the Directors may, by resolution, make, amend or repeal
any By-laws that regulate the business or affairs of the Corporation.
2.06 DIRECTORS' POWER TO APPOINT OFFICERS: Subject to the Articles:
(a) the Directors may designate the officers of the Corporation, appoint as
officers individuals of full capacity who may, but need not, be
Directors of the Corporation, specify their duties and, except where
delegation is prohibited by the Act, delegate to them powers to manage
the business and affairs of the Corporation;
(b) a Director may be appointed to any office of the Corporation; and
(c) two (2) or more offices of the Corporation may be held by the same
person.
2.07 DIRECTORS' POWER TO FIX REMUNERATION OF DIRECTORS AND OFFICERS:
Subject to the Articles, the Directors may fix the remuneration of the
Directors and of the officers of the Corporation.
2.08 FINANCIAL DISCLOSURE: Subject to the Articles, the Directors shall not be
required to place before the annual meeting of Shareholders any information
respecting the financial position of the Corporation or the results of its
operations except that information required by the Act.
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2.09 REMUNERATION AND EXPENSES: The Directors shall be paid such remuneration
for their services as the Board may from time to time determine. The Directors
shall also be entitled to be reimbursed for travelling and other expenses
properly incurred by them in attending meetings of the Board or any committee
thereof. Nothing contained herein shall preclude any Director from serving the
Corporation in any other capacity and receiving remuneration therefor.
2.10 DIRECTORS' MEETINGS:
(a) CONVENING MEETINGS: Any Director may convene a meeting of Directors.
(b) NOTICE OF MEETING OF DIRECTORS: At least forty-eight (48) hours'
notice (inclusive of the day on which the notice is communicated, or
deemed to be communicated, and the day of the meeting) shall be given
of a meeting of the Directors, and the notice shall specify the place,
the day and the hour of the meeting. Except where required by the Act,
the notice need not specify the purpose of the meeting or the business
to be transacted thereat.
(c) NOTICE OF ADJOURNED MEETING OF DIRECTORS: If a meeting of the Directors
is adjourned by one or more adjournments, it is not necessary to give
notice of the adjourned meeting, other than by announcement at the time
of the adjournment, if:
(i) all of the Directors are present at the time of the
announcement; or
(ii) those Directors who were not present at the time of
the announcement attend the adjourned meeting and
participate in the meeting;
but in all other cases, notice of the adjourned meeting shall be given as if it
were a new meeting, provided that if the adjournment is for a period of time
which makes it impossible or impracticable to give forty-eight (48) hours'
notice, the notice shall be deemed to have been properly given if transmitted on
the next business day following the adjournment.
(d) MANNER OF TRANSMITTING NOTICES: Notice of a meeting of the Directors,
or any other communication required to be made, may be given or made to
a Director either:
(i) in writing:
(1) by first class mail, postage prepaid,
addressed to the Director at the
Director's latest address as shown in
the records of the Corporation;
(2) by delivery to the Director's latest
address as shown in the records of the
Corporation and leaving the notice in the
custody of an adult person found there,
placing it in a mail receptacle at that
address
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or affixing it to a door or placing in some
other place at that address where the notice
or communication is likely to be found;
(3) by personally serving it upon the Director;
or
(4) by any electronic device capable of
transmitting a printed message directed to
the Director at a place where the Director
has access to a device capable of receiving
the message; or
(ii) verbally, whether by means of a telephone or
otherwise.
All notices or other communication given or made in writing in
accordance with the foregoing shall be deemed to have been
communicated:
(i) if given or made by mail, at the time it would be delivered in
the ordinary course of mail unless there are reasonable
grounds for believing that the Director did not receive the
notice or communication at that time, or at all;
(ii) if delivered or personally served, on the day that it was
delivered or served; and
(iii) if by electronic device, one (1) hour following transmission.
(e) WAIVER OF NOTICE: Notice of any meeting of Directors or of any
committee of Directors or the time for the giving of any such notice or
any irregularity in any meeting or in the notice thereof may be waived
by any Director in writing or by telecopy, telegram, cable or telex
addressed to the Corporation or in any other manner, and any such
waiver may be validly given either before or after the meeting to which
such waiver relates. Attendance of a Director at any meeting of
Directors or of any committee of Directors is a waiver of notice of
such meeting, except when a Director attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
(f) OMISSION OF NOTICE: The accidental omission to give notice of any
meeting of Directors, or of any committee of Directors, or the
non-receipt of any notice by any person shall not invalidate any
resolution passed or any proceeding taken at such meeting.
(g) PLACE OF MEETINGS OF DIRECTORS: Subject to the Articles, meetings of
the Directors may be held at any place in Alberta, or at any place
outside of Alberta if all Directors entitled to attend and vote at the
meeting either participate in the meeting or consent, verbally or
otherwise, to the meeting being held at that place.
(h) CHAIRMAN OF MEETINGS OF DIRECTORS OR COMMITTEE OF DIRECTORS: Unless and
until the Directors have elected a Chairman of the Board, the Chief
Executive Officer shall act as chairman of all meetings of the
Directors but if the Chairman of the Board or the Chief Executive
Officer, as the case may be, is absent or refuses to act as chairman,
the
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Directors in attendance shall by a vote of the majority of them elect
some other Director present at the meeting to act as chairman of the
meeting.
(i) SECRETARY OF MEETINGS OF DIRECTORS: The chairman of a meeting of
Directors may appoint a Director to act as secretary of a meeting of
Directors, and in the absence of such appointment, the chairman of the
meeting shall also act as secretary of the meeting.
(j) QUORUM OF DIRECTORS: Subject to the Articles, a majority of Directors
shall constitute a quorum at any meeting of Directors.
(k) PARTICIPATION BY TELEPHONE: A Director may participate in a meeting of
Directors by means of telephone or other communication facilities that
permit all persons participating in the meeting to hear each other.
(l) RESOLUTION BY MAJORITY: Subject to the Articles, every resolution
submitted to a meeting of Directors shall be decided by a vote of a
majority of the Directors participating in the meeting, and the
declaration of the chairman of the meeting on the result of the vote
shall be final. In case of an equality of votes, the chairman of the
meeting shall not have a casting vote.
2.11 MEETINGS OF COMMITTEES OF DIRECTORS: The provisions of Section 2.10 of this
By-law shall apply equally to meetings of committees of Directors, but when
applying those provisions to a meeting of a committee of Directors, the phrase
"meeting of Directors" shall mean "meeting of a committee of Directors" and the
word "Director" shall mean "member of a committee of Directors".
2.12 WRITTEN RESOLUTION IN LIEU OF MEETING: Subject to the Articles, a
resolution in writing signed by all the Directors entitled to vote on that
resolution at a meeting of Directors or committee of Directors is as valid as if
it had been passed at a meeting of Directors or a committee of Directors. A
resolution in writing may be signed in any number of counterparts which together
shall be construed as a single instrument. A resolution in writing shall take
effect on the date when it is expressed to be effective notwithstanding that the
effective date is before or after the date on which it was signed by the
Directors or any of them. A resolution in writing transmitted by telegraph,
telex or other device capable of transmitting a printed message and purporting
to be sent by a Director shall be valid as a counterpart of a resolution in
writing of the Directors or committee of Directors.
PART 3
SHAREHOLDERS' MEETINGS
3.01 CHAIRMAN OF MEETING OF SHAREHOLDERS: The Chairman of the Board, or failing
him the President of the Corporation, shall act as chairman at all Meetings of
Shareholders. If the Chairman of the Board and the President are both absent or
refuse to act as chairman of the meeting, the Shareholders in attendance shall
elect some other person in attendance at the meeting, who need not be a
Shareholder, to act as chairman of the meeting.
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3.02 PLACE OF SHAREHOLDERS' MEETINGS: Subject to the Articles and the
provisions of the Act permitting a Meeting of Shareholders to be held outside of
Alberta, a Meeting of Shareholders shall be held at the place in Alberta
determined by the Directors.
3.03 PARTICIPATION IN MEETING BY TELEPHONE: A Shareholder or any other person
entitled to attend a Meeting of Shareholders may participate in the meeting by
means of telephone or other communication facilities that permit all persons
participating in the meeting to hear each other, and a person participating in
such a meeting by those means is deemed for the purposes of the Act to be
present at the meeting.
3.04 NOTICE OF ADJOURNED MEETING: If a Meeting of Shareholders is adjourned by
one or more adjournments for an aggregate of less than thirty (30) days, it is
not necessary to give notice of the adjourned meeting, other than by
announcement at the time of the adjournment.
3.05 QUORUM OF SHAREHOLDERS: A quorum of Shareholders is present at a Meeting of
Shareholders, if two persons present and representing in person or by proxy not
less than 10% of the issued shares entitled to vote at a meeting.
3.06 LOSS OF QUORUM DURING MEETING: If a quorum is present at the opening of a
Meeting of Shareholders, the Shareholders present may proceed with the business
of the meeting notwithstanding that a quorum is not present throughout the
meeting.
3.07 VOTING JOINTLY HELD SHARES: If two (2) or more persons hold shares of the
Corporation jointly, one of those holders present at a Meeting of Shareholders
may, in the absence of the others, vote the shares, but if two (2) or more of
those persons who are present, in person or by proxy, vote, they shall vote as
one on the shares jointly held by them.
3.08 VOTING: Voting at a Meeting of Shareholders shall be by show of hands
except when a vote by ballot is demanded by a Shareholder or a proxyholder
entitled to vote at the meeting. If a vote by ballot is demanded at a meeting in
which a Shareholder, or other person entitled to attend and vote at the meeting,
is participating by telephone or other communication facilities, such
Shareholder or other person may verbally appoint some person present at the
meeting to cast a ballot on his behalf and a ballot so cast shall be valid as if
it were personally cast by the Shareholder or other person so participating.
3.09 WRITTEN RESOLUTION IN LIEU OF MEETING: Subject to the Articles, a
resolution in writing signed by all the Shareholders entitled to vote on that
resolution at a Meeting of Shareholders is as valid as if it had been passed at
a Meeting of Shareholders. A resolution in writing may be signed in any number
of counterparts which together shall be construed as a single instrument. A
resolution in writing shall take effect on the date when it is expressed to be
effective notwithstanding that the effective date is before or after the date on
which it was signed by the Shareholders or any of them. A resolution in writing
transmitted by telegraph, telex or other device capable of transmitting a
printed message and purporting to be sent by a Shareholder shall be valid as a
counterpart of a resolution in writing of the Shareholders.
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PART 4
LIEN ON SHARES
4.01 If the Articles provide that the Corporation has a lien on shares
registered in the name of a Shareholder or his legal representative for a debt
of that Shareholder to the Corporation, such lien may be enforced, subject to
the Act and to any other provision of the Articles, by the sale of shares
thereby affected or by any other action, suit, remedy or proceedings authorized
or permitted by law or by equity and, pending such enforcement, the Corporation
may refuse to register a transfer of the whole or any part of such shares.
PART 5
VOTING RIGHTS IN OTHER BODIES CORPORATE
5.01 The signing officers of the Corporation may execute and deliver instruments
of proxy and arrange for the issuance of voting certificates or other evidence
of the right to exercise the voting rights attaching to any securities held by
the Corporation. Such instruments, certificates or other evidence shall be in
favour of such person or persons as may be determined by the person signing or
arranging for them. In addition, the Board may direct the manner in which, and
the person or persons by whom, any particular voting rights or class of voting
rights may or shall be exercised.
PART 6
SHARES AND SHARE CERTIFICATES
6.01 ALLOTMENT: Subject to the Articles, the Board may from time to time allot,
or grant options to purchase, and issue the whole or any part of the authorized
and unissued shares of the Corporation at such times and to such persons and for
such consideration as the Board shall determine, provided that no share shall be
issued until the consideration for the share is fully paid as provided for in
the Act.
6.02 COMMISSIONS: The Board may from time to time authorize the Corporation to
pay a reasonable commission to any person in consideration of his purchasing or
agreeing to purchase shares of the Corporation from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for shares of the
Corporation.
6.03 NON-RECOGNITION OF TRUSTS: Subject to the provisions of the Act, the
Corporation may treat the person in whose name a share is registered in the
securities register as the absolute owner of the share as if that person had
full legal capacity and authority to exercise all rights of ownership,
irrespective of any indication to the contrary through knowledge or notice or
description in the Corporation's records or on the share certificate.
6.04 SHARE CERTIFICATES: Every holder of one or more shares of the Corporation
shall be entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgment of his right to obtain a share
certificate, stating the name of the person to whom the certificate or
acknowledgment was issued, and the number and class or series of shares held by
him as
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shown on the securities register. Share certificates and acknowledgements of a
Shareholder's right to a share certificate, shall, subject to the Act, be in
such form as the Board shall from time to time approve. Any share certificate
shall be signed by any number of signing officers as the Board may determine and
need not be under the corporate seal, provided that, unless the Board otherwise
determines, certificates representing shares in respect of which a transfer
agent and/or registrar has been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent and/or registrar. The
signature of a sole signing officer or two signing officers, as the case may be,
may be printed or mechanically reproduced in facsimile upon share certificates
and every such facsimile signature shall for all purposes be deemed to be the
signature of the officer whose signature it reproduces and shall be binding upon
the Corporation. A share certificate executed as aforesaid shall be valid
notwithstanding that one or both of the officers whose facsimile signature
appears thereon no longer holds office at the date of issue of the certificate.
6.05 REPLACEMENT OF SHARE CERTIFICATE: The Board or any officer or agent
designated by the Board may in its or his discretion direct the issue of a new
share certificate in lieu of and upon cancellation of a share certificate that
has been mutilated or in substitution for a share certificate claimed to have
been lost, destroyed or wrongfully taken, on payment of such fee not exceeding
such amount as may be allowed by the Act, and on such terms as to indemnity,
reimbursement of expenses and evidence of loss and of title as the Board may
from time to time prescribe, whether generally or in any particular case.
6.06 JOINT SHAREHOLDERS: If two or more persons are registered as joint holders
of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
6.07 FRACTIONAL SHARE: The Corporation may issue a certificate for a fractional
share or may issue in its place, as may be determined by the Board, scrip
certificates in a form that entitles the holder to receive a certificate for a
full share by exchanging scrip certificates aggregating a full share. The
Directors may attach conditions to any scrip certificates, including that the
scrip certificates become void if they are not exchanged for a share certificate
representing a full share by a specified date, and that any shares for which
those scrip certificates are exchangeable may, notwithstanding any pre-emptive
right, be issued by the Corporation to any person and the proceeds of those
shares distributed rateably to the holders of the scrip certificates.
6.08 TRANSFER AND TRANSMISSION OF SHARES: Shares of the Corporation may be
transferred in the form of a transfer of endorsement endorsed on the
certificates issued for the shares of the Corporation or in any form of transfer
which may be approved by the Board.
6.09 REGISTRATION OF TRANSFER: Subject to the provisions of the Act, no transfer
of shares shall be registered in a securities register except upon presentation
of the certificate
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<PAGE>
representing such shares with a transfer endorsed thereon or delivered therewith
duly executed by the registered holder or by his attorney or successor duly
appointed, together with such reasonable assurance or evidence of signature,
identification and authority to transfer as the Board may from time to time
prescribe, upon payment of all applicable taxes and any fees prescribed by the
Board.
6.10 RIGHTS OF REPRESENTATIVES: The Corporation may treat a person as a
registered Shareholder entitled to exercise all rights of the Shareholder he
represents if that person produces to the Board such evidence as may be
reasonably required that he is the executor, administrator, heir or legal
representative of the heirs of the estate of a deceased Shareholder, or a
guardian, committee or trustee representing a registered Shareholder.
6.11 NO DUTY TO THIRD PERSON: The Corporation is not required to enquire into
the existence of, or see to the performance or observance of, any duty owed to a
third person by a registered holder of any of its shares, or by anyone whom it
treats, subject to the Act, as the owner or registered holder of its shares.
6.12 TRANSFER AGENTS AND REGISTRARS: The Board may from time to time appoint one
or more trust companies registered under the Trust Companies Act (Alberta) as
its agent or agents to maintain the central securities register or registers,
and an agent or agents to maintain branch securities registers. Such a person
may be designated as transfer agent or registrar according to his functions and
one person may be appointed both registrar and transfer agent.
The Board may at any time terminate any such appointment.
PART 7
INFORMATION AVAILABLE TO SHAREHOLDERS
7.01 AVAILABLE INFORMATION: Except as provided by the Act, no Shareholder shall
be entitled to obtain information respecting any details or conduct of the
Corporation's business which in the opinion of the Directors would not be in
the interest of the Corporation to communicate to the public.
7.02 INSPECTION OF INFORMATION: The Directors may from time to time, subject to
those rights conferred by the Act, determine whether, to what extent, at what
time and place and under what conditions or regulations the documents, books,
registers and accounting records of the Corporation or any of them shall be open
to the inspection of Shareholders, and no Shareholder shall have any right to
inspect any document, book, register or accounting record of the Corporation
except as conferred by statute or authorized by the Board or by a resolution of
the Shareholders.
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<PAGE>
PART 8
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE CORPORATION
8.01 In all circumstances permitted by the Act, the Corporation shall indemnify
a Director or officer of the Corporation, a former Director or officer of the
Corporation, or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is or was a
shareholder or a creditor, and his heirs and legal representatives, from and
against:
(a) all costs, charges and expenses, including an amount to settle an
action or satisfy a judgment reasonably incurred by him in respect of
any civil, criminal or administrative action or proceeding to which he
is made a party by reason of being or having been a Director or officer
of the Corporation or such body corporate; and
(b) all other costs, charges and expenses reasonably incurred in connection
with the defence of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having
been a Director or officer of the Corporation or such body corporate.
Enacted by resolution of the Board of Directors passed at a meeting of
the Directors of the Corporation held at Calgary, Alberta on the 25th day of
January, 1994.
President
Secretary
Confirmed by the shareholders in accordance with the Act the 25th day
of January, 1994.
Michael G. Thomson Craig R. Thomson
Murray T.A. Campbell Bruce Ramsay
William DeJong
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<PAGE>
Barristers & Solicitors Ballem MacInnes
Our File No.: 11103.004
March 7, 1997
Attention:
HealthCare Capital Corp.
111 SW 5th Avenue
Suite 2390
Portland, Oregon
U.S.A. 97204
Dear Sirs:
Re: HealthCare Capital Corp. - Form SB-2 Registration
We have acted as Alberta counsel for HealthCare Capital Corp.,
a body corporate organized under the laws of Alberta ("HealthCare") in
connection with the preparation of the Registration Statement on Form SB-2 to be
filed by HealthCare with the Securities and Exchange Commission (the "SEC") on
or shortly after February 24, 1997 (the "Registration Statement"), respecting
the proposed resale of 25,312,814 common shares without par value of HealthCare
(the Offered Shares") by the Selling Shareholders identified in the Registration
Statement.
The Offered Shares are comprised of the following:
(i) 9,917,598 shares which are presently issued and outstanding;
(ii) A total of 6,449,658 shares (the "Warrant Shares") which are
issuable upon the exercise or deemed exercise of special
warrants issued and sold by HealthCare in September and
December of 1996 (the "Warrants")'
(iii) A total of 6,449,658 shares (the "Purchase Warrant Shares")
which are issuable upon the exercise of purchase warrants (the
"Purchase Warrants") which are to be issued upon the exercise
or deemed exercise of the Warrants;
1800 First Canadian Centre, 350 - 7th Avenue S.W.,
Calgary, Alberta T2P 3N9
Telephone (403) 292-9800 Facsimile (403) 233-8979
<PAGE>
(iv) A total of 495,900 shares (the "Option Shares") which are
issuable upon the exercise of purchase warrants (the "Option
Warrants") issuable upon the exercise of options granted to
the placement agents in connection with sales of Warrants in
September and December 1996; and
(v) a total of 2,000,000 shares (the "Note Shares") which are
issuable upon exercise of the conversion rights associated
with convertible promissory notes (the "Notes") issued by
HealthCare in connection with the acquisition of the Midwest
Division of Hearing Health Services, Inc., in October 1996.
In our capacity as Alberta counsel for HealthCare, we have
made such investigations and have reviewed such other documents as we have
deemed necessary or appropriate under the circumstances, and have made such
examinations of law as we have deemed appropriate for the purpose of giving the
opinions expressed herein.
We also have been furnished with and have examined originals
or copies, certified or otherwise identified to our satisfaction, of all such
records of HealthCare, agreements and other instruments, certificates of
officers and representatives of HealthCare, certificates of public officials and
other documents as we have deemed necessary or relevant as a basis for the
opinion hereinafter expressed.
In making such examinations, we have assumed (i) the
genuineness of all signatures; (ii) the authenticity of all documents submitted
to us as originals; (iii) the conformity to original documents of all documents
submitted to us as certified copies or photocopies; (iv) the authority of all
persons signing documents examined by us except as to persons signing documents
on behalf of HealthCare; and (v) the identity and capacity of all individuals
acting or purporting to act as public officials.
Based on the foregoing, we are of the opinion that:
1. The Warrant Shares have been duly authorized and when the Warrants have
been duly exercised or deemed to be exercised, the Warrant Shares will
be validly issued, fully paid and non-assessable.
2. The Purchase Warrant Shares have been duly authorized and when the
Purchase Warrants have been duly exercised and the Purchase Warrant
Shares have been duly delivered against payment therefor pursuant to
the terms of the Purchase Warrants the Purchase Warrant Shares will be
validly issued, fully paid and non-assessable.
3. The Option Shares have been duly authorized and when the Option
Warrants have been duly exercised and the Option Shares have been duly
delivered against payment therefor pursuant to the terms of the Option
Warrants, the Option Shares will be validly issued, fully paid and
non-assessable.
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<PAGE>
4. The Note Shares have been duly authorized and when the holders of the
Notes have duly exercised their rights of conversion thereunder, the
Note Shares will be validly issued, fully paid and non-assessable.
5. The Offered Shares which are not Warrant Shares, Purchase Warrant
Shares, Option Shares or Note Shares have been validly issued and are
fully paid and non-assessable.
6. The statements in the prospectus included in the Registration Statement
(the "Prospectus") under the heading "Service and Enforcement of Legal
Process" to the extent that such matters represent matters of law or
legal conclusions, are accurate and complete statements or summaries of
the matters set forth therein.
We express no opinion as to matters of law in jurisdictions
other than the Province of Alberta and the laws of Canada applicable in such
province.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We further consent to the use of our name under
the headings "Legal Matters" and "Service and Enforcement of Legal Process" in
the Prospectus.
Yours very truly,
BALLEM MacINNES
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(BRITISH COLUMBIA)
PURCHASE OF SPECIAL WARRANTS
TO: HEALTHCARE CAPITAL CORP.
1. The undersigned hereby irrevocably agrees to purchase special share
purchase warrants (the "Special Warrants") of HealthCare Capital Corp. (the
"Corporation") for an aggregate consideration of $ (the "Purchase Price"),
representing a purchase price of $1.00 (Canadian) per Special Warrant. Each
Special Warrant shall entitle the holder to acquire one (1) Common Share (a
"Common Share") of the Corporation and one (1) Common Share Purchase Warrant (a
"Warrant") at no additional cost at any time on or after the issue of the
Special Warrants, to and until 4:30 p.m. (Calgary time) (the "Expiry Time") on
the earlier of (a) the date which is ten days after the date upon which a
receipt is issued by the securities commission in each of the Provinces of
Alberta and British Columbia (the "Filing Provinces") for the Prospectus
qualifying the Common Shares and Warrants to be distributed on the exercise of
the Special Warrants; and (b) 365 days from the Closing Date.
The Warrants shall have a term of two (2) years. Each Warrant
entitles the holder to subscribe for one (1) additional Common Share of the
Corporation at a subscription price of $1.25 per Common Share if exercised
during the first year after the Closing Date, and thereafter at $1.50 per Common
Share until the expiry of the term.
Any Special Warrants not exercised on or before the Expiry
Time shall be deemed to have been exercised immediately prior to the Expiry Time
without any further action on the part of the holder thereof.
2. The Special Warrants will be duly and validly created and issued
pursuant to the terms of a warrant indenture (the "Special Warrant Indenture")
to be entered into between the Corporation and The R-M Trust Company of Canada
(the "Trustee"), as trustee at or prior to the closing of the Special Warrants.
The subscription proceeds from the sale of the Special Warrants will be
deposited in the Corporation's bank accounts and unconditionally available to
the Corporation upon receipt. The Special Warrant Indenture shall be in such
form and contain such terms as shall be approved by the Corporation and its
counsel. The Special Warrant Indenture will provide that, in the event a receipt
for the Prospectus is not obtained from the securities commission or similar
regulatory authority in each of the Filing Provinces on or prior to the date
which is 120 days from the Closing Date, each holder of the Special Warrants
shall be entitled to receive, upon the exercise or deemed exercise of the
Special Warrants, 1.1 times the number of Common Shares and Warrants to which he
would otherwise be entitled to receive, without additional payment.
3. By executing this Purchase Agreement, the undersigned represents,
warrants and covenants to the Corporation (and acknowledges that the Corporation
is relying thereon) that:
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<PAGE>
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(a) it has been independently advised as to the applicable hold period
imposed in respect of the Special Warrants (and the Common Shares and
Warrants issuable upon the exercise thereof) under securities
legislation in force in the jurisdiction in which it resides and
confirms that:
(i) it is aware of the risks and other characteristics of
the Special Warrants and of the fact that the
undersigned may not be able to resell the Special
Warrants (or the Common Shares and Warrants issuable
upon the exercise thereof) except in accordance with
applicable securities legislation and regulatory
policies and that if it exercises the Special
Warrants prior to the issuance of receipts for the
Prospectus in its province of residence, the Common
Shares and Warrants so acquired will be subject to
resale restrictions; and
(ii) it has not become aware of any advertisement in
printed media of general and regular paid circulation
or on radio or television with respect to the
distribution of the Special Warrants;
(b) it is a resident of the province or jurisdiction set forth below under
"Purchaser's Address" and, if purchasing for and on behalf of a
beneficial purchaser, other than itself, such beneficial purchaser's
jurisdiction of residence is as stated on the execution page of this
Purchase Agreement or in Schedule "A" attached hereto and made a part
hereof;
(c) unless exempted by an order of the securities commission or similar
regulatory authority of the province in which it resides:
(i) (A) it is purchasing the Special Warrants as
principal for its own account, not for the
benefit of any other person, and not with a
view to the resale or distribution of all or
any of the Special Warrants; or
(B) if it is not purchasing as principal, it is
duly authorized to enter into this Purchase
Agreement and to execute all documentation
in connection with the purchase of the
Special Warrants on behalf of each
beneficial purchaser, it is aware that the
Corporation is required by law to disclose,
on a confidential basis, to certain
regulatory authorities, the identity of each
beneficial purchaser of Special Warrants for
whom it may be acting; and
(I) it is resident in British Columbia,
is a trust corporation or
extra-provincial trust corporation
which has the business authorization
to carry on a trust business under
the Financial Institutions Act
(British Columbia), an insurance
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<PAGE>
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corporation or extra-provincial
insurance corporation which has the
business authorization to carry on
an insurance business under the
Financial Institutions Act (British
Columbia) or an adviser who manages
the investment portfolio of clients
through discretionary authority
granted by one or more clients and
who is registered as a portfolio
manager under the Securities Act
(British Columbia) or is exempt from
such registration, and it is
purchasing the Special Warrants as
an agent or trustee for accounts
that are fully managed by it; or
(II) it is acting as agent for one or
more disclosed principals, each of
which principal is purchasing as a
principal for its own account, not
for the benefit of any other person
and not with a view to the resale
nor distribution of all or any of
the Special Warrants and each of
such principals complies with
paragraph 3(c)(ii), 3(c)(iii) and
3(c)(iv) below; or
(ii) if it is an individual or corporation resident in
British Columbia, the aggregate acquisition cost of
the Special Warrants to it is not less than $97,000;
or
(iii) if it is resident in British Columbia and it not a
corporation or an individual but is a syndicate,
partnership or other form of unincorporated
organization, every participant in the syndicate,
partnership or unincorporated organization would have
an aggregate acquisition cost of not less than
$97,000 for the Special Warrants purchased if the
participant were acquiring its proportionate interest
in the Special Warrants purchased; and
(iv) if it, or any beneficial purchaser for whom it is
acting, is resident in British Columbia, it
acknowledges that, as the Special Warrants are
subject to a hold period under applicable British
Columbia securities legislation and pursuant to
British Columbia Securities Commission Blanket Order
BOR #88/5, either:
(A) an initial trade report in the prescribed
form; or
(B) the report required under the laws of
Alberta (provided that such report requires
substantially the same information as the
initial trade report prescribed for British
Columbia purposes), in respect of the resale
of the Special Warrants or of the Common
Shares
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<PAGE>
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acquired on the exercise thereof (in the
event such Common Shares are acquired prior
to the issuance of a receipt by the British
Columbia Securities Commission for a
Prospectus);
must be filed within ten (10) days of the initial trade of
such securities;
(d) if an individual, the undersigned has attained the age of
majority and is legally competent to execute this Purchase
Agreement and to take all actions required pursuant hereto;
(e) the undersigned is capable of assessing the proposed
investment as a result of the undersigned's financial
experience or as a result of advice received from a registered
person under applicable securities legislation other than the
Corporation or an affiliate thereof;
(f) if required by applicable securities legislation, regulatory
policy or order or by any securities commission, stock
exchange or other regulatory authority, the undersigned will
execute, deliver, file and otherwise assist the Corporation in
filing, such reports, questionnaires, undertakings and other
documents with respect to the issue of the Special Warrants
(or the Common Shares and Warrants issuable upon the exercise
thereof), including, without limitation, such undertakings as
may be required by The Alberta Stock Exchange;
(g) this Purchase Agreement has been duly and validly authorized,
executed and delivered by the undersigned and constitutes a
legal, valid, binding and enforceable obligation of the
undersigned; and
(h) in the case of a subscription by us for Special Warrants
acting as agent for a disclosed principal, we are duly
authorized to execute and deliver this agreement and all other
necessary documentation in connection with such subscription
on behalf of such principal and this agreement has been duly
authorized, executed and delivered by or on behalf of, and
constitutes legal, valid and binding agreement of, such
principal.
The undersigned agrees that the above representations,
warranties and covenants will be true and correct both as of the execution of
this subscription and as of the Closing Time and will survive the completion of
the issuance of the Special Warrants.
4. The foregoing representations, warranties and covenants are made by
the undersigned with the intent that they be relied upon by the Corporation in
determining its suitability as a purchaser of Special Warrants, of (if
applicable) the suitability of others on whose behalf it is contracting to
purchase Special Warrants. The undersigned undertakes to notify the Corporation
immediately of any change in any representation, warranty or other information
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<PAGE>
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relating to the undersigned set forth herein which takes place prior to the
Closing Time (as hereinafter defined).
5. The sale of the Special Warrants will be completed at the head
office of the Corporation, in Vancouver, British Columbia, at 5:00 p.m.
(Vancouver time) (the "Closing Time") on February 28, 1996 (the "Closing Date").
At the Closing Time on the Closing Date, or as soon thereafter as may be
reasonable, the Corporation shall deliver to the Purchaser the certificate
representing the Special Warrants prepared in accordance with the terms of the
Special Warrant Indenture.
6. In the event that a holder of a Special Warrant who acquires a
Common Share or Warrant upon the exercise of the Special Warrant, is or becomes
entitled under applicable securities legislation to the remedy of rescission by
reason of the Prospectus or any amendment thereto containing a
misrepresentation, such holder shall, subject to available defences and any
limitation period under applicable securities legislation, be entitled to
rescission not only of the holder's exercise of its Special Warrant(s) but also
of the private placement transaction pursuant to which the Special Warrants were
initially acquired, and shall be entitled in connection with such rescission to
a full refund of all consideration paid on the acquisition of the Special
Warrants. In the event such holder is a permitted assignee of the interest of
the original Special Warrant subscriber, such permitted assignee shall be
entitled to exercise the rights of rescission and refund granted hereunder as if
such permitted assignee was such original subscriber. The foregoing is in
addition to any other right or remedy available to a holder of the Special
Warrant under section 168 of the Securities Act (Alberta), equivalent provisions
of securities laws in the other provinces of Canada or otherwise at law.
7. The undersigned expressly waives and releases the Corporation from
all rights of withdrawal to which it might otherwise be entitled pursuant to
Section 106(1) of the Securities Act (Alberta) or equivalent provisions of
securities laws in the other provinces of Canada or jurisdictions.
8. The undersigned agrees to deliver to the Corporation not later than
5:00 p.m. (Vancouver time) on February 21, 1996; (a) this duly completed and
executed Purchase Agreement; (b) a manually signed and completed copy of the
Private Placement Questionnaire and Undertaking required by The Alberta Stock
Exchange in the form attached hereto as Schedule "B"; (c) a duly completed
Acknowledgement and Undertaking in the form attached hereto as Schedule "C", as
appropriate; (d) such other documents as may be requested as contemplated by
subsection 3(f) hereof; and (e) the payment of the Purchase Price in a manner
acceptable to the Corporation.
9. The undersigned hereby irrevocably authorizes the Corporation, in
its sole discretion:
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<PAGE>
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(a) to act as its representative at the closing and to execute in its name
and on its behalf all closing receipts and documents required;
(b) to approve any opinions, certificates or other documents addressed to
the undersigned; and
(c) to waive, in whole or in part, any representations, warranties,
covenants or conditions for the benefit of the undersigned.
10. The Corporation shall be entitled to rely on delivery of a
facsimile copy of executed subscriptions, and acceptance by the Corporation of
such facsimile subscriptions shall be legally effective to create a valid and
binding agreement between the undersigned and the Corporation in accordance with
the terms hereof.
11. The contract arising out of this Purchase Agreement shall be
governed by and construed in accordance with the laws of the Province of Alberta
and the laws of Canada applicable therein. Time shall be of the essence hereof.
12. This Purchase Agreement represents the entire agreement of the
parties hereto relating to the subject matter hereof and there are no
representations, covenants or other agreements relating to the subject matter
hereof except as stated or referred to herein.
DATED at the City of , in the Province of British Columbia,
- -------------------------------- this day of , 1996. -------------
- ---------------------------
(Name of Purchaser - Please Print) (Purchaser's Address)
By:
Authorized Signature
(Official Capacity or Title, if applicable-please print) (Telephone Number)
(Please print name of individual whose signature appears above if different from
the name of the subscriber printed above)
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<PAGE>
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IF THE PURCHASER IS SIGNING AS AGENT FOR A PRINCIPAL, COMPLETE THE FOLLOWING:
(Name of Principal) (Principal's Address)
REGISTRATION INSTRUCTIONS: DELIVERY INSTRUCTIONS:
Register the Special Warrants Deliver the Special Warrants
as set forth: as set forth:
Name Name
Account reference, if applicable Account reference, if applicable
Address Contact Name
Telephone Number
ACCEPTANCE
HealthCare Capital Corp. hereby accepts the above offer as of
this day of ____________________, 1996.
HEALTHCARE CAPITAL CORP.
Per:
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<PAGE>
SCHEDULE "A"
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<PAGE>
SCHEDULE "B"
THE ALBERTA STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
To be completed by each private placement purchaser of listed securities or
securities (including debt securities) which are convertible into listed
securities.
1. DESCRIPTION OF TRANSACTION
(a) Name of Issuer of the Securities:
HealthCare Capital Corp.
(b) Number and Description of Securities to be Purchased:
Special Warrants.
(c) Description of any warrants or other convertible securities
being issued:
Each Special Warrant is exercisable into one Common
Share and one Warrant. Each Warrant entitles the
holder to purchase one Common Share at a price of
$1.25 per Common Share if purchased during the first
year and $1.50 per Common Share if purchased during
the second year.
(d) Purchase Price:
$1.00 per Special Warrant.
(e) State the exemption under the Securities Act on which the
company is relying to issue the shares:
Securities Act (British Columbia) - Section 55(2)(4)
(f) State the hold period to which the shares will be subject:
12 months from the date the Corporation becomes a
reporting issuer in British Columbia, unless earlier
qualified by Prospectus.
2. DETAILS OF PURCHASER
(a) Name of Purchaser:
(b) Address:
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<PAGE>
- 2 -
(c) If the purchaser is a corporation, state the jurisdiction of
incorporation:
(d) General Nature of Business:
(e) Names and addresses of persons having a greater than 5%
beneficial interest in the purchaser:
3. DEALINGS OR PURCHASER IN SECURITIES OF THE ISSUER
Give the details of all trading by the purchaser in the securities of
the issuer (other than debt securities which are not convertible into
equity securities), directly or indirectly, within the 60 days
preceding the date hereof:
4. RELATIONSHIP TO ISSUER
(a) State if purchaser has any relationship with the issuer,
direct or indirect:
(b) If the answer to (a) is yes, give details:
(c) Does the purchaser own, directly or indirectly, any securities
of the issuer at the date hereof (other than debt securities
which are not convertible into equity securities); if so, give
particulars:
5. HOLD PERIOD
State the applicable hold period:
12 months from the date the Corporation becomes a reporting
issuer in British Columbia, unless earlier qualified by
Prospectus.
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<PAGE>
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To: The Alberta Stock Exchange
The undersigned has subscribed for and agreed to purchase, as
principal, the securities described in Item 1 of this Private Placement
Questionnaire and Undertaking.
The undersigned undertakes not to sell or otherwise dispose of
any of the said securities so purchased or any securities derived therefrom
without the prior consent of The Alberta Stock Exchange and any other regulatory
body having jurisdiction until either:
(a) the expiry of such period as is prescribed by the applicable securities
legislation or a period of twelve months from the date of closing
whichever is longer; or
(b) a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities to be derived
therefrom has been issued by the applicable Securities Commission.
If requested to do so by The Alberta Stock Exchange, the
undersigned further undertakes to deposit the securities in escrow with a member
of The Alberta Stock Exchange or a financial institution acceptable to The
Alberta Stock Exchange, subject to the condition that they not be released or
sold for a period equal to the applicable hold period without the prior consent
of The Alberta Stock Exchange, and to cause such member or financial institution
to confirm in writing to the Exchange that the securities have been so
deposited. The undersigned acknowledges that it is aware that the removal of the
securities from escrow will not entitle it to sell the securities in
contravention of any applicable securities legislation.
Dated at this day of ,
199__.
(Name of Purchaser - please print)
(Authorized Signature)
(Official Capacity - please print)
(Please print name of individual whose signature
appears above, if different from name of
purchaser printed above)
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<PAGE>
CERTIFICATE OF NON-CANADIAN BENEFICIAL OWNERSHIP
The undersigned hereby certifies that the certificates
registered in the name of the undersigned are beneficially owned by persons that
are not residents of Canada.
The undersigned further certifies that except as disclosed
herein, the certificates registered in the name of the undersigned are not
beneficially owned by any officers, directors or insiders of the Company.
Dated at this day of ,
1996.
Name of Certifying Party
Signature of Certifying Party of authorized signing
officer of Certifying Party
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<PAGE>
SCHEDULE "C"
This is the form required under section 135 of the Rules and, if applicable, by
an order issued under section 59 of the Securities Act.
FORM 20A(IP)
SECURITIES ACT
ACKNOWLEDGEMENT OF INDIVIDUAL PURCHASER
1. (the "Purchaser") has agreed to purchase from HealthCare
----------------------------------- Capital Corp. (the "Issuer")
Special Warrants at $1.00 per Special
------------------------------------------ Warrant. Each Special
Warrant is convertible upon exercise, without further payment, into one
Common Share of the Issuer (a "Share") and one Common Share Purchase
Warrant (a "Warrant"). One Warrant is exercisable to purchase a further
Common Share of the Issuer for two years from the date of issuance of
the Special Warrants (the "Closing"), at a price of $1.25 during the
first year, and $1.50 during the second year. The Special Warrants will
be deemed to be exercised on that day which falls on the earlier of one
year from the Closing, and the day which is ten business days from the
day a receipt for a final prospectus qualifying the proposed
distribution of the Shares and Warrants to holders of Special Warrants
(the "Prospectus") is issued by each of the British Columbia and
Alberta Securities Commissions. If such receipts are not issued by that
day which falls 120 days from the day of the Closing, then each Special
Warrant outstanding after that day will, on exercise entitle the holder
to acquire 1.10 times the number of Common Shares and Warrants to which
he would otherwise have been entitled to receive, at no additional
cost. The Special Warrants are hereinafter referred to as the
"Securities" of the Issuer.
2. I am purchasing the Securities as principal and, on closing of the
agreement of purchase and sale, I will be the beneficial owner of the
Securities.
3. 1 [CIRCLE ONE] have/have not received an offering memorandum describing
the Issuer and the Securities.
4. I acknowledge that:
(a) no securities commission or similar regulatory authority has
reviewed or passed on the merits of the Securities; AND
(b) there is no government or other insurance covering the
Securities, AND
- 1 -
<PAGE>
- 2 -
(c) I may lose all of my investment, AND
(d) there are restrictions on my ability to resell the Securities
and it is my responsibility to find out what those
restrictions are and to comply with them before selling the
Securities, AND
(e) I WILL NOT receive a prospectus that the British Columbia
Securities Act (the "Act") would otherwise require be given to
me because the Issuer has advised me that it is relying on a
prospectus exemption, AND
(f) because I am not purchasing the Securities under a prospectus,
I will not have the civil remedies that would otherwise be
available to me, AND
(g) the Issuer has advised me that it is using an exemption from
the requirement to sell through a dealer registered under the
Act, except purchases referred to in paragraph 5(g), and as a
result I do not have the benefit of any protection that might
have been available to me by having a dealer act on my behalf.
5. I also acknowledge that: [CIRCLE ONE]
(a) I am purchasing Securities that have an aggregate acquisition
cost of $97,000 or more, OR
(b) my net worth, or my net worth jointly with my spouse at the
date of the agreement of purchase and sale of the security, is
not less than $400,000, OR
(c) my annual net income before tax is not less than $75,000, or
may annual net income before tax jointly with my spouse is not
less than $125,000, in each of the two most recent calendar
years, and I reasonably expect to have annual net income
before tax of not less than $75,000 or annual net income
before tax jointly with my spouse of not less than $125,000 in
the current calendar year, OR
(d) I am registered under the Act, OR
(e) I am a spouse, parent, brother, sister or child of a senior
officer or director of the Issuer, or of an affiliate of the
Issuer, OR
(f) I am a close personal friend of a senior officer or director
of the Issuer, or of an affiliate of the Issuer, OR
- 2 -
<PAGE>
- 3 -
(g) I am purchasing securities under section 128(c) ($25,000 -
registrant required) of the Rules, and I have spoken to a
person [NAME OF REGISTERED PERSON: (THE "REGISTERED PERSON")]
who has advised me that the Registered Person is REGISTERED TO
TRADE OR ADVISE in the Securities and that the purchase of the
Securities is a suitable investment for me.
6. If I am an individual referred to in paragraph 5(b), 5(c) or 5(d), I
acknowledge that, on the basis of information about the Securities
furnished by the Issuer, I am able to evaluate the risks and merits of
the Securities because: [CIRCLE ONE]
(a) of my financial, business or investment experience, OR
(b) I have received advice from a person [NAME OF ADVISER:
(THE "ADVISER")] who has advised me that the Adviser is:
(i) registered to advise, or exempted from the
requirement to be registered to advise, in
respect of the Securities, and
(ii) not an insider of, or in a special
relationship with, the Issuer.
The statements made in this report are true.
DATED . 19___.
Signature of Purchaser
Name of Purchaser
Address of Purchaser
- 3 -
<PAGE>
This is the form required under Section 135 of the Rules and, if applicable, by
an order issued under section 59 of the Securities Act.
FORM 20A(NIP)
SECURITIES ACT
ACKNOWLEDGEMENT OF PURCHASER THAT IS NOT AN INDIVIDUAL
1. (the "Purchaser") has agreed to purchase from HealthCare
----------------------------------- Capital Corp. (the "Issuer")
Special Warrants at $1.00 per Special
------------------------------------------ Warrant. Each Special
Warrant is convertible upon exercise, without further payment, into one
Common Share of the Issuer (a "Share") and one Common Share Purchase
Warrant (a "Warrant"). One Warrant is exercisable to purchase a further
Common Share of the Issuer for two years from the date of issuance of
the Special Warrants (the "Closing"), at a price of $1.25 during the
first year, and $1.50 during the second year. The Special Warrants will
be deemed to be exercised on that day which falls on the earlier of one
year from the Closing, and the day which is ten business days from the
day a receipt for a final prospectus qualifying the proposed
distribution of the Shares and Warrants to holders of Special Warrants
(the "Prospectus") is issued by each of the British Columbia and
Alberta Securities Commissions. If such receipts are not issued by that
day which falls 120 days from the day of the Closing, then each Special
Warrant outstanding after that day will, on exercise entitle the holder
to acquire 1.10 times the number of Common Shares and Warrants to which
he would otherwise have been entitled to receive, at no additional
cost. The Special Warrants are hereinafter referred to as the
"Securities" of the Issuer.
2. The Purchaser is purchasing the Securities as principal, or is a trust
company, insurer or portfolio manager acting on behalf of fully managed
accounts and is deemed to be purchasing as principal under section
55(1) of the British Columbia Securities Act (the "Act").
3. On closing of the agreement of purchase and sale, the Purchaser will be
the beneficial owner of the Securities, except where the Purchaser is a
trust company, insurer or portfolio manager acting on behalf of fully
managed accounts under section 55(1) of the Act.
4. The Purchaser [CIRCLE ONE] has/has not received an offering memorandum
describing the Issuer and the Securities.
5. The Purchaser acknowledges that:
- 1 -
<PAGE>
- 2 -
(a) no securities commission or similar regulatory authority has
reviewed or passed on the merits of the Securities; AND
(b) there is no government or other insurance covering the
Securities; AND
(c) the Purchaser may lose all of its investment; AND
(d) there are restrictions on the Purchaser's ability to resell
the Securities and it is the responsibility of the Purchaser
to find out what those restrictions are and to comply with
them before selling the Securities; AND
(e) the Purchaser WILL NOT receive a prospectus that the Act would
otherwise require to be given to the Purchaser because the
Issuer has advised the Purchaser that the Issuer is relying on
a prospectus exemption; AND
(f) because the Purchaser is not purchasing the Securities under a
prospectus, the Purchaser will not have the civil remedies
that would otherwise be available to the Purchaser; AND
(g) the Issuer has advised the Purchaser that the Issuer is using
an exemption from the requirements to sell through a dealer
registered under the Act, except purchases referred to in
paragraph 6(b), and as a result the Purchaser does not have
the benefit of any protection that might have been available
to the Purchaser by having a dealer act on the Purchaser's
behalf.
6. The Purchaser acknowledges that:
(a) it is a "sophisticated purchaser" as described in paragraph 2
in the attached Appendix A [CIRCLE THE APPLICABLE SUBPARAGRAPH
IN PARAGRAPH 2 IN APPENDIX A]; OR
(b) the Securities were purchased under section 128(c) ($25,000 -
registrant required) of the Rules, and an authorized signatory
of the Purchaser has spoken to a person [NAME OF REGISTERED
PERSON: (THE "REGISTERED PERSON")] who has advised the
authorized signatory that the Registered Person is registered
to trade or advise in the Securities and that the purchase of
the Securities is a suitable investment for the Purchaser; OR
(c) the Purchaser is a corporation, all the voting securities of
which are beneficially owned by one or more of:
- 2 -
<PAGE>
- 3 -
(i) a close personal friend of a senior officer
or director of the Issuer, or of an
affiliate of the Issuer; OR
(ii) a senior officer or director of the Issuer,
or of an affiliate of the Issuer; OR
(iii) a spouse, parent, brother, sister or child
of a senior officer or director of the
Issuer, or of an affiliate of the Issuer.
7. If the Purchaser is referred to in paragraph 6(a), the Purchaser
acknowledges that, on the basis of information about the Securities
furnished by the Issuer, the Purchaser is able to evaluate the risks
and merits of the Securities because: [CIRCLE ONE]
(a) of the financial, business or investment experience of the
Purchaser, OR
(b) the Purchaser has received advice from a person [NAME OF
ADVISER: (THE "ADVISER")] who has advised the Purchaser that
the Adviser is:
(i) registered to advise, or exempted from the
requirement to be registered to advise, in
respect of the Securities, AND
(ii) not an insider of, or in a special
relationship with, the Issuer.
The statements made in this report are true.
DATED , 19___.
Signature of Authorized Signatory of Purchaser
Name and Office of Authorized Signatory of Purchaser
Name of Purchaser
- 3 -
<PAGE>
- 4 -
Address of Purchaser
PLEASE TURN TO APPENDIX A, WHICH IS ATTACHED TO AND FORMS PART OF THIS FORM
20A(NIP).
- 4 -
<PAGE>
APPENDIX A TO FORM 20A (NIP)
[CIRCLE THE APPLICABLE SUBPARAGRAPH IN PARAGRAPH 2.]
"Sophisticated purchaser" means a purchaser that, in connection with a
distribution, gives an acknowledgement under section 135 of the Rules to the
Issuer, where the Issuer does not believe, and has no reasonable grounds to
believe, that the acknowledgement is false, acknowledging both that:
1. the purchaser is able, on the basis of information about the investment
furnished by the Issuer, to evaluate the risks and merits of the
prospective investment because of:
(a) the purchaser's financial, business or investment experience,
OR
(b) advice the purchaser receives from a person who is registered
to advise, or is exempted from the requirement to be
registered to advise, in respect of the security that is the
subject of the trade (the "Security") and who is not an
insider of, or in a special relationship with, the Issuer of
the Security; AND
2. the purchaser is one of the following [CIRCLE ONE]:
(a) a person registered under the Securities Act; OR
(b) an individual who:
(i) has a net worth, or net worth jointly with
the individual's spouse, at the date of the
agreement of purchase and sale of the
Security, of not less than $400,000, OR
(ii) has had in each of the two most recent
calendar years, and reasonably expects to
have in the current calendar year:
o annual net income before tax of not
less than $75,000, OR
o annual net income before tax,
jointly with the individual's
spouse, of not less than $125,000;
OR
(c) a corporation, partnership or trust that:
(i) has net assets of not less than $400,000, OR
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<PAGE>
- 2 -
(ii) has had in each of the two most recent
calendar years, and reasonably expects to
have in the current calendar year, net
income before tax of not less than $125,000,
OR
(d) a corporation in which all of the voting shares are
beneficially owned by sophisticated purchasers or of which the
majority of the directors are sophisticated purchasers; OR
(e) a general partnership in which all of the partners are
sophisticated purchasers; OR
(f) a limited partnership in which a majority of the general
partners are sophisticated purchasers; OR
(g) a trust in which all of the beneficiaries are sophisticated
purchasers or the majority of the trustees are sophisticated
purchasers.
- 2 -
<PAGE>
EXHIBIT 10.2
SPECIAL WARRANT INDENTURE
Providing for the Issuance of
Special Warrants Between
HEALTHCARE CAPITAL CORP.
- and -
The R-M Trust Company
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
<S> <C> <C>
1.1 Definitions.....................................................................................2
1.2 Gender and Number...............................................................................5
1.3 Interpretation not Affected by Headings, etc....................................................5
1.4 Day not a Business Day..........................................................................5
1.5 Time of the Essence.............................................................................5
1.6 Applicable Law..................................................................................5
ARTICLE 2
ISSUE OF SPECIAL WARRANTS
2.1 Issue of Special Warrants.......................................................................5
2.2 Form and Terms of Special Warrants..............................................................6
2.3 Warrantholder not a Shareholder.................................................................6
2.4 Special Warrants to Rank Pari Passu.............................................................6
2.5 Signing of Warrant Certificates.................................................................7
2.6 Certification by the Trustee....................................................................7
2.7 Issue in Substitution for Warrant Certificates Lost, etc........................................7
2.8 Exchange of Warrant Certificates................................................................8
2.9 Charges for Exchange............................................................................8
2.10 Transfer and Ownership of Special Warrants......................................................8
ARTICLE 3
EXERCISE OF SPECIAL WARRANTS
3.1 Method of Exercise of Special Warrants..........................................................9
3.2 Effect of Exercise of Special Warrants.........................................................10
3.3 Partial Exercise of Special Warrants; Fractions................................................11
3.4 United States Holders..........................................................................12
3.5 Expiration of Special Warrants.................................................................13
3.6 Cancellation of Surrendered Special Warrants...................................................13
3.7 Accounting and Recording.......................................................................14
3.8 Deemed Exercise................................................................................14
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<PAGE>
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON
SHARESAND SHARE PURCHASE WARRANTS
4.1 Adjustment of Number of Common Shares and Share Purchase Warrants..............................14
4.2 Entitlement to Common Shares and Share Purchase Warrants
on Exercise of Special Warrant.................................................................16
4.3 No Adjustment for Stock Options................................................................16
4.4 Determination by Corporation's Auditors........................................................17
4.5 Proceedings Prior to any Action Requiring Adjustment...........................................17
4.6 Certificate of Adjustment......................................................................17
4.7 Notice of Special Matters......................................................................17
4.8 No Action after Notice.........................................................................18
4.9 Protection of Trustee..........................................................................18
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation..........................................................18
5.2 General Covenants..............................................................................19
5.3 Trustee's Remuneration and Expenses............................................................20
5.4 Securities Qualification Requirements..........................................................20
5.5 Performance of Covenants by Trustee............................................................21
ARTICLE 6
ENFORCEMENT
6.1 Suits by Warrantholders........................................................................21
6.2 Immunity of Shareholders, etc..................................................................21
6.3 Limitation of Liability........................................................................22
6.4 Waiver of Default..............................................................................22
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings......................................................................22
7.2 Notice.........................................................................................23
7.3 Chairman.......................................................................................23
7.4 Quorum.........................................................................................23
7.5 Power to Adjourn...............................................................................24
7.6 Show of Hands..................................................................................24
7.7 Poll and Voting................................................................................24
7.8 Regulations....................................................................................24
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<PAGE>
7.9 Corporation and Trustee May be Represented.....................................................25
7.10 Powers Exercisable by Extraordinary Resolution.................................................25
7.11 Meaning of Extraordinary Resolution............................................................27
7.12 Powers Cumulative..............................................................................27
7.13 Minutes...............................................................................28
7.14 Instruments in Writing.........................................................................28
7.15 Binding Effect of Resolution...................................................................28
7.16 Holdings by Corporation Disregarded............................................................28
ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes ....................................29
8.2 Successor Corporations.........................................................................30
ARTICLE 9
CONCERNING THE TRUSTEE
9.1 Trust Indenture Legislation....................................................................30
9.2 Rights and Duties of Trustee...................................................................30
9.3 Evidence, Experts and Advisers.................................................................31
9.4 Documents, Monies, etc. Held by Trustee.......................................................32
9.5 Actions by Trustee to Protect Interest.........................................................32
9.6 Trustee Not Required to Give Security..........................................................32
9.7 Protection of Trustee..........................................................................32
9.8 Replacement of Trustee; Successor by Merger....................................................33
9.9 Conflict of Interest...........................................................................34
9.10 Acceptance of Trust............................................................................35
9.11 Trustee Not to be Appointed Receiver...........................................................35
ARTICLE 10
GENERAL
10.1 Notice to the Corporation and the Trustee......................................................35
10.2 Notice to Warrantholders.......................................................................36
10.3 Ownership and Transfer of Special Warrants.....................................................36
10.4 Evidence of Ownership..........................................................................37
10.5 Counterparts...................................................................................37
10.6 Satisfaction and Discharge of Indenture........................................................37
10.7 Provisions of Indenture and Special Warrants for the Sole Benefit of
Parties and Warrantholders.....................................................................38
10.8 Special Warrants Owned by the Corporation or its Subsidiaries
- Certificate to be Provided...................................................................38
</TABLE>
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<PAGE>
THIS SPECIAL WARRANT INDENTURE made effective as of the 28th
day of February, 1996.
BETWEEN:
HEALTHCARE CAPITAL CORP., a corporation incorporated under the
laws of Alberta (hereinafter referred to as the "Corporation")
- and -
THE R-M TRUST COMPANY, a trust company incorporated under the
laws of Canada and authorized to carry on business in all
Provinces of Canada (hereinafter referred to as the "Trustee")
WHEREAS:
A. the Corporation is proposing to issue Special Warrants in the manner herein
set forth;
B. one Special Warrant shall, subject to adjustment, entitle the holder thereof
to acquire one Common Share and one Share Purchase Warrant at no additional cost
upon the terms and conditions herein set forth; and
C. all acts and deeds necessary have been done and performed to make the Special
Warrants, when issued as provided in this Indenture, valid and binding upon the
Corporation with the benefits and subject to the terms of this Indenture;
NOW THEREFORE, the parties hereto agree as follows:
- 1 -
<PAGE>
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Indenture, including the recitals and schedules hereto
and in all indentures supplemental hereto:
(a) "Adjustment Period" means the period from and including the date of
issuance of the Special Warrants up to and including the Time of
Expiry;
(b) "Applicable Legislation" means the provisions of the Business
Corporations Act, S. A. 1981, c. B-15, as from time to time amended,
and any statute of Canada or a province thereof, and the regulations
under any such named or other statute, relating to trust indentures or
to the rights, duties and obligations of trustees and of corporations
under trust indentures, to the extent that such provisions are at the
time in force and applicable to this Indenture;
(c) "Business Day" means a day which is not Saturday or Sunday or holiday
in the City of Calgary, Alberta;
(d) "Common Shares" means fully paid and non-assessable Common Shares of
the Corporation as presently constituted;
(e) "Corporation's Auditors" means Shikaze Ralston or such other firm of
chartered accountants as may be duly appointed as auditors of the
Corporation from time to time;
(f) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;
(g) "Director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by any committee of such board;
(h) "Effective Date" means February 28, 1996;
(i) "Exercise Date" means, with respect to any Special Warrant, the date on
which the Warrant Certificate representing such Special Warrant is
surrendered for exercise in accordance with the provisions of Article 3
hereof;
(j) "Expiry Date" means the earlier of:
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<PAGE>
(i) the date which is the tenth (10th) day immediately
following the date upon which a receipt for the
Prospectus has been obtained from the Securities
Commissions in all of the Selling Provinces; and
(ii) February 28, 1997;
(k) "Filing Provinces" means each of the Provinces of Alberta and British
Columbia;
(l) "Person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
(m) "Prospectus" means a final prospectus and any amendment thereto filed
by the Corporation with the Securities Commissions, in respect of the
distribution of Common Shares and Share Purchase Warrants upon the
exercise of Special Warrants;
(n) "Shareholder" means a holder of record of one or more Common Shares;
(o) "Securities Commissions" means the securities commission or similar
regulatory authorities in the Filng Provinces;
(p) "Share Purchase Warrant" means a Common Share purchase warrant
entitling the holder of each Share Purchase Warrant to subscribe for
one Common Share at the subscription price of $1.25 per Common Share
until February 28, 1997 and thereafter at a price of $1.50 per Common
Share until February 28, 1998;
(q) "Special Warrants" means the warrants issued and certified hereunder
and for the time being outstanding entitling the holder of each Special
Warrant to acquire one (1) Common Share and one (1) Share Purchase
Warrant;
(r) "this Special Warrant Indenture", "this Indenture", "herein", "hereby"
and similar expressions mean and refer to this Indenture and any
indenture, deed or instrument supplemental hereto; and the expressions
"Article", "Section", "subsection" and "paragraph" followed by a number
mean and refer to the specified article, section, subsection or
paragraph of this Indenture;
(s) "Subsidiary of the Corporation" or "Subsidiary" means any corporation
of which more than fifty (50%) per cent of the outstanding Voting
Shares are owned, directly or indirectly, by or for the Corporation,
provided that the ownership of such shares confers the right to elect
at least a majority of the board of directors of such corporation and
includes any corporation in like relation to a Subsidiary;
(t) "Time of Expiry" means 4:30 in the afternoon, Calgary time, on the
Expiry Date;
(u) "Trading Day" means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business and with respect
to the over-the-counter market
- 3 -
<PAGE>
means a day on which The Alberta Stock Exchange is open for the
transaction of business;
(v) "Transfer Agent" means The R-M Trust Company or such other transfer
agent for the time being of the Common Shares;
(w) "Trustee" means The R-M Trust Company or its successors from time to
time in the trust hereby created;
(x) "Voting Shares" means shares of the capital stock of any class of any
corporation carrying voting rights under all circumstances, provided
that, for the purposes of such definition, shares which only carry the
right to vote conditionally on the happening of an event shall not be
considered Voting Shares, whether or not such event shall have
occurred, nor shall any shares be deemed to cease to be Voting Shares
solely by reason of a right to vote accruing to shares of another class
or classes by reason of the happening of any such event;
(y) "Warrant Agency" means the principal office of the Trustee in the City
of Calgary, Province of Alberta or such other place as may be
designated in accordance with subsection 3.1(c);
(z) "Warrant Certificate" means a certificate issued on or after the
Effective Date to evidence Special Warrants;
(aa) "Warrantholders" or "holders" without reference to Common Shares means
the persons who, on and after the Effective Date, are registered owners
of Special Warrants;
(bb) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders entitled to acquire in the aggregate not
less than 25% of the aggregate number of Common Shares which could be
acquired upon the exercise of all Special Warrants then unexercised and
outstanding, requesting the Trustee to take some action or proceeding
specified therein; and
(cc) "Written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" mean, respectively, a written order, request, consent
and certificate signed in the name of the Corporation by its President,
and may consist of one or more instruments so executed.
1.2 GENDER AND NUMBER
Unless herein otherwise expressly provided or unless the
context otherwise requires, words importing the singular include the plural and
vice versa and words importing gender include all genders.
- 4 -
<PAGE>
1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Indenture into Articles and Sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Indenture.
1.4 DAY NOT A BUSINESS DAY
In the event that any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken at or before the requisite time on the next succeeding day
that is a Business Day.
1.5 TIME OF THE ESSENCE
Time shall be of the essence of this Indenture.
1.6 APPLICABLE LAW
This Indenture and the Warrant Certificates shall be construed
in accordance with the laws of the Province of Alberta and the federal law
applicable therein and shall be treated in all respects as Alberta contracts.
ARTICLE 2
ISSUE OF SPECIAL WARRANTS
2.1 ISSUE OF SPECIAL WARRANTS
(a) 1,732,500 Special Warrants, each of which entitles the holder thereof
to acquire one (1) Common Share and one (1) Share Purchase Warrant, and
subject to adjustment in accordance with Article 4 hereof, are hereby
created and authorized to be issued.
(b) The Warrant Certificate (including all replacements issued in
accordance with this Indenture) shall be substantially in the form set
out in Schedule "A" hereto or such other form as the Corporation shall
specify, shall be dated as of the Effective Date, shall bear such
distinguishing letters and numbers as the Corporation may, with the
approval of the Trustee, prescribe, and shall be issuable in any
denomination excluding fractions.
2.2 FORM AND TERMS OF SPECIAL WARRANTS
(a) Each Special Warrant authorized to be issued hereunder shall entitle
the holder thereof, upon exercise, to acquire one (1) Common Share and
one (1) Share Purchase Warrant, subject to adjustment in accordance
with Article 4 hereof, at any time after the Effective Date until the
Time of Expiry at no additional cost to the holder.
- 5 -
<PAGE>
(b) No fractional Special Warrants shall be issued or otherwise provided
for hereunder.
(c) The number of Common Shares and Share Purchase Warrants which may be
acquired pursuant to the Special Warrants shall be adjusted in the
event and in the manner specified in Article 4.
(d) In the event that a receipt for a Prospectus is not issued in each of
the Filing Provinces on or before 5:00 p.m. (Calgary time) on June 27,
1996, holders of the Special Warrants shall be entitled to receive one
and one-tenth times the number of Common Shares and Share Purchase
Warrants upon the exercise of the Special Warrants, at no additional
cost, in lieu of the Common Shares and Share Purchase Warrants which
they would otherwise have been entitled to receive.
2.3 WARRANTHOLDER NOT A SHAREHOLDER
Except as provided for in subsection 5.2(i), nothing in this
Indenture or in the holding of a Special Warrant or Warrant Certificate or
otherwise, shall, in itself, confer or be construed as conferring upon a
Warrantholder any right of interest whatsoever as a Shareholder or as any other
shareholder of the Corporation, including, but not limited to, the right to vote
at, to receive notice of, or to attend, meetings of shareholders or any other
proceedings of the Corporation, or the right to receive dividends and other
distributions.
2.4 SPECIAL WARRANTS TO RANK PARI PASSU
All Special Warrants shall rank pari passu, whatever may be
the actual date of issue thereof.
2.5 SIGNING OF WARRANT CERTIFICATES
The Warrant Certificates shall be signed by any one director
or officer of the Corporation. The signatures of such director or officer may be
mechanically reproduced in facsimile and Warrant Certificates bearing such
facsimile signatures shall be binding upon the Corporation as if they had been
manually signed by such director or officer. Notwithstanding that any person
whose manual or facsimile signature appears on any Warrant Certificate as a
director or officer may no longer hold office at the date of such Warrant
Certificate or at the date of certification or delivery thereof, any Warrant
Certificate signed as aforesaid shall, subject to Section 2.6, be valid and
binding upon the Corporation and the holder thereof shall be entitled to the
benefits of this Indenture.
2.6 CERTIFICATION BY THE TRUSTEE
(a) No Warrant Certificate shall be issued or, if issued, shall be valid
for any purpose or entitle the holder to the benefit hereof until it
has been certified by manual signature by or on behalf of the Trustee
in the form of the certificate set out in Schedule "A" hereto, and such
certification by the Trustee upon any Warrant Certificate shall be
conclusive
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evidence as against the Corporation that the Warrant Certificate so
certified has been duly issued hereunder and that the holder is
entitled to the benefits hereof.
(b) The certification of the Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by the
Trustee as to the validity of this Indenture or the Warrant
Certificates (except the due certification thereof) and the Trustee
shall in no respect be liable or answerable for the use made of the
Warrant Certificate or any of them or of the consideration therefor
except as otherwise specified herein.
2.7 ISSUE IN SUBSTITUTION FOR WARRANT CERTIFICATES LOST, ETC.
(a) In case any of the Warrant Certificates shall become mutilated or be
lost, destroyed or stolen, the Corporation, subject to applicable law,
shall issue and thereupon the Trustee shall certify and deliver, a new
Warrant Certificate of like tenor as the one mutilated, lost, destroyed
or stolen in exchange for and in place of and upon cancellation of such
mutilated Warrant Certificate, or in lieu of and in substitution for
such lost, destroyed or stolen Warrant Certificate, and the substituted
Warrant Certificate shall be in a form approved by the Trustee and the
Special Warrants evidenced thereby shall be entitled to the benefits
hereof and shall rank equally in accordance with its terms with all
other Special Warrants issued or to be issued hereunder.
(b) The applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.7 shall bear the cost of the issue thereof and in case
of loss, destruction or theft shall, as a condition precedent to the
issue thereof, furnish to the Corporation and to the Trustee such
evidence of ownership and of the loss, destruction or theft of the
Warrant Certificate so lost, destroyed or stolen as shall be
satisfactory to the Corporation and to the Trustee in their sole
discretion, and such applicant may also be required to furnish an
indemnity or security in amount and form satisfactory to the
Corporation and the Trustee in their discretion and shall pay the
reasonable charges of the Corporation and the Trustee in connection
therewith.
2.8 EXCHANGE OF WARRANT CERTIFICATES
(a) Warrant Certificates representing any number of Special Warrants may,
upon compliance with the reasonable requirements of the Trustee, be
exchanged for another Warrant Certificate or Warrant Certificates
representing the same aggregate number of Special Warrants as
represented under the Warrant Certificate or Warrant Certificates so
exchanged.
(b) Warrant Certificates may be exchanged only at the Warrant Agency or at
any other place that is designated by the Corporation with the approval
of the Trustee. Any Warrant Certificate tendered for exchange shall be
cancelled and surrendered by the Warrant Agency to the Trustee.
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2.9 CHARGES FOR EXCHANGE
Except as otherwise herein provided, the Warrant Agency may
charge to the holder requesting an exchange a reasonable sum for each new
Warrant Certificate issued in exchange for Warrant Certificate(s), and payment
of such charges and reimbursement of the Trustee or the Corporation for any and
all stamp taxes or governmental or other charges required to be paid shall be
made by such holder as a condition precedent to such exchange.
2.10 TRANSFER AND OWNERSHIP OF SPECIAL WARRANTS
The Special Warrants may only be transferred on the register
kept at the Warrant Agency by the holder or its legal representatives or its
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Trustee only upon surrendering to the Trustee the Warrant
Certificates representing the Special Warrants to be transferred and upon
compliance with:
(i) the conditions herein;
(ii) such reasonable requirements as the Trustee may
prescribe; and
(iii) all applicable securities legislation and
requirements of regulatory authorities;
and such transfer shall be duly noted in such register by the Trustee. Upon
compliance with such requirements, the Trustee shall issue to the transferee a
Warrant Certificate representing the Special Warrants transferred.
The Corporation and the Trustee will deem and treat the
registered owner of any Special Warrant as the beneficial owner thereof for all
purposes and neither the Corporation nor the Trustee shall be affected by any
notice to the contrary.
Subject to the provisions of this Indenture and applicable
law, the Warrantholder shall be entitled to the rights and privileges attaching
to the Special Warrants and the issue of Common Shares by the Corporation upon
the exercise of Special Warrants by any Warrantholder in accordance with the
terms and conditions herein contained shall discharge all responsibilities of
the Corporation and the Trustee with respect to such Special Warrants and
neither the Corporation nor the Trustee shall be bound to inquire into the title
of any such holder.
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ARTICLE 3
EXERCISE OF SPECIAL WARRANTS
3.1 METHOD OF EXERCISE OF SPECIAL WARRANTS
(a) The holder of any Special Warrant may exercise the right evidenced
thereby conferred on such holder to acquire Common Shares and Share
Purchase Warrants by surrendering, after the Effective Date and prior
to the Time of Expiry, to the Warrant Agency the Warrant Certificate
with a duly completed and executed exercise form.
A Warrant Certificate with the duly completed and executed exercise
form referred to in this subsection 3.1(a) shall be deemed to be
surrendered only upon personal delivery thereof or, if sent by mail or
other means of transmission, upon actual receipt thereof at, in each
case, the Warrant Agency.
(b) Any exercise form referred to in subsection 3.1(a). shall be signed by
the Warrantholder and shall specify:
(i) the number of Common Shares and Share Purchase
Warrants which the holder wishes to acquire (being
not more than those which the holder is entitled to
acquire pursuant to the Warrant Certificate(s)
surrendered);
(ii) the person or persons in whose name or names such
Common Shares and Share Purchase Warrants are to be
issued with relevant social insurance numbers;
(iii) the address or addresses of such persons; and
(iv) the number of Common Shares and Share Purchase
Warrants to be issued to each such person if more
than one is so specified.
If any of the Common Shares subscribed for are to be issued to a person
or persons other than the Warrantholder, the Warrantholder shall pay to
the Corporation or the Warrant Agency on behalf of the Corporation, all
applicable transfer or similar taxes and the Corporation shall not be
required to issue or deliver certificates evidencing Common Shares and
Share Purchase Warrants unless or until such Warrantholder shall have
paid to the Corporation, or the Warrant Agency on behalf of the
Corporation, the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid or that no
tax is due.
(c) In connection with the exchange of Warrant Certificates and exercise of
Special Warrants and compliance with such other terms and conditions
hereof as may be required, the Corporation has appointed the principal
offices of the Trustee in Calgary as the agency at which Warrant
Certificates may be surrendered for exchange or at which Special
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Warrants may be exercised and the Trustee has accepted such
appointment. The Corporation shall give notice to the Trustee of any
change of the Warrant Agency.
3.2 EFFECT OF EXERCISE OF SPECIAL WARRANTS
(a) Upon compliance by the holder of any Warrant Certificate with the
provisions of Section 3.1, and subject to Section 3.3, the Common
Shares and Share Purchase Warrants subscribed for shall be deemed to
have been issued and the person or persons to whom such Common Shares
and Share Purchase Warrants are to be issued shall be deemed to have
become the holder or holders of record of such Common Shares and Share
Purchase Warrants on the Exercise Date unless the transfer registers of
the Corporation shall be closed on such date, in which case the Common
Shares and Share Purchase Warrants subscribed for shall be deemed to
have been issued and such person or persons deemed to have become the
holder or holders of record of such Common Shares and Share Purchase
Warrants, on the date on which such transfer registers are reopened.
(b) Within five (5) Business Days after the Exercise Date of a Special
Warrant as set forth above, the Corporation shall cause to be mailed to
the person or persons in whose name or names the Common Shares and
Share Purchase Warrants so subscribed for have been issued, as
specified in the subscription, at the address specified in such
subscription or, if so specified in such subscription, cause to be
delivered to such person or persons at the Warrant Agency where the
Warrant Certificate was surrendered, a share certificate or
certificates for the appropriate number of Common Shares and a Share
Purchase Warrant certificate or certificates for the Share Purchase
Warrants.
(c) In the event of the exercise of Special Warrants prior to the
Corporation obtaining a receipt for the Prospectus from each of the
Securities Commissions, the Corporation may, on the advice of Counsel,
endorse the certificates representing the Common Shares and Share
Purchase Warrants issued on such exercise to the effect that such
shares are subject to trading restrictions under applicable securities
legislation, and prior to the issuance of any such certificates the
Trustee shall consult with the Corporation to determine whether such
endorsing or legending is required.
3.3 PARTIAL EXERCISE OF SPECIAL WARRANTS; FRACTIONS
(a) The holder of any Special Warrants may acquire a number of Common
Shares and Share Purchase Warrants less than the number which the
holder is entitled to acquire pursuant to the surrendered Warrant
Certificate(s) provided that, in no event shall fractional Common
Shares and Share Purchase Warrants be issued with regard to Special
Warrants exercised. In the event of any acquisition of a number of
Common Shares and Share Purchase Warrants less than the number which
the holder is entitled to acquire, the holder of the Special Warrants
upon exercise thereof shall, in addition, be entitled to receive,
without charge therefor, a new Warrant Certificate(s) in respect of the
balance of the Common Shares and Share Purchase Warrants which such
holder was entitled to
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acquire pursuant to the surrendered Warrant Certificate(s) and which
were not then acquired.
(b) Notwithstanding anything herein contained including any adjustment
provided for in Article 4, the Corporation shall not be required, upon
the exercise of any Special Warrants, to issue fractions of Common
Shares and Share Purchase Warrants or to distribute certificates which
evidence fractional Common Shares and Share Purchase Warrants. In lieu
of fractional Common Shares and Share Purchase Warrants, there shall be
paid to the holder upon surrender of Warrant Certificate(s) for
exercise of Special Warrants pursuant to Section 3.1, within ten (10)
Business Days after the Exercise Date, an amount in lawful money of
Canada equal to the then current market value of such fractional
interest computed on the basis of the closing price of the Common
Shares on The Alberta Stock Exchange (or if the Common Shares are not
then listed thereon on such other exchange on which such shares are
listed or, if not listed on any exchange, in the over-the-counter
market, as designated by action of the directors) for the Trading Day
immediately prior to the Exercise Date or where there is no sale on the
applicable exchange or market on the Trading Day immediately prior to
the Exercise Date, the average of the last bid and ask prices on the
applicable exchange or market, provided there shall be no cheque issued
for less than $5.00.
3.4 UNITED STATES HOLDERS
(a) Upon the exercise of Special Warrants by a holder resident in the
United States who acquired its Special Warrants pursuant to Rule 904 of
the Regulations under the United States Securities Act of 1993, the
certificates representing the Common Shares and Share Purchase Warrants
issuable upon exercise of the Special Warrants shall bear the following
legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, (C) PURSUANT TO EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, OR (D)
PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION AFTER
PROVIDING A SATISFACTORY LEGAL OPINION TO THE CORPORATION.
DELIVERY OF THIS CERTIFICATE WILL NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF
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TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE,
BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD
DELIVERY", MAY BE OBTAINED FROM THE R-M TRUST COMPANY UPON
DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION,
IN A FORM SATISFACTORY TO THE R-M TRUST COMPANY AND THE
CORPORATION, TO THE EFFECT THAT THE SALE OF THE SECURITIES
REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904
OF REGULATION S UNDER THE SECURITIES ACT.";
(b) Notwithstanding the provisions of Section 3.4(a), the legend required
by Section 3.4(a) may be removed by the holder providing to the Trustee
the following declaration (or such other form of declaration as the
Corporation may prescribe from time to time):
"The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1993, as amended, and (B) certifies that (1)
the offer of such securities was not made to a person in the
United States and either (a) at the time the buy order was
originated, the buyer was outside the United States, or the
seller and any person acting on its behalf reasonably believe
that the buyer was outside the United States or (b) the
transaction was executed on or through the facilities of The
Alberta Stock Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, and (2) neither
the seller, nor any affiliate of the seller nor any person
acting on their behalf has engaged or will engage in any
directed selling efforts in connection with the offer and sale
of such securities. Terms used herein have the meanings given
them by Regulation S.";
(c) Notwithstanding anything set forth in Section 3.4(a) or (b), the
Corporation may waive the requirement for, and direct the Trustee not
to affix, the legend set forth in Section 3.4(a) where evidence
satisfactory to the Corporation has been provided by the holder of
Special Warrants that such holder, while being a United States resident
is nevertheless a "qualified institutional buyer" as defined in the
United States Securities Act of 1993.
3.5 EXPIRATION OF SPECIAL WARRANTS
Immediately after the Time of Expiry, all rights under any
Special Warrants in respect of which the right of acquisition herein and therein
provided for shall not have been
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exercised shall cease and terminate and such Special Warrant shall be void and
of no further force or effect.
3.6 CANCELLATION OF SURRENDERED SPECIAL WARRANTS
All Warrant Certificates surrendered to the Warrant Agency
pursuant to Sections 2.7, 2.8, 2.10, 3.1, 3.3 and 5.1 shall be returned to the
Trustee for cancellation and, after the expiry of any period of retention
prescribed by law, destroyed by the Trustee and, upon request by the Corporation
the Trustee shall furnish to the Corporation a destruction certificate
identifying the Warrant Certificates so destroyed and the number of Special
Warrants evidenced thereby.
3.7 ACCOUNTING AND RECORDING
(a) The Trustee shall promptly account to the Corporation with respect to
Special Warrants exercised. Any securities or other instruments, from
time to time received by the Trustee shall be received in trust for,
and shall be segregated and kept apart by the Trustee in trust for the
Corporation.
(b) The Trustee shall record the particulars of Special Warrants exercised
which shall include the names and addresses of the persons who become
holders of Common Shares and Share Purchase Warrants on exercise and
the Exercise Date. Within five (5) Business Days of each Exercise Date,
the Trustee shall provide such particulars in writing to the
Corporation.
3.8 DEEMED EXERCISE
At the Time of Expiry, the rights of all holders of Special
Warrants to acquire Common Shares shall be deemed to be exercised without any
further action on the part of the Warrantholders and the Common Shares and Share
Purchase Warrants issuable thereby shall be deemed to be issued to the holder or
holders of record of the Special Warrants at such time.
The Corporation shall cause to be mailed or, if so specified
in the exercise form, cause to be delivered at the Warrant Agency where the
Warrant Certificate was surrendered, to the person or persons specified in the
exercise form a share certificate or share certificates for the appropriate
number of Common Shares and Share Purchase Warrants upon actual receipt at the
Warrant Agency of the Warrant Certificate with the duly completed and executed
exercise form specifying the matters referred to in paragraphs 3.1(b)(ii), (iii)
and (iv) together with any payment of the nature referred to in subsection
3.1(b).
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
AND SHARE PURCHASE WARRANTS
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4.1 ADJUSTMENT OF NUMBER OF COMMON SHARES AND SHARE PURCHASE
WARRANTS
The acquisition rights in effect at any date attaching to the
Special Warrants shall be subject to adjustment from time to time as follows:
(a) if and whenever at any time from the date hereof and prior to the Time
of Expiry, the Corporation shall:
(i) subdivide, redivide or change its outstanding Common
Shares into a greater number of shares; or
(ii) reduce, combine or consolidate its outstanding Common
Shares into a smaller number of shares;
the number of Common Shares and Share Purchase Warrants obtainable
under each Special Warrant shall be adjusted immediately after the
effective date of such subdivision, redivision, change, reduction,
combination or consolidation, by multiplying the number of Common
Shares and Share Purchase Warrants theretofore obtainable on the
exercise thereof by a fraction of which the numerator shall be the
total number of Common Shares outstanding immediately after such date
and the denominator shall be the total number of Common Shares
outstanding immediately prior to such date. Such adjustment shall be
made successively whenever any event referred to in this subsection
shall occur;
(b) if and whenever at any time from the date hereof and prior to the Time
of Expiry, there is a reclassification of the Common Shares or a
capital reorganization of the Corporation other than as described in
subsection 4.1(a), or a consolidation, amalgamation or merger of the
Corporation with or into any other body corporate, trust, partnership
or other entity, or a sale or conveyance of the property and assets of
the Corporation as an entirety or substantially as an entirety to any
other body corporate, trust, partnership or other entity, any
Warrantholder who has not exercised its right of acquisition prior to
the effective date of such reclassification, reorganization,
consolidation, amalgamation, merger, sale or conveyance upon the
exercise of such right thereafter, shall be entitled to receive and
shall accept, in lieu of the number of Common Shares and Share Purchase
Warrants then sought to be acquired by it, the number of shares or
other securities or property of the Corporation or of the body
corporate, trust, partnership or other entity resulting from such
merger, amalgamation or consolidation, or to which such sale or
conveyance may be made, as the case may be, that such Warrantholder
would have been entitled to receive on such reclassification, capital
reorganization, consolidation, amalgamation, merger, sale or
conveyance, if, on the record date or the effective date thereof, as
the case may be, the Warrantholder had been the registered holder of
the number of Common Shares and Share Purchase Warrants sought to be
acquired by it. If determined appropriate by the Trustee to give effect
to or to evidence the provisions of this subsection 4.1(b), the
Corporation, its successor, or such purchasing body corporate,
partnership, trust or other entity, as the case may be, shall, prior to
or
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contemporaneously with any such reclassification, reorganization,
consolidation, amalgamation, merger, sale or conveyance, enter into an
indenture which shall provide, to the extent possible, for the
application of the provisions set forth in this Indenture with respect
to the rights and interests thereafter of the Warrantholders to the end
that the provisions set forth in this Indenture shall thereafter
correspondingly be made applicable, as nearly as may reasonably be,
with respect to any shares, other securities or property to which a
Warrantholder is entitled on the exercise of its acquisition rights
thereafter. Any indenture entered into between the Corporation and the
Trustee pursuant to the provisions of this subsection 4.1(b) shall be a
supplemental indenture entered into pursuant to the provisions of
Article 8 hereof. Any indenture entered into between the Corporation,
any successor to the Corporation or such purchasing body corporate,
partnership, trust or other entity and the Trustee shall provide for
adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provide in this Section 4.1 and which shall apply to
successive reclassification, reorganizations, amalgamations,
consolidations, mergers, sales or conveyances; and
(c) the adjustments provided for in this Article 4 in the number of Common
Shares and Share Purchase Warrants and classes of securities which are
to be received on the exer- cise of Special Warrants are cumulative.
After any adjustment pursuant to this Section, the term "Common Shares"
and "Share Purchase Warrants" where used in this Indenture shall be
interpreted to mean securities of any class or classes which, as a
result of such adjustment and all prior adjustments pursuant to this
Section, the Warrantholder is entitled to receive upon the exercise of
its Special Warrant, and the number of Common Shares and Share Purchase
Warrants indicated by any exercise made pursuant to a Special Warrant
shall be interpreted to mean the number of Common Shares and Share
Purchase Warrants or other property or securities a Warrantholder is
entitled to receive, as a result of such adjustment and all prior
adjustments pursuant to this Section, upon the full exercise of a
Special Warrant.
4.2 ENTITLEMENT TO COMMON SHARES AND SHARE PURCHASE WARRANTS
ON EXERCISE OF SPECIAL WARRANT
All shares of any class or other securities which a
Warrantholder is at the time in question entitled to receive on the exercise of
its Special Warrant, whether or not as a result of adjustments made pursuant to
this Section, shall, for the purposes of the interpretation of this Indenture,
be deemed to be shares which such Warrantholder is entitled to acquire pursuant
to such Special Warrant.
4.3 NO ADJUSTMENT FOR STOCK OPTIONS
Anything in this Article 4 to the contrary notwithstanding, no
adjustment shall be made in the acquisition rights attached to the Special
Warrants if the issue of Common Shares and Share Purchase Warrants is being made
pursuant to this Indenture or pursuant to any stock option, stock purchase or
employee RRSP plan in force from time to time for officers or employees of the
Corporation.
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4.4 DETERMINATION BY CORPORATION'S AUDITORS
In the event of any question arising with respect to the
adjustments provided for in this Article 4 such question shall be conclusively
determined by the Corporation's Auditors who shall have access to all necessary
records of the Corporation, and such determination shall be binding upon the
Corporation, the Trustee, all Warrantholders and all other persons interested
therein.
4.5 PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT
As a condition precedent to the taking of any action which
would require an adjustment in any of the acquisition rights pursuant to any of
the Special Warrants, including the number of Common Shares and Share Purchase
Warrants which are to be received upon the exercise thereof, the Corporation
shall take any corporate action which may, in the opinion of counsel, be
necessary in order that the Corporation has unissued and reserved in its
authorized capital and may validly and legally issue as fully paid and
non-assessable all the shares which the holders of such Special Warrants are
entitled to receive on the full exercise thereof in accordance with the
provisions hereof.
4.6 CERTIFICATE OF ADJUSTMENT
The Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or readjustment as provided
in Article 4, deliver a certificate of the Corporation to the Trustee specifying
the nature of the event requiring the same and the amount of the adjustment
necessitated thereby and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, which
certificate shall be supported by a certificate of the Corporation's auditors
verifying such calculation.
4.7 NOTICE OF SPECIAL MATTERS
The Corporation covenants with the Trustee that, so long as
any Special Warrant remains outstanding, it will give notice to the Trustee and
to the Warrantholders of its intention to fix the record date for the issuance
of rights, options or warrants (other than the Special Warrants) to all or
substantially all the holders of its outstanding Common Shares. Such notice
shall specify the particulars of such event and the record date for such event,
provided that the Corporation shall only be required to specify in the notice
such particulars of the event as shall have been fixed and determined on the
date on which the notice is given. The notice shall be given in each case not
less than fourteen (14) days prior to such applicable record date.
4.8 NO ACTION AFTER NOTICE
The Corporation covenants with the Trustee that it will not
close its transfer books or take any other corporate action which might deprive
the holder of a Special Warrant of the opportunity to exercise its right of
acquisition pursuant thereto during the period of fourteen (14) days after the
giving of the certificate or notices set forth in Section 4.6 and 4.7.
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4.9 PROTECTION OF TRUSTEE
Except as provided in Section 9.2, the Trustee:
(a) shall not at any time be under any duty or responsibility to any
Warrantholder to determine whether any facts exist which may require
any adjustment contemplated by Section 4.1, or with respect to the
nature or extent of any such adjustment when made, or with respect to
the method employed in making the same;
(b) shall not be accountable with respect to the validity or value (or the
kind or amount) of any Common Shares or Share Purchase Warrants or of
any shares or other securities or property which may at any time be
issued or delivered upon the exercise of the rights attaching to any
Special Warrant;
(c) shall not be responsible for any failure of the Corporation to issue,
transfer or deliver Common Shares or Share Purchase Warrants or
certificates for the same upon the surrender of any Special Warrants
for the purpose of the exercise of such rights or to comply with any of
the covenants contained in this Article; and
(d) shall not incur any liability or responsibility whatsoever or be in any
way responsible for the consequences of any breach on the part of the
Corporation of any of the representations, warranties or covenants
herein contained or of any acts of the agents or servants of the
Corporation.
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 OPTIONAL PURCHASES BY THE CORPORATION
The Corporation may from time to time purchase by private
contract or otherwise any of the Special Warrants. Any such purchase shall be
made at the lowest price or prices at which, in the opinion of the directors,
such Special Warrants are then obtainable, plus reasonable costs of purchase,
and may be made in such manner, from such persons and on such other terms as the
Corporation, in its sole discretion, may determine. Any Warrant Certificates
representing the Special Warrants purchased pursuant to this Section 5.1 shall
forthwith be delivered to and cancelled by the Trustee. No Special Warrants
shall be issued in replacement thereof.
5.2 GENERAL COVENANTS
The Corporation covenants with the Trustee that so long as any
Special Warrants remain outstanding:
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(a) it will reserve and keep available such number of Common Shares as are
sufficient from time to time for the purpose of enabling it to satisfy
its obligations to issue Common Shares upon the exercise of the Special
Warrants and potential obligation for the subsequent exercise of the
Share Purchase Warrants, in the event that the Corporation does not
have an unlimited number of Common Shares authorized;
(b) it will cause the Common Shares and Share Purchase Warrants and the
certificates representing the Common Shares from time to time acquired
pursuant to the exercise of the Special Warrants to be duly issued and
delivered in accordance with the Warrant Certificates and the terms
hereof;
(c) all Common Shares which shall be issued upon exercise of the right to
acquire provided for herein and in the Warrant Certificates shall be
fully paid and non-assessable;
(d) it will use its reasonable best efforts to maintain its corporate
existence;
(e) it will use its reasonable best efforts to ensure that all Common
Shares of the Corporation outstanding or issuable from time to time
continue to be or are listed and posted for trading on The Alberta
Stock Exchange;
(f) it will make all requisite filings under applicable Canadian securities
legislation including those necessary to remain a reporting issuer not
in default in Alberta and those necessary to report the exercise of the
right to acquire Common Shares pursuant to Special Warrants;
(g) it will send or cause to be sent by registered mail a written notice to
the Trustee and to each holder of Special Warrants at the address of
such holder appearing in the register of Special Warrants maintained
pursuant to this Special Warrant Indenture within five (5) Business
Days of the receipt for a Prospectus in all of the Filing Provinces
advising of the issuance of a receipt for the Prospectus by the
Securities Commissions and of the date upon which the Special Warrants
will be deemed to be exercised and expire;
(h) if the Corporation pays a dividend or makes any other distribution in
cash or property or securities of the Corporation (including rights,
options or warrants to acquire Common Shares or securities convertible
into or exchangeable for Common Shares and including evidences of its
indebtedness) to all or substantially all of the holders of Common
Shares prior to the Expiry Date, the Corporation agrees that it will
pay the same amount of such dividend or make the same distribution of
cash, property or securities to the Custodian on behalf of each of the
Warrantholders, as if the Warrantholder was the holder of the number of
Common Shares which the Warrantholder is entitled to receive upon the
exercise of its Special Warrants and such payments or other
distributions shall be held by the Trustee and dealt with in accordance
with the terms of this Indenture;
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(i) it will mail a notice to each Warrantholder specifying the particulars
of each payment or distribution made in accordance with subsection
5.2(h), within two (2) Business Days of such payment and distribution;
and
(j) generally, it will well and truly perform and carry out all of the acts
or things to be done by it as provided in this Indenture.
5.3 TRUSTEE'S REMUNERATION AND EXPENSES
The Corporation covenants that it will pay to the Trustee from
time to time reasonable remuneration for its services hereunder and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the administration
or execution of the trusts hereby created (including the reasonable compensation
and the disbursements of its counsel and all other advisers and assistants not
regularly in its employ) both before any default hereunder and thereafter until
all duties of the Trustee hereunder shall be finally and fully performed, except
any such expense, disbursement or advance as may arise out of or result from the
Trustee's negligence, willful misconduct or bad faith.
5.4 SECURITIES QUALIFICATION REQUIREMENTS
(a) If, in the opinion of counsel, any instrument (not including a
prospectus) is required to be filed with, or any permission is required
to be obtained from any governmental authority in Canada or any other
step is required under any federal or provincial law of Canada before
any Common Shares and Share Purchase Warrants which a Warrantholder is
entitled to acquire pursuant to the exercise of any Special Warrant may
properly and legally be issued upon due exercise thereof and thereafter
traded, without further formality or restriction, the Corporation
covenants that it will take such required action.
(b) The Corporation or, if required by the Corporation, the Trustee will
give notice of the issue of Common Shares and Share Purchase Warrants
pursuant to the exercise of Special Warrants, in such detail as may be
required, to each securities commission or similar regulatory authority
in each jurisdiction in Canada in which there is legislation or
regulation permitting or requiring the giving of any such notice in
order that such issue of Common Shares and Share Purchase Warrants and
the subsequent disposition of the Common Shares and Share Purchase
Warrants so issued will not be subject to the prospectus qualification
requirements of such legislation or regulation.
5.5 PERFORMANCE OF COVENANTS BY TRUSTEE
If the Corporation shall fail to perform any of its covenants
contained in this Warrant Indenture, the Trustee may notify the Warrantholders
of such failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to Section 9.2, shall be
under no obligation to perform said covenants or to notify the Warrantholders of
such performance by it. All sums expended or advanced by the Trustee in
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so doing shall be repayable as provided in Section 5.3. No such performance,
expenditure or advance by the Trustee shall relieve the Corporation of any
default hereunder or of its continuing obligations under the covenants herein
contained.
ARTICLE 6
ENFORCEMENT
6.1 SUITS BY WARRANTHOLDERS
All or any of the rights conferred upon any Warrantholder by
any of the terms of the Warrant Certificates or of the Indenture, or of both,
may be enforced by the Warrantholder by appropriate proceedings but without
prejudice to the right which is hereby conferred upon the Trustee to proceed in
its own name to enforce each and all of the provisions herein contained for the
benefit of the Warrantholders.
6.2 IMMUNITY OF SHAREHOLDERS, ETC.
The Trustee and, by the acceptance of the Warrant Certificates
and as part of the consideration for the issue of the Special Warrants, the
Warrantholders hereby waive and release any right, cause of action or remedy now
or hereafter existing in any jurisdiction against any incorporator or any past,
present or future shareholder, director, officer, employee or agent of the
Corporation or any successor Corporation on any covenant, agreement,
representation or warranty by the Corporation herein or in the Warrant
Certificates contained.
6.3 LIMITATION OF LIABILITY
The obligations hereunder are not personally binding upon, nor
shall resort hereunder be had to, the private property of any of the past,
present or future directors or shareholders of the Corporation or any successor
Corporation or any of the past, present or future officers, employees or agents
of the Corporation or any successor Corporation, but only the property of the
Corporation or any successor Corporation shall be bound in respect hereof.
6.4 WAIVER OF DEFAULT
Upon the happening of any default hereunder:
(a) the holders of not less than 51% of the Special Warrants then
outstanding shall have power (in addition to the powers exercisable by
extraordinary resolution as provided in Section 7.10) by requisition in
writing to instruct the Trustee to waive any default hereunder and the
Trustee shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition; or
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(b) the Trustee shall have power to waive any default hereunder upon such
terms and conditions as the Trustee on advice of its counsel may deem
advisable, if, in the Trustee's opinion, the same shall have been cured
or adequate provision made therefor;
provided that no delay or omission of the Trustee or of the Warrantholders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of the
Trustee or of the Warrantholders in the premises shall extend to or be taken in
any manner whatsoever to affect any subsequent default hereunder of the rights
resulting therefrom.
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 RIGHT TO CONVENE MEETINGS
The Trustee may at any time and from time to time, and shall
on receipt of a written request of the Corporation or of a Warrantholders'
Request and upon being indemnified and funded to its reasonable satisfaction by
the Corporation or by the Warrantholders signing such Warrantholders' Request
against the cost which may be incurred in connection with the calling and
holding of such meeting, convene a meeting of the Warrantholders. In the event
of the Trustee failing to so convene a meeting within seven (7) days after
receipt of such written request of the Corporation or such Warrantholders'
Request and indemnity given as aforesaid, the Corporation or such
Warrantholders, as the case may be, may convene such meeting. Every such meeting
shall be held in the City of Calgary or at such other place as may be approved
or determined by the Trustee.
7.2 NOTICE
At least ten (10) days' prior notice of any meeting of
Warrantholders shall be given to the Warrantholders in the manner provided for
in Section 10.2 and a copy of such notice shall be sent by mail to the Trustee
(unless the meeting has been called by the Trustee) and to the Corporation
(unless the meeting has been called by the Corporation). Such notice shall state
the time when and the place where the meeting is to be held, shall state briefly
the general nature of the business to be transacted thereat and shall contain
such information as is reasonably necessary to enable the Warrantholders to make
a reasoned decision on the matter, but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article 7.
7.3 CHAIRMAN
An individual (who need not be a Warrantholder) designated in
writing by the Trustee shall be chairman of the meeting and if no individual is
so designated, or if the individual so designated is not present within fifteen
(15) minutes from the time fixed for the
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holding of the meeting, the Warrantholders present in person or by proxy shall
choose some individual present to be chairman.
7.4 QUORUM
Subject to the provisions of Section 7.11, at any meeting of
the Warrantholders a quorum shall consist of Warrantholders present in person or
by proxy and entitled to purchase at least 25% of the aggregate number of Common
Shares which could be acquired pursuant to all the then outstanding Special
Warrants, provided that at least two persons entitled to vote thereat are
personally present. If a quorum of the Warrantholders shall not be present
within thirty (30) minutes from the time fixed for holding any meeting, the
meeting, if summoned by the Warrantholders or on a Warrantholders' Request,
shall be dissolved; but in any other case the meeting shall be adjourned to the
same day in the next week (unless such day is not a Business Day, in which case
it shall be adjourned to the next following Business Day) at the same time and
place and no notice of the adjournment need be given. Any business may be
brought before or dealt with at an adjourned meeting which might have been dealt
with at the original meeting in accordance with the notice calling the same. No
business shall be transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the Warrantholders present in
person or by proxy shall form a quorum and may transact the business for which
the meeting was originally convened, notwithstanding that they may not be
entitled to acquire at least 25% of the aggregate number of Common Shares which
may be acquired pursuant to all then outstanding Warrants.
7.5 POWER TO ADJOURN
The chairman of any meeting at which a quorum of the
Warrantholders is present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except such notice, if
any, as the meeting may prescribe.
7.6 SHOW OF HANDS
Every question submitted to a meeting shall be decided in the
first place by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner hereinafter
provided. At any such meeting, unless a poll is duly demanded as herein
provided, a declaration by the chairman that a resolution has been carried or
carried unanimously or by a particular majority or lost or not carried by a
particular majority shall be conclusive evidence of the fact.
7.7 POLL AND VOTING
On every extraordinary resolution, and on any other question
submitted to a meeting and after a vote by show of hands when demanded by the
chairman or by one or more of the Warrantholders acting in person or by proxy
and entitled to acquire in the aggregate at least 5% of the aggregate number of
Common Shares which could be acquired pursuant to all the Special Warrants then
outstanding, a poll shall be taken in such manner as the chairman shall
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direct. Questions other than those required to be determined by extraordinary
resolution shall be decided by a majority of the votes cast on the poll.
On a show of hands, every person who is present and entitled
to vote, whether as a Warrantholder or as proxy for one or more absent
Warrantholders, or both, shall have one vote. On a poll, each Warrantholder
present in person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole Common Share
which he is entitled to acquire pursuant to the Special Warrant or Special
Warrants then held or represented by it. A proxy need not be a Warrantholder.
The Chairman of any meeting shall be entitled, both on a show of hands and on a
poll, to vote in respect of the Special Warrants, if any, held or represented by
him.
7.8 REGULATIONS
The Trustee, or the Corporation with the approval of the
Trustee, may from time to time make and from time to time vary such regulations
as it shall think fit for:
(a) the setting of the record date for a meeting for the purpose of
determining Warrantholders entitled to receive notice of and to vote at
the meeting;
(b) the issue of voting certificates by any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrant
Certificates specified therein have been deposited with it by a named
person and will remain on deposit until after the meeting, which voting
certificate shall entitle the persons named therein to be present and
vote at any such meeting and at any adjournment thereof or to appoint a
proxy or proxies to represent them and vote for them at any such
meeting and at any adjournment thereof in the same manner and with the
same effect as though the persons so named in such voting certificates
were the actual bearers of the Warrant Certificates specified therein;
(c) the deposit of voting certificates and instruments appointing proxies
at such place and time as the Trustee, the Corporation or the
Warrantholders convening the meeting, as the case may be, may in the
notice convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing proxies
at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed or sent by facsimile before the meeting
to the Corporation or to the Trustee at the place where the same is to
be held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Warrantholders and the conduct
of business thereat.
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Any regulations so made shall be binding and effective and the
votes given in accordance therewith shall be valid and shall be counted. Save as
such regulations may provide, the only persons who shall be recognized at any
meeting as a Warrantholder, or be entitled to vote or be present at the meeting
in respect thereof (subject to Section 7.9), shall be Warrantholders or their
counsel, or proxies of Warrantholders.
7.9 CORPORATION AND TRUSTEE MAY BE REPRESENTED
The Corporation and the Trustee, by their respective
directors, officers and employees, and the counsel for the Corporation and for
the Trustee may attend any meeting of the Warrantholders, but shall not be
entitled to vote thereat, whether in respect of any Special Warrants held by
them or otherwise.
7.10 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION
In addition to all other powers conferred upon them by any
other provisions of this Indenture or by law, the Warrantholders at a meeting
shall, subject to the provisions of Section 7.11, have the power, exercisable
from time to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders or the Trustee in its
capacity as trustee hereunder or on behalf of the Warrantholders
against the Corporation whether such rights arise under this Indenture
or the Warrant Certificates or otherwise;
(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c) to direct or to authorize the Trustee to enforce any of the covenants
on the part of the Corporation contained in this Indenture or the
Warrant Certificates or to enforce any of the rights of the
Warrantholders in any manner specified in such extraordinary resolution
or to refrain from enforcing any such covenant or right;
(d) to waive, and to direct the Trustee to waive, any default on the part
of the Corporation in complying with any provisions of this Indenture
or the Warrant Certificates either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of any
of the covenants on the part of the Corporation in this Indenture or
the Warrant Certificates or to enforce any of the rights of the
Warrantholders;
(f) to direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or to discontinue or otherwise to deal with the
same upon payment of the costs, charges and expenses reasonably and
properly incurred by such Warrantholder in connection therewith;
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(g) to assent to any change in or omission from the provisions contained in
the Warrant Certificates and this Indenture or any ancillary or
supplemental instrument which may be agreed to by the Corporation, and
to authorize the Trustee to concur in and execute any ancillary or
supplemental indenture embodying the change or omission;
(h) with the consent of the Corporation, to remove the Trustee or its
successor in office and to appoint a new trustee or trustees to take
the place of the Trustee so removed; and
(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Corporation.
7.11 MEANING OF EXTRAORDINARY RESOLUTION
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter provided in this Section 7.11 and in
Section 7.14, a resolution proposed at a meeting of Warrantholders duly
convened for that purpose and held in accordance with the provisions of
this Article 7 at which there are present in person or by proxy
Warrantholders entitled to acquire at least 25% of the aggregate number
of Common Shares which may be acquired pursuant to all the then
outstanding Special Warrants and passed by the affirmative votes of
Warrantholders entitled to acquire not less than 66 2/3% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Special Warrants represented at the meeting and
vote on the poll upon such resolution.
(b) If, at the meeting at which an extraordinary resolution is to be
considered, Warrantholders entitled to acquire at least 25% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Special Warrants are not present in person or by
proxy within thirty (30) minutes after the time appointed for the
meeting, then the meeting, if convened by Warrantholders or on
Warrantholders' Request, shall be dissolved; but in any other shall
stand adjourned to such day, being not less than fifteen nor more than
sixty (60) days later, and to such place and time as appointed by the
chairman. Not less than ten (10) days' prior notice shall be given of
the time and place of such adjourned meeting in the manner provided for
in Section 10.2. Such notice shall state that at the adjourned meeting
the Warrantholders present in person or by proxy shall form a quorum
but it shall not be necessary to set forth the purposes for which the
meeting was originally called or any other particulars. At the
adjourned meeting the Warrantholders present in person or by proxy
shall form a quorum and may transact the business for which the meeting
was originally convened and a resolution proposed at such adjourned
meeting and passed by the requisite vote as provided in subsection
7.11(a) shall be an extraordinary resolution within the meaning of this
Indenture notwithstanding that Warrantholders entitled to acquire at
least 25% of the aggregate number of Common Shares which may be
acquired pursuant to all the then
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outstanding Special Warrants are not present in person or by proxy at
such adjourned meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary.
7.12 POWERS CUMULATIVE
Any one or more of the powers or any combination of the powers
in this Indenture stated to be exercisable by the Warrantholders by
extraordinary resolution or otherwise may be exercised from time to time and the
exercise of any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the Warrantholders to
exercise such power or powers or combination of powers then or thereafter from
time to time.
7.13 MINUTES
Minutes of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be provided from time
to time for that purpose by the Trustee at the expense of the Corporation, and
any such minutes as aforesaid, if signed by the chairman or the secretary of the
meeting at which such resolutions were passed or proceedings had shall be prima
facie evidence of the matters therein stated and, until the contrary if proved,
every such meeting in respect of the proceedings of which minutes shall have
been made shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken shall be deemed to have been
duly passed and taken.
7.14 INSTRUMENTS IN WRITING
All actions which may be taken and all powers that may be
exercised by the Warrantholders at a meeting held as provided in this Article 7
may also be taken and exercised by Warrantholders entitled to acquire at least
66 2/3% of the aggregate number of Common Shares which may be acquired pursuant
to all the then outstanding Special Warrants by an instrument in writing signed
in one or more counterparts by such Warrantholders in person or by attorney duly
appointed in writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
7.15 BINDING EFFECT OF RESOLUTION
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article 7 at a meeting of Warrantholders
shall be binding upon all the Warrantholders, whether present at or absent from
such meeting, and every instrument in writing signed by Warrantholders in
accordance with Section 7.14 shall be binding upon all the Warrantholders,
whether signatories thereto or not, and each and every Warrantholder and the
Trustee (subject to the provisions for indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
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7.16 HOLDINGS BY CORPORATION DISREGARDED
In determining whether Warrantholders holding Warrant
Certificates evidencing the entitlement to acquire the required number of Common
Shares are present at a meeting of Warrantholders for the purpose of determining
a quorum or have concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture, Special Warrants
owned legally or beneficially by the Corporation or any Subsidiary of the
Corporation shall be disregarded in accordance with the provisions of Section
10.8.
ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 PROVISION FOR SUPPLEMENTAL INDENTURES FOR CERTAIN PURPOSES
From time to time the Corporation (when authorized by action
of the directors) and the Trustee may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions hereof, execute
and deliver by their proper officers, indentures or instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more or all of
the following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 4;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary or
advisable in the premises, provided that the same are not in the
opinion of the Trustee prejudicial to the interests of the
Warrantholders;
(c) giving effect to any extraordinary resolution passed as provided in
Article 7;
(d) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder or for the purpose of obtaining a listing or quotation of the
Special Warrants on any stock exchange, provided that such provisions
are not, in the opinion of the Trustee on advice of its counsel,
prejudicial to the interests of the Warrantholders;
(e) adding to or altering the provisions hereof in respect of the transfer
of Special Warrants, making provision for the exchange of Warrant
Certificates, and making any modification in the form of the Warrant
Certificates which does not affect the substance thereof;
(f) modifying any of the provisions of this Indenture, including relieving
the Corporation from any of the obligations, conditions or restrictions
herein contained, provided that such modification or relief shall be or
become operative or effective only if, in the opinion of the Trustee on
advice of its counsel, such modification or relief in no way
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prejudices any of the rights of the Warrantholders or of the Trustee,
and provided further that the Trustee may in its sole discretion
decline to enter into any such supplemental indenture which in its
opinion may not afford adequate protection to the Trustee when the same
shall become operative; and
(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes or
omissions herein, provided that in the opinion of the Trustee the
rights of the Trustee and of the Warrantholders are in no way
prejudiced thereby.
8.2 SUCCESSOR CORPORATIONS
In the case of the consolidation, amalgamation, merger or
transfer of the undertaking or assets of the Corporation as an entirety or
substantially as an entirety to another Corporation ("successor Corporation"),
the successor Corporation resulting from such consolidation, amalgamation,
merger or transfer (if not the Corporation) shall expressly assume, by
supplemental indenture satisfactory in form to the Trustee and executed and
delivered to the Trustee, the due and punctual performance and observance of
each and every covenant and condition of this Indenture to be performed and
observed by the Corporation.
ARTICLE 9
CONCERNING THE TRUSTEE
9.1 TRUST INDENTURE LEGISLATION
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Trustee agree that each will, at all times in
relation to this Indenture and any action to be taken hereunder,
observe and comply with and be entitled to the benefits of Applicable
Legislation.
9.2 RIGHTS AND DUTIES OF TRUSTEE
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Trustee shall exercise that degree of
care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. No provision of this Indenture
shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct or bad faith.
(b) The obligation of the Trustee to commence or continue any act, action
or proceeding for the purpose of enforcing any rights of the Trustee or
the Warrantholders hereunder shall be conditional upon the
Warrantholders furnishing, when required by notice by the
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Trustee, sufficient funds to commence or to continue such act, action
or proceeding and an indemnity reasonably satisfactory to the Trustee
to protect and to hold harmless the Trustee against the costs, charges
and expenses and liabilities to be incurred thereby and any loss and
damage it may suffer by reason thereof. None of the provisions
contained in this Indenture shall require the Trustee to expend or to
risk its own funds or otherwise to incur financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers unless indemnified as aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Warrantholders, at whose instance it is acting to deposit with the
Trustee the Special Warrants held by them, for which Special Warrants
the Trustee shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence submitted
to it is subject to the provisions of Applicable Legislation, of this
Section 9.2 and of Section 9.3
9.3 EVIDENCE, EXPERTS AND ADVISERS
(a) In addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Corporation shall furnish to the
Trustee such additional evidence of compliance with any provision
hereof, and in such form, as may be prescribed by Applicable
Legislation or as the Trustee may reasonably require by written notice
to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Trustee
may, if it is acting in good faith, rely as to the truth of the
statements and the accuracy of the opinions expressed in statutory
declarations, opinions, reports, written requests, consents, or orders
of the Corporation, certificates of the Corporation or other evidence
furnished to the Trustee pursuant to a request of the Trustee, provided
that such evidence complies with Applicable Legislation and that the
Trustee complies with Applicable Legislation and that the Trustee
examines the same and determines that such evidence complies with the
applicable requirements of this Indenture.
(c) Whenever it is provided in this Indenture or under Applicable
Legislation that the Corporation shall deposit with the Trustee
resolutions, certificates, reports, opinions, requests, orders or other
documents, it is intended that the trust, accuracy and good faith on
the effective date thereof and the facts and opinions stated in all
such documents so deposited shall, in each and every such case, be
conditions precedent to the right of the Corporation to have the
Trustee take the action to be based thereon.
(d) Proof of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the
certificate of a notary public, or other officer with similar powers,
that the person signing such instrument acknowledged to it the exe-
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cution thereof, or by an affidavit of a witness to such execution or in
any other manner which the Trustee may consider adequate.
(e) The Trustee may employ or retain such Counsel, accountants, appraisers
or other experts or advisers as it may reasonably require for the
purpose of discharging its duties hereunder and may pay reasonable
remuneration for all services so performed by any of them, without
taxation of costs of any Counsel, and shall not be responsible for any
misconduct or negligence on the part of any such experts or advisers
who have been appointed with due care by the Trustee.
9.4 DOCUMENTS, MONIES, ETC. HELD BY TRUSTEE
Any securities, documents of title or other instruments that
may at any time be held by the Trustee subject to the trusts hereof may be
placed in the deposit vaults of the Trustee or of any Canadian chartered bank or
deposited for safekeeping with any such bank. Unless herein otherwise expressly
provided, any monies so held pending the application or withdrawal thereof under
any provisions of this Indenture may be deposited in the name of the Trustee in
any Canadian chartered bank at the rate of interest (if any) then current on
similar deposits or, with the consent of the Corporation, may be: (i) deposited
in the deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or a province thereof; or
(ii) invested in securities issued or guaranteed by the Government of Canada or
a province thereof or in obligations maturing not more than sixty days from the
date of investment, of any Canadian chartered bank or loan or trust company.
Unless the Corporation shall be in default hereunder, all interest or other
income received by the Trustee in respect of such deposits and investments shall
belong to the Corporation.
9.5 ACTIONS BY TRUSTEE TO PROTECT INTEREST
The Trustee shall have power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient to preserve,
protect or enforce its interests and the interests of the Warrantholders.
9.6 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security
in respect of the execution of the trusts and powers of this Indenture or
otherwise in respect of the premises.
9.7 PROTECTION OF TRUSTEE
By way of supplement to the provisions of any law for the time
being relating to trustees it is expressly declared and agreed as follows:
(a) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Warrant Certificates
(except the representation contained in Section 9.9 or in the
certificate of the Trustee on the Warrant Certificates) or be required
to
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verify the same, but all such statements or recitals are and shall be
deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or renewal
thereof) of this Indenture or any instrument ancillary or supplemental
hereto;
(c) the Trustee shall not be bound to give notice to any person or
persons of the execution hereof;
(d) the Trustee shall not incur any liability or responsibility whatever or
be in any way responsible for the consequence of any breach on the part
of the Corporation of any of the covenants herein contained or of any
acts of any directors, officers, employees, agents or servants of the
Corporation; and
(e) without limiting any protection or indemnity of the Trustee under
any other provision hereof, or otherwise at law, the Corporation hereby
agrees to indemnify and hold harmless the Trustee from and against any
and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including legal or advisor
fees and disbursements, of whatever kind and nature which may at any
time be imposed on, incurred by or asserted against the Trustee in
connection with the performance of its duties and obligations
hereunder, other than such liabilities, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements arising by
reason of the negligence or willful misconduct of the Trustee. This
provision shall survive the resignation or removal of the Trustee or
the termination of this Warrant Indenture.
9.8 REPLACEMENT OF TRUSTEE; SUCCESSOR BY MERGER
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this Section 9.8, by
giving to the Corporation not less than ninety (90) days' prior notice
in writing or such shorter prior notice as the Corporation may accept
as sufficient. The Warrantholders by extraordinary resolution shall
have power at any time to remove the existing Trustee and to appoint a
new Trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into liquidation
or otherwise becoming incapable of acting hereunder, the Corporation
shall forthwith appoint a new trustee unless a new trustee has already
been appointed by the Warrantholders; failing such appointment by the
Corporation, the retiring Trustee or any Warrantholder may apply to a
justice of the Court of Queen's Bench of the Province of Alberta on
such notice as such justice may direct, for the appointment of a new
trustee; but any new trustee so appointed by the Corporation or by the
Court shall be subject to removal as aforesaid by the Warrantholders.
Any new trustee appointed under any provision of this Section 9.8 shall
be a Corporation authorized to carry on the business of a trust company
in the Province of Alberta and, if required by the Applicable
Legislation for any other provinces, in such other provinces. On any
such appointment the new trustee shall be vested with the same
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powers, rights, duties and responsibilities as if it had been
originally named herein as Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for
in Section 10.2 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom or
any corporation succeeding to the trust business of the Trustee shall
be the successor to the Trustee hereunder without any further act on
its part or any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor trustee under
subsection 9.8(a).
(d) Any Warrant Certificates certified but not delivered by a predecessor
trustee may be certified by the successor trustee in the name of the
predecessor or successor trustee.
9.9 CONFLICT OF INTEREST
(a) The Trustee represents to the Corporation that at the time of execution
and delivery hereof no material conflict of interest exists between its
role as a trustee hereunder and its role in any other capacity and
agrees that in the event of a material conflict of interest arising
hereafter it will, within ninety (90) days after ascertaining that it
has such material conflict of interest, either eliminate the same or
assign its trust hereunder to a successor trustee approved by the
Corporation and meeting the requirements set forth in subsection
9.8(a).
Notwithstanding the foregoing provisions of this subsection 9.9(a), if
any such material conflict of interest exists or hereafter shall exist,
the validity and enforceability of this Indenture and the Warrant
Certificate shall not be affected in any manner whatsoever by reason
thereof.
(b) Subject to subsection 9.9(a), the Trustee, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Corporation
and generally may contract and enter into financial transactions with
the Corporation or any Subsidiary of the Corporation without being
liable to account for any profit made thereby.
9.10 ACCEPTANCE OF TRUST
The Trustee hereby accepts the trusts in this Indenture
declared and provided for and agrees to perform the same upon the terms and
conditions herein set forth.
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9.11 TRUSTEE NOT TO BE APPOINTED RECEIVER
The Trustee and any person related to the Trustee shall not be
appointed a receiver, a receiver and manager or liquidator of all or any part of
the assets or undertaking of the Corporation.
ARTICLE 10
GENERAL
10.1 NOTICE TO THE CORPORATION AND THE TRUSTEE
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Trustee shall be deemed to be
validly given if delivered or if sent by registered letter, postage
prepaid:
If to the Corporation:
HealthCare Capital Corp.
c/o Suite 4000, 150 Sixth Avenue S.W.
Calgary, Alberta T2P 3Y7
Fax: (403) 233-8979
If to the Trustee:
The R-M Trust Company
600, 333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Zl
Fax: (403) 264-2100
and any such notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery or, if mailed, on
the fifth (5th) Business Day following the date of the postmark on such
notice.
(b) The Corporation or the Trustee, as the case may be, may from time to
time notify the other in the manner provided in subsection 10.1(a) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Corporation
or the Trustee, as the case may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Corporation hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered to the named officer of the party to
which it is addressed or, if it is delivered to such party at the
appropriate address provided in
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subsection 10.1(a), by facsimile or other means of prepaid, transmitted
and recorded communication.
10.2 NOTICE TO WARRANTHOLDERS
(a) Any notice to the Warrantholders under the provisions of this Indenture
shall be valid and effective if sent by facsimile or letter or circular
through the ordinary post addressed to such holders at their post
office addresses appearing on the register hereinbefore mentioned and
shall be deemed to have been effectively given on the date of delivery
or, if mailed, five (5) Business Days following actual posting of the
notice.
(b) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Warrantholders hereunder could reasonably be considered unlikely to
reach its destination, such notice shall be valid and effective only if
it is delivered personally to such Warrantholders or if delivered to
the address for such Warrantholders contained in the register of
Special Warrants maintained by the Trustee, by facsimile or other means
of prepaid transmitted and recorded communication.
10.3 OWNERSHIP AND TRANSFER OF SPECIAL WARRANTS
The Corporation and the Trustee may deem and treat the
registered owner of any Special Warrants as the absolute owner thereof for all
purposes, and the Corporation and the Trustee shall not be affected by any
notice or knowledge to the contrary except where the Corporation or the Trustee
is required to take notice under any statute or by order of a court of competent
jurisdiction. A Warrantholder shall be entitled to the rights evidenced by its
Warrant Certificate free from all equities or rights of set off or counterclaim
between the Corporation and the original or any intermediate holder of the
Special Warrants and all persons may act accordingly and the receipt of any such
Warrantholder for the Common Shares and Share Purchase Warrants which may be
acquired pursuant thereto shall be a good discharge to the Corporation and the
Trustee for the same and neither the Corporation nor the Trustee shall be bound
to inquire into the title of any such holder except where the Corporation or the
Trustee is required to take notice by statute or by order of a court of
competent jurisdiction.
10.4 EVIDENCE OF OWNERSHIP
(a) Upon receipt of a certificate of any bank, trust company or other
depository satisfactory to the Trustee stating that the Special
Warrants specified therein have been deposited by a named person with
such bank, trust company or other depository and will remain so
deposited until the expiry of the period specified therein, the
Corporation and the Trustee may treat the person so named as the owner,
and such certificate as sufficient evidence of the ownership by such
person of such Special Warrant during such period, for the
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purpose of any requisition, direction, consent, instrument or other
document to be made, signed or given by the holder of the Special
Warrant so deposited.
(b) The Corporation and the Trustee may accept as sufficient evidence of
the fact and date of the signing of any requisition, direction,
consent, instrument or other document by any person (i) the signature
of any officer of any bank, trust company, or other depository
satisfactory to the Trustee as witness of such execution, (ii) the
certificate of any notary public or other officer authorized to take
acknowledgements of deeds to be recorded at the place where such
certificate is made that the person signing acknowledged to him the
execution thereof, or (iii) a satisfactory declaration of a witness of
such execution.
10.5 COUNTERPARTS
This Indenture may be executed in several counterparts, each
of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution they shall be deemed to be dated as of
the date hereof.
10.6 SATISFACTION AND DISCHARGE OF INDENTURE
Upon the earlier of:
(a) the date by which there shall have been delivered to the Trustee
for exercise or destruction all Warrant Certificates theretofore
certified hereunder; or
(b) the Time of Expiry;
this Indenture shall cease to be of further effect and the Trustee, on demand of
and at the cost and expense of the Corporation and upon delivery to the Trustee
of a certificate of the Corporation stating that all conditions precedent to the
satisfaction and discharge of this Indenture have been complied with, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture. Notwithstanding the foregoing, the indemnities provided to the
Trustee by the Corporation hereunder shall remain in full force and effect and
survive the termination of this Indenture.
10.7 PROVISIONS OF INDENTURE AND SPECIAL WARRANTS
FOR THE SOLE BENEFIT OF PARTIES AND WARRANTHOLDERS
Nothing in this Indenture or in the Warrant Certificates,
expressed or implied, shall give or be construed to give to any person other
than the parties hereto and the Warrantholders, as the case may be, any legal or
equitable right, remedy or claim under this Indenture, or under any covenant or
provision herein or therein contained, all such covenants and provisions being
for the sole benefit of the parties hereto and the Warrantholders.
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10.8 SPECIAL WARRANTS OWNED BY THE CORPORATION
OR ITS SUBSIDIARIES - CERTIFICATE TO BE PROVIDED
For the purpose of disregarding any Special Warrants owned
legally or beneficially by the Corporation or any Subsidiary of the Corporation
in Section 7.16, the Corporation shall provide to the Trustee, from time to
time, a certificate of the Corporation setting forth as at the date of such
certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Special Warrants which, to the knowledge of the Corporation,
are owned by or held for the account of the Corporation or any
Subsidiary of the Corporation; and
(b) the number of Special Warrants owned legally or beneficially by the
Corporation or any Subsidiary of the Corporation;
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and the Trustee, in making the computations in Section 7.16, shall be entitled
to rely on such certificate without any additional evidence.
IN WITNESS WHEREOF the parties hereto have executed this
Indenture under their respective corporate seals and the hands of their proper
officers in that behalf.
HEALTHCARE CAPITAL CORP.
Per: /S/ DOUGLAS S. GOOD
THE R-M TRUST COMPANY
Per: /S/ M. GUITARD
Per: /S/ K. STERRITT
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<PAGE>
THIS IS SCHEDULE "A" to the Special Warrant Indenture made as
of February 28, 1996 between HEALTHCARE CAPITAL CORP. AND THE
R-M TRUST COMPANY, AS TRUSTEE
(FOR USE WITH BRITISH COLUMBIA WARRANTHOLDERS)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UNLESS EXERCISED BY 4:30 P.M. (CALGARY TIME) ON THE EARLIER OF (i) TEN
(10) DAYS AFTER THE DATE OF ISSUANCE OF A RECEIPT BY THE LAST OF THE SECURITIES
COMMISSIONS IN EACH OF THE PROVINCES OF ALBERTA AND BRITISH COLUMBIA FOR A FINAL
PROSPECTUS RELATING TO THE DISTRIBUTION OF COMMON SHARES AND SHARE PURCHASE
WARRANTS UPON THE EXERCISE OF SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE;
AND (ii) FEBRUARY 28, 1997.
SPECIAL WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
SPECIAL WARRANT
CERTIFICATE NO.
SPECIAL WARRANTS entitling the holder to acquire, subject to
adjustment, one (1) Common Share and one (1) Share Purchase
Warrant for each Special Warrant represented hereby.
THIS IS TO CERTIFY THAT
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at any time
and from time to time until 4:30 p.m. (Calgary time) (the "Time of Expiry") on
the earlier of: (i) ten (10) days after the date of issuance of a receipt by the
securities commission or similar regulatory authority in each of the provinces
of Alberta and British Columbia (the "Filing Provinces") for a final prospectus
relating to the distribution of Common Shares and Share Purchase Warrants upon
the exercise of Special Warrants; and (ii) February 28, 1997 (the "Expiry
Date"), one (1) fully paid and non-assessable Common Share ("Common Share")
without nominal or par value of HealthCare Capital Corp. (the "Corporation") as
such shares were constituted on February 28, 1996 plus one (1) Share Purchase
Warrant, each Share Purchase Warrant entitling the holder to subscribe for one
(1)
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<PAGE>
additional Common Share at the subscription price of $1.25 per Common Share
until February 28, 1997 and thereafter at a price of $1.50 per Common Share
until February 28, 1998 (the "Share Purchase Warrant"), for each Special Warrant
represented hereby.
The right to acquire Common Shares and Share Purchase Warrants
may only be exercised by the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto; and
(b) surrendering this Special Warrant Certificate to The R-M Trust Company
(the "Trustee") at the principal office of the Trustee in the City of
Calgary.
These Special Warrants shall be deemed to be surrendered only
upon personal delivery hereof or, if sent by mail or other means of
transmission, upon actual receipt thereof by the Trustee at the office referred
to above.
Upon surrender of these Special Warrants, the person or
persons in whose name or names the Common Shares and Share Purchase Warrants
issuable upon exercise of the Special Warrants are to be issued shall be deemed
for all purposes (except as provided in the Indenture hereinafter referred to)
to be the holder or holders of record of such Common Shares and Share Purchase
Warrants and the Corporation covenants that it will (subject to the provisions
of the Indenture) cause a certificate or certificates representing such Common
Shares and Share Purchase Warrants to be delivered or mailed to the person or
persons at the address or addresses specified in the Exercise Form within five
(5) Business Days.
The registered holder of these Special Warrants may acquire
any lesser number of Common Shares and Share Purchase Warrants than the number
of Common Shares and Share Purchase Warrants which may be acquired for the
Special Warrants represented by this Special Warrant Certificate. In such event,
the holder shall be entitled to receive a new Special Warrant Certificate for
the balance of the Common Shares and Share Purchase Warrants which may be
acquired. No fractional Common Shares or Share Purchase Warrants will be issued.
Any Special Warrants which are not exercised to acquire Common
Shares and Share Purchase Warrants prior to the Expiry Time shall be deemed to
be exercised to acquire Common Shares and Share Purchase Warrants, without any
further action on the part of the holder at the Time of Expiry. The certificate
representing the Common Shares and Share Purchase Warrants issued thereby may be
obtained upon duly completing and executing the Exercise Form attached hereto
and surrendering this Special Warrant Certificate to the Trustee at the
principal offices of the Trustee in Calgary, Alberta.
At the Time of Expiry, the right of a holder to acquire Common
Shares and Share Purchase Warrants represented hereby will be deemed to have
been exercised and the certificates representing the Common Shares and Share
Purchase Warrants issued thereby may be obtained upon duly completing and
executing the Exercise Form attached hereto and surrendering this Warrant
Certificate to the Trustee at the principal office of the Trustee in the City of
Calgary.
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<PAGE>
The Special Warrants represented by this certificate are
issued under and pursuant to a Special Warrant Indenture (hereinafter referred
to as the "Indenture") made as of February 28, 1996 between the Corporation and
the Trustee. Reference is made to the Indenture and any instruments supplemental
thereto for a full description of the rights of the holders of the Special
Warrants and the terms and conditions upon which the Special Warrants are, or
are to be, issued and held, with the same effect as if the provisions of the
Indenture and all instruments supplemental thereto were herein set forth. By
acceptance hereof, the holder assents to all provisions of the Indenture.
Capitalized terms used in the Indenture have the same meaning herein as therein,
unless otherwise defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Special Warrants shall, upon exercise of the Special
Warrants following the occurrence of any of those events, be entitled to receive
the same number and kind of securities that they would have been entitled to
receive had they exercised their Special Warrants immediately prior to the
occurrence of those events.
The registered holder of this Special Warrant Certificate may,
at any time prior to the Expiry Date, upon surrender hereof to the Trustee at
its principal office in the City of Calgary, exchange this Special Warrant
Certificate for other Special Warrant Certificates entitling the holder to
acquire, in the aggregate, the same number of Common Shares and Share Purchase
Warrants as may be acquired under this Special Warrant Certificate.
The holding of the Special Warrants evidenced by this Special
Warrant Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Special Warrant
Certificate.
The Indenture provides that all holders of Special Warrants
shall be bound by any resolution passed at a meeting of the holders held in
accordance with the provisions of the Indenture and resolutions signed by the
holders of Special Warrants entitled to acquire a specified majority of the
Common Shares which may be acquired pursuant to all then outstanding Special
Warrants.
The Special Warrants evidenced by this Special Warrant
Certificate may be transferred on the register kept at the offices of the
Trustee by the registered holder hereof or its legal representatives or its
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Trustee, only upon compliance with the conditions prescribed
in the Indenture and upon compliance with such reasonable requirements as the
Trustee may prescribe.
This Special Warrant Certificate shall not be valid for any
purpose whatever unless and until it has been certified by or on behalf of the
Trustee.
Time shall be of the essence hereof.
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<PAGE>
IN WITNESS WHEREOF the Corporation has caused this Special
Warrant Certificate to be signed by its duly authorized officer as of February
28, 1996.
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
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<PAGE>
TRANSFER OF SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Special Warrants of HealthCare Capital Corp. registered in the
name of the undersigned on the records of The R-M Trust Company, represented by
the Special Warrant Certificate attached.
DATED the day of , 199 .
- ---------
Signature Guaranteed (Signature of Special Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Special Warrantholder must be the signature of the
person appearing on the face of this Special Warrant Certificate.
4. Special Warrants shall only be transferable in accordance with
applicable laws. The transfer of Special Warrants to a purchaser not
resident in a Filing Province may result in the Common Shares and Share
Purchase Warrants obtained upon the exercise of the Special Warrants
(whether after or before obtaining receipts for a final prospectus
relating to the distribution of Common Shares and Share Purchase
Warrants upon exercise of Special Warrants) not being freely tradeable
in the jurisdiction of the purchaser.
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares and Share Purchase Warrants of HealthCare Capital Corp. as constituted on
February 28, 1996 (or such number of other securities or property to which such
Special Warrants entitle the undersigned in lieu thereof or in addition thereto
under the provisions of the Indenture referred to in the accompanying Special
Warrant Certificate) in accordance with and subject to the provisions of such
Indenture.
The Common Shares and Share Purchase Warrants (or other
securities or property) are to be issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares and Share Purchase Warrants:
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Special Warrantholder)
Print Full Name
Print Full Address
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Instructions:
1. The registered holder may exercise its right to receive Common Shares
and Share Purchase Warrants by completing this form and surrendering
this form and the Special Warrant Certificate representing the Special
Warrants being exercised to The R-M Trust Company at its principal
office at Suite 600, 333 7th Avenue S. W., Calgary, Alberta T2P 2Zl.
Certificates for Common Shares and Share Purchase Warrants will be
delivered or mailed as soon as practicable after the exercise of the
Special Warrants.
2. If the Exercise Form indicates that Common Shares and Share Purchase
Warrants are to be issued to a person or persons other than the
registered holder of the Certificate, the signature of such holder on
the Exercise Form MUST be guaranteed by an authorized officer of a
chartered bank, trust company or an investment dealer who is a member
of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
4. If the registered holder exercises its right to receive Common Shares
and Share Purchase Warrants prior to a receipt being issued by the
applicable securities commission the Common Shares and Share Purchase
Warrants will be subject to a hold period and may be issued with a
legend reflecting such hold period.
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THIS IS SCHEDULE "A" to the Special Warrant Indenture made as
of February 28, 1996 between HEALTHCARE CAPITAL CORP. AND THE
R-M TRUST COMPANY, AS TRUSTEE
(FOR USE WITH UNITED STATES WARRANTHOLDERS)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UNLESS EXERCISED BY 4:30 P.M. (CALGARY TIME) ON THE EARLIER OF (i) TEN
(10) DAYS AFTER THE DATE OF ISSUANCE OF A RECEIPT BY THE LAST OF THE SECURITIES
COMMISSIONS IN EACH OF THE PROVINCES OF ALBERTA AND BRITISH COLUMBIA FOR A FINAL
PROSPECTUS RELATING TO THE DISTRIBUTION OF COMMON SHARES AND SHARE PURCHASE
WARRANTS UPON THE EXERCISE OF SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE;
AND (ii) FEBRUARY 28, 1997.
SPECIAL WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
SPECIAL WARRANT
CERTIFICATE NO.
SPECIAL WARRANTS entitling the holder to acquire, subject to
adjustment, one (1) Common Share and one (1) Share Purchase
Warrant for each Special Warrant represented hereby.
THIS IS TO CERTIFY THAT
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at 4:30 p.m.
(Calgary time) (the "Time of Expiry") on the earlier of: (i) ten (10) days after
the date of issuance of a receipt by the securities commission or similar
regulatory authority in each of the provinces of Alberta and British Columbia
(the "Filing Provinces") for a final prospectus relating to the distribution of
Common Shares and Share Purchase Warrants upon the exercise of Special Warrants;
and (ii) February 28, 1997 (the "Expiry Date"), one (1) fully paid and
non-assessable Common Share ("Common Share") without nominal or par value of
HealthCare Capital Corp. (the "Corporation") as such shares were constituted on
February 28, 1996 plus one (1) Share Purchase Warrant, each Share Purchase
Warrant entitling the holder to subscribe for one (1) additional Common Share at
the
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<PAGE>
subscription price of $1.25 per Common Share until February 28, 1997 and
thereafter at a price of $1.50 per Common Share until February 28, 1998 (the
"Share Purchase Warrant"), for each Special Warrant represented hereby.
The right to acquire Common Shares and Share Purchase Warrants
may only be exercised by the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto; and
(b) surrendering this Special Warrant Certificate to The R-M Trust Company
(the "Trustee") at the principal office of the Trustee in the City of
Calgary.
These Special Warrants shall be deemed to be surrendered only
upon personal delivery hereof or, if sent by mail or other means of
transmission, upon actual receipt thereof by the Trustee at the office referred
to above.
Upon surrender of these Special Warrants, the person or
persons in whose name or names the Common Shares and Share Purchase Warrants
issuable upon exercise of the Special Warrants are to be issued shall be deemed
for all purposes (except as provided in the Indenture hereinafter referred to)
to be the holder or holders of record of such Common Shares and Share Purchase
Warrants and the Corporation covenants that it will (subject to the provisions
of the Indenture) cause a certificate or certificates representing such Common
Shares and Share Purchase Warrants to be delivered or mailed to the person or
persons at the address or addresses specified in the Exercise Form within five
(5) Business Days.
The registered holder of these Special Warrants may acquire
any lesser number of Common Shares and Share Purchase Warrants than the number
of Common Shares and Share Purchase Warrants which may be acquired for the
Special Warrants represented by this Special Warrant Certificate. In such event,
the holder shall be entitled to receive a new Special Warrant Certificate for
the balance of the Common Shares and Share Purchase Warrants which may be
acquired. No fractional Common Shares or Share Purchase Warrants will be issued.
Any Special Warrants which are not exercised to acquire Common
Shares and Share Purchase Warrants prior to the Expiry Time shall be deemed to
be exercised to acquire Common Shares and Share Purchase Warrants, without any
further action on the part of the holder at the Time of Expiry. The certificate
representing the Common Shares and Share Purchase Warrants issued thereby may be
obtained upon duly completing and executing the Exercise Form attached hereto
and surrendering this Special Warrant Certificate to the Trustee at the
principal offices of the Trustee in Calgary, Alberta.
At the Time of Expiry, the right of a holder to acquire Common
Shares and Share Purchase Warrants represented hereby will be deemed to have
been exercised and the certificates representing the Common Shares and Share
Purchase Warrants issued thereby may be obtained upon duly completing and
executing the Exercise Form attached hereto and surrendering this Warrant
Certificate to the Trustee at the principal office of the Trustee in the City of
Calgary.
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The Special Warrants represented by this certificate are
issued under and pursuant to a Special Warrant Indenture (hereinafter referred
to as the "Indenture") made as of February 28, 1996 between the Corporation and
the Trustee. Reference is made to the Indenture and any instruments supplemental
thereto for a full description of the rights of the holders of the Special
Warrants and the terms and conditions upon which the Special Warrants are, or
are to be, issued and held, with the same effect as if the provisions of the
Indenture and all instruments supplemental thereto were herein set forth. By
acceptance hereof, the holder assents to all provisions of the Indenture.
Capitalized terms used in the Indenture have the same meaning herein as therein,
unless otherwise defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Special Warrants shall, upon exercise of the Special
Warrants following the occurrence of any of those events, be entitled to receive
the same number and kind of securities that they would have been entitled to
receive had they exercised their Special Warrants immediately prior to the
occurrence of those events.
The registered holder of this Special Warrant Certificate may,
at any time prior to the Expiry Date, upon surrender hereof to the Trustee at
its principal office in the City of Calgary, exchange this Special Warrant
Certificate for other Special Warrant Certificates entitling the holder to
acquire, in the aggregate, the same number of Common Shares and Share Purchase
Warrants as may be acquired under this Special Warrant Certificate.
The holding of the Special Warrants evidenced by this Special
Warrant Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Special Warrant
Certificate.
The Indenture provides that all holders of Special Warrants
shall be bound by any resolution passed at a meeting of the holders held in
accordance with the provisions of the Indenture and resolutions signed by the
holders of Special Warrants entitled to acquire a specified majority of the
Common Shares which may be acquired pursuant to all then outstanding Special
Warrants.
The Special Warrants evidenced by this Special Warrant
Certificate may be transferred on the register kept at the offices of the
Trustee by the registered holder hereof or its legal representatives or its
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Trustee, only upon compliance with the conditions prescribed
in the Indenture and upon compliance with such reasonable requirements as the
Trustee may prescribe.
This Special Warrant Certificate shall not be valid for any
purpose whatever unless and until it has been certified by or on behalf of the
Trustee.
Time shall be of the essence hereof.
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<PAGE>
IN WITNESS WHEREOF the Corporation has caused this Special
Warrant Certificate to be signed by its duly authorized officer as of February
28, 1996.
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
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<PAGE>
TRANSFER OF SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Special Warrants of HealthCare Capital Corp. registered in the
name of the undersigned on the records of The R-M Trust Company, represented by
the Special Warrant Certificate attached.
DATED the day of , 199 .
- ---------
Signature Guaranteed (Signature of Special Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fidiciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Special Warrantholder must be the signature of
the person appearing on the face of this Special Warrant Certificate.
4. Special Warrants shall only be transferable in accordance with
applicable laws. The transfer of Special Warrants to a purchaser not
resident in a Filing Province may result in the Common Shares and Share
Purchase Warrants obtained upon the exercise of the Special Warrants
(whether after or before obtaining receipts for a final prospectus
relating to the distribution of Common Shares and Share Purchase
Warrants upon exercise of Special Warrants) not being freely tradeable
in the jurisdiction of the purchaser.
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares and Share Purchase Warrants of HealthCare Capital Corp. as constituted on
February 28, 1996 (or such number of other securities or property to which such
Special Warrants entitle the undersigned in lieu thereof or in addition thereto
under the provisions of the Indenture referred to in the accompanying Special
Warrant Certificate) in accordance with and subject to the provisions of such
Indenture.
The Common Shares and Share Purchase Warrants (or other
securities or property) are to be issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares and Share Purchase Warrants:
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Special Warrantholder)
Print Full Name
Print Full Address
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<PAGE>
Instructions:
1. The registered holder may exercise its right to receive Common Shares
and Share Purchase Warrants by completing this form and surrendering
this form and the Special Warrant Certificate representing the Special
Warrants being exercised to The R-M Trust Company at its principal
office at Suite 600, 333 7th Avenue S. W., Calgary, Alberta T2P 2Zl.
Certificates for Common Shares and Share Purchase Warrants will be
delivered or mailed as soon as practicable after the exercise of the
Special Warrants.
2. If the Exercise Form indicates that Common Shares and Share Purchase
Warrants are to be issued to a person or persons other than the
registered holder of the Certificate, the signature of such holder on
the Exercise Form MUST be guaranteed by an authorized officer of a
chartered bank, trust company or an investment dealer who is a member
of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
4. If the registered holder exercises its right to receive Common Shares
and Share Purchase Warrants prior to a receipt being issued by the
applicable securities commission the Common Shares and Share Purchase
Warrants will be subject to a hold period and may be issued with a
legend reflecting such hold period.
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<PAGE>
EXHIBIT 10.3
WARRANT INDENTURE
Providing for the Issuance of
Warrants Between
HEALTHCARE CAPITAL CORP.
- and -
The R-M Trust Company
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
ARTICLE 1
INTERPRETATION
<S> <C> <C>
1.1 Definitions.....................................................................................2
1.2 Gender and Number...............................................................................5
1.3 Interpretation not Affected by Headings, etc....................................................5
1.4 Day not a Business Day..........................................................................5
1.5 Time of the Essence.............................................................................5
1.6 Applicable Law..................................................................................5
ARTICLE 2
ISSUE OF WARRANTS
2.1 Issue of Warrants..............................................................................6
2.2 Form and Terms of Warrants.....................................................................6
2.3 Warrantholder not a Shareholder.................................................................7
2.4 Warrants to Rank Pari Passu.....................................................................7
2.5 Signing of Warrant Certificates.................................................................7
2.6 Certification by the Trustee....................................................................7
2.7 Issue in Substitution for Warrant Certificates Lost, etc........................................8
2.8 Exchange of Warrant Certificates................................................................8
2.9 Charges for Exchange............................................................................8
2.10 Transfer and Ownership of Warrants..............................................................9
ARTICLE 3
EXERCISE OF WARRANTS
3.1 Method of Exercise of Warrants..................................................................9
3.2 Effect of Exercise of Warrants.................................................................11
3.3 Partial Exercise of Warrants; Fractions........................................................11
3.4 United States Holders..........................................................................12
3.5 Expiration of Warrants.........................................................................13
3.6 Cancellation of Surrendered Warrants...........................................................13
3.7 Accounting and Recording.......................................................................14
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
4.1 Adjustment of Number of Common Shares..........................................................14
4.2 Entitlement to Common Shares on Exercise of Warrant............................................18
4.3 No Adjustment for Stock Options or Warrants....................................................18
4.4 Determination by Corporation's Auditors........................................................19
4.5 Proceedings Prior to any Action Requiring Adjustment...........................................19
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<PAGE>
4.6 Certificate of Adjustment......................................................................19
4.7 Notice of Matters.............................................................................19
4.8 No Action after Notice.........................................................................20
4.9 Protection of Trustee..........................................................................20
4.10 Other Adjustments..............................................................................20
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation..........................................................21
5.2 General Covenants..............................................................................21
5.3 Trustee's Remuneration and Expenses............................................................22
5.4 Securities Qualification Requirements..........................................................22
5.5 Performance of Covenants by Trustee............................................................22
ARTICLE 6
ENFORCEMENT
6.1 Suits by Warrantholders........................................................................23
6.2 Suits by Corporation...........................................................................23
6.3 Immunity of Shareholders, etc..................................................................23
6.4 Limitation of Liability........................................................................23
6.5 Waiver of Default..............................................................................24
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings......................................................................24
7.2 Notice.........................................................................................24
7.3 Chairman.......................................................................................25
7.4 Quorum.........................................................................................25
7.5 Power to Adjourn...............................................................................25
7.6 Show of Hands..................................................................................26
7.7 Poll and Voting................................................................................26
7.8 Regulations....................................................................................26
7.9 Corporation and Trustee May be Represented.....................................................27
7.10 Powers Exercisable by Extraordinary Resolution.................................................27
7.11 Meaning of Extraordinary Resolution............................................................28
7.12 Powers Cumulative..............................................................................29
7.13 Minutes......................................................................................29
7.14 Instruments in Writing.........................................................................30
7.15 Binding Effect of Resolution...................................................................30
7.16 Holdings by Corporation Disregarded............................................................30
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<PAGE>
ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes ....................................31
8.2 Successor Corporations.........................................................................32
ARTICLE 9
CONCERNING THE TRUSTEE
9.1 Trust Indenture Legislation....................................................................32
9.2 Rights and Duties of Trustee...................................................................32
9.3 Evidence, Experts and Advisers.................................................................33
9.4 Documents, Monies, etc. Held by Trustee.......................................................34
9.5 Actions by Trustee to Protect Interest.........................................................34
9.6 Trustee Not Required to Give Security..........................................................34
9.7 Protection of Trustee..........................................................................34
9.8 Replacement of Trustee; Successor by Merger....................................................35
9.9 Conflict of Interest...........................................................................36
9.10 Acceptance of Trust............................................................................37
9.11 Trustee Not to be Appointed Receiver...........................................................37
ARTICLE 10
GENERAL
10.1 Notice to the Corporation and the Trustee......................................................37
10.2 Notice to Warrantholders.......................................................................38
10.3 Ownership and Transfer of Warrants.............................................................38
10.4 Evidence of Ownership..........................................................................39
10.5 Counterparts...................................................................................39
10.6 Satisfaction and Discharge of Indenture........................................................39
10.7 Provisions of Indenture and Warrants for the
Sole Benefit of Parties and Warrantholders............................................40
10.8 Warrants Owned by the Corporation or its Subsidiaries -
Certificate to be Provided............................................................40
WARRANT CERTIFICATE
</TABLE>
- iii -
<PAGE>
THIS WARRANT INDENTURE made effective as of the 28th day of
February, 1996.
BETWEEN:
HEALTHCARE CAPITAL CORP., a corporation incorporated under the
laws of Alberta (hereinafter referred to as the "Corporation")
- and -
THE R-M TRUST COMPANY, a trust company incorporated under the
laws of Canada and authorized to carry on business in all
Provinces of Canada (hereinafter referred to as the "Trustee")
WHEREAS:
A. the Corporation is proposing to issue Warrants in the manner herein set
forth;
B. one Warrant shall, subject to adjustment, entitle the holder thereof to
acquire one Common Share at the price and upon the terms and conditions herein
set forth; and
C. all acts and deeds necessary have been done and performed to make the
Warrants, when issued as provided in this Indenture, valid and binding upon the
Corporation with the benefits and subject to the terms of this Indenture;
NOW THEREFORE, the parties hereto agree as follows:
- 1 -
<PAGE>
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Indenture, including the recitals and schedules hereto
and in all indentures supplemental hereto:
(a) "Adjustment Period" means the period from and including the Effective
Date up to and including the Time of Expiry;
(b) "Applicable Legislation" means the provisions of the Business
Corporations Act, S. A. 1981, c. B-15, as from time to time amended,
and any statute of Canada or a province thereof, and the regulations
under any such named or other statute, relating to trust indentures or
to the rights, duties and obligations of trustees and of corporations
under trust indentures, to the extent that such provisions are at the
time in force and applicable to this Indenture;
(c) "Business Day" means a day which is not Saturday or Sunday or holiday
in the City of Calgary, Alberta;
(d) "Common Shares" means fully paid and non-assessable Common Shares of
the Corporation as presently constituted;
(e) "Corporation's Auditors" means Shikaze Ralston or such other firm of
chartered accountants as may be duly appointed as auditors of the
Corporation from time to time;
(f) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;
(g) "Current Market Price" of the Common Shares at any date means the
weighted average of the trading price per share for such shares for
each day there was a closing price for the ten consecutive Trading Days
(as selected by the directors of the Corporation) commencing not more
than thirty (30) Trading Days before such date on the principal stock
exchange on which the Common Shares are listed or, if on such date the
Common Shares are not listed on The Alberta Stock Exchange, on such
stock exchange upon which such shares are listed and as selected by the
directors, or if such shares are not listed on any stock exchange, then
on such over-the-counter market as may be selected for such purpose by
the directors;
(h) "Director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by any committee of such board;
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<PAGE>
(i) "Dividends Paid in the Ordinary Course" means cash dividends declared
payable on the Common Shares in any fiscal year of the Corporation to
the extent that such cash dividends do not exceed, in the aggregate,
the greater of (i) 50% of the retained earnings of the Corporation as
at the end of its immediately preceding fiscal year; and (ii) 100% of
the aggregate consolidated net income of the Corporation, determined
before computation of extraordinary items, for its immediately
preceding year;
(j) "Effective Date" means February 28, 1996;
(k) "Exercise Date" means, with respect to any Warrant, the date on which
the Warrant Certificate representing such Warrant is surrendered for
exercise in accordance with the provisions of Article 3 hereof;
(l) "Exercise Price" means $1.25 per Common Share until 4:30 p.m. (Calgary
time) on February 28, 1997, and thereafter $1.50 per Common Share until
4:30 p.m. (Calgary time) on February 28, 1998, unless such price shall
have been adjusted in accordance with the provisions of Article 4, in
which case it shall mean the adjusted price in effect at such time;
(m) "Expiry Date" means February 28, 1998;
(n) "Issue Date" means, in respect of each Warrant, the date upon which the
Warrant is issued in accordance with subsection 2.1;
(o) "Person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
(p) "Shareholder" means a holder of record of one or more Common Shares;
(q) "Special Warrant Indenture" means the special warrant indenture dated
February 28, 1996 between the Corporation and the Trustee providing the
terms and conditions and for the issuance of the Warrants, as amended
or supplemented after the date hereof;
(r) "Special Warrants" means the special warrants created and authorized by
and issuable under the Special Warrant Indenture which entitle the
holders thereof upon the exercise of each Special Warrant to acquire
one (1) Common Share and one (1) Warrant, at no additional cost;
(s) "this Warrant Indenture", "this Indenture", "herein", "hereby" and
similar expressions mean and refer to this Indenture and any indenture,
deed or instrument supplemental hereto; and the expressions "Article",
"Section", "subsection" and "paragraph" followed by a number mean and
refer to the specified article, section, subsection or paragraph of
this Indenture;
- 3 -
<PAGE>
(t) "Subsidiary of the Corporation" or "Subsidiary" means any corporation
of which more than fifty (50%) per cent of the outstanding Voting
Shares are owned, directly or indirectly, by or for the Corporation,
provided that the ownership of such shares confers the right to elect
at least a majority of the board of directors of such corporation and
includes any corporation in like relation to a Subsidiary;
(u) "Time of Expiry" means 4:30 in the afternoon, Calgary time, on the
Expiry Date;
(v) "Trading Day" means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business and with respect
to the over-the-counter market means a day on which The Alberta Stock
Exchange is open for the transaction of business;
(w) "Transfer Agent" means The R-M Trust Company or such other transfer
agent for the time being of the Common Shares;
(x) "Trustee" means The R-M Trust Company or its successors from time to
time in the trust hereby created;
(y) "Voting Shares" means shares of the capital stock of any class of any
corporation carrying voting rights under all circumstances, provided
that, for the purposes of such definition, shares which only carry the
right to vote conditionally on the happening of an event shall not be
considered Voting Shares, whether or not such event shall have
occurred, nor shall any shares be deemed to cease to be Voting Shares
solely by reason of a right to vote accruing to shares of another class
or classes by reason of the happening of any such event;
(z) "Warrants" means the warrants issued and certified hereunder and for
the time being outstanding entitling the holder of each whole Warrant
to acquire on (1) Common Share;
(aa) "Warrant Agency" means the principal office of the Trustee in the City
of Calgary, Province of Alberta or such other place as may be
designated in accordance with subsection 3.1(c);
(bb) "Warrant Certificate" means a certificate issued on or after the
Effective Date to evidence Warrants;
(cc) "Warrantholders" or "holders" without reference to Common Shares means
the persons who, on and after the Effective Date, are registered owners
of Warrants;
(dd) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders entitled to acquire in the aggregate not
less than 25% of the aggregate number of Common Shares which could be
acquired pursuant to the Warrants then unexercised and outstanding,
requesting the Trustee to take some action or proceeding specified
therein; and
- 4 -
<PAGE>
(ee) "Written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" mean, respectively, a written order, request, consent
and certificate signed in the name of the Corporation by its President,
and may consist of one or more instruments so executed.
1.2 Gender and Number
Unless herein otherwise expressly provided or unless the
context otherwise requires, words importing the singular include the plural and
vice versa and words importing gender include all genders.
1.3 Interpretation not Affected by Headings, etc.
The division of this Indenture into Articles and Sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Indenture.
1.4 Day not a Business Day
In the event that any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken at or before the requisite time on the next succeeding day
that is a Business Day.
1.5 Time of the Essence
Time shall be of the essence of this Indenture.
1.6 Applicable Law
This Indenture and the Warrant Certificates shall be construed
in accordance with the laws of the Province of Alberta and the federal law
applicable therein and shall be treated in all respects as Alberta contracts.
ARTICLE 2
ISSUE OF WARRANTS
2.1 Issue of Warrants
(a) 1,732,500 Warrants, each of which entitles the holder thereof to
acquire one (1) Common Share, subject to adjustment in accordance with
Article 4 hereof, are hereby created and authorized to be issued.
- 5 -
<PAGE>
(b) The Warrants shall be issued from time to time upon the holders of
Special Warrants duly exercising such Special Warrants pursuant to the
Special Warrant Indenture and effective the date the Warrants are
deemed to be issued pursuant to such exercise in accordance with the
Special Warrant Indenture.
(c) The Warrant Certificates (including all replacements issued in
accordance with this Indenture) shall be substantially in the form set
out in Schedule "A" hereto, shall be dated as of the Issue Date, shall
bear such distinguishing letters and numbers as the Corporation may,
with the approval of the Trustee, prescribe, and shall be issuable in
any denomination excluding fractions.
(d) The Warrant Certificates may be engraved, printed, lithographed or
partly in one form and partly in another as the Corporation may
determine. No change in the Warrant Certificates shall be required by
reason of any adjustment made pursuant to Article 4 in the number or
class of Common Shares or other securities to which a holder is
entitled pursuant to the exercise of the Warrants.
2.2 Form and Terms of Warrants
(a) Each whole Warrant authorized to be issued hereunder shall entitle the
holder thereof, upon exercise, to acquire one (1) Common Share, subject
to adjustment in accordance with Article 4 hereof, at any time after
the Issue Date until the Time of Expiry. The price at which a
Warrantholder may purchase Common Shares upon the exercise of the
Warrants shall be the Exercise Price.
(b) No fractional Warrants shall be issued or otherwise provided for
hereunder.
(c) The number of Common Shares which may be acquired pursuant to the
Warrants and the Exercise Price therefor shall be adjusted in the
events and in the manner specified in Article 4.
2.3 Warrantholder not a Shareholder
Nothing in this Indenture or in the holding of a Warrant or
Warrant Certificate or otherwise, shall, in itself, confer or be construed as
conferring upon a Warrantholder any right of interest whatsoever as a
Shareholder or as any other shareholder of the Corporation, including, but not
limited to, the right to vote at, to receive notice of, or to attend, meetings
of shareholders or any other proceedings of the Corporation, or the right to
receive dividends and other distributions.
2.4 Warrants to Rank Pari Passu
All Warrants shall rank pari passu, whatever may be the actual
date of issue thereof.
- 6 -
<PAGE>
2.5 Signing of Warrant Certificates
The Warrant Certificates shall be signed by any one director
or officer of the Corporation. The signatures of such director or officer may be
mechanically reproduced in facsimile and Warrant Certificates bearing such
facsimile signatures shall be binding upon the Corporation as if they had been
manually signed by such director or officer. Notwithstanding that any person
whose manual or facsimile signature appears on any Warrant Certificate as a
director or officer may no longer hold office at the date of such Warrant
Certificate or at the date of certification or delivery thereof, any Warrant
Certificate signed as aforesaid shall, subject to Section 2.6, be valid and
binding upon the Corporation and the holder thereof shall be entitled to the
benefits of this Indenture.
2.6 Certification by the Trustee
(a) No Warrant Certificate shall be issued or, if issued, shall be valid
for any purpose or entitle the holder to the benefit hereof until it
has been certified by manual signature by or on behalf of the Trustee
in the form of the certificate set out in Schedule "A" hereto, and such
certification by the Trustee upon any Warrant Certificate shall be
conclusive evidence as against the Corporation that the Warrant
Certificate so certified has been duly issued hereunder and that the
holder is entitled to the benefits hereof.
(b) The certification of the Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by the
Trustee as to the validity of this Indenture or the Warrant
Certificates (except the due certification thereof) and the Trustee
shall in no respect be liable or answerable for the use made of the
Warrant Certificate or any of them or of the consideration therefor
except as otherwise specified herein.
2.7 Issue in Substitution for Warrant Certificates Lost, etc.
(a) In case any of the Warrant Certificates shall become mutilated or be
lost, destroyed or stolen, the Corporation, subject to applicable law,
shall issue and thereupon the Trustee shall certify and deliver, a new
Warrant Certificate of like tenor as the one mutilated, lost, destroyed
or stolen in exchange for and in place of and upon cancellation of such
mutilated Warrant Certificate, or in lieu of and in substitution for
such lost, destroyed or stolen Warrant Certificate, and the substituted
Warrant Certificate shall be in a form approved by the Trustee and the
Warrants evidenced thereby shall be entitled to the benefits hereof and
shall rank equally in accordance with its terms with all other Warrants
issued or to be issued hereunder.
(b) The applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.7 shall bear the cost of the issue thereof and in case
of loss, destruction or theft shall, as a condition precedent to the
issue thereof, furnish to the Corporation and to the Trustee such
evidence of ownership and of the loss, destruction or theft of the
Warrant Certificate so lost, destroyed or stolen as shall be
satisfactory to the Corporation and to
- 7 -
<PAGE>
the Trustee in their sole discretion, and such applicant may also be
required to furnish an indemnity or security in amount and form
satisfactory to the Corporation and the Trustee in their discretion and
shall pay the reasonable charges of the Corporation and the Trustee in
connection therewith.
2.8 Exchange of Warrant Certificates
(a) Warrant Certificates representing any number of Warrants may, upon
compliance with the reasonable requirements of the Trustee, be
exchanged for another Warrant Certificate or Warrant Certificates
representing the same aggregate number of Warrants as represented under
the Warrant Certificate or Warrant Certificates so exchanged.
(b) Warrant Certificates may be exchanged only at the Warrant Agency or at
any other place that is designated by the Corporation with the approval
of the Trustee. Any Warrant Certificate tendered for exchange shall be
cancelled and surrendered by the Warrant Agency to the Trustee.
2.9 Charges for Exchange
Except as otherwise herein provided, the Warrant Agency may
charge to the holder requesting an exchange a reasonable sum for each new
Warrant Certificate issued in exchange for Warrant Certificate(s), and payment
of such charges and reimbursement of the Trustee or the Corporation for any and
all stamp taxes or governmental or other charges required to be paid shall be
made by such holder as a condition precedent to such exchange.
2.10 Transfer and Ownership of Warrants
The Warrants may only be transferred on the register kept at
the Warrant Agency by the holder or its legal representatives or its attorney
duly appointed by an instrument in writing in form and execution satisfactory to
the Trustee only upon surrendering to the Trustee the Warrant Certificates
representing the Warrants to be transferred and upon compliance with:
(i) the conditions herein;
(ii) such reasonable requirements as the Trustee may
prescribe; and
(iii) all applicable securities legislation and
requirements of regulatory authorities;
and such transfer shall be duly noted in such register by the Trustee. Upon
compliance with such requirements, the Trustee shall issue to the transferee a
Warrant Certificate representing the Warrants transferred.
- 8 -
<PAGE>
The Corporation and the Trustee will deem and treat the
registered owner of any Warrant as the beneficial owner thereof for all purposes
and neither the Corporation nor the Trustee shall be affected by any notice to
the contrary.
Subject to the provisions of this Indenture and applicable
law, the Warrantholder shall be entitled to the rights and privileges attaching
to the Warrants and the issue of Common Shares by the Corporation upon the
exercise of Warrants by any Warrantholder in accordance with the terms and
conditions herein contained shall discharge all responsibilities of the
Corporation and the Trustee with respect to such Warrants and neither the
Corporation nor the Trustee shall be bound to inquire into the title of any such
holder.
ARTICLE 3
EXERCISE OF WARRANTS
3.1 Method of Exercise of Warrants
(a) The holder of any Warrant may exercise the right evidenced thereby
conferred on such holder to acquire Common Shares by surrendering and
forwarding , after the Issue Date and prior to the Time of Expiry, to
the Warrant Agency:
(i) the Warrant Certificate representing such Warrant,
with a duly completed and executed exercise and
subscription form for the purchase of Common Shares
in the form attached to the Warrant Certificate; and
(ii) cash, certified cheque, bank draft or money order in
lawful money of Canada payable to, or to the order
of, the Corporation, in the amount of the aggregate
Exercise Price of the Common Shares so subscribed for
upon exercise of such Warrant.
A Warrant Certificate with the duly completed and executed exercise
form referred to in this subsection 3.1(a) shall be deemed to be
surrendered only upon personal delivery thereof or, if sent by mail or
other means of transmission, upon actual receipt thereof at, in each
case, the Warrant Agency.
(b) Any exercise form referred to in subsection 3.1(a). shall be signed by
the Warrantholder and shall specify:
(i) the number of Common Shares which the holder wishes
to acquire (being not more than those which the
holder is entitled to acquire pursuant to the Warrant
Certificate(s) surrendered);
(ii) the person or persons in whose name or names such
Common Shares are to be issued with relevant social
insurance numbers;
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<PAGE>
(iii) the address or addresses of such persons; and
(iv) the number of Common Shares to be issued to each such
person if more than one is so specified.
If any of the Common Shares subscribed for are to be issued to a person
or persons other than the Warrantholder, the Warrantholder shall pay to
the Corporation or the Warrant Agency on behalf of the Corporation, all
applicable transfer or similar taxes and the Corporation shall not be
required to issue or deliver certificates evidencing Common Shares
unless or until such Warrantholder shall have paid to the Corporation,
or the Warrant Agency on behalf of the Corporation, the amount of such
tax or shall have established to the satisfaction of the Corporation
that such tax has been paid or that no tax is due.
(c) In connection with the exchange of Warrant Certificates and exercise of
Warrants and compliance with such other terms and conditions hereof as
may be required, the Corporation has appointed the principal offices of
the Trustee in Calgary as the agency at which Warrant Certificates may
be surrendered for exchange or at which Warrants may be exercised and
the Trustee has accepted such appointment. The Corporation shall give
notice to the Trustee of any change of the Warrant Agency.
3.2 Effect of Exercise of Warrants
(a) Upon compliance by the holder of any Warrant Certificate with the
provisions of Section 3.1, and subject to Section 3.3, the Common
Shares subscribed for shall be deemed to have been issued and the
person or persons to whom such Common Shares are to be issued shall be
deemed to have become the holder or holders of record of such Common
Shares on the Exercise Date unless the transfer registers of the
Corporation shall be closed on such date, in which case the Common
Shares subscribed for shall be deemed to have been issued and such
person or persons deemed to have become the holder or holders of record
of such Common Shares, on the date on which such transfer registers are
reopened.
(b) Within five (5) Business Days after the Exercise Date of a Warrant as
set forth above, the Corporation shall cause to be mailed to the person
or persons in whose name or names the Common Shares so subscribed for
have been issued, as specified in the subscription, at the address
specified in such subscription or, if so specified in such
subscription, cause to be delivered to such person or persons at the
Warrant Agency where the Warrant Certificate was surrendered, a share
certificate or certificates for the appropriate number of Common Shares
subscribed for.
3.3 Partial Exercise of Warrants; Fractions
(a) The holder of any Warrants may acquire a number of Common Shares less
than the number which the holder is entitled to acquire pursuant to the
surrendered Warrant
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Certificate(s) provided that, in no event shall fractional Common
Shares be issued with regard to Warrants exercised. In the event of any
acquisition of a number of Common Shares less than the number which the
holder is entitled to acquire, the holder of the Warrants upon exercise
thereof shall, in addition, be entitled to receive, without charge
therefor, a new Warrant Certificate(s) in respect of the balance of the
Common Shares which such holder was entitled to acquire pursuant to the
surrendered Warrant Certificate(s) and which were not then acquired.
(b) Notwithstanding anything herein contained including any adjustment
provided for in Article 4, the Corporation shall not be required, upon
the exercise of any Warrants, to issue fractions of Common Shares or to
distribute certificates which evidence fractional Common Shares. In
lieu of fractional Common Shares, there shall be paid to the holder
upon surrender of Warrant Certificate(s) for exercise of Warrants
pursuant to Section 3.1, within ten (10) Business Days after the
Exercise Date, an amount in lawful money of Canada equal to the then
current market value of such fractional interest computed on the basis
of the closing price of the Common Shares on The Alberta Stock Exchange
(or if the Common Shares are not then listed thereon on such other
exchange on which such shares are listed or, if not listed on any
exchange, in the over-the-counter market, as designated by action of
the directors) for the Trading Day immediately prior to the Exercise
Date or where there is no sale on the applicable exchange or market on
the Trading Day immediately prior to the Exercise Date, the average of
the last bid and ask prices on the applicable exchange or market,
provided there shall be no cheque issued for less than $5.00.
3.4 United States Holders
(a) Upon the exercise of Warrants by a holder resident in the United States
who acquired its Warrants pursuant to the exercise of Special Warrants
acquired pursuant to Rule 904 of the Regulations under the United
States Securities Act of 1933, the certificates representing the Common
Shares issuable upon exercise of the Warrants shall bear the following
legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1993, AS AMENDED
(THE "SECURITIES ACT"), THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, OR (D)
PURSUANT TO ANOTHER
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EXEMPTION FROM REGISTRATION AFTER PROVIDING A SATISFACTORY
LEGAL OPINION TO THE CORPORATION. DELIVERY OF THIS CERTIFICATE
WILL NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE,
BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD
DELIVERY", MAY BE OBTAINED FROM THE R-M TRUST COMPANY UPON
DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION,
IN A FORM SATISFACTORY TO THE R-M TRUST COMPANY AND THE
CORPORATION, TO THE EFFECT THAT THE SALE OF THE SECURITIES
REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904
OF REGULATION S UNDER THE SECURITIES ACT.";
(b) Notwithstanding the provisions of Section 3.4(a), the legend required
by Section 3.4(a) may be removed by the holder providing to the Trustee
the following declaration (or such other form of declaration as the
Corporation may prescribe from time to time):
"The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1933, as amended, and (B) certifies that (1)
the offer of such securities was not made to a person in the
United States and either (a) at the time the buy order was
originated, the buyer was outside the United States, or the
seller and any person acting on its behalf reasonably believe
that the buyer was outside the United States or (b) the
transaction was executed on or through the facilities of The
Alberta Stock Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, and (2) neither
the seller, nor any affiliate of the seller nor any person
acting on their behalf has engaged or will engage in any
directed selling efforts in connection with the offer and sale
of such securities. Terms used herein have the meanings given
them by Regulation S.";
(c) Notwithstanding anything set forth in Section 3.4(a) or (b), the
Corporation may waive the requirement for, and direct the Trustee not
to affix, the legend set forth in Section 3.4(a) where evidence
satisfactory to the Corporation has been provided by the holder of
Warrants that such holder, while being a United States resident is
nevertheless a "qualified institutional buyer" as defined in the United
States Securities Act of 1993.
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3.5 Expiration of Warrants
Immediately after the Time of Expiry, all rights under any
Warrants in respect of which the right of acquisition herein and therein
provided for shall not have been exercised shall cease and terminate and such
Warrant shall be void and of no further force or effect.
3.6 Cancellation of Surrendered Warrants
All Warrant Certificates surrendered to the Warrant Agency
pursuant to Sections 2.7, 2.8, 2.10, 3.1, 3.3 and 5.1 shall be returned to the
Trustee for cancellation and, after the expiry of any period of retention
prescribed by law, destroyed by the Trustee and, upon request by the Corporation
the Trustee shall furnish to the Corporation a destruction certificate
identifying the Warrant Certificates so destroyed and the number of Warrants
evidenced thereby.
3.7 Accounting and Recording
(a) The Trustee shall promptly account to the Corporation with respect to
Warrants exercised. Any securities or other instruments, from time to
time received by the Trustee shall be received in trust for, and shall
be segregated and kept apart by the Trustee in trust for the
Corporation.
(b) The Trustee shall record the particulars of Warrants exercised which
shall include the names and addresses of the persons who become holders
of Common Shares on exercise and the Exercise Date. Within five (5)
Business Days of each Exercise Date, the Trustee shall provide such
particulars in writing to the Corporation.
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
4.1 Adjustment of Number of Common Shares
The acquisition rights as they relate to Common Shares, in
effect at any date attaching to the Warrants, and the Exercise Price in respect
thereof, shall be subject to adjustment from time to time as follows:
(a) if and whenever at any time after the Effective Date and prior to the
Time of Expiry, the Corporation shall:
(i) subdivide, redivide or change outstanding Common
Shares into a greater number of shares;
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(ii) reduce, combine or consolidate the outstanding Common
Shares into a smaller number of shares, or
(iii) issue Common Shares to the holders of all or
substantially all of the outstanding Common Shares by
way of a stock dividend (other than the issue of
Common Shares to holders of Common Shares pursuant to
their exercise of options to receive dividends in the
form of Common Shares in lieu of Dividends Paid in
the Ordinary Course on the Common Shares),
the Exercise Price in effect on the effective date of such subdivision,
redivision, reduction, combination or consolidation or on the record
date for such issue of Common Shares by way of a stock dividend, as the
case may be, shall in the case of the events referred to in (i) and
(iii) above be decreased in proportion to the number of outstanding
Common Shares resulting from such subdivision, redivision or dividend,
or shall, in the case of the events referred to in (ii) above, be
increased in proportion to the number of outstanding Common Shares
resulting from such reduction, combination or consolidation. Such
adjustment shall be made successively whenever any event referred to in
this subsection 4.1(a) shall occur; any such issue of Common Shares by
way of a stock dividend shall be deemed to have been made on the record
date for the stock dividend for the purpose of calculating the number
of outstanding Common Shares under subsections 4.1(b) and 4.1(c). Upon
any adjustment of the Exercise Price pursuant to subsection 4.1(a), the
number of Common Shares subject to the right of purchase under each
Warrant shall be contemporaneously adjusted by multiplying the number
of Common Shares which theretofore may have been purchased under such
Warrant by a fraction of which the numerator shall be the respective
Exercise Price in effect immediately prior to such adjustment and the
denominator shall be the respective Exercise Price resulting from such
adjustment;
(b) if and whenever at any time after the Effective Date and prior to the
Time of Expiry, the Corporation shall fix a record date for the
issuance of rights or warrants to all or substantially all the holders
of its outstanding Common Shares entitling them, for a period expiring
not more than 45 days after such record date, to subscribe for or
purchase Common Shares (or securities convertible or exchangeable into
Common Shares) at a price per share (or having a conversion or exchange
price per share) less than 95% of the Current Market Price on such
record date, the Exercise Price shall be adjusted immediately after
such record date so that it shall equal the amount determined by
multiplying the Exercise Price in effect on such record date by a
fraction of which the numerator shall be the total number of Common
Shares outstanding on such record date plus a number of Common Shares
equal to the number arrived at by dividing the aggregate price of the
total number of additional Common Shares offered for subscription or
purchase (or the aggregate conversion or exchange price of the
convertible or exchangeable securities so offered) by such Current
Market Price, and of which the denominator shall be the total number of
Common Shares outstanding on such record date plus the total number of
additional Common Shares offered for subscription or purchase or into
which the convertible or exchangeable securities so offered are
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convertible or exchangeable; any Common Shares owned by or held for the
account of the Corporation or any Subsidiary shall be deemed not to be
outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to the
extent that any such rights or warrants are not exercised prior to the
expiration thereof, the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect if such record date had
not been fixed or to the Exercise Price which would be in effect based
upon the number of Common Shares (or securities convertible or
exchangeable into Common Shares) actually issued upon the exercise of
such rights or warrants, as the case may be;
(c) if and whenever at any time after the Effective Date and prior to the
Time of Expiry, the Corporation shall fix a record date for the making
of a distribution to all or substantially all the holders of its
outstanding Common Shares of (i) shares of any class, whether of the
Corporation or any other corporation (other than Common Shares and
other than shares distributed to holders of Common Shares pursuant to
their exercise of options to receive dividends in the form of such
shares in lieu of Dividends Paid in the Ordinary Course on the Common
Shares), (ii) rights, options or warrants (excluding those referred to
in subsection 4.1(b) and rights, options or warrants to subscribe for
or purchase Common Shares (or other securities convertible into or
exchangeable for Common Shares) for a period expiring not more than 45
days after such record date at a price per share (or having a
conversion or exercise price per share) not less than 95% of the
Current Market Price on such record date), (iii) evidences of its
indebtedness or (iv) assets (excluding Dividends Paid in the Ordinary
Course) then, in each case, the Exercise Price shall be adjusted
immediately after such record date so that it shall equal the price
determined by multiplying the Exercise Price in effect on such record
date by a fraction, of which the numerator shall be the total number of
Common Shares outstanding on such record date multiplied by the Current
Market Price on such record date, less the fair market value (as
determined by the directors, which determination shall be conclusive)
of such shares, rights, options, warrants, evidences of indebtedness or
assets so distributed, and of which the denominator shall be the total
number of Common Shares outstanding on such record date multiplied by
such Current Market Price; and Common Shares owned by or held for the
account of the Corporation or any Subsidiary shall be deemed not to be
outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to the
extent that such distribution is not so made, the Exercise Price shall
be readjusted to the Exercise Price which would then be in effect if
such record date had not been fixed or to the Exercise Price which
would then be in effect based upon such shares or rights, options or
warrants or evidences of indebtedness or assets actually distributed,
as the case may be; in clause (iv) of this subsection 4.1(c) the term
"Dividends Paid in the Ordinary Course" shall include the value of any
securities or other property or assets distributed in lieu of cash
Dividends Paid in the Ordinary Course at the option of shareholders;
(d) if and when at any time from the Effective Date and prior to the Time
of Expiry, there is a reclassification of the Common Shares or a
capital reorganization of the Corporation or as described in subsection
4.1(a) or a consolidation, amalgamation, arrangement or
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merger of the Corporation with or into any other body corporate, trust,
partnership or other entity, or a sale or conveyance of the property
and assets of the Corporation as an entirety or substantially as an
entirety to any other body corporate, trust, partnership or other
entity, any Warrantholder who has not exercised its right of
acquisition prior to the effective date of such reclassification,
reorganization, consolidation, amalgamation, arrangement, merger, sale
or conveyance, upon the exercise of such right thereafter, shall be
entitled to receive and shall accept, in lieu of the number of Common
Shares then sought to be acquired by it, the number of shares or other
securities or property of the Corporation or of the body corporate,
trust, partnership or other entity resulting from such merger,
amalgamation, arrangement or consolidation, or to which such sale or
conveyance may be made, as the case may be, that such Warrantholder
would have been entitled to receive on such reclassification, capital
reorganization, consolidation, amalgamation, arrangement, merger, sale
or conveyance, if, on the record date or the effective date thereof, as
the case may be, the Warrantholder had been the registered holder of
the number of Common Shares sought to be acquired by it. If determined
appropriate by the Trustee to give effect to or to evidence the
provisions of this subsection 4.1(d), the Corporation, its successor,
or such purchasing body corporate, partnership, trust or other entity,
as the case may be, shall, prior to or contemporaneously with any such
reclassification, reorganization, consolidation, amalgamation,
arrangement, merger, sale or conveyance, enter into an indenture which
shall provide, to the extent possible, for the application of the
provisions set forth in this Indenture with respect to the rights and
interests thereafter of the Warrantholders to the end that the
provisions set forth in this Indenture shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, with respect to any
shares, other securities or property to which a Warrantholder is
entitled on the exercise of its acquisition rights thereafter. Any
indenture entered into between the Corporation and the Trustee pursuant
to the provisions of this subsection 4.1(d) shall be a supplemental
indenture entered into pursuant to the provisions of Article 8. Any
indenture entered into between the Corporation, any successor to the
Corporation or such purchasing body corporate, partnership, trust or
other entity and the Trustee shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments
provided in this Section 4.1 and which shall apply to successive
reclassification, reorganizations, amalgamation, arrangements,
consolidations, mergers, sales or conveyances;
(e) in any case in which this Section 4.1 shall require that an adjustment
shall become effective immediately after a record date for an event
referred to herein, the Corporation may defer, until the occurrence of
such event, issuing to the holder of any Warrant exercised after such
record date and before the occurrence of such event the additional
Common Shares issuable upon such exercise by reason of the adjustment
required by such event; provided, however, that the Corporation shall
deliver to such holder an appropriate instrument evidencing such
holder's right to receive such additional Common Shares upon the
occurrence of the event requiring such adjustment and the right to
receive any distributions made on such additional Common Shares
declared in favour of holders of record of Common Shares on and after
the relevant date of exercise or such later date as such holder would,
but for the provisions of this subsection 4.1(e), have
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become the holder of record of such additional Common Shares pursuant
to subsection 4.1(b);
(f) in any case in which subsections 4.1(b) or 4.1(c) require that an
adjustment be made to the Exercise Price, no such adjustment shall be
made if, subject to the prior approval of The Alberta Stock Exchange,
the holders of the outstanding Warrants receive the rights or warrants
referred to in subsection 4.1(b) or the shares, rights, options,
warrants, evidences of indebtedness or assets referred to in subsection
4.1(c), as the case may be, in such kind and number as they would have
received if they had been holders of Common Shares on the applicable
record date or effective date, as the case may be, by virtue of their
outstanding Warrant having then been exercised into Common Shares at
the Exercise Price in effect on the applicable record date or effective
date, as the case may be;
(g) the adjustments provided for in this Section 4.1 are cumulative, and
shall, in the case of adjustments to the Exercise Price be computed to
the nearest whole cent and shall apply to successive subdivisions,
redivisions, reductions, combinations, consolidations, distributions,
issues or other events resulting in any adjustment under the provisions
of this Section 4.1 provided that, notwithstanding any other provision
of this Section, no adjustment of the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Exercise Price then in effect; provided, however, that
any adjustments which by reason of this subsection 4.1(g) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment; and
(h) after any adjustment pursuant to this Section 4.1, the term "Common
Shares" where used in this Indenture shall be interpreted to mean
securities of any class or classes which, as a result of such
adjustment and all prior adjustments pursuant to this Section 4.1, the
Warrantholder is entitled to receive upon the exercise of his Warrant
and the number of Common Shares indicated by any exercise made pursuant
to a Warrant shall be interpreted to mean the number of Common Shares
or other property or securities a Warrantholder is entitled to receive,
as a result of such adjustment and all prior adjustments pursuant to
this Section 4.1, upon the full exercise of a Warrant.
4.2 Entitlement to Common Shares on Exercise of Warrant
All shares of any class or other securities which a
Warrantholder is at the time in question entitled to receive on the exercise of
its Warrant, whether or not as a result of adjustments made pursuant to this
Section, shall, for the purposes of the interpretation of this Indenture, be
deemed to be shares which such Warrantholder is entitled to acquire pursuant to
such Warrant.
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4.3 No Adjustment for Stock Options or Warrants
Anything in this Article 4 to the contrary notwithstanding, no
adjustment shall be made in the acquisition rights attached to the Warrants if
the issue of Common Shares is being made pursuant to this Indenture or pursuant
to any stock option, stock purchase or employee RRSP plan in force from time to
time for officers or employees of the Corporation, or pursuant to any warrant
outstanding immediately prior to the Effective Date.
4.4 Determination by Corporation's Auditors
In the event of any question arising with respect to the
adjustments provided for in this Article 4 such question shall be conclusively
determined by the Corporation's Auditors who shall have access to all necessary
records of the Corporation, and such determination shall be binding upon the
Corporation, the Trustee, all Warrantholders and all other persons interested
therein.
4.5 Proceedings Prior to any Action Requiring Adjustment
As a condition precedent to the taking of any action which
would require an adjustment in any of the acquisition rights pursuant to any of
the Warrants, including the number of Common Shares which are to be received
upon the exercise thereof, the Corporation shall take any corporate action which
may, in the opinion of counsel, be necessary in order that the Corporation has
unissued and reserved in its authorized capital and may validly and legally
issue as fully paid and non-assessable all the shares which the holders of such
Warrants are entitled to receive on the full exercise thereof in accordance with
the provisions hereof.
4.6 Certificate of Adjustment
The Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or readjustment as provided
in Article 4, deliver a certificate of the Corporation to the Trustee specifying
the nature of the event requiring the same and the amount of the adjustment
necessitated thereby and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, which
certificate shall be supported by a certificate of the Corporation's auditors
verifying such calculation.
4.7 Notice of Matters
The Corporation covenants with the Trustee that, so long as
any Warrant remains outstanding, it will give notice to the Trustee and to the
Warrantholders of its intention to fix the record date for any event referred to
in subsection 4.1(a), (b) or (c) (other than the subdivision, redivision,
reduction, combination or consolidation of its Common Shares) which may give
rise to an adjustment of the Exercise Price. Such notice shall specify the
particulars of such event and the record date for such event, provided that the
Corporation shall only be required to specify in the notice such particulars of
the event as shall have been fixed and
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determined on the date on which the notice is given. The notice shall be given
in each case not less than fourteen (14) days prior to such applicable record
date.
4.8 No Action after Notice
The Corporation covenants with the Trustee that it will not
close its transfer books or take any other corporate action which might deprive
the holder of a Warrant of the opportunity to exercise its right of acquisition
pursuant thereto during the period of fourteen (14) days after the giving of the
certificate or notices set forth in Section 4.6 and 4.7.
4.9 Protection of Trustee
Except as provided in Section 9.2, the Trustee:
(a) shall not at any time be under any duty or responsibility to any
Warrantholder to determine whether any facts exist which may require
any adjustment contemplated by Section 4.1, or with respect to the
nature or extent of any such adjustment when made, or with respect to
the method employed in making the same;
(b) shall not be accountable with respect to the validity or value (or the
kind or amount) of any Common Shares or of any shares or other
securities or property which may at any time be issued or delivered
upon the exercise of the rights attaching to any Warrant;
(c) shall not be responsible for any failure of the Corporation to issue,
transfer or deliver Common Shares or certificates for the same upon the
surrender of any Warrants for the purpose of the exercise of such
rights or to comply with any of the covenants contained in this
Article; and
(d) shall not incur any liability or responsibility whatsoever or be in any
way responsible for the consequences of any breach on the part of the
Corporation of any of the representations, warranties or covenants
herein contained or of any acts of the agents or servants of the
Corporation.
4.10 Other Adjustments
In case the Corporation after the date hereof shall take any
action affecting the Common Shares described in Article 4 which in the opinion
of the directors or the Trustee would have a material adverse effect on the
rights of the Warrantholders, the Exercise Price and/or the number and/or kind
of Common Shares purchaseable upon exercise, there shall be an adjustment in
such manner, if any, and at such time, as the directors may determine subject to
the prior consent of The Alberta Stock Exchange. Failure of the taking of action
by the directors so as to provide for an adjustment prior to the effective date
of any action by the Corporation affecting the Common Shares shall be conclusive
evidence that the directors have determined that it is equitable to make no
adjustment in the circumstances.
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ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation
The Corporation may from time to time purchase by private
contract or otherwise any of the Warrants. Any such purchase shall be made at
the lowest price or prices at which, in the opinion of the directors, such
Warrants are then obtainable, plus reasonable costs of purchase, and may be made
in such manner, from such persons and on such other terms as the Corporation, in
its sole discretion, may determine. Any Warrant Certificates representing the
Warrants purchased pursuant to this Section 5.1 shall forthwith be delivered to
and cancelled by the Trustee. No Warrants shall be issued in replacement
thereof.
5.2 General Covenants
The Corporation covenants with the Trustee that so long as any
Warrants remain outstanding:
(a) it will reserve and keep available a sufficient number of Common Shares
for the purpose of enabling it to satisfy its obligations to issue
Common Shares upon the exercise of the Warrants, in the event that the
Corporation does not have an unlimited number of Common Shares
authorized;
(b) it will cause the Common Shares and the certificates representing the
Common Shares from time to time acquired pursuant to the exercise of
the Warrants to be duly issued and delivered in accordance with the
Warrant Certificates and the terms hereof;
(c) all Common Shares which shall be issued upon exercise of the right to
acquire provided for herein and in the Warrant Certificates shall be
fully paid and non-assessable;
(d) it will use its reasonable best efforts to maintain its corporate
existence;
(e) it will use its reasonable best efforts to ensure that all Common
Shares of the Corporation outstanding or issuable from time to time
continue to be or are listed and posted for trading on The Alberta
Stock Exchange;
(f) it will make all requisite filings under applicable Canadian securities
legislation including those necessary to remain a reporting issuer not
in default in Alberta and those necessary to report the exercise of the
right to acquire Common Shares pursuant to Warrants; and
(g) generally, it will well and truly perform and carry out all of the acts
or things to be done by it as provided in this Indenture.
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5.3 Trustee's Remuneration and Expenses
The Corporation covenants that it will pay to the Trustee from
time to time reasonable remuneration for its services hereunder and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the administration
or execution of the trusts hereby created (including the reasonable compensation
and the disbursements of its counsel and all other advisers and assistants not
regularly in its employ) both before any default hereunder and thereafter until
all duties of the Trustee hereunder shall be finally and fully performed, except
any such expense, disbursement or advance as may arise out of or result from the
Trustee's negligence, willful misconduct or bad faith.
5.4 Securities Qualification Requirements
(a) If, in the opinion of counsel, any instrument (not including a
prospectus) is required to be filed with, or any permission is required
to be obtained from any governmental authority in Canada or any other
step is required under any federal or provincial law of Canada before
any Common Shares which a Warrantholder is entitled to acquire pursuant
to the exercise of any Warrant may properly and legally be issued upon
due exercise thereof and thereafter traded, without further formality
or restriction, the Corporation covenants that it will take such
required action.
(b) The Corporation or, if required by the Corporation, the Trustee will
give notice of the issue of Common Shares pursuant to the exercise of
Warrants, in such detail as may be required, to each securities
commission or similar regulatory authority in each jurisdiction in
Canada in which there is legislation or regulation permitting or
requiring the giving of any such notice in order that such issue of
Common Shares and the subsequent disposition of the Common Shares so
issued will not be subject to the prospectus qualification requirements
of such legislation or regulation.
5.5 Performance of Covenants by Trustee
If the Corporation shall fail to perform any of its covenants
contained in this Warrant Indenture, the Trustee may notify the Warrantholders
of such failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to Section 9.2, shall be
under no obligation to perform said covenants or to notify the Warrantholders of
such performance by it. All sums expended or advanced by the Trustee in so doing
shall be repayable as provided in Section 5.3. No such performance, expenditure
or advance by the Trustee shall relieve the Corporation of any default hereunder
or of its continuing obligations under the covenants herein contained.
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ARTICLE 6
ENFORCEMENT
6.1 Suits by Warrantholders
All or any of the rights conferred upon any Warrantholder by
any of the terms of the Warrant Certificates or of the Indenture, or of both,
may be enforced by the Warrantholder by appropriate proceedings but without
prejudice to the right which is hereby conferred upon the Trustee to proceed in
its own name to enforce each and all of the provisions herein contained for the
benefit of the Warrantholders.
6.2 Suits by Corporation
The Corporation shall have the right to enforce full payment
of the Exercise Price of all Common Shares issued by the Trustee to a
Warrantholder hereunder, and shall be entitled to demand such payment from the
Warrantholder or alternatively to instruct the Trustee to cancel the share
certificates and amend the securities register accordingly.
6.3 Immunity of Shareholders, etc.
The Trustee and, by the acceptance of the Warrant Certificates
and as part of the consideration for the issue of the Warrants, the
Warrantholders hereby waive and release any right, cause of action or remedy now
or hereafter existing in any jurisdiction against any incorporator or any past,
present or future shareholder, director, officer, employee or agent of the
Corporation or any successor Corporation on any covenant, agreement,
representation or warranty by the Corporation herein or in the Warrant
Certificates contained.
6.4 Limitation of Liability
The obligations hereunder are not personally binding upon, nor
shall resort hereunder be had to, the private property of any of the past,
present or future directors or shareholders of the Corporation or any successor
Corporation or any of the past, present or future officers, employees or agents
of the Corporation or any successor Corporation, but only the property of the
Corporation or any successor Corporation shall be bound in respect hereof.
6.5 Waiver of Default
Upon the happening of any default hereunder:
(a) the holders of not less than 51% of the Warrants then outstanding shall
have power (in addition to the powers exercisable by extraordinary
resolution as provided in Section 7.10) by requisition in writing to
instruct the Trustee to waive any default hereunder and the Trustee
shall thereupon waive the default upon such terms and conditions as
shall be prescribed in such requisition; or
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(b) the Trustee shall have power to waive any default hereunder upon such
terms and conditions as the Trustee on advice of its counsel may deem
advisable, if, in the Trustee's opinion, the same shall have been cured
or adequate provision made therefor;
provided that no delay or omission of the Trustee or of the Warrantholders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of the
Trustee or of the Warrantholders in the premises shall extend to or be taken in
any manner whatsoever to affect any subsequent default hereunder of the rights
resulting therefrom.
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings
The Trustee may at any time and from time to time, and shall
on receipt of a written request of the Corporation or of a Warrantholders'
Request and upon being indemnified and funded to its reasonable satisfaction by
the Corporation or by the Warrantholders signing such Warrantholders' Request
against the cost which may be incurred in connection with the calling and
holding of such meeting, convene a meeting of the Warrantholders. In the event
of the Trustee failing to so convene a meeting within seven (7) days after
receipt of such written request of the Corporation or such Warrantholders'
Request and indemnity given as aforesaid, the Corporation or such
Warrantholders, as the case may be, may convene such meeting. Every such meeting
shall be held in the City of Calgary or at such other place as may be approved
or determined by the Trustee.
7.2 Notice
At least ten (10) days' prior notice of any meeting of
Warrantholders shall be given to the Warrantholders in the manner provided for
in Section 10.2 and a copy of such notice shall be sent by mail to the Trustee
(unless the meeting has been called by the Trustee) and to the Corporation
(unless the meeting has been called by the Corporation). Such notice shall state
the time when and the place where the meeting is to be held, shall state briefly
the general nature of the business to be transacted thereat and shall contain
such information as is reasonably necessary to enable the Warrantholders to make
a reasoned decision on the matter, but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article 7.
7.3 Chairman
An individual (who need not be a Warrantholder) designated in
writing by the Trustee shall be chairman of the meeting and if no individual is
so designated, or if the individual so designated is not present within fifteen
(15) minutes from the time fixed for the
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holding of the meeting, the Warrantholders present in person or by proxy shall
choose some individual present to be chairman.
7.4 Quorum
Subject to the provisions of Section 7.11, at any meeting of
the Warrantholders a quorum shall consist of Warrantholders present in person or
by proxy and entitled to purchase at least 25% of the aggregate number of Common
Shares which could be acquired pursuant to all the then outstanding Warrants,
provided that at least two persons entitled to vote thereat are personally
present. If a quorum of the Warrantholders shall not be present within thirty
(30) minutes from the time fixed for holding any meeting, the meeting, if
summoned by the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to the same day
in the next week (unless such day is not a Business Day, in which case it shall
be adjourned to the next following Business Day) at the same time and place and
no notice of the adjournment need be given. Any business may be brought before
or dealt with at an adjourned meeting which might have been dealt with at the
original meeting in accordance with the notice calling the same. No business
shall be transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the Warrantholders present in
person or by proxy shall form a quorum and may transact the business for which
the meeting was originally convened, notwithstanding that they may not be
entitled to acquire at least 25% of the aggregate number of Common Shares which
may be acquired pursuant to all then outstanding Warrants.
7.5 Power to Adjourn
The chairman of any meeting at which a quorum of the
Warrantholders is present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except such notice, if
any, as the meeting may prescribe.
7.6 Show of Hands
Every question submitted to a meeting shall be decided in the
first place by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner hereinafter
provided. At any such meeting, unless a poll is duly demanded as herein
provided, a declaration by the chairman that a resolution has been carried or
carried unanimously or by a particular majority or lost or not carried by a
particular majority shall be conclusive evidence of the fact.
7.7 Poll and Voting
On every extraordinary resolution, and on any other question
submitted to a meeting and after a vote by show of hands when demanded by the
chairman or by one or more of the Warrantholders acting in person or by proxy
and entitled to acquire in the aggregate at least 5% of the aggregate number of
Common Shares which could be acquired pursuant to all the Warrants then
outstanding, a poll shall be taken in such manner as the chairman shall direct.
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Questions other than those required to be determined by extraordinary resolution
shall be decided by a majority of the votes cast on the poll.
On a show of hands, every person who is present and entitled
to vote, whether as a Warrantholder or as proxy for one or more absent
Warrantholders, or both, shall have one vote. On a poll, each Warrantholder
present in person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole Common Share
which he is entitled to acquire pursuant to the Warrant or Warrants then held or
represented by it. A proxy need not be a Warrantholder. The Chairman of any
meeting shall be entitled, both on a show of hands and on a poll, to vote in
respect of the Warrants, if any, held or represented by him.
7.8 Regulations
The Trustee, or the Corporation with the approval of the
Trustee, may from time to time make and from time to time vary such regulations
as it shall think fit for:
(a) the setting of the record date for a meeting for the purpose of
determining Warrantholders entitled to receive notice of and to vote at
the meeting;
(b) the issue of voting certificates by any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrant
Certificates specified therein have been deposited with it by a named
person and will remain on deposit until after the meeting, which voting
certificate shall entitle the persons named therein to be present and
vote at any such meeting and at any adjournment thereof or to appoint a
proxy or proxies to represent them and vote for them at any such
meeting and at any adjournment thereof in the same manner and with the
same effect as though the persons so named in such voting certificates
were the actual bearers of the Warrant Certificates specified therein;
(c) the deposit of voting certificates and instruments appointing proxies
at such place and time as the Trustee, the Corporation or the
Warrantholders convening the meeting, as the case may be, may in the
notice convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing proxies
at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed or sent by facsimile before the meeting
to the Corporation or to the Trustee at the place where the same is to
be held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Warrantholders and the conduct
of business thereat.
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Any regulations so made shall be binding and effective and the
votes given in accordance therewith shall be valid and shall be counted. Save as
such regulations may provide, the only persons who shall be recognized at any
meeting as a Warrantholder, or be entitled to vote or be present at the meeting
in respect thereof (subject to Section 7.9), shall be Warrantholders or their
counsel, or proxies of Warrantholders.
7.9 Corporation and Trustee May be Represented
The Corporation and the Trustee, by their respective
directors, officers and employees, and the counsel for the Corporation and for
the Trustee may attend any meeting of the Warrantholders, but shall not be
entitled to vote thereat, whether in respect of any Warrants held by them or
otherwise.
7.10 Powers Exercisable by Extraordinary Resolution
In addition to all other powers conferred upon them by any
other provisions of this Indenture or by law, the Warrantholders at a meeting
shall, subject to the provisions of Section 7.11, have the power, exercisable
from time to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders or the Trustee in its
capacity as trustee hereunder or on behalf of the Warrantholders
against the Corporation whether such rights arise under this Indenture
or the Warrant Certificates or otherwise;
(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c) to direct or to authorize the Trustee to enforce any of the covenants
on the part of the Corporation contained in this Indenture or the
Warrant Certificates or to enforce any of the rights of the
Warrantholders in any manner specified in such extraordinary resolution
or to refrain from enforcing any such covenant or right;
(d) to waive, and to direct the Trustee to waive, any default on the part
of the Corporation in complying with any provisions of this Indenture
or the Warrant Certificates either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of any
of the covenants on the part of the Corporation in this Indenture or
the Warrant Certificates or to enforce any of the rights of the
Warrantholders;
(f) to direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or to discontinue or otherwise to deal with the
same upon payment of the costs, charges and expenses reasonably and
properly incurred by such Warrantholder in connection therewith;
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(g) to assent to any change in or omission from the provisions contained in
the Warrant Certificates and this Indenture or any ancillary or
supplemental instrument which may be agreed to by the Corporation, and
to authorize the Trustee to concur in and execute any ancillary or
supplemental indenture embodying the change or omission;
(h) with the consent of the Corporation, to remove the Trustee or its
successor in office and to appoint a new trustee or trustees to take
the place of the Trustee so removed; and
(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Corporation.
7.11 Meaning of Extraordinary Resolution
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter provided in this Section 7.11 and in
Section 7.14, a resolution proposed at a meeting of Warrantholders duly
convened for that purpose and held in accordance with the provisions of
this Article 7 at which there are present in person or by proxy
Warrantholders entitled to acquire at least 25% of the aggregate number
of Common Shares which may be acquired pursuant to all the then
outstanding Warrants and passed by the affirmative votes of
Warrantholders entitled to acquire not less than 66 2/3% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Warrants represented at the meeting and vote on
the poll upon such resolution.
(b) If, at the meeting at which an extraordinary resolution is to be
considered, Warrantholders entitled to acquire at least 25% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Warrants are not present in person or by proxy
within thirty (30) minutes after the time appointed for the meeting,
then the meeting, if convened by Warrantholders or on Warrantholders'
Request, shall be dissolved; but in any other shall stand adjourned to
such day, being not less than fifteen nor more than sixty (60) days
later, and to such place and time as appointed by the chairman. Not
less than ten (10) days' prior notice shall be given of the time and
place of such adjourned meeting in the manner provided for in Section
10.2. Such notice shall state that at the adjourned meeting the
Warrantholders present in person or by proxy shall form a quorum but it
shall not be necessary to set forth the purposes for which the meeting
was originally called or any other particulars. At the adjourned
meeting the Warrantholders present in person or by proxy shall form a
quorum and may transact the business for which the meeting was
originally convened and a resolution proposed at such adjourned meeting
and passed by the requisite vote as provided in subsection 7.11(a)
shall be an extraordinary resolution within the meaning of this
Indenture notwithstanding that Warrantholders entitled to acquire at
least 25% of the aggregate number of Common Shares which may be
acquired pursuant to all the then outstanding Warrants are not present
in person or by proxy at such adjourned meeting.
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(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary.
7.12 Powers Cumulative
Any one or more of the powers or any combination of the powers
in this Indenture stated to be exercisable by the Warrantholders by
extraordinary resolution or otherwise may be exercised from time to time and the
exercise of any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the Warrantholders to
exercise such power or powers or combination of powers then or thereafter from
time to time.
7.13 Minutes
Minutes of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be provided from time
to time for that purpose by the Trustee at the expense of the Corporation, and
any such minutes as aforesaid, if signed by the chairman or the secretary of the
meeting at which such resolutions were passed or proceedings had shall be prima
facie evidence of the matters therein stated and, until the contrary if proved,
every such meeting in respect of the proceedings of which minutes shall have
been made shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken shall be deemed to have been
duly passed and taken.
7.14 Instruments in Writing
All actions which may be taken and all powers that may be
exercised by the Warrantholders at a meeting held as provided in this Article 7
may also be taken and exercised by Warrantholders entitled to acquire at least
66 2/3% of the aggregate number of Common Shares which may be acquired pursuant
to all the then outstanding Warrants by an instrument in writing signed in one
or more counterparts by such Warrantholders in person or by attorney duly
appointed in writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
7.15 Binding Effect of Resolution
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article 7 at a meeting of Warrantholders
shall be binding upon all the Warrantholders, whether present at or absent from
such meeting, and every instrument in writing signed by Warrantholders in
accordance with Section 7.14 shall be binding upon all the Warrantholders,
whether signatories thereto or not, and each and every Warrantholder and the
Trustee (subject to the provisions for indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
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7.16 Holdings by Corporation Disregarded
In determining whether Warrantholders holding Warrant
Certificates evidencing the entitlement to acquire the required number of Common
Shares are present at a meeting of Warrantholders for the purpose of determining
a quorum or have concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture, Warrants owned
legally or beneficially by the Corporation or any Subsidiary of the Corporation
shall be disregarded in accordance with the provisions of Section 10.8.
ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes
From time to time the Corporation (when authorized by action
of the directors) and the Trustee may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions hereof, execute
and deliver by their proper officers, indentures or instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more or all of
the following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 4;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary or
advisable in the premises, provided that the same are not in the
opinion of the Trustee prejudicial to the interests of the
Warrantholders;
(c) giving effect to any extraordinary resolution passed as provided in
Article 7;
(d) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder or for the purpose of obtaining a listing or quotation of the
Warrants on any stock exchange, provided that such provisions are not,
in the opinion of the Trustee on advice of its counsel, prejudicial to
the interests of the Warrantholders;
(e) adding to or altering the provisions hereof in respect of the transfer
of Warrants, making provision for the exchange of Warrant Certificates,
and making any modification in the form of the Warrant Certificates
which does not affect the substance thereof;
(f) modifying any of the provisions of this Indenture, including relieving
the Corporation from any of the obligations, conditions or restrictions
herein contained, provided that such modification or relief shall be or
become operative or effective only if, in the opinion of the Trustee on
advice of its counsel, such modification or relief in no way
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prejudices any of the rights of the Warrantholders or of the Trustee,
and provided further that the Trustee may in its sole discretion
decline to enter into any such supplemental indenture which in its
opinion may not afford adequate protection to the Trustee when the same
shall become operative; and
(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes or
omissions herein, provided that in the opinion of the Trustee the
rights of the Trustee and of the Warrantholders are in no way
prejudiced thereby.
8.2 Successor Corporations
In the case of the consolidation, amalgamation, merger or
transfer of the undertaking or assets of the Corporation as an entirety or
substantially as an entirety to another Corporation ("successor Corporation"),
the successor Corporation resulting from such consolidation, amalgamation,
merger or transfer (if not the Corporation) shall expressly assume, by
supplemental indenture satisfactory in form to the Trustee and executed and
delivered to the Trustee, the due and punctual performance and observance of
each and every covenant and condition of this Indenture to be performed and
observed by the Corporation.
ARTICLE 9
CONCERNING THE TRUSTEE
9.1 Trust Indenture Legislation
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Trustee agree that each will, at all times in
relation to this Indenture and any action to be taken hereunder,
observe and comply with and be entitled to the benefits of Applicable
Legislation.
9.2 Rights and Duties of Trustee
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Trustee shall exercise that degree of
care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. No provision of this Indenture
shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct or bad faith.
(b) The obligation of the Trustee to commence or continue any act, action
or proceeding for the purpose of enforcing any rights of the Trustee or
the Warrantholders hereunder shall be conditional upon the
Warrantholders furnishing, when required by notice by the
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Trustee, sufficient funds to commence or to continue such act, action
or proceeding and an indemnity reasonably satisfactory to the Trustee
to protect and to hold harmless the Trustee against the costs, charges
and expenses and liabilities to be incurred thereby and any loss and
damage it may suffer by reason thereof. None of the provisions
contained in this Indenture shall require the Trustee to expend or to
risk its own funds or otherwise to incur financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers unless indemnified as aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Warrantholders, at whose instance it is acting to deposit with the
Trustee the Warrants held by them, for which Warrants the Trustee shall
issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence submitted
to it is subject to the provisions of Applicable Legislation, of this
Section 9.2 and of Section 9.3
9.3 Evidence, Experts and Advisers
(a) In addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Corporation shall furnish to the
Trustee such additional evidence of compliance with any provision
hereof, and in such form, as may be prescribed by Applicable
Legislation or as the Trustee may reasonably require by written notice
to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Trustee may, if
it is acting in good faith, rely as to the truth of the statements and
the accuracy of the opinions expressed in statutory declarations,
opinions, reports, written requests, consents, or orders of the
Corporation, certificates of the Corporation or other evidence
furnished to the Trustee pursuant to a request of the Trustee, provided
that such evidence complies with Applicable Legislation and that the
Trustee complies with Applicable Legislation and that the Trustee
examines the same and determines that such evidence complies with the
applicable requirements of this Indenture.
(c) Whenever it is provided in this Indenture or under Applicable
Legislation that the Corporation shall deposit with the Trustee
resolutions, certificates, reports, opinions, requests, orders or other
documents, it is intended that the trust, accuracy and good faith on
the effective date thereof and the facts and opinions stated in all
such documents so deposited shall, in each and every such case, be
conditions precedent to the right of the Corporation to have the
Trustee take the action to be based thereon.
(d) Proof of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the
certificate of a notary public, or other officer with similar powers,
that the person signing such instrument acknowledged to it the exe-
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cution thereof, or by an affidavit of a witness to such execution or in
any other manner which the Trustee may consider adequate.
(e) The Trustee may employ or retain such Counsel, accountants, appraisers
or other experts or advisers as it may reasonably require for the
purpose of discharging its duties hereunder and may pay reasonable
remuneration for all services so performed by any of them, without
taxation of costs of any Counsel, and shall not be responsible for any
misconduct or negligence on the part of any such experts or advisers
who have been appointed with due care by the Trustee.
9.4 Documents, Monies, etc. Held by Trustee
Any securities, documents of title or other instruments that
may at any time be held by the Trustee subject to the trusts hereof may be
placed in the deposit vaults of the Trustee or of any Canadian chartered bank or
deposited for safekeeping with any such bank. Unless herein otherwise expressly
provided, any monies so held pending the application or withdrawal thereof under
any provisions of this Indenture may be deposited in the name of the Trustee in
any Canadian chartered bank at the rate of interest (if any) then current on
similar deposits or, with the consent of the Corporation, may be: (i) deposited
in the deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or a province thereof; or
(ii) invested in securities issued or guaranteed by the Government of Canada or
a province thereof or in obligations maturing not more than sixty days from the
date of investment, of any Canadian chartered bank or loan or trust company.
Unless the Corporation shall be in default hereunder, all interest or other
income received by the Trustee in respect of such deposits and investments shall
belong to the Corporation.
9.5 Actions by Trustee to Protect Interest
The Trustee shall have power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient to preserve,
protect or enforce its interests and the interests of the Warrantholders.
9.6 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security
in respect of the execution of the trusts and powers of this Indenture or
otherwise in respect of the premises.
9.7 Protection of Trustee
By way of supplement to the provisions of any law for the time
being relating to trustees it is expressly declared and agreed as follows:
(a) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Warrant Certificates
(except the representation contained in Section 9.9 or in the
certificate of the Trustee on the Warrant Certificates) or be required
to
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verify the same, but all such statements or recitals are and shall be
deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or renewal
thereof) of this Indenture or any instrument ancillary or supplemental
hereto;
(c) the Trustee shall not be bound to give notice to any person or persons
of the execution hereof;
(d) the Trustee shall not incur any liability or responsibility whatever or
be in any way responsible for the consequence of any breach on the part
of the Corporation of any of the covenants herein contained or of any
acts of any directors, officers, employees, agents or servants of the
Corporation; and
(e) without limiting any protection or indemnity of the Trustee under any
other provision hereof, or otherwise at law, the Corporation hereby
agrees to indemnify and hold harmless the Trustee from and against any
and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including legal or advisor
fees and disbursements, of whatever kind and nature which may at any
time be imposed on, incurred by or asserted against the Trustee in
connection with the performance of its duties and obligations
hereunder, other than such liabilities, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements arising by
reason of the negligence or willful misconduct of the Trustee. This
provision shall survive the resignation or removal of the Trustee or
the termination of this Warrant Indenture.
9.8 Replacement of Trustee; Successor by Merger
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this Section 9.8, by
giving to the Corporation not less than ninety (90) days' prior notice
in writing or such shorter prior notice as the Corporation may accept
as sufficient. The Warrantholders by extraordinary resolution shall
have power at any time to remove the existing Trustee and to appoint a
new Trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into liquidation
or otherwise becoming incapable of acting hereunder, the Corporation
shall forthwith appoint a new trustee unless a new trustee has already
been appointed by the Warrantholders; failing such appointment by the
Corporation, the retiring Trustee or any Warrantholder may apply to a
justice of the Court of Queen's Bench of the Province of Alberta on
such notice as such justice may direct, for the appointment of a new
trustee; but any new trustee so appointed by the Corporation or by the
Court shall be subject to removal as aforesaid by the Warrantholders.
Any new trustee appointed under any provision of this Section 9.8 shall
be a Corporation authorized to carry on the business of a trust company
in the Province of Alberta and, if required by the Applicable
Legislation for any other provinces, in such other provinces. On any
such appointment the new trustee shall be vested with the same
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powers, rights, duties and responsibilities as if it had been
originally named herein as Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for
in Section 10.2 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom or
any corporation succeeding to the trust business of the Trustee shall
be the successor to the Trustee hereunder without any further act on
its part or any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor trustee under
subsection 9.8(a).
(d) Any Warrant Certificates certified but not delivered by a predecessor
trustee may be certified by the successor trustee in the name of the
predecessor or successor trustee.
9.9 Conflict of Interest
(a) The Trustee represents to the Corporation that at the time of execution
and delivery hereof no material conflict of interest exists between its
role as a trustee hereunder and its role in any other capacity and
agrees that in the event of a material conflict of interest arising
hereafter it will, within ninety (90) days after ascertaining that it
has such material conflict of interest, either eliminate the same or
assign its trust hereunder to a successor trustee approved by the
Corporation and meeting the requirements set forth in subsection
9.8(a).
Notwithstanding the foregoing provisions of this subsection 9.9(a), if
any such material conflict of interest exists or hereafter shall exist,
the validity and enforceability of this Indenture and the Warrant
Certificate shall not be affected in any manner whatsoever by reason
thereof.
(b) Subject to subsection 9.9(a), the Trustee, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Corporation
and generally may contract and enter into financial transactions with
the Corporation or any Subsidiary of the Corporation without being
liable to account for any profit made thereby.
9.10 Acceptance of Trust
The Trustee hereby accepts the trusts in this Indenture
declared and provided for and agrees to perform the same upon the terms and
conditions herein set forth.
9.11 Trustee Not to be Appointed Receiver
The Trustee and any person related to the Trustee shall not be
appointed a receiver, a receiver and manager or liquidator of all or any part of
the assets or undertaking of the Corporation.
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<PAGE>
ARTICLE 10
GENERAL
10.1 Notice to the Corporation and the Trustee
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Trustee shall be deemed to be
validly given if delivered or if sent by registered letter, postage
prepaid:
If to the Corporation:
HealthCare Capital Corp.
c/o Suite 4000, 150 Sixth Avenue S.W.
Calgary, Alberta T2P 3Y7
Fax: (403) 233-8979
If to the Trustee:
The R-M Trust Company
600, 333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Zl
Fax: (403) 264-2100
and any such notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery or, if mailed, on
the fifth (5th) Business Day following the date of the postmark on such
notice.
(b) The Corporation or the Trustee, as the case may be, may from time to
time notify the other in the manner provided in subsection 10.1(a) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Corporation
or the Trustee, as the case may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Corporation hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered to the named officer of the party to
which it is addressed or, if it is delivered to such party at the
appropriate address provided in subsection 10.1(a), by facsimile or
other means of prepaid, transmitted and recorded communication.
10.2 Notice to Warrantholders
(a) Any notice to the Warrantholders under the provisions of this Indenture
shall be valid and effective if sent by facsimile or letter or circular
through the ordinary post addressed to such holders at their post
office addresses appearing on the register hereinbefore
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<PAGE>
mentioned and shall be deemed to have been effectively given on the
date of delivery or, if mailed, five (5) Business Days following actual
posting of the notice.
(b) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Warrantholders hereunder could reasonably be considered unlikely to
reach its destination, such notice shall be valid and effective only if
it is delivered personally to such Warrantholders or if delivered to
the address for such Warrantholders contained in the register of
Warrants maintained by the Trustee, by facsimile or other means of
prepaid transmitted and recorded communication.
10.3 Ownership and Transfer of Warrants
The Corporation and the Trustee may deem and treat the
registered owner of any Warrants as the absolute owner thereof for all purposes,
and the Corporation and the Trustee shall not be affected by any notice or
knowledge to the contrary except where the Corporation or the Trustee is
required to take notice under any statute or by order of a court of competent
jurisdiction. A Warrantholder shall be entitled to the rights evidenced by its
Warrant Certificate free from all equities or rights of set off or counterclaim
between the Corporation and the original or any intermediate holder of the
Warrants and all persons may act accordingly and the receipt of any such
Warrantholder for the Common Shares which may be acquired pursuant thereto shall
be a good discharge to the Corporation and the Trustee for the same and neither
the Corporation nor the Trustee shall be bound to inquire into the title of any
such holder except where the Corporation or the Trustee is required to take
notice by statute or by order of a court of competent jurisdiction.
10.4 Evidence of Ownership
(a) Upon receipt of a certificate of any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrants
specified therein have been deposited by a named person with such bank,
trust company or other depository and will remain so deposited until
the expiry of the period specified therein, the Corporation and the
Trustee may treat the person so named as the owner, and such
certificate as sufficient evidence of the ownership by such person of
such Warrant during such period, for the purpose of any requisition,
direction, consent, instrument or other document to be made, signed or
given by the holder of the Warrant so deposited.
(b) The Corporation and the Trustee may accept as sufficient evidence of
the fact and date of the signing of any requisition, direction,
consent, instrument or other document by any person (i) the signature
of any officer of any bank, trust company, or other depository
satisfactory to the Trustee as witness of such execution, (ii) the
certificate of any notary public or other officer authorized to take
acknowledgements of deeds to be recorded at the place where such
certificate is made that the person signing acknowledged to him the
execution thereof, or (iii) a satisfactory declaration of a witness of
such execution.
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<PAGE>
10.5 Counterparts
This Indenture may be executed in several counterparts, each
of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution they shall be deemed to be dated as of
the date hereof.
10.6 Satisfaction and Discharge of Indenture
Upon the earlier of:
(a) the date by which there shall have been delivered to the Trustee for
exercise or destruction all Warrant Certificates theretofore certified
hereunder; or
(b) the Time of Expiry;
this Indenture shall cease to be of further effect and the Trustee, on demand of
and at the cost and expense of the Corporation and upon delivery to the Trustee
of a certificate of the Corporation stating that all conditions precedent to the
satisfaction and discharge of this Indenture have been complied with, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture. Notwithstanding the foregoing, the indemnities provided to the
Trustee by the Corporation hereunder shall remain in full force and effect and
survive the termination of this Indenture.
10.7 Provisions of Indenture and Warrants
for the Sole Benefit of Parties and Warrantholders
Nothing in this Indenture or in the Warrant Certificates,
expressed or implied, shall give or be construed to give to any person other
than the parties hereto and the Warrantholders, as the case may be, any legal or
equitable right, remedy or claim under this Indenture, or under any covenant or
provision herein or therein contained, all such covenants and provisions being
for the sole benefit of the parties hereto and the Warrantholders.
10.8 Warrants Owned by the Corporation
or its Subsidiaries - Certificate to be Provided
For the purpose of disregarding any Warrants owned legally or
beneficially by the Corporation or any Subsidiary of the Corporation in Section
7.16, the Corporation shall provide to the Trustee, from time to time, a
certificate of the Corporation setting forth as at the date of such certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Warrants which, to the knowledge of the Corporation, are
owned by or held for the account of the Corporation or any Subsidiary
of the Corporation; and
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<PAGE>
(b) the number of Warrants owned legally or beneficially by the Corporation
or any Subsidiary of the Corporation;
and the Trustee, in making the computations in Section 7.16, shall be entitled
to rely on such certificate without any additional evidence.
IN WITNESS WHEREOF the parties hereto have executed this
Indenture under their respective corporate seals and the hands of their proper
officers in that behalf.
HEALTHCARE CAPITAL CORP.
Per: /S/ DOUGLAS S. GOOD
THE R-M TRUST COMPANY
Per: /S/ M. GUITARD
Per: /S/ K. STERRITT
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<PAGE>
THIS IS SCHEDULE "A" to the Warrant Indenture made as of
February 28, 1996 between HEALTHCARE CAPITAL CORP. and THE R-M
TRUST COMPANY, as Trustee
THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS
EXERCISED BY 4:30 P.M. (CALGARY TIME) ON OR BEFORE FEBRUARY 28, 1998.
WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
WARRANT
CERTIFICATE NO.
------------------ WARRANTS entitling the
holder to acquire, subject to adjustment,
one (1) Common Share for each whole
Warrant represented hereby.
THIS IS TO CERTIFY THAT
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at any time
and from time to time until 4:30 p.m. (Calgary time) (the "Time of Expiry") on
February 28, 1998 (the "Expiry Date"), one fully paid and non-assessable Common
Share ("Common Share") without nominal or par value of HealthCare Capital Corp.
(the "Corporation") as such shares were constituted on February 28, 1996.
The right to acquire Common Shares may only be exercised by
the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto;
(b) surrendering this Warrant Certificate to The R-M Trust Company (the
"Trustee") at the principal office of the Trustee in the City of
Calgary; and
(c) remitting cash, a certified cheque, bank draft or money order in lawful
money of Canada, payable to or to the order of the Corporation at par
where this Warrant certificate is so surrendered, for the aggregate
purchase price of the Common Shares so
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<PAGE>
subscribed for, at a price of $1.25 per Common Share if subscribed for
prior to the Time of Expiry on February 28, 1997, and thereafter at a
price of $1.50 per Common Share if subscribed for prior to the Time of
Expiry on the Expiry Date.
These Warrants shall be deemed to be surrendered only upon
personal delivery hereof or, if sent by mail or other means of transmission,
upon actual receipt thereof by the Trustee at the office referred to above.
Upon surrender of these Warrants, the person or persons in
whose name or names the Common Shares issuable upon exercise of the Warrants are
to be issued shall be deemed for all purposes (except as provided in the
Indenture hereinafter referred to) to be the holder or holders of record of such
Common Shares and the Corporation covenants that it will (subject to the
provisions of the Indenture) cause a certificate or certificates representing
such Common Shares to be delivered or mailed to the person or persons at the
address or addresses specified in the Exercise Form within five (5) Business
Days.
The registered holder of these Warrants may acquire any lesser
number of Common Shares than the number of Common Shares which may be acquired
for the Warrants represented by this Warrant Certificate. In such event, the
holder shall be entitled to receive a new Warrant Certificate for the balance of
the Common Shares which may be acquired. No fractional Common Shares or Warrants
will be issued.
The Warrants represented by this certificate are issued under
and pursuant to a Warrant Indenture (hereinafter referred to as the "Indenture")
made as of February 28, 1996 between the Corporation and the Trustee. Reference
is made to the Indenture and any instruments supplemental thereto for a full
description of the rights of the holders of the Warrants and the terms and
conditions upon which the Warrants are, or are to be, issued and held, with the
same effect as if the provisions of the Indenture and all instruments
supplemental thereto were herein set forth. By acceptance hereof, the holder
assents to all provisions of the Indenture. Capitalized terms used in the
Indenture have the same meaning herein as therein, unless otherwise defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Warrants shall, upon exercise of the Warrants
following the occurrence of any of those events, be entitled to receive the same
number and kind of securities that they would have been entitled to receive had
they exercised their Warrants immediately prior to the occurrence of those
events.
The registered holder of this Warrant Certificate may, at any
time prior to the Expiry Date, upon surrender hereof to the Trustee at its
principal office in the City of Calgary, exchange this Warrant Certificate for
other Warrant Certificates entitling the holder to acquire, in the aggregate,
the same number of Common Shares as may be acquired under this Warrant
Certificate.
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<PAGE>
The holding of the Warrants evidenced by this Warrant
Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Warrant Certificate.
The Indenture provides that all holders of Warrants shall be
bound by any resolution passed at a meeting of the holders held in accordance
with the provisions of the Indenture and resolutions signed by the holders of
Warrants entitled to acquire a specified majority of the Common Shares which may
be acquired pursuant to all then outstanding Warrants.
The Warrants evidenced by this Warrant Certificate may be
transferred on the register kept at the offices of the Trustee by the registered
holder hereof or its legal representatives or its attorney duly appointed by an
instrument in writing in form and execution satisfactory to the Trustee, only
upon compliance with the conditions prescribed in the Indenture and upon
compliance with such reasonable requirements as the Trustee may prescribe.
This Warrant Certificate shall not be valid for any purpose
whatever unless and until it has been certified by or on behalf of the Trustee.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Corporation has caused this Warrant
Certificate to be signed by its duly authorized officer as of , 199 .
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
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<PAGE>
TRANSFER OF WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Warrants of HealthCare Capital Corp. registered in the name of
the undersigned on the records of The R-M Trust Company represented by the
Warrant Certificate attached.
DATED the day of , 199 .
Signature Guaranteed (Signature of Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Warrantholder must be the signature of the person
appearing on the face of this Warrant Certificate.
4. Warrants shall only be transferable in accordance with applicable laws.
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares of HealthCare Capital Corp. as constituted on February 28, 1996 (or such
number of other securities or property to which such Warrants entitle the
undersigned in lieu thereof or in addition thereto under the provisions of the
Indenture referred to in the accompanying Warrant Certificate) in accordance
with and subject to the provisions of such Indenture.
The Common Shares (or other securities or property) are to be
issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares:
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Warrantholder)
Print Full Name
Print Full Address
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<PAGE>
Instructions:
1. The registered holder may exercise its right to receive Common Shares
by completing this form and surrendering this form and the Warrant
Certificate representing the Warrants being exercised to The R-M Trust
Company at its principal office at Suite 600, 333 7th Avenue S.W.,
Calgary, Alberta T2P 2Zl. Certificates for Common Shares will be
delivered or mailed as soon as practicable after the exercise of the
Warrants. The rights of the registered holder thereof cease if the
Warrants are not exercised prior to the Expiry Time on the Expiry Date.
2. If the Exercise Form indicates that Common Shares are to be issued to a
person or persons other than the registered holder of the Certificate,
the signature of such holder on the Exercise Form must be guaranteed by
an authorized officer of a chartered bank, trust company or an
investment dealer who is a member of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
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<PAGE>
(British Columbia,
Alberta and Offshore)
PURCHASE OF SPECIAL WARRANTS
TO: HEALTHCARE CAPITAL CORP.
1. The undersigned hereby irrevocably agrees to purchase special share
purchase warrants (the "Special Warrants") of HealthCare Capital Corp. (the
"Corporation") for an aggregate consideration of $ (the "Purchase Price"),
representing a purchase price of US$1.25 per Special Warrant. Each Special
Warrant shall entitle the holder to acquire one (1) Common Share (a "Common
Share") of the Corporation and one (1) Common Share Purchase Warrant (a
"Warrant") at no additional cost at any time on or after the issue of the
Special Warrants, to and until 4:30 p.m. (Calgary time) (the "Expiry Time") on
the earlier of (a) the date which is five (5) days after the date upon which a
receipt is issued by the securities commission in each of the Provinces of
Alberta and British Columbia (the "Filing Provinces") for the Prospectus
qualifying the Common Shares and Warrants to be distributed on the exercise of
the Special Warrants; and (b) 365 days from the Final Closing Date.
The Warrants shall have a term of approximately two (2) years
and expire on August 31, 1998. Each Warrant entitles the holder to subscribe for
one (1) additional Common Share of the Corporation at a subscription price of
US$2.00 until the expiry thereof. After the Registration Date (defined as the
day on which a receipt is issued for the final prospectus and all deficiencies
cleared by the applicable securities commissions) should the closing bid for the
Corporation's common shares be at a price in excess of US$3.00 per common share,
or the Canadian equivalent thereof, for a period of twenty (20) consecutive
trading days (as traded on The Alberta Stock Exchange or another more senior
North American exchange), the Corporation has the option, on 45 days written
notice to the undersigned at the address provided below, to force the exercise
or cancellation of the Warrant.
Any Special Warrants not exercised on or before the Expiry
Time shall be deemed to have been exercised immediately prior to the Expiry Time
without any further action on the part of the holder thereof.
2. The Special Warrants will be duly and validly created and issued
pursuant to the terms of a warrant indenture (the "Special Warrant Indenture")
to be entered into between the Corporation and The R-M Trust Company of Canada
(the "Trustee"), as trustee at or prior to the closing of the Special Warrants.
The subscription proceeds from the sale of the Special Warrants will be
deposited in the Corporation's bank accounts and unconditionally available to
the Corporation upon receipt. The Special Warrant Indenture shall be in such
form and contain such terms as shall be approved by the Corporation and its
counsel. The Special Warrant Indenture will provide that, in the event a receipt
for the Prospectus is not obtained from the securities commission or similar
regulatory authority in each of the Filing Provinces on or prior
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<PAGE>
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to the date which is 120 days from the Closing Date, each holder of the Special
Warrants shall be entitled to receive, upon the exercise or deemed exercise of
the Special Warrants, 1.1 times the number of Common Shares and Warrants to
which he would otherwise be entitled to receive, without additional payment.
3. By executing this Purchase Agreement, the undersigned represents,
warrants and covenants to the Corporation (and acknowledges that the Corporation
is relying thereon) that:
(a) it has been independently advised as to the applicable hold period
imposed in respect of the Special Warrants (and the Common Shares and
Warrants issuable upon the exercise thereof) under securities
legislation in force in the jurisdiction in which it resides and
confirms that:
(i) it is aware of the risks and other characteristics of
the Special Warrants and of the fact that the
undersigned may not be able to resell the Special
Warrants (or the Common Shares and Warrants issuable
upon the exercise thereof) except in accordance with
applicable securities legislation and regulatory
policies and that if it exercises the Special
Warrants prior to the issuance of receipts for the
Prospectus in its province of residence, the Common
Shares and Warrants so acquired will be subject to
resale restrictions; and
(ii) it has not become aware of any advertisement in
printed media of general and regular paid circulation
or on radio or television with respect to the
distribution of the Special Warrants;
(b) it is a resident of the province or jurisdiction set forth below under
"Purchaser's Address" and, if purchasing for and on behalf of a
beneficial purchaser, other than itself, such beneficial purchaser's
jurisdiction of residence is as stated on the execution page of this
Purchase Agreement or in Schedule "A" attached hereto and made a part
hereof;
(c) unless exempted by an order of the securities commission or similar
regulatory authority of the province in which it resides:
(i) if it is a resident of British Columbia, it is:
A. purchasing sufficient Special Warrants so
that the aggregate acquisition cost of the
Special Warrants to it is not less than
$97,000 and it is not a syndicate,
partnership or other form of unincorporated
entity or organization created solely to
permit the purchase of the Special Warrants
(or other similar purchases) by a group of
individuals whose individual share of the
aggregate acquisition cost of the Special
Warrants is less than $97,000; or
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<PAGE>
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B. qualified to purchase the Special Warrants
pursuant to one or more of the criteria
listed in Sections 3, 4 or 5 of Form 20A
promulgated pursuant to the regulations to
the Securities Act (British Columbia) (the
"BC Act"), a copy of which is attached
hereto and agrees to execute and deliver a
Form 20A to the Corporation and the Agent;
(ii) if it is a resident of Alberta, it is:
A. purchasing sufficient Special Warrants so
that the aggregate acquisition cost of the
Special Warrants to it is not less than
$97,000 and it is not a syndicate,
partnership or other form of unincorporated
entity or organization created solely to
permit the purchase of the Special Warrants
(or other similar purchases) by a group of
individuals whose individual share of the
aggregate acquisition cost of the Special
Warrants is less than $97,000;
B. it is purchasing the Special Warrants
pursuant to an exemption under the
Securities Act (Alberta) (the "Alberta Act")
that it is a "sophisticated purchaser";
C. it has the investment acumen to assess this
offering as a result of:
I. its net worth and previous business
or investment experience; or
II. advice that it has received on this
investment that was:
1. independent advice on the
offering obtained from a
registered advisor under
the Alberta Act or an
adviser exempted from
registration under Section
64 of the Alberta Act; and
2. not obtained from a
promoter of the
Corporation; or
D. it is a senior officer or director of the
Corporation, a spouse, parent, brother,
sister or child of a senior officer or
director of the Corporation or a company all
of whose voting securities are beneficially
owned by one or more of the foregoing
persons, or it (complete blank or circle
appropriate subscription):
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<PAGE>
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I. is a close friend ( ) or relative (
) of , one of the promoters of
------------------------------------
the Corporation; or
II. is a business associate of , one of
the promoters of
------------------------------------
the Corporation;
(iii) it is a resident of a jurisdiction other than a
Province or Territory of Canada or a State of the
Unites States of America (an "Offshore
Jurisdiction"):
A. its purchase of Special warrants and the
securities issuable upon the exercise or
deemed exercise of the Special Warrants is
not in contravention of any legislation in
place in such Offshore Jurisdiction;
B. its purchasing the Special Warrants as
principal;
C. it is purchasing the Special Warrants
pursuant to Alberta Securities Commission
Notice 7 but is subject to the same hold
periods and resale restrictions as persons
purchasing who are resident in Alberta;
D. it has the investment acumen to assess this
offering as a result of its net worth and
previous investment experience.
(d) it is purchasing the Special Warrants as principal and no other person,
corporation, firm or other organization will have a beneficial interest
in the Special Warrants, except if it is a "portfolio manager" as
defined in the B.C. Act, it is deemed by the B.C. Act to be acting as
principal when it purchases or sells as an agent for accounts that are
fully managed by it;
(e) if it is a resident of any jurisdiction referred to in the preceding
subparagraphs but not purchasing thereunder, it is purchasing pursuant
to an exemption from prospectus or registration requirements
(particulars of which are enclosed herewith) available to it under
applicable securities legislation and shall deliver to the Corporation
and the Agent such further particulars of the exemption(s) and the
undersigned's qualifications thereunder as the Corporation or the Agent
may reasonably request;
(f) if it is resident in British Columbia and it is not a corporation or an
individual but is a syndicate, partnership or other form of
unincorporated organization, every participant in the syndicate,
partnership or unincorporated organization would have an aggregate
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<PAGE>
- 5 -
acquisition cost of not less than $97,000 for the Special Warrants
purchased if the participant were acquiring its proportionate interest
in the Special Warrants purchased; and
(g) if it, or any beneficial purchaser for whom it is acting, is resident
in British Columbia, it acknowledges that, as the Special Warrants are
subject to a hold period under applicable British Columbia securities
legislation and pursuant to British Columbia Securities Commission
Blanket Order BOR #88/5, either:
(i) an initial trade report in the prescribed form; or
(ii) the report required under the laws of Alberta (provided that
such report requires substantially the same information as the
initial trade report prescribed for British Columbia
purposes), in respect of the resale of the Special Warrants or
of the Common Shares acquired on the exercise thereof (in the
event such Common Shares are acquired prior to the issuance of
a receipt by the British Columbia Securities Commission for a
Prospectus);
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<PAGE>
- 6 -
must be filed within ten (10) days of the initial trade of such
securities;
(h) this subscription has not been solicited in any other manner contrary
to the Alberta Act, the BC Act or the respective regulations thereto or
the United States Securities Act of 1933 as amended;
(i) if an individual, the undersigned has attained the age of majority and
is legally competent to execute this Purchase Agreement and to take all
actions required pursuant hereto;
(j) the undersigned is capable of assessing the proposed investment as a
result of the undersigned's financial experience or as a result of
advice received from a registered person under applicable securities
legislation other than the Corporation or an affiliate thereof;
(k) if required by applicable securities legislation, regulatory policy or
order or by any securities commission, stock exchange or other
regulatory authority, the undersigned will execute, deliver, file and
otherwise assist the Corporation in filing, such reports,
questionnaires, undertakings and other documents with respect to the
issue of the Special Warrants (or the Common Shares and Warrants
issuable upon the exercise thereof), including, without limitation,
such undertakings as may be required by The Alberta Stock Exchange;
(l) this Purchase Agreement has been duly and validly authorized, executed
and delivered by the undersigned and constitutes a legal, valid,
binding and enforceable obligation of the undersigned; and
(m) in the case of a subscription by us for Special Warrants acting as
agent for a disclosed principal, we are duly authorized to execute and
deliver this agreement and all other necessary documentation in
connection with such subscription on behalf of such principal and this
agreement has been duly authorized, executed and delivered by or on
behalf of, and constitutes legal, valid and binding agreement of, such
principal.
The undersigned agrees that the above representations, warranties and
covenants will be true and correct both as of the execution of this subscription
and as of the Closing Time and will survive the completion of the issuance of
the Special Warrants.
4. The foregoing representations, warranties and covenants are made by
the undersigned with the intent that they be relied upon by the Corporation in
determining its suitability as a purchaser of Special Warrants, of (if
applicable) the suitability of others on whose behalf it is contracting to
purchase Special Warrants. The undersigned undertakes to notify the Corporation
immediately of any change in any representation, warranty or other information
relating to the undersigned set forth herein which takes place prior to the
Closing Time (as hereinafter defined).
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<PAGE>
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5. It is proposed that there will be two closings for this offering.
The sale of the initial tranche of Special Warrants will be completed at the
head office of the Corporation, in Vancouver, British Columbia, at 5:00 p.m.
(Vancouver time) (the "Closing Time") on September 6, 1996 (the "Closing Date").
At the Closing Time on the Closing Date, or as soon thereafter as may be
reasonable, the Corporation shall deliver to the Purchaser the certificate
representing the Special Warrants prepared in accordance with the terms of the
Special Warrant Indenture. The closing of the second tranche of Special Warrants
will be completed at the head office of the Corporation, in Vancouver, British
Columbia at 5:00 p.m. (Vancouver time) (the "Final Closing Time") on September
30, 1996 (the "Final Closing Date"). At the Final Closing Time on the Final
Closing Date, or as soon thereafter as may be reasonable, the Corporation shall
deliver to the Purchaser the certificate representing the Special Warrants
prepared in accordance with the terms of he Special Warrant Indenture.
6. In the event that a holder of a Special Warrant who acquires a
Common Share or Warrant upon the exercise of the Special Warrant, is or becomes
entitled under applicable securities legislation to the remedy of rescission by
reason of the Prospectus or any amendment thereto containing a
misrepresentation, such holder shall, subject to available defences and any
limitation period under applicable securities legislation, be entitled to
rescission not only of the holder's exercise of its Special Warrant(s) but also
of the private placement transaction pursuant to which the Special Warrants were
initially acquired, and shall be entitled in connection with such rescission to
a full refund of all consideration paid on the acquisition of the Special
Warrants. In the event such holder is a permitted assignee of the interest of
the original Special Warrant subscriber, such permitted assignee shall be
entitled to exercise the rights of rescission and refund granted hereunder as if
such permitted assignee was such original subscriber. The foregoing is in
addition to any other right or remedy available to a holder of the Special
Warrant under section 168 of the Securities Act (Alberta), equivalent provisions
of securities laws in the other provinces of Canada or otherwise at law.
7. The undersigned expressly waives and releases the Corporation from
all rights of withdrawal to which it might otherwise be entitled pursuant to
Section 106(1) of the Securities Act (Alberta) or equivalent provisions of
securities laws in the other provinces of Canada or jurisdictions.
8. The undersigned, if subscribing for the first tranche of Special
Warrants, agrees to deliver to the Corporation not later than 5:00 p.m.
(Vancouver time) on September 4, 1996, or if subscribing for the second tranche
of Special Warrants agrees to deliver to the Corporation not later than 5:00
p.m. (Vancouver time) on September 26, 1996; (a) this duly completed and
executed Purchase Agreement; (b) a manually signed and completed copy of the
Private Placement Questionnaire and Undertaking required by The Alberta Stock
Exchange in the form attached hereto as Schedule "B"; (c) a duly completed
Acknowledgement and Undertaking in the form attached hereto as Schedule "C", as
appropriate; (d) such other documents as may be requested as contemplated by
subsection 3(k) hereof; and (e) the payment of the Purchase Price in a manner
acceptable to the Corporation.
- 7 -
<PAGE>
- 8 -
9. The undersigned hereby irrevocably authorizes the Corporation, in
its sole discretion:
(a) to act as its representative at the closing and to execute in its name
and on its behalf all closing receipts and documents required;
(b) to approve any opinions, certificates or other documents addressed to
the undersigned; and
(c) to waive, in whole or in part, any representations, warranties,
covenants or conditions for the benefit of the undersigned.
10. The Corporation shall be entitled to rely on delivery of a
facsimile copy of executed subscriptions, and acceptance by the Corporation of
such facsimile subscriptions shall be legally effective to create a valid and
binding agreement between the undersigned and the Corporation in accordance with
the terms hereof.
11. The contract arising out of this Purchase Agreement shall be
governed by and construed in accordance with the laws of the Province of Alberta
and the laws of Canada applicable therein. Time shall be of the essence hereof.
- 8 -
<PAGE>
- 9 -
12. This Purchase Agreement represents the entire agreement of the
parties hereto relating to the subject matter hereof and there are no
representations, covenants or other agreements relating to the subject matter
hereof except as stated or referred to herein.
DATED at the City of ___________ in the Province of
_______________________ , this day of , 1996.
(Name of Purchaser - Please Print) (Purchaser's Address)
By:
Authorized Signature
(Official Capacity or Title, if applicable-please print) (Telephone Number)
(Please print name of individual whose signature appears above if different from
the name of the subscriber printed above)
IF THE PURCHASER IS SIGNING AS AGENT FOR A PRINCIPAL, COMPLETE THE FOLLOWING:
(Name of Principal) (Principal's Address)
REGISTRATION INSTRUCTIONS: DELIVERY INSTRUCTIONS:
Register the Special Warrants Deliver the Special Warrants
as set forth: as set forth:
Name Name
Account reference, if applicable Account reference, if applicable
Address Contact Name
Telephone Number
ACCEPTANCE
<PAGE>
- 10 -
HealthCare Capital Corp. hereby accepts the above offer as of
this day of , 1996.
HEALTHCARE CAPITAL CORP.
Per:
<PAGE>
Schedule "A"
<PAGE>
Schedule "B"
(TO BE COMPLETED BY ALL PURCHASERS)
THE ALBERTA STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
To be completed by each private placement purchaser of listed securities or
securities (including debt securities) which are convertible into listed
securities.
1. DESCRIPTION OF TRANSACTION
(a) Name of Issuer of the Securities:
HealthCare Capital Corp.
(b) Number and Description of Securities to be Purchased:
Special Warrants.
(c) Description of any warrants or other convertible securities
being issued:
Each Special Warrant is exercisable into one Common
Share and one Warrant. Each Warrant entitles the
holder to purchase one Common Share at a price of
US$2.00 per Common Share until the expiry thereof,
subject to an option of forced exercise or
cancellation given to the Issuer should the closing
bid for the Issuer's common shares be in excess of US
$3.00, or the Canadian equivalent thereof, for a
period of twenty (20) consecutive trading days (as
traded on The Alberta Stock Exchange or another more
senior North American stock exchange). Such option to
be exercisable by the Issuer upon forty-five (45)
days written notice to the Purchaser.
(d) Purchase Price:
US$1.25 per Special Warrant.
(e) State the exemption under the Securities Act on which the
company is relying to issue the shares:
Securities Act (British Columbia) - Section 55(2)(4)
Securities Act (Alberta) - Section 107(1)(d) and
107(1)(z)
(f) State the hold period to which the shares will be subject:
<PAGE>
- 2 -
British Columbia - 12 months from the date the
Corporation becomes a reporting issuer in British
Columbia, unless earlier qualified by Prospectus.
<PAGE>
- 3 -
Alberta - 12 months from the Closing Date (date of
purchase), unless earlier qualified by Prospectus.
2. DETAILS OF PURCHASER
(a) Name of Purchaser:
(b) Address:
(c) If the purchaser is a corporation, state the jurisdiction of
incorporation:
(d) General Nature of Business:
(e) Names and addresses of persons having a greater than 5%
beneficial interest in the purchaser:
3. DEALINGS OR PURCHASER IN SECURITIES OF THE ISSUER
Give the details of all trading by the purchaser in the securities of
the issuer (other than debt securities which are not convertible into
equity securities), directly or indirectly, within the 60 days
preceding the date hereof:
4. RELATIONSHIP TO ISSUER
(a) State if purchaser has any relationship with the issuer,
direct or indirect:
(b) If the answer to (a) is yes, give details:
<PAGE>
- 4 -
(c) Does the purchaser own, directly or indirectly, any securities
of the issuer at the date hereof (other than debt securities
which are not convertible into equity securities); if so, give
particulars:
5. HOLD PERIOD
State the applicable hold period:
British Columbia - 12 months from the date the Corporation
becomes a reporting issuer in British Columbia, unless earlier
qualified by Prospectus.
Alberta - 12 months from the Closing Date (date of purchase)
unless earlier qualified by Prospectus.
<PAGE>
- 5 -
To: The Alberta Stock Exchange
The undersigned has subscribed for and agreed to purchase, as
principal, the securities described in Item 1 of this Private Placement
Questionnaire and Undertaking.
The undersigned undertakes not to sell or otherwise dispose of
any of the said securities so purchased or any securities derived therefrom
without the prior consent of The Alberta Stock Exchange and any other regulatory
body having jurisdiction until either:
(a) the expiry of such period as is prescribed by the applicable securities
legislation or a period of twelve months from the date of closing
whichever is longer; or
(b) a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities to be derived
therefrom has been issued by the applicable Securities Commission.
If requested to do so by The Alberta Stock Exchange, the
undersigned further undertakes to deposit the securities in escrow with a member
of The Alberta Stock Exchange or a financial institution acceptable to The
Alberta Stock Exchange, subject to the condition that they not be released or
sold for a period equal to the applicable hold period without the prior consent
of The Alberta Stock Exchange, and to cause such member or financial institution
to confirm in writing to the Exchange that the securities have been so
deposited. The undersigned acknowledges that it is aware that the removal of the
securities from escrow will not entitle it to sell the securities in
contravention of any applicable securities legislation.
Dated at day of ,
199__.
(Name of Purchaser - please print)
(Authorized Signature)
(Official Capacity - please print)
(Please print name of individual
whose signature appears above, if
different from name of purchaser
printed above)
<PAGE>
CERTIFICATE OF NON-CANADIAN BENEFICIAL OWNERSHIP
The undersigned hereby certifies that the certificates
registered in the name of the undersigned are beneficially owned by persons that
are not residents of Canada.
The undersigned further certifies that except as disclosed
herein, the certificates registered in the name of the undersigned are not
beneficially owned by any officers, directors or insiders of the Company.
Dated at , this day of ,
1996.
Name of Certifying Party
Signature of Certifying Party of authorized signing
officer of Certifying Party
<PAGE>
Schedule "C"
(British Columbia Purchasers only)
This is the form required under section 135 of the Rules and, if applicable, by
an order issued under section 59 of the Securities Act.
FORM 20A(IP)
Securities Act (British Columbia)
ACKNOWLEDGEMENT OF INDIVIDUAL PURCHASER
1. (the "Purchaser") has agreed to purchase from HealthCare
----------------------------------- Capital Corp. (the "Issuer")
Special Warrants at US$1.25 per
------------------------------------------ Special Warrant. Each
Special Warrant is convertible upon exercise, without further payment,
into one Common Share of the Issuer (a "Share") and one Common Share
Purchase Warrant (a "Warrant"). One Warrant is exercisable to purchase
a further Common Share of the Issuer for two years from the date of
issuance of the Special Warrants (the "Closing"), at a price of US$2.00
during the term thereof, subject to an option of forced exercise or
cancellation given to the Issuer should the closing bid for its common
shares be in excess of US$3.00, or the Canadian equivalent thereof, for
a period of twenty (20) consecutive trading days (as traded on The
Alberta Stock Exchange or another more senior North American exchange).
Such option to be exercisable by the Issuer on 45 days written notice
to the Purchaser. The Special Warrants will be deemed to be exercised
on that day which falls on the earlier of one year from the Closing,
and the day which is ten business days from the day a receipt for a
final prospectus qualifying the proposed distribution of the Shares and
Warrants to holders of Special Warrants (the "Prospectus") is issued by
each of the British Columbia and Alberta Securities Commissions. If
such receipts are not issued by that day which falls 120 days from the
day of the Closing, then each Special Warrant outstanding after that
day will, on exercise entitle the holder to acquire 1.1 times the
number of Common Shares and Warrants to which he would otherwise have
been entitled to receive, at no additional cost. The Special Warrants
are hereinafter referred to as the "Securities" of the Issuer.
2. I am purchasing the Securities as principal and, on closing of the
agreement of purchase and sale, I will be the beneficial owner of the
Securities.
3. 1 [circle one] have/have not received an offering memorandum describing
the Issuer and the Securities.
4. I acknowledge that:
<PAGE>
- 2 -
(a) no securities commission or similar regulatory authority has
reviewed or passed on the merits of the Securities; AND
(b) there is no government or other insurance covering the
Securities, AND
(c) I may lose all of my investment, AND
(d) there are restrictions on my ability to resell the Securities
and it is my responsibility to find out what those
restrictions are and to comply with them before selling the
Securities, AND
(e) I will not receive a prospectus that the British Columbia
Securities Act (the "Act") would otherwise require be given to
me because the Issuer has advised me that it is relying on a
prospectus exemption, AND
(f) because I am not purchasing the Securities under a prospectus,
I will not have the civil remedies that would otherwise be
available to me, AND
(g) the Issuer has advised me that it is using an exemption from
the requirement to sell through a dealer registered under the
Act, except purchases referred to in paragraph 5(g), and as a
result I do not have the benefit of any protection that might
have been available to me by having a dealer act on my behalf.
5. I also acknowledge that: [circle one]
(a) I am purchasing Securities that have an aggregate acquisition
cost of $97,000 or more, OR
(b) my net worth, or my net worth jointly with my spouse at the
date of the agreement of purchase and sale of the security, is
not less than $400,000, OR
(c) my annual net income before tax is not less than $75,000, or
may annual net income before tax jointly with my spouse is not
less than $125,000, in each of the two most recent calendar
years, and I reasonably expect to have annual net income
before tax of not less than $75,000 or annual net income
before tax jointly with my spouse of not less than $125,000 in
the current calendar year, OR
(d) I am registered under the Act, OR
<PAGE>
- 3 -
(e) I am a spouse, parent, brother, sister or child of a senior
officer or director of the Issuer, or of an affiliate of the
Issuer, OR
(f) I am a close personal friend of a senior officer or director
of the Issuer, or of an affiliate of the Issuer, OR
(g) I am purchasing securities under section 128(c) ($25,000 -
registrant required) of the Rules, and I have spoken to a
person [Name of registered person: (the "Registered Person")]
who has advised me that the Registered Person is registered to
trade or advise in the Securities and that the purchase of the
Securities is a suitable investment for me.
6. If I am an individual referred to in paragraph 5(b), 5(c) or 5(d), I
acknowledge that, on the basis of information about the Securities
furnished by the Issuer, I am able to evaluate the risks and merits of
the Securities because: [circle one]
(a) of my financial, business or investment experience, OR
(b) I have received advice from a person [Name of adviser:
(the "Adviser")] who has advised me that the Adviser is:
(i) registered to advise, or exempted from the
requirement to be registered to advise, in
respect of the Securities, and
(ii) not an insider of, or in a special
relationship with, the Issuer.
The statements made in this report are true.
DATED . 19___.
Signature of Purchaser
Name of Purchaser
<PAGE>
- 4 -
Address of Purchaser
<PAGE>
This is the form required under Section 135 of the Rules and, if applicable, by
an order issued under section 59 of the Securities Act.
FORM 20A(NIP)
Securities Act (British Columbia)
ACKNOWLEDGEMENT OF PURCHASER THAT IS NOT AN INDIVIDUAL
1. ____________________ (the "Purchaser") has agreed to purchase from
HealthCare Capital Corp. (the "Issuer") ____________________ Special
Warrants at US$1.25 per Special Warrant. Each Special Warrant is
convertible upon exercise, without further payment, into one Common
Share of the Issuer (a "Share") and one Common Share Purchase Warrant
(a "Warrant"). One Warrant is exercisable to purchase a further Common
Share of the Issuer for two years from the date of issuance of the
Special Warrants (the "Closing"), at a price of US$2.00 during the term
thereof, subject to an option of forced exercise or cancellation given
to the Issuer should the closing bid for its common shares be in excess
of US$3.00, or the Canadian equivalent thereof, for a period of twenty
(20) consecutive trading days (as traded on The Alberta Stock Exchange
or another more senior North American exchange). Such option to be
exercisable by the Issuer on 45 days written notice to the Purchaser .
The Special Warrants will be deemed to be exercised on that day which
falls on the earlier of one year from the Closing, and the day which is
ten business days from the day a receipt for a final prospectus
qualifying the proposed distribution of the Shares and Warrants to
holders of Special Warrants (the "Prospectus") is issued by each of the
British Columbia and Alberta Securities Commissions. If such receipts
are not issued by that day which falls 120 days from the day of the
Closing, then each Special Warrant outstanding after that day will, on
exercise entitle the holder to acquire 1.1 times the number of Common
Shares and Warrants to which he would otherwise have been entitled to
receive, at no additional cost. The Special Warrants are hereinafter
referred to as the "Securities" of the Issuer.
2. The Purchaser is purchasing the Securities as principal, or is a trust
company, insurer or portfolio manager acting on behalf of fully managed
accounts and is deemed to be purchasing as principal under section
55(1) of the British Columbia Securities Act (the "Act").
3. On closing of the agreement of purchase and sale, the Purchaser will be
the beneficial owner of the Securities, except where the Purchaser is a
trust company, insurer or portfolio manager acting on behalf of fully
managed accounts under section 55(1) of the Act.
<PAGE>
- 2 -
4. The Purchaser [circle one] has/has not received an offering memorandum
describing the Issuer and the Securities.
5. The Purchaser acknowledges that:
(a) no securities commission or similar regulatory authority has
reviewed or passed on the merits of the Securities; AND
(b) there is no government or other insurance covering the
Securities; AND
(c) the Purchaser may lose all of its investment; AND
(d) there are restrictions on the Purchaser's ability to resell
the Securities and it is the responsibility of the Purchaser
to find out what those restrictions are and to comply with
them before selling the Securities; AND
(e) the Purchaser will not receive a prospectus that the Act would
otherwise require to be given to the Purchaser because the
Issuer has advised the Purchaser that the Issuer is relying on
a prospectus exemption; AND
(f) because the Purchaser is not purchasing the Securities under a
prospectus, the Purchaser will not have the civil remedies
that would otherwise be available to the Purchaser; AND
(g) the Issuer has advised the Purchaser that the Issuer is using
an exemption from the requirements to sell through a dealer
registered under the Act, except purchases referred to in
paragraph 6(b), and as a result the Purchaser does not have
the benefit of any protection that might have been available
to the Purchaser by having a dealer act on the Purchaser's
behalf.
6. The Purchaser acknowledges that:
(a) it is a "sophisticated purchaser" as described in paragraph 2
in the attached Appendix A [circle the applicable subparagraph
in paragraph 2 in Appendix A]; OR
(b) the Securities were purchased under section 128(c) ($25,000 -
registrant required) of the Rules, and an authorized signatory
of the Purchaser has spoken to a person [Name of registered
person: (the "Registered Person")] who has advised the
authorized signatory that the Registered Person is registered
<PAGE>
- 3 -
to trade or advise in the Securities and that the purchase of the
Securities is a suitable investment for the Purchaser; OR
(c) the Purchaser is a corporation, all the voting securities of
which are beneficially owned by one or more of:
(i) a close personal friend of a senior officer
or director of the Issuer, or of an
affiliate of the Issuer; OR
(ii) a senior officer or director of the Issuer,
or of an affiliate of the Issuer; OR
(iii) a spouse, parent, brother, sister or child
of a senior officer or director of the
Issuer, or of an affiliate of the Issuer.
7. If the Purchaser is referred to in paragraph 6(a), the Purchaser
acknowledges that, on the basis of information about the Securities
furnished by the Issuer, the Purchaser is able to evaluate the risks
and merits of the Securities because: [circle one]
(a) of the financial, business or investment experience of the
Purchaser, OR
(b) the Purchaser has received advice from a person [Name of
adviser: (the "Adviser")] who has advised the Purchaser that
the Adviser is:
(i) registered to advise, or exempted from the
requirement to be registered to advise, in
respect of the Securities, AND
(ii) not an insider of, or in a special
relationship with, the Issuer.
The statements made in this report are true.
DATED , 19___.
Signature of Authorized Signatory of Purchaser
<PAGE>
- 4 -
Name and Office of Authorized Signatory of Purchaser
Name of Purchaser
Address of Purchaser
Please turn to Appendix A, which is attached to and forms part of this Form
20A(NIP).
<PAGE>
APPENDIX A TO FORM 20A (NIP)
[Circle the applicable subparagraph in paragraph 2.]
"Sophisticated purchaser" means a purchaser that, in connection with a
distribution, gives an acknowledgement under section 135 of the Rules to the
Issuer, where the Issuer does not believe, and has no reasonable grounds to
believe, that the acknowledgement is false, acknowledging both that:
1. the purchaser is able, on the basis of information about the investment
furnished by the Issuer, to evaluate the risks and merits of the
prospective investment because of:
(a) the purchaser's financial, business or investment experience,
OR
(b) advice the purchaser receives from a person who is registered
to advise, or is exempted from the requirement to be
registered to advise, in respect of the security that is the
subject of the trade (the "Security") and who is not an
insider of, or in a special relationship with, the Issuer of
the Security; AND
2. the purchaser is one of the following [circle one]:
(a) a person registered under the Securities Act; OR
(b) an individual who:
(i) has a net worth, or net worth jointly with
the individual's spouse, at the date of the
agreement of purchase and sale of the
Security, of not less than $400,000, OR
(ii) has had in each of the two most recent
calendar years, and reasonably expects to
have in the current calendar year:
o annual net income before tax of not
less than $75,000, OR
o annual net income before tax,
jointly with the individual's
spouse, of not less than $125,000;
OR
(c) a corporation, partnership or trust that:
(i) has net assets of not less than $400,000, OR
<PAGE>
- 2 -
(ii) has had in each of the two most recent
calendar years, and reasonably expects to
have in the current calendar year, net
income before tax of not less than $125,000,
OR
(d) a corporation in which all of the voting shares are
beneficially owned by sophisticated purchasers or of which the
majority of the directors are sophisticated purchasers; OR
(e) a general partnership in which all of the partners are
sophisticated purchasers; OR
(f) a limited partnership in which a majority of the general
partners are sophisticated purchasers; OR
(g) a trust in which all of the beneficiaries are sophisticated
purchasers or the majority of the trustees are sophisticated
purchasers.
<PAGE>
PURCHASE OF SPECIAL WARRANTS (United States)
TO: HEALTHCARE CAPITAL CORP.
1. The undersigned hereby irrevocably agrees to purchase ____________ special
share purchase warrants (the "Special Warrants") of HealthCare Capital Corp.
(the "Corporation") for an aggregate consideration of $ (the "Purchase Price"),
representing a purchase price of US$1.25 per Special Warrant. Each Special
Warrant shall entitle the holder to acquire one (1) Common Share (a "Common
Share") of the Corporation and one (1) Common Share Purchase Warrant (a
"Warrant") at no additional cost at any time on or after the issue of the
Special Warrants, to and until 4:30 p.m. (Calgary time) (the "Expiry Time") on
the earlier of (a) the date which is five (5) days after the date upon which a
receipt is issued by the securities commission in each of the Provinces of
Alberta and British Columbia (the "Filing Provinces") for the Prospectus
qualifying the Common Shares and Warrants to be distributed on the exercise of
the Special Warrants; and (b) September 23, 1997.
The Warrants shall expire on August 31, 1998. Each Warrant
entitles the holder to subscribe for one (1) additional Common Share of the
Corporation at a subscription price of US$2.00 until the expiry thereof. After
the Registration Date (defined as the day on which a receipt is issued for the
final prospectus and all deficiencies cleared by the applicable securities
commissions) should the closing bid for the Corporation's common shares be at a
price in excess of US$3.00 per common share, or the Canadian equivalent thereof,
for a period of twenty (20) consecutive trading days (as traded on The Alberta
Stock Exchange or another more senior North American exchange), the Corporation
has the option, on 45 days written notice to the undersigned at the address
provided below, to force the exercise or cancellation of the Warrant.
Any Special Warrants not exercised on or before the Expiry
Time shall be deemed to have been exercised immediately prior to the Expiry Time
without any further action on the part of the holder thereof.
2. The Special Warrants will be duly and validly created and issued pursuant to
the terms of a warrant indenture (the "Special Warrant Indenture") dated
September 17, 1996 between the Corporation and The R-M Trust Company of Canada
(the "Trustee"), as trustee. The subscription proceeds from the sale of the
Special Warrants will be deposited in the Corporation's bank accounts and
unconditionally available to the Corporation upon receipt. The Special Warrant
Indenture provides that, in the event a receipt for the Prospectus is not
obtained from the securities commission or similar regulatory authority in each
of the Filing Provinces on or prior to the date which is 120 days from the Final
Closing Date (hereinafter defined), each holder of the Special Warrants shall be
entitled to receive, upon the exercise or deemed exercise of the Special
Warrants, 1.1 times the number of Common Shares and 1.1 times the number of
Warrants to which he would otherwise be entitled to receive, without additional
payment.
<PAGE>
3. By executing this Purchase Agreement, the undersigned represents, warrants
and covenants to the Corporation (and acknowledges that the Corporation is
relying thereon) that:
(a) it has been independently advised as to the applicable hold
period imposed in respect of the Special Warrants and the
Common Shares and Warrants distributable upon the exercise
thereof by securities legislation in the jurisdiction in which
it resides and confirms that no representation has been made
respecting the applicable hold periods for the Special
Warrants or the Common Shares and Warrants distributable upon
the exercise thereof and it is aware of the risks and other
characteristics of the Special Warrants and of the fact that
the undersigned may not be able to resell the Special Warrants
or the Common Shares and Warrants distributable upon the
exercise thereof, except in accordance with applicable
securities legislation and regulatory policy;
(b) notwithstanding subparagraph 3(a) above:
(i) it shall be bound and shall abide by the same hold
period applicable to Alberta resident purchasers of
the Special Warrants imposed in respect thereof
applicable by Alberta securities legislation (the
"Alberta Hold Period") such hold period being: (1)
one year from September 23, 1996 in respect of the
Common Share issuable upon the exercise or deemed
exercise of the Special Warrant and; (2) eighteen
months from September 23, 1996 in respect of the
Warrant issuable upon the exercise or deemed exercise
of the Special Warrant; unless cleared earlier by
prospectus as contemplated by paragraph 1 of this
Purchase Agreement;
(ii) it expressly acknowledges that it shall not be
entitled to resell the Special Warrants or Common
Shares and Warrants distributable upon the exercise
thereof until the expiry of the Alberta Hold Period;
and
(iii) it consents to the endorsement on the certificate or
certificates representing the Special Warrants and
the Common Shares distributable upon the exercise
thereof of a legend consistent with the provisions of
this subparagraph 3(b);
(c) except as provided in subparagraph (d) of this paragraph 3, it
has not received, nor has it requested, nor does it have any
need to receive, any offering memorandum, or any other
document (other than financial statements, interim financial
statement or any other document the content of which is
prescribed by applicable statute or regulation) describing the
business and affairs of the Corporation in order to assist it
in making an investment decision in respect of the Special
Warrants, and it has not become aware of any advertisement in
printed media of general and regular paid circulation, radio
or television with respect to the distribution of the Special
Warrants;
- 2 -
<PAGE>
(d) it has executed this agreement in the United States and has
concurrently executed and delivered a Representation Letter in
the form attached as Exhibit 1 to this Purchase Agreement, has
received and reviewed a copy of the United States Confidential
Offering Memorandum of the Corporation dated October 16, 1996
in relation to the Special Warrants and has been afforded an
opportunity to obtain, and has received, all information
requested by it;
(e) the undersigned has such knowledge in financial and business
affairs as to be capable of evaluating the merits and risks of
its investment and it, or where it is not purchasing as
principal, the accounts as to which the undersigned exercises
investment discretion and has authority to make and does make
the representations contained in this Purchase Agreement, each
beneficial purchaser is able to bear the economic risk of loss
of its investment;
(f) (i) it is purchasing the Special Warrants as
principal for its own account, not for the benefit
of any other person, and not with a view to the
resale or distribution of all or any of the Special
Warrants; or
(ii) if it is not purchasing as principal, it is duly
authorized to enter into this Purchase Agreement and
to execute all documentation in connection with the
purchase of the Special Warrants on behalf of each
beneficial purchaser, it is aware that the
Corporation is required by law to disclose, on a
confidential basis, to certain regulatory
authorities the identity of each beneficial
purchaser of Special Warrants for whom it may be
acting;
(g) it understands and acknowledges that the Corporation has the
right to instruct the transfer agent of the Special Warrants
and Common Shares and Warrants not to record a transfer by any
person in the United States without first being notified by
the Corporation that it is satisfied that such transfer is
exempt from or not subject to registration under the U.S.
Securities Act and any applicable state securities laws;
(h) if required by applicable securities legislation, policy or
order or by any securities commission, stock exchange or other
regulatory authority, the undersigned will execute, deliver,
file and otherwise assist the Corporation in filing, such
reports, undertakings and other documents with respect to the
issue of the Special Warrants or Common Shares (including,
without limitation, any undertaking required by The Alberta
Stock Exchange);
(i) it understands that the Corporation is incorporated outside
the United States, and there may be material tax consequences
to it of the acquisition, holding or disposition of Common
Shares, Warrants or Common Shares issuable upon exercise of
the Warrants, that the Corporation gives no opinion nor makes
any representation with respect to the tax consequences under
United States federal, state or local or foreign tax law of
the acquisition, holding or disposition of these
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<PAGE>
securities, and that the undersigned should consult its own
tax advisors about the United States federal, state and local
and foreign tax consequences of acquiring, holding or
disposing of these securities;
(j) it understands and agrees that the financial statements of the
Corporation have been prepared in accordance with Canadian
generally accepted accounting principles, which differ in some
respects from United States generally accepted accounting
principles, and thus may not be comparable to financial
statements of United States companies;
(k) it acknowledges that the enforcement by investors of civil
liabilities under the United States federal securities laws
may be adversely affected by the fact that the Corporation was
organized under the laws of Alberta, Canada, that a
substantial number of the Corporation's officers and directors
are not citizens or residents of the United States, and that a
substantial portion of the Corporation's assets and the assets
of said persons are located outside of the United States. The
undersigned acknowledges that there are questions as to: (i)
whether investors will be able to effect service of process
within the United States upon such persons; (ii) whether
investors will be able to enforce, in United States courts,
judgements against such persons obtained in such courts
predicated upon the civil liability provisions of the federal
securities laws; (iii) whether appropriate foreign courts
would enforce judgements of United States courts obtained in
actions against such persons predicated upon the civil
liability provisions of the federal securities laws, and (iv)
whether the appropriate foreign courts would enforce, in
original actions, liabilities against such persons predicated
solely upon the federal securities laws; and
(l) this Purchase Agreement has been duly and validly authorized,
executed and delivered by, and constitutes a legal, valid,
binding and enforceable obligation, of the undersigned.
The undersigned agrees that the above representations,
warranties and covenants will be true and correct both as of the execution of
this subscription and as of the Closing Time and will survive the completion of
the issuance of the Special Warrants.
4. The foregoing representations, warranties and covenants are made by the
undersigned with the intent that they be relied upon by the Corporation in
determining the undersigned's suitability as a purchaser of Special Warrants, or
(if applicable) the suitability of others on whose behalf it is contracting to
purchase Special Warrants. The undersigned undertakes to notify the Corporation
immediately of any change in any representation, warranty or other information
relating to the undersigned set forth herein which takes place prior to the
Closing Time (as hereinafter defined).
5. It is proposed that there will be two closings for this offering. The sale of
the initial tranche of Special Warrants will be completed at the head office of
the Corporation, in
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<PAGE>
Vancouver, British Columbia, at 5:00 p.m. (Vancouver time) (the "Closing Time")
on October 31, 1996 (the "Closing Date"). At the Closing Time on the Closing
Date, or as soon thereafter as may be reasonable, the Corporation shall deliver
to the Purchaser the certificate representing the Special Warrants prepared in
accordance with the terms of the Special Warrant Indenture.
The closing of the second tranche of Special Warrants will be completed at the
head office of the Corporation, in Vancouver, British Columbia at 5:00 p.m.
(Vancouver time) (the "Final Closing Time") on November 15, 1996; or such other
date as the Corporation, Sunrise Securities Corporation of New York, New York
("Sunrise") and Dallas Research & Trading Inc., of Dallas, Texas ("Dallas")
(Sunrise and Dallas referred to collectively herein as the "US Agents") (the
"Final Closing Date"). At the Final Closing Time on the Final Closing Date, or
as soon thereafter as may be reasonable, the Corporation shall deliver to the
Purchaser the certificate representing the Special Warrants prepared in
accordance with the terms of he Special Warrant Indenture.
6. The Corporation covenants to the US Agents and to the
undersigned that it will:
(a) prepare and file, using its reasonable best efforts to do so
on or before the day which is 45 days from the Closing Date,
under the applicable securities laws, regulations and rules of
British Columbia and Alberta (collectively the "Qualifying
Jurisdictions"), preliminary prospectus (the "Preliminary
Prospectus"), together with the required supporting documents,
to qualify the distribution of Common Shares and Warrants
issuable on the exercise or deemed exercise of the Special
Warrants (including any Special Warrants taken down by the US
Agents), the Common Shares issuable upon the exercise of
warrants, the warrants issuable to the US agents in respect of
the US Agents Options (the Option Warrants) and the Common
Shares issuable upon the exercise of the Option Warrants (such
securities collectively referred to in this paragraph 6 as the
"Underlying Securities");
(b) use its reasonable best efforts to address as expeditiously as
possible the comments made in respect of the preliminary
Prospectus by the securities regulatory authorities (the
"Canadian Securities Commissions") of the Qualifying
Jurisdictions; and
(c) prepare and file, using its reasonable best efforts to do so
on or before the day which is 120 days from Final Closing
date, under the applicable securities laws of the Qualifying
Jurisdictions, a final prospectus (the "Final Prospectus"),
together with the required supporting documents, and use its
reasonable best efforts to expeditiously obtain receipts for
the Final Prospectus from the Securities commissions and take
all other steps and proceedings that may be necessary in order
to qualify, under the applicable securities legislation of the
Qualifying Jurisdictions, and the rules, policies,
interpretation notices and orders of the Canadian Securities
Commissions (the "Applicable Securities Laws") the
distribution of the Underlying Securities.
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<PAGE>
7. In the event that a holder of a Special Warrant who acquires a Common Share
and Warrant upon the exercise of the Special Warrant is or becomes entitled
under applicable securities legislation to the remedy of rescission by reason of
the Prospectus or any amendment thereto containing a misrepresentation, such
holder shall, subject to available defences and any limitation period under
applicable securities legislation, be entitled to rescission not only of the
holder's exercise of its Special Warrant(s) but also of the private placement
transaction pursuant to which the Special Warrants were initially acquired, and
shall be entitled in connection with such rescission to a full refund of all
consideration paid on the acquisition of the Special Warrants. In the event such
holder is a permitted assignee of the interest of the original Special Warrant
subscriber, such permitted assignee shall be entitled to exercise the rights of
rescission and refund granted hereunder as if such permitted assignee was such
original subscriber. The foregoing is in addition to any other right or remedy
available to a holder of the Special Warrant under section 168 of the Securities
Act (Alberta), equivalent provisions of securities laws in the other provinces
of Canada or otherwise at law.
8. The undersigned expressly waives and releases the Corporation from all rights
of withdrawal to which it might otherwise be entitled pursuant to Section 106(1)
of the Securities Act (Alberta) or equivalent provisions of securities laws in
the other provinces of Canada or jurisdictions.
9. The undersigned, if subscribing for the first tranche of Special Warrants,
agrees to deliver to the US Agent which solicits its subscription not later than
5:00 p.m. (Vancouver time) on October 30, 1996, or if subscribing for the second
tranche of Special Warrants agrees to deliver to the Corporation not later than
5:00 p.m. (Vancouver time) on November 14, 1996; (a) two copies of this duly
completed and executed Purchase Agreement; (b) two duly completed copies of the
Representation Letter attached as Exhibit 1 hereto (c) two manually signed and
completed copy of the Private Placement Questionnaire and Undertaking required
by The Alberta Stock Exchange in the form attached hereto as Schedule "B"; (d)
two duly completed Acknowledgement and Undertaking in the form attached hereto
as Schedule "C", as appropriate; (e) such other documents as may be requested as
contemplated by subsection 3(h) hereof; and (f) the payment of the Purchase
Price in a manner acceptable to the US Agent which solicits its subscription.
10. The undersigned hereby irrevocably authorizes the applicable US Agent who
solicits its subscription in its sole discretion:
(a) to act as its representative at the closing and to execute in
its name and on its behalf all closing receipts and documents
required;
(b) to approve any opinions, certificates or other documents
addressed to the undersigned; and
(c) to waive, in whole or in part, any representations,
warranties, covenants or conditions for the benefit of the
undersigned.
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<PAGE>
11. The Corporation shall be entitled to rely on delivery of a facsimile copy of
this Purchase Agreement, and acceptance by the Corporation of such facsimile
copies shall be legally effective to create a valid and binding agreement
between the undersigned and the Corporation in accordance with the terms hereof.
12. The contract arising out of this Purchase Agreement shall be governed by and
construed in accordance with the laws of the Province of Alberta and the laws of
Canada applicable thereto, and the undersigned hereby irrevocably attorns to the
jurisdiction of the courts of the Province of Alberta with regard to any dispute
or matter of interpretation arising therefrom. Time shall be of the essence
hereof.
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<PAGE>
13. This Purchase Agreement represents the entire agreement of the parties
hereto relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as
stated or referred to herein.
EXECUTED AND DATED at the City of , in the State of , this day
of , 1996.
(Name of Purchaser - Please Print) (Purchaser's Address)
By:
Authorized Signature
(Official Capacity or Title, if applicable-please print) (Telephone Number)
(Please print name of individual whose signature appears above if different from
the name of the subscriber printed above)
IF THE PURCHASER IS SIGNING AS AGENT FOR A PRINCIPAL, COMPLETE THE
FOLLOWING:
(Name of Principal) (Principal's Address)
REGISTRATION INSTRUCTIONS: DELIVERY INSTRUCTIONS:
Register the Special Warrants Deliver the Special Warrants
as set forth: as set forth:
Name Name
Account reference, if applicable Account reference, if applicable
Address Contact Name
Telephone Number
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<PAGE>
ACCEPTANCE
HealthCare Capital Corp. hereby accepts the above offer as of
this day of , 1996.
HEALTHCARE CAPITAL CORP.
Per:
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<PAGE>
EXHIBIT 1
REPRESENTATION LETTER
TO: HEALTHCARE CAPITAL CORP. (the "Corporation")
In connection with the purchase by the undersigned purchaser
of Special Warrants of the Corporation and the issuance without payment of any
additional consideration of one Common Share of the Corporation (a "Common
Share") and one Common Share Purchase Warrant (a "Warrant") of the Corporation
upon exercise of each Special Warrant, we confirm and agree as follows:
(a) we are authorized to consummate the purchase of the Special
Warrants and the Common Shares and the Warrants;
(b) we are purchasing the Special Warrants and will acquire the
Common Shares and Warrants issuable upon their exercise for
our own account (or for accounts as to which we exercise
investment discretion and have authority to make and do make
the statements contained in this Letter), and not with a view
to any resale, distribution or other disposition of such
securities, or any part thereof in any transaction that would
be in violation of the securities laws of the United States or
any State thereof, subject, nevertheless, to the disposition
of our property being at all times within our control;
(c) we agree that if we decide to offer, sell or otherwise
transfer, pledge or hypothecate, or otherwise dispose of all
or any part of such securities we will not offer, sell or
otherwise transfer, pledge or hypothecate or otherwise dispose
of any of them (other than pursuant to an effective
registration statement under the Securities Act 1933, as
amended (the "Securities Act")), directly or indirectly
unless:
(i) the disposition is to the Corporation; or
(ii) the disposition is made outside the United States in
accordance with the requirements of Rule 904 of
Regulation S under the Securities Act; or
(iii) the disposition is made pursuant to the exemption
from registration under the Securities Act provided
by Rule 144 thereunder if available; or
(iv) the disposition is made in a transaction that does
not require registration under the Securities Act or
any applicable United States state laws and
regulations governing the offer and sale of
securities, and we have therefore furnished to the
Corporation an opinion of counsel, of
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<PAGE>
recognized standing reasonably satisfactory to the
Corporation to that effect;
(d) we understand and acknowledge that upon the original issuance
thereof, and until such time as the same is no longer required
under applicable requirements of the Securities Act or state
securities laws, the certificates representing the Special
Warrants and all certificates issued in exchange therefor or
in substitution thereof, including certificates representing
Common Shares and the Warrants issuable upon exercise of the
Special Warrant, shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER IF AVAILABLE,
OR (D) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION AFTER
PROVIDING A SATISFACTORY LEGAL OPINION TO THE CORPORATION.
DELIVERY OF THIS CERTIFICATE WILL NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF
WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM
THE R-M TRUST COMPANY UPON DELIVERY OF THIS CERTIFICATE AND A
DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE R-M
TRUST COMPANY AND THE CORPORATION, TO THE EFFECT THAT THE SALE
OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT;
provided that if the securities are being sold under paragraph (c)(ii)
above, the legend may be removed by providing a declaration to The R-M
Trust Company, as transfer agent for the Special Warrants, as the case
may be, to the following effect (or as the Corporation may prescribe
from time to time):
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<PAGE>
"The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1933, as amended, and (B) certifies that (1)
the offer of such securities was not made to a person in the
United States and either (a) at the time the buy order was
originated, the buyer was outside the United States, or the
seller and any person acting on its behalf reasonably believe
that the buyer was outside the United States or (b) the
transaction was executed on or through the facilities of The
Alberta Stock Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, and (2) neither
the seller, nor any affiliate of the seller nor any person
acting on their behalf has engaged or will engage in any
directed selling efforts in connection with the offer and sale
of such securities. Terms used herein have the meanings given
to them by Regulation S.";
(e) we have been afforded the opportunity (i) to ask such
questions as we have deemed necessary of, and to receive
answers from, representatives of the Corporation concerning
the terms and conditions of the offering of the Special
Warrants, and (ii) to obtain such additional information which
the Corporation possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy and
completeness of the information contained in the Offering
Documents; and
(f) we are an "accredited investor" within the meaning of Rule
501(a) under the Securities Act as set out in Exhibit A to
this Representation Letter, and (ii) by reason of our business
and financial experience and the business and financial
experience of those persons we retain to advise us with
respect to investment in the Shares we, together with our
advisors, have such knowledge, sophistication and experience
in business and financial matters that we are capable of
evaluating the merits and risks of the prospective investment.
We acknowledge that the representations and warranties and
agreements contained herein are made by us with the intent that they may be
relied upon by you in determining our eligibility or (if applicable) the
eligibility of others on whose behalf we are contracting hereunder to purchase
the Special Warrants. We further agree that by accepting the Special Warrants we
shall be representing and warranting that the foregoing representations and
warranties are true as at the closing time with the same force and effect as if
they had been made by us at the closing time and that they shall survive the
purchase by us of the Special Warrants and shall continue in full force and
effect notwithstanding any subsequent disposition by us of the Special Warrants.
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<PAGE>
You are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Date:
Print Name of Purchaser
By:
Print Name:
Title:
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<PAGE>
Exhibit "A"
1. Accredited Investor - (defined in Rule 501(a) of SEC Reg. D) means any
person who comes within any of the following categories at the time of
the sale of the securities to that person: [Please initial next to the
portion of the definition applicable to you]
(a) any bank as defined in Section 3(a)(2) of the Securities Act
of 1933, or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of such Act
whether acting in its individual or fiduciary capacity, any
broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, any insurance company as
defined in Section 2(13) of the Securities Act of 1993, any
investment company registered under the Investment Company Act
of 1940 or a business development company as defined in
Section 2(a)(48) of the Investment Company Act of 1940, and
small business investment company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958, any plan established
and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan
has total assets in excess of $5,000,000, any employee benefit
plan within the meaning of Title 1 of the Employee Retirement
Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of the
Employee Retirement Income Security Act of 1974, which is
either a bank, savings and loan association, insurance company
or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-
directed plan, with investment decisions made solely by
persons that are accredited investors;
(b) any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(c) any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
(d) any director, executive officer, or general partner of the
issuer of the securities being offered or sold or any
director, executive officer, or general partner of a general
partner of that issuer;
(e) any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of the purchase
exceeds $1,000,000;
<PAGE>
(f) any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income,
with that person's spouse, in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the
same income level in the current year;
(g) any trust, with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in SEC Rule 506(b)(2)(ii); and
(h) any entity in which all of the equity owners are Accredited
Investors.
Note: The Investor should initial beside the portion of the above
definition applicable to it.
All monetary reference are in United States Dollars.
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<PAGE>
(TO BE COMPLETED BY ALL PURCHASERS)
THE ALBERTA STOCK EXCHANGE
PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
To be completed by each private placement purchaser of listed securities or
securities (including debt securities) which are convertible into listed
securities.
1. DESCRIPTION OF TRANSACTION
(a) Name of Issuer of the Securities:
HealthCare Capital Corp.
(b) Number and Description of Securities to be Purchased:
Special Warrants.
(c) Description of any warrants or other convertible securities
being issued:
Each Special Warrant is exercisable into one Common
Share and one Warrant. Each Warrant entitles the
holder to purchase one Common Share at a price of
US$2.00 per Common Share until the expiry thereof,
subject to an option of forced exercise or
cancellation given to the Issuer should the closing
bid for the Issuer's common shares be in excess of US
$3.00, or the Canadian equivalent thereof, for a
period of twenty (20) consecutive trading days (as
traded on The Alberta Stock Exchange or another more
senior North American stock exchange). Such option to
be exercisable by the Issuer upon forty-five (45)
days written notice to the Purchaser.
(d) Purchase Price:
US$1.25 per Special Warrant.
(e) State the exemption under the Securities Act on which the
company is relying to issue the shares:
Securities Act (British Columbia) - Section 55(2)(4)
Securities Act (Alberta) - Section 107(1)(d) and
107(1)(z)
(f) State the hold period to which the shares will be subject:
British Columbia - 12 months from the date the
Corporation becomes a reporting issuer in British
Columbia, unless earlier qualified by Prospectus.
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<PAGE>
Alberta - 12 months from the Closing Date (date of
purchase), unless earlier qualified by Prospectus.
United States - Attached as Schedule "A".
2. DETAILS OF PURCHASER
(a) Name of Purchaser:
(b) Address:
(c) If the purchaser is a corporation, state the jurisdiction of
incorporation:
(d) General Nature of Business:
(e) Names and addresses of persons having a greater than 5%
beneficial interest in the purchaser:
3. DEALINGS OR PURCHASER IN SECURITIES OF THE ISSUER
Give the details of all trading by the purchaser in the securities of
the issuer (other than debt securities which are not convertible into
equity securities), directly or indirectly, within the 60 days
preceding the date hereof:
4. RELATIONSHIP TO ISSUER
(a) State if purchaser has any relationship with the issuer,
direct or indirect:
(b) If the answer to (a) is yes, give details:
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<PAGE>
(c) Does the purchaser own, directly or indirectly, any securities
of the issuer at the date hereof (other than debt securities
which are not convertible into equity securities); if so, give
particulars:
5. HOLD PERIOD
State the applicable hold period:
British Columbia - 12 months from the date the Corporation
becomes a reporting issuer in British Columbia, unless earlier
qualified by Prospectus.
Alberta - 12 months from the Closing Date (date of purchase)
unless earlier qualified by Prospectus.
United States - Attached as Schedule "A".
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<PAGE>
SCHEDULE "A"
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER IF AVAILABLE, OR (D)
PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION AFTER PROVIDING A
SATISFACTORY LEGAL OPINION TO THE CORPORATION. DELIVERY OF THIS
CERTIFICATE WILL NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING
NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE
OBTAINED FROM THE R-M TRUST COMPANY UPON DELIVERY OF THIS CERTIFICATE
AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE R-M
TRUST COMPANY AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904
OF REGULATION S UNDER THE SECURITIES ACT;
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<PAGE>
To: The Alberta Stock Exchange
The undersigned has subscribed for and agreed to purchase, as
principal, the securities described in Item 1 of this Private Placement
Questionnaire and Undertaking.
The undersigned undertakes not to sell or otherwise dispose of
any of the said securities so purchased or any securities derived therefrom
without the prior consent of The Alberta Stock Exchange and any other regulatory
body having jurisdiction until either:
(a) the expiry of such period as is prescribed by the applicable securities
legislation or a period of twelve months from the date of closing
whichever is longer; or
(b) a period ending on the date that a receipt for a final prospectus
relating to the said securities or any securities to be derived
therefrom has been issued by the applicable Securities Commission.
If requested to do so by The Alberta Stock Exchange, the
undersigned further undertakes to deposit the securities in escrow with a member
of The Alberta Stock Exchange or a financial institution acceptable to The
Alberta Stock Exchange, subject to the condition that they not be released or
sold for a period equal to the applicable hold period without the prior consent
of The Alberta Stock Exchange, and to cause such member or financial institution
to confirm in writing to the Exchange that the securities have been so
deposited. The undersigned acknowledges that it is aware that the removal of the
securities from escrow will not entitle it to sell the securities in
contravention of any applicable securities legislation.
Dated at this day of , 199__.
(Name of Purchaser - please print)
(Authorized Signature)
(Official Capacity - please print)
(Please print name of individual
whose signature appears above, if
different from name of purchaser
printed above)
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<PAGE>
CERTIFICATE OF NON-CANADIAN BENEFICIAL OWNERSHIP
The undersigned hereby certifies that the certificates
registered in the name of the undersigned are beneficially owned by persons that
are not residents of Canada.
The undersigned further certifies that except as disclosed
herein, the certificates registered in the name of the undersigned are not
beneficially owned by any officers, directors or insiders of the Company.
Dated at , this day of , 1996.
Name of Certifying Party
Signature of Certifying Party of authorized signing
officer of Certifying Party
<PAGE>
SPECIAL WARRANT INDENTURE
Providing for the Issuance of
Special Warrants Between
HEALTHCARE CAPITAL CORP.
- and -
The R-M Trust Company
- 1 -
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
ARTICLE 1
INTERPRETATION
<S> <C> <C>
1.1 Definitions..............................................................................................2
1.2 Gender and Number........................................................................................5
1.3 Interpretation not Affected by Headings, etc.............................................................5
1.4 Day not a Business Day...................................................................................5
1.5 Time of the Essence......................................................................................5
1.6 Applicable Law...........................................................................................5
ARTICLE 2
ISSUE OF SPECIAL WARRANTS
2.1 Issue of Special Warrants................................................................................5
2.2 Form and Terms of Special Warrants.......................................................................6
2.3 Warrantholder not a Shareholder..........................................................................6
2.4 Special Warrants to Rank Pari Passu......................................................................6
2.5 Signing of Warrant Certificates..........................................................................7
2.6 Certification by the Trustee.............................................................................7
2.7 Issue in Substitution for Warrant Certificates Lost, etc.................................................7
2.8 Exchange of Warrant Certificates.........................................................................8
2.9 Charges for Exchange.....................................................................................8
2.10 Transfer and Ownership of Special Warrants...............................................................8
ARTICLE 3
EXERCISE OF SPECIAL WARRANTS
3.1 Method of Exercise of Special Warrants...................................................................9
3.2 Effect of Exercise of Special Warrants..................................................................10
3.3 Partial Exercise of Special Warrants; Fractions.........................................................11
3.4 United States Holders...................................................................................12
3.5 Expiration of Special Warrants..........................................................................13
3.6 Cancellation of Surrendered Special Warrants............................................................13
3.7 Accounting and Recording................................................................................13
3.8 Deemed Exercise.........................................................................................14
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
AND SHARE PURCHASE WARRANTS
4.1 Adjustment of Number of Common Shares and Share Purchase Warrants.......................................14
4.2 Entitlement to Common Shares and Share Purchase Warrants
on Exercise of Special Warrant..........................................................................16
4.3 No Adjustment for Stock Options.........................................................................16
4.4 Determination by Corporation's Auditors.................................................................16
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<PAGE>
4.5 Proceedings Prior to any Action Requiring Adjustment....................................................17
4.6 Certificate of Adjustment...............................................................................17
4.7 Notice of Special Matters...............................................................................17
4.8 No Action after Notice..................................................................................17
4.9 Protection of Trustee...................................................................................17
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation...................................................................18
5.2 General Covenants.......................................................................................18
5.3 Trustee's Remuneration and Expenses.....................................................................20
5.4 Securities Qualification Requirements...................................................................20
5.5 Performance of Covenants by Trustee.....................................................................20
ARTICLE 6
ENFORCEMENT
6.1 Suits by Warrantholders.................................................................................21
6.2 Immunity of Shareholders, etc...........................................................................21
6.3 Limitation of Liability.................................................................................21
6.4 Waiver of Default.......................................................................................21
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings...............................................................................22
7.2 Notice..................................................................................................22
7.3 Chairman................................................................................................23
7.4 Quorum..................................................................................................23
7.5 Power to Adjourn........................................................................................23
7.6 Show of Hands...........................................................................................23
7.7 Poll and Voting.........................................................................................24
7.8 Regulations.............................................................................................24
7.9 Corporation and Trustee May be Represented..............................................................25
7.10 Powers Exercisable by Extraordinary Resolution..........................................................25
7.11 Meaning of Extraordinary Resolution.....................................................................26
7.12 Powers Cumulative.......................................................................................27
7.13 Minutes.................................................................................................27
7.14 Instruments in Writing..................................................................................28
7.15 Binding Effect of Resolution............................................................................28
7.16 Holdings by Corporation Disregarded.....................................................................28
ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes .............................................28
8.2 Successor Corporations..................................................................................29
ARTICLE 9
CONCERNING THE TRUSTEE
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<PAGE>
9.1 Trust Indenture Legislation.............................................................................30
9.2 Rights and Duties of Trustee............................................................................30
9.3 Evidence, Experts and Advisers..........................................................................31
9.4 Documents, Monies, etc. Held by Trustee................................................................32
9.5 Actions by Trustee to Protect Interest..................................................................32
9.6 Trustee Not Required to Give Security...................................................................32
9.7 Protection of Trustee...................................................................................32
9.8 Replacement of Trustee; Successor by Merger.............................................................33
9.9 Conflict of Interest....................................................................................34
9.10 Acceptance of Trust.....................................................................................34
9.11 Trustee Not to be Appointed Receiver....................................................................35
ARTICLE 10
GENERAL
10.1 Notice to the Corporation and the Trustee...............................................................35
10.2 Notice to Warrantholders................................................................................36
10.3 Ownership and Transfer of Special Warrants..............................................................36
10.4 Evidence of Ownership...................................................................................36
10.5 Counterparts............................................................................................37
10.6 Satisfaction and Discharge of Indenture.................................................................37
10.7 Provisions of Indenture and Special Warrants for the Sole Benefit of
Parties and Warrantholders..............................................................................38
10.8 Special Warrants Owned by the Corporation or its Subsidiaries - Certificate
to be Provided.........................................................................................38
SPECIAL WARRANT CERTIFICATE.......................................................................................1
SPECIAL WARRANT CERTIFICATE.......................................................................................1
</TABLE>
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<PAGE>
THIS SPECIAL WARRANT INDENTURE made effective as of the 17th
day of September, 1996.
BETWEEN:
HEALTHCARE CAPITAL CORP., a corporation incorporated under the
laws of Alberta (hereinafter referred to as the "Corporation")
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THE R-M TRUST COMPANY, a trust company incorporated under the
laws of Canada and authorized to carry on business in all
Provinces of Canada (hereinafter referred to as the "Trustee")
WHEREAS:
A. the Corporation is proposing to issue Special Warrants in the manner herein
set forth;
B. one Special Warrant shall, subject to adjustment, entitle the holder thereof
to acquire one Common Share and one Share Purchase Warrant at no additional cost
upon the terms and conditions herein set forth; and
C. all acts and deeds necessary have been done and performed to make the Special
Warrants, when issued as provided in this Indenture, valid and binding upon the
Corporation with the benefits and subject to the terms of this Indenture;
NOW THEREFORE, the parties hereto agree as follows:
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<PAGE>
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ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Indenture, including the recitals and schedules hereto
and in all indentures supplemental hereto:
(a) "Adjustment Period" means the period from and including the date of
issuance of the Special Warrants up to and including the Time of
Expiry;
(b) "Applicable Legislation" means the provisions of the Business
Corporations Act (Alberta), S. A. 1981, c. B-15, as from time to time
amended, and any statute of Canada or a province thereof, and the
regulations under any such named or other statute, relating to trust
indentures or to the rights, duties and obligations of trustees and of
corporations under trust indentures, to the extent that such provisions
are at the time in force and applicable to this Indenture;
(c) "Business Day" means a day which is not Saturday or Sunday or holiday
in the City of Calgary, Alberta;
(d) "Common Shares" means fully paid and non-assessable Common Shares of
the Corporation as presently constituted;
(e) "Corporation's Auditors" means Shikaze Ralston or such other firm of
chartered accountants as may be duly appointed as auditors of the
Corporation from time to time;
(f) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;
(g) "Director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by any committee of such board;
(h) "Effective Date" means September 17, 1996;
(i) "Exercise Date" means, with respect to any Special Warrant, the date on
which the Warrant Certificate representing such Special Warrant is
surrendered for exercise in accordance with the provisions of Article 3
hereof;
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<PAGE>
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(j) "Expiry Date" means the earlier of:
(i) the date which is the fifth (5th) day immediately
following the date upon which a receipt for the
Prospectus has been obtained from the Securities
Commissions in all of the Filing Provinces; and
(ii) September 17, 1997;
(k) "Filing Provinces" means each of the Provinces of Alberta and British
Columbia;
(l) "Person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
(m) "Prospectus" means a final prospectus and any amendment thereto filed
by the Corporation with the Securities Commissions, in respect of the
distribution of Common Shares and Share Purchase Warrants upon the
exercise of Special Warrants;
(n) "Shareholder" means a holder of record of one or more Common Shares;
(o) "Securities Commissions" means the securities commission in the Filing
Provinces;
(p) "Share Purchase Warrant" means a Common Share purchase warrant
entitling the holder of each Share Purchase Warrant to subscribe for
one Common Share at the subscription price of US$2.00 per Common Share
until August 31, 1998;
(q) "Special Warrants" means the warrants issued and certified hereunder
and for the time being outstanding entitling the holder of each Special
Warrant to acquire one (1) Common Share and one (1) Share Purchase
Warrant;
(r) "this Special Warrant Indenture", "this Indenture", "herein", "hereby"
and similar expressions mean and refer to this Indenture and any
indenture, deed or instrument supplemental hereto; and the expressions
"Article", "Section", "subsection" and "paragraph" followed by a number
mean and refer to the specified article, section, subsection or
paragraph of this Indenture;
(s) "Subsidiary of the Corporation" or "Subsidiary" means any corporation
of which more than fifty (50%) per cent of the outstanding Voting
Shares are owned, directly or indirectly, by or for the Corporation,
provided that the ownership of such shares confers the right to elect
at least a majority of the board of directors of such corporation and
includes any corporation in like relation to a Subsidiary;
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(t) "Time of Expiry" means 4:30 in the afternoon, Calgary time, on the
Expiry Date;
(u) "Trading Day" means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business and with respect
to the over-the-counter market means a day on which The Alberta Stock
Exchange is open for the transaction of business;
(v) "Transfer Agent" means The R-M Trust Company or such other transfer
agent for the time being of the Common Shares;
(w) "Trustee" means The R-M Trust Company or its successors from time to
time in the trust hereby created;
(x) "Voting Shares" means shares of the capital stock of any class of any
corporation carrying voting rights under all circumstances, provided
that, for the purposes of such definition, shares which only carry the
right to vote conditionally on the happening of an event shall not be
considered Voting Shares, whether or not such event shall have
occurred, nor shall any shares be deemed to cease to be Voting Shares
solely by reason of a right to vote accruing to shares of another class
or classes by reason of the happening of any such event;
(y) "Warrant Agency" means the principal office of the Trustee in the City
of Calgary, Province of Alberta or such other place as may be
designated in accordance with subsection 3.1(c);
(z) "Warrant Certificate" means a certificate issued on or after the
Effective Date to evidence Special Warrants;
(aa) "Warrantholders" or "holders" without reference to Common Shares means
the persons who, on and after the Effective Date, are registered owners
of Special Warrants;
(bb) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders entitled to acquire in the aggregate not
less than 25% of the aggregate number of Common Shares which could be
acquired upon the exercise of all Special Warrants then unexercised and
outstanding, requesting the Trustee to take some action or proceeding
specified therein; and
(cc) "Written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" mean, respectively, a
- 4 -
<PAGE>
- 5 -
written order, request, consent and certificate signed in the name of
the Corporation by its President, and may consist of one or more
instruments so executed.
1.2 Gender and Number
Unless herein otherwise expressly provided or unless the
context otherwise requires, words importing the singular include the plural and
vice versa and words importing gender include all genders.
1.3 Interpretation not Affected by Headings, etc.
The division of this Indenture into Articles and Sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Indenture.
1.4 Day not a Business Day
In the event that any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken at or before the requisite time on the next succeeding day
that is a Business Day.
1.5 Time of the Essence
Time shall be of the essence of this Indenture.
1.6 Applicable Law
This Indenture and the Warrant Certificates shall be construed
in accordance with the laws of the Province of Alberta and the federal law
applicable therein and shall be treated in all respects as Alberta contracts.
- 5 -
<PAGE>
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ARTICLE 2
ISSUE OF SPECIAL WARRANTS
2.1 Issue of Special Warrants
(a) 5,280,000 Special Warrants, each of which entitles the holder thereof
to acquire one (1) Common Share and one (1) Share Purchase Warrant, and
subject to adjustment in accordance with Article 4 hereof, are hereby
created and authorized to be issued.
(b) The Warrant Certificate (including all replacements issued in
accordance with this Indenture) shall be substantially in the
applicable form set out in Schedule "A" hereto or such other form as
the Corporation shall specify, shall be dated as of the Effective Date,
shall bear such distinguishing letters and numbers as the Corporation
may, with the approval of the Trustee, prescribe, and shall be issuable
in any denomination excluding fractions.
2.2 Form and Terms of Special Warrants
(a) Each Special Warrant authorized to be issued hereunder shall entitle
the holder thereof, upon exercise, to acquire one (1) Common Share and
one (1) Share Purchase Warrant, subject to adjustment in accordance
with Article 4 hereof, at any time after the Effective Date until the
Time of Expiry at no additional cost to the holder.
(b) No fractional Special Warrants shall be issued or otherwise provided
for hereunder.
(c) The number of Common Shares and Share Purchase Warrants which may be
acquired pursuant to the Special Warrants shall be adjusted in the
event and in the manner specified in Article 4.
(d) In the event that a receipt for a Prospectus is not issued in each of
the Filing Provinces on or before 5:00 p.m. (Calgary time) on the day
which is 120 days from the date of the final issuance of Warrant
Certificates issuable pursuant to this Indenture, holders of the
Special Warrants shall be entitled to receive one and one-tenth times
the number of Common Shares and Share Purchase Warrants upon the
exercise of the Special Warrants, at no additional cost, in lieu of the
Common Shares and Share Purchase Warrants which they would otherwise
have been entitled to receive.
2.3 Warrantholder not a Shareholder
- 6 -
<PAGE>
- 7 -
Except as provided for in subsection 5.2(i), nothing in this
Indenture or in the holding of a Special Warrant or Warrant Certificate or
otherwise, shall, in itself, confer or be construed as conferring upon a
Warrantholder any right of interest whatsoever as a Shareholder or as any other
shareholder of the Corporation, including, but not limited to, the right to vote
at, to receive notice of, or to attend, meetings of shareholders or any other
proceedings of the Corporation, or the right to receive dividends and other
distributions.
2.4 Special Warrants to Rank Pari Passu
All Special Warrants shall rank pari passu, whatever may be
the actual date of issue thereof.
2.5 Signing of Warrant Certificates
The Warrant Certificates shall be signed by any one director
or officer of the Corporation. The signatures of such director or officer may be
mechanically reproduced in facsimile and Warrant Certificates bearing such
facsimile signatures shall be binding upon the Corporation as if they had been
manually signed by such director or officer. Notwithstanding that any person
whose manual or facsimile signature appears on any Warrant Certificate as a
director or officer may no longer hold office at the date of such Warrant
Certificate or at the date of certification or delivery thereof, any Warrant
Certificate signed as aforesaid shall, subject to Section 2.6, be valid and
binding upon the Corporation and the holder thereof shall be entitled to the
benefits of this Indenture.
2.6 Certification by the Trustee
(a) No Warrant Certificate shall be issued or, if issued, shall be valid
for any purpose or entitle the holder to the benefit hereof until it
has been certified by manual signature by or on behalf of the Trustee
in the form of the certificate set out in Schedule "A" hereto, and such
certification by the Trustee upon any Warrant Certificate shall be
conclusive evidence as against the Corporation that the Warrant
Certificate so certified has been duly issued hereunder and that the
holder is entitled to the benefits hereof.
(b) The certification of the Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by the
Trustee as to the validity of this Indenture or the Warrant
Certificates (except the due certification thereof) and the Trustee
shall in no respect be liable or answerable for the use made of the
Warrant Certificate or any of them or of the consideration therefor
except as otherwise specified herein.
- 7 -
<PAGE>
- 8 -
2.7 Issue in Substitution for Warrant Certificates Lost, etc.
(a) In case any of the Warrant Certificates shall become mutilated or be
lost, destroyed or stolen, the Corporation, subject to applicable law,
shall issue and thereupon the Trustee shall certify and deliver, a new
Warrant Certificate of like tenor as the one mutilated, lost, destroyed
or stolen in exchange for and in place of and upon cancellation of such
mutilated Warrant Certificate, or in lieu of and in substitution for
such lost, destroyed or stolen Warrant Certificate, and the substituted
Warrant Certificate shall be in a form approved by the Trustee and the
Special Warrants evidenced thereby shall be entitled to the benefits
hereof and shall rank equally in accordance with its terms with all
other Special Warrants issued or to be issued hereunder.
(b) The applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.7 shall bear the cost of the issue thereof and in case
of loss, destruction or theft shall, as a condition precedent to the
issue thereof, furnish to the Corporation and to the Trustee such
evidence of ownership and of the loss, destruction or theft of the
Warrant Certificate so lost, destroyed or stolen as shall be
satisfactory to the Corporation and to the Trustee in their sole
discretion, and such applicant may also be required to furnish an
indemnity or security in amount and form satisfactory to the
Corporation and the Trustee in their discretion and shall pay the
reasonable charges of the Corporation and the Trustee in connection
therewith.
2.8 Exchange of Warrant Certificates
(a) Warrant Certificates representing any number of Special Warrants may,
upon compliance with the reasonable requirements of the Trustee, be
exchanged for another Warrant Certificate or Warrant Certificates
representing the same aggregate number of Special Warrants as
represented under the Warrant Certificate or Warrant Certificates so
exchanged.
(b) Warrant Certificates may be exchanged only at the Warrant Agency or at
any other place that is designated by the Corporation with the approval
of the Trustee. Any Warrant Certificate tendered for exchange shall be
cancelled and surrendered by the Warrant Agency to the Trustee.
2.9 Charges for Exchange
Except as otherwise herein provided, the Warrant Agency may
charge to the holder requesting an exchange a reasonable sum for each new
Warrant Certificate issued in exchange for Warrant Certificate(s), and payment
of such charges and reimbursement of the
- 8 -
<PAGE>
- 9 -
Trustee or the Corporation for any and all stamp taxes or governmental or other
charges required to be paid shall be made by such holder as a condition
precedent to such exchange.
2.10 Transfer and Ownership of Special Warrants
The Special Warrants may only be transferred on the register
kept at the Warrant Agency by the holder or its legal representatives or its
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Trustee only upon surrendering to the Trustee the Warrant
Certificates representing the Special Warrants to be transferred and upon
compliance with:
(i) the conditions herein;
(ii) such reasonable requirements as the Trustee may
prescribe; and
(iii) all applicable securities legislation and
requirements of regulatory authorities;
and such transfer shall be duly noted in such register by the Trustee. Upon
compliance with such requirements, the Trustee shall issue to the transferee a
Warrant Certificate representing the Special Warrants transferred.
The Corporation and the Trustee will deem and treat the
registered owner of any Special Warrant as the beneficial owner thereof for all
purposes and neither the Corporation nor the Trustee shall be affected by any
notice to the contrary.
Subject to the provisions of this Indenture and applicable
law, the Warrantholder shall be entitled to the rights and privileges attaching
to the Special Warrants and the issue of Common Shares by the Corporation upon
the exercise of Special Warrants by any Warrantholder in accordance with the
terms and conditions herein contained shall discharge all responsibilities of
the Corporation and the Trustee with respect to such Special Warrants and
neither the Corporation nor the Trustee shall be bound to inquire into the title
of any such holder.
- 9 -
<PAGE>
- 10 -
ARTICLE 3
EXERCISE OF SPECIAL WARRANTS
3.1 Method of Exercise of Special Warrants
(a) The holder of any Special Warrant may exercise the right evidenced
thereby conferred on such holder to acquire Common Shares and Share
Purchase Warrants by surrendering, after the Effective Date and prior
to the Time of Expiry, to the Warrant Agency the Warrant Certificate
with a duly completed and executed exercise form.
A Warrant Certificate with the duly completed and executed exercise
form referred to in this subsection 3.1(a) shall be deemed to be
surrendered only upon personal delivery thereof or, if sent by mail or
other means of transmission, upon actual receipt thereof at, in each
case, the Warrant Agency.
(b) Any exercise form referred to in subsection 3.1(a). shall be signed by
the Warrantholder and shall specify:
(i) the number of Common Shares and Share Purchase
Warrants which the holder wishes to acquire (being
not more than those which the holder is entitled to
acquire pursuant to the Warrant Certificate(s)
surrendered);
(ii) the person or persons in whose name or names such
Common Shares and Share Purchase Warrants are to be
issued with relevant social insurance numbers;
(iii) the address or addresses of such persons; and
(iv) the number of Common Shares and Share Purchase
Warrants to be issued to each such person if more
than one is so specified.
If any of the Common Shares subscribed for are to be issued to a person
or persons other than the Warrantholder, the Warrantholder shall pay to
the Corporation or the Warrant Agency on behalf of the Corporation, all
applicable transfer or similar taxes and the Corporation shall not be
required to issue or deliver certificates evidencing Common Shares and
Share Purchase Warrants unless or until such Warrantholder shall have
paid to the Corporation, or the Warrant Agency on behalf of the
Corporation, the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid or that no
tax is due.
- 10 -
<PAGE>
- 11 -
(c) In connection with the exchange of Warrant Certificates and exercise of
Special Warrants and compliance with such other terms and conditions
hereof as may be required, the Corporation has appointed the principal
offices of the Trustee in Calgary as the agency at which Warrant
Certificates may be surrendered for exchange or at which Special
Warrants may be exercised and the Trustee has accepted such
appointment. The Corporation shall give notice to the Trustee of any
change of the Warrant Agency.
3.2 Effect of Exercise of Special Warrants
(a) Upon compliance by the holder of any Warrant Certificate with the
provisions of Section 3.1, and subject to Section 3.3, the Common
Shares and Share Purchase Warrants subscribed for shall be deemed to
have been issued and the person or persons to whom such Common Shares
and Share Purchase Warrants are to be issued shall be deemed to have
become the holder or holders of record of such Common Shares and Share
Purchase Warrants on the Exercise Date unless the transfer registers of
the Corporation shall be closed on such date, in which case the Common
Shares and Share Purchase Warrants subscribed for shall be deemed to
have been issued and such person or persons deemed to have become the
holder or holders of record of such Common Shares and Share Purchase
Warrants, on the date on which such transfer registers are reopened.
(b) Within five (5) Business Days after the Exercise Date of a Special
Warrant as set forth above, the Corporation shall cause to be mailed to
the person or persons in whose name or names the Common Shares and
Share Purchase Warrants so subscribed for have been issued, as
specified in the subscription, at the address specified in such
subscription or, if so specified in such subscription, cause to be
delivered to such person or persons at the Warrant Agency where the
Warrant Certificate was surrendered, a share certificate or
certificates for the appropriate number of Common Shares and a Share
Purchase Warrant certificate or certificates for the Share Purchase
Warrants.
(c) In the event of the exercise of Special Warrants prior to the
Corporation obtaining a receipt for the Prospectus from each of the
Securities Commissions, the Corporation may, on the advice of Counsel,
endorse the certificates representing the Common Shares and Share
Purchase Warrants issued on such exercise to the effect that such
shares are subject to trading restrictions under applicable securities
legislation, and prior to the issuance of any such certificates the
Trustee shall consult with the Corporation to determine whether such
endorsing or legending is required.
3.3 Partial Exercise of Special Warrants; Fractions
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<PAGE>
- 12 -
(a) The holder of any Special Warrants may acquire a number of Common
Shares and Share Purchase Warrants less than the number which the
holder is entitled to acquire pursuant to the surrendered Warrant
Certificate(s) provided that, in no event shall fractional Common
Shares and Share Purchase Warrants be issued with regard to Special
Warrants exercised. In the event of any acquisition of a number of
Common Shares and Share Purchase Warrants less than the number which
the holder is entitled to acquire, the holder of the Special Warrants
upon exercise thereof shall, in addition, be entitled to receive,
without charge therefor, a new Warrant Certificate(s) in respect of the
balance of the Common Shares and Share Purchase Warrants which such
holder was entitled to acquire pursuant to the surrendered Warrant
Certificate(s) and which were not then acquired.
(b) Notwithstanding anything herein contained including any adjustment
provided for in Article 4, the Corporation shall not be required, upon
the exercise of any Special Warrants, to issue fractions of Common
Shares and Share Purchase Warrants or to distribute certificates which
evidence fractional Common Shares and Share Purchase Warrants. In lieu
of fractional Common Shares and Share Purchase Warrants, there shall be
paid to the holder upon surrender of Warrant Certificate(s) for
exercise of Special Warrants pursuant to Section 3.1, within ten (10)
Business Days after the Exercise Date, an amount in lawful money of
Canada equal to the then current market value of such fractional
interest computed on the basis of the closing price of the Common
Shares on The Alberta Stock Exchange (or if the Common Shares are not
then listed thereon on such other exchange on which such shares are
listed or, if not listed on any exchange, in the over-the-counter
market, as designated by action of the directors) for the Trading Day
immediately prior to the Exercise Date or where there is no sale on the
applicable exchange or market on the Trading Day immediately prior to
the Exercise Date, the average of the last bid and ask prices on the
applicable exchange or market, provided there shall be no cheque issued
for less than $5.00.
3.4 United States Holders
(a) Upon the exercise of Special Warrants by a holder resident in the
United States, the certificates representing the Common Shares and
Share Purchase Warrants issuable upon exercise of the Special Warrants
shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE
- 12 -
<PAGE>
- 13 -
BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (C)
PURSUANT TO EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER IF AVAILABLE, OR (D)
PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION AFTER
PROVIDING A SATISFACTORY LEGAL OPINION TO THE CORPORATION.
DELIVERY OF THIS CERTIFICATE WILL NOT CONSTITUTE "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF
WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM
THE R-M TRUST COMPANY UPON DELIVERY OF THIS CERTIFICATE AND A
DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE R-M
TRUST COMPANY AND THE CORPORATION, TO THE EFFECT THAT THE SALE
OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT.";
(b) Notwithstanding the provisions of Section 3.4(a), the legend required
by Section 3.4(a) may be removed by the holder providing to the Trustee
the following declaration (or such other form of declaration as the
Corporation may prescribe from time to time):
"The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1993, as amended, and (B) certifies that (1)
the offer of such securities was not made to a person in the
United States and either (a) at the time the buy order was
originated, the buyer was outside the United States, or the
seller and any person acting on its behalf reasonably believe
that the buyer was outside the United States or (b) the
transaction was executed on or through the facilities of The
Alberta Stock Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, and (2) neither
the
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seller, nor any affiliate of the seller nor any person acting
on their behalf has engaged or will engage in any directed
selling efforts in connection with the offer and sale of such
securities. Terms used herein have the meanings given them by
Regulation S."
3.5 Expiration of Special Warrants
Immediately after the Time of Expiry, all rights under any
Special Warrants in respect of which the right of acquisition herein and therein
provided for shall not have been exercised shall cease and terminate and such
Special Warrant shall be void and of no further force or effect.
3.6 Cancellation of Surrendered Special Warrants
All Warrant Certificates surrendered to the Warrant Agency
pursuant to Sections 2.7, 2.8, 2.10, 3.1, 3.3 and 5.1 shall be returned to the
Trustee for cancellation and, after the expiry of any period of retention
prescribed by law, destroyed by the Trustee and, upon request by the Corporation
the Trustee shall furnish to the Corporation a destruction certificate
identifying the Warrant Certificates so destroyed and the number of Special
Warrants evidenced thereby.
3.7 Accounting and Recording
(a) The Trustee shall promptly account to the Corporation with respect to
Special Warrants exercised. Any securities or other instruments, from
time to time received by the Trustee shall be received in trust for,
and shall be segregated and kept apart by the Trustee in trust for the
Corporation.
(b) The Trustee shall record the particulars of Special Warrants exercised
which shall include the names and addresses of the persons who become
holders of Common Shares and Share Purchase Warrants on exercise and
the Exercise Date. Within five (5) Business Days of each Exercise Date,
the Trustee shall provide such particulars in writing to the
Corporation.
3.8 Deemed Exercise
At the Time of Expiry, the rights of all holders of Special
Warrants to acquire Common Shares shall be deemed to be exercised without any
further action on the part of the
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Warrantholders and the Common Shares and Share Purchase Warrants issuable
thereby shall be deemed to be issued to the holder or holders of record of the
Special Warrants at such time.
The Corporation shall cause to be mailed or, if so specified
in the exercise form, cause to be delivered at the Warrant Agency where the
Warrant Certificate was surrendered, to the person or persons specified in the
exercise form a share certificate or share certificates for the appropriate
number of Common Shares and Share Purchase Warrants upon actual receipt at the
Warrant Agency of the Warrant Certificate with the duly completed and executed
exercise form specifying the matters referred to in paragraphs 3.1(b)(ii), (iii)
and (iv) together with any payment of the nature referred to in subsection
3.1(b).
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
AND SHARE PURCHASE WARRANTS
4.1 Adjustment of Number of Common Shares and Share Purchase
Warrants
The acquisition rights in effect at any date attaching to the
Special Warrants shall be subject to adjustment from time to time as follows:
(a) if and whenever at any time from the date hereof and prior to the Time
of Expiry, the Corporation shall:
(i) subdivide, redivide or change its outstanding Common
Shares into a greater number of shares; or
(ii) reduce, combine or consolidate its outstanding Common
Shares into a smaller number of shares;
the number of Common Shares and Share Purchase Warrants obtainable
under each Special Warrant shall be adjusted immediately after the
effective date of such subdivision, redivision, change, reduction,
combination or consolidation, by multiplying the number of Common
Shares and Share Purchase Warrants theretofore obtainable on the
exercise thereof by a fraction of which the numerator shall be the
total number of Common Shares outstanding immediately after such date
and the denominator shall be the total number of Common Shares
outstanding immediately prior to such date. Such adjustment shall be
made successively whenever any event referred to in this subsection
shall occur;
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(b) if and whenever at any time from the date hereof and prior to the Time
of Expiry, there is a reclassification of the Common Shares or a
capital reorganization of the Corporation other than as described in
subsection 4.1(a), or a consolidation, amalgamation or merger of the
Corporation with or into any other body corporate, trust, partnership
or other entity, or a sale or conveyance of the property and assets of
the Corporation as an entirety or substantially as an entirety to any
other body corporate, trust, partnership or other entity, any
Warrantholder who has not exercised its right of acquisition prior to
the effective date of such reclassification, reorganization,
consolidation, amalgamation, merger, sale or conveyance upon the
exercise of such right thereafter, shall be entitled to receive and
shall accept, in lieu of the number of Common Shares and Share Purchase
Warrants then sought to be acquired by it, the number of shares or
other securities or property of the Corporation or of the body
corporate, trust, partnership or other entity resulting from such
merger, amalgamation or consolidation, or to which such sale or
conveyance may be made, as the case may be, that such Warrantholder
would have been entitled to receive on such reclassification, capital
reorganization, consolidation, amalgamation, merger, sale or
conveyance, if, on the record date or the effective date thereof, as
the case may be, the Warrantholder had been the registered holder of
the number of Common Shares and Share Purchase Warrants sought to be
acquired by it. If determined appropriate by the Trustee to give effect
to or to evidence the provisions of this subsection 4.1(b), the
Corporation, its successor, or such purchasing body corporate,
partnership, trust or other entity, as the case may be, shall, prior to
or contemporaneously with any such reclassification, reorganization,
consolidation, amalgamation, merger, sale or conveyance, enter into an
indenture which shall provide, to the extent possible, for the
application of the provisions set forth in this Indenture with respect
to the rights and interests thereafter of the Warrantholders to the end
that the provisions set forth in this Indenture shall thereafter
correspondingly be made applicable, as nearly as may reasonably be,
with respect to any shares, other securities or property to which a
Warrantholder is entitled on the exercise of its acquisition rights
thereafter. Any indenture entered into between the Corporation and the
Trustee pursuant to the provisions of this subsection 4.1(b) shall be a
supplemental indenture entered into pursuant to the provisions of
Article 8 hereof. Any indenture entered into between the Corporation,
any successor to the Corporation or such purchasing body corporate,
partnership, trust or other entity and the Trustee shall provide for
adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provide in this Section 4.1 and which shall apply to
successive reclassification, reorganizations, amalgamations,
consolidations, mergers, sales or conveyances; and
(c) the adjustments provided for in this Article 4 in the number of Common
Shares and Share Purchase Warrants and classes of securities which are
to be received on the exercise of Special Warrants are cumulative.
After any adjustment pursuant to this Section,
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the term "Common Shares" and "Share Purchase Warrants" where used in
this Indenture shall be interpreted to mean securities of any class or
classes which, as a result of such adjustment and all prior adjustments
pursuant to this Section, the Warrantholder is entitled to receive upon
the exercise of its Special Warrant, and the number of Common Shares
and Share Purchase Warrants indicated by any exercise made pursuant to
a Special Warrant shall be interpreted to mean the number of Common
Shares and Share Purchase Warrants or other property or securities a
Warrantholder is entitled to receive, as a result of such adjustment
and all prior adjustments pursuant to this Section, upon the full
exercise of a Special Warrant.
4.2 Entitlement to Common Shares and Share Purchase Warrants
on Exercise of Special Warrant
All shares of any class or other securities which a
Warrantholder is at the time in question entitled to receive on the exercise of
its Special Warrant, whether or not as a result of adjustments made pursuant to
this Section, shall, for the purposes of the interpretation of this Indenture,
be deemed to be shares which such Warrantholder is entitled to acquire pursuant
to such Special Warrant.
4.3 No Adjustment for Stock Options
Anything in this Article 4 to the contrary notwithstanding, no
adjustment shall be made in the acquisition rights attached to the Special
Warrants if the issue of Common Shares and Share Purchase Warrants is being made
pursuant to this Indenture or pursuant to any stock option, stock purchase or
employee RRSP plan in force from time to time for officers or employees of the
Corporation.
4.4 Determination by Corporation's Auditors
In the event of any question arising with respect to the
adjustments provided for in this Article 4 such question shall be conclusively
determined by the Corporation's Auditors who shall have access to all necessary
records of the Corporation, and such determination shall be binding upon the
Corporation, the Trustee, all Warrantholders and all other persons interested
therein.
4.5 Proceedings Prior to any Action Requiring Adjustment
As a condition precedent to the taking of any action which
would require an adjustment in any of the acquisition rights pursuant to any of
the Special Warrants, including the number of Common Shares and Share Purchase
Warrants which are to be received upon the
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exercise thereof, the Corporation shall take any corporate action which may, in
the opinion of counsel, be necessary in order that the Corporation has unissued
and reserved in its authorized capital and may validly and legally issue as
fully paid and non-assessable all the shares which the holders of such Special
Warrants are entitled to receive on the full exercise thereof in accordance with
the provisions hereof.
4.6 Certificate of Adjustment
The Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or readjustment as provided
in Article 4, deliver a certificate of the Corporation to the Trustee specifying
the nature of the event requiring the same and the amount of the adjustment
necessitated thereby and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, which
certificate shall be supported by a certificate of the Corporation's auditors
verifying such calculation.
4.7 Notice of Special Matters
The Corporation covenants with the Trustee that, so long as
any Special Warrant remains outstanding, it will give notice to the Trustee and
to the Warrantholders of its intention to fix the record date for the issuance
of rights, options or warrants (other than the Special Warrants) to all or
substantially all the holders of its outstanding Common Shares. Such notice
shall specify the particulars of such event and the record date for such event,
provided that the Corporation shall only be required to specify in the notice
such particulars of the event as shall have been fixed and determined on the
date on which the notice is given. The notice shall be given in each case not
less than fourteen (14) days prior to such applicable record date.
4.8 No Action after Notice
The Corporation covenants with the Trustee that it will not
close its transfer books or take any other corporate action which might deprive
the holder of a Special Warrant of the opportunity to exercise its right of
acquisition pursuant thereto during the period of fourteen (14) days after the
giving of the certificate or notices set forth in Section 4.6 and 4.7.
4.9 Protection of Trustee
Except as provided in Section 9.2, the Trustee:
(a) shall not at any time be under any duty or responsibility to any
Warrantholder to determine whether any facts exist which may require
any adjustment contemplated by
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Section 4.1, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making
the same;
(b) shall not be accountable with respect to the validity or value (or the
kind or amount) of any Common Shares or Share Purchase Warrants or of
any shares or other securities or property which may at any time be
issued or delivered upon the exercise of the rights attaching to any
Special Warrant;
(c) shall not be responsible for any failure of the Corporation to issue,
transfer or deliver Common Shares or Share Purchase Warrants or
certificates for the same upon the surrender of any Special Warrants
for the purpose of the exercise of such rights or to comply with any of
the covenants contained in this Article; and
(d) shall not incur any liability or responsibility whatsoever or be in any
way responsible for the consequences of any breach on the part of the
Corporation of any of the representations, warranties or covenants
herein contained or of any acts of the agents or servants of the
Corporation.
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation
The Corporation may from time to time purchase by private
contract or otherwise any of the Special Warrants. Any such purchase shall be
made at the lowest price or prices at which, in the opinion of the directors,
such Special Warrants are then obtainable, plus reasonable costs of purchase,
and may be made in such manner, from such persons and on such other terms as the
Corporation, in its sole discretion, may determine. Any Warrant Certificates
representing the Special Warrants purchased pursuant to this Section 5.1 shall
forthwith be delivered to and cancelled by the Trustee. No Special Warrants
shall be issued in replacement thereof.
5.2 General Covenants
The Corporation covenants with the Trustee that so long as any
Special Warrants remain outstanding:
(a) it will reserve and keep available such number of Common Shares as are
sufficient from time to time for the purpose of enabling it to satisfy
its obligations to issue Common
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Shares upon the exercise of the Special Warrants and potential
obligation for the subsequent exercise of the Share Purchase Warrants;
(b) it will cause the Common Shares and Share Purchase Warrants and the
certificates representing the Common Shares from time to time acquired
pursuant to the exercise of the Special Warrants to be duly issued and
delivered in accordance with the Warrant Certificates and the terms
hereof;
(c) all Common Shares which shall be issued upon exercise of the right to
acquire provided for herein and in the Warrant Certificates shall be
fully paid and non-assessable;
(d) it will use its reasonable best efforts to maintain its corporate
existence;
(e) it will use its reasonable best efforts to ensure that all Common
Shares of the Corporation outstanding or issuable from time to time
continue to be or are listed and posted for trading on The Alberta
Stock Exchange;
(f) it will make all requisite filings under applicable Canadian securities
legislation including those necessary to remain a reporting issuer not
in default in Alberta and those necessary to report the exercise of the
right to acquire Common Shares pursuant to Special Warrants;
(g) it will send or cause to be sent by registered mail a written notice to
the Trustee and to each holder of Special Warrants at the address of
such holder appearing in the register of Special Warrants maintained
pursuant to this Special Warrant Indenture within five (5) Business
Days of the receipt for a Prospectus in all of the Filing Provinces
advising of the issuance of a receipt for the Prospectus by the
Securities Commissions and of the date upon which the Special Warrants
will be deemed to be exercised and expire;
(h) if the Corporation pays a dividend or makes any other distribution in
cash or property or securities of the Corporation (including rights,
options or warrants to acquire Common Shares or securities convertible
into or exchangeable for Common Shares and including evidences of its
indebtedness) to all or substantially all of the holders of Common
Shares prior to the Expiry Date, the Corporation agrees that it will
pay the same amount of such dividend or make the same distribution of
cash, property or securities to the Custodian on behalf of each of the
Warrantholders, as if the Warrantholder was the holder of the number of
Common Shares which the Warrantholder is entitled to receive upon the
exercise of its Special Warrants and such payments or other
distributions shall be held by the Trustee and dealt with in accordance
with the terms of this Indenture;
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(i) it will mail a notice to each Warrantholder specifying the particulars
of each payment or distribution made in accordance with subsection
5.2(h), within two (2) Business Days of such payment and distribution;
and
(j) generally, it will well and truly perform and carry out all of the acts
or things to be done by it as provided in this Indenture.
5.3 Trustee's Remuneration and Expenses
The Corporation covenants that it will pay to the Trustee from
time to time reasonable remuneration for its services hereunder and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the administration
or execution of the trusts hereby created (including the reasonable compensation
and the disbursements of its counsel and all other advisers and assistants not
regularly in its employ) both before any default hereunder and thereafter until
all duties of the Trustee hereunder shall be finally and fully performed, except
any such expense, disbursement or advance as may arise out of or result from the
Trustee's negligence, willful misconduct or bad faith.
5.4 Securities Qualification Requirements
(a) If, in the opinion of counsel, any instrument (not including a
prospectus) is required to be filed with, or any permission is required
to be obtained from any governmental authority in Canada or any other
step is required under any federal or provincial law of Canada before
any Common Shares and Share Purchase Warrants which a Warrantholder is
entitled to acquire pursuant to the exercise of any Special Warrant may
properly and legally be issued upon due exercise thereof and thereafter
traded, without further formality or restriction, the Corporation
covenants that it will take such required action.
(b) The Corporation or, if required by the Corporation, the Trustee will
give notice of the issue of Common Shares and Share Purchase Warrants
pursuant to the exercise of Special Warrants, in such detail as may be
required, to each securities commission or similar regulatory authority
in each jurisdiction in Canada in which there is legislation or
regulation permitting or requiring the giving of any such notice in
order that such issue of Common Shares and Share Purchase Warrants and
the subsequent disposition of the Common Shares and Share Purchase
Warrants so issued will not be subject to the prospectus qualification
requirements of such legislation or regulation.
5.5 Performance of Covenants by Trustee
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If the Corporation shall fail to perform any of its covenants
contained in this Warrant Indenture, the Trustee may notify the Warrantholders
of such failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to Section 9.2, shall be
under no obligation to perform said covenants or to notify the Warrantholders of
such performance by it. All sums expended or advanced by the Trustee in so doing
shall be repayable as provided in Section 5.3. No such performance, expenditure
or advance by the Trustee shall relieve the Corporation of any default hereunder
or of its continuing obligations under the covenants herein contained.
ARTICLE 6
ENFORCEMENT
6.1 Suits by Warrantholders
All or any of the rights conferred upon any Warrantholder by
any of the terms of the Warrant Certificates or of the Indenture, or of both,
may be enforced by the Warrantholder by appropriate proceedings but without
prejudice to the right which is hereby conferred upon the Trustee to proceed in
its own name to enforce each and all of the provisions herein contained for the
benefit of the Warrantholders.
6.2 Immunity of Shareholders, etc.
The Trustee and, by the acceptance of the Warrant Certificates
and as part of the consideration for the issue of the Special Warrants, the
Warrantholders hereby waive and release any right, cause of action or remedy now
or hereafter existing in any jurisdiction against any incorporator or any past,
present or future shareholder, director, officer, employee or agent of the
Corporation or any successor Corporation on any covenant, agreement,
representation or warranty by the Corporation herein or in the Warrant
Certificates contained.
6.3 Limitation of Liability
The obligations hereunder are not personally binding upon, nor
shall resort hereunder be had to, the private property of any of the past,
present or future directors or shareholders of the Corporation or any successor
Corporation or any of the past, present or future officers, employees or agents
of the Corporation or any successor Corporation, but only the property of the
Corporation or any successor Corporation shall be bound in respect hereof.
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6.4 Waiver of Default
Upon the happening of any default hereunder:
(a) the holders of not less than 51% of the Special Warrants then
outstanding shall have power (in addition to the powers exercisable by
extraordinary resolution as provided in Section 7.10) by requisition in
writing to instruct the Trustee to waive any default hereunder and the
Trustee shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition; or
(b) the Trustee shall have power to waive any default hereunder upon such
terms and conditions as the Trustee on advice of its counsel may deem
advisable, if, in the Trustee's opinion, the same shall have been cured
or adequate provision made therefor;
provided that no delay or omission of the Trustee or of the Warrantholders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of the
Trustee or of the Warrantholders in the premises shall extend to or be taken in
any manner whatsoever to affect any subsequent default hereunder of the rights
resulting therefrom.
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings
The Trustee may at any time and from time to time, and shall
on receipt of a written request of the Corporation or of a Warrantholders'
Request and upon being indemnified and funded to its reasonable satisfaction by
the Corporation or by the Warrantholders signing such Warrantholders' Request
against the cost which may be incurred in connection with the calling and
holding of such meeting, convene a meeting of the Warrantholders. In the event
of the Trustee failing to so convene a meeting within seven (7) days after
receipt of such written request of the Corporation or such Warrantholders'
Request and indemnity given as aforesaid, the Corporation or such
Warrantholders, as the case may be, may convene such meeting. Every such meeting
shall be held in the City of Calgary or at such other place as may be approved
or determined by the Trustee.
7.2 Notice
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At least ten (10) days' prior notice of any meeting of
Warrantholders shall be given to the Warrantholders in the manner provided for
in Section 10.2 and a copy of such notice shall be sent by mail to the Trustee
(unless the meeting has been called by the Trustee) and to the Corporation
(unless the meeting has been called by the Corporation). Such notice shall state
the time when and the place where the meeting is to be held, shall state briefly
the general nature of the business to be transacted thereat and shall contain
such information as is reasonably necessary to enable the Warrantholders to make
a reasoned decision on the matter, but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article 7.
7.3 Chairman
An individual (who need not be a Warrantholder) designated in
writing by the Trustee shall be chairman of the meeting and if no individual is
so designated, or if the individual so designated is not present within fifteen
(15) minutes from the time fixed for the holding of the meeting, the
Warrantholders present in person or by proxy shall choose some individual
present to be chairman.
7.4 Quorum
Subject to the provisions of Section 7.11, at any meeting of
the Warrantholders a quorum shall consist of Warrantholders present in person or
by proxy and entitled to purchase at least 25% of the aggregate number of Common
Shares which could be acquired pursuant to all the then outstanding Special
Warrants, provided that at least two persons entitled to vote thereat are
personally present. If a quorum of the Warrantholders shall not be present
within thirty (30) minutes from the time fixed for holding any meeting, the
meeting, if summoned by the Warrantholders or on a Warrantholders' Request,
shall be dissolved; but in any other case the meeting shall be adjourned to the
same day in the next week (unless such day is not a Business Day, in which case
it shall be adjourned to the next following Business Day) at the same time and
place and no notice of the adjournment need be given. Any business may be
brought before or dealt with at an adjourned meeting which might have been dealt
with at the original meeting in accordance with the notice calling the same. No
business shall be transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the Warrantholders present in
person or by proxy shall form a quorum and may transact the business for which
the meeting was originally convened, notwithstanding that they may not be
entitled to acquire at least 25% of the aggregate number of Common Shares which
may be acquired pursuant to all then outstanding Warrants.
7.5 Power to Adjourn
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The chairman of any meeting at which a quorum of the
Warrantholders is present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except such notice, if
any, as the meeting may prescribe.
7.6 Show of Hands
Every question submitted to a meeting shall be decided in the
first place by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner hereinafter
provided. At any such meeting, unless a poll is duly demanded as herein
provided, a declaration by the chairman that a resolution has been carried or
carried unanimously or by a particular majority or lost or not carried by a
particular majority shall be conclusive evidence of the fact.
7.7 Poll and Voting
On every extraordinary resolution, and on any other question
submitted to a meeting and after a vote by show of hands when demanded by the
chairman or by one or more of the Warrantholders acting in person or by proxy
and entitled to acquire in the aggregate at least 5% of the aggregate number of
Common Shares which could be acquired pursuant to all the Special Warrants then
outstanding, a poll shall be taken in such manner as the chairman shall direct.
Questions other than those required to be determined by extraordinary resolution
shall be decided by a majority of the votes cast on the poll.
On a show of hands, every person who is present and entitled
to vote, whether as a Warrantholder or as proxy for one or more absent
Warrantholders, or both, shall have one vote. On a poll, each Warrantholder
present in person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole Common Share
which he is entitled to acquire pursuant to the Special Warrant or Special
Warrants then held or represented by it. A proxy need not be a Warrantholder.
The Chairman of any meeting shall be entitled, both on a show of hands and on a
poll, to vote in respect of the Special Warrants, if any, held or represented by
him.
7.8 Regulations
The Trustee, or the Corporation with the approval of the
Trustee, may from time to time make and from time to time vary such regulations
as it shall think fit for:
(a) the setting of the record date for a meeting for the purpose of
determining Warrantholders entitled to receive notice of and to vote at
the meeting;
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(b) the issue of voting certificates by any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrant
Certificates specified therein have been deposited with it by a named
person and will remain on deposit until after the meeting, which voting
certificate shall entitle the persons named therein to be present and
vote at any such meeting and at any adjournment thereof or to appoint a
proxy or proxies to represent them and vote for them at any such
meeting and at any adjournment thereof in the same manner and with the
same effect as though the persons so named in such voting certificates
were the actual bearers of the Warrant Certificates specified therein;
(c) the deposit of voting certificates and instruments appointing proxies
at such place and time as the Trustee, the Corporation or the
Warrantholders convening the meeting, as the case may be, may in the
notice convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing proxies
at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed or sent by facsimile before the meeting
to the Corporation or to the Trustee at the place where the same is to
be held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Warrantholders and the conduct
of business thereat.
Any regulations so made shall be binding and effective and the
votes given in accordance therewith shall be valid and shall be counted. Save as
such regulations may provide, the only persons who shall be recognized at any
meeting as a Warrantholder, or be entitled to vote or be present at the meeting
in respect thereof (subject to Section 7.9), shall be Warrantholders or their
counsel, or proxies of Warrantholders.
7.9 Corporation and Trustee May be Represented
The Corporation and the Trustee, by their respective
directors, officers and employees, and the counsel for the Corporation and for
the Trustee may attend any meeting of the Warrantholders, but shall not be
entitled to vote thereat, whether in respect of any Special Warrants held by
them or otherwise.
7.10 Powers Exercisable by Extraordinary Resolution
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In addition to all other powers conferred upon them by any
other provisions of this Indenture or by law, the Warrantholders at a meeting
shall, subject to the provisions of Section 7.11, have the power, exercisable
from time to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders or the Trustee in its
capacity as trustee hereunder or on behalf of the Warrantholders
against the Corporation whether such rights arise under this Indenture
or the Warrant Certificates or otherwise;
(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c) to direct or to authorize the Trustee to enforce any of the covenants
on the part of the Corporation contained in this Indenture or the
Warrant Certificates or to enforce any of the rights of the
Warrantholders in any manner specified in such extraordinary resolution
or to refrain from enforcing any such covenant or right;
(d) to waive, and to direct the Trustee to waive, any default on the part
of the Corporation in complying with any provisions of this Indenture
or the Warrant Certificates either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of any
of the covenants on the part of the Corporation in this Indenture or
the Warrant Certificates or to enforce any of the rights of the
Warrantholders;
(f) to direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or to discontinue or otherwise to deal with the
same upon payment of the costs, charges and expenses reasonably and
properly incurred by such Warrantholder in connection therewith;
(g) to assent to any change in or omission from the provisions contained in
the Warrant Certificates and this Indenture or any ancillary or
supplemental instrument which may be agreed to by the Corporation, and
to authorize the Trustee to concur in and execute any ancillary or
supplemental indenture embodying the change or omission;
(h) with the consent of the Corporation, to remove the Trustee or its
successor in office and to appoint a new trustee or trustees to take
the place of the Trustee so removed; and
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(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Corporation.
7.11 Meaning of Extraordinary Resolution
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter provided in this Section 7.11 and in
Section 7.14, a resolution proposed at a meeting of Warrantholders duly
convened for that purpose and held in accordance with the provisions of
this Article 7 at which there are present in person or by proxy
Warrantholders entitled to acquire at least 25% of the aggregate number
of Common Shares which may be acquired pursuant to all the then
outstanding Special Warrants and passed by the affirmative votes of
Warrantholders entitled to acquire not less than 66 2/3% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Special Warrants represented at the meeting and
vote on the poll upon such resolution.
(b) If, at the meeting at which an extraordinary resolution is to be
considered, Warrantholders entitled to acquire at least 25% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Special Warrants are not present in person or by
proxy within thirty (30) minutes after the time appointed for the
meeting, then the meeting, if convened by Warrantholders or on
Warrantholders' Request, shall be dissolved; but in any other shall
stand adjourned to such day, being not less than fifteen nor more than
sixty (60) days later, and to such place and time as appointed by the
chairman. Not less than ten (10) days' prior notice shall be given of
the time and place of such adjourned meeting in the manner provided for
in Section 10.2. Such notice shall state that at the adjourned meeting
the Warrantholders present in person or by proxy shall form a quorum
but it shall not be necessary to set forth the purposes for which the
meeting was originally called or any other particulars. At the
adjourned meeting the Warrantholders present in person or by proxy
shall form a quorum and may transact the business for which the meeting
was originally convened and a resolution proposed at such adjourned
meeting and passed by the requisite vote as provided in subsection
7.11(a) shall be an extraordinary resolution within the meaning of this
Indenture notwithstanding that Warrantholders entitled to acquire at
least 25% of the aggregate number of Common Shares which may be
acquired pursuant to all the then outstanding Special Warrants are not
present in person or by proxy at such adjourned meeting.
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(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary.
7.12 Powers Cumulative
Any one or more of the powers or any combination of the powers
in this Indenture stated to be exercisable by the Warrantholders by
extraordinary resolution or otherwise may be exercised from time to time and the
exercise of any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the Warrantholders to
exercise such power or powers or combination of powers then or thereafter from
time to time.
7.13 Minutes
Minutes of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be provided from time
to time for that purpose by the Trustee at the expense of the Corporation, and
any such minutes as aforesaid, if signed by the chairman or the secretary of the
meeting at which such resolutions were passed or proceedings had shall be prima
facie evidence of the matters therein stated and, until the contrary if proved,
every such meeting in respect of the proceedings of which minutes shall have
been made shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken shall be deemed to have been
duly passed and taken.
7.14 Instruments in Writing
All actions which may be taken and all powers that may be
exercised by the Warrantholders at a meeting held as provided in this Article 7
may also be taken and exercised by Warrantholders entitled to acquire at least
66 2/3% of the aggregate number of Common Shares which may be acquired pursuant
to all the then outstanding Special Warrants by an instrument in writing signed
in one or more counterparts by such Warrantholders in person or by attorney duly
appointed in writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
7.15 Binding Effect of Resolution
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article 7 at a meeting of Warrantholders
shall be binding upon all the Warrantholders, whether present at or absent from
such meeting, and every instrument in writing signed by Warrantholders in
accordance with Section 7.14 shall be binding upon all the Warrantholders,
whether signatories thereto or not, and each and every Warrantholder and the
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Trustee (subject to the provisions for indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
7.16 Holdings by Corporation Disregarded
In determining whether Warrantholders holding Warrant
Certificates evidencing the entitlement to acquire the required number of Common
Shares are present at a meeting of Warrantholders for the purpose of determining
a quorum or have concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture, Special Warrants
owned legally or beneficially by the Corporation or any Subsidiary of the
Corporation shall be disregarded in accordance with the provisions of Section
10.8.
ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes
From time to time the Corporation (when authorized by action
of the directors) and the Trustee may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions hereof, execute
and deliver by their proper officers, indentures or instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more or all of
the following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 4;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary or
advisable in the premises, provided that the same are not in the
opinion of the Trustee prejudicial to the interests of the
Warrantholders;
(c) giving effect to any extraordinary resolution passed as provided in
Article 7;
(d) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder or for the purpose of obtaining a listing or quotation of the
Special Warrants on any stock exchange, provided that such provisions
are not, in the opinion of the Trustee on advice of its counsel,
prejudicial to the interests of the Warrantholders;
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(e) adding to or altering the provisions hereof in respect of the transfer
of Special Warrants, making provision for the exchange of Warrant
Certificates, and making any modification in the form of the Warrant
Certificates which does not affect the substance thereof;
(f) modifying any of the provisions of this Indenture, including relieving
the Corporation from any of the obligations, conditions or restrictions
herein contained, provided that such modification or relief shall be or
become operative or effective only if, in the opinion of the Trustee on
advice of its counsel, such modification or relief in no way prejudices
any of the rights of the Warrantholders or of the Trustee, and provided
further that the Trustee may in its sole discretion decline to enter
into any such supplemental indenture which in its opinion may not
afford adequate protection to the Trustee when the same shall become
operative; and
(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes or
omissions herein, provided that in the opinion of the Trustee the
rights of the Trustee and of the Warrantholders are in no way
prejudiced thereby.
8.2 Successor Corporations
In the case of the consolidation, amalgamation, merger or
transfer of the undertaking or assets of the Corporation as an entirety or
substantially as an entirety to another Corporation ("successor Corporation"),
the successor Corporation resulting from such consolidation, amalgamation,
merger or transfer (if not the Corporation) shall expressly assume, by
supplemental indenture satisfactory in form to the Trustee and executed and
delivered to the Trustee, the due and punctual performance and observance of
each and every covenant and condition of this Indenture to be performed and
observed by the Corporation.
ARTICLE 9
CONCERNING THE TRUSTEE
9.1 Trust Indenture Legislation
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
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(b) The Corporation and the Trustee agree that each will, at all times in
relation to this Indenture and any action to be taken hereunder,
observe and comply with and be entitled to the benefits of Applicable
Legislation.
9.2 Rights and Duties of Trustee
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Trustee shall exercise that degree of
care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. No provision of this Indenture
shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct or bad faith.
(b) The obligation of the Trustee to commence or continue any act, action
or proceeding for the purpose of enforcing any rights of the Trustee or
the Warrantholders hereunder shall be conditional upon the
Warrantholders furnishing, when required by notice by the Trustee,
sufficient funds to commence or to continue such act, action or
proceeding and an indemnity reasonably satisfactory to the Trustee to
protect and to hold harmless the Trustee against the costs, charges and
expenses and liabilities to be incurred thereby and any loss and damage
it may suffer by reason thereof. None of the provisions contained in
this Indenture shall require the Trustee to expend or to risk its own
funds or otherwise to incur financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers
unless indemnified as aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Warrantholders, at whose instance it is acting to deposit with the
Trustee the Special Warrants held by them, for which Special Warrants
the Trustee shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence submitted
to it is subject to the provisions of Applicable Legislation, of this
Section 9.2 and of Section 9.3
9.3 Evidence, Experts and Advisers
(a) In addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Corporation shall furnish to the
Trustee such additional evidence of compliance with any provision
hereof, and in such form, as may be prescribed by Applicable
Legislation or as the Trustee may reasonably require by written notice
to the Corporation.
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(b) In the exercise of its rights and duties hereunder, the Trustee may, if
it is acting in good faith, rely as to the truth of the statements and
the accuracy of the opinions expressed in statutory declarations,
opinions, reports, written requests, consents, or orders of the
Corporation, certificates of the Corporation or other evidence
furnished to the Trustee pursuant to a request of the Trustee, provided
that such evidence complies with Applicable Legislation and that the
Trustee complies with Applicable Legislation and that the Trustee
examines the same and determines that such evidence complies with the
applicable requirements of this Indenture.
(c) Whenever it is provided in this Indenture or under Applicable
Legislation that the Corporation shall deposit with the Trustee
resolutions, certificates, reports, opinions, requests, orders or other
documents, it is intended that the trust, accuracy and good faith on
the effective date thereof and the facts and opinions stated in all
such documents so deposited shall, in each and every such case, be
conditions precedent to the right of the Corporation to have the
Trustee take the action to be based thereon.
(d) Proof of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the
certificate of a notary public, or other officer with similar powers,
that the person signing such instrument acknowledged to it the
execution thereof, or by an affidavit of a witness to such execution or
in any other manner which the Trustee may consider adequate.
(e) The Trustee may employ or retain such Counsel, accountants, appraisers
or other experts or advisers as it may reasonably require for the
purpose of discharging its duties hereunder and may pay reasonable
remuneration for all services so performed by any of them, without
taxation of costs of any Counsel, and shall not be responsible for any
misconduct or negligence on the part of any such experts or advisers
who have been appointed with due care by the Trustee.
9.4 Documents, Monies, etc. Held by Trustee
Any securities, documents of title or other instruments that
may at any time be held by the Trustee subject to the trusts hereof may be
placed in the deposit vaults of the Trustee or of any Canadian chartered bank or
deposited for safekeeping with any such bank. Unless herein otherwise expressly
provided, any monies so held pending the application or withdrawal thereof under
any provisions of this Indenture may be deposited in the name of the Trustee in
any Canadian chartered bank at the rate of interest (if any) then current on
similar deposits or, with the consent of the Corporation, may be: (i) deposited
in the deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or a province thereof; or
(ii) invested in securities issued or guaranteed by the
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Government of Canada or a province thereof or in obligations maturing not more
than sixty days from the date of investment, of any Canadian chartered bank or
loan or trust company. Unless the Corporation shall be in default hereunder, all
interest or other income received by the Trustee in respect of such deposits and
investments shall belong to the Corporation.
9.5 Actions by Trustee to Protect Interest
The Trustee shall have power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient to preserve,
protect or enforce its interests and the interests of the Warrantholders.
9.6 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security
in respect of the execution of the trusts and powers of this Indenture or
otherwise in respect of the premises.
9.7 Protection of Trustee
By way of supplement to the provisions of any law for the time
being relating to trustees it is expressly declared and agreed as follows:
(a) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Warrant Certificates
(except the representation contained in Section 9.9 or in the
certificate of the Trustee on the Warrant Certificates) or be required
to verify the same, but all such statements or recitals are and shall
be deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or renewal
thereof) of this Indenture or any instrument ancillary or supplemental
hereto;
(c) the Trustee shall not be bound to give notice to any person or persons
of the execution hereof;
(d) the Trustee shall not incur any liability or responsibility whatever or
be in any way responsible for the consequence of any breach on the part
of the Corporation of any of the covenants herein contained or of any
acts of any directors, officers, employees, agents or servants of the
Corporation; and
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(e) without limiting any protection or indemnity of the Trustee under any
other provision hereof, or otherwise at law, the Corporation hereby
agrees to indemnify and hold harmless the Trustee from and against any
and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including legal or advisor
fees and disbursements, of whatever kind and nature which may at any
time be imposed on, incurred by or asserted against the Trustee in
connection with the performance of its duties and obligations
hereunder, other than such liabilities, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements arising by
reason of the negligence or willful misconduct of the Trustee. This
provision shall survive the resignation or removal of the Trustee or
the termination of this Warrant Indenture.
9.8 Replacement of Trustee; Successor by Merger
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this Section 9.8, by
giving to the Corporation not less than ninety (90) days' prior notice
in writing or such shorter prior notice as the Corporation may accept
as sufficient. The Warrantholders by extraordinary resolution shall
have power at any time to remove the existing Trustee and to appoint a
new Trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into liquidation
or otherwise becoming incapable of acting hereunder, the Corporation
shall forthwith appoint a new trustee unless a new trustee has already
been appointed by the Warrantholders; failing such appointment by the
Corporation, the retiring Trustee or any Warrantholder may apply to a
justice of the Court of Queen's Bench of the Province of Alberta on
such notice as such justice may direct, for the appointment of a new
trustee; but any new trustee so appointed by the Corporation or by the
Court shall be subject to removal as aforesaid by the Warrantholders.
Any new trustee appointed under any provision of this Section 9.8 shall
be a Corporation authorized to carry on the business of a trust company
in the Province of Alberta and, if required by the Applicable
Legislation for any other provinces, in such other provinces. On any
such appointment the new trustee shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named
herein as Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for
in Section 10.2 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom or
any corporation succeeding to the trust business of the Trustee shall
be the successor to the Trustee hereunder without
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any further act on its part or any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor
trustee under subsection 9.8(a).
(d) Any Warrant Certificates certified but not delivered by a predecessor
trustee may be certified by the successor trustee in the name of the
predecessor or successor trustee.
9.9 Conflict of Interest
(a) The Trustee represents to the Corporation that at the time of execution
and delivery hereof no material conflict of interest exists between its
role as a trustee hereunder and its role in any other capacity and
agrees that in the event of a material conflict of interest arising
hereafter it will, within ninety (90) days after ascertaining that it
has such material conflict of interest, either eliminate the same or
assign its trust hereunder to a successor trustee approved by the
Corporation and meeting the requirements set forth in subsection
9.8(a).
Notwithstanding the foregoing provisions of this subsection 9.9(a), if
any such material conflict of interest exists or hereafter shall exist,
the validity and enforceability of this Indenture and the Warrant
Certificate shall not be affected in any manner whatsoever by reason
thereof.
(b) Subject to subsection 9.9(a), the Trustee, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Corporation
and generally may contract and enter into financial transactions with
the Corporation or any Subsidiary of the Corporation without being
liable to account for any profit made thereby.
9.10 Acceptance of Trust
The Trustee hereby accepts the trusts in this Indenture
declared and provided for and agrees to perform the same upon the terms and
conditions herein set forth.
9.11 Trustee Not to be Appointed Receiver
The Trustee and any person related to the Trustee shall not be
appointed a receiver, a receiver and manager or liquidator of all or any part of
the assets or undertaking of the Corporation.
ARTICLE 10
GENERAL
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10.1 Notice to the Corporation and the Trustee
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Trustee shall be deemed to be
validly given if delivered or if sent by registered letter, postage
prepaid:
If to the Corporation:
HealthCare Capital Corp.
c/o Suite 1800, 350 - 7 Avenue S.W.
Calgary, Alberta T2P 3N9
Fax: (403) 233-8979
If to the Trustee:
The R-M Trust Company
600, 333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Zl
Fax: (403) 264-2100
and any such notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery or, if mailed, on
the fifth (5th) Business Day following the date of the postmark on such
notice.
(b) The Corporation or the Trustee, as the case may be, may from time to
time notify the other in the manner provided in subsection 10.1(a) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Corporation
or the Trustee, as the case may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Corporation hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered to the named officer of the party to
which it is addressed or, if it is delivered to such party at the
appropriate address provided in subsection 10.1(a), by facsimile or
other means of prepaid, transmitted and recorded communication.
10.2 Notice to Warrantholders
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(a) Any notice to the Warrantholders under the provisions of this Indenture
shall be valid and effective if sent by facsimile or letter or circular
through the ordinary post addressed to such holders at their post
office addresses appearing on the register hereinbefore mentioned and
shall be deemed to have been effectively given on the date of delivery
or, if mailed, five (5) Business Days following actual posting of the
notice.
(b) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Warrantholders hereunder could reasonably be considered unlikely to
reach its destination, such notice shall be valid and effective only if
it is delivered personally to such Warrantholders or if delivered to
the address for such Warrantholders contained in the register of
Special Warrants maintained by the Trustee, by facsimile or other means
of prepaid transmitted and recorded communication.
10.3 Ownership and Transfer of Special Warrants
The Corporation and the Trustee may deem and treat the
registered owner of any Special Warrants as the absolute owner thereof for all
purposes, and the Corporation and the Trustee shall not be affected by any
notice or knowledge to the contrary except where the Corporation or the Trustee
is required to take notice under any statute or by order of a court of competent
jurisdiction. A Warrantholder shall be entitled to the rights evidenced by its
Warrant Certificate free from all equities or rights of set off or counterclaim
between the Corporation and the original or any intermediate holder of the
Special Warrants and all persons may act accordingly and the receipt of any such
Warrantholder for the Common Shares and Share Purchase Warrants which may be
acquired pursuant thereto shall be a good discharge to the Corporation and the
Trustee for the same and neither the Corporation nor the Trustee shall be bound
to inquire into the title of any such holder except where the Corporation or the
Trustee is required to take notice by statute or by order of a court of
competent jurisdiction.
10.4 Evidence of Ownership
(a) Upon receipt of a certificate of any bank, trust company or other
depository satisfactory to the Trustee stating that the Special
Warrants specified therein have been deposited by a named person with
such bank, trust company or other depository and will remain so
deposited until the expiry of the period specified therein, the
Corporation and the Trustee may treat the person so named as the owner,
and such certificate as sufficient evidence of the ownership by such
person of such Special Warrant during such period, for the purpose of
any requisition, direction, consent, instrument or other document to be
made, signed or given by the holder of the Special Warrant so
deposited.
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(b) The Corporation and the Trustee may accept as sufficient evidence of
the fact and date of the signing of any requisition, direction,
consent, instrument or other document by any person (i) the signature
of any officer of any bank, trust company, or other depository
satisfactory to the Trustee as witness of such execution, (ii) the
certificate of any notary public or other officer authorized to take
acknowledgements of deeds to be recorded at the place where such
certificate is made that the person signing acknowledged to him the
execution thereof, or (iii) a satisfactory declaration of a witness of
such execution.
10.5 Counterparts
This Indenture may be executed in several counterparts, each
of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution they shall be deemed to be dated as of
the date hereof.
10.6 Satisfaction and Discharge of Indenture
Upon the earlier of:
(a) the date by which there shall have been delivered to the Trustee for
exercise or destruction all Warrant Certificates theretofore certified
hereunder; or
(b) the Time of Expiry;
this Indenture shall cease to be of further effect and the Trustee, on demand of
and at the cost and expense of the Corporation and upon delivery to the Trustee
of a certificate of the Corporation stating that all conditions precedent to the
satisfaction and discharge of this Indenture have been complied with, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture. Notwithstanding the foregoing, the indemnities provided to the
Trustee by the Corporation hereunder shall remain in full force and effect and
survive the termination of this Indenture.
10.7 Provisions of Indenture and Special Warrants
for the Sole Benefit of Parties and Warrantholders
Nothing in this Indenture or in the Warrant Certificates,
expressed or implied, shall give or be construed to give to any person other
than the parties hereto and the Warrantholders, as the case may be, any legal or
equitable right, remedy or claim under this
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Indenture, or under any covenant or provision herein or therein contained, all
such covenants and provisions being for the sole benefit of the parties hereto
and the Warrantholders.
10.8 Special Warrants Owned by the Corporation
or its Subsidiaries - Certificate to be Provided
For the purpose of disregarding any Special Warrants owned
legally or beneficially by the Corporation or any Subsidiary of the Corporation
in Section 7.16, the Corporation shall provide to the Trustee, from time to
time, a certificate of the Corporation setting forth as at the date of such
certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Special Warrants which, to the knowledge of the Corporation,
are owned by or held for the account of the Corporation or any
Subsidiary of the Corporation; and
(b) the number of Special Warrants owned legally or beneficially by the
Corporation or any Subsidiary of the Corporation;
and the Trustee, in making the computations in Section 7.16, shall be entitled
to rely on such certificate without any additional evidence.
IN WITNESS WHEREOF the parties hereto have executed this
Indenture under their respective corporate seals and the hands of their proper
officers in that behalf.
HEALTHCARE CAPITAL CORP.
Per: /s/ Douglas F. Good
THE R-M TRUST COMPANY
Per: /s/ Signature
Per: /s/ Signature
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THIS IS SCHEDULE "A" to the Special Warrant Indenture made as
of September 17, 1996 between HEALTHCARE CAPITAL CORP. and THE
R-M TRUST COMPANY, as Trustee
(for use with Canadian Warrantholders)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UNLESS EXERCISED BY 4:30 P.M. (CALGARY TIME) ON THE EARLIER OF (i) FIVE
(5) DAYS AFTER THE DATE OF ISSUANCE OF A RECEIPT BY THE LAST OF THE SECURITIES
COMMISSIONS IN EACH OF THE PROVINCES OF ALBERTA AND BRITISH COLUMBIA FOR A FINAL
PROSPECTUS RELATING TO THE DISTRIBUTION OF COMMON SHARES AND SHARE PURCHASE
WARRANTS UPON THE EXERCISE OF SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE;
AND (ii) SEPTEMBER 17, 1997.
SPECIAL WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
SPECIAL WARRANT
CERTIFICATE NO.
SPECIAL WARRANTS entitling the holder to acquire,
subject to adjustment, one (1) Common Share and one (1)
Share Purchase Warrant for each Special Warrant
represented hereby.
THIS IS TO CERTIFY THAT
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at any time
and from time to time until 4:30 p.m. (Calgary time) (the "Time of Expiry") on
the earlier of: (i) five (5) days after the date of issuance of a receipt by the
securities commission in each of the provinces of Alberta and British Columbia
(the "Filing Provinces") for a final prospectus relating to the distribution of
Common Shares and Share Purchase Warrants upon the exercise of Special Warrants;
and (ii) September 17, 1997 (the "Expiry Date"), one (1) fully paid and
non-assessable Common Share ("Common
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Share") without nominal or par value of HealthCare Capital Corp. (the
"Corporation") as such shares were constituted on September 17, 1997 (the
"Expiry Date"), one (1) Share Purchase Warrant, each Share Purchase Warrant
entitling the holder to subscribe for one (1) additional Common Share at the
subscription price of US$2.00 per Common Share until August 31, 1998 (the "Share
Purchase Warrant"), for each Special Warrant represented hereby.
The right to acquire Common Shares and Share Purchase Warrants
may only be exercised by the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto; and
(b) surrendering this Special Warrant Certificate to The R-M Trust Company
(the "Trustee") at the principal office of the Trustee in the City of
Calgary.
These Special Warrants shall be deemed to be surrendered only
upon personal delivery hereof or, if sent by mail or other means of
transmission, upon actual receipt thereof by the Trustee at the office referred
to above.
Upon surrender of these Special Warrants, the person or
persons in whose name or names the Common Shares and Share Purchase Warrants
issuable upon exercise of the Special Warrants are to be issued shall be deemed
for all purposes (except as provided in the Indenture hereinafter referred to)
to be the holder or holders of record of such Common Shares and Share Purchase
Warrants and the Corporation covenants that it will (subject to the provisions
of the Indenture) cause a certificate or certificates representing such Common
Shares and Share Purchase Warrants to be delivered or mailed to the person or
persons at the address or addresses specified in the Exercise Form within five
(5) Business Days.
The registered holder of these Special Warrants may acquire
any lesser number of Common Shares and Share Purchase Warrants than the number
of Common Shares and Share Purchase Warrants which may be acquired for the
Special Warrants represented by this Special Warrant Certificate. In such event,
the holder shall be entitled to receive a new Special Warrant Certificate for
the balance of the Common Shares and Share Purchase Warrants which may be
acquired. No fractional Common Shares or Share Purchase Warrants will be issued.
Any Special Warrants which are not exercised to acquire Common
Shares and Share Purchase Warrants prior to the Expiry Time shall be deemed to
be exercised to acquire Common Shares and Share Purchase Warrants, without any
further action on the part of the holder at the Time of Expiry. The certificate
representing the Common Shares and Share Purchase Warrants issued thereby may be
obtained upon duly completing and executing the
- 2 -
<PAGE>
- 3 -
Exercise Form attached hereto and surrendering this Special Warrant Certificate
to the Trustee at the principal offices of the Trustee in Calgary, Alberta.
The Special Warrants represented by this certificate are
issued under and pursuant to a Special Warrant Indenture (hereinafter referred
to as the "Indenture") made as of September 17, 1996 between the Corporation and
the Trustee. Reference is made to the Indenture and any instruments supplemental
thereto for a full description of the rights of the holders of the Special
Warrants and the terms and conditions upon which the Special Warrants are, or
are to be, issued and held, with the same effect as if the provisions of the
Indenture and all instruments supplemental thereto were herein set forth. By
acceptance hereof, the holder assents to all provisions of the Indenture.
Capitalized terms used in the Indenture have the same meaning herein as therein,
unless otherwise defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Special Warrants shall, upon exercise of the Special
Warrants following the occurrence of any of those events, be entitled to receive
the same number and kind of securities that they would have been entitled to
receive had they exercised their Special Warrants immediately prior to the
occurrence of those events.
The registered holder of this Special Warrant Certificate may,
at any time prior to the Expiry Date, upon surrender hereof to the Trustee at
its principal office in the City of Calgary, exchange this Special Warrant
Certificate for other Special Warrant Certificates entitling the holder to
acquire, in the aggregate, the same number of Common Shares and Share Purchase
Warrants as may be acquired under this Special Warrant Certificate.
The holding of the Special Warrants evidenced by this Special
Warrant Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Special Warrant
Certificate.
The Indenture provides that all holders of Special Warrants
shall be bound by any resolution passed at a meeting of the holders held in
accordance with the provisions of the Indenture and resolutions signed by the
holders of Special Warrants entitled to acquire a specified majority of the
Common Shares which may be acquired pursuant to all then outstanding Special
Warrants.
The Special Warrants evidenced by this Special Warrant
Certificate may be transferred on the register kept at the offices of the
Trustee by the registered holder hereof or
- 3 -
<PAGE>
- 4 -
its legal representatives or its attorney duly appointed by an instrument in
writing in form and execution satisfactory to the Trustee, only upon compliance
with the conditions prescribed in the Indenture and upon compliance with such
reasonable requirements as the Trustee may prescribe.
This Special Warrant Certificate shall not be valid for any
purpose whatever unless and until it has been certified by or on behalf of the
Trustee.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Corporation has caused this Special
Warrant Certificate to be signed by its duly authorized officer as of September
17, 1996.
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
- 4 -
<PAGE>
TRANSFER OF SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Special Warrants of HealthCare Capital Corp. registered in the
name of the undersigned on the records of The R-M Trust Company, represented by
the Special Warrant Certificate attached.
DATED the day of , 199 .
- ---------
Signature Guaranteed (Signature of Special Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Special Warrantholder must be the signature of the
person appearing on the face of this Special Warrant Certificate.
4. Special Warrants shall only be transferable in accordance with
applicable laws. The transfer of Special Warrants to a purchaser not
resident in a Filing Province may result in the Common Shares and Share
Purchase Warrants obtained upon the exercise of the Special Warrants
(whether after or before obtaining receipts for a final prospectus
relating to the distribution of Common Shares and Share Purchase
Warrants upon exercise of Special Warrants) not being freely tradeable
in the jurisdiction of the purchaser.
- 5 -
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares and Share Purchase Warrants of HealthCare Capital Corp. as constituted on
September 17, 1996 (or such number of other securities or property to which such
Special Warrants entitle the undersigned in lieu thereof or in addition thereto
under the provisions of the Indenture referred to in the accompanying Special
Warrant Certificate) in accordance with and subject to the provisions of such
Indenture.
The Common Shares and Share Purchase Warrants (or other
securities or property) are to be issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares and Share Purchase Warrants:
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Special Warrantholder)
Print Full Name
Print Full Address
- 6 -
<PAGE>
Instructions:
1. The registered holder may exercise its right to receive Common Shares
and Share Purchase Warrants by completing this form and surrendering
this form and the Special Warrant Certificate representing the Special
Warrants being exercised to The R-M Trust Company at its principal
office at Suite 600, 333 7th Avenue S. W., Calgary, Alberta T2P 2Zl.
Certificates for Common Shares and Share Purchase Warrants will be
delivered or mailed as soon as practicable after the exercise of the
Special Warrants.
2. If the Exercise Form indicates that Common Shares and Share Purchase
Warrants are to be issued to a person or persons other than the
registered holder of the Certificate, the signature of such holder on
the Exercise Form must be guaranteed by an authorized officer of a
chartered bank, trust company or an investment dealer who is a member
of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
4. If the registered holder exercises its right to receive Common Shares
and Share Purchase Warrants prior to a receipt being issued by the
applicable securities commission the Common Shares and Share Purchase
Warrants will be subject to a hold period and may be issued with a
legend reflecting such hold period.
- 8 -
<PAGE>
THIS IS SCHEDULE "B" to the Special Warrant Indenture made as
of September 17, 1996 between HEALTHCARE CAPITAL CORP. and THE
R-M TRUST COMPANY, as Trustee
(for use with United States Warrantholders)
THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO
VALUE UNLESS EXERCISED BY 4:30 P.M. (CALGARY TIME) ON THE EARLIER OF (i) FIVE
(5) DAYS AFTER THE DATE OF ISSUANCE OF A RECEIPT BY THE LAST OF THE SECURITIES
COMMISSIONS IN EACH OF THE PROVINCES OF ALBERTA AND BRITISH COLUMBIA FOR A FINAL
PROSPECTUS RELATING TO THE DISTRIBUTION OF COMMON SHARES AND SHARE PURCHASE
WARRANTS UPON THE EXERCISE OF SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE;
AND (ii) SEPTEMBER 17, 1997.
SPECIAL WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
SPECIAL WARRANT
CERTIFICATE NO.
SPECIAL WARRANTS entitling the holder to acquire, subject to
adjustment, one (1) Common Share and one (1) Share Purchase
Warrant for each Special Warrant represented hereby.
THIS IS TO CERTIFY THAT
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at 4:30 p.m.
(Calgary time) (the "Time of Expiry") on the earlier of: (i) five (5) days after
the date of issuance of a receipt by the securities commission in each of the
provinces of Alberta and British Columbia (the "Filing Provinces") for a final
prospectus relating to the distribution of Common Shares and Share Purchase
Warrants upon the exercise of Special Warrants; and (ii) September 17, 1997 (the
"Expiry Date"), one (1) fully paid and non-assessable Common Share ("Common
Share") without
- 1 -
<PAGE>
- 2 -
nominal or par value of HealthCare Capital Corp. (the "Corporation") as such
shares were constituted on September 17, 1996 plus one (1) Share Purchase
Warrant, each Share Purchase Warrant entitling the holder to subscribe for one
(1) additional Common Share at the subscription price of US$2.00 per Common
Share until August 31, 1998 (the "Share Purchase Warrant"), for each Special
Warrant represented hereby.
The right to acquire Common Shares and Share Purchase Warrants
may only be exercised by the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto; and
(b) surrendering this Special Warrant Certificate to The R-M Trust Company
(the "Trustee") at the principal office of the Trustee in the City of
Calgary.
These Special Warrants shall be deemed to be surrendered only
upon personal delivery hereof or, if sent by mail or other means of
transmission, upon actual receipt thereof by the Trustee at the office referred
to above.
Upon surrender of these Special Warrants, the person or
persons in whose name or names the Common Shares and Share Purchase Warrants
issuable upon exercise of the Special Warrants are to be issued shall be deemed
for all purposes (except as provided in the Indenture hereinafter referred to)
to be the holder or holders of record of such Common Shares and Share Purchase
Warrants and the Corporation covenants that it will (subject to the provisions
of the Indenture) cause a certificate or certificates representing such Common
Shares and Share Purchase Warrants to be delivered or mailed to the person or
persons at the address or addresses specified in the Exercise Form within five
(5) Business Days.
The registered holder of these Special Warrants may acquire
any lesser number of Common Shares and Share Purchase Warrants than the number
of Common Shares and Share Purchase Warrants which may be acquired for the
Special Warrants represented by this Special Warrant Certificate. In such event,
the holder shall be entitled to receive a new Special Warrant Certificate for
the balance of the Common Shares and Share Purchase Warrants which may be
acquired. No fractional Common Shares or Share Purchase Warrants will be issued.
Any Special Warrants which are not exercised to acquire Common
Shares and Share Purchase Warrants prior to the Expiry Time shall be deemed to
be exercised to acquire Common Shares and Share Purchase Warrants, without any
further action on the part of the holder at the Time of Expiry. The certificate
representing the Common Shares and Share Purchase Warrants issued thereby may be
obtained upon duly completing and executing the
- 2 -
<PAGE>
- 3 -
Exercise Form attached hereto and surrendering this Special Warrant Certificate
to the Trustee at the principal offices of the Trustee in Calgary, Alberta.
- 3 -
<PAGE>
- 4 -
The Special Warrants represented by this certificate are
issued under and pursuant to a Special Warrant Indenture (hereinafter referred
to as the "Indenture") made as of September 17, 1996 between the Corporation and
the Trustee. Reference is made to the Indenture and any instruments supplemental
thereto for a full description of the rights of the holders of the Special
Warrants and the terms and conditions upon which the Special Warrants are, or
are to be, issued and held, with the same effect as if the provisions of the
Indenture and all instruments supplemental thereto were herein set forth. By
acceptance hereof, the holder assents to all provisions of the Indenture.
Capitalized terms used in the Indenture have the same meaning herein as therein,
unless otherwise defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Special Warrants shall, upon exercise of the Special
Warrants following the occurrence of any of those events, be entitled to receive
the same number and kind of securities that they would have been entitled to
receive had they exercised their Special Warrants immediately prior to the
occurrence of those events.
The registered holder of this Special Warrant Certificate may,
at any time prior to the Expiry Date, upon surrender hereof to the Trustee at
its principal office in the City of Calgary, exchange this Special Warrant
Certificate for other Special Warrant Certificates entitling the holder to
acquire, in the aggregate, the same number of Common Shares and Share Purchase
Warrants as may be acquired under this Special Warrant Certificate.
The holding of the Special Warrants evidenced by this Special
Warrant Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Special Warrant
Certificate.
The Indenture provides that all holders of Special Warrants
shall be bound by any resolution passed at a meeting of the holders held in
accordance with the provisions of the Indenture and resolutions signed by the
holders of Special Warrants entitled to acquire a specified majority of the
Common Shares which may be acquired pursuant to all then outstanding Special
Warrants.
The Special Warrants evidenced by this Special Warrant
Certificate may be transferred on the register kept at the offices of the
Trustee by the registered holder hereof or its legal representatives or its
attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Trustee, only upon compliance with the conditions prescribed
in the Indenture and upon compliance with such reasonable requirements as the
Trustee may prescribe.
- 4 -
<PAGE>
- 5 -
This Special Warrant Certificate shall not be valid for any
purpose whatever unless and until it has been certified by or on behalf of the
Trustee.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Corporation has caused this Special
Warrant Certificate to be signed by its duly authorized officer as of September
o, 1996.
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
- 5 -
<PAGE>
TRANSFER OF SPECIAL WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Special Warrants of HealthCare Capital Corp. registered in the
name of the undersigned on the records of The R-M Trust Company, represented by
the Special Warrant Certificate attached.
DATED the day of , 199 .
Signature Guaranteed (Signature of Special Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Special Warrantholder must be the signature of
the person appearing on the face of this Special Warrant Certificate.
4. Special Warrants shall only be transferable in accordance with
applicable laws. The transfer of Special Warrants to a purchaser not
resident in a Filing Province may result in the Common Shares and Share
Purchase Warrants obtained upon the exercise of the Special Warrants
(whether after or before obtaining receipts for a final prospectus
relating to the distribution of Common Shares and Share Purchase
Warrants upon exercise of Special Warrants) not being freely tradeable
in the jurisdiction of the purchaser.
- 6 -
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares and Share Purchase Warrants of HealthCare Capital Corp. as constituted on
September 17, 1996 (or such number of other securities or property to which such
Special Warrants entitle the undersigned in lieu thereof or in addition thereto
under the provisions of the Indenture referred to in the accompanying Special
Warrant Certificate) in accordance with and subject to the provisions of such
Indenture.
The Common Shares and Share Purchase Warrants (or other
securities or property) are to be issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares and Share Purchase Warrants:
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Special Warrantholder)
Print Full Name
Print Full Address
- 7 -
<PAGE>
- 8 -
<PAGE>
Instructions:
1. The registered holder may exercise its right to receive Common Shares
and Share Purchase Warrants by completing this form and surrendering
this form and the Special Warrant Certificate representing the Special
Warrants being exercised to The R-M Trust Company at its principal
office at Suite 600, 333 7th Avenue S. W., Calgary, Alberta T2P 2Zl.
Certificates for Common Shares and Share Purchase Warrants will be
delivered or mailed as soon as practicable after the exercise of the
Special Warrants.
2. If the Exercise Form indicates that Common Shares and Share Purchase
Warrants are to be issued to a person or persons other than the
registered holder of the Certificate, the signature of such holder on
the Exercise Form must be guaranteed by an authorized officer of a
chartered bank, trust company or an investment dealer who is a member
of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
4. If the registered holder exercises its right to receive Common Shares
and Share Purchase Warrants prior to a receipt being issued by the
applicable securities commission the Common Shares and Share Purchase
Warrants will be subject to a hold period and may be issued with a
legend reflecting such hold period.
- 9 -
<PAGE>
SUPPLEMENTAL INDENTURE
Supplemental Indenture to the Special Warrant Indenture
dated September 17, 1996 between HealthCare Capital
Corp. and The R-M Trust Company
- -------------------------------------------------------------------------------
WHEREAS:
1. HealthCare Capital Corp. ("HealthCare") is in the process of completing a
distribution of up to 5,342,810 Special Warrants by way of private placement.
2. Each Special Warrant entitles to holder thereof acquire one common share of
HealthCare and one share purchase warrant at no additional cost.
3. The Special Warrants are governed pursuant to the terms and conditions of a
special warrant indenture between HealthCare and The R-M Trust Company ("R-M
Trust") dated September 17, 1996 (the "Special Warrant Indenture").
4. The terms of the Special Warrant Indenture originally referenced in paragraph
2.1(a) thereof that HealthCare created and issued up to 5,280,000 Special
Warrants such number including up to 480,000 Special Warrants issuable to the
Agent as part of its compensation.
5. HealthCare desires to amend paragraph 2.1(a) of the Special Warrant Indenture
such that 5,342,810 Special Warrants are now issuable under the Indenture;
6. Pursuant to Article 8 of the Special Warrant Indenture, HealthCare does not
view this change as either material or detrimental to any of the current holders
of Special Warrants.
NOW THEREFORE THIS SUPPLEMENTAL INDENTURE WITNESSES that for the sum of Ten
Dollars ($10.00) paid by each of HealthCare and R-M Trust to each other and for
other good and valuable consideration mutually given and received, the receipt
and sufficiency of which is hereby acknowledged, HealthCare and R-M Trust hereby
agree and declare as follows:
. The Special Warrant Indenture be amended such that the following
paragraph 2.1(a) be eliminated and now read as follows:
2.1(a) "5,342,810 Special Warrants, each of which entitles the holder
thereof to acquire one (1) Common Share and one (1) Share
Purchase Warrant, and subject to adjustment in accordance with
Article 4 hereof, are hereby created and
- 1 -
<PAGE>
- 2 -
authorized to be issued, which includes up to 480,000 Special
Warrants issuable to the Agent as part of its compensation."
- 2 -
<PAGE>
- 3 -
. All other terms and conditions, representations and warranties
contained in the Special Warrant Indenture shall remain in full force
and effect and shall be binding upon the parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this Supplemental Indenture
under their respective corporate seals by the hands of their proper officers in
that behalf effective the 2nd day of December, 1996.
HEALTHCARE CAPITAL CORP.
Per: /S/ WILLIAM DEJONG
THE R-M TRUST COMPANY
Per: /S/ MICHAEL GUITARD
Per: /S/ K. STERRITT
- 3 -
<PAGE>
SUPPLEMENTAL INDENTURE
Second Supplemental Indenture to the Special Warrant
Indenture dated September 17, 1996 between HealthCare
Capital Corp. and The R-M Trust Company
- --------------------------------------------------------------------------------
WHEREAS:
1. HealthCare Capital Corp. ("HealthCare") is in the process of completing a
distribution of up to 5,474,900 Special Warrants by way of private placement.
2. Each Special Warrant entitles to holder thereof acquire one common share of
HealthCare and one share purchase warrant at no additional cost.
3. The Special Warrants are governed pursuant to the terms and conditions of a
special warrant indenture between HealthCare and The R-M Trust Company ("R-M
Trust") dated September 17, 1996 (the "Special Warrant Indenture") and a
supplemental warrant indenture dated effective December 2, 1996 (the
"Supplemental Indenture").
4. The terms of the Special Warrant Indenture originally referenced in paragraph
2.1(a) thereof that HealthCare created and issued up to 5,280,000 Special
Warrants such number including up to 480,000 Special Warrants issuable to the
Agent as part of its compensation and the term of the Supplemental Indenture
increased the figure to 5,342,810 Special Warrants.
5. HealthCare desires to amend paragraph 2.1(a) of the Special Warrant Indenture
such that 5,474,900 Special Warrants are now issuable under the Indenture;
6. Pursuant to Article 8 of the Special Warrant Indenture, HealthCare does not
view this change as either material or detrimental to any of the current holders
of Special Warrants.
NOW THEREFORE THIS SUPPLEMENTAL INDENTURE WITNESSES that for the sum of Ten
Dollars ($10.00) paid by each of HealthCare and R-M Trust to each other and for
other good and valuable consideration mutually given and received, the receipt
and sufficiency of which is hereby acknowledged, HealthCare and R-M Trust hereby
agree and declare as follows:
. The Special Warrant Indenture be amended such that the following
paragraph 2.1(a) be eliminated and now read as follows:
2.1(a) "5,474,900 Special Warrants, each of which entitles the holder
thereof to acquire one (1) Common Share and one (1) Share
Purchase Warrant, and subject to
- 1 -
<PAGE>
- 2 -
adjustment in accordance with Article 4 hereof, are hereby
created and authorized to be issued, which includes up to
495,900 Special Warrants issuable to the Agent as part of its
compensation."
. All other terms and conditions, representations and warranties
contained in the Special Warrant Indenture shall remain in full force
and effect and shall be binding upon the parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this Second Supplemental
Indenture under their respective corporate seals by the hands of their proper
officers in that behalf effective the 2nd day of December, 1996.
HEALTHCARE CAPITAL CORP.
Per: /S/ WILLIAM DEJONG
THE R-M TRUST COMPANY
Per: /S/ MICHAEL GUITARD
Per: /S/ K. STERRITT
- 2 -
<PAGE>
WARRANT INDENTURE
Providing for the Issuance of
Warrants Between
HEALTHCARE CAPITAL CORP.
- and -
The R-M Trust Company
- 1 -
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
ARTICLE 1
INTERPRETATION
<S> <C> <C>
1.1 Definitions.....................................................................................2
1.2 Gender and Number...............................................................................5
1.3 Interpretation not Affected by Headings, etc....................................................5
1.4 Day not a Business Day..........................................................................5
1.5 Time of the Essence.............................................................................5
1.6 Applicable Law..................................................................................5
ARTICLE 2ISSUE OF WARRANTS
2.1 Issue of Warrants..............................................................................6
2.2 Form and Terms of Warrants.....................................................................6
2.3 Warrantholder not a Shareholder.................................................................7
2.4 Warrants to Rank Pari Passu.....................................................................7
2.5 Signing of Warrant Certificates.................................................................7
2.6 Certification by the Trustee....................................................................7
2.7 Issue in Substitution for Warrant Certificates Lost, etc........................................8
2.8 Exchange of Warrant Certificates................................................................8
2.9 Charges for Exchange............................................................................9
2.10 Transfer and Ownership of Warrants..............................................................9
ARTICLE 3EXERCISE OF WARRANTS
3.1 Method of Exercise of Warrants.................................................................10
3.2 Effect of Exercise of Warrants.................................................................11
3.3 Partial Exercise of Warrants; Fractions........................................................11
3.4 United States Holders..........................................................................12
3.5 Expiration of Warrants.........................................................................14
3.6 Cancellation of Surrendered Warrants...........................................................14
3.7 Accounting and Recording.......................................................................14
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
4.1 Adjustment of Number of Common Shares..........................................................15
4.2 Entitlement to Common Shares on Exercise of Warrant............................................19
4.3 No Adjustment for Stock Options or Warrants....................................................19
4.4 Determination by Corporation's Auditors........................................................19
4.5 Proceedings Prior to any Action Requiring Adjustment...........................................20
4.6 Certificate of Adjustment......................................................................20
4.7 Notice of Matters.............................................................................20
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<PAGE>
4.8 No Action after Notice.........................................................................20
4.9 Protection of Trustee..........................................................................20
4.10 Other Adjustments..............................................................................21
ARTICLE 5RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation..........................................................21
5.2 General Covenants..............................................................................22
5.3 Trustee's Remuneration and Expenses............................................................22
5.4 Securities Qualification Requirements..........................................................23
5.5 Performance of Covenants by Trustee............................................................23
ARTICLE 6ENFORCEMENT
6.1 Suits by Warrantholders........................................................................23
6.2 Suits by Corporation...........................................................................24
6.3 Immunity of Shareholders, etc..................................................................24
6.4 Limitation of Liability........................................................................24
6.5 Waiver of Default..............................................................................24
ARTICLE 7MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings......................................................................25
7.2 Notice.........................................................................................25
7.3 Chairman.......................................................................................25
7.4 Quorum.........................................................................................26
7.5 Power to Adjourn...............................................................................26
7.6 Show of Hands..................................................................................26
7.7 Poll and Voting................................................................................26
7.8 Regulations....................................................................................27
7.9 Corporation and Trustee May be Represented.....................................................28
7.10 Powers Exercisable by Extraordinary Resolution.................................................28
7.11 Meaning of Extraordinary Resolution............................................................29
7.12 Powers Cumulative..............................................................................30
7.13 Minutes...............................................................................30
7.14 Instruments in Writing.........................................................................30
7.15 Binding Effect of Resolution...................................................................31
7.16 Holdings by Corporation Disregarded............................................................31
ARTICLE 8SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes ....................................31
8.2 Successor Corporations.........................................................................32
ARTICLE 9CONCERNING THE TRUSTEE
- ii -
<PAGE>
9.1 Trust Indenture Legislation....................................................................32
9.2 Rights and Duties of Trustee...................................................................33
9.3 Evidence, Experts and Advisers.................................................................33
9.4 Documents, Monies, etc. Held by Trustee.......................................................34
9.5 Actions by Trustee to Protect Interest.........................................................35
9.6 Trustee Not Required to Give Security..........................................................35
9.7 Protection of Trustee..........................................................................35
9.8 Replacement of Trustee; Successor by Merger....................................................36
9.9 Conflict of Interest...........................................................................37
9.10 Acceptance of Trust............................................................................37
9.11 Trustee Not to be Appointed Receiver...........................................................37
ARTICLE 10GENERAL
10.1 Notice to the Corporation and the Trustee......................................................37
10.2 Notice to Warrantholders.......................................................................38
10.3 Ownership and Transfer of Warrants.............................................................39
10.4 Evidence of Ownership..........................................................................39
10.5 Counterparts...................................................................................40
10.6 Satisfaction and Discharge of Indenture........................................................40
10.7 Provisions of Indenture and Warrants for the
Sole Benefit of Parties and Warrantholders............................................40
10.8 Warrants Owned by the Corporation or its Subsidiaries -
Certificate to be Provided............................................................40
WARRANT CERTIFICATE
</TABLE>
- iii -
<PAGE>
THIS WARRANT INDENTURE made effective as of the 17th day of
September, 1996.
BETWEEN:
HEALTHCARE CAPITAL CORP., a corporation incorporated under the
laws of Alberta (hereinafter referred to as the "Corporation")
- and -
THE R-M TRUST COMPANY, a trust company incorporated under the
laws of Canada and authorized to carry on business in all
Provinces of Canada (hereinafter referred to as the "Trustee")
WHEREAS:
A. the Corporation is proposing to issue Warrants in the manner herein set
forth;
B. one Warrant shall, subject to adjustment, entitle the holder thereof to
acquire one Common Share at the price and upon the terms and conditions herein
set forth; and
C. all acts and deeds necessary have been done and performed to make the
Warrants, when issued as provided in this Indenture, valid and binding upon the
Corporation with the benefits and subject to the terms of this Indenture;
NOW THEREFORE, the parties hereto agree as follows:
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 2 -
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Indenture, including the recitals and schedules hereto
and in all indentures supplemental hereto:
(a) "Adjustment Period" means the period from and including the Effective
Date up to and including the Time of Expiry;
(b) "Applicable Legislation" means the provisions of the Business
Corporations Act (Alberta), S. A. 1981, c. B-15, as from time to time
amended, and any statute of Canada or a province thereof, and the
regulations under any such named or other statute, relating to trust
indentures or to the rights, duties and obligations of trustees and of
corporations under trust indentures, to the extent that such provisions
are at the time in force and applicable to this Indenture;
(c) "Business Day" means a day which is not Saturday or Sunday or holiday
in the City of Calgary, Alberta;
(d) "Common Shares" means fully paid and non-assessable Common Shares of
the Corporation as presently constituted;
(e) "Corporation's Auditors" means Shikaze Ralston or such other firm of
chartered accountants as may be duly appointed as auditors of the
Corporation from time to time;
(f) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;
(g) "Current Market Price" of the Common Shares at any date means the
weighted average of the trading price per share for such shares for
each day there was a closing price for the ten consecutive Trading Days
(as selected by the directors of the Corporation) commencing not more
than thirty (30) Trading Days before such date on the principal stock
exchange on which the Common Shares are listed or, if on such date the
Common Shares are not listed on The Alberta Stock Exchange, on such
stock exchange upon which such shares are listed and as selected by the
directors, or if such shares are not listed on any stock exchange, then
on such over-the-counter market as may be selected for such purpose by
the directors, or if no such market exists then the fair market value
as determined in good faith by the Corporation's board of directors;
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 3 -
(h) "Director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by any committee of such board;
(i) "Dividends Paid in the Ordinary Course" means cash dividends declared
payable on the Common Shares in any fiscal year of the Corporation to
the extent that such cash dividends do not exceed, in the aggregate,
the greater of (i) 50% of the retained earnings of the Corporation as
at the end of its immediately preceding fiscal year; and (ii) 100% of
the aggregate consolidated net income of the Corporation, determined
before computation of extraordinary items, for its immediately
preceding year;
(j) "Effective Date" means September 17, 1996;
(k) "Exercise Date" means, with respect to any Warrant, the date on which
the Warrant Certificate representing such Warrant is surrendered for
exercise in accordance with the provisions of Article 3 hereof;
(l) "Exercise Price" means US$2.00 per Common Share, unless such price
shall have been adjusted in accordance with the provisions of Article
4, in which case it shall mean the adjusted price in effect at such
time;
(m) "Expiry Date" means August 31, 1998;
(n) "Issue Date" means, in respect of each Warrant, the date upon which the
Warrant is issued in accordance with subsection 2.1;
(o) "Person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
(p) "Shareholder" means a holder of record of one or more Common Shares;
(q) "Special Warrant Indenture" means the special warrant indenture dated
September 17, 1996 between the Corporation and the Trustee providing
the terms and conditions and for the issuance of the Warrants, as
amended or supplemented after the date hereof;
(r) "Special Warrants" means the special warrants created and authorized by
and issuable under the Special Warrant Indenture which entitle the
holders thereof upon the exercise of each Special Warrant to acquire
one (1) Common Share and one (1) Warrant, at no additional cost;
(s) "this Warrant Indenture", "this Indenture", "herein", "hereby" and
similar expressions mean and refer to this Indenture and any indenture,
deed or instrument supplemental
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 4 -
hereto; and the expressions "Article", "Section", "subsection" and
"paragraph" followed by a number mean and refer to the specified
article, section, subsection or paragraph of this Indenture;
(t) "Subsidiary of the Corporation" or "Subsidiary" means any corporation
of which more than fifty (50%) per cent of the outstanding Voting
Shares are owned, directly or indirectly, by or for the Corporation,
provided that the ownership of such shares confers the right to elect
at least a majority of the board of directors of such corporation and
includes any corporation in like relation to a Subsidiary;
(u) "Time of Expiry" means 4:30 in the afternoon, Calgary time, on the
Expiry Date;
(v) "Trading Day" means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business and with respect
to the over-the-counter market means a day on which The Alberta Stock
Exchange is open for the transaction of business;
(w) "Transfer Agent" means The R-M Trust Company or such other transfer
agent for the time being of the Common Shares;
(x) "Trustee" means The R-M Trust Company or its successors from time to
time in the trust hereby created;
(y) "Voting Shares" means shares of the capital stock of any class of any
corporation carrying voting rights under all circumstances, provided
that, for the purposes of such definition, shares which only carry the
right to vote conditionally on the happening of an event shall not be
considered Voting Shares, whether or not such event shall have
occurred, nor shall any shares be deemed to cease to be Voting Shares
solely by reason of a right to vote accruing to shares of another class
or classes by reason of the happening of any such event;
(z) "Warrants" means the warrants issued and certified hereunder and for
the time being outstanding entitling the holder of each whole Warrant
to acquire one (1) Common Share;
(aa) "Warrant Agency" means the principal office of the Trustee in the City
of Calgary, Province of Alberta or such other place as may be
designated in accordance with subsection 3.1(c);
(bb) "Warrant Certificate" means a certificate issued on or after the
Effective Date to evidence Warrants;
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 5 -
(cc) "Warrantholders" or "holders" without reference to Common Shares means
the persons who, on and after the Effective Date, are registered owners
of Warrants;
(dd) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders entitled to acquire in the aggregate not
less than 25% of the aggregate number of Common Shares which could be
acquired pursuant to the Warrants then unexercised and outstanding,
requesting the Trustee to take some action or proceeding specified
therein; and
(ee) "Written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" mean, respectively, a written order, request, consent
and certificate signed in the name of the Corporation by its President,
and may consist of one or more instruments so executed.
1.2 Gender and Number
Unless herein otherwise expressly provided or unless the
context otherwise requires, words importing the singular include the plural and
vice versa and words importing gender include all genders.
1.3 Interpretation not Affected by Headings, etc.
The division of this Indenture into Articles and Sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Indenture.
1.4 Day not a Business Day
In the event that any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken at or before the requisite time on the next succeeding day
that is a Business Day.
1.5 Time of the Essence
Time shall be of the essence of this Indenture.
1.6 Applicable Law
This Indenture and the Warrant Certificates shall be construed
in accordance with the laws of the Province of Alberta and the federal law
applicable therein and shall be treated in all respects as Alberta contracts.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 6 -
ARTICLE 2
ISSUE OF WARRANTS
2.1 Issue of Warrants
(a) 5,760,000 Warrants, each of which entitles the holder thereof to
acquire one (1) Common Share, subject to adjustment in accordance with
Article 4 hereof, are hereby created and authorized to be issued.
(b) The Warrants shall be issued from time to time upon the holders of
Special Warrants duly exercising such Special Warrants pursuant to the
Special Warrant Indenture and effective the date the Warrants are
deemed to be issued pursuant to such exercise in accordance with the
Special Warrant Indenture.
(c) The Warrant Certificates (including all replacements issued in
accordance with this Indenture) shall be substantially in the form set
out in Schedule "A" hereto, shall be dated as of the Issue Date, shall
bear such distinguishing letters and numbers as the Corporation may,
with the approval of the Trustee, prescribe, and shall be issuable in
any denomination excluding fractions.
(d) The Warrant Certificates may be engraved, printed, lithographed or
partly in one form and partly in another as the Corporation may
determine. No change in the Warrant Certificates shall be required by
reason of any adjustment made pursuant to Article 4 in the number or
class of Common Shares or other securities to which a holder is
entitled pursuant to the exercise of the Warrants.
2.2 Form and Terms of Warrants
(a) Each whole Warrant authorized to be issued hereunder shall entitle the
holder thereof, upon exercise, to acquire one (1) Common Share, subject
to adjustment in accordance with Article 4 hereof, at any time after
the Issue Date until the Time of Expiry, except as otherwise provided
for in this Section 2.2. The price at which a Warrantholder may
purchase Common Shares upon the exercise of the Warrants shall be the
Exercise Price.
(b) In the event that the closing bid for the Common Shares on the
principal stock exchange on which the Common Shares are listed, or if
the Common Shares are not listed on The Alberta Stock Exchange then on
such other more senior stock exchange upon which the Common Shares are
listed, is at a price in excess of US$3.00 per Common Share, or the
Canadian equivalent thereof, for a period of twenty (20) consecutive
trading days, the Corporation, at the sole discretion of its directors,
shall have the right to provide written notice to the Warrantholders
advising them that the Warrants must be exercised within forty-five
(45) days at which time any Warrants not exercised shall be subject to
cancellation by the Corporation. Any Warrantholders who elect not to
exercise their
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 7 -
Warrants prior to the expiry of the forty-five (45) day notice period
shall surrender their Warrant Certificates to the Trustee for
cancellation. Notwithstanding that a Warrantholder elects not to
exercise his Warrants and fails to surrender his Warrant Certificate to
the Trustee for cancellation, the Warrants represented by such Warrant
Certificate shall be void and of no value at the expiry of the
aforementioned forty-five (45) day notice period.
(c) No fractional Warrants shall be issued or otherwise provided for
hereunder.
(d) The number of Common Shares which may be acquired pursuant to the
Warrants and the Exercise Price therefor shall be adjusted in the
events and in the manner specified in Article 4.
2.3 Warrantholder not a Shareholder
Nothing in this Indenture or in the holding of a Warrant or
Warrant Certificate or otherwise, shall, in itself, confer or be construed as
conferring upon a Warrantholder any right of interest whatsoever as a
Shareholder or as any other shareholder of the Corporation, including, but not
limited to, the right to vote at, to receive notice of, or to attend, meetings
of shareholders or any other proceedings of the Corporation, or the right to
receive dividends and other distributions.
2.4 Warrants to Rank Pari Passu
All Warrants shall rank pari passu, whatever may be the actual
date of issue thereof.
2.5 Signing of Warrant Certificates
The Warrant Certificates shall be signed by any one director
or officer of the Corporation. The signatures of such director or officer may be
mechanically reproduced in facsimile and Warrant Certificates bearing such
facsimile signatures shall be binding upon the Corporation as if they had been
manually signed by such director or officer. Notwithstanding that any person
whose manual or facsimile signature appears on any Warrant Certificate as a
director or officer may no longer hold office at the date of such Warrant
Certificate or at the date of certification or delivery thereof, any Warrant
Certificate signed as aforesaid shall, subject to Section 2.6, be valid and
binding upon the Corporation and the holder thereof shall be entitled to the
benefits of this Indenture.
2.6 Certification by the Trustee
(a) No Warrant Certificate shall be issued or, if issued, shall be valid
for any purpose or entitle the holder to the benefit hereof until it
has been certified by manual signature by
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 8 -
or on behalf of the Trustee in the form of the certificate set out in
Schedule "A" hereto, and such certification by the Trustee upon any
Warrant Certificate shall be conclusive evidence as against the
Corporation that the Warrant Certificate so certified has been duly
issued hereunder and that the holder is entitled to the benefits
hereof.
(b) The certification of the Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by the
Trustee as to the validity of this Indenture or the Warrant
Certificates (except the due certification thereof) and the Trustee
shall in no respect be liable or answerable for the use made of the
Warrant Certificate or any of them or of the consideration therefor
except as otherwise specified herein.
2.7 Issue in Substitution for Warrant Certificates Lost, etc.
(a) In case any of the Warrant Certificates shall become mutilated or be
lost, destroyed or stolen, the Corporation, subject to applicable law,
shall issue and thereupon the Trustee shall certify and deliver, a new
Warrant Certificate of like tenor as the one mutilated, lost, destroyed
or stolen in exchange for and in place of and upon cancellation of such
mutilated Warrant Certificate, or in lieu of and in substitution for
such lost, destroyed or stolen Warrant Certificate, and the substituted
Warrant Certificate shall be in a form approved by the Trustee and the
Warrants evidenced thereby shall be entitled to the benefits hereof and
shall rank equally in accordance with its terms with all other Warrants
issued or to be issued hereunder.
(b) The applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.7 shall bear the cost of the issue thereof and in case
of loss, destruction or theft shall, as a condition precedent to the
issue thereof, furnish to the Corporation and to the Trustee such
evidence of ownership and of the loss, destruction or theft of the
Warrant Certificate so lost, destroyed or stolen as shall be
satisfactory to the Corporation and to the Trustee in their sole
discretion, and such applicant may also be required to furnish an
indemnity or security in amount and form satisfactory to the
Corporation and the Trustee in their discretion and shall pay the
reasonable charges of the Corporation and the Trustee in connection
therewith.
2.8 Exchange of Warrant Certificates
(a) Warrant Certificates representing any number of Warrants may, upon
compliance with the reasonable requirements of the Trustee, be
exchanged for another Warrant Certificate or Warrant Certificates
representing the same aggregate number of Warrants as represented under
the Warrant Certificate or Warrant Certificates so exchanged.
(b) Warrant Certificates may be exchanged only at the Warrant Agency or at
any other place that is designated by the Corporation with the approval
of the Trustee. Any Warrant
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 9 -
Certificate tendered for exchange shall be cancelled and surrendered by
the Warrant Agency to the Trustee.
2.9 Charges for Exchange
Except as otherwise herein provided, the Warrant Agency may
charge to the holder requesting an exchange a reasonable sum for each new
Warrant Certificate issued in exchange for Warrant Certificate(s), and payment
of such charges and reimbursement of the Trustee or the Corporation for any and
all stamp taxes or governmental or other charges required to be paid shall be
made by such holder as a condition precedent to such exchange.
2.10 Transfer and Ownership of Warrants
The Warrants may only be transferred on the register kept at
the Warrant Agency by the holder or its legal representatives or its attorney
duly appointed by an instrument in writing in form and execution satisfactory to
the Trustee only upon surrendering to the Trustee the Warrant Certificates
representing the Warrants to be transferred and upon compliance with:
(i) the conditions herein;
(ii) such reasonable requirements as the Trustee may
prescribe; and
(iii) all applicable securities legislation and
requirements of regulatory authorities;
and such transfer shall be duly noted in such register by the Trustee. Upon
compliance with such requirements, the Trustee shall issue to the transferee a
Warrant Certificate representing the Warrants transferred.
The Corporation and the Trustee will deem and treat the
registered owner of any Warrant as the beneficial owner thereof for all purposes
and neither the Corporation nor the Trustee shall be affected by any notice to
the contrary.
Subject to the provisions of this Indenture and applicable
law, the Warrantholder shall be entitled to the rights and privileges attaching
to the Warrants and the issue of Common Shares by the Corporation upon the
exercise of Warrants by any Warrantholder in accordance with the terms and
conditions herein contained shall discharge all responsibilities of the
Corporation and the Trustee with respect to such Warrants and neither the
Corporation nor the Trustee shall be bound to inquire into the title of any such
holder.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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ARTICLE 3
EXERCISE OF WARRANTS
3.1 Method of Exercise of Warrants
(a) The holder of any Warrant may exercise the right evidenced thereby
conferred on such holder to acquire Common Shares by surrendering and
forwarding , after the Issue Date and prior to the Time of Expiry, to
the Warrant Agency:
(i) the Warrant Certificate representing such Warrant,
with a duly completed and executed exercise and
subscription form for the purchase of Common Shares
in the form attached to the Warrant Certificate; and
(ii) cash, certified cheque, bank draft or money order in
U.S. dollars payable to, or to the order of, the
Corporation, in the amount of the aggregate Exercise
Price of the Common Shares so subscribed for upon
exercise of such Warrant.
A Warrant Certificate with the duly completed and executed exercise
form referred to in this subsection 3.1(a) shall be deemed to be
surrendered only upon personal delivery thereof or, if sent by mail or
other means of transmission, upon actual receipt thereof at, in each
case, the Warrant Agency.
(b) Any exercise form referred to in subsection 3.1(a) shall be signed by
the Warrantholder and shall specify:
(i) the number of Common Shares which the holder wishes
to acquire (being not more than those which the
holder is entitled to acquire pursuant to the Warrant
Certificate(s) surrendered);
(ii) the person or persons in whose name or names such
Common Shares are to be issued with relevant social
insurance numbers;
(iii) the address or addresses of such persons; and
(iv) the number of Common Shares to be issued to each such
person if more than one is so specified.
If any of the Common Shares subscribed for are to be issued to a person
or persons other than the Warrantholder, the Warrantholder shall pay to
the Corporation or the Warrant Agency on behalf of the Corporation, all
applicable transfer or similar taxes and the Corporation shall not be
required to issue or deliver certificates evidencing Common
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 11 -
Shares unless or until such Warrantholder shall have paid to the
Corporation, or the Warrant Agency on behalf of the Corporation, the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid or that no tax is due.
(c) In connection with the exchange of Warrant Certificates and exercise of
Warrants and compliance with such other terms and conditions hereof as
may be required, the Corporation has appointed the principal offices of
the Trustee in Calgary as the agency at which Warrant Certificates may
be surrendered for exchange or at which Warrants may be exercised and
the Trustee has accepted such appointment. The Corporation shall give
notice to the Trustee of any change of the Warrant Agency.
3.2 Effect of Exercise of Warrants
(a) Upon compliance by the holder of any Warrant Certificate with the
provisions of Section 3.1, and subject to Section 3.3, the Common
Shares subscribed for shall be deemed to have been issued and the
person or persons to whom such Common Shares are to be issued shall be
deemed to have become the holder or holders of record of such Common
Shares on the Exercise Date unless the transfer registers of the
Corporation shall be closed on such date, in which case the Common
Shares subscribed for shall be deemed to have been issued and such
person or persons deemed to have become the holder or holders of record
of such Common Shares, on the date on which such transfer registers are
reopened.
(b) Within five (5) Business Days after the Exercise Date of a Warrant as
set forth above, the Corporation shall cause to be mailed to the person
or persons in whose name or names the Common Shares so subscribed for
have been issued, as specified in the subscription, at the address
specified in such subscription or, if so specified in such
subscription, cause to be delivered to such person or persons at the
Warrant Agency where the Warrant Certificate was surrendered, a share
certificate or certificates for the appropriate number of Common Shares
subscribed for.
3.3 Partial Exercise of Warrants; Fractions
(a) The holder of any Warrants may acquire a number of Common Shares less
than the number which the holder is entitled to acquire pursuant to the
surrendered Warrant Certificate(s) provided that, in no event shall
fractional Common Shares be issued with regard to Warrants exercised.
In the event of any acquisition of a number of Common Shares less than
the number which the holder is entitled to acquire, the holder of the
Warrants upon exercise thereof shall, in addition, be entitled to
receive, without charge therefor, a new Warrant Certificate(s) in
respect of the balance of the Common Shares which such holder was
entitled to acquire pursuant to the surrendered Warrant Certificate(s)
and which were not then acquired.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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(b) Notwithstanding anything herein contained including any adjustment
provided for in Article 4, the Corporation shall not be required, upon
the exercise of any Warrants, to issue fractions of Common Shares or to
distribute certificates which evidence fractional Common Shares. In
lieu of fractional Common Shares, there shall be paid to the holder
upon surrender of Warrant Certificate(s) for exercise of Warrants
pursuant to Section 3.1, within ten (10) Business Days after the
Exercise Date, an amount in lawful money of Canada equal to the then
current market value of such fractional interest computed on the basis
of the closing price of the Common Shares on The Alberta Stock Exchange
(or if the Common Shares are not then listed thereon on such other
exchange on which such shares are listed or, if not listed on any
exchange, in the over-the-counter market, as designated by action of
the directors) for the Trading Day immediately prior to the Exercise
Date or where there is no sale on the applicable exchange or market on
the Trading Day immediately prior to the Exercise Date, the average of
the last bid and ask prices on the applicable exchange or market,
provided there shall be no cheque issued for less than $5.00.
3.4 United States Holders
(a) The certificate representing each Warrant shall bear the following
legend:
"THE WARRANTS REPRESENTED HEREBY, AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
ACCORDINGLY, ANY PERSON EXERCISING SUCH WARRANTS WILL BE REQUIRED
EITHER TO (A) CERTIFY THAT SUCH PERSON IS HEREOF OUTSIDE THE UNITED
STATES, AND IS NOT DELIVERING THIS CERTIFICATE TO THE CORPORATION OR
ITS AGENT BY MEANS OF THE UNITED STATES POSTAL SERVICE OR ANY OTHER
MEANS OR INSTRUMENTS OF TRANSPORTATION OR COMMUNICATION IN UNITED
STATES INTERSTATE COMMERCE, OR (B) CERTIFY THAT SUCH PERSON IS
ACQUIRING THE COMMON SHARES UPON EXERCISE OF WARRANTS REPRESENTED
HEREBY FOR SUCH PERSON'S OWN ACCOUNT, AND NOT WITH A VIEW TO THEIR
DISTRIBUTION, AND THAT AS OF THE DATE OF EXERCISE, SUCH PERSON IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A) UNDER THE SECURITIES
ACT, OR (C) DELIVER TO THE CORPORATION OR ITS AGENT A WRITTEN OPINION
OF UNITED STATES COUNSEL, SATISFACTORY TO THE CORPORATION BOTH AS TO
FORM AND COUNSEL, TO THE EFFECT THAT THE ISSUANCE OF SECURITIES UPON
EXERCISE OF THE WARRANTS EVIDENCED HEREBY IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT."
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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(b) Upon the exercise of Warrants by a holder resident in the United States
who is at the time a "US Person" as defined in Regulation S under the
United States Securities Act of 1933, the certificates representing the
Common Shares issuable upon exercise of the Warrants shall bear the
following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1993, AS AMENDED (THE "SECURITIES
ACT"), THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER IF AVAILABLE, OR (D)
PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION AFTER PROVIDING A
SATISFACTORY LEGAL OPINION TO THE CORPORATION. DELIVERY OF THIS
CERTIFICATE WILL NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING
NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE
OBTAINED FROM THE R-M TRUST COMPANY UPON DELIVERY OF THIS CERTIFICATE
AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE R-M
TRUST COMPANY AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904
OF REGULATION S UNDER THE SECURITIES ACT.";
(c) Notwithstanding the provisions of Section 3.4(b), the legend required
by Section 3.4(a) may be removed by the holder providing to the Trustee
the following declaration (or such other form of declaration as the
Corporation may prescribe from time to time):
"The undersigned (A) acknowledges that the sale of the
securities to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1933, as amended, and (B) certifies that (1)
the offer of such securities was not made to a person in the
United States and either (a) at the
(#44838/WARRANT INDENTURE - February 21, 1997)
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time the buy order was originated, the buyer was outside the
United States, or the seller and any person acting on its
behalf reasonably believe that the buyer was outside the
United States or (b) the transaction was executed on or
through the facilities of The Alberta Stock Exchange and
neither the seller nor any person acting on its behalf knows
that the transaction has been prearranged with a buyer in the
United States, and (2) neither the seller, nor any affiliate
of the seller nor any person acting on their behalf has
engaged or will engage in any directed selling efforts in
connection with the offer and sale of such securities. Terms
used herein have the meanings given them by Regulation S."
3.5 Expiration of Warrants
Immediately after the Time of Expiry, all rights under any
Warrants in respect of which the right of acquisition herein and therein
provided for shall not have been exercised shall cease and terminate and such
Warrant shall be void and of no further force or effect.
3.6 Cancellation of Surrendered Warrants
All Warrant Certificates surrendered to the Warrant Agency
pursuant to Sections 2.2, 2.7, 2.8, 2.10, 3.1, 3.3 and 5.1 shall be returned to
the Trustee for cancellation and, after the expiry of any period of retention
prescribed by law, destroyed by the Trustee and, upon request by the Corporation
the Trustee shall furnish to the Corporation a destruction certificate
identifying the Warrant Certificates so destroyed and the number of Warrants
evidenced thereby.
3.7 Accounting and Recording
(a) The Trustee shall promptly account to the Corporation with respect to
Warrants exercised. Any securities or other instruments, from time to
time received by the Trustee shall be received in trust for, and shall
be segregated and kept apart by the Trustee in trust for the
Corporation.
(b) The Trustee shall record the particulars of Warrants exercised which
shall include the names and addresses of the persons who become holders
of Common Shares on exercise and the Exercise Date. Within five (5)
Business Days of each Exercise Date, the Trustee shall provide such
particulars in writing to the Corporation.
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
(#44838/WARRANT INDENTURE - February 21, 1997)
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4.1 Adjustment of Number of Common Shares
The acquisition rights as they relate to Common Shares, in
effect at any date attaching to the Warrants, and the Exercise Price in respect
thereof, shall be subject to adjustment from time to time as follows:
(a) if and whenever at any time after the Effective Date and prior to the
Time of Expiry, the Corporation shall:
(i) subdivide, redivide or change outstanding Common
Shares into a greater number of shares;
(ii) reduce, combine or consolidate the outstanding Common
Shares into a smaller number of shares, or
(iii) issue Common Shares to the holders of all or
substantially all of the outstanding Common Shares by
way of a stock dividend (other than the issue of
Common Shares to holders of Common Shares pursuant to
their exercise of options to receive dividends in the
form of Common Shares in lieu of Dividends Paid in
the Ordinary Course on the Common Shares),
the Exercise Price in effect on the effective date of such subdivision,
redivision, reduction, combination or consolidation or on the record
date for such issue of Common Shares by way of a stock dividend, as the
case may be, shall in the case of the events referred to in (i) and
(iii) above be decreased in proportion to the number of outstanding
Common Shares resulting from such subdivision, redivision or dividend,
or shall, in the case of the events referred to in (ii) above, be
increased in proportion to the number of outstanding Common Shares
resulting from such reduction, combination or consolidation. Such
adjustment shall be made successively whenever any event referred to in
this subsection 4.1(a) shall occur; any such issue of Common Shares by
way of a stock dividend shall be deemed to have been made on the record
date for the stock dividend for the purpose of calculating the number
of outstanding Common Shares under subsections 4.1(b) and 4.1(c). Upon
any adjustment of the Exercise Price pursuant to subsection 4.1(a), the
number of Common Shares subject to the right of purchase under each
Warrant shall be contemporaneously adjusted by multiplying the number
of Common Shares which theretofore may have been purchased under such
Warrant by a fraction of which the numerator shall be the respective
Exercise Price in effect immediately prior to such adjustment and the
denominator shall be the respective Exercise Price resulting from such
adjustment;
(b) if and whenever at any time after the Effective Date and prior to the
Time of Expiry, the Corporation shall fix a record date for the
issuance of rights or warrants to all or substantially all the holders
of its outstanding Common Shares entitling them, for a
(#44838/WARRANT INDENTURE - February 21, 1997)
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period expiring not more than 45 days after such record date, to
subscribe for or purchase Common Shares (or securities convertible or
exchangeable into Common Shares) at a price per share (or having a
conversion or exchange price per share) less than 95% of the Current
Market Price on such record date, the Exercise Price shall be adjusted
immediately after such record date so that it shall equal the amount
determined by multiplying the Exercise Price in effect on such record
date by a fraction of which the numerator shall be the total number of
Common Shares outstanding on such record date plus a number of Common
Shares equal to the number arrived at by dividing the aggregate price
of the total number of additional Common Shares offered for
subscription or purchase (or the aggregate conversion or exchange price
of the convertible or exchangeable securities so offered) by such
Current Market Price, and of which the denominator shall be the total
number of Common Shares outstanding on such record date plus the total
number of additional Common Shares offered for subscription or purchase
or into which the convertible or exchangeable securities so offered are
convertible or exchangeable; any Common Shares owned by or held for the
account of the Corporation or any Subsidiary shall be deemed not to be
outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to the
extent that any such rights or warrants are not exercised prior to the
expiration thereof, the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect if such record date had
not been fixed or to the Exercise Price which would be in effect based
upon the number of Common Shares (or securities convertible or
exchangeable into Common Shares) actually issued upon the exercise of
such rights or warrants, as the case may be;
(c) if and whenever at any time after the Effective Date and prior to the
Time of Expiry, the Corporation shall fix a record date for the making
of a distribution to all or substantially all the holders of its
outstanding Common Shares of (i) shares of any class, whether of the
Corporation or any other corporation (other than Common Shares and
other than shares distributed to holders of Common Shares pursuant to
their exercise of options to receive dividends in the form of such
shares in lieu of Dividends Paid in the Ordinary Course on the Common
Shares), (ii) rights, options or warrants (excluding those referred to
in subsection 4.1(b) and rights, options or warrants to subscribe for
or purchase Common Shares (or other securities convertible into or
exchangeable for Common Shares) for a period expiring not more than 45
days after such record date at a price per share (or having a
conversion or exercise price per share) not less than 95% of the
Current Market Price on such record date), (iii) evidences of its
indebtedness or (iv) assets (excluding Dividends Paid in the Ordinary
Course) then, in each case, the Exercise Price shall be adjusted
immediately after such record date so that it shall equal the price
determined by multiplying the Exercise Price in effect on such record
date by a fraction, of which the numerator shall be the total number of
Common Shares outstanding on such record date multiplied by the Current
Market Price on such record date, less the fair market value (as
determined by the directors, which determination shall be conclusive)
of such shares, rights, options, warrants, evidences of indebtedness or
assets so
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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distributed, and of which the denominator shall be the total number of
Common Shares outstanding on such record date multiplied by such
Current Market Price; and Common Shares owned by or held for the
account of the Corporation or any Subsidiary shall be deemed not to be
outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to the
extent that such distribution is not so made, the Exercise Price shall
be readjusted to the Exercise Price which would then be in effect if
such record date had not been fixed or to the Exercise Price which
would then be in effect based upon such shares or rights, options or
warrants or evidences of indebtedness or assets actually distributed,
as the case may be; in clause (iv) of this subsection 4.1(c) the term
"Dividends Paid in the Ordinary Course" shall include the value of any
securities or other property or assets distributed in lieu of cash
Dividends Paid in the Ordinary Course at the option of shareholders;
(d) if and when at any time from the Effective Date and prior to the Time
of Expiry, there is a reclassification of the Common Shares or a
capital reorganization of the Corporation or as described in subsection
4.1(a) or a consolidation, amalgamation, arrangement or merger of the
Corporation with or into any other body corporate, trust, partnership
or other entity, or a sale or conveyance of the property and assets of
the Corporation as an entirety or substantially as an entirety to any
other body corporate, trust, partnership or other entity, any
Warrantholder who has not exercised its right of acquisition prior to
the effective date of such reclassification, reorganization,
consolidation, amalgamation, arrangement, merger, sale or conveyance,
upon the exercise of such right thereafter, shall be entitled to
receive and shall accept, in lieu of the number of Common Shares then
sought to be acquired by it, the number of shares or other securities
or property of the Corporation or of the body corporate, trust,
partnership or other entity resulting from such merger, amalgamation,
arrangement or consolidation, or to which such sale or conveyance may
be made, as the case may be, that such Warrantholder would have been
entitled to receive on such reclassification, capital reorganization,
consolidation, amalgamation, arrangement, merger, sale or conveyance,
if, on the record date or the effective date thereof, as the case may
be, the Warrantholder had been the registered holder of the number of
Common Shares sought to be acquired by it. If determined appropriate by
the Trustee to give effect to or to evidence the provisions of this
subsection 4.1(d), the Corporation, its successor, or such purchasing
body corporate, partnership, trust or other entity, as the case may be,
shall, prior to or contemporaneously with any such reclassification,
reorganization, consolidation, amalgamation, arrangement, merger, sale
or conveyance, enter into an indenture which shall provide, to the
extent possible, for the application of the provisions set forth in
this Indenture with respect to the rights and interests thereafter of
the Warrantholders to the end that the provisions set forth in this
Indenture shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, with respect to any shares, other
securities or property to which a Warrantholder is entitled on the
exercise of its acquisition rights thereafter. Any indenture entered
into between the Corporation and the Trustee pursuant to the provisions
of this subsection 4.1(d) shall be a supplemental
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 18 -
indenture entered into pursuant to the provisions of Article 8. Any
indenture entered into between the Corporation, any successor to the
Corporation or such purchasing body corporate, partnership, trust or
other entity and the Trustee shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments
provided in this Section 4.1 and which shall apply to successive
reclassification, reorganizations, amalgamation, arrangements,
consolidations, mergers, sales or conveyances;
(e) in any case in which this Section 4.1 shall require that an adjustment
shall become effective immediately after a record date for an event
referred to herein, the Corporation may defer, until the occurrence of
such event, issuing to the holder of any Warrant exercised after such
record date and before the occurrence of such event the additional
Common Shares issuable upon such exercise by reason of the adjustment
required by such event; provided, however, that the Corporation shall
deliver to such holder an appropriate instrument evidencing such
holder's right to receive such additional Common Shares upon the
occurrence of the event requiring such adjustment and the right to
receive any distributions made on such additional Common Shares
declared in favour of holders of record of Common Shares on and after
the relevant date of exercise or such later date as such holder would,
but for the provisions of this subsection 4.1(e), have become the
holder of record of such additional Common Shares pursuant to
subsection 4.1(b);
(f) in any case in which subsections 4.1(b) or 4.1(c) require that an
adjustment be made to the Exercise Price, no such adjustment shall be
made if, subject to the prior approval of The Alberta Stock Exchange,
the holders of the outstanding Warrants receive the rights or warrants
referred to in subsection 4.1(b) or the shares, rights, options,
warrants, evidences of indebtedness or assets referred to in subsection
4.1(c), as the case may be, in such kind and number as they would have
received if they had been holders of Common Shares on the applicable
record date or effective date, as the case may be, by virtue of their
outstanding Warrant having then been exercised into Common Shares at
the Exercise Price in effect on the applicable record date or effective
date, as the case may be;
(g) the adjustments provided for in this Section 4.1 are cumulative, and
shall, in the case of adjustments to the Exercise Price be computed to
the nearest whole cent and shall apply to successive subdivisions,
redivisions, reductions, combinations, consolidations, distributions,
issues or other events resulting in any adjustment under the provisions
of this Section 4.1 provided that, notwithstanding any other provision
of this Section, no adjustment of the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Exercise Price then in effect; provided, however, that
any adjustments which by reason of this subsection 4.1(g) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment; and
(#44838/WARRANT INDENTURE - February 21, 1997)
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(h) after any adjustment pursuant to this Section 4.1, the term "Common
Shares" where used in this Indenture shall be interpreted to mean
securities of any class or classes which, as a result of such
adjustment and all prior adjustments pursuant to this Section 4.1, the
Warrantholder is entitled to receive upon the exercise of his Warrant
and the number of Common Shares indicated by any exercise made pursuant
to a Warrant shall be interpreted to mean the number of Common Shares
or other property or securities a Warrantholder is entitled to receive,
as a result of such adjustment and all prior adjustments pursuant to
this Section 4.1, upon the full exercise of a Warrant.
4.2 Entitlement to Common Shares on Exercise of Warrant
All shares of any class or other securities which a
Warrantholder is at the time in question entitled to receive on the exercise of
its Warrant, whether or not as a result of adjustments made pursuant to this
Section, shall, for the purposes of the interpretation of this Indenture, be
deemed to be shares which such Warrantholder is entitled to acquire pursuant to
such Warrant.
4.3 No Adjustment for Stock Options or Warrants
Anything in this Article 4 to the contrary notwithstanding, no
adjustment shall be made in the acquisition rights attached to the Warrants if
the issue of Common Shares is being made pursuant to this Indenture or pursuant
to any stock option, stock purchase or employee RRSP plan in force from time to
time for officers or employees of the Corporation, or pursuant to any warrant
outstanding immediately prior to the Effective Date.
4.4 Determination by Corporation's Auditors
In the event of any question arising with respect to the
adjustments provided for in this Article 4 such question shall be conclusively
determined by the Corporation's Auditors who shall have access to all necessary
records of the Corporation, and such determination shall be binding upon the
Corporation, the Trustee, all Warrantholders and all other persons interested
therein.
4.5 Proceedings Prior to any Action Requiring Adjustment
As a condition precedent to the taking of any action which
would require an adjustment in any of the acquisition rights pursuant to any of
the Warrants, including the number of Common Shares which are to be received
upon the exercise thereof, the Corporation shall take any corporate action which
may, in the opinion of counsel, be necessary in order that the Corporation has
unissued and reserved in its authorized capital and may validly and legally
issue as fully paid and non-assessable all the shares which the holders of such
Warrants are entitled to receive on the full exercise thereof in accordance with
the provisions hereof.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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4.6 Certificate of Adjustment
The Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or readjustment as provided
in Article 4, deliver a certificate of the Corporation to the Trustee specifying
the nature of the event requiring the same and the amount of the adjustment
necessitated thereby and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, which
certificate shall be supported by a certificate of the Corporation's auditors
verifying such calculation.
4.7 Notice of Matters
The Corporation covenants with the Trustee that, so long as
any Warrant remains outstanding, it will give notice to the Trustee and to the
Warrantholders of its intention to fix the record date for any event referred to
in subsection 4.1(a), (b) or (c) (other than the subdivision, redivision,
reduction, combination or consolidation of its Common Shares) which may give
rise to an adjustment of the Exercise Price. Such notice shall specify the
particulars of such event and the record date for such event, provided that the
Corporation shall only be required to specify in the notice such particulars of
the event as shall have been fixed and determined on the date on which the
notice is given. The notice shall be given in each case not less than fourteen
(14) days prior to such applicable record date.
4.8 No Action after Notice
The Corporation covenants with the Trustee that it will not
close its transfer books or take any other corporate action which might deprive
the holder of a Warrant of the opportunity to exercise its right of acquisition
pursuant thereto during the period of fourteen (14) days after the giving of the
certificate or notices set forth in Section 4.6 and 4.7.
4.9 Protection of Trustee
Except as provided in Section 9.2, the Trustee:
(a) shall not at any time be under any duty or responsibility to any
Warrantholder to determine whether any facts exist which may require
any adjustment contemplated by Section 4.1, or with respect to the
nature or extent of any such adjustment when made, or with respect to
the method employed in making the same;
(b) shall not be accountable with respect to the validity or value (or the
kind or amount) of any Common Shares or of any shares or other
securities or property which may at any time be issued or delivered
upon the exercise of the rights attaching to any Warrant;
(c) shall not be responsible for any failure of the Corporation to issue,
transfer or deliver Common Shares or certificates for the same upon the
surrender of any Warrants for the
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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purpose of the exercise of such rights or to comply with any of the
covenants contained in this Article; and
(d) shall not incur any liability or responsibility whatsoever or be in any
way responsible for the consequences of any breach on the part of the
Corporation of any of the representations, warranties or covenants
herein contained or of any acts of the agents or servants of the
Corporation.
4.10 Other Adjustments
In case the Corporation after the date hereof shall take any
action affecting the Common Shares described in Article 4 which in the opinion
of the directors or the Trustee would have a material adverse effect on the
rights of the Warrantholders, the Exercise Price and/or the number and/or kind
of Common Shares purchaseable upon exercise, there shall be an adjustment in
such manner, if any, and at such time, as the directors may determine subject to
the prior consent of The Alberta Stock Exchange. Failure of the taking of action
by the directors so as to provide for an adjustment prior to the effective date
of any action by the Corporation affecting the Common Shares shall be conclusive
evidence that the directors have determined that it is equitable to make no
adjustment in the circumstances.
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation
The Corporation may from time to time purchase by private
contract or otherwise any of the Warrants. Any such purchase shall be made at
the lowest price or prices at which, in the opinion of the directors, such
Warrants are then obtainable, plus reasonable costs of purchase, and may be made
in such manner, from such persons and on such other terms as the Corporation, in
its sole discretion, may determine. Any Warrant Certificates representing the
Warrants purchased pursuant to this Section 5.1 shall forthwith be delivered to
and cancelled by the Trustee. No Warrants shall be issued in replacement
thereof.
5.2 General Covenants
The Corporation covenants with the Trustee that so long as any
Warrants remain outstanding:
(a) it will reserve and keep available a sufficient number of Common Shares
for the purpose of enabling it to satisfy its obligations to issue
Common Shares upon the exercise of the Warrants;
(#44838/WARRANT INDENTURE - February 21, 1997)
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(b) it will cause the Common Shares and the certificates representing the
Common Shares from time to time acquired pursuant to the exercise of
the Warrants to be duly issued and delivered in accordance with the
Warrant Certificates and the terms hereof;
(c) all Common Shares which shall be issued upon exercise of the right to
acquire provided for herein and in the Warrant Certificates shall be
fully paid and non-assessable;
(d) it will use its reasonable best efforts to maintain its corporate
existence;
(e) it will use its reasonable best efforts to ensure that all Common
Shares of the Corporation outstanding or issuable from time to time
continue to be or are listed and posted for trading on The Alberta
Stock Exchange;
(f) it will make all requisite filings under applicable Canadian securities
legislation including those necessary to remain a reporting issuer not
in default in Alberta and those necessary to report the exercise of the
right to acquire Common Shares pursuant to Warrants; and
(g) generally, it will well and truly perform and carry out all of the acts
or things to be done by it as provided in this Indenture.
5.3 Trustee's Remuneration and Expenses
The Corporation covenants that it will pay to the Trustee from
time to time reasonable remuneration for its services hereunder and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the administration
or execution of the trusts hereby created (including the reasonable compensation
and the disbursements of its counsel and all other advisers and assistants not
regularly in its employ) both before any default hereunder and thereafter until
all duties of the Trustee hereunder shall be finally and fully performed, except
any such expense, disbursement or advance as may arise out of or result from the
Trustee's negligence, willful misconduct or bad faith.
5.4 Securities Qualification Requirements
(a) If, in the opinion of counsel, any instrument (not including a
prospectus) is required to be filed with, or any permission is required
to be obtained from any governmental authority in Canada or any other
step is required under any federal or provincial law of Canada before
any Common Shares which a Warrantholder is entitled to acquire pursuant
to the exercise of any Warrant may properly and legally be issued upon
due exercise thereof and thereafter traded, without further formality
or restriction, the Corporation covenants that it will take such
required action.
(#44838/WARRANT INDENTURE - February 21, 1997)
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(b) The Corporation or, if required by the Corporation, the Trustee will
give notice of the issue of Common Shares pursuant to the exercise of
Warrants, in such detail as may be required, to each securities
commission or similar regulatory authority in each jurisdiction in
Canada in which there is legislation or regulation permitting or
requiring the giving of any such notice in order that such issue of
Common Shares and the subsequent disposition of the Common Shares so
issued will not be subject to the prospectus qualification requirements
of such legislation or regulation.
5.5 Performance of Covenants by Trustee
If the Corporation shall fail to perform any of its covenants
contained in this Warrant Indenture, the Trustee may notify the Warrantholders
of such failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to Section 9.2, shall be
under no obligation to perform said covenants or to notify the Warrantholders of
such performance by it. All sums expended or advanced by the Trustee in so doing
shall be repayable as provided in Section 5.3. No such performance, expenditure
or advance by the Trustee shall relieve the Corporation of any default hereunder
or of its continuing obligations under the covenants herein contained.
ARTICLE 6
ENFORCEMENT
6.1 Suits by Warrantholders
All or any of the rights conferred upon any Warrantholder by
any of the terms of the Warrant Certificates or of the Indenture, or of both,
may be enforced by the Warrantholder by appropriate proceedings but without
prejudice to the right which is hereby conferred upon the Trustee to proceed in
its own name to enforce each and all of the provisions herein contained for the
benefit of the Warrantholders.
6.2 Suits by Corporation
The Corporation shall have the right to enforce full payment
of the Exercise Price of all Common Shares issued by the Trustee to a
Warrantholder hereunder, and shall be entitled to demand such payment from the
Warrantholder or alternatively to instruct the Trustee to cancel the share
certificates and amend the securities register accordingly.
6.3 Immunity of Shareholders, etc.
The Trustee and, by the acceptance of the Warrant Certificates
and as part of the consideration for the issue of the Warrants, the
Warrantholders hereby waive and release any right, cause of action or remedy now
or hereafter existing in any jurisdiction against any
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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incorporator or any past, present or future shareholder, director, officer,
employee or agent of the Corporation or of any successor Corporation on any
covenant, agreement, representation or warranty by the Corporation herein or in
the Warrant Certificates contained.
6.4 Limitation of Liability
The obligations hereunder are not personally binding upon, nor
shall resort hereunder be had to, the private property of any of the past,
present or future directors or shareholders of the Corporation or of any
successor Corporation or any of the past, present or future officers, employees
or agents of the Corporation or any successor Corporation, but only the property
of the Corporation or any successor Corporation shall be bound in respect
hereof.
6.5 Waiver of Default
Upon the happening of any default hereunder:
(a) the holders of not less than 51% of the Warrants then outstanding shall
have power (in addition to the powers exercisable by extraordinary
resolution as provided in Section 7.10) by requisition in writing to
instruct the Trustee to waive any default hereunder and the Trustee
shall thereupon waive the default upon such terms and conditions as
shall be prescribed in such requisition; or
(b) the Trustee shall have power to waive any default hereunder upon such
terms and conditions as the Trustee on advice of its counsel may deem
advisable, if, in the Trustee's opinion, the same shall have been cured
or adequate provision made therefor;
provided that no delay or omission of the Trustee or of the Warrantholders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of the
Trustee or of the Warrantholders in the premises shall extend to or be taken in
any manner whatsoever to affect any subsequent default hereunder of the rights
resulting therefrom.
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
7.1 Right to Convene Meetings
The Trustee may at any time and from time to time, and shall
on receipt of a written request of the Corporation or of a Warrantholders'
Request and upon being indemnified and funded to its reasonable satisfaction by
the Corporation or by the Warrantholders signing such Warrantholders' Request
against the cost which may be incurred in connection with the
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
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calling and holding of such meeting, convene a meeting of the Warrantholders. In
the event of the Trustee failing to so convene a meeting within seven (7) days
after receipt of such written request of the Corporation or such Warrantholders'
Request and indemnity given as aforesaid, the Corporation or such
Warrantholders, as the case may be, may convene such meeting. Every such meeting
shall be held in the City of Calgary or at such other place as may be approved
or determined by the Trustee.
7.2 Notice
At least ten (10) days' prior notice of any meeting of
Warrantholders shall be given to the Warrantholders in the manner provided for
in Section 10.2 and a copy of such notice shall be sent by mail to the Trustee
(unless the meeting has been called by the Trustee) and to the Corporation
(unless the meeting has been called by the Corporation). Such notice shall state
the time when and the place where the meeting is to be held, shall state briefly
the general nature of the business to be transacted thereat and shall contain
such information as is reasonably necessary to enable the Warrantholders to make
a reasoned decision on the matter, but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article 7.
7.3 Chairman
An individual (who need not be a Warrantholder) designated in
writing by the Trustee shall be chairman of the meeting and if no individual is
so designated, or if the individual so designated is not present within fifteen
(15) minutes from the time fixed for the holding of the meeting, the
Warrantholders present in person or by proxy shall choose some individual
present to be chairman.
7.4 Quorum
Subject to the provisions of Section 7.11, at any meeting of
the Warrantholders a quorum shall consist of Warrantholders present in person or
by proxy and entitled to purchase at least 25% of the aggregate number of Common
Shares which could be acquired pursuant to all the then outstanding Warrants,
provided that at least two persons entitled to vote thereat are personally
present. If a quorum of the Warrantholders shall not be present within thirty
(30) minutes from the time fixed for holding any meeting, the meeting, if
summoned by the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to the same day
in the next week (unless such day is not a Business Day, in which case it shall
be adjourned to the next following Business Day) at the same time and place and
no notice of the adjournment need be given. Any business may be brought before
or dealt with at an adjourned meeting which might have been dealt with at the
original meeting in accordance with the notice calling the same. No business
shall be transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the Warrantholders present in
person or by proxy shall form a quorum and may transact the business
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for which the meeting was originally convened, notwithstanding that they may not
be entitled to acquire at least 25% of the aggregate number of Common Shares
which may be acquired pursuant to all then outstanding Warrants.
7.5 Power to Adjourn
The chairman of any meeting at which a quorum of the
Warrantholders is present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except such notice, if
any, as the meeting may prescribe.
7.6 Show of Hands
Every question submitted to a meeting shall be decided in the
first place by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner hereinafter
provided. At any such meeting, unless a poll is duly demanded as herein
provided, a declaration by the chairman that a resolution has been carried or
carried unanimously or by a particular majority or lost or not carried by a
particular majority shall be conclusive evidence of the fact.
7.7 Poll and Voting
On every extraordinary resolution, and on any other question
submitted to a meeting and after a vote by show of hands when demanded by the
chairman or by one or more of the Warrantholders acting in person or by proxy
and entitled to acquire in the aggregate at least 5% of the aggregate number of
Common Shares which could be acquired pursuant to all the Warrants then
outstanding, a poll shall be taken in such manner as the chairman shall direct.
Questions other than those required to be determined by extraordinary resolution
shall be decided by a majority of the votes cast on the poll.
On a show of hands, every person who is present and entitled
to vote, whether as a Warrantholder or as proxy for one or more absent
Warrantholders, or both, shall have one vote. On a poll, each Warrantholder
present in person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole Common Share
which he is entitled to acquire pursuant to the Warrant or Warrants then held or
represented by it. A proxy need not be a Warrantholder. The Chairman of any
meeting shall be entitled, both on a show of hands and on a poll, to vote in
respect of the Warrants, if any, held or represented by him.
7.8 Regulations
The Trustee, or the Corporation with the approval of the
Trustee, may from time to time make and from time to time vary such regulations
as it shall think fit for:
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(a) the setting of the record date for a meeting for the purpose of
determining Warrantholders entitled to receive notice of and to vote at
the meeting;
(b) the issue of voting certificates by any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrant
Certificates specified therein have been deposited with it by a named
person and will remain on deposit until after the meeting, which voting
certificate shall entitle the persons named therein to be present and
vote at any such meeting and at any adjournment thereof or to appoint a
proxy or proxies to represent them and vote for them at any such
meeting and at any adjournment thereof in the same manner and with the
same effect as though the persons so named in such voting certificates
were the actual bearers of the Warrant Certificates specified therein;
(c) the deposit of voting certificates and instruments appointing proxies
at such place and time as the Trustee, the Corporation or the
Warrantholders convening the meeting, as the case may be, may in the
notice convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing proxies
at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed or sent by facsimile before the meeting
to the Corporation or to the Trustee at the place where the same is to
be held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Warrantholders and the conduct
of business thereat.
Any regulations so made shall be binding and effective and the
votes given in accordance therewith shall be valid and shall be counted. Save as
such regulations may provide, the only persons who shall be recognized at any
meeting as a Warrantholder, or be entitled to vote or be present at the meeting
in respect thereof (subject to Section 7.9), shall be Warrantholders or their
counsel, or proxies of Warrantholders.
7.9 Corporation and Trustee May be Represented
The Corporation and the Trustee, by their respective
directors, officers and employees, and the counsel for the Corporation and for
the Trustee may attend any meeting of the Warrantholders, but shall not be
entitled to vote thereat, whether in respect of any Warrants held by them or
otherwise.
7.10 Powers Exercisable by Extraordinary Resolution
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In addition to all other powers conferred upon them by any
other provisions of this Indenture or by law, the Warrantholders at a meeting
shall, subject to the provisions of Section 7.11, have the power, exercisable
from time to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders or the Trustee in its
capacity as trustee hereunder or on behalf of the Warrantholders
against the Corporation whether such rights arise under this Indenture
or the Warrant Certificates or otherwise;
(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c) to direct or to authorize the Trustee to enforce any of the covenants
on the part of the Corporation contained in this Indenture or the
Warrant Certificates or to enforce any of the rights of the
Warrantholders in any manner specified in such extraordinary resolution
or to refrain from enforcing any such covenant or right;
(d) to waive, and to direct the Trustee to waive, any default on the part
of the Corporation in complying with any provisions of this Indenture
or the Warrant Certificates either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of any
of the covenants on the part of the Corporation in this Indenture or
the Warrant Certificates or to enforce any of the rights of the
Warrantholders;
(f) to direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or to discontinue or otherwise to deal with the
same upon payment of the costs, charges and expenses reasonably and
properly incurred by such Warrantholder in connection therewith;
(g) to assent to any change in or omission from the provisions contained in
the Warrant Certificates and this Indenture or any ancillary or
supplemental instrument which may be agreed to by the Corporation, and
to authorize the Trustee to concur in and execute any ancillary or
supplemental indenture embodying the change or omission;
(h) with the consent of the Corporation, to remove the Trustee or its
successor in office and to appoint a new trustee or trustees to take
the place of the Trustee so removed; and
(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Corporation.
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7.11 Meaning of Extraordinary Resolution
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter provided in this Section 7.11 and in
Section 7.14, a resolution proposed at a meeting of Warrantholders duly
convened for that purpose and held in accordance with the provisions of
this Article 7 at which there are present in person or by proxy
Warrantholders entitled to acquire at least 25% of the aggregate number
of Common Shares which may be acquired pursuant to all the then
outstanding Warrants and passed by the affirmative votes of
Warrantholders entitled to acquire not less than 66 2/3% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Warrants represented at the meeting and vote on
the poll upon such resolution.
(b) If, at the meeting at which an extraordinary resolution is to be
considered, Warrantholders entitled to acquire at least 25% of the
aggregate number of Common Shares which may be acquired pursuant to all
the then outstanding Warrants are not present in person or by proxy
within thirty (30) minutes after the time appointed for the meeting,
then the meeting, if convened by Warrantholders or on Warrantholders'
Request, shall be dissolved; but in any other shall stand adjourned to
such day, being not less than fifteen nor more than sixty (60) days
later, and to such place and time as appointed by the chairman. Not
less than ten (10) days' prior notice shall be given of the time and
place of such adjourned meeting in the manner provided for in Section
10.2. Such notice shall state that at the adjourned meeting the
Warrantholders present in person or by proxy shall form a quorum but it
shall not be necessary to set forth the purposes for which the meeting
was originally called or any other particulars. At the adjourned
meeting the Warrantholders present in person or by proxy shall form a
quorum and may transact the business for which the meeting was
originally convened and a resolution proposed at such adjourned meeting
and passed by the requisite vote as provided in subsection 7.11(a)
shall be an extraordinary resolution within the meaning of this
Indenture notwithstanding that Warrantholders entitled to acquire at
least 25% of the aggregate number of Common Shares which may be
acquired pursuant to all the then outstanding Warrants are not present
in person or by proxy at such adjourned meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary.
7.12 Powers Cumulative
Any one or more of the powers or any combination of the powers
in this Indenture stated to be exercisable by the Warrantholders by
extraordinary resolution or otherwise may be exercised from time to time and the
exercise of any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the
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Warrantholders to exercise such power or powers or combination of powers then or
thereafter from time to time.
7.13 Minutes
Minutes of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be provided from time
to time for that purpose by the Trustee at the expense of the Corporation, and
any such minutes as aforesaid, if signed by the chairman or the secretary of the
meeting at which such resolutions were passed or proceedings had shall be prima
facie evidence of the matters therein stated and, until the contrary if proved,
every such meeting in respect of the proceedings of which minutes shall have
been made shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken shall be deemed to have been
duly passed and taken.
7.14 Instruments in Writing
All actions which may be taken and all powers that may be
exercised by the Warrantholders at a meeting held as provided in this Article 7
may also be taken and exercised by Warrantholders entitled to acquire at least
66 2/3% of the aggregate number of Common Shares which may be acquired pursuant
to all the then outstanding Warrants by an instrument in writing signed in one
or more counterparts by such Warrantholders in person or by attorney duly
appointed in writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
7.15 Binding Effect of Resolution
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article 7 at a meeting of Warrantholders
shall be binding upon all the Warrantholders, whether present at or absent from
such meeting, and every instrument in writing signed by Warrantholders in
accordance with Section 7.14 shall be binding upon all the Warrantholders,
whether signatories thereto or not, and each and every Warrantholder and the
Trustee (subject to the provisions for indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
7.16 Holdings by Corporation Disregarded
In determining whether Warrantholders holding Warrant
Certificates evidencing the entitlement to acquire the required number of Common
Shares are present at a meeting of Warrantholders for the purpose of determining
a quorum or have concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture, Warrants owned
legally or beneficially by the Corporation or any Subsidiary of the Corporation
shall be disregarded in accordance with the provisions of Section 10.8.
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ARTICLE 8
SUPPLEMENTAL INDENTURE
8.1 Provision for Supplemental Indentures for Certain Purposes
From time to time the Corporation (when authorized by action
of the directors) and the Trustee may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions hereof, execute
and deliver by their proper officers, indentures or instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more or all of
the following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 4;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary or
advisable in the premises, provided that the same are not in the
opinion of the Trustee prejudicial to the interests of the
Warrantholders;
(c) giving effect to any extraordinary resolution passed as provided in
Article 7;
(d) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder or for the purpose of obtaining a listing or quotation of the
Warrants on any stock exchange, provided that such provisions are not,
in the opinion of the Trustee on advice of its counsel, prejudicial to
the interests of the Warrantholders;
(e) adding to or altering the provisions hereof in respect of the transfer
of Warrants, making provision for the exchange of Warrant Certificates,
and making any modification in the form of the Warrant Certificates
which does not affect the substance thereof;
(f) modifying any of the provisions of this Indenture, including relieving
the Corporation from any of the obligations, conditions or restrictions
herein contained, provided that such modification or relief shall be or
become operative or effective only if, in the opinion of the Trustee on
advice of its counsel, such modification or relief in no way prejudices
any of the rights of the Warrantholders or of the Trustee, and provided
further that the Trustee may in its sole discretion decline to enter
into any such supplemental indenture which in its opinion may not
afford adequate protection to the Trustee when the same shall become
operative; and
(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors,
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mistakes or omissions herein, provided that in the opinion of the
Trustee the rights of the Trustee and of the Warrantholders are in no
way prejudiced thereby.
8.2 Successor Corporations
In the case of the consolidation, amalgamation, merger or
transfer of the undertaking or assets of the Corporation as an entirety or
substantially as an entirety to another Corporation ("successor Corporation"),
the successor Corporation resulting from such consolidation, amalgamation,
merger or transfer (if not the Corporation) shall expressly assume, by
supplemental indenture satisfactory in form to the Trustee and executed and
delivered to the Trustee, the due and punctual performance and observance of
each and every covenant and condition of this Indenture to be performed and
observed by the Corporation.
ARTICLE 9
CONCERNING THE TRUSTEE
9.1 Trust Indenture Legislation
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Trustee agree that each will, at all times in
relation to this Indenture and any action to be taken hereunder,
observe and comply with and be entitled to the benefits of Applicable
Legislation.
9.2 Rights and Duties of Trustee
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Trustee shall exercise that degree of
care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. No provision of this Indenture
shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct or bad faith.
(b) The obligation of the Trustee to commence or continue any act, action
or proceeding for the purpose of enforcing any rights of the Trustee or
the Warrantholders hereunder shall be conditional upon the
Warrantholders furnishing, when required by notice by the Trustee,
sufficient funds to commence or to continue such act, action or
proceeding and an indemnity reasonably satisfactory to the Trustee to
protect and to hold harmless the Trustee against the costs, charges and
expenses and liabilities to be incurred thereby and any loss and damage
it may suffer by reason thereof. None of the provisions contained in
this Indenture shall require the Trustee to expend or to risk its own
funds or otherwise
(#44838/WARRANT INDENTURE - February 21, 1997)
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to incur financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers unless indemnified as
aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Warrantholders, at whose instance it is acting to deposit with the
Trustee the Warrants held by them, for which Warrants the Trustee shall
issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence submitted
to it is subject to the provisions of Applicable Legislation, of this
Section 9.2 and of Section 9.3
9.3 Evidence, Experts and Advisers
(a) In addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Corporation shall furnish to the
Trustee such additional evidence of compliance with any provision
hereof, and in such form, as may be prescribed by Applicable
Legislation or as the Trustee may reasonably require by written notice
to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Trustee may, if
it is acting in good faith, rely as to the truth of the statements and
the accuracy of the opinions expressed in statutory declarations,
opinions, reports, written requests, consents, or orders of the
Corporation, certificates of the Corporation or other evidence
furnished to the Trustee pursuant to a request of the Trustee, provided
that such evidence complies with Applicable Legislation and that the
Trustee complies with Applicable Legislation and that the Trustee
examines the same and determines that such evidence complies with the
applicable requirements of this Indenture.
(c) Whenever it is provided in this Indenture or under Applicable
Legislation that the Corporation shall deposit with the Trustee
resolutions, certificates, reports, opinions, requests, orders or other
documents, it is intended that the trust, accuracy and good faith on
the effective date thereof and the facts and opinions stated in all
such documents so deposited shall, in each and every such case, be
conditions precedent to the right of the Corporation to have the
Trustee take the action to be based thereon.
(d) Proof of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the
certificate of a notary public, or other officer with similar powers,
that the person signing such instrument acknowledged to it the
execution thereof, or by an affidavit of a witness to such execution or
in any other manner which the Trustee may consider adequate.
(#44838/WARRANT INDENTURE - February 21, 1997)
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(e) The Trustee may employ or retain such Counsel, accountants, appraisers
or other experts or advisers as it may reasonably require for the
purpose of discharging its duties hereunder and may pay reasonable
remuneration for all services so performed by any of them, without
taxation of costs of any Counsel, and shall not be responsible for any
misconduct or negligence on the part of any such experts or advisers
who have been appointed with due care by the Trustee.
9.4 Documents, Monies, etc. Held by Trustee
Any securities, documents of title or other instruments that
may at any time be held by the Trustee subject to the trusts hereof may be
placed in the deposit vaults of the Trustee or of any Canadian chartered bank or
deposited for safekeeping with any such bank. Unless herein otherwise expressly
provided, any monies so held pending the application or withdrawal thereof under
any provisions of this Indenture may be deposited in the name of the Trustee in
any Canadian chartered bank at the rate of interest (if any) then current on
similar deposits or, with the consent of the Corporation, may be: (i) deposited
in the deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or a province thereof; or
(ii) invested in securities issued or guaranteed by the Government of Canada or
a province thereof or in obligations maturing not more than sixty days from the
date of investment, of any Canadian chartered bank or loan or trust company.
Unless the Corporation shall be in default hereunder, all interest or other
income received by the Trustee in respect of such deposits and investments shall
belong to the Corporation.
9.5 Actions by Trustee to Protect Interest
The Trustee shall have power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient to preserve,
protect or enforce its interests and the interests of the Warrantholders.
9.6 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security
in respect of the execution of the trusts and powers of this Indenture or
otherwise in respect of the premises.
9.7 Protection of Trustee
By way of supplement to the provisions of any law for the time
being relating to trustees it is expressly declared and agreed as follows:
(a) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Warrant Certificates
(except the representation contained in Section 9.9 or in the
certificate of the Trustee on the Warrant Certificates) or be required
to
(#44838/WARRANT INDENTURE - February 21, 1997)
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verify the same, but all such statements or recitals are and shall be
deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or renewal
thereof) of this Indenture or any instrument ancillary or supplemental
hereto;
(c) the Trustee shall not be bound to give notice to any person or persons
of the execution hereof;
(d) the Trustee shall not incur any liability or responsibility whatever or
be in any way responsible for the consequence of any breach on the part
of the Corporation of any of the covenants herein contained or of any
acts of any directors, officers, employees, agents or servants of the
Corporation; and
(e) without limiting any protection or indemnity of the Trustee under any
other provision hereof, or otherwise at law, the Corporation hereby
agrees to indemnify and hold harmless the Trustee from and against any
and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including legal or advisor
fees and disbursements, of whatever kind and nature which may at any
time be imposed on, incurred by or asserted against the Trustee in
connection with the performance of its duties and obligations
hereunder, other than such liabilities, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements arising by
reason of the negligence or willful misconduct of the Trustee. This
provision shall survive the resignation or removal of the Trustee or
the termination of this Warrant Indenture.
9.8 Replacement of Trustee; Successor by Merger
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this Section 9.8, by
giving to the Corporation not less than ninety (90) days' prior notice
in writing or such shorter prior notice as the Corporation may accept
as sufficient. The Warrantholders by extraordinary resolution shall
have power at any time to remove the existing Trustee and to appoint a
new Trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into liquidation
or otherwise becoming incapable of acting hereunder, the Corporation
shall forthwith appoint a new trustee unless a new trustee has already
been appointed by the Warrantholders; failing such appointment by the
Corporation, the retiring Trustee or any Warrantholder may apply to a
justice of the Court of Queen's Bench of the Province of Alberta on
such notice as such justice may direct, for the appointment of a new
trustee; but any new trustee so appointed by the Corporation or by the
Court shall be subject to removal as aforesaid by the Warrantholders.
Any new trustee appointed under any provision of this Section 9.8 shall
be a Corporation authorized to carry on the business of a trust company
in the Province of Alberta and,
(#44838/WARRANT INDENTURE - February 21, 1997)
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if required by the Applicable Legislation for any other provinces, in
such other provinces. On any such appointment the new trustee shall be
vested with the same powers, rights, duties and responsibilities as if
it had been originally named herein as Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for
in Section 10.2 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom or
any corporation succeeding to the trust business of the Trustee shall
be the successor to the Trustee hereunder without any further act on
its part or any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor trustee under
subsection 9.8(a).
(d) Any Warrant Certificates certified but not delivered by a predecessor
trustee may be certified by the successor trustee in the name of the
predecessor or successor trustee.
9.9 Conflict of Interest
(a) The Trustee represents to the Corporation that at the time of execution
and delivery hereof no material conflict of interest exists between its
role as a trustee hereunder and its role in any other capacity and
agrees that in the event of a material conflict of interest arising
hereafter it will, within ninety (90) days after ascertaining that it
has such material conflict of interest, either eliminate the same or
assign its trust hereunder to a successor trustee approved by the
Corporation and meeting the requirements set forth in subsection
9.8(a).
Notwithstanding the foregoing provisions of this subsection 9.9(a), if
any such material conflict of interest exists or hereafter shall exist,
the validity and enforceability of this Indenture and the Warrant
Certificate shall not be affected in any manner whatsoever by reason
thereof.
(b) Subject to subsection 9.9(a), the Trustee, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Corporation
and generally may contract and enter into financial transactions with
the Corporation or any Subsidiary of the Corporation without being
liable to account for any profit made thereby.
9.10 Acceptance of Trust
The Trustee hereby accepts the trusts in this Indenture
declared and provided for and agrees to perform the same upon the terms and
conditions herein set forth.
9.11 Trustee Not to be Appointed Receiver
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The Trustee and any person related to the Trustee shall not be
appointed a receiver, a receiver and manager or liquidator of all or any part of
the assets or undertaking of the Corporation.
ARTICLE 10
GENERAL
10.1 Notice to the Corporation and the Trustee
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Trustee shall be deemed to be
validly given if delivered or if sent by registered letter, postage
prepaid:
If to the Corporation:
HealthCare Capital Corp.
c/o Suite 1800, 350 - 7 Avenue S.W.
Calgary, Alberta T2P 3N9
Fax: (403) 233-8979
If to the Trustee:
The R-M Trust Company
600, 333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Zl
Fax: (403) 264-2100
and any such notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery or, if mailed, on
the fifth (5th) Business Day following the date of the postmark on such
notice.
(b) The Corporation or the Trustee, as the case may be, may from time to
time notify the other in the manner provided in subsection 10.1(a) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Corporation
or the Trustee, as the case may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Corporation hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered to the named officer of the party to
which it is addressed or, if it is delivered to such party at the
appropriate address provided in
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subsection 10.1(a), by facsimile or other means of prepaid, transmitted
and recorded communication.
10.2 Notice to Warrantholders
(a) Any notice to the Warrantholders under the provisions of this Indenture
shall be valid and effective if sent by facsimile or letter or circular
through the ordinary post addressed to such holders at their post
office addresses appearing on the register hereinbefore mentioned and
shall be deemed to have been effectively given on the date of delivery
or, if mailed, five (5) Business Days following actual posting of the
notice.
(b) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Warrantholders hereunder could reasonably be considered unlikely to
reach its destination, such notice shall be valid and effective only if
it is delivered personally to such Warrantholders or if delivered to
the address for such Warrantholders contained in the register of
Warrants maintained by the Trustee, by facsimile or other means of
prepaid transmitted and recorded communication.
10.3 Ownership and Transfer of Warrants
The Corporation and the Trustee may deem and treat the
registered owner of any Warrants as the absolute owner thereof for all purposes,
and the Corporation and the Trustee shall not be affected by any notice or
knowledge to the contrary except where the Corporation or the Trustee is
required to take notice under any statute or by order of a court of competent
jurisdiction. A Warrantholder shall be entitled to the rights evidenced by its
Warrant Certificate free from all equities or rights of set off or counterclaim
between the Corporation and the original or any intermediate holder of the
Warrants and all persons may act accordingly and the receipt of any such
Warrantholder for the Common Shares which may be acquired pursuant thereto shall
be a good discharge to the Corporation and the Trustee for the same and neither
the Corporation nor the Trustee shall be bound to inquire into the title of any
such holder except where the Corporation or the Trustee is required to take
notice by statute or by order of a court of competent jurisdiction.
10.4 Evidence of Ownership
(a) Upon receipt of a certificate of any bank, trust company or other
depository satisfactory to the Trustee stating that the Warrants
specified therein have been deposited by a named person with such bank,
trust company or other depository and will remain so deposited until
the expiry of the period specified therein, the Corporation and the
Trustee may treat the person so named as the owner, and such
certificate as sufficient evidence of the ownership by such person of
such Warrant during such period, for the purpose of any
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 39 -
requisition, direction, consent, instrument or other document to be
made, signed or given by the holder of the Warrant so deposited.
(b) The Corporation and the Trustee may accept as sufficient evidence of
the fact and date of the signing of any requisition, direction,
consent, instrument or other document by any person (i) the signature
of any officer of any bank, trust company, or other depository
satisfactory to the Trustee as witness of such execution, (ii) the
certificate of any notary public or other officer authorized to take
acknowledgements of deeds to be recorded at the place where such
certificate is made that the person signing acknowledged to him the
execution thereof, or (iii) a satisfactory declaration of a witness of
such execution.
10.5 Counterparts
This Indenture may be executed in several counterparts, each
of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument and
notwithstanding their date of execution they shall be deemed to be dated as of
the date hereof.
10.6 Satisfaction and Discharge of Indenture
Upon the earlier of:
(a) the date by which there shall have been delivered to the Trustee
for exercise or destruction all Warrant Certificates theretofore
certified hereunder; or
(b) the Time of Expiry;
this Indenture shall cease to be of further effect and the Trustee, on demand of
and at the cost and expense of the Corporation and upon delivery to the Trustee
of a certificate of the Corporation stating that all conditions precedent to the
satisfaction and discharge of this Indenture have been complied with, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture. Notwithstanding the foregoing, the indemnities provided to the
Trustee by the Corporation hereunder shall remain in full force and effect and
survive the termination of this Indenture.
10.7 Provisions of Indenture and Warrants
for the Sole Benefit of Parties and Warrantholders
Nothing in this Indenture or in the Warrant Certificates,
expressed or implied, shall give or be construed to give to any person other
than the parties hereto and the Warrantholders, as the case may be, any legal or
equitable right, remedy or claim under this
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 40 -
Indenture, or under any covenant or provision herein or therein contained, all
such covenants and provisions being for the sole benefit of the parties hereto
and the Warrantholders.
10.8 Warrants Owned by the Corporation
or its Subsidiaries - Certificate to be Provided
For the purpose of disregarding any Warrants owned legally or
beneficially by the Corporation or any Subsidiary of the Corporation in Section
7.16, the Corporation shall provide to the Trustee, from time to time, a
certificate of the Corporation setting forth as at the date of such certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Warrants which, to the knowledge of the Corporation, are
owned by or held for the account of the Corporation or any Subsidiary
of the Corporation; and
(b) the number of Warrants owned legally or beneficially by the
Corporation or any Subsidiary of the Corporation;
and the Trustee, in making the computations in Section 7.16, shall be entitled
to rely on such certificate without any additional evidence.
IN WITNESS WHEREOF the parties hereto have executed this
Indenture under their respective corporate seals and the hands of their proper
officers in that behalf.
HEALTHCARE CAPITAL CORP.
Per: /s/ Douglas F. Good
THE R-M TRUST COMPANY
Per: /s/ M. Griffard
Per: /s/ K. Skerritt
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
THIS IS SCHEDULE "A" to the Warrant Indenture made as of
September 17, 1996 between HEALTHCARE CAPITAL CORP. and THE
R-M TRUST COMPANY, as Trustee
(for use with United States Warrantholders)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS
EXERCISED BY 4:30 P.M. (CALGARY TIME) ON OR BEFORE AUGUST 31, 1998.
"THE WARRANTS REPRESENTED HEREBY, AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
ACCORDINGLY, ANY PERSON EXERCISING SUCH WARRANTS WILL BE REQUIRED
EITHER TO (A) CERTIFY THAT SUCH PERSON IS HEREOF OUTSIDE THE UNITED
STATES, AND IS NOT DELIVERING THIS CERTIFICATE TO THE CORPORATION OR
ITS AGENT BY MEANS OF THE UNITED STATES POSTAL SERVICE OR ANY OTHER
MEANS OR INSTRUMENTS OF TRANSPORTATION OR COMMUNICATION IN UNITED
STATES INTERSTATE COMMERCE, OR (B) CERTIFY THAT SUCH PERSON IS
ACQUIRING THE COMMON SHARES UPON EXERCISE OF WARRANTS REPRESENTED
HEREBY FOR SUCH PERSON'S OWN ACCOUNT, AND NOT WITH A VIEW TO THEIR
DISTRIBUTION, AND THAT AS OF THE DATE OF EXERCISE, SUCH PERSON IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A) UNDER THE SECURITIES
ACT, OR (C) DELIVER TO THE CORPORATION OR ITS AGENT A WRITTEN OPINION
OF UNITED STATES COUNSEL, SATISFACTORY TO THE CORPORATION BOTH AS TO
FORM AND COUNSEL, TO THE EFFECT THAT THE ISSUANCE OF SECURITIES UPON
EXERCISE OF THE WARRANTS EVIDENCED HEREBY IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT."
WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
WARRANT
CERTIFICATE NO.
WARRANTS entitling the holder to acquire, subject to
adjustment, one (1) Common Share for each whole Warrant
represented hereby.
THIS IS TO CERTIFY THAT
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 2 -
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at any time
and from time to time until 4:30 p.m. (Calgary time) (the "Time of Expiry") on
August 31, 1998 (the "Expiry Date"), one fully paid and non-assessable Common
Share ("Common Share") without nominal or par value of HealthCare Capital Corp.
(the "Corporation") as such shares were constituted on September 17, 1996.
The right to acquire Common Shares may only be exercised by
the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto;
(b) surrendering this Warrant Certificate to The R-M Trust Company (the
"Trustee") at the principal office of the Trustee in the City of
Calgary; and
(c) remitting cash, a certified cheque, bank draft or money order in U.S.
dollars, payable to or to the order of the Corporation at par where
this Warrant certificate is so surrendered, for the aggregate purchase
price of the Common Shares so subscribed for, at a price of US $2.00
per Common Share if subscribed for prior to the Time of Expiry on the
Expiry Date.
These Warrants shall be deemed to be surrendered only upon
personal delivery hereof or, if sent by mail or other means of transmission,
upon actual receipt thereof by the Trustee at the office referred to above.
Upon surrender of these Warrants, the person or persons in
whose name or names the Common Shares issuable upon exercise of the Warrants are
to be issued shall be deemed for all purposes (except as provided in the
Indenture hereinafter referred to) to be the holder or holders of record of such
Common Shares and the Corporation covenants that it will (subject to the
provisions of the Indenture) cause a certificate or certificates representing
such Common Shares to be delivered or mailed to the person or persons at the
address or addresses specified in the Exercise Form within five (5) Business
Days.
The registered holder of these Warrants may acquire any lesser
number of Common Shares than the number of Common Shares which may be acquired
for the Warrants represented by this Warrant Certificate. In such event, the
holder shall be entitled to receive a new Warrant Certificate for the balance of
the Common Shares which may be acquired. No fractional Common Shares or Warrants
will be issued.
The Warrants represented by this certificate are issued under
and pursuant to a Warrant Indenture (hereinafter referred to as the "Indenture")
made as of September 17, 1996 between the Corporation and the Trustee. Reference
is made to the Indenture and any instruments supplemental thereto for a full
description of the rights of the holders of the
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 3 -
Warrants and the terms and conditions upon which the Warrants are, or are to be,
issued and held, with the same effect as if the provisions of the Indenture and
all instruments supplemental thereto were herein set forth. By acceptance
hereof, the holder assents to all provisions of the Indenture. Capitalized terms
used in the Indenture have the same meaning herein as therein, unless otherwise
defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Warrants shall, upon exercise of the Warrants
following the occurrence of any of those events, be entitled to receive the same
number and kind of securities that they would have been entitled to receive had
they exercised their Warrants immediately prior to the occurrence of those
events.
The registered holder of this Warrant Certificate may, at any
time prior to the Expiry Date, upon surrender hereof to the Trustee at its
principal office in the City of Calgary, exchange this Warrant Certificate for
other Warrant Certificates entitling the holder to acquire, in the aggregate,
the same number of Common Shares as may be acquired under this Warrant
Certificate.
The holding of the Warrants evidenced by this Warrant
Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Warrant Certificate.
The Indenture provides that all holders of Warrants shall be
bound by any resolution passed at a meeting of the holders held in accordance
with the provisions of the Indenture and resolutions signed by the holders of
Warrants entitled to acquire a specified majority of the Common Shares which may
be acquired pursuant to all then outstanding Warrants.
The Warrants evidenced by this Warrant Certificate may be
transferred on the register kept at the offices of the Trustee by the registered
holder hereof or its legal representatives or its attorney duly appointed by an
instrument in writing in form and execution satisfactory to the Trustee, only
upon compliance with the conditions prescribed in the Indenture and upon
compliance with such reasonable requirements as the Trustee may prescribe.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 1 -
This Warrant Certificate shall not be valid for any purpose
whatever unless and until it has been certified by or on behalf of the Trustee.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Corporation has caused this Warrant
Certificate to be signed by its duly authorized officer as of , 199 .
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
TRANSFER OF WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Warrants of HealthCare Capital Corp. registered in the name of
the undersigned on the records of The R-M Trust Company represented by the
Warrant Certificate attached.
DATED the day of , 199 . ---------
Signature Guaranteed (Signature of Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Warrantholder must be the signature of the person
appearing on the face of this Warrant Certificate.
4. Warrants shall only be transferable in accordance with applicable laws.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares of HealthCare Capital Corp. as constituted on September o, 1996 (or such
number of other securities or property to which such Warrants entitle the
undersigned in lieu thereof or in addition thereto under the provisions of the
Indenture referred to in the accompanying Warrant Certificate) in accordance
with and subject to the provisions of such Indenture.
The Common Shares (or other securities or property) are to be
issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares:
In order to exercise any Warrants represented by this certificate, the
undersigned must check one of the following:
( ) The undersigned certifies that the undersigned is signing
this Exercise Form below outside the United States, and is not
delivering this Warrant Certificate to HealthCare Capital
Corp. or its agent by means of the United States Postal
Service or any other means or instruments of transportation or
communication in United States Interstate commerce.
( ) The undersigned certifies that the undersigned is acquiring
Common Shares upon exercise of Warrants represented hereby for
the undersigned's account, and not with a view to their
distribution, and that as of the date below, the undersigned
is an "accredited investor" as defined in Rule 501(a) under
the United States Securities Act of 1933, as amended.
( ) Attached hereto is an opinion of United States counsel to
the effect that the issuance of securities upon exercise of
Warrants evidenced by this Warrant Certificate is exempt from
registration under the United States Securities Act of
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
1933, as amended. The undersigned acknowledges that said
opinion must be satisfactory to HealthCare Capital Corp. both
as to form and counsel.
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Warrantholder)
Print Full Name
Print Full Address
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
Instructions:
1. The registered holder may exercise its right to receive Common Shares
by completing this form and surrendering this form and the Warrant
Certificate representing the Warrants being exercised to The R-M Trust
Company at its principal office at Suite 600, 333 7th Avenue S.W.,
Calgary, Alberta T2P 2Zl. Certificates for Common Shares will be
delivered or mailed as soon as practicable after the exercise of the
Warrants. The rights of the registered holder thereof cease if the
Warrants are not exercised prior to the Expiry Time on the Expiry Date.
2. If the Exercise Form indicates that Common Shares are to be issued to a
person or persons other than the registered holder of the Certificate,
the signature of such holder on the Exercise Form must be guaranteed by
an authorized officer of a chartered bank, trust company or an
investment dealer who is a member of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
THIS IS SCHEDULE "A" to the Warrant Indenture made as of
September 17, 1996 between HEALTHCARE CAPITAL CORP. and THE
R-M TRUST COMPANY, as Trustee
(for use with Canadian Warrantholders)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS
EXERCISED BY 4:30 P.M. (CALGARY TIME) ON OR BEFORE AUGUST 31, 1998.
WARRANT CERTIFICATE
HEALTHCARE CAPITAL CORP.
(Incorporated under the laws of Alberta)
WARRANT
CERTIFICATE NO.
WARRANTS entitling the holder to acquire, subject to
adjustment, one (1) Common Share for each whole Warrant
represented hereby.
THIS IS TO CERTIFY THAT
(hereinafter referred to as the "holder") is entitled to acquire in the manner
and subject to the restrictions and adjustments set forth herein, at any time
and from time to time until 4:30 p.m. (Calgary time) (the "Time of Expiry") on
August 31, 1998 (the "Expiry Date"), one fully paid and non-assessable Common
Share ("Common Share") without nominal or par value of HealthCare Capital Corp.
(the "Corporation") as such shares were constituted on September 17, 1996.
The right to acquire Common Shares may only be exercised by
the holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto;
(b) surrendering this Warrant Certificate to The R-M Trust Company (the
"Trustee") at the principal office of the Trustee in the City of
Calgary; and
(c) remitting cash, a certified cheque, bank draft or money order in U.S.
dollars, payable to or to the order of the Corporation at par where
this Warrant certificate is so surrendered, for the aggregate purchase
price of the Common Shares so subscribed for,
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 2 -
at a price of US $2.00 per Common Share if subscribed for prior to the
Time of Expiry on the Expiry Date.
These Warrants shall be deemed to be surrendered only upon
personal delivery hereof or, if sent by mail or other means of transmission,
upon actual receipt thereof by the Trustee at the office referred to above.
Upon surrender of these Warrants, the person or persons in
whose name or names the Common Shares issuable upon exercise of the Warrants are
to be issued shall be deemed for all purposes (except as provided in the
Indenture hereinafter referred to) to be the holder or holders of record of such
Common Shares and the Corporation covenants that it will (subject to the
provisions of the Indenture) cause a certificate or certificates representing
such Common Shares to be delivered or mailed to the person or persons at the
address or addresses specified in the Exercise Form within five (5) Business
Days.
The registered holder of these Warrants may acquire any lesser
number of Common Shares than the number of Common Shares which may be acquired
for the Warrants represented by this Warrant Certificate. In such event, the
holder shall be entitled to receive a new Warrant Certificate for the balance of
the Common Shares which may be acquired. No fractional Common Shares or Warrants
will be issued.
The Warrants represented by this certificate are issued under
and pursuant to a Warrant Indenture (hereinafter referred to as the "Indenture")
made as of September 17, 1996 between the Corporation and the Trustee. Reference
is made to the Indenture and any instruments supplemental thereto for a full
description of the rights of the holders of the Warrants and the terms and
conditions upon which the Warrants are, or are to be, issued and held, with the
same effect as if the provisions of the Indenture and all instruments
supplemental thereto were herein set forth. By acceptance hereof, the holder
assents to all provisions of the Indenture. Capitalized terms used in the
Indenture have the same meaning herein as therein, unless otherwise defined.
In the event of any alteration of the Common Shares, including
any subdivision, consolidation or reclassification, and in the event of any form
of reorganization of the Corporation, including any amalgamation, merger or
arrangement, the holders of Warrants shall, upon exercise of the Warrants
following the occurrence of any of those events, be entitled to receive the same
number and kind of securities that they would have been entitled to receive had
they exercised their Warrants immediately prior to the occurrence of those
events.
The registered holder of this Warrant Certificate may, at any
time prior to the Expiry Date, upon surrender hereof to the Trustee at its
principal office in the City of Calgary, exchange this Warrant Certificate for
other Warrant Certificates entitling the holder to acquire, in the aggregate,
the same number of Common Shares as may be acquired under this Warrant
Certificate.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
- 1 -
The holding of the Warrants evidenced by this Warrant
Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle the holder to any right or interest in respect thereof
except as expressly provided in the Indenture and in this Warrant Certificate.
The Indenture provides that all holders of Warrants shall be
bound by any resolution passed at a meeting of the holders held in accordance
with the provisions of the Indenture and resolutions signed by the holders of
Warrants entitled to acquire a specified majority of the Common Shares which may
be acquired pursuant to all then outstanding Warrants.
The Warrants evidenced by this Warrant Certificate may be
transferred on the register kept at the offices of the Trustee by the registered
holder hereof or its legal representatives or its attorney duly appointed by an
instrument in writing in form and execution satisfactory to the Trustee, only
upon compliance with the conditions prescribed in the Indenture and upon
compliance with such reasonable requirements as the Trustee may prescribe.
This Warrant Certificate shall not be valid for any purpose
whatever unless and until it has been certified by or on behalf of the Trustee.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Corporation has caused this Warrant
Certificate to be signed by its duly authorized officer as of , 199 .
HEALTHCARE CAPITAL CORP.
Per:
Certified by:
The R-M TRUST COMPANY
Trustee
By:
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
TRANSFER OF WARRANTS
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to , Warrants of HealthCare Capital Corp. registered in the name of
the undersigned on the records of The R-M Trust Company represented by the
Warrant Certificate attached.
DATED the day of , 199 .
Signature Guaranteed (Signature of Warrantholder)
Instructions:
1. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
2. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or an investment dealer who
is a member of a recognized stock exchange.
3. The signature of the Warrantholder must be the signature of the person
appearing on the face of this Warrant Certificate.
4. Warrants shall only be transferable in accordance with applicable laws.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
EXERCISE FORM
TO: HealthCare Capital Corp.
AND TO: The R-M Trust Company
The undersigned hereby exercises the right to acquire Common
Shares of HealthCare Capital Corp. as constituted on September 17, 1996 (or such
number of other securities or property to which such Warrants entitle the
undersigned in lieu thereof or in addition thereto under the provisions of the
Indenture referred to in the accompanying Warrant Certificate) in accordance
with and subject to the provisions of such Indenture.
The Common Shares (or other securities or property) are to be
issued as follows:
Name:
(Print clearly)
Social Insurance Number:
Address in Full:
Number of Common Shares:
Note: If further nominees intended, please attach (and initial) schedule giving
these particulars.
DATED this day of , 199__.
Signature Guaranteed (Signature of Warrantholder)
Print Full Name
Print Full Address
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
Instructions:
1. The registered holder may exercise its right to receive Common Shares
by completing this form and surrendering this form and the Warrant
Certificate representing the Warrants being exercised to The R-M Trust
Company at its principal office at Suite 600, 333 7th Avenue S.W.,
Calgary, Alberta T2P 2Zl. Certificates for Common Shares will be
delivered or mailed as soon as practicable after the exercise of the
Warrants. The rights of the registered holder thereof cease if the
Warrants are not exercised prior to the Expiry Time on the Expiry Date.
2. If the Exercise Form indicates that Common Shares are to be issued to a
person or persons other than the registered holder of the Certificate,
the signature of such holder on the Exercise Form must be guaranteed by
an authorized officer of a chartered bank, trust company or an
investment dealer who is a member of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a fiduciary or representative capacity, the certificate must
be accompanied by evidence of authority to sign satisfactory to the
Trustee and the Corporation.
(#44838/WARRANT INDENTURE - February 21, 1997)
<PAGE>
SUPPLEMENTAL INDENTURE
Supplemental Indenture to the Warrant Indenture dated September
17, 1996 between HealthCare Capital Corp. and The R-M Trust Company
- -------------------------------------------------------------------------------
WHEREAS:
1. HealthCare Capital Corp. ("HealthCare") is in the process of completing a
distribution of up 5,474,900 Special Warrants by way of private placement.
2. Each Special Warrant entitles to holder thereof acquire one common share of
HealthCare and one share purchase warrant ("Warrant") at no additional cost.
3. The Warrants are governed pursuant to the terms and conditions of a warrant
indenture between HealthCare and The R-M Trust Company ("R-M Trust") dated
September 17, 1996 (the "Warrant Indenture").
4. The terms of the Special Warrant Indenture originally referenced in paragraph
2.1(a) thereof that HealthCare has created for issuance up to 5,760,000 Warrants
such number including all Special Warrants issuable to the Agents as part of
their compensation and 480,000 Warrants issuable in the event that the penalty
provision in the Warrant Indenture dated September 17, 1996 is triggered.
5. HealthCare desires to amend paragraph 2.1(a) of the Warrant Indenture such
that 5,972,800 Warrants are now issuable under the Warrant Indenture which
number includes 495,900 Warrants issuable to the Agents as part of their
compensation.
6. Pursuant to Article 8 of the Warrant Indenture, HealthCare does not view this
change as either material or detrimental to any of the current holders of
Special Warrants or the Warrants issuable upon the exercise thereof.
NOW THEREFORE THIS SUPPLEMENTAL INDENTURE WITNESSES that for the sum of Ten
Dollars ($10.00) paid by each of HealthCare and R-M Trust to each other and for
other good and valuable consideration mutually given and received, the receipt
and sufficiency of which is hereby acknowledged, HealthCare and R-M Trust hereby
agree and declare as follows:
. The Warrant Indenture be amended such that the following paragraph
2.1(a) be eliminated and now read as follows:
2.1(a) "up to 5,972,800 Warrants, each of which entitles the holder
thereof to acquire one (1) Common Share, and subject to
adjustment in accordance with Article 4
- 1 -
<PAGE>
- 2 -
hereof, are hereby created and authorized to be issued."
. All other terms and conditions, representations and warranties
contained in the Warrant Indenture shall remain in full force and
effect and shall be binding upon the parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this Supplemental Indenture
under their respective corporate seals by the hands of their proper officers in
that behalf effective the 2nd day of December, 1996.
HEALTHCARE CAPITAL CORP.
Per:
THE R-M TRUST COMPANY
Per:
Per:
- 2 -
<PAGE>
SPONSORSHIP AGREEMENT
THIS AGREEMENT, dated for reference March 13, 1996, is made
BETWEEN:
HEALTHCARE CAPITAL CORP., a corporation incorporated pursuant
to the laws of the Province of Alberta and having an office
located at 1120-595 Howe Street, Vancouver, British Columbia,
V6B 1N2
(the "Issuer");
AND:
C.M. OLIVER & COMPANY LIMITED, a company amalgamated under the
laws of British Columbia, having its head office at the 2nd
Floor, 750 West Pender Street, Vancouver, British Columbia,
V6C 1B5
(the "Sponsor").
WHEREAS:
A. The Issuer wishes to distribute to residents of British Columbia and Alberta
units, comprised of one common share and one share purchase warrant, to be
issued on the exercise of previously issued special warrants, on the terms and
conditions described in the prospectus of the Issuer to be filed with the
British Columbia Securities Commission and the Alberta Securities Commission
(the "Prospectus");
B. The Sponsor is an investment dealer based in Vancouver and is a member of the
Vancouver, Alberta, Toronto and Montreal stock exchanges and of the Pacific
District of the Investment Dealers Association of Canada, and is registered as a
dealer under the Securities Act (British Columbia);
C. The Sponsor is prepared, on and subject to the terms and conditions of this
Agreement, to conduct an investigation of the organization, management, business
and affairs of the Issuer, sufficient to enable it to sign the certificate for
the final Prospectus of the Issuer.
THEREFORE, the parties agree:
1. INTERPRETATION
1.1 Defined Terms
In this Agreement:
AG2432.386 [097]
<PAGE>
- 2 -
(a) "Distribution" means the distribution by the Issuer
of the Units to holders of the Securities under the
Prospectus and "distribute" has a corresponding
meaning;
(b) "Finders' Special Warrants" means the Special
Warrants issued by the Issuer as a finders' fee
pursuant to a private placement completed by the
Issuer on February 28, 1996;
(c) "Indemnified Parties" means the Sponsor, its
affiliates and their respective directors, officers,
employees and agents;
(d) "Issuer" means HealthCare Capital Corp.;
(e) "Marketing Materials" means any marketing materials
to be used in connection with the Offering;
(f) "material change", "material fact" and
"misrepresentation" have the respective meanings
assigned in the Securities Act (British Columbia);
(g) "Offering" means the offering, sale and distribution
of the Securities pursuant to the Prospectus;
(h) "Prospectus" means the final prospectus of the Issuer
to be filed with the Securities Commissions in
connection with the Offering;
(i) "Related Agreements" means any contract which may be
regarded as material to the purchase of Securities,
each as more particularly described in the
Prospectus;
(j) "Securities" means the 1,870,000 Units of the Issuer
issuable pursuant to the Special Warrants and
additional 35,750 Units of the Issuer issuable
pursuant to the Finders' Special Warrants offered
under the Prospectus;
(k) "Securities Commissions" means the Alberta Securities
Commission and the British Columbia Securities
Commission;
(l) "Securities Law" means collectively the applicable
laws, regulations, policies and prescribed forms of
Alberta and British Columbia relating to the
distribution of the Securities;
(m) "Security Holder" means any person whose subscription
for Securities is accepted by the Issuer, or any
subsequent transferee or successor of such person;
(n) "Sponsor" means C.M. Oliver & Company Limited; and
AG2432.386 [097]
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(o) "Special Warrants" means the outstanding special
warrants of the Issuer each such special warrant
entitling the acquisition of one common share and one
non-transferable share purchase warrant to purchase
one additional common share in the capital of the
Issuer.
1.2 Accounting Terms
Any accounting terms used herein which are not specifically defined in the
preceding section 1.1 shall be construed in accordance with generally accepted
Canadian accounting principles.
1.3 Number and Gender
Words importing the singular number include plural and vice versa and words
importing gender include the masculine, feminine and neuter genders.
1.4 Headings
The division of this Agreement into sections, subsections, paragraphs,
subparagraphs, schedules and clauses, and the insertion of headings and captions
are for convenience of reference only and do not affect the construction or
interpretation of this Agreement.
1.5 Severability
Any provision of this Agreement which may be found to be prohibited by or
unenforceable pursuant to the laws of any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such unenforceability or
prohibition without invalidating the remaining terms and provisions hereof.
1.6 Certificates and Certified Copies
Whenever in this Agreement reference is made to a certificate or a certified
copy to be delivered by a party, unless specifically provided otherwise, such
certificate or certified copy must be executed by an officer of the party who,
by virtue of his office, is familiar with the subject of such certificate or
certified copy and shall certify the completeness, truth and accuracy thereof as
of the date of such certificate or certified copy.
1.7 Governing Law
This Agreement is governed by, and will be construed in accordance with, the
laws of British Columbia, Canada.
1.8 Entire Agreement
AG2432.386 [097]
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This Agreement, including any thing expressly incorporated by reference herein,
contains all the terms and conditions in connection with the subject matter
hereof and no other agreements, written or oral, respecting such subject matter
shall be deemed to exist or to bind any party.
1.9 Currency References
All dollar amounts referred to in this Agreement are in Canadian dollars unless
otherwise specifically provided.
2. APPOINTMENT OF SPONSOR
2.1 Appointment of Sponsor
The Issuer appoints the Sponsor as sponsor of the Offering and the Sponsor
accepts the appointment and agrees to act as sponsor of the Issuer under the
Prospectus on the terms of this Agreement.
2.2 Duties of Sponsor
As sponsor of the Issuer under the Prospectus, the Sponsor will conduct an
investigation of the organization, management, business and affairs of the
Issuer sufficient, in its sole discretion, to enable it to determine whether or
not it is able to sign the certificate of the Prospectus.
2.3 Signature of Certificate
If, following the investigation referred to in subsection 2.2, the Sponsor
determines in its sole discretion that it is able to do so, the Sponsor will
sign the certificate for the Prospectus, certifying that, to the best of its
knowledge, the Prospectus contains full, true and plain disclosure of all
material facts relating to the Securities.
2.4 Review of Business
The Issuer will provide, or cause to be provided, to the Sponsor, its counsel
and its agents a reasonable opportunity to conduct such full and comprehensive
review of its business, capital, finances, operations and principals as the
Sponsor, in its sole discretion, considers reasonably necessary in the
circumstances.
2.5 Sponsor's Fee
For the services of the Sponsor as sponsor of the Offering and as full and
complete compensation therefor, the Issuer will pay to the Sponsor the sum of
$32,100 (inclusive of Goods and Services Tax), the receipt of which is
acknowledged by the Sponsor.
AG2432.386 [097]
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3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Issuer
The Issuer represents and warrants to the Sponsor that:
(a) Status of the Issuer
The Issuer, and each of its subsidiaries, is a
corporation duly incorporated, validly existing and
in good standing under the respective laws of the
jurisdiction of its incorporation and each has all
requisite power and authority and holds all material
licences, certificates, consents, permits and other
authorizations as are necessary to enable it to carry
on its proposed business as disclosed in the
Prospectus.
(b) Regular Business
The business of the Issuer and its subsidiaries have
been carried on, in all material respects, as
contemplated by and in compliance with the
requirements of their respective constating documents
and in compliance with all applicable laws, rules and
regulations, and neither the Issuer nor any of its
subsidiaries is in breach of or in default under any
mortgage, note, indenture, contract, instrument,
lease or other document or agreement to which it is a
party.
(c) Corporate and Partnership Authority
The execution, delivery and performance by the Issuer
of this Agreement and the Related Agreements, when
executed and delivered, to which it is or will be a
party are within the Issuer's powers, have been or
will have been, at the time of execution and delivery
thereof, duly authorized by all necessary corporate
action and do not and will not contravene its
constating documents or any provision of any contract
binding on it.
(d) Claims and Potential Claims
To the knowledge of the Issuer, no litigation,
proceeding or investigation is pending or threatened
before any court, agency, arbitrator or otherwise
which will or might reasonably result in any material
adverse change in the business, affairs or properties
or conditions (financial or otherwise) of the Issuer
or any of its subsidiaries or which might reasonably
result in any material liability on the part of the
Issuer or any of its subsidiaries.
AG2432.386 [097]
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(e) Prospectus
The Prospectus complies with the requirements of the
Securities Law in all material respects. The
Prospectus does not contain any misrepresentation or
any untrue statement of a material fact or omit any
statement or information, the omission of which
constitutes a misrepresentation, or omit to state any
material fact required to be stated or necessary to
make any statement contained therein not false or
misleading in light of the circumstances in which it
is made and all information and statements contained
in the Prospectus are true and correct. In addition,
all information and statements contained in the
Prospectus constitute full, true and plain disclosure
of all material facts.
(f) Financial Statements
The financial statements of the Issuer contained in
the Prospectus accurately reflect the financial
position of the Issuer on a consolidated basis at the
dates thereof and there have been no adverse material
changes in the financial position of the Issuer or
any of its subsidiaries since the respective dates
thereof, except as fully and plainly disclosed in the
Prospectus.
(g) Representations and Warranties
The representations and warranties in this Agreement
are true and will remain true as of the date of the
Prospectus.
3.2 Representations and Warranties of the Sponsor
The Sponsor represents and warrants to the Issuer that:
(a) Corporate Status
It is a corporation duly amalgamated, validly
existing and in good standing under the laws of
British Columbia.
(b) Corporate Authority
The execution, delivery and performance by the
Sponsor of this Agreement is within the Sponsor's
corporate powers, has been duly authorized by all
necessary corporate action and does not contravene:
(i) the memorandum or articles of the Sponsor;
or
(ii) any law; or
AG2432.386 [097]
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(iii) any provision of any other contract binding
on the Sponsor.
(c) Governmental Approvals
Except for compliance with the requirements of the
Securities Law, no authorization or approval or other
action by and no notice to or filing with any
governmental authority or regulatory body is required
for the due execution, delivery and performance by
the Sponsor of this Agreement.
3.3 Survival of Representations and Warranties
Each of the parties hereto acknowledges that the other parties are relying on
each of the representations and warranties addressed to such other parties set
forth in section 3.1 or 3.2, as the case may be, and any representations made in
any certificate issued to such other parties in connection with this Agreement
notwithstanding any investigations heretofore or hereafter made by such other
parties or their counsel or representatives. All such representations and
warranties shall not merge in or be prejudiced by, and shall survive for a
period of three years from the completion of the distribution of the Units.
4. COVENANTS OF THE ISSUER
The Issuer covenants with the Sponsor that:
(a) it will take all such acts and execute, file and
deliver all such documents, amendments, notices and
information as may be necessary to cause the
purchasers of Securities to become Security Holders
of the Issuer;
(b) it will execute or procure the execution of all
documents and use its best efforts to take or cause
to be taken all steps which may be reasonably
necessary to enable the transactions contemplated
herein to be completed;
(c) it will notify the Sponsor promptly in writing of the
full particulars of any material change, whether
actual, anticipated or threatened, in any material
fact stated or referred to in the Prospectus or which
would result in an omission from the Prospectus to
state a material fact necessary to make any statement
contained therein not misleading in light of the
circumstances in which it is made;
(d) during the period of distribution, distribution to
the public or primary distribution to the public (as
contemplated by the Securities Law) of the
Securities, it will advise the Sponsor promptly of
any request of any securities commission or other
securities authority for a cease trading order
relating to the Securities, or of the institution or
threat of institution of any proceedings for that
purpose, or of the receipt by it, or its counsel
AG2432.386 [097]
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of any material communication from any securities
commission or other securities authority relating to
the Prospectus or any supplements or amendments
thereto;
(e) upon the occurrence of a material change, it shall,
to the satisfaction of the Sponsor, promptly comply
with all applicable filing and other requirements
under the Securities Law as a result of such material
change;
(f) the Securities, when issued, will have the attributes
described in the Prospectus; and
(g) it will deliver or cause to be delivered all
documents, including legal opinions, required
hereunder and by the Prospectus.
5. EXPERT OPINIONS
The Issuer shall deliver to the Sponsor on the date of filing the Prospectus:
(a) a letter dated as of a date not more than one
Business Day prior to the date of the Prospectus, in
form and substance satisfactory to the Sponsor, from
the then current auditor of the Issuer:
(i) stating that, in such auditor's opinion, the
financial statements and notes thereto of
the Issuer examined by them and included in
the Prospectus covered by his report therein
comply as to form in all material respects
with the applicable accounting requirements
of the Securities Law; and
(ii) stating that, in such auditor's opinion, the
balance sheet of the Issuer examined by the
auditor and included in the Prospectus and
covered by his report therein complies as to
form in all material respects with the
applicable accounting requirements of the
Securities Law; and
(iii) addressing such other matters relating to
the financial information in the Prospectus
to which the Sponsor may reasonably require
comfort;
(b) a favourable legal opinion, in form and content
reasonably satisfactory to the Sponsor, by counsel to
the Issuer dated the date of the Prospectus and
addressed to the Sponsor, relating to such legal
matters as the Sponsor may reasonably request,
including, without limitation, certain of the matters
in section 3.1, title to the Issuer's property, and
matters pertaining to the Securities Law;
AG2432.386 [097]
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(c) a certificate of the Issuer certifying certain facts
relating to the business of the Issuer, and its
affairs as may be reasonably requested by the
Sponsor; and
(d) any other certificates, comfort letters or opinions
in connection with any matter related to the
Prospectus which are reasonably requested by the
Sponsor or their legal counsel.
6. TERMINATION
6.1 Term of Agreement
This Agreement shall terminate and, subject to the provisions set forth below,
be of no further force or effect on the exercise by the Sponsor of its right to
terminate this Agreement as provided in subsection 6.2, provided that, in any
event, sections 3, 7 and 8 and, in the event that such termination occurs by
virtue of paragraph 6.2(b), subsection 2.5 shall not terminate (except as set
forth therein) and shall continue in full force and effect for the benefit of
the Sponsor or the other parties to this Agreement, as the case may be.
6.2 Termination of Agreement
The Sponsor may, at its sole option, terminate this Agreement at any time prior
to the issuance of a receipt for the Prospectus by all of the Securities
Commissions by notice in writing to the Issuer if:
(a) any representation or warranty made by or on behalf
of the Issuer herein or in any certificate delivered
in connection with this Agreement proves to have been
incorrect in any material respect when made;
(b) any material adverse change occurs in the business or
financial condition of the Issuer or any of its
subsidiaries;
(c) the Issuer breaches or fails to perform or observe
any of the covenants or agreements to be performed or
observed by it hereunder;
(d) any order operating to restrict, prevent or cease
trading in the Securities is made under the
Securities Law;
(e) any inquiry or investigation, whether formal or
informal, is commenced or threatened by a securities
commission against the Issuer or its directors,
officers or agents; or
(f) any of the conditions set forth in section 5 are not
satisfied.
AG2432.386 [097]
<PAGE>
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6.3 Obligations of Sponsor Clarified
For greater certainty, the Sponsor is obligated under this Agreement, subject to
subsection 6.2, only to perform the investigation referred to in subsection 2.2,
and nothing in this Agreement will obligate the Sponsor to sign the certificate
for the Prospectus, unless, in its sole discretion, it considers itself able to
do so.
7. COSTS, EXPENSES AND TAXES
Whether or not the Sponsor signs the certificate as contemplated in subsection
2.3, the Issuer will bear the costs and expenses in connection with the
Offering, the preparation, execution and delivery of this Agreement, amendments
to the Prospectus and the other documents to be delivered hereunder, including,
without limitation:
(a) the reasonable fees and out-of-pocket expenses of
counsel for the Sponsor with respect thereto (which
fees, not including expenses and taxes, are not
expected to exceed $15,000 but may after consultation
with and receipt of the prior approval of the Issuer)
and with respect to advising the Sponsor as to its
rights and responsibilities under this Agreement;
(b) fees and costs of preparing and reproducing the
Prospectus, any amendments thereto and any other
Marketing Materials prepared by the Issuer;
(c) filing fees in connection with compliance with the
Securities Law;
(d) all costs and expenses associated with obtaining an
assessment report in compliance with Interim Local
Policy Statement 3-17 of the British Columbia
Securities Commission, if required; and
(e) all costs and expenses, if any (including reasonable
counsel fees and expenses), in connection with the
enforcement of this Agreement, and the other
documents to be delivered hereunder.
8. INDEMNIFICATION
8.1 Indemnification of Indemnified Parties
The Issuer shall and does hereby indemnify and save the Indemnified Parties
harmless from and against any liability, claim, demand or loss, excluding loss
of profits, which the Indemnified Parties may suffer, whether pursuant to
statute or otherwise, howsoever arising, in consequence of:
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(a) any statement or omission in the Prospectus, or
otherwise made or omitted by the Issuer in connection
with the Offering, being or being alleged to be a
misrepresentation;
(b) the Issuer not complying with any requirement of
applicable legislation of Canada or of British
Columbia or Alberta; or
(c) any order made or any inquiry, investigation or
proceeding commenced, threatened or announced by any
securities regulatory authority or other competent
authority in British Columbia, Alberta or Ontario
which prevents or restricts trading in or the sale or
distribution in British Columbia and Alberta of the
Securities.
8.2 Right to Counsel
If any claim contemplated by this section is asserted against any of the
Indemnified Parties, the Issuer shall be entitled (but not required) to assume
the defence on behalf of the Indemnified Parties of any suit brought to enforce
such claim, provided that the defence shall be through legal counsel acceptable
to the Indemnified Parties and no admission of liability shall be made by the
Issuer or the Indemnified Parties without, in each case, the prior written
consent of all the parties hereto, such consent not to be unreasonably withheld.
Any of the Indemnified Parties shall have the right to employ separate counsel
in any such suit and participate in the defence thereof, at the expense of the
Issuer.
8.3 Indemnity
The indemnity provided for in this section will not be limited or otherwise
affected by any other indemnity obtained by the Sponsor from any other person in
respect of any matters specified in this Agreement and will continue in full
force and effect until all possible liability of the Sponsor arising out of the
transactions contemplated by this Agreement has been extinguished by the
operation of law.
9. NOTICES
Any notice required or permitted to be given hereunder shall be in writing and
be given by personal service, telex, telegram, telecopy or by registered letter,
with postage fully prepaid, to the address set forth below:
AG2432.386 [097]
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(a) if to the Issuer at:
HealthCare Capital Corp.
c/o Ballem MacInnes
Barristers and Solicitors
First Canadian Centre
1800, 350-7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: William DeJong
Telephone: (403) 292-9800
Fax: (403) 233-8979
(b) if to the Sponsor at:
C.M. Oliver & Company Limited
2nd Floor, 750 West Pender Street
Vancouver, B.C.
V6C 1B5
Attention: Lyle Davis
Telephone: (604) 668-6700
Fax: (604) 681-8964
Any notice delivered personally or by telex, telegram or telecopy shall be
deemed to be received by and given to the addressee on the day of delivery. Any
notice mailed as aforesaid shall be deemed to have been received by and given to
the addressee on the fifth Business Day following the date of mailing except in
the event of a disruption of postal service, in which event notice shall be
delivered personally or given by telex, telegram or telecopy. Either party
hereto may designate a new address by giving written notice thereof to the other
party at least ten days in advance of the effective date of such designation.
10. MISCELLANEOUS
10.1 Amendments, Etc.
No amendment or waiver of any provision of this Agreement nor consent to any
departure by the Issuer therefrom shall in any event be effective unless it is
in writing and signed by the Sponsor and then such waiver or consent will be
effective only in the specific instance and for the specific purpose for which
given.
10.2 Time
Time shall be of the essence of this Agreement.
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10.3 Binding Effect
This Agreement is binding upon and enures to the benefit of the parties and
their respective successors and assigns, and no party shall have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the other parties.
10.4 Governing Law
This Agreement will be governed by the law of British Columbia and the parties
attorn to the non-exclusive jurisdiction of the courts of British Columbia for
the resolution of all disputes arising in connection with this Agreement.
11. EXECUTION IN COUNTERPART
This Agreement may be executed by any party in two or more counterparts, each
such counterpart will be deemed to be an original, and all such counterparts
taken together will constitute one and the same agreement.
IN WITNESS of this Agreement, the parties have executed and delivered this
Agreement as of the date given above.
HEALTHCARE CAPITAL CORP.
By: /s/ Douglas F. Good
Title: Chief Financial Officer
C.M. OLIVER & COMPANY LIMITED
By: /s/ C. M. O'Brian
Title: Chairman
AG2432.386 [097]
<PAGE>
ESCROW AGREEMENT
THIS AGREEMENT made in triplicate this 14th day of January,
1994.
B E T W E E N:
ADVENTURE CAPITAL CORPORATION, a company duly incorporated
under the laws of Alberta, (the "Company") (herein called the
"Issuer")
OF THE FIRST PART
- and -
THE R-M TRUST COMPANY, a trust company duly incorporated under
the laws of Canada ("R-M Trust") (herein called the "Trustee")
OF THE SECOND PART
- and -
MICHAEL G. THOMSON, businessman, of the City of West Vancouver
in the Province of British Columbia
CRAIG R. THOMSON, Barrister and Solicitor, of the City of
Calgary in the Province of Alberta
MURRAY T.A. CAMPBELL, Barrister and Solicitor, of the City of
Vancouver in the Province of British Columbia
WILLIAM DEJONG, Barrister and Solicitor, of the City of
Calgary in the Province of Alberta
BRUCE A. RAMSAY, businessman, of the Town of Chestermere in
the Province of Alberta
(herein collectively called the "Security Holders")
OF THE THIRD PART
WHEREAS in furtherance of complying with the requirements of
the Securities Act, Alberta Securities Commission Policy 4.11 and The Alberta
Stock Exchange Circular No. 7, the Security Holders are desirous of depositing
in escrow certain securities in the issuer
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<PAGE>
owned or to be received by them;
AND WHEREAS the Trustee has agreed to undertake and perform
its duties according to the terms and conditions hereof;
NOW THEREFORE this agreement witnesses that, in consideration
of the sum of one dollar ($1.00) paid by the parties to each other, receipt of
this sum being acknowledged by each of the parties, the Security Holders jointly
and severally covenant and agree with the Issuer and with the Trustee, and the
Issuer and the Trustee covenant and agree each with the other and with the
Security Holders jointly and severally as follows:
1. Where used in this agreement, or in any amendment or supplement hereto,
unless the context otherwise requires, the following words and phrases shall
have the following ascribed to them below:
(a) "Major Transaction" shall include any material transaction in
accordance with the by-laws of The Alberta Stock Exchange, and
a transaction whereby:
(i) the issuer issues more than 25% of the number of its
previously outstanding securities to acquire assets
(other than cash) or securities of another issuer,
(ii) the issuer enters into an arrangement, amalgamation,
merger or reorganization with another issuer with
Significant Assets other than cash, whereby the
ration of securities which are distributed to the two
sets of security holders results in the security
holders of the other issuer acquiring control of the
resulting entity,
(iii) the issuer acquires Significant Assets, or
(iv) the issuer issues more than 25% of the number of its
previously outstanding securities for cash (a
"Private Placement");
(b) "Significant Assets" means assets (other than cash) or
securities of another issuer whereby the listed company meets
the minimum listing requirements under Circular No. 1 upon
completion of the acquisition.
2. Each of the Security Holders hereby undertakes and agrees to deposit in
escrow any securities of the Issuer which he has or may acquire pursuant to the
first Major Transaction or pursuant to the exercise of any option granted to him
by the issuer pursuant to the first Major Transaction (including any replacement
securities if an when issued) which securities are described in Schedule "A"
attached to this agreement.
3. The Parties hereby agree that, subject to the provisions of paragraph 6
herein, the securities and the beneficial ownership of any interest in them and
the certificate representing
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<PAGE>
them (including any replacement securities or certificates) shall not be sold,
assigned, hypothecated, alienated, released from escrow, transferred within
escrow, or otherwise in any manner dealt with, without the written consent of
the Chief of Securities Administration of the Alberta Securities Commission
(hereinafter referred to as the "Chief") given to the Trustee or except as may
be required by reason of the death or bankruptcy of any Security Holder, in
which cases the Trustee shall hold the said certificates subject to this
agreement, for whatever person, or company shall be legally entitled to become
the registered owner thereof.
4. The Security Holders direct the Trustee to retain their respective securities
and the certificates (including any replacement securities or certificates)
representing them and not to do or cause anything to be done to release them
from escrow or to allow any transfer, hypothecation or alienation thereof,
without the written consent of the Chief. The Trustee accepts the
responsibilities placed on it by the agreement and agrees to perform them in
accordance with the terms of this agreement and the written consents, orders or
directions of the Chief.
5. Any Security Holder applying to the Chief for a consent for a transfer within
escrow shall, before applying, give reasonable notice in writing of his
intention to the Issuer and the Trustee.
6. Notwithstanding the provisions of paragraph 4 hereof, securities deposited
with the Trustee pursuant to this agreement shall be released, subject to the
prior written consent of the Chief, upon the Issuer completing a Major
Transaction (other than a Private Placement) as to one-third (1/3) of the
original number of escrowed securities on each of the first, second and third
anniversaries of the completion of the Major Transaction. The Chief, in his
discretion, may consent to the release of securities on the second and third
anniversaries of the completion of the Major Transaction when consent is granted
for the release of securities on the occasion of the first anniversary.
7. A release from escrow of all or part of the escrowed securities shall
terminate this agreement only in respect to those securities so released. For
greater certainty this paragraph does not apply to securities transferred within
escrow.
8. If during the period in which any of the securities are retained in escrow
pursuant hereto, any dividend is received by the Trustee in respect of the
escrowed securities, any such dividend shall be promptly paid or transferred to
the respective Security Holders entitled thereto.
9. All voting rights attached to the escrowed securities shall at all times be
exercised by the respective registered owners thereof.
10. The Security Holders hereby jointly and severally agree to and do hereby
release and indemnify and save harmless the Trustee from and against all claims,
suits, demands, costs, damages and expenses which may be occasioned by reason of
the Trustee's compliance in good faith with the terms hereof.
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<PAGE>
11. The Issuer hereby acknowledges the terms and conditions of this Agreement
and agrees to take all reasonable steps to facilitate its performance and to pay
the Trustee's proper charges for its services as trustee of this escrow.
12. If the Trustee should wish to resign, it shall give at least 6 months'
notice to the Issuer which may, with the written consent of the Exchange, by
writing appoint another Trustee in its place and such appointment shall be
binding on the Security Holders, and the new Trustee shall assume and be bound
by the obligations of the Trustee hereunder.
13. The covenants of the Security Holders with the Issuer in this agreement are
made with the Issuer both in its own right and as trustee for the holders from
time to time of free securities in the Issuer, and may be enforced not only by
the Issuer but also by any holder of free securities.
14. This agreement may be executed in several parts of the same form and the
parts as so executed shall together constitute one original agreement, and the
parts, if more than one, shall be read together and construed as if all the
signing parties hereto and executed one copy of this agreement.
15. Wherever the singular or masculine is used, the same shall be construed to
include the plural or feminine or neuter where the context so requires.
16. This agreement shall enure to the benefit of and be binding on the parties
to this agreement and each of their heirs, executors, administrators, successors
and assigns.
IN WITNESS WHEREOF the Issuer and the Trustee have caused
their respective corporate seals to be hereto affixed and the Security Holder
has hereto set its hand and seal.
ADVENTURE CAPITAL CORPORATION
Per /s/ Michael G. Thomson
Per /s/ Murray T. A. Campbell
THE R-M TRUST COMPANY
Per /s/ Signature
Per /s/ Signature
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<PAGE>
Signed sealed and delivered by the respective Security Holders
whose names are subscribed in the right-hand column below in the presence of the
respective persons whose names are subscribed in the left-hand column.
/S/ Signature /S/ MICHAEL G. THOMSON
Witness Michael G. Thomson
/S/ Signature /S/ CRAIG R. THOMSON
Witness Craig R. Thomson
/S/ Signature /S/ MURRAY T.A. CAMPBELL
Witness Murray T.A. Campbell
/S/ Signature /S/ WILLIAM DEJONG
Witness William DeJong
/S/ Signature /S/ BRUCE RAMSAY
Witness Bruce Ramsay
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<PAGE>
SCHEDULE "A"
to the Agreement dated this day of November, 1993, and made between Adventure
Capital Corporation therein called the "Issuer", The R-M Trust Company, therein
called the "Trustee" and Michael G. Thomson, Craig R. Thomson, Murray T.A.
Campbell, William DeJong and Bruce Ramsay therein called the "Security Holders".
<TABLE>
<CAPTION>
Name of Number of Number of Certificate Signatures of
Security Securities Securities Numbers Security
Holder Allotted Escrowed of Holders
Securities
Escrowed
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael G. Thomson 1,050,000 1,050,000 1 & 4 /S/ MICHAEL G. THOMSON
Craig R. Thomson 750,000 750,000 2 /S/ CRAIG R. THOMSON
Murray T.A. Campbell 600,000 600,000 3 /S/ MURRAY T.A. CAMPBELL
William DeJong 300,000 300,000 6 /S/ WILLIAM DEJONG
Bruce Ramsay 300,000 300,000 5 /S/ BRUCE RAMSAY
</TABLE>
- 6 -
<PAGE>
ESCROW AGREEMENT
(Performance Escrow Agreement)
THIS AGREEMENT made in triplicate and dated for reference the 7th day of
October, 1994.
AMONG:
ADVENTURE CAPITAL CORPORATION c/o 4000 Petro-Canada Centre,
West Tower, 150 - 6th Avenue S.W., Calgary, Alberta, T2P 3Y7
(hereinafter called the "Issuer")
OF THE FIRST PART
AND:
THE R-M TRUST COMPANY Suite 600, The Dome Tower, 333 - 7th
Avenue S.W., Calgary, Alberta, T2P 3C4 (herein called the
"Trustee")
OF THE SECOND PART
AND:
MARILYN E. MARSHALL, DOUGLAS F. GOOD, TRUDY McCAFFERY all c/o
Suite 1120, 595 Howe Street, Vancouver, British Columbia, V6C
2T5 (herein called the "Security Holders")
OF THE THIRD PART
WHEREAS the Security Holders and the Issuer entered into an
agreement dated the 26th day of August, 1994 and September 2, 1994 whereby the
Security Holders agreed to sell certain property to the Issuer, the
consideration for such property being at least in part the allotment of
securities in the Issuer to the Security Holders, the property and the number of
securities and the names of the Security Holders presently owning or about to
receive such securities being respectively and more particularly described in
Schedule "A" attached to and forming part of this agreement.
- 1 -
<PAGE>
- 2 -
AND WHEREAS in order to comply with the requirements of The
Alberta Stock Exchange, the Security Holders are desirous of depositing in
escrow certain securities in the Issuer owned or to be received by them;
AND WHEREAS the Trustee has agreed to undertake and perform
its duties according to the terms and conditions thereof;
NOW THEREFORE this agreement witnesses that, in consideration
of the sum of one dollar ($1) paid by the parties to each other, receipt of this
sum being acknowledged by each of the parties, the Security Holders jointly and
severally covenant and agree with the Issuer and with the Trustee, and the
Issuer and the Trustee covenant and agree each with the other and with the
Security Holders jointly and severally as follows:
1. Where used in this agreement, or in any amendment or supplement hereto,
unless the context otherwise requires, the following words and phrases shall
have the following ascribed to them below:
(a) "Cash Flow" means net income derived from the property,
as shown on the audited financial statements or
verified by the Issuer's auditors, adjusted for the
following add-backs:
(i) depreciation,
(ii) depletion,
(iii) deferred taxes,
(iv) amortization of goodwill,
(v) amortization of research and development costs.
(b) "Deferred Expenditures" means expenditures which have
been verified by the Issuer's auditors and incurred in
exploring, developing or maintaining in good standing
the aforesaid property.
(c) "Related Party" means promoters, officers, directors,
other insiders of the issuer and any associates or
affiliates of the foregoing.
2. Each of the Security Holders hereby places and deposits in escrow with the
Trustee those of his securities in the Issuer which are represented by the
certificates described in Schedule "A" and the Trustee hereby acknowledges
receipt of those certificates. The Security Holders agree to deposit in escrow
any further certificates representing securities in the Issuer which he may
receive as a stock dividend on securities hereby escrowed, and to deliver to the
- 2 -
<PAGE>
- 3 -
Trustee immediately on receipt thereof the certificates for any such further
securities and any replacement certificates which may at any time be issued for
any escrowed securities.
3. The Parties hereby agree that, subject to the provisions of paragraph 6
herein, the securities and the beneficial ownership of or any interest in them
and the certificate representing them (including any replacement securities or
certificates) shall not be sold, assigned, hypothecated, alienated, released
from escrow, transferred within escrow, or otherwise in any manner dealt with,
without the written consent of The Alberta Stock Exchange (hereinafter referred
to as the "Exchange") given to the Trustee or except as may be required by
reason of the death or bankruptcy of any Security Holder, in which cases the
Trustee shall hold the said certificates subject to this agreement, for whatever
person, or company shall be legally entitled to become the registered owner
thereof.
4. The Security Holders direct the Trustee to retain their respective securities
and the certificates (including any replacement securities or certificates)
representing them and not to do or cause anything to be done to release them
from escrow or to allow any transfer, hypothecation or alienation thereof,
without the written consent of the Exchange. The Trustee accepts the
responsibilities placed on it by the agreement and agrees to perform them in
accordance with the terms of this agreement and the written consents, orders or
directions of the Exchange.
5. Any Security Holder applying to the Exchange for a consent for a transfer
within escrow shall, before applying, give reasonable notice in writing of his
intention to the Issuer and the Trustee.
6.
(a) The Exchange will consent to the release from escrow on
the following basis:
(i) one share for each $0.11 of cash flow generated
by or from the property.
(b) Any release from escrow under paragraph 6(a)(i) shall
be made pursuant to a written application on behalf of
the Issuer or the Security Holders, which application
shall be accompanied by evidence of the Cash Flow
received in a form satisfactory to the Exchange.
Application for release may only be made once per year
and may only relate to Cash Flow received or Deferred
Expenditures incurred in the preceding fiscal year or
the fiscal years of the Issuer since the last release
from escrow pursuant to this agreement, whichever is
greater. All shares released from escrow shall, unless
otherwise directed by the Exchange, be distributed
pro-rata to all Security Holders.
(c) Notwithstanding subparagraph (b) above, the maximum
number of shares
- 3 -
<PAGE>
- 4 -
to be released from escrow in any year to a Security
Holder who is a Related Party shall be one third of the
original number of shares held in escrow on behalf of
such Security Holder.
7. A release from escrow of all or part of the escrowed securities shall
terminate this agreement only in respect to those securities so released. For
greater certainty this paragraph does not apply to securities transferred within
escrow.
8. The Security Holders shall, if a dividend is declared while the Escrowed
Shares or any of them continue to be held in escrow under this Agreement,
renounce and release any right to receive payment of the dividend on the shares
then held in escrow.
9. If the Issuer is wound up and any securities remain in escrow under this
agreement at the time when a distribution of assets to holders of securities is
made by the liquidator, the Security Holders shall assign their right to receive
that part of the distribution which is attributable to the escrowed securities
to the Trustee, for the benefit of, and in trust for the persons and companies
who are then holders of free securities in the Issuer rateably in proporation to
their holdings.
10.
(a) In the event that the Issuer has lost, alienated or has
not obtained a good or marketable title to, or has
abandoned or discontinued development of, any or all of
the aforesaid property which was or formed part of the
consideration for which the aforesaid securities were
issued, or that any or all of the said property has
become of little or no value, the issuer shall declare
the occurrence of that event, with full particulars
thereof, to the Exchange by a resolution of its
directors, and those Security Holders who are directors
from time to time hereby agree to cause such resolution
to be passed and certified to the satisfaction of the
Exchange.
(b) The Security Holder jointly and severally agree with
the Issuer and the Trustee that in the event of any
such loss, alienation, failure to acquire title, or of
such abandonment or discontinuance of development or
diminution of value, the securities held in escrow
shall not be cancelled or released from escrow, in
whole or in part, except with the consent of the
Exchange.
(c) The Exchange may, in its sole discretion, having regard
to the number and value of the securities issued for
the property, the value of the property as ultimately
established and such other circumstances as it may
consider relevant, determine the number of securities
to be cancelled or released and shall communicate its
decision in writing to the Trustee. If the Exchange
determines that less than all the securities then held
in escrow shall be cancelled or released, the
securities to be cancelled or released shall be taken
rateably from the escrowed security holding of each of
the Security
- 4 -
<PAGE>
- 5 -
Holders, unless the Exchange otherwise directs or the
Security Holders, with the consent of the Exchange,
otherwise agree in writing.
(d) On receipt by the Trustee of a determination to cancel,
each of the Security Holders shall tender the required
number of escrowed securities to the Issuer by way of
gift for cancellation and, the Issuer shall thereupon
take the necessary action, by way of reduction of
capital or otherwise, to cancel them, and the
certificates for these securities shall be delivered up
for cancellation by the Issuer's transfer agent.
(e) Each of the Security Holders undertakes and agrees to
vote and cause to be voted their respective securities
in a manner consistent with the terms, conditions and
intent of this agreement in relation to the aforesaid
gifting back of securities for cancellation.
11. Notwithstanding paragraphs 6 and 10, any shares remaining in escrow on the
seventh anniversary of the date of this agreement, unless otherwise exempted in
writing by the Exchange, shall be cancelled by the Trustee within 6 months of
the said seventh anniversary.
12. All voting rights attached to the escrowed securities shall at all times be
exercised by the respective registered owners thereof.
13. The Security Holders hereby jointly and severally agree to and do hereby
release and indemnify and save harmless the Trustee from and against all claims,
suits, demands, costs, damages and expenses which may be occasioned by reason of
the Trustee's compliance in good faith with the terms hereof.
14. The Issuer hereby acknowledges the terms and conditions of this Agreement
and agrees to take all reasonable steps to facilitate its performance and to pay
the Trustee's proper charges for its services as trustee of this escrow.
15. If the Trustee should wish to resign, it shall give at least 6 months'
notice to the Issuer which may, with the written consent of the Exchange, by
writing appoint another Trustee in its place and such appointment shall be
binding on the Security Holders, and the new Trustee shall assume and be bound
by the obligations of the Trustee hereunder.
16. The covenants of the Security Holders with the Issuer in this agreement are
made with the Issuer both in its own right and as trustee for the holders from
time to time of free securities in the Issuer, and may be enforced not only by
the Issuer but also by any holder of free securities.
17. This agreement may be executed in several parts of the same form and the
parts
- 5 -
<PAGE>
- 6 -
as so executed shall together constitute one original agreement, and the parts,
if more than one, shall be read together and construed as if all the signing
parties hereto had executed one copy of this agreement.
18. Wherever the singular or masculine is used, the same shall be construed to
include the plural or feminine or neuter where the context so requires.
19. This agreement shall enure to the benefit of and be binding on the parties
to this agreement and each of their heirs, executors, administrators, successors
and assigns.
IN WITNESS WHEREOF the Issuer and Trustee have caused their
respective corporate seals to be hereto affixed and the Security Holders have
hereto set their respective hands and seals.
ADVENTURE CAPITAL CORPORATION
Per:/s/ Michael G. Thomson
c/s
Per:
THE R-M TRUST COMPANY
Per:/s/ Signature
c/s
Per:/s/ Signature
SIGNED, SEALED AND DELIVERED by the respective Security Holders
whose names are subscribed in the right-hand column in the presence of the
respective persons whose names are subscribed in the left-hand column.
WITNESSES SECURITY HOLDERS
/s/ Signature /s/ Signature
Witness to the Signature of Marilyn E. Marshall MARILYN E. MARSHALL
/s/ Signature /s/ Douglas F. Good
Witness to the Signature of Douglas F. Good DOUGLAS F. GOOD
- 6 -
<PAGE>
- 7 -
/s/ Signature /s/ Trudy McCaffery
Witness to the Signature of Trudy McCaffery TRUDY McCAFFERY
WIN:4035
- 7 -
<PAGE>
SCHEDULE "A"
to agreement dated for reference the 7th day of October, 1994 and made among
Adventure Capital Corporation, therein called the "Issuer", The R-M Trust
Company, therein called the "Trustee", and some security holders of the
Fraserview Hearing & Speech Clinic Ltd., therein called the "Security Holders".
<TABLE>
<CAPTION>
CERTIFICATE NUMBERS
NAMES OF TYPE OF NUMBER OF OF SECURITIES
SECURITY HOLDERS SECURITIES SECURITIES ESCROWED ESCROWED
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Marilyn E. Marshall Common Shares 1,951,258
Douglas F. Good Common Shares 1,149,371
Trudy McCaffery Common Shares 1,149,371
---------
4,250,000
</TABLE>
DESCRIPTION OF PROPERTY
All of the issued and outstanding shares of Fraserview Hearing and
Speech Clinic Ltd., a British Columbia company.
- 8 -
<PAGE>
Bill of Sale
THIS AGREEMENT dated for reference January 2, 1996, is made
BETWEEN
HC HEALTHCARE HEARING CLINICS LTD., a company under the laws
of British Columbia with its registered and records office at
1000-840 Howe Street, Vancouver, British Columbia V6Z 2M1
(the "Purchaser")
AND:
CLAUDE C. FULLER, JR., R. PATRICK GREENWOOD and ROBERT A.
HUNTER carrying on business in partnership under the trade
name "Langley Hearing Clinic" and the said LANGLEY HEARING
CLINIC having its office at Suite 102, 10651-56th Avenue,
Langley, British Columbia, V3A 3Y9
(the "Vendors")
WHEREAS:
A. The Vendors have agreed to sell the assets of the business of the partnership
of Claude C. Fuller, Jr., R. Patrick Greenwood and Robert A. Hunter doing
business under the trade name "Langley Hearing Clinic" (the "Clinic") to the
Purchaser pursuant to the terms and conditions of the Offer to Purchase dated
November 3, 1995 (the "Purchase Agreement");
B. The Vendors beneficially own all of the right, title and interest in and to
the tangible and intangible property to be sold to the Purchaser pursuant to the
terms of this Agreement;
THE PARTIES to this Agreement therefore in consideration of good and valuable
consideration paid by the Purchaser to the Vendors (the receipt and sufficiency
of which is acknowledged) agree as follows:
- 1 -
<PAGE>
1. SALE OF ASSETS
The Vendors hereby absolutely sell, assign and transfer the following property
and assets owned by the Vendors or to which the Vendors is entitled to in
connection with the Clinic, namely:
(a) all equipment, furniture, furnishings and accessories and
supplies of all kinds used in connection with the Clinic
including but without limitation to, the equipment and
supplies situated at the premises of the Clinic described in
the Schedule of Assets attached hereto as Schedule "A" subject
to Section 2 of this Agreement;
(b) all inventories of and pertaining to the Clinic as
described in the Schedule of Inventory attached hereto as
Schedule "B";
(c) all accounts receivable described in the Schedule of
Receivables attached hereto as Schedule "C";
(d) the leasehold property and interest, to be assigned
pursuant to the Assignment of Lease by the Vendors to the
Purchaser and all other buildings, structures, erections,
improvements, appurtenances and fixtures situate thereon or
forming part thereof;
(e) all right, title and interest of the Vendors in, to and
under all contracts and agreements and other rights of or
pertaining to the Clinic;
(f) all prepaid expenses of the Vendors, if any;
(g) the customer list and the goodwill of the Clinic
including, without limitation, the exclusive right to the
Purchaser to represent itself as carrying on the business in
continuation of and in succession to the Vendors and all
right, title and interest of the Vendors in, to and the right
to use all registered or unregistered trademarks and trade
names of or pertaining to the Clinic including but not limited
to "Langley Hearing Clinic" or owned by the Vendors and all
other right, title and
- 2 -
<PAGE>
interest throughout the world to any copyright interest they
may have and the Vendors waive in favour of the Purchaser all
moral rights they have in or related to such copyright
interest; and
(h) all other property and assets owned by the Vendors or to
which the Vendors are entitled in connection with the Clinic
(except cash on hand or in banks or other depositories, life
insurance proceeds receivable and income taxes refundable);
(collectively referred to as the "Assets").
2. CONDITIONAL SALE OF ASSETS
Notwithstanding Section 4 of this Agreement, the Vendors shall withhold transfer
of title to the property and assets described in Schedule "A" of this Agreement
until such date on which the Purchaser makes the last payment of the purchase
price of the Assets (the "Purchase Price") in accordance with the Schedule of
Payment attached hereto as Schedule "D". Upon full payment of the Purchase
Price, the Vendors agree to execute and deliver to the Purchaser a Quit Claim
and Assignment in accordance with the Security Agreement between the Vendors and
the Purchaser dated January 2, 1996 (the "Security Agreement") to effect the
assignment and the transfer to the Purchaser of the good and marketable title to
the assets described in Schedule "A", free and clear and absolutely released and
discharged from and against all former and other bargains, sales, gifts, grants,
mortgages, pledges, security interests, adverse claims, liens, charges and
encumbrances of any nature or kind whatsoever and the Vendors indemnifies the
Purchaser with respect to thereto.
3. REPRESENTATIONS AND WARRANTIES
The Vendors represent and warrant to the Purchaser that the Vendors have the
power and authority to enter into this Agreement and that the Vendors are now
rightfully in title to the Assets and that the Vendors now have in them good
right, title and authority to sell, assign and transfer to the Purchaser, its
successors and assigns.
- 3 -
<PAGE>
4. COVENANTS OF THE VENDORS
Subject to Section 2 of this Agreement, the Vendors covenant with the Purchaser
that the Purchaser shall have immediately after execution and delivery of this
Agreement possession of the Assets and may from time to time and at all times
peacefully and quietly have, hold, possess and enjoy the same and every part
thereof to and for its own use and benefit without any manner of hindrance,
interruption, molestation, claim or demand whatsoever of, from or by the Vendors
or any person whomsoever and with good and marketable title thereto, free and
clear and absolutely released and discharged from and against all former and
other bargains, sales, gifts, grants, mortgages, pledges, security interest,
adverse claims, liens, charges and encumbrances of any nature or kind whatsoever
and the Vendors indemnifies the Purchaser with respect to thereto.
5. ENUREMENT
This Agreement enures to the benefit of and is binding on the parties and their
heirs, executors, personal representative, successors and permitted assigns.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties contained in this Agreement will survive the
sale and transfer of the Assets.
7. FURTHER ASSURANCES
The parties agree to execute and deliver any other deeds, documents and
assurances and to do any other acts required to carry out the true intent and
meaning of this Agreement.
- 4 -
<PAGE>
8. COUNTERPARTS AND FACSIMILE DELIVERY
This Agreement may be executed in counterparts in the same form and such
counterparts, when executed, will together constitute one original Agreement and
will be read together and construed as if all the signing parties had executed
one copy of this Agreement. Delivery of an executed counterpart of this
Agreement may be made by facsimile transmission to be followed by actual
delivery of such counterpart.
9. MODIFICATION
This Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto or by their heirs, executors, personal
representatives, successors and permitted assigns.
IN WITNESS WHEREOF the parties hereto entered into this Agreement on the date
hereinbefore set out.
HC HEALTHCARE HEARING CLINICS LTD.
Per: /S/ HUGH T. HORNIBROOK
Authorized Signatory
HEALTHCARE CAPITAL CORP.
Per: /S/ HUGH T. HORNIBROOK
Authorized Signatory
- 5 -
<PAGE>
Signed, sealed and delivered )
by CLAUDE C. FULLER, JR. )
in the presence of: )
)
)
)
Name )
)
)
- ---------------------------------
Address ) /S/ C. FULLER
) CLAUDE C. FULLER, JR. in
) his capacity as a partner in the
) Partnership of Claude C.
) Fuller, Jr., R. Patrick Greenwood
) and Robert A. Hunter carrying on
Occupation ) business under the trade name "Langley
Hearing ) Clinic"
Signed, sealed and delivered )
by R. PATRICK GREENWOOD )
in the presence of: )
)
)
)
Name )
)
)
- --------------------------------- /S/ R. PATRICK GREENWOOD
Address ) R. PATRICK GREENWOOD
) his capacity as a partner in the
) Partnership of Claude C.
) Fuller, Jr., R. Patrick Greenwood
) and Robert A. Hunter carrying on
- ---------------------------------
Occupation ) business under the trade name "Langley
Hearing ) Clinic"
- 6 -
<PAGE>
Signed, sealed and delivered )
by ROBERT A. HUNTER )
in the presence of: )
)
)
)
Name )
)
)
- ---------------------------------
Address ) /S/ R. HUNTER
) ROBERT A. HUNTER in his
) capacity as a partner in the
) Partnership of Claude C. Fuller, Jr.,
) R. Patrick Greenwood and Robert
) A. Hunter carrying on business
Occupation ) under the trade name "Langley
) Hearing Clinic"
- 7 -
<PAGE>
[Schedules "A," "B," and "C" omitted]
SCHEDULE "D"
Payment of the Purchase Price
$245,000
November 15, 1995 $ 25,000 (paid)
January 2, 1996 $120,000
plus or minus the
adjustments pursuant to
Section 4 of the Offer to
Purchase Agreement
The remaining $100,000 to be paid in four quarterly payments of $25,000 plus
interest calculated at 11% compounded quarterly on the unpaid balance on the
following dates:
April 2, 1996
July 2, 1996
October 2, 1996
January 2, 1997
- 11 -
<PAGE>
SECURITY AGREEMENT
THIS AGREEMENT (this "Agreement") dated for reference this ___ day of January,
1996, is made
BETWEEN
CLAUDE C. FULLER, JR., R. PATRICK GREENWOOD and ROBERT A. HUNTER,
carrying on business under the firm name and style of "Langley Hearing
Clinic" and the said LANGLEY HEARING CLINIC having its office at
102-10651 - 56th Avenue, Langley, British Columbia, V3A 3Y9
(the "Debtors");
AND
HC HEALTHCARE HEARING CLINICS LTD., a company under the laws of British
Columbia having its registered and records office at 1000-840 Howe
Street, Vancouver, British Columbia, V6Z 2M1
(the "Secured Party").
THE PARTIES to this Agreement in consideration of good and valuable
consideration paid by the Secured Party to the Debtors (the receipt and
sufficiency of which is acknowledged) agree as follows:
1. DESCRIPTION OF COLLATERAL
In this Agreement, the "Collateral" means all personal property described in the
schedule attached hereto as Schedule "A" (the "Collateral").
2. CREATION OF SECURITY INTEREST
The Debtors hereby grant to the Secured Party a security interest in and to the
Collateral, and in all proceeds and personal property in any form derived
directly or indirectly from any dealing with the Collateral or any part thereof
and all proceeds of those proceeds and any part thereof, to secure the payment
or performance of all obligations, indebtedness and liabilities of the Debtors
to the Secured Party (the "Security Interest"), whether incurred prior to, at
the time of or subsequent to the execution hereof, including extensions or
renewals.
<PAGE>
- 2 -
3. TITLE TO THE COLLATERAL
Notwithstanding that the Secured Party will have possession of the Collateral,
the Debtors hereby retain all right, title and property in and to each item of
the Collateral until the Secured Party has paid to the Debtors the purchase
price in full pursuant to the Bill of Sale between the Secured Party and the
Debtors dated January 2, 1996 (the "Bill of Sale") at which time the Debtors
shall execute and deliver a Quit Claim and Assignment in the form attached
hereto as Schedule "B" (the "Quit Claim") transferring title to the Collateral
to the Secured Party.
4. OBLIGATIONS SECURED
The Security Interest shall be a continuing security interest notwithstanding
any dealing by the Secured Party with the Debtors or any other person claiming
under or with respect to the Debtors or the Collateral, or any other title
retention agreement, commercial pledge, right of resale, security interest or
other encumbrance whatsoever.
5. UNDERTAKINGS OF DEBTORS
The Debtors hereby undertake to:
(a) not, without the consent in writing of the Secured Party,
create or allow any security interest, mortgage, hypothecate,
charge, lien or other encumbrance upon the Collateral or any
part thereof ranking or purporting to rank in priority to or
pari passu with the security interests created by this
Agreement;
(b) pay all taxes, assessments, and levies or charges from any
source which may be assessed against the Collateral or any
part thereof or which may result in a lien against the
Collateral or any part thereof and insure the Collateral for
loss or destruction by fire, and any other perils stipulated
by the Secured Party in an amount not less than the full
insurable value of the Collateral or the amount from time to
time hereby secured, whichever is less, with appropriate
endorsement to secure the Secured Party as its interest
appears. In the event the Debtors fail to provide adequate
insurance when required to do so or to pay any of those taxes,
assessments, levies or charges the Secured Party may, without
notice, at its option, but without any obligation or liability
to do so, procure insurance and pay
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 3 -
taxes or other charges and add those sums to the balance of
the debt hereby secured or claim from the Debtors immediate
reimbursement of those sums;
(c) do, make and execute, from time to time at the Secured
Party's request, all financing statements, further
assignments, documents, acts, matters and things as may be
reasonably required by the Secured Party of or with respect to
the Collateral or any part thereof or as may be required to
give effect to the provisions of this Agreement, and the
Debtors hereby constitutes and appoints the Secured Party or
any receiver, manager or receiver-manager appointed by any
court of competent jurisdiction or the Secured Party (all of
whom are hereinafter referred to as the "Receiver") as
hereafter set out, the true and lawful attorney of the Debtors
irrevocably with full power of substitution to do, make and
execute all those assignments, documents, acts, matters or
things with the right to use the name of the Debtors whenever
and wherever it may be deemed necessary or expedient; and
(d) give immediate notice to the Secured Party in the event of
a change of the name, or corporate or trade name of the
Debtors.
6. DEFAULT
The Secured Party may at its option, in writing, declare the Debtors to be in
default under this Agreement if any of the following events occurs:
(a) the Debtors fail to perform any term, condition,
provision, covenant or undertaking of this Agreement or any
other agreement between the Debtors and the Secured Party;
(b) the Debtors commit an act of bankruptcy, becomes
insolvent, makes an assignment or bulk sale of its assets, or
proposes a compromise or arrangements to its creditors;
(c) any proceeding is taken with respect to a compromise or
arrangement or to have the Debtors declared bankrupt or wound
up or to have a receiver appointed of any
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 4 -
part of the Collateral or if any encumbrancer takes possession
of any part thereof;
(d) any execution, sequestration or other process of any court
becomes enforceable against the Debtors or if any distress or
analogous process is levied upon the Collateral or any part
thereof;
7. ENFORCEMENT AND REMEDIES
Upon default the Security Interests granted hereby shall become enforceable and
the Secured Party shall have all the rights and remedies available to it under
the Act as well as any other applicable laws and, but so as not to restrict the
generality of the foregoing, the following rights and remedies:
(a) the Secured Party may demand execution and delivery of the
Quit Claim;
(b) the Secured Party may appoint by instrument in writing a
Receiver of all or any part of the Collateral and remove or
replace that Receiver from time to time. Any Receiver so
appointed shall have power to take possession of the
Collateral hereby charged or to carry on the business of the
Debtors, if any, and to concur in selling any of the
Collateral or any part thereof, and for those purposes to
occupy and use any real or personal property of the Debtors
without charge therefor for so long as may be necessary;
(c) the Secured Party may seize, collect, realize, borrow
money on the security of, release to third parties or
otherwise deal with the Collateral or any part thereof in the
manner, upon the terms and conditions and at the time or times
as may seem to it advisable and without notice to the Debtors
(except as otherwise required by any applicable law);
(d) the Secured Party may charge the Debtors for any expense
incurred by the Secured Party (including taxes, insurance,
legal, accounting and receiver fees) in protecting, seizing,
collecting, realizing, borrowing on the security of, selling
or obtaining payment of the Collateral or any part thereof and
may add the amount of those sums to the indebtedness of the
Debtors;
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 5 -
(e) the Secured Party may grant extensions of time and other
indulgences, take and give up securities, accept compositions,
grant releases and discharges, release any part of the
Collateral to third parties and otherwise deal with the
Debtors, debtors of the Debtors, sureties and others and with
the Collateral and other securities as the Secured Party may
see fit without prejudice to the liability of the Debtors or
the Secured Party's right to hold and realize on the
Collateral;
(f) the Secured Party shall have the right to maintain the
Collateral upon the premises on which the Collateral may then
be situate and, for that purpose, shall be entitled to the
free use of all necessary buildings or premises for the proper
maintaining, housing and protection of the Collateral so taken
possession of by the Secured Party, and for its servant or
servants, assistant or assistants and the Debtors covenants
and agrees to provide that use without cost or expense to the
Secured Party until the time the Secured Party determines in
its discretion to remove, sell or otherwise dispose of the
Collateral of which it has taken possession;
(g) the Secured Party may, if it deems it necessary for the
proper realization of all or any part of the Collateral, pay
any encumbrance, lien, claim or charge that may exist or be
threatened against the Collateral and in every case the
amounts so paid together with costs, charges and expenses
incurred in connection therewith shall be payable on demand or
shall be at the option of the Secured Party, added to the
obligations of the Debtors to the Secured Party at the date of
delivery of the Quit Claim to the Secured Party; and
(h) the Secured Party may dispose of all or any part of the
Collateral by the methods provided for in the Act, or by lease
or otherwise, in the manner, at the price as can be reasonably
obtained therefor and on the terms as to credit and with the
conditions of sale and stipulations as to title or conveyance
or evidence of title or otherwise as to the Secured Party may
seem reasonable, provided that if any sale is on credit the
Debtors will not be entitled to be credited with the proceeds
of any sale, lease or other dispositions until the monies
therefor are actually received.
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 6 -
8. WAIVERS
The Secured Party may permit the Debtors to remedy any default without waiving
the default so remedied, and the Secured Party may waive any default without
having waived any other subsequent or prior default by the Debtors.
9. ATTACHMENT
The Debtors warrants and acknowledges that value has been given, that the
Debtors have rights in the Collateral, and that the Debtors and the Secured
Party intend the security interests created by this Agreement to attach upon the
execution of this Agreement.
10. NOTICE
10.1 Any notice under this Agreement will be given in writing and may be sent by
fax, telex, telegram or may be delivered or mailed by pre-paid post addressed to
the party to which notice is to be given at the address indicated above, or at
another address designated by either party in writing.
10.2 If notice is sent by fax, telex, telegram or is delivered, it will be
deemed to have been given at the time of transmission or delivery.
10.3 If notice is mailed, it will be deemed to have been received 48 hours
following the date of mailing of the notice.
10.4 If there is an interruption in normal mail service due to strike, labour
unrest or other cause at or before the time a notice is mailed the notice will
be sent by fax, telex, telegram or will be delivered.
11. ASSIGNMENT
The parties agree not to assign, transfer, negotiate, discount or otherwise deal
with their rights under this Agreement and under any security collateral hereto
without the prior written consent from each other.
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 7 -
12. FURTHER ASSURANCES
The Debtors will promptly execute and deliver to the Secured Party such further
documents and take such further actions as the Secured Party may request in
order to more effectively carry out the intent and purpose of this Agreement.
13. TIME
Time is of the essence of this Agreement.
14. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with respect
to the subject matter hereof and there are no warranties, representations,
conditions or collateral agreements, express or implied, relating to or in any
way affecting this Agreement or the Collateral or the rights of the parties
other than as contained herein or in the Secured Party's standard purchase order
form or in the Secured Party's standard warranty. No modification or amendment
of this Agreement will be binding upon the parties unless made in writing and
signed by both the Secured Party and the Debtors, provided, however, that the
Secured Party may amend patent errors in this Agreement and insert a description
of the Collateral where necessary after execution hereof.
15 GOVERNING LAW
This Agreement will be interpreted in accordance with the laws of the Province
of British Columbia.
16. RECEIPT OF COPY
The Debtors hereby acknowledges receipt of an executed copy of this Agreement.
The Debtors waive all rights to receive from the Secured Party a copy of any
financing statement, financing changing statement or verification statement
issued at any time in respect of this Agreement.
17. ENUREMENT
This Agreement benefits the Secured Party, its successors and assigns and binds
the Debtors and its heirs, executors, personal representatives and assigns.
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 8 -
18. OTHER ENCUMBRANCES
The Debtors covenant that the Debtors have given no security to any other
person, firm or corporation on the Collateral in priority to the security
interest of the Secured Party.
19. REMEDIES CUMULATIVE
All rights and remedies of either party hereunder are cumulative and are in
addition to, and shall not be deemed to exclude, any other right or remedy
allowed by law. All rights and remedies may be exercised concurrently.
20. SEVERABILITY
Should any part of this Agreement be declared or held invalid for any reason,
such invalidity shall not affect the validity of the remainder which shall
continue in force and effect and be construed as if this Agreement has been
executed without the invalid portion and it is hereby declared the intention of
the parties hereto that this Agreement would have been executed without
reference to any portion which may, for any reason, be hereafter declared or
held invalid.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
day, month and year first above written.
HC HEALTHCARE HEARING CLINICS LTD.
Per: /S/ HUGH T. HORNIBROOK
Authorized Signatory
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 9 -
Signed, sealed and delivered )
by CLAUDE C. FULLER, JR. )
in the presence of: )
)
)
)
Name )
)
)
- -----------------------------
Address ) /S/ C. FULLER
) CLAUDE C. FULLER, JR. in
) his capacity as a partner in the
) Partnership of Claude C.
) Fuller, Jr., R. Patrick Greenwood
) and Robert A. Hunter carrying on
Occupation ) business under the trade name "Langley
Hearing ) Clinic"
Signed, sealed and delivered )
by R. PATRICK GREENWOOD )
in the presence of: )
)
)
)
Name )
)
)
- ----------------------------- /S/ R. PATRICK GREENWOOD
Address ) R. PATRICK GREENWOOD
) his capacity as a partner in the
) Partnership of Claude C.
) Fuller, Jr., R. Patrick Greenwood
) and Robert A. Hunter carrying on
- -----------------------------
Occupation ) business under the trade name "Langley
Hearing ) Clinic"
HHC\HHC00360\37\March 6, 1997
<PAGE>
- 10 -
Signed, sealed and delivered )
by ROBERT A. HUNTER )
in the presence of: )
)
)
)
Name )
)
)
- -----------------------------
Address ) /S/ R. HUNTER
) ROBERT A. HUNTER in his
) capacity as a partner in the
) Partnership of Claude C. Fuller, Jr.,
) R. Patrick Greenwood and Robert
) A. Hunter carrying on business
Occupation ) under the trade name "Langley
) Hearing Clinic"
PLACE WHERE COLLATERAL WILL BE KEPT:
Address
City, Province and Postal Code
HHC\HHC00360\37\March 6, 1997
<PAGE>
SCHEDULE "A"
DESCRIPTION OF COLLATERAL
<PAGE>
SCHEDULE "B"
QUIT CLAIM AND ASSIGNMENT
This Quit Claim and Assignment is dated for reference January __, 1997.
WHEREAS Claude C. Fuller, Jr., R. Patrick Greenwood and Robert A. Hunter (the
"Transferors") being partners in the partnership of Claude C. Fuller, Jr., R.
Patrick Greenwood and Robert A. Hunter doing business under the trade name
"Langley Hearing Clinic" wish to quit all claim to the assets set out in the
attached schedule to this Quit Claim and Assignment (Schedule "A") (the
"Collateral") and to transfer any and all rights that they may have acquired in
the Collateral to HC HealthCare Hearing Clinics Ltd. (the "Transferee").
THEREFORE, the Transferors agree that for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, they hereby sell,
assign, transfer and quit claim to the Transferee any and all right, title and
interest that it may have in and to the Collateral.
In this Quit Claim and Assignment any reference to a party includes the party's
heirs, executors, personal representatives, successors and assigns.
IN WITNESS WHEREOF the Transferors have signed this Quit Claim and Assignment of
the _______day of __________, 1996.
- --------------------------
Claude C. Fuller, Jr.
- --------------------------
R. Patrick Greenwood
- --------------------------
Robert A. Hunter
<PAGE>
PROMISSORY NOTE
Date: January 2, 1996 Amount: $100,000
FOR VALUE RECEIVED, THE UNDERSIGNED PROMISES TO PAY ON DEMAND to
Claude C. Fuller, Jr., of 45348 Lenora Crescent, Chilliwack, B.C., V2P 7C4, R.
Patrick Greenwood of 2502 Woodridge Crescent, Abbotsford, B.C., V2S 4E6, and
Robert A. Hunter of 12944 18th Avenue, White Rock, B.C., V4A 7E9, $100,000 in
quarterly payments of $25,000 plus interest calculated at an annual rate of 11%
compounded quarterly, on the unpaid balance. The said payments will be payable
on the following payment schedule:
1. April 2, 1996;
2. July 2, 1996;
3. October 2, 1996; and
4. January 2, 1997.
The Undersigned will have the right to prepay all or any amount owing pursuant
to this Promissory Note plus the interst accrued to the date of payment wihout
notice, penalty, or bonus, provided that the Undersigned at the time of such
prepayment is not in default in any of the obligations of the Undersigned
hereunder.
DATED at Vancouver, British Columbia, this 2nd day of January, 1996.
HC HEALTHCARE HEARING CLINICS LTD.
Per:
Authorized Signatory
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<PAGE>
SHARE PURCHASE AGREEMENT
THIS AGREEMENT dated for reference April 15, 1996, is made
BETWEEN
HC HEALTHCARE HEARING CLINICS LTD., a company under the laws
of British Columbia with its registered and records office at
1000-840 Howe Street, Vancouver, British Columbia, V6Z 2M1
("Hearing Clinics");
AND
HEALTHCARE CAPITAL CORP., a company under the laws of Alberta
with its registered and records office at 4000 Petro Canada
Centre, 150 - 6th Avenue S.W., Calgary, Alberta, T2P 4M5
("Capital");
(collectively referred to as the "Purchaser")
AND
NEIL C. WALTON, a businessman, at 110 - 1100 West 7th Avenue,
Vancouver, British Columbia, V6H 1B4
(the "Vendor").
WHEREAS:
A. Hearing Clinics is a wholly-owned subsidiary of Capital;
B. The Vendor is the registered and beneficial owner of 10,000 common shares
without par value in the capital of Pacific Hearing Clinic Inc.("Pacific") and
the registered owner of 1,000 common shares without par value in the capital of
Oakridge Hearing Clinic Inc.
- 1 -
<PAGE>
("Oakridge") which the Vendor holds in trust for Pacific (collectively referred
to as the "Vendor's Shares");
C. Pacific is the registered and beneficial owner of all the issued and
outstanding shares of Pacific Audiology Associates Inc. ("Pacific Audiology")
and the beneficial owner of the Oakridge Shares;
D. The Vendor wishes to sell and the Purchaser wishes to purchase the Vendor's
Shares;
E. The Vendor has agreed to accept from the Purchaser, as part payment of the
purchase price for the Vendor's Shares, a promissory note convertible to common
shares in the capital of Capital (the "Capital Shares"), and Capital has agreed
to issue to the Vendor, if at the request of the Vendor, the Capital shares.
NOW THEREFORE in consideration of the premises and the mutual agreements and
covenants herein contained, the parties hereto hereby covenant and agree as
follows:
1. INTERPRETATIVE PROVISIONS
1.1 DEFINITIONS
For the purpose of this Agreement, the following words will, whenever used in
this Agreement, unless there is something in the subject or context inconsistent
therewith, have the following meanings:
(a) ADJUSTMENTS means any adjustment to the Purchase Price in
accordance with Subsection 2.6;
(b) BALANCE SHEET means an updated consolidated balance as of
the date of the Closing;
(c) CLOSING means any closing of the purchase and sale of the
Vendor's Shares;
- 2 -
<PAGE>
(d) CLOSING DATE means April 30, 1996;
(e) COMPANIES means Pacific, Pacific Audiology and Oakridge,
collectively;
(f) CONSOLIDATED LIABILITIES has the meaning provided for in
Paragraph 2.6;
(g) CONVERSION NOTICE has the meaning provided for in
Paragraph 2.5(b);
(h) EXCHANGE means The Alberta Stock Exchange;
(i) FINANCIAL STATEMENTS has the meaning provided for in
Paragraph 3(i);
(j) HOLDBACK has the meaning provided for in Subsection 2.7;
(k) INITIAL PAYMENT means $50,000 of the Purchase Price to be
paid in cash;
(l) LEASE means the lease agreement between Pacific Audiology
and Pensionfund Properties Limited, dated November 14, 1988.
(m) NOTE has the meaning provided for in Paragraph 2.4(b);
(n) OAKRIDGE SHARES means common shares without par value in
the capital of Oakridge;
(o) PACIFIC SHARES means common shares without par value in
the capital of Pacific;
(p) PARTIES means parties to this Agreement;
(q) PURCHASE PRICE means, with respect to the sale and
purchase of the Vendor's Shares, the amount payable to
purchase the Vendor's Shares as set forth in paragraph 2.3;
(r) SHAREHOLDER'S LOAN means any loan made by any of the
shareholders of the Companies, past or present, to any of the
Companies which are due and payable at the Closing;
- 3 -
<PAGE>
(s) VENDOR'S SHARES has the meaning provided for in Recital B
of this Agreement.
1.2 GENDER, PLURAL AND SINGULAR
In this Agreement, the masculine includes the feminine and the plural includes
the singular and vice versa, and modifications to the provisions of this
Agreement may be made accordingly as the context requires.
1.3 HEADINGS
The headings appearing in this Agreement have been inserted for reference as a
matter of convenience only and in no way define, limit or enlarge the scope or
meaning of this Agreement or any provision hereof.
2. PURCHASE AND SALE OF SHARES
2.1 PURCHASED SHARES
On the terms and subject to the fulfilment of the conditions hereof, the Vendor
hereby agrees to sell, assign and transfer to the Purchaser, and the Purchaser
hereby agrees to purchase and accept from the Vendor the Vendor's Shares.
2.2 CLOSING DATE
The closing of the purchase sale of the Vendor's Shares (the "Closing") will
occur on April 30, 1996 (the "Closing Date") at the office of Swinton & Company,
solicitors for the Purchaser at 1000-840 Howe Street, Vancouver, British
Columbia, or at such other time and place as may be mutually agreed to by the
parties to this Agreement .
- 4 -
<PAGE>
2.3 PURCHASE PRICE
Subject to Subsections 2.4 and 2.6 the price payable by the Purchaser to the
Vendor for the Vendor's Shares will be the Initial Payment plus the value of the
Note as defined in Paragraph 2.4(b) of this Agreement.
2.4 PAYMENT OF PURCHASE PRICE
The Purchase Price will be paid as follows:
(a) notwithstanding Subsection 2.3 and subject to Subsection
2.6, at the Closing, the Purchaser will deliver to the Vendor
a bank draft, certified cheque or a solicitor's trust cheque
in the amount of $40,000; and
(b) the Purchaser will deliver to the Vendor a convertible
promissory note which is the same as the form of note attached
to this Agreement as Schedule "A" in the amount of $175,000
(the "Note") due and payable on or after the one year
anniversary date of the Closing Date (the "Due Date") without
interest which, may be converted, at the option of the Vendor,
into Capital Shares at a price of $1.35 per share at any time
during the 15 month period following the date on which Capital
becomes a reporting issuer in British Columbia (the
"Conversion Period").
2.5 CONVERSION OF PROMISSORY NOTE
The Vendor may, at any time during the Conversion Period, convert the Note to
the Capital shares in the following manner:
(a) the Vendor will give to the Purchaser 10 days' notice (the
"Conversion Notice") of its wish to convert the Note into the
Capital Shares; and
(b) the Purchaser within 10 days of the receipt of the
Conversion Notice will deliver to the Vendor a share
certificate representing the Capital Shares against the
- 5 -
<PAGE>
delivery of the Note in original by the Vendor to the
Purchaser.
2.6 ADJUSTMENT TO THE PURCHASE PRICE
The Vendor will cause the Companies to deliver to the Vendor an updated Balance
Sheet which will be delivered to the Purchaser at the Closing and the Purchase
Price will be adjusted as follows:
(a) If the consolidated current assets less the current
liabilities of the Companies (the "Consolidated Liabilities")
exceed $18,550, the amount in excess of $18,550 will be
deducted from the Initial Payment;
(b) if the Consolidated Liabilities are less than $18,550, the
difference between $18,550 and the Consolidated Liabilities
will be added to the Initial Payment; or
(c_) if, at the Closing, any amount of the Shareholder's Loan
has not been paid in full to the Vendor and/or to any of the
past shareholders by, the Companies the unpaid portion of the
Shareholder's Loan will be deducted from the Initial Payment.
- 6 -
<PAGE>
If the amount to be deducted from the Initial Payment pursuant to Subsection
2.6(a) and/or 2.6(c) exceeds the Initial Payment, then the Purchaser has the
option to deduct such amount from the amount payable pursuant to the Note.
2.7 HOLDBACK
Notwithstanding Subsection 2.3 of this Agreement, the Parties agree that the
Purchaser will holdback $10,000 of the Initial Payment (the "Holdback") in the
trust account of Swinton & Company until such time the Vendor has delivered to
the Purchaser the Balance Sheet. Upon receipt of the Balance Sheet and subject
to the Adjustment set forth in Subsection 2.6 of this Agreement, the Parties
hereby instruct Swinton & Company to release the Holdback to the Vendor.
3. REPRESENTATIONS AND WARRANTIES
OF THE VENDOR
The Vendor hereby represents and warrants to the Purchaser that:
(a) AUTHORITY AND BINDING OBLIGATION. The Vendor has good
right and absolute authority to enter into this Agreement and
to sell, assign and transfer the Vendor's Shares to the
Purchaser in the manner contemplated herein and to perform all
of the Vendor's obligations under this Agreement. To the best
of the Vendor's knowledge, the Companies have taken all
necessary actions, steps in corporate and other proceedings to
approve or authorize, validly and effectively, the sale and
transfer of the Vendor's Shares by the Vendor to the
Purchaser. This Agreement is a legal, valid and binding
obligation of the Vendor;
- 7 -
<PAGE>
(b) NO CONTRAVENTION. The making and performance by the Vendor
of this Agreement:
(i) does not and will not violate any provision of
any applicable law, rule, regulation or order of any
court, regulatory commission, board or other
administrative agency or any provision of either of
the Companies' articles of incorporation; and
(ii) does not and will not result in the breach of,
or constitute a default or require any consent under,
or result in the creation of any lien upon any
properties or assets of the Companies pursuant to any
indenture, bank or other credit agreement, mortgage
or other agreement or instrument to which the
Companies are individually a party or by which any of
their properties may be bound or affected;
(c) APPROVALS. No authorization, consent, licence, or approval
of, or filing a registration with, or notification to, in any
governmental body or regulatory supervisory authority is
required for the execution, delivery, or performance by the
Vendor;
(d) NO OTHER PURCHASE AGREEMENT. No person has any agreement,
option, understanding or commitment, or any right or privilege
(whether by law, pre- emptive or contractual) capable of
becoming an agreement, option or commitment, including
convertible securities, awards or convertible obligation of
any nature for:
(i) the purchase, subscription, allotment or issuance, or
conversion into, any of the unissued shares in the capital of
the Companies or any securities of the Companies;
(ii) the purchase from the Vendor of any of the Vendor's
Shares; or
- 8 -
<PAGE>
(iii) the purchase or other acquisition from the
Companies of any of its undertaking, property or
assets, other than in the ordinary course of the
business;
(e) STATUS, CONSTATING DOCUMENTS AND LICENCES. To the best of
the Vendor's knowledge:
(i) each of the Companies is a corporate duly
incorporated and validly subsisting in all respects
under the laws of British Columbia;
(ii) the Companies are duly licensed, registered and
qualified as a corporation to do business, are up to
date in filing of all required corporate returns and
other notices and filings and are otherwise in good
standing in all respects; and
(iii) there are no proceedings in progress, pending
or threatened, which could result in the revocation,
cancellation or suspension of any of the licences;
(g) LITIGATION. There is no action, suit or proceeding at law
or in equity or before any governmental agency or authority or
arbitral tribunal now pending or, to the best of the Vendor's
knowledge, threatened against or affecting the Companies or
any of its properties or rights which would, if adversely
determined, have a material adverse effect on the financial
condition or business of the Companies;
(h) CAPITALIZATION. Authorized capital of the Companies are as
follows:
(i) Pacific has authorized capital of 10,000 common
shares without par value, all of which have been
validly issued and are outstanding as fully paid and
non-assessable shares;
(ii) Oakridge has authorized capital of 1,000 common
shares without par value, all of which have been
validly issued and outstanding as fully paid
- 9 -
<PAGE>
and non-assessable shares; and
(iii) Pacific Audiology has authorized capital of
10,000 common shares without par value of which 200
common shares without par value have been validly
issued and are outstanding as fully paid and
non-assessable.
No other shares or other securities of the Companies
have been issued in violation of any laws, the articles of
incorporation, by-laws or other constating documents of the
Companies or the terms of any agreements to which the
Companies are a party or by which they are bound. The Vendor
owns all of the issued and outstanding shares of Pacific and
Oakridge as the shareholder of record and as the beneficial
owner, with good marketable title thereto, free and clear of
any and all encumbrances;
(i) MISLEADING STATEMENTS. No representation or warranty by
the Vendor in this Agreement or any written statement or
certificate furnished or to be furnished to the Purchaser
pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken
together, contains or will contain any untrue statement of
material fact or omits or will omit to state of material fact
necessary to make the statements made not misleading;
(j) ABSENCE OF UNDISCLOSED AND DISCLOSED LONG-TERM
LIABILITIES. Except to the extent reflected or reserved
against in the financial statement prepared by the Companies
as of February 29, 1996 for the Companies (the "Financial
Statements") to the best of the Vendor's knowledge, the
Companies do not have any outstanding indebtedness or any
liabilities or obligations (whether accrued, absolute
contingent or otherwise) and to the best of the Vendor's
knowledge, the Companies do not have any long-term liabilities
by way of shareholder's loans payable to the past or present
shareholders of the Companies;
(k) ABSENCE OF CHANGES. To the best of the Vendor's knowledge,
since the date of
- 10 -
<PAGE>
the balance sheet included in the Financial Statements, there
have not been:
(i) any changes in the condition or operations of the
business, assets or financial affairs of the
Companies which are, individually or in the
aggregate, materially adverse; or
(ii) any damages, destruction or loss, labour,
trouble or other event, development or condition, of
any character (whether or not covered by insurance)
which has not been disclosed to the Purchaser, which
has or may materially and adversely affect the
business, assets, properties or future prospects of
the Companies;
(l) ABSENCE OF GUARANTEES. To the best of the Vendor's
knowledge, the Companies have no guarantees with respect to
the obligations of any other person. The Companies have no
indemnities or contingent or indirect obligations with respect
to the obligation of any other person including any obligation
to service the debt of or otherwise acquire an obligation of
another person or to supply funds to, or otherwise maintain
any working capital or other balance sheet condition of any
other person;
(m) ABSENCE OF CONFLICTING AGREEMENTS. To the best of the
Vendor's knowledge, the Companies are not party to, bound by
or subject to any indenture, mortgage, lease, agreement,
instrument, judgment or decree to which would be violated or
breached by, or under which default would occur or which could
be terminated, cancelled or accelerated, in whole or in part,
as a result of the execution and delivery of this Agreement or
the consummation of any other transactions provided for
herein;
- 11 -
<PAGE>
(n) FILINGS. To the best of the Vendor's knowledge, the
Companies:
(i) have duly filed in a timely manner:
(A) all federal and provincial income tax
returns and election forms and the tax
returns of any other jurisdiction required
to be filed, and all such returns and forms
have been completed accurately and correctly
in all respects; and
(B) all Workers' Compensation Board returns,
corporation capital tax returns and other
reports and information required to be filed
with all applicable government authorities,
agencies or regulatory bodies;
(ii) have paid all taxes (including all federal,
provincial and local taxes, assessments or other
imposts in respect of their income, business, assets
or property) and all interest and penalties thereon
with respect to the Companies, for all previous years
and all required quarterly instalments due for the
current fiscal year;
(iii) have provided adequate reserves for all taxes
for the periods covered by, and such reserves are
reflected in, the Financial Statements and the
Balance Sheet;
and there is no agreement, waiver or other
arrangement providing for an extension of time with respect to
the filing of any tax return, or payment of tax, governmental
charge or deficiency by the Companies, nor is there any
action, suit, proceeding of the tax authority, governmental
charge or deficiency by the Companies, nor is there any
action, suit, proceedings, investigation or claim now
threatened or pending against the Companies in respect of, or
discussions underway with any governmental authority relating
to any such tax, governmental charge or deficiency;
- 12 -
<PAGE>
(o) COMMITMENTS FOR CAPITAL EXPENDITURES. To the best of the
Vendor's knowledge, the Companies are not committed to make
any capital expenditures, nor have any capital expenditures
been authorized by the Companies at any time since the date of
the Financial Statements, except for capital expenditures made
in the ordinary course of the routine daily affairs of the
business;
(p) DIVIDENDS AND DISTRIBUTIONS. Since the date of the
Financial Statements, the Companies have not declared or paid
any dividend or made any other distribution of profits or
capital to any of the shares of any class or paid any salaries
or bonuses other than the $5,000 per month being paid to the
Vendor, the outstanding shareholder's loan payable to the
Vendor and other normal market salaries to employees, or
redeemed or purchased or otherwise acquired any of their
shares of any clause, or reduced their authorized capital or
issued capital, or agreed to do any of the foregoing;
(q) TITLE TO ASSETS. To the best of the Vendor's knowledge,
the Companies are the owners of and have good marketable title
to all of their properties and assets, including, without
limitation, all properties and assets reflected in the
Financial Statements and all properties and assets acquired by
the Companies after the date of the Financial Statements free
and clear of all encumbrances whatsoever;
(r) ACCOUNTS RECEIVABLE. The accounts receivable of the
Companies reflected in the Financial Statements and all
accounts receivable of the Companies arising since the date of
the Financial Statements arose from bona fide transactions in
the ordinary course of the business and are valid, enforceable
and fully collectable accounts consistent with past practice;
(s) REAL PROPERTIES. The Companies do not own or have any
right, title or interest in any real property, except for the
leasehold interest held by Pacific Audiology in the leased
premises located at 514, 2525 Willow Street, Vancouver, B.C.,
V5Z 2N8; and
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<PAGE>
(t) RESTRICTIONS ON DOING BUSINESS. The Companies are not
party to or bound by any agreement which would restrict or
limit their rights to carry on any business or activity or to
solicit business from any person or any geographical area or
otherwise to conduct business as the corporate companies may
determine. The Companies are not subject to any legislation or
any judgment, order or requirement of any court or
governmental authority which is not of general application to
persons carrying on business similar to the business. To the
best of the knowledge of the Vendor, there are no facts or
circumstances which could materially adversely affect the
ability of the Companies to continue to operate the business
as presently conducted following the completion of the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
4.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby warrants and represents that:
(a) AUTHORITY TO EXECUTE AGREEMENT. The Purchaser has full
corporate power and authority and legal right to make this
Agreement and to incur and perform its obligations hereunder
and the performance by the Purchaser of this Agreement has
been duly authorized by all necessary actions of the
Purchaser;
(b) AUTHORIZATION. The execution, delivery and performance of
this Agreement by the Purchaser does not:
(i) require the consent, approval or authorization of
any governmental or regulatory authority having
jurisdiction over it; and
(ii) will not violate any applicable law, judgment,
order, injunction, decree, rule, regulation or ruling
of any governmental authority applicable to it.
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<PAGE>
5. CONDITIONS TO THE PURCHASER'S
OBLIGATIONS AT CLOSING
The obligations of the Purchaser under Section 2 of this Agreement are subject
to the fulfilment on or before the Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Vendor contained in Section 3 will be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 PERFORMANCE
The Vendor will have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.
5.3 DUE DILIGENCE COMPLETED
The Purchaser will be satisfied with the results of his due diligence
investigation of the Companies.
5.4 OPINION OF THE VENDOR'S COUNSEL
The Vendor will have delivered to the Purchaser an opinion dated as of the
Closing from counsel for the Vendor to the effect that:
(a) the Companies are corporations duly organized and validly
existing under the laws of British Columbia, and the Companies
have the requisite corporate power and authority to own their
properties and to conduct their business as now conducted; and
(b) Pacific is authorized to issue 10,000 common shares
without par value, all of
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which are issued and outstanding, Oakridge is authorized to
issue 1,000 common shares without par value, all of which are
issued and outstanding, and Pacific Audiology is authorized to
issue 10,000 common shares without par value of which 200
common shares are issued and outstanding.
5.5 BENEFIT OF PURCHASER
The foregoing conditions are for the sole and exclusive benefit of the Purchaser
and may be waived in whole or part by it.
5.6 EMPLOYMENT AGREEMENT
The Vendor will have entered into an employment agreement and a non-competition
agreement with the Purchaser on terms and conditions satisfactory to the
Purchaser.
6. CONDITIONS OF THE VENDOR'S
OBLIGATIONS AT CLOSING
The obligations of the Vendor under Section 1 of the Agreement are subject to
the fulfilment on or before the Closing of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES
Representations and warranties of the Purchaser contained in Section 4 will be
true on and as of the Closing with the same effect as those such representations
and warranties have been made on and as of the Closing.
6.2 PAYMENT OF PURCHASE PRICE
The Vendor will have received from the Purchaser a cheque in the amount of
$40,000 and the Note.
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6.3 ALBERTA SECURITIES COMMISSION APPROVAL
Subject to the Vendor's satisfaction, the Purchaser will have received from the
Alberta Securities Commission approval for the issuance of the Capital Shares
pursuant to this Agreement.
7. GENERAL COVENANTS
7.1 VENDOR'S COVENANTS
The Vendor agrees and covenants the following:
(a) INVESTIGATION OF BUSINESS AND EXAMINATION OF DOCUMENTS.
The Vendor will provide and will cause the Companies to
provide during normal business hours access to, and will
permit the Purchaser and its representatives to make such
investigations of the operations, properties, assets and
records of the Companies and of its financial legal condition
as the Purchaser deems necessary or advisable to familiarize
itself with such operations, properties, assets, records or
other matters provided that the Purchaser gives to the Vendor
a 24-hour notice of such intention. Without limiting the
generality of the foregoing, the Vendor will permit the
Purchaser and its representatives to have access to the
premises used in connection with the business of the
Companies, and will produce inspection and provide copies to
the Purchaser of:
(i) all agreements and documents, leases, licences,
title documents, title opinions, insurance policies,
information relating to employees of the Companies,
customer lists, information relating to customers and
suppliers of the Companies, documents relating to all
indebtedness and credit facilities of the Companies,
documents relating to legal or administrative
proceedings, and all other documents of or in the
possession of the Companies or relating to the
business;
(ii) all minute books, share certificate books,
register of security holders,
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registers of transfers of securities, registers of
directors and other corporate documents of the
Companies;
(iii) all books, records, accounts, tax returns and
financial statements of the Companies; and
(iv) all other information which, in reasonable
opinion of the Purchaser's representatives, is
required in order to make an examination of the
Companies and the business;
(b) CONDUCT OF BUSINESS. Except as contemplated by this
Agreement or with prior written consent of the Purchaser, the
Vendor will cause the Companies to:
(i) operate the business only in the ordinary course
thereof, consistent with past practices;
(ii) take all actions within their control to ensure
that the representations and warranties in Section 3
hereof remain true and correct at the Closing, with
the same force and effect as if such representations
and warranties were made at the date of the Closing;
(iii) promptly advise the Purchaser of any facts that
come to their attention which would cause any of the
Vendor's representations and warranties herein
contained to be untrue with any respect;
(iv) take all action to preserve the business and the
goodwill of the Companies and their relationships
with customers, suppliers and others having business
dealings with them;
(v) maintain all the Companies' tangible properties
and assets in the same condition as they now exist,
ordinary wear and tear excepted;
(vi) maintain the books, records and accounts of the
Companies in the ordinary
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course and record all transactions on the basis
consistent with the past practice;
(vii) ensure that the Companies do not create, incur
or assume any long-term debt or create any
encumbrances upon any of the properties or assets or
guarantee or otherwise become liable for the
obligations of any other person or make any loans or
advances to any person;
(viii) ensure that the Companies do not terminate or
waive any right of substantial value of the business
of the Companies;
(ix) keep in full force all of the Companies' current
insurance policies;
(x) not take any action to amend the articles of
incorporation or by-laws of the Companies;
(xi) ensure that the Companies do not declare or pay
any dividends, redeem or repurchase any shares in the
capital of the Companies or make any other
distributions in respect of the shares of the
Companies; and
(xii) ensure that the Companies do not increase, in
any manner, the compensation or employee benefits of
any of their directors, officers or employees, or pay
or agree to pay to any of their directors, officers
or employees any pension, severance or termination
amount or other employee benefit;
(c) TRANSFER OF PURCHASED SHARES. At or before the Closing,
the Vendor will cause all necessary steps and corporate
proceedings to be taken in order to permit the Vendor's Shares
to be duly and regularly transferred to the Purchaser;
(d) RESIGNATION OF OFFICERS AND DIRECTORS. At or before the
Closing, the Vendor will cause each person who is a director
or officer of the Companies, other than
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<PAGE>
such persons as may be designated in writing by the Purchaser,
to submit his written resignation as a director or officer of
the Companies which will be effective at the Closing; and
(e) RELEASES. At the Closing, the Vendor will execute, deliver
and cause Sandra Arden and Robert Der to execute and deliver
to the Companies and to the Purchaser a release in the form of
a draft release attached hereto as Schedule "B".
(f) FILING OF TAX RETURNS. Immediately following the Closing,
the Vendor will instruct his accountant to prepare and file as
of the date of the Closing all federal and provincial tax
returns and election forms and the tax returns of any other
jurisdiction required to be filed for the Companies.
7.2 PURCHASER'S COVENANTS
The Purchaser agrees and covenants to take all prudent steps to expeditiously
file or to cause to be filed a prospectus at the British Columbia Securities
Commission to ensure that Capital becomes a reporting issuer in British
Columbia.
8. CLOSING DOCUMENTS
At Closing:
(a) the Vendor will deliver or cause to be delivered to the
Purchaser the following:
(i) a certified copy of resolutions of the directors
of Pacific's and Oakridge's authorizing transfer of
the Vendor's Shares and the registration of the
Vendor's Shares in the name of the Purchaser and
authorizing the issuance of new certificates
representing the Vendor's Shares in the name of the
Purchaser;
(ii) the share certificates representing the Vendor's
Shares, duly endorsed for
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transfer;
(iii) a share certificate of Pacific representing
10,000 common shares without par value and a share
certificate of Oakridge representing 1,000 common
shares without par value registered in the name of
Hearing Clinics;
(iv) resignation of the following:
(A) the Vendor as a director and a president
of Pacific and Pacific Audiology;
(B) Sandra Arden as a director of Oakridge;
(C) Robert Der as a director and secretary
of Oakridge; and
(D) the Vendor as a director and a president
of Oakridge;
(v) the Vendor's legal counsel's opinion;
(vi) an Employment agreement and a non-competition
agreement executed by the Vendor; and
(vii) releases from Sandra Arden, Robert Der and the
Vendor; and
(b) the Purchaser will deliver or cause to be delivered to the
Vendor the following:
(i) a certified cheque, bank draft or a solicitor's
trust cheque in the amount of $40,000;
(ii) the Note;
(iii) an employment agreement and a non-competition
agreement duly signed by Hearing Clinics.
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<PAGE>
9. INDEMNIFICATION
9.1 BY THE VENDOR
The Vendor hereby agrees to indemnify and save the Purchaser harmless from and
against any claims, demands, actions, causes of action, damage, loss,
deficiency, cost, liability and expense which may be made or brought against the
Purchaser or which the Purchaser may suffer or incur as a result of, in respect
of or arising out of:
(a) any non-performance or non-fulfilment of any covenant or
agreement on the part of a Vendor contained in this Agreement,
or any document given in order to carry out the transactions
contemplated hereby;
(b) any misrepresentation, inaccuracy, incorrectness or breach
of any representation or warranty made by the Vendor contained
in this Agreement or contained in any document or certificate
given or to carry out the transactions contemplated hereby;
and
(c) all costs and expenses including, without limitation,
legal fees on a solicitor and client basis, incidental to,
arising from or in respect of the foregoing.
9.2 BY THE PURCHASER
The Purchaser hereby agrees to indemnify and save the Vendor harmless from and
against any claims, demands, actions, causes of action, damage, loss,
deficiency, cost liability and expense which may be made or brought against the
Vendor or which the Vendor may suffer or incur as a result of, in respect of or
arising out of any non-performance or non-fulfilment by Pacific of any covenant
or agreement contained in the Lease.
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<PAGE>
10. GENERAL PROVISIONS
10.1 SURVIVAL
All the representations, warranties, covenants and agreements of the Vendor and
Purchaser contained in this Agreement will survive the Closing and payment of
the Purchase Price.
10.2 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Vendor and the
Purchaser pertaining to the share purchase and supersedes all prior agreements,
if any, understandings, negotiations and discussions, whether oral or written,
of the Vendor and Purchaser and there are no warranties, representations,
covenants or agreements between the Vendor and Purchaser in connection with the
share purchase except as herein set forth.
10.3 FURTHER ASSURANCES
The Vendor and the Purchaser hereby covenant and agree that at any time and from
time to time after the Closing will, at the request of the others, do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further acts, deeds, assignments, transfers, conveyances and
issuances as may be required for the better carrying out and performance of all
the terms of this Agreement.
10.4 NOTICE
Any notice, document or communication required or permitted to be given
hereunder will be in writing and will deemed to have been duly given if
delivered by hand, or telexed or by facsimile to the party concerned addressed
as follows:
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<PAGE>
To the Purchaser:
HC HealthCare Hearing Clinic Ltd.
1786 Fulton Avenue
West Vancouver, British Columbia, V7V 1S8
Attention: Mr. Doug Good
with a copy to:
Swinton & Company
1000-840 Howe Street
Vancouver, British Columbia, V6Z 2M1
Attention: Donald H. Risk
To the Vendor:
110 1100 West 7th Avenue
Vancouver, British Columbia, V6M 1B4
Attention: Neil Walton
with a copy to:
Thompson & Elliott
1285 West Broadway
Vancouver, British Columbia, V6H 3X8
Attention: Richard Ledding
or to any other address as may from time to time be notified in writing by any
of the Parties. Any notice, payment or other communication will be deemed to
have been given, if delivered by hand, on the day delivered, and if by
facsimile, on the day following the date of transmission; provided that if there
is at the time of mailing or with four business days thereof a mail strike,
slowdown or other labour dispute that might affect delivery by the mails, then
the notice payment or other communication will be effective only where actually
delivered.
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<PAGE>
10.5 ASSIGNMENT
The rights of the Vendor hereunder shall not be assignable without the written
consent of the Purchaser.
10.6 SUCCESSORS AND ASSIGNS
This Agreement will be binding on and enure to the benefit of the parties hereto
and their respective heirs, executors and administrators, successors and
permitted assigns.
10.7 TIME OF ESSENCE
Time will be of the essence of this Agreement.
10.8 COUNTERPARTS
This Agreement may be executed in two or more counterparts or by facsimile, each
of which will be deemed to be an original, but all of which together will
constitute one and the same instrument, notwithstanding that all of the parties
are not signatories to the same counterpart or facsimile.
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<PAGE>
10.9 GOVERNING LAW
This Agreement will be governed by and construed under the laws of the Province
of British Columbia.
10.10 SCHEDULES
The Schedules which are attached to this Agreement are incorporated into this
Agreement by reference and are deemed to be part of this Agreement.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the day and year as above written.
HC HEALTHCARE HEARING
CLINICS LTD.
PER:
Authorized Signatory
HEALTHCARE CAPITAL CORP.
PER:
Authorized Signatory
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<PAGE>
Signed, sealed and delivered )
by NEIL C. WALTON )
in the presence of: )
)
)
)
Name )
)
)
- ------------------------------------------------
Address ) /S/ NEIL C. WALTON
------------------
) NEIL C. WALTON
)
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)
)
)
- ------------------------------------------------
Occupation )
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<PAGE>
AGENCY AGREEMENT
HEALTHCARE CAPITAL CORP. August 22, 1996
1120-595 Howe Street
Vancouver, B.C.
V6C 2T5
ATTENTION: DOUGLAS F. GOOD
Dear Sirs:
C.M. Oliver & Company Limited (the "Agent") understands that HealthCare Capital
Corp. (the "Company") proposes to create and issue 4,800,000 special warrants of
the Company having the attributes and characteristics specified in this
agreement (the "Special Warrants"). Upon its acceptance of this agreement and
subject to the terms and conditions set forth in this agreement, the Company
hereby appoints the Agent to act as the Company's project manager and exclusive
agent in Canada to use its best efforts to effect the sale of the Special
Warrants at a price of $1.25 (U.S.) per Special Warrant, for an aggregate price
of up to $6,000,000 (U.S.) ("Aggregate Purchase Price"), and the Agent agrees to
act as the Company's agent to use its reasonable best efforts to effect the sale
of the Special Warrants in Canada on the Company's behalf. In so acting, the
Agent is under no obligation to purchase any of the Special Warrants, although
the Agent may subscribe for Special Warrants if it so desires. The Company
reserves the right to reject subscriptions, at its discretion, only if it
considers acceptance not to be in the best interests of the Company or if
acceptance of the Subscription would obligate the Company to issue and sell more
than 4,800,000 Special Warrants.
The closing of the issue and sale of the Special Warrants will take place in two
tranches, as follows:
(a) the first tranche and closing (the "First Closing")
will include only subscribers who are not "U.S.
Persons" within the meaning of Regulation S of the
U.S. Securities and Exchange Commission; and
(b) a second tranche and closing (the "Second Closing")
will include only subscribers who are "U.S. Persons".
All offers and sales of the Special Warrants to "U.S. Persons" will be made
directly by the Company through duly registered U.S. broker-dealers, who are
members of the selling group organized by the Agent and the Company.
In consideration of the services to be rendered by the Agent to the Company in
effecting the sale of the Special Warrants and as corporate advisor, the Company
agrees to pay to the Agent, at the time and in the manner specified in
subsection 5.3:
(a) a fee (the "Fee") equal to 9% of the Aggregate
Purchase Price of the Special Warrants sold by the
Company on the First Closing payable at the time of
Closing of the issue and sale of the Special Warrants
(a "Closing Date"), in cash, in Special Warrants or
in a combination thereof, as directed by the Agent;
(b) a corporate finance fee of $50,000 (Cdn.);
(c) a syndication fee of 1% of the gross proceeds
received by the Company from the sale of all Special
Warrants, payable at the Agent's option in cash or
Special Warrants; and
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<PAGE>
(d) a special option (the "Agent's Option") entitling the
Agent to acquire warrants to purchase up to 10% of
the number of the Special Warrants sold by the Agent
on the first tranche (the "Option Warrants") which
shall be exercisable into that number of common
shares (the "Option Shares") of the Company at a
price of $1.25 (U.S.) per share until August 31, 1998
unless cancelled earlier, as described below. Upon
the acceptance for listing or quotation of the
Company's shares on a recognized stock exchange or
national trading market in the United States, if the
closing bid for the Company's shares is not less than
$3.00 (U.S.) per share for a period of twenty
consecutive trading days, the Company will have the
option, on 45 days written notice, to force the
exercise or cancellation of the Agent's Option.
The Agent's Option to acquire the Option Warrants may be exercised by the Agent
without any further action on its part, at any time during the 12 month period
following the Closing Date, and in any event shall be deemed to be exercised on
the 5th business day following the day on which a receipt is issued for the
Final Prospectus (as hereinafter defined) by the last of the British Columbia
Securities Commission and any other securities regulatory authority for a
Canadian Province or Territory in which a trade in the Special Warrants has
taken place (the "Qualification Date"), or the date which is 12 months following
the Closing Date, whichever is earlier.
1. TERMS OF THE SPECIAL WARRANTS
1.1 The Special Warrants will be issued under and governed by a trust indenture
(the "Special Warrant Indenture") to be dated as of the First Closing Date and
to be made between the Company and The R-M Trust Company (the "Trustee").
Subject to subsection 1.3, each Special Warrant will entitle the holder, upon
exercise and without payment of any additional consideration, to be issued one
common share in the capital of the Company (an "Underlying Share") and one
non-transferrable share purchase warrant (an "Underlying Warrant"). The
Underlying Warrants will be issued under and governed by a trust indenture (the
"Purchase Warrant Indenture") to be dated as of the Closing Date and to be made
between the Company and the Trustee. Each Underlying Warrant will entitle the
holder thereof to acquire one common share in the capital of the Company (an
"Underlying Warrant Share") at a price of $2.00 (U.S.) per share until August
31, 1998, subject to earlier cancellation as described below. The Underlying
Shares and the Underlying Warrants will be collectively referred to as the
"Underlying Securities".
1.2 The Company covenants to, and, if required by the Agent, the Company will
covenant under the Special Warrant Indenture that it will:
(a) prepare and file, using its reasonable best efforts
to do so on or before the day which is 45 days from
the First Closing Date, under the applicable
securities laws, regulations and rules of British
Columbia and such other Canadian Provinces or
Territories in which a trade in Special Warrants
takes place (collectively the "Qualifying
Jurisdictions"), a preliminary prospectus (the
"Preliminary Prospectus"), together with the required
supporting documents, to qualify the distribution of
the Underlying Securities and the Option Warrants;
(b) use its reasonable best efforts to address as
expeditiously as possible the comments made in
respect of the Preliminary Prospectus by the
securities regulatory authorities (the "Securities
Commissions") of the Qualifying Jurisdictions; and
(c) prepare and file, using its reasonable best efforts
to do so on or before the day which is 120 days from
the Second Closing Date, under the applicable
securities laws of the Qualifying Jurisdictions, a
final prospectus (the "Final Prospectus"), together
with the
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<PAGE>
required supporting documents, and use its reasonable
best efforts to expeditiously obtain receipts for the
Final Prospectus from the Securities Commissions and
take all other steps and proceedings that may be
necessary in order to qualify, under the applicable
securities legislation of the Qualifying
Jurisdictions, and the rules, policies,
interpretation notices and orders of the Securities
Commissions (the "Applicable Securities Laws") the
distribution of the Underlying Securities and the
Option Warrants.
1.3 The Special Warrants will be subject to the following terms and conditions,
provision for which will be made in the Special Warrant Indenture:
(a) at any time after the Closing Date, the holders of
the Special Warrants are entitled to exercise the
Special Warrants and to receive, without further
payment, the Underlying Securities;
(b) any unexercised Special Warrants will be deemed to
have been exercised by the holders, without any
further action on their part, at any time on the
fifth business day following the Qualification Date;
(c) any Special Warrants then outstanding will be deemed
to be exercised on the day which is one year from the
First Closing Date (the "Expiry Date"); and
(d) if a receipt for the Final Prospectus is not issued
by the Securities Commissions within 120 days of the
Second Closing Date, or such other date as may be
agreed between the Company and the Agent, the holders
of the Special Warrants are entitled to exercise the
Special Warrants and to receive, without further
payment, 1.1 Underlying Shares and 1.1 Underlying
Warrants with the exception of any Special Warrants
issued to the Agent as part of the Fee or syndication
fee referred to above.
1.4 The terms and conditions of the Special Warrant Indenture and the attributes
and characteristics of the Special Warrants provided for under the Special
Warrant Indenture will be substantially as described in this agreement subject
to the changes, if any, that the Company and the Agent may agree to, and
otherwise the Special Warrant Indenture will be in a form and contain terms and
conditions as are satisfactory to the Company and to the Agent.
1.5 The Underlying Warrants will be issued pursuant to a trust indenture between
the Company and the Trustee (the "Purchase Warrant Indenture") and the
attributes and characteristics of the Underlying Warrants will be substantially
as described in this Agreement, subject to the changes if any that the Company
and the Agent may agree to, and otherwise the Purchase Warrant Indenture will be
in a form and contain terms and conditions as are satisfactory to the Company
and to the Agent, including, among other things, a provision that if, after the
Qualification Date the closing bid for the Company's common shares is greater or
equal to $3.00 (U.S.) per common share (calculated according to the rate stated
by the Bank of Canada for conversion of Canadian dollars to U.S. dollars on each
such day) for a period of twenty consecutive trading days on The Alberta Stock
Exchange, or on such other recognized stock exchange or trading market on which
the largest volume of common shares of the Company traded on each such day, the
Company may, at its option, by written notice to the Trustee and the holders of
the Underlying Warrants, amend the expiry date of the Underlying Warrants to a
day determined by the Company not less than 45 days after the notice is given.
2. NATURE OF THE TRANSACTION
2.1 The sale of the Special Warrants to purchasers (the "Purchasers") is to be
effected in a manner exempt from any prospectus filing or delivery requirements
of the Applicable Securities Laws without the necessity
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<PAGE>
of obtaining any order or ruling of any of the Securities Commissions.
Notwithstanding that offers and sales of Special Warrants may be made outside of
Canada, the offers or sales must also be in compliance with the law of Alberta.
Each trade of the Special Warrants to which the law of Alberta applies will be
made by the Company under the prospectus filing exemptions in sections 107(1)(d)
of the Securities Act (Alberta) (the "Alberta Act").
If the Agent chooses to offer the Special Warrants outside of Canada, which it
is not required to do, the Agent will offer the Special Warrants outside of
Canada only in compliance with the applicable securities laws, regulations,
rules and policies of the jurisdictions (the "Offering Jurisdictions") in which
they are offered. The Agent will, at its own expense, take all such steps and
make all required filings which must be made in order to effect compliance with
such laws, regulations, rules and policies.
The Agent will notify the Company with respect to the identity and jurisdiction
of residence of each Purchaser as soon as practicable with a view to affording
sufficient time to allow the Company to secure compliance with the Applicable
Securities Laws and the applicable law and policy in the Offering Jurisdictions
in connection with the sale of the Special Warrants to the Purchasers under the
exemptions referred to above (collectively the "Exemptions").
2.2 The Company will, at its own expense, comply with the Applicable Securities
Laws in connection with the sale of the Special Warrants to the Purchasers,
including the filing of required reports and the payment of any applicable fees
relating thereto.
2.3 The Company will, at its own expense, comply with all Applicable Securities
Laws in connection with obtaining the receipt for the Final Prospectus to
qualify the distribution of the Underlying Securities and Option Warrants
including the filing of required reports and the payment of any applicable fees
relating thereto.
2.4 The Agent will conduct its activities in connection with the distribution of
the Special Warrants in compliance with all Applicable Securities Laws and,
without limiting the foregoing, the Agent represents, warrants and agrees, that:
(a) all solicitation, offering and other selling efforts
carried out by it in connection with the distribution
of the Special Warrants have been and will be made,
and all purchases of Special Warrants will be made,
in accordance with the provisions of the Exemptions;
and
(b) it is a member, in good standing, of The Alberta
Stock Exchange (the "Exchange").
2.5 The Agent will obtain from each Purchaser a properly completed and duly
executed subscription agreement (a "Subscription Agreement"), in the form
provided by the Company, and a properly completed and duly executed private
placement questionnaire and undertaking (a "Questionnaire and Undertaking"), in
the form attached to the Subscription Agreement, and for those Purchasers who
are individuals in circumstances where the B.C. Act applies a Form 20A(IP) in
the form attached to the Subscription Agreement.
2.6 The Agent will not offer or sell the Special Warrants or the Underlying
Securities in the United States and makes the representations, warranties and
covenants set forth in Part II of Schedule "A", which are incorporated into and
form part of this agreement.
3. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE COMPANY
3.1 The Company represents and warrants to the Agent and to the Purchasers as at
the date hereof and as at the Time of Closing, and acknowledges that the Agent
and the Purchasers will be relying upon such representations and warranties in
entering into this agreement and the Subscription Agreements, that:
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<PAGE>
(a) the Company is a "reporting issuer" in Alberta and is
not in default of any of the require- ments of the
Applicable Securities Laws of Alberta;
(b) the audited consolidated balance sheet of the Company
as at July 31, 1995 and the audited consolidated
statements of loss and deficit and changes in
financial position of the Company for the year then
ended, and the notes thereto, all as filed by the
Company under the requirements of the Applicable
Securities Laws, were prepared in accordance with
generally accepted accounting principles and present
fairly the assets, liabilities and financial
condition and the sales, income and results of
operation of the Company on a consolidated basis for
the period covered;
(c) there has not occurred any adverse "material change"
(as that term is defined in the British Columbia Act
- a "Material Change"), financial or otherwise, in
the assets, liabilities (contingent or otherwise),
business, financial condition or capital of the
Company, taken as whole, since July 23, 1996, the
date of the Company's preliminary prospectus (the
"Preliminary Prospectus") filed with the British
Columbia and Alberta Securities Commission which has
not been generally disclosed and specifically made
aware of to the Agent and its solicitors;
(d) the Company is not a party to any actual, pending,
threatened or contemplated, suits or proceedings
which could materially affect its business or
financial condition;
(e) this agreement, the Subscription Agreements, the
Special Warrant Indenture and the Purchase Warrant
Indenture have been authorized by all necessary
corporate action on the part of the Company, the form
of certificates for and the issuance of the Special
Warrants and the Agent's Option;
(f) the Special Warrants, the Underlying Warrants and the
Option Warrants, when issued, will have been validly
authorized, created and issued;
(g) the Underlying Shares, the Underlying Warrant Shares,
the Agent's Shares and the Option Shares have been
validly allotted for issuance when issued upon
exercise (or deemed exercise, if applicable) of the
Special Warrants, Underlying Warrants, or Option
Warrants, as applicable, in accordance with their
terms, respectively, will be validly issued as fully
paid and non-assessable;
(h) the Company has no subsidiaries other than HealthCare
Hearing Clinics Inc., HC HealthCare Clinics Ltd.,
Pacific Hearing Clinics Inc., Pacific Audiology Inc.
and Oakridge Hearing Clinic Inc., each of which is
wholly owned directly or indirectly by the Company;
(i) the Company has not engaged in any form of
advertising in connection with the Offering of
Special Warrants, such that it is not required to
prepare and deliver to Purchasers an offering
memorandum;
(j) the authorized capital of the Company consists of an
unlimited number of common shares without par value,
of which, as of the date hereof, 16,147,000 common
shares are issued and outstanding as fully paid and
non-assessable shares; and
(k) except as set out in the Preliminary Prospectus,
there are no persons, firms or corporations having
any agreement or option or any right or privilege
capable of
- 5 -
<PAGE>
becoming an agreement for the purchase, subscription
or issuance of any securities of the Company.
3.2 The Company makes the representations, warranties and covenants set forth in
Part I of Schedule "A", which are incorporated into and form part of this
agreement.
4. CONDITIONS TO PURCHASE AND SALE OBLIGATIONS
4.1 The following are conditions to the obligations of the Agent and of the
Purchasers to complete the transactions contemplated in this agreement and in
the Subscription Agreements:
(a) all actions required to be taken by or on behalf of
the Company, including the passing of all requisite
resolutions of directors of the Company, will have
been taken so as to validly create, sell, issue and
deliver:
(i) the Special Warrants and Underlying
Securities to the Purchasers; and
(ii) the Agent's Option, Option Warrants, and
Option Shares to the Agent;
(b) the Company will have made all necessary filings and
obtained all necessary approvals, consents and
acceptances of appropriate regulatory authorities,
within the time required (subject to any extensions
permitted by the Exchange and agreed to by the Agent,
in writing), in order to permit the Company to
create, sell, issue and deliver:
(i) the Special Warrants and Underlying
Securities to the Purchasers; and
(ii) the Agent's Option, Option Warrants, and
Option Shares to the Agent;
(c) the Underlying Shares, Underlying Warrant Shares, and
Option Shares will have been accepted for listing on
the Exchange;
(d) the Company will have caused a favourable legal
opinion to be addressed and delivered by its legal
counsel to the Agent, the Purchasers and the Agent's
legal counsel, dated as of the Closing Date, in form
and content acceptable to the Agent, acting
reasonably;
(e) the Company will have delivered to the Agent a legal
opinion of United States Counsel of recognized
standing acceptable to the Agent, acting reasonably
at the First Closing that the offering and the sale
of the Special Warrants has been made in accordance
with Regulation S, and at the Second Closing that the
offer and sale of the Special Warrants is exempt from
or does not require registration under applicable
United States federal and state securities laws;
(f) the Company will have delivered an officers'
certificate addressed and delivered to the Agent, the
Purchasers and the Agent's legal counsel, dated as of
the Closing Date, in form and content acceptable to
the Agent, acting reasonably, certifying, among other
things, that:
(i) no order ceasing or suspending trading in
any securities of the Company or prohibiting
the sale of the Special Warrants or the
issuance of the Underlying Securities are in
effect (except for any order based upon the
activities or alleged
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<PAGE>
activities of the Agent and not of the
Company) and, to the knowledge of the
officers, no proceedings for this purpose
are pending or threatened;
(ii) no adverse Material Change, financial or
otherwise, in the assets, liabilities
(contingent or otherwise), business,
financial condition or capital of the
Company, taken as a whole, has, to the
knowledge of the officers, occurred since
July 24, 1996 which has not been generally
and publicly disclosed and specifically
communicated to the Agent and its legal
counsel;
(iii) neither the execution and delivery by the
Company of this agreement, the Subscription
Agreements, the Special Warrant Indenture or
the Purchase Warrant Indenture, or the
fulfilment of or compliance with the terms
of any of them by the Company, nor the
creation, sale, issuance and delivery of the
Special Warrants to the Purchasers as
contemplated in this agreement, the
Subscription Agreements, the Special Warrant
Indenture and the Purchase Warrant
Indenture, or the issuance and delivery of
the Underlying Securities upon the exercise
of the Special Warrants, conflicts or will
conflict with or results or will result in a
breach of any of the provisions of the
Memorandum or Articles of the Company, or of
any resolutions of the directors or
shareholders of the Company, or of any term
of any agreement or instrument to which the
Company is a party or by which it is bound;
(iv) the Company has complied in all material
respects with all terms and conditions of
this agreement, the Subscription Agreements,
the Special Warrant Indenture and the
Purchase Warrant Indenture on its part to be
complied with at or prior to the Time of
Closing (as hereinafter defined);
(v) the Company is a "reporting issuer" for the
purposes of, and is not in default of any of
the requirements under, the Applicable
Securities Laws in Alberta;
(vi) the Company has no subsidiaries, other than
HealthCare Hearing Clinics Inc., HC
HealthCare Clinics Ltd., Pacific Hearing
Clinics Inc., Pacific Audiology Inc. and
Oakridge Hearing Clinic Inc., each of which
is a wholly owned subsidiary of the Company
and is duly incorporated and validly
existing under the laws under which it was
incorporated, amalgamated or continued;
(vii) the Agency Agreement, the Subscription
Agreements, the Agent's Option, the Special
Warrant Indenture and the Purchase Warrant
Indenture have been duly authorized,
executed and delivered by the Company and
constitute valid and binding obligations of
the Company in accordance with their terms;
(viii) the representations and warranties of the
Company contained in this agreement, the
Subscription Agreements, the Special Warrant
Indenture and the Purchase Warrant Indenture
are true and correct as of the Time of
Closing,
and the certificate will be signed on behalf
of the Company by its President and by its
Chief Financial Officer or by such other
officers or directors of the Company as the
Agent, acting reasonably, may accept in
place of those officers;
(g) the Company will have delivered to the Agent a legal
opinion in a form and of tax counsel acceptable to
the Agent, acting reasonably, that the Special
Warrants and the
- 7 -
<PAGE>
Underlying Securities do not constitute "foreign
property" within the meaning of proposed amendments
to the Income Tax Act (Canada); and
(h) the representations and warranties of the Company
contained in this agreement will be true and correct
as of the Time of Closing as if such representations
and warranties had been made as of the Time of
Closing.
The Company covenants to use its reasonable best efforts to have these
conditions fulfilled at or prior to the Time of Closing. These conditions may be
waived in writing in whole or in part by the Agent.
4.2 The obligation of the Company to complete the transactions contemplated in
this agreement is subject to the condition, which may be waived in writing by
the Company, that the Company receives and has accepted, at or prior to the Time
of Closing, properly completed and duly executed Subscription Agreements and
Questionnaires and Undertakings in respect of all of the Special Warrants sold.
The Company agrees to accept each Subscription Agreement tendered to it provided
that it is satisfied, acting reasonably, that the applicable Exemptions are
available in respect of the sale of the Special Warrants subscribed for under
that Subscription Agreement, all applicable securities laws of the Offering
Jurisdictions have been complied with and the acceptance of the Subscription,
together with the subscriptions previously accepted by the Company, will not
obligate the Company to issue more than 4,800,000 Special Warrants.
5. CLOSING
5.1 The First Closing of the transactions contemplated under this agreement and
the Subscription Agreements (the "Closing") will be completed at the offices of
McCullough O'Connor Irwin, the solicitors for the Agent, at 2:00 p.m. (Vancouver
time) on September 23, 1996 or at such other time or at such other time and date
as the Company and the Agent may agree (being the "Time of Closing").
5.2 At the First Closing and the Second Closing, the Agent will deliver or cause
to be delivered:
(a) to the Company one or more certified cheques or bank
drafts made payable on the Closing Date to the
Company, in an amount equal to the Aggregate Purchase
Price for the Special Warrants sold, less the Fee, if
payable in cash, and the expenses of the Agent,
subject to any written direction given by the Company
to the Agent and accepted by the Agent; and
(b) to the Company properly completed and duly executed
original or facsimile copies of the Subscription
Agreements, Questionnaires and Undertakings and Form
20As, where applicable, relating to the Special
Warrants which have not previously been delivered to
the Company,
but the Agent will not be required to deliver any certified cheque or bank
draft, Subscription Agreement or Questionnaire and Undertaking for or on behalf
of any Purchaser which has notified the Agent that he does not intend to close
in accordance with his Subscription Agreement.
5.3 At each Closing, upon payment to the Company of the amount specified in
paragraph 5.2(a), the Company will deliver or cause to be delivered to the Agent
and to the Purchasers, the following:
(a) definitive certificates evidencing the Special
Warrants sold, duly registered as directed by the
Purchasers in their Subscription Agreements;
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<PAGE>
(b) the requisite certificates, opinions, comfort letters
and other documents provided for in this agreement;
(c) a certificate representing the Agent's Option and
representing the right to acquire Option Warrants to
purchase common shares equal in number to 10% of the
Special Warrants sold at that Closing; and
(d) in the case of the First Closing, a certificate
representing any Special Warrants to be issued to the
Agent in payment of the Fee.
5.4 If, at the Time of Closing, the Company has been unable to comply with all
of the conditions set forth in subsection 4.1 or the condition set forth in
subsection 4.2 has not been satisfied, and such condition has not been waived by
the Agent or the Company, as the case may be, the respective obligations of the
parties will terminate and none of the Purchasers, the Agent or the Company will
have any liability to the other, except that the Company's obligations under
section 8 and subsection 9.1 will survive and continue.
6. TERMINATION
The Agent may terminate its obligations under this agreement and the obligations
of the Purchasers under the Subscription Agreements by notice in writing to the
Company at any time before Closing if:
(a) an adverse material change (as defined in the B.C.
Act) in the affairs of the Company occurs or is
announced by the Company;
(b) there is an event, accident, governmental law or
regulation or other occurrence of any nature which,
in the opinion of the Agent, seriously affects or
will seriously affect the financial markets, or the
business of the Company or any subsidiary of the
Company, or the ability of the Agent to perform its
obligations under this agreement, or a Purchaser's
decision to purchase the Special Warrants;
(c) following a consideration of the history, business,
products, property or affairs of the Company or its
principals, or of the state of the financial markets
in general, or the state of the market for the
Company's securities in particular, the Agent
determines, in its sole discretion, that it is not in
the interest of the investors to complete the
purchase and sale of the Special Warrants;
(d) an enquiry or investigation (whether formal or
informal) in relation to the Company, or the
Company's directors or officers, is commenced or
threatened by an officer or official of any competent
authority;
(e) any order to cease trading (including communicating
with persons in order to obtain expressions of
interest) in the securities of the Company is made by
a competent regulatory authority and that order is
still in effect;
(f) the Company is in breach of any term of this
agreement; or
(g) the Agent determines that any of the representations
or warranties made by the Company in this agreement
is false or has become false.
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<PAGE>
7. ADDITIONAL COVENANTS
7.1 The Company covenants with the Agent and with the Purchasers
as follows:
(a) the Company will use its reasonable best efforts to
comply with the covenants referred to in subsection
1.2 and, with respect to the filing of the
Preliminary Prospectus and the Final Prospectus
(individually a "Prospectus" and collectively the
"Prospectuses") as contemplated therein, will fulfil
all legal requirements required to be fulfilled by
the Company in connection therewith, which
requirements will include the execution and filing of
each of the Prospectuses in each of the Qualifying
Jurisdictions, in each case in form and substance
satisfactory to the Agent as evidenced by its
execution thereof;
(b) prior to the filing of each of the Prospectuses, the
Company will allow the Agent and its affiliates to
conduct all investigations of the Company and its
affairs the Agent considers necessary in order to
fulfil the Agent's obligations as statutory
underwriters and in order to enable the Agent
responsibly to execute the certificates required to
be executed by the Agent in such documents;
(c) the Company will deliver or cause to be delivered to
the Agent:
(i) at the time of execution of each of the
Prospectuses by the Agent, the Prospectus
duly executed by officers and directors of
the Company, in the form required by the
Applicable Securities Laws of the Qualifying
Jurisdictions; and
(ii) at the time of execution of the Final
Prospectus by the Agent, a comfort letter of
auditor of the Company addressed to the
Agent and the directors of the Company and
dated as of the date of the Prospectus, in
form and content acceptable to the Agent,
acting reasonably, relating to the
verification of the financial information
and accounting data contained in the
Prospectus;
(d) the Company will deliver or cause to be delivered to
the Agent duly executed copies of any Supplementary
Material required to be filed by the Company in
accordance with subsection (e) below and if any
financial or accounting information is contained in
any of the Supplementary Material, a comfort letter
similar to that required by subclause (c)(ii) above;
(e) during the period prior to the completion of the
distribution of the Underlying Securities, the
Company will promptly notify the Agent in writing of
any Material Change (actual or proposed) in the
business, affairs, operations, assets or liabilities
(contingent or otherwise) or capital of the Company,
taken as a whole, or of any change which is of such a
nature as to result in a "Misrepresentation" (as that
term is defined in the British Columbia Act) in
either of the Prospectuses or any amendment thereto
and:
(i) the Company will promptly, and in any event
within any applicable time limitation,
comply with all filing and other
requirements under the Applicable Securities
Laws, and with the rules of the stock
exchanges on which the Underlying Securities
are listed, applicable to the Company as a
result of any such change; and
(ii) notwithstanding the foregoing, the Company
will not file any amendment to either of the
Prospectuses or any other material
supplementary to the
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<PAGE>
Prospectuses (all such amendments and
material being the "Supplementary Material")
without first obtaining the approval of the
Agent as to the form and content thereof,
which approval will not be unreasonably
withheld and which will be provided on a
timely basis;
and, in addition to the foregoing, the Company will,
in good faith, discuss with the Agent any change in
circumstances (actual or proposed) which is of such a
nature that there is or ought to be consideration
given by the Company as to whether notice in writing
of such change need be given to the Agent pursuant to
this paragraph;
(f) the Company will, from time to time, without charge
to the Agent, deliver to the Agent as many copies of
the Prospectuses (and in the event of any amendment
to the Prospectuses, copies of such amendments) and
the Supplementary Material as the Agent may
reasonably request for the purposes contemplated
hereunder, provided that, in the case of the
Preliminary Prospectus and any amendment thereto,
such copies need not be in commercial form, and such
delivery will constitute the consent of the Company
to use of the documents by the Agent in connection
with the distribution of the Underlying Securities,
subject to compliance by the Agent with the
Applicable Securities Laws of each of the Qualifying
Jurisdictions and the Offering Jurisdictions;
(g) the delivery by the Company to the Agent, of the
Prospectus and any Supplementary Material will
constitute the Company's representation and warranty
to the Agent that all material information and
statements (except information and statements
relating solely to the Agent) contained in such
documents, at the respective dates of initial
delivery thereof, comply with the Applicable
Securities Laws of the Qualifying Jurisdictions and
are true and correct in all material respects, and
that such documents, at such dates, contain no
Misrepresentation and constitute full, true and plain
disclosure of all material facts (as that phrase
would be interpreted under the B.C. Act and the
Alberta Act) relating to the Company, taken as a
whole, and to the Underlying Securities as required
by the Applicable Securities Laws of the Qualifying
Jurisdictions;
(h) other than securities to be issued in partial payment
of the acquisition of hearing clinics or incentive
stock options granted to directors, officers or
employees of the Company, the Company will not issue
or announce the issuance of any common shares or
other securities of the Company, except for those
securities issuable under those securities set out in
the Preliminary Prospectus, for a period of six
months following the completion of the issuance of
the Special Warrants without the prior written
consent of the Agent, which consent will not be
unreasonably withheld. If any common shares or
options to purchase common shares are issued, then
the issue or striking price shall be not less than
the price of the Special Warrants offered hereunder;
(i) the Company will maintain its status as a reporting
issuer not in default under the Alberta Act, and its
regulations and rules until the Qualification Date,
and if the Qualification Date has not occurred on or
before the Expiry Date, the Company will use its
reasonable best efforts to:
(i) maintain that status for a period of one
year from the Closing Date; and
(ii) in the event that:
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<PAGE>
(1) any holder of Special Warrants who
acquires Underlying Securities upon
the exercise of his Special Warrants
is or becomes entitled under
Applicable Securities Laws to the
remedy of rescission by reason of
the or the Final Prospectus or any
amendment thereto containing a
Misrepresentation, the holder will
be entitled to rescission not only
of the holder's exercise of those
Special Warrants but also of the
purchase of the Special Warrants
hereunder, and will be entitled in
connection with the rescission to a
full refund of all consideration
paid to the Company on the
acquisition of those Special
Warrants; and
(2) if the holder is a permitted
assignee of the interest of the
original Purchaser of Special
Warrants, the permitted assignee
will be entitled to exercise the
rights of rescission and refund
granted hereunder as if the
permitted assignee was the original
Purchaser of the Special Warrants;
and the foregoing is in addition to
any other right or remedy available
to a holder of the Special Warrants
under section 114 of the B.C. Act or
corresponding provisions of the
Alberta Act or other securities
legislation or otherwise at law.
7.2 The Agent covenants with the Company as follows:
(a) subject to the Company satisfying subsection 7.1, the
Agent will, upon the request of the Company, execute
each of the Prospectuses and any Supplementary
Material presented to the Agent for execution and
will use its reasonable best efforts to assist the
Company in obtaining any requisite regulatory
approvals in connection with the preparation and
filing of such documents; and
(b) the Agent will use its reasonable best efforts to as
soon as practicable after the Qualification Date and
will, upon the request of the Company, deliver copies
of the Final Prospectus to the holders of the Special
Warrants and assist the Company in facilitating the
exercise of the Special Warrants and the issuance of
the Underlying Securities to the holders thereof.
8. PAYMENT OF EXPENSES
Whether or not the transactions contemplated in this agreement are completed,
the Company will pay or cause to be paid all expenses of or incidental to the
issuance and sale of the Special Warrants and all other matters in connection
with the transactions contemplated under this agreement, including, without
limitation, the reasonable direct out-of-pocket expenses incurred by the Agent
including without limitation, advertising, travel courier and telephone expenses
and the reasonable fees and disbursements of counsel to the Agent. Other than
legal expenses, the Agent agrees to obtain authorization from the Company prior
to incurring any single expense greater than $1,000. All third party costs
incurred with respect to this offering shall be the responsibility of the
Company, including, without limitation, printing, mailing and road show
expenses, regardless of whether this offering is completed.
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<PAGE>
9. INDEMNITY AND CONTRIBUTION
9.1 The Company will protect and indemnify the Agent and each of the Agent's
directors, officers, employees, agents and solicitors (collectively the
"Indemnified Persons") against all losses, claims, costs, damages or liabilities
caused by or arising directly or indirectly by reason of:
(a) any Misrepresentation or alleged Misrepresentation
(except of a fact relating solely to the Agent)
contained in the Prospectuses, any Supplementary
Material or any certificate of the Company or any
officer thereof delivered to the Agent pursuant to
this agreement;
(b) the Company not complying with any requirement of
applicable legislation of Canada or any of the
Qualifying Jurisdictions to make any document
available for inspection;
(c) any order made by any securities commission, stock
exchange or other competent authority, based upon any
Misrepresentation or alleged Misrepresentation
(except of a fact relating solely to the Agent) in
the Prospectuses or any Supplementary Material, which
prevents or materially adversely affects trading or
distribution of the Underlying Securities in any of
the Qualifying Jurisdictions;
(d) the Agent's activities in connection with this
offering unless the losses, claims, damages,
liabilities or expenses arise from the gross
negligence or bad faith of the Agent; or
(e) any other breach by the Company of any of the terms
of this agreement.
9.2 If any matter contemplated by subsection 9.1 is asserted in an action or
claim against any one or more of the Indemnified Persons in respect of which
matter indemnity may be sought against the Company pursuant to this agreement,
or any potential action or claim comes to their knowledge, the Indemnified
Person will notify the Company as soon as possible in writing of the nature of
the action or claim and the Company will be entitled to (but not required to)
assume the defence of that action or claim, including the employment of legal
counsel (satisfactory to the Indemnified Person, acting reasonably) and assume
payment of the expenses in relation thereto. Each Indemnified Person will have
the right to employ separate legal counsel in any action or claim and to
participate in the defence thereof, but the fees and expenses of that counsel
will be at the expense of the Indemnified Person and not of the Company unless:
(a) the employment of that legal counsel has been
specifically authorized in writing by the Company in
connection with the defence of the action or claim;
(b) the Company has not, within five business days after
having received written notice of the action or
claim, employed legal counsel to have conduct of the
defence of the action or claim; or
(c) the named parties to any action or claim (including
any added, third or interpleaded parties) include
both the Indemnified Person and the Company, and such
Indemnified Person has been advised by counsel that
there may be defenses available to the Indemnified
Person which are different from or additional to
those available to the Company (in which case the
Company will not have the right to assume or direct
the defence of the action or claim on behalf of the
Indemnified Person);
Notwithstanding the foregoing, no settlement may be made by the Indemnified
Person concerned without the prior written consent of the Company which consent
will not be unreasonably withheld.
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<PAGE>
9.3 The Company will not make any claim for, and hereby irrevocably waives any
right by statute or common law to, contribution against the Agent or any of the
Agent's directors, officers, employees, agent or solicitors in the event of any
action or claim brought against the Company as a result of any Misrepresentation
or alleged Misrepresentation referred to in subsection 9.1 other than a
Misrepresentation or alleged Misrepresentation relating solely to the Agent.
9.4 The right to indemnity herein provided will be in addition to and not in
derogation of any other right to indemnity or contribution which any Indemnified
Person may have by statute or otherwise at law.
10. RIGHT OF FIRST REFUSAL
10.1 The Company will notify the Agent of the terms of any further brokered
equity financing that it requires or proposes to obtain in Canada for the period
commencing on the date of this Agreement and expiring 12 months following the
Closing Date and the Agent will have the right of first refusal to act as agent
in any such financing.
10.2 The right of first refusal must be exercised by the Agent within 15 days
following the receipt of the notice by notifying the Company that it will act as
agent in such financing on the terms set out in the notice.
10.3 If the Agent fails to give notice within the 15 days that it will act as
agent in such financing upon the terms set out in the notice, the Company will
then be free to make other arrangements to obtain financing from another source
on the same terms or on terms no less favourable to the Company, subject to
obtaining the acceptance of the regulatory authorities pursuant to Applicable
Securities Laws.
10.4 The right of first refusal will not terminate if, on receipt of any notice
from the Company under this Section, the Agent fails to exercise the right.
11. ASSIGNMENT AND SELLING GROUP PARTICIPATION
11.1 The Agent will not assign this agreement or any of its rights under this
agreement nor, with respect to the securities, enter into any agreement in the
nature of an option or a sub-option unless and until, for each intended
transaction, the Agent has obtained the consent of the Company and notice has
been given to and accepted by the regulatory authorities pursuant to Applicable
Securities Laws.
11.2 The Agent may offer selling group participation in the normal course of the
brokerage business to selling groups of other licensed dealers, brokers and
investments dealers, who may or who may not be offered part of the Fee, the
Corporate Finance Fee, the Syndication Fee or Agent's Option derived from this
offering.
12. MISCELLANEOUS
12.1 Any notice to be given hereunder will be in writing and may be given by
telecopier or by hand delivery and will, in the case of notice to the Company,
be addressed and telecopied or delivered to:
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<PAGE>
HealthCare Capital Corporation
Suite 1120, 595 Howe Street
Vancouver, B.C.
V6C 2T5
Attention: Douglas F. Good
Telephone: (604) 685-4854
Fax: (604) 685-4864
with a copy to:
Ballem MacInnes
Barristers and Solicitors
1800 First Canadian Centre
350 - 7th Avenue, S.W.
Calgary, Alberta
T2P 3N9
Attention: William DeJong
Telephone: (403) 292-9800
Fax: (403) 233-8979
and in the case of the Agent, be addressed and telecopied or delivered to:
C.M. Oliver & Company Limited
2nd Floor, 750 West Pender Street
Vancouver, B.C.
V6C 1B5
Attention: Lyle Davis
Telephone: 662-3787
Fax: 662-8100
with a copy to:
McCullough O'Connor Irwin
Solicitors
1100-888 Dunsmuir Street
Vancouver, B.C.
V6C 3K4
Attention: Jonathan McCullough
Telephone: (604) 687-7077
Fax: (604) 687-7099
The Company and the Agent may change their respective addresses for notice by
notice given in the manner referred to above.
12.2 The representations, warranties, covenants, obligations and agreements of
the Company contained herein or delivered pursuant hereto will survive the
purchase by the Purchasers of the Special Warrants and will continue in full
force and effect notwithstanding any subsequent exercise or disposition by the
Purchasers of the Special Warrants or the Underlying Securities and the
Purchasers will be entitled to rely on the representations and warranties of the
Company contained herein or delivered pursuant hereto notwithstanding any
investigation which the Purchasers may undertake or which may be undertaken on
the Purchasers' behalf.
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12.3 This agreement is governed by the laws of the Province of British Columbia
and the parties hereby attorn to the non-exclusive jurisdiction of the courts of
British Columbia for the resolution of any disputes arising out of or in
connection with this agreement.
12.4 Time is of the essence of this agreement and will be calculated in
accordance with the Interpretation Act (British Columbia).
12.5 This agreement will be effective as of and from the date of this letter
notwithstanding the actual date or dates this letter was signed and delivered by
the Agent and accepted by the Company.
12.6 Whenever a singular or masculine expression is used in this agreement it
will include the plural or the feminine or the body corporate as the context
requires.
If the foregoing is in accordance with your understanding and agreed to by you,
please signify your acceptance on the accompanying counterparts of this letter
and return the counterparts to us whereupon this letter as so accepted will
constitute an agreement between the Company and the Agent enforceable in
accordance with its terms. The agreement resulting from your acceptance of this
letter contains (together with the Subscription Agreements) the whole agreement
between the Company, the Agent and the Purchasers in respect of the subject
matters hereof and there are no warranties, representations, terms, conditions
or collateral agreements, express, implied or statutory, relating to this
offering other than as expressly set forth herein and in any amendments hereto,
or except as incorporated by reference herein.
Yours truly,
C.M. OLIVER & COMPANY LIMITED
By: /S/ DARRYL J. YEA
C. Michael O'Brian, Chairman
Darryl J. Yea, Director
The foregoing is accepted and agreed to on the 23RD day of SEPTEMBER , 1996
effective as of the date appearing on the first page of this agreement.
HEALTHCARE CAPITAL CORP.
By: /S/ WILLIAM DEJONG
Authorized Signatory
WILLIAM DEJONG
Print Name
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SCHEDULE "A"
UNITED STATES OFFERS AND SALES
As used in this Schedule "A", the following terms shall have the meanings
indicated:
(a) "Directed Selling Efforts" means "directed selling efforts" as
that term is defined in Regulation S. Without limiting the
foregoing, but for greater clarity in this schedule, it means,
subject to the exclusions from the definition of "directed
selling efforts" contained in Regulation S, any activity
undertaken for the purpose of, or that could reasonably be
expected to have the effect of, conditioning the market in the
United States for any of the Special Warrants or Underlying
Securities, and includes the placement of any advertisement in
a publication with a general circulation in the United States
that refers to the offering of the Special Warrants or
Underlying Securities;
(b) "Foreign Issuer" means a "foreign issuer" as that term is
defined in Regulation S;
(c) "Regulation S" means Regulation S adopted by the United States
Securities and Exchange Commission under the U.S. Securities
Act;
(d) "Substantial U.S. Market Interest" means "substantial U.S.
market interest" as that term is defined in Regulation S;
(e) "U.S. Securities Act" means the United States Securities Act
of 1933, as amended;
(f) "United States" means the United States of America, its
territories and possessions, any state of the United States,
and the District of Columbia; and
(g) "U.S. Person" means "U.S. person" as that term is defined in
Regulation S.
PART I - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company acknowledges that neither the Special Warrants nor the Common Shares
have been or will be registered under the U.S. Securities Act and may not be
offered or sold within the United States or to, or for the account or benefit
of, any U.S. Person except in accordance with Regulation S under the U.S.
Securities Act or pursuant to an exemption from the registration requirements of
the U.S. Securities Act. Accordingly, the Company represents, warrants,
covenants and agrees to and with the Agent that:
1. The Company is a Foreign Issuer with no Substantial U.S. Market Interest. A
majority of its outstanding voting securities are and will at the Closing be
held by persons with registered addresses outside the United States.
2. In connection with all offers and sales of the Special Warrants in the United
States or to, or for the account or benefit of, a U.S. Person:
(a) It acknowledges that the Special Warrants, the Underlying
Securities and the Agent's Option have not been and will not
be registered under the U.S. Securities Act and may not be
offered or sold within the United States or, to or for the
account or benefit of, U.S. Persons, except pursuant to an
exemption from the registration requirements of the U.S.
Securities Act. It has offered and sold and will offer and
sell the Special Warrants only in accordance with Rule 903 of
Regulation S or as provided in paragraphs (b) through (e)
below. Accordingly, neither it or its affiliate(s), nor any
persons acting on its or their behalf have engaged or will
engage in any Directed Selling Efforts with respect to the
Special Warrants.
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It has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Special
Warrants, except with the prior written consent of the Agent.
(b) All offers and sales of the Special Warrants in the United
States will be effected directly by the Company through a U.S.
broker-dealer.
(c) Immediately prior to soliciting offerees in the United States,
it had reasonable grounds to believe and did believe that each
offeree was an "accredited investor" as defined in Rule 501(a)
of Regulation D under the U.S. Securities Act (an "Accredited
Investor").
(d) No form of general solicitation or general advertising (as
those terms are defined in Regulation D under the U.S.
Securities Act) will be used, including advertisements,
articles, notices or other communications published in any
newspaper, magazine or similar media or broadcast over radio
or television, or any seminar or meeting whose attendees have
been invited by general solicitation or general advertising.
(e) Prior to any sale of Special Warrants in the United States, it
shall cause each purchaser thereof to enter into the form of
U.S. Subscription Agreement attached hereto as Schedule "C".
3. The Company agrees to obtain substantially identical undertakings from any
placement agent engaged in connection with the distribution of the Special
Warrants contemplated hereby. The Company has not entered and will not enter
into any contractual arrangement with respect to the distribution of the Special
Warrants, except with the prior written consent of the Agent.
4. The Company is not an open-end investment company or unit investment trust
registered or required to be registered or closed-end investment company
required to be registered, but not registered, under the United States
Investment Company Act of 1940.
PART II - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE AGENT
The Agent represents, warrants, covenants and agrees with the Company that:
1. The Agent acknowledges that the Special Warrants, the Underlying Securities
and the Agent's Option have not been and will not be registered under the U.S.
Securities Act.
2. Neither the Agent nor any of its affiliates, a member of any selling group
formed in connection with the distribution of the Special Warrants, nor any
person acting on its or their behalf, has made or will make:
(a) any offer to sell, or any solicitation of an offer to buy, any
Special Warrants to a U.S. Person or a person in the United
States; or
(b) any sale of Special Warrants unless, at the time the buy order
was or will have been originated, the purchaser is:
(i) outside the United States, or
(ii) the Company, its affiliates, and any person acting on
their behalf reasonably believes that the purchaser
is outside the United States.
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<PAGE>
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3. During the period in which the Special Warrants (as well as the Common Shares
issuable upon exercise thereof) are offered for sale, neither it nor any of its
affiliates, a member of any selling group formed in connection with the
distribution of the Special Warrants, nor any person acting on its or their
behalf has made or will make any Directed Selling Efforts in the United States,
or has taken or will take any action that would cause the exclusion from
registration afforded by Regulation S to be unavailable for offers and sales of
the securities offered pursuant to this Agreement.
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<PAGE>
HEALTHCARE CAPITAL CORP.
1120-595 Howe Street
Vancouver, B.C. V6C 2T5
Canada
U.S. PLACEMENT AGREEMENT
October 14, 1996
Dallas Research & Trading, Inc.
4851 LBJ Freeway - Suite 400
Dallas, Texas 75244
Ladies and Gentlemen:
HealthCare Capital Corp., an Alberta corporation (the "Company"),
hereby confirms its agreement with you ("Dallas Research") as follows:
1. DESCRIPTION OF TRANSACTION. The Company is in the process of
offering and selling in a private offering (the "Offering") up to 4,810,000
special warrants in the capital of the Company (the "Special Warrants") at a
price of U.S. $1.25 per Special Warrant for gross proceeds of up to U.S.
$6,012,500 and, in an Agency Agreement (the "Agency Agreement") dated August 22,
1996 between it and C.M. Oliver & Company Limited (the "Agent") appointed the
Agent as the Company's project manager for the Offering and as its exclusive
agent in Canada, on a best efforts basis, to solicit subscriptions under the
Offering from persons resident in certain provinces of Canada (the "Canadian
Offer"). The Canadian Offer was completed, with the sale thereunder of 810,000
Special Warrants, on September 23, 1996. Each Special Warrant entitles the
holder thereof to receive, without the payment of any additional consideration,
one common share in the capital of the Company (a "Common Share") and one share
purchase warrant (a "Warrant") entitling the holder thereof to purchase, until
August 31, 1998, one Common Share at a price of U.S. $2.00.
2. APPOINTMENT OF DALLAS RESEARCH. The Company hereby appoints Dallas
Research as its co-agent to solicit subscriptions in the United States, on a
best efforts basis, for up to 2,000,000 Special Warrants constituting a part of
the Offering (the "Dallas Research Offer"). (Sunrise Securities Corporation
("Sunrise") may as co-agent solicit subscriptions for an additional 2,000,000
Special Warrants). Dallas Research, on the basis of the representations,
warranties, covenants and agreements of the Company herein, and subject to the
conditions herein, accepts such appointment and agrees, in connection with the
Offering that it will
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<PAGE>
endeavor to obtain, on a best efforts basis, subscribers ("Subscribers") for the
Special Warrants offered as part of the Dallas Research Offer. By executing this
Agreement, the Agent: (a) consents to the execution, delivery and performance by
the Company and Dallas Research of this Agreement; (b) makes for itself the
representations and agreements made by the Company in Sections 7.2(c), (d) and
(e) of this Agreement (deleting for this purpose the parenthetical exclusions
contained therein); and (c) confirms the representations, warranties and
covenants made by it in Schedule A to the Agency Agreement as of the date made
and as of the date hereof.
3. PURCHASE, SALE AND DELIVERY OF UNITS. Subject to the terms and
conditions set forth herein, the Company and Dallas Research agree as follows:
(a) REGULATION D OFFERING. Neither the offer nor the sale of
the Special Warrants has been or will be registered with the United
States Securities and Exchange Commission (the "Commission") under the
United States Securities Act of 1933, as amended (the "Securities
Act"). The Special Warrants will be offered and sold pursuant to the
Dallas Research Offer in reliance upon and in compliance with the
exemptions from registration provided by Sections 3(b), 4(2) and 4(6)
of the Securities Act and Regulation D thereunder ("Reg D") and will
only be sold to "accredited investors" as such term is defined in Reg
D. Such Special Warrants will be offered for sale only in those states
in which the Special Warrants shall have been qualified or registered
for sale or are exempt from such qualification or registration. The
Company will provide Dallas Research, for delivery to all offerees and
purchasers and their representatives, copies of the United States
Confidential Offering Memorandum dated October 16, 1996 of the Company
(the "Memorandum") and such other information, documents and
instruments which Dallas Research deems necessary to comply with the
statutes, rules, regulations and judicial and administrative
interpretations applicable to the Dallas Research Offer.
(b) SUBSCRIPTION FOR SPECIAL WARRANTS. Purchase of Special
Warrants shall occur by execution and delivery by a Subscriber of two
copies of a Subscription Agreement in the form annexed to the
Memorandum (the "Subscription Agreement"), together with such other
documents and instruments as the Company or Dallas Research shall deem
appropriate.
(c) PAYMENT. Each Subscriber shall tender a cashier's or
certified check payable to HealthCare Capital Corp., in payment of the
full purchase price of the Special Warrants subscribed for.
(d) CLOSING; TERMINATION OF OFFERING. The Closing of the
Dallas Research Offer (the "Final Closing") shall occur on November 15,
1996 or such later date as may be mutually agreed upon by the Company
and Dallas Research (the "Final Closing Date"). By mutual agreement of
the Company and Dallas Research, an interim closing (the "Initial
Closing") of the Dallas Research Offer may occur prior to the Final
Closing Date. Each of the Initial Closing and the Final Closing is
referred to herein as a "Closing" and the date on which each occurs is
referred to herein as a "Closing Date".
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At each Closing, the Company shall deliver to Dallas Research, on
behalf of the appropriate Subscribers, the certificates representing
the Special Warrants being purchased by such Subscribers at such
Closing against payment therefor as provided in Section 3(c) of this
Agreement. In the event that no Special Warrants are sold hereunder, on
the Final Closing Date all terms of this Agreement shall be
automatically terminated and neither party shall have any further
obligation to the other party under this Agreement other than the
Company's obligation to pay expenses as set forth in Section 9 of this
Agreement.
4. COMPENSATION OF DALLAS RESEARCH.
4.1. At each Closing, the Company shall pay Dallas Research (or,
subject to applicable securities laws, its designee), as compensation for its
services rendered under this Agreement, the following:
(a) A selling commission equal to 9% of the gross proceeds
from the sale of Special Warrants at such Closing, payable, at the
option of Dallas Research, in cash or in Special Warrants (the
"Compensation Warrants") valued for this purpose at U.S. $1.25 per
Special Warrant; and
(b) A special option in the form of Exhibit A hereto (the
"Dallas Research Option") entitling Dallas Research to acquire without
the payment of any consideration warrants (the "Dallas Research
Warrants") to purchase, at an exercise price of U.S. $1.25 per share,
Common Shares in a number equal to 10% of the number of Special
Warrants sold at such Closing.
In addition, at each Closing the Company shall, to the extent not theretofore
paid, pay to Dallas Research a non-refundable consulting fee equal to 1% of the
gross proceeds from the sale of Special Warrants in the Dallas Research Offer
(not to exceed U.S. $25,000) for financial advisory services to be rendered by
Dallas Research to the Company.
4.2. The Compensation Warrants, the Dallas Research Option, the
securities issuable upon the exercise or deemed exercise of each, and the Common
Shares issuable upon exercise of the Dallas Research Warrants and of the
Warrants acquired upon the exercise or deemed exercise of the Compensation
Warrants will all be "restricted securities" within the meaning of Rule 144
under the Securities Act and the certificates therefor (and any certificates
issued in exchange therefor or replacement thereof) shall bear an appropriate
restrictive legend reflecting applicable restrictions on transfer.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Dallas Research as follows:
(a) OFFERING MEMORANDUM. The Memorandum, as of its date and as
of the date of this Agreement does not, and at all subsequent times up
to and including the Final Closing Date will not, contain any untrue
statement of a material fact, or omit to state
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any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they
were made, not misleading.
(b) ORGANIZATION; GOOD STANDING; SUBSIDIARIES. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of Alberta, with full power and authority, corporate and
other, to own or lease and operate its properties and to conduct its
business as currently conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in the States
of Oregon and Washington, the only jurisdictions in which such
qualification is necessary and where failure so to qualify could have a
material adverse effect on the financial condition, results of
operations, business, properties or prospects of the Company and its
Subsidiaries taken as a whole. The Company is the direct or indirect
beneficial owner of all of the outstanding securities of the following
corporations (each, a "Subsidiary" and, collectively, the
"Subsidiaries"):
HC HealthCare Hearing Clinics Ltd., a British Columbia
corporation;
Pacific Hearing Clinic Inc., a British Columbia corporation;
Oakridge Hearing Clinic Inc., a British Columbia corporation;
HealthCare Hearing Clinics Inc., a Washington corporation; and
Pacific Audiology Inc., a British Columbia corporation.
Each Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation,
with full power and authority, corporate and other, to own or lease and
operate its properties and to conduct its business as currently
conducted, and is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where such
qualification is necessary and where failure so to qualify could have a
material adverse effect on its financial condition, results of
operations, business, properties or prospects. Except for the
Subsidiaries, the Company has no subsidiaries.
(c) GOVERNMENTAL AUTHORITY. Except as may be required under
applicable state securities laws in the United States ("Blue Sky
laws"), no authorization, approval, consent, order, registration,
license or permit of any court or governmental agency or body, is
required for the valid authorization, issuance, sale and delivery of
the Special Warrants, the securities issuable upon the exercise or
deemed exercise of the Special Warrants and upon the exercise of the
Warrants issued upon the exercise or deemed exercise, and the
securities referred to in Section 4.2, and the consummation by the
Company of all the transactions contemplated by this Agreement, the
Subscription Agreements, the Dallas Research Option, the Dallas
Research Warrants, the indenture dated as of September 17, 1996 between
the Company and The R-M Trust Company relating to the Special Warrants
(the "Special Warrant Indenture") and the indenture
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dated as of September 17, 1996 between the Company and The R-M Trust
Company relating to the Warrants (the "Warrant Indenture")
(collectively, the "Subject Agreements").
(d) AUTHORIZATION OF AGREEMENTS. The Company has full power
and authority, corporate and other, to execute, deliver and perform the
Subject Agreements and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Subject
Agreements by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company
with the terms of the Subject Agreements have been duly authorized by
all necessary corporate action on the part of the Company. This
Agreement, the Special Warrant Indenture and Warrant Indenture have
been, and the Subscription Agreement and the Dallas Research Option
will be, duly executed and delivered by the Company and are or will be
the valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except insofar
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of
creditors generally and by the discretion of courts in granting
equitable remedies, and except that enforceability of the
indemnification provisions and the contribution provisions set forth in
this Agreement may be limited by the federal securities laws of the
United States or state securities laws or the public policy underlying
such laws. The execution, delivery and performance of the Subject
Agreements by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company
with the terms of the Subject Agreements do not, and will not, with or
without the giving of notice or the lapse of time, or both, (i) result
in any violation of the constating documents of the Company or any of
its Subsidiaries, (ii) result in a breach of or conflict with any of
the terms or provisions of, or constitute a default under, or result in
the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, any indenture, mortgage, note, contract,
commitment or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any
of its or their properties or assets are or may be bound or affected;
(iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or its
or their properties or business; or (iv) have any material adverse
effect on any permit, certification, registration, approval, consent,
license or franchise necessary for the Company or any Subsidiary to own
or lease and operate any of its properties and to conduct its business
or the ability of the Company or such Subsidiary to make use thereof.
(e) CAPITALIZATION. The Company had, at July 31, 1996, a duly
authorized and outstanding capitalization as set forth in the
Memorandum under the caption "Capitalization," and the Common Shares,
special warrants and warrants described in the description thereof
contained in the Memorandum under the caption "Description of Share
Capital" conform to such description. All the outstanding Common Shares
have
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been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in the Memorandum and except as
contemplated by the Offering, there are, and until the Closing Date
there will be, no outstanding securities convertible into Common Shares
("Convertible Securities") or any options, warrants or other rights to
purchase any Common Shares or Convertible Securities ("Options"). All
such outstanding Options constitute the valid and binding obligations
of the Company, enforceable against the Company in accordance with
their respective terms. None of the outstanding Common Shares, Options
or Convertible Securities have been issued in violation of any
preemptive or similar right of any securityholder of the Company, and
none of the holders of the outstanding Common Shares, Options or
Convertible Securities is subject to personal liability solely by
reason of being such a holder. The offers and sales of the outstanding
Common Shares, Options and Convertible Securities were at all relevant
times exempt from registration or qualification under the Securities
Act and any applicable Blue Sky Laws and were in full compliance with
all applicable Canadian federal and provincial laws and stock exchange
regulations. Except as provided in Exhibit B hereto and except for
registration rights granted in connection with the acquisition by the
Company of Hearing Care Associates and proposed to be granted, in the
"SONUS" acquisition described in the Memorandum, no holder of any of
the Company's issued securities has any rights ("demand," "piggyback"
or otherwise) to have such securities registered under the Securities
Act.
(f) AUTHORIZATION OF SHARES AND WARRANTS. The issuance and
sale of the Special Warrants (including the Compensation Warrants), the
Dallas Research Option and the securities issuable upon the exercise of
any of the foregoing and of the Warrants and the Dallas Research
Warrants have been duly authorized, and when issued as contemplated by
the indentures or agreements relevant thereto, will be validly issued
and fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders.
None of such securities is or will be subject to preemptive rights of
any securityholder of the Company.
(g) NO ANTI-DILUTION ADJUSTMENT. The issuance of the
securities of the Company contemplated by this Agreement will not
result in any adjustment in the number of Common Shares, or the
exercise price or conversion ratio per Common Share, under any of the
Company's outstanding Options or Convertible Securities.
(h) NONCONTRAVENTION. Neither the Company nor any of its
Subsidiaries is in violation of, or in default under, any term or
provision of (i) its constating documents, (ii) any indenture,
mortgage, contract, commitment or other agreement or instrument to
which it is a party or by which it or any of its properties or business
is or may be bound or subject, or (iii) any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency
or court, Canadian or otherwise, having jurisdiction over the Company
or the Subsidiary or any of their respective properties or businesses.
The Company and each Subsidiary owns, possesses or has obtained all
governmental and other licenses, permits, certifications,
registrations, approvals or consents and other authorizations necessary
to own or lease, as the case may be, and to operate its
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properties and to conduct its business as currently conducted and
described in the Memorandum, and all such licenses, permits,
certifications, registrations, approvals, consents and other
authorizations are in good standing. There are no proceedings pending
or, to the best of the Company's knowledge, threatened, nor is there
any basis therefor, seeking to cancel, terminate or limit any such
licenses, permits, certifications, registrations, approvals or consents
or authorizations.
(i) LITIGATION. Except as set forth in the Memorandum, there
are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or
tribunal, Canadian or otherwise, or before any private arbitration
tribunal, pending or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary or involving the
properties or business of the Company or any Subsidiary which, if
determined adversely, would, individually or in the aggregate, result
in any material adverse change in the financial position, shareholders'
equity, results of operations, properties, business, management or
affairs of the Company and the Subsidiaries taken as a whole, or which
relate in any way to the validity of the capital stock of the Company
or the validity of this Agreement, or of any action taken or to be
taken by the Company pursuant to, or in connection with this Agreement,
nor, to the best of the Company's knowledge, is there any basis for any
such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any
court, governmental agency or other tribunal specifically naming the
Company or any Subsidiary and enjoining the Company or any Subsidiary
from taking, or requiring the Company or any Subsidiary to take, any
action, or to which the Company or any Subsidiary or its or their
properties or business is bound or subject.
(j) FINANCIAL STATEMENTS. Shikaze Ralston, the chartered
accountants who have rendered a report with respect to the financial
statements included in the Memorandum, are "independent public
accountants" within the meaning of the Securities Act and the
regulations promulgated under the Securities Act. The financial
statements and notes thereto included in the Memorandum are complete
and correct and present fairly the financial position of the Company as
of the dates thereof, and the results of operations and changes in
financial position of the Company for the periods indicated therein,
all in conformity with generally accepted accounting principles in
Canada applied on a consistent basis throughout the periods involved.
(k) LIABILITIES. Except as and to the extent reflected or
reserved against in the financial statements of the Company included in
the Memorandum, the Company as at July 31, 1996, had no material
liabilities, debts, obligations or claims asserted against it, whether
accrued, absolute, contingent or otherwise, and whether due or to
become due, including, but not limited to, liabilities on account of
taxes, other governmental charges or lawsuits brought subsequent to
such date.
(l) TAXES. The Company and each Subsidiary has filed all tax
returns required to be filed with the appropriate taxing authorities in
Canada and the United States, including all provincial, state,
municipal and other local authorities (whether
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relating to income, sales, franchise, withholding, real or personal
property or other types of taxes) or has duly obtained extensions of
time for the filing thereof, and has paid in full all taxes which have
become due pursuant to such returns or claimed to be due by any such
taxing authority or otherwise due and owing; and the provisions for
income taxes payable, if any, shown on the consolidated financial
statements contained in the Memorandum are sufficient for all accrued
and unpaid taxes, whether or not disputed, and for all periods to and
including the dates of such consolidated financial statements. Each of
the tax returns heretofore filed by the Company and each Subsidiary
correctly and accurately reflects the amount of its tax liability
thereunder. The Company and each Subsidiary has withheld, collected and
paid all other levies, assessments, license fees and taxes to the
extent required and, with respect to payments, to the extent that the
same have become due and payable. Except as disclosed in writing to
Dallas Research, neither the Company nor any Subsidiary has executed or
filed with any taxing authority, United States, Canada or otherwise,
any agreement extending the period for assessment or collection of any
income taxes and is not a party to any pending action or proceeding by
any foreign or domestic governmental agency for assessment or
collection of taxes, and no claims for assessment or collection of
taxes have been asserted against the Company.
(m) CONDUCT OF BUSINESS. Since the respective dates as of
which information is given in the Memorandum, neither the Company nor
any Subsidiary has (i) canceled, without payment in full, any notes,
loans or other obligations receivable or other debts or claims held by
it other than in the ordinary course of business; (ii) sold, assigned,
transferred, abandoned, mortgaged, pledged or subjected to lien any of
its properties, tangible or intangible, or rights under any contract,
permit, license, franchise or other agreement other than sales or other
dispositions of goods or services in the ordinary course of business at
customary terms and prices; (iii) increased the compensation payable to
any of its officers, directors or other employees (including salaries,
fringe benefits, pensions, profit participations and payments or
benefits of any kind whatsoever but excluding an increase of US $20,000
in the base annual salary of the Vice-President Finance); (iv) entered
into any line of business other than that conducted by it on such date
or entered into any transaction not in the ordinary course of its
business; (v) conducted any line of business in any manner except by
transactions customary in the operation of its business as conducted on
such date; or (vi) declared, made or paid or set aside for payment any
cash or non-cash distribution on any shares of its capital stock.
(n) PROPERTIES. The Company and each Subsidiary has good and
marketable title in fee simple to all real property, and good title to
all personal property (tangible and intangible), owned by it, free and
clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the
Memorandum or such as do not materially affect the value or
transferability of such property and do not interfere with the use of
such property made or proposed to be made by the Company or such
Subsidiary. The leases, licenses or other contracts or instruments
under which the Company and each Subsidiary leases, holds or is
entitled to use any property, real or personal, are valid, subsisting
and enforceable only with such exceptions as are not material and do
not interfere with the use of such property made, or proposed to be
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made, by the Company or such Subsidiary, and all rentals, royalties or
other payments accruing thereunder which became due prior to the date
of this Agreement have been duly paid, and neither the Company nor any
Subsidiary is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default thereunder.
Neither the Company nor any Subsidiary has received notice of any
violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties.
(o) INSURANCE. The Company and each Subsidiary has adequately
insured its properties against loss or damage by fire or other casualty
and maintains, in adequate amounts, such other insurance, including but
not limited to, liability insurance, as is usually maintained by
prudent companies engaged in the same or similar businesses.
(p) CONTRACTS. Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a
party, or to which the Company's or any Subsidiary's properties or
businesses are or may be subject, has been duly and validly executed,
is in full force and effect in all material respects and is enforceable
against the parties thereto in accordance with its terms, and none of
such contracts or instruments has been assigned by the Company or a
Subsidiary. Neither the Company nor the Subsidiary nor, to the best of
the Company's knowledge, any other party to such contract or instrument
is in default thereunder and, to the best of the Company's knowledge,
no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder. None of the
material provisions of such contracts or instruments violates any
existing applicable law, rule, regulation, judgment, order or decree of
any governmental agency or court having jurisdiction over the Company
or any Subsidiary or any of its or such Subsidiary's assets or
businesses.
(q) EMPLOYMENT AGREEMENTS. The employment agreements described
in the Memorandum under the caption "Management and Directors --
Employment and Consulting Agreements" are valid and binding agreements
enforceable against the Company and the respective other parties
thereto in accordance with their terms, except insofar as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors'
rights generally and subject to principles of equity.
(r) BENEFIT PLANS. Except for the Incentive Stock Option Plan
described in the Memorandum under the caption "Options to Purchase
Shares," the Company has no employee benefit plans (including, without
limitation, profit sharing and welfare benefit plans) or deferred
compensation arrangements.
(s) CONTRIBUTIONS. Neither the Company nor any Subsidiary,
directly or indirectly, at any time (i) made any contributions to any
candidate for political office, or failed to disclose fully any such
contribution in violation of law, or (ii) made any payment to any
governmental officer or official, or other person charged with public
or
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quasi-public duties, other than payments or contributions required or
allowed by applicable law.
(t) REG D QUALIFICATION. Subject to the warranties and
covenants of Dallas Research in Section 7.2 of this Agreement, the
offer and sale of the Special Warrants by the Company have satisfied
and on each Closing Date will have satisfied, all of the requirements
of Rule 506 of Reg D, and the Company is not disqualified from the
exemption under Rule 506 of Reg D by virtue of Rule 507 of Reg D
because neither it, nor any of its predecessors or affiliates has been
subject to any order, judgment, or decree of any court of competent
jurisdiction temporarily, preliminarily or permanently enjoining such
person for failure to comply with Rule 503 of Reg D.
(u) FINDER'S FEE. Except for amounts paid or payable pursuant
to the Agency Agreement, this Agreement and the U.S. Placement
Agreement dated the date hereof between the Company and Sunrise (the
"Sunrise Research Agreement"), neither the Company nor any Subsidiary
incurred any liability for, or is aware of any claim for, any finder's
or broker's fees or similar payments in connection with the Offering.
(v) INTANGIBLES. The Company and each Subsidiary owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade
secrets, confidential information, processes and formulations used or
proposed to be used in the conduct of its business as currently
conducted (collectively, the "Intangibles"). To the best of the
Company's knowledge, neither the Company nor any Subsidiary has
infringed upon, or is presently infringing upon, the rights of others
with respect to the Intangibles, and neither the Company nor any
Subsidiary has received (i) any notice that it has or may have
infringed or is infringing upon the rights of others with respect to
the Intangibles, or (ii) any notice of conflict with the asserted
rights of others with respect to the Intangibles which could, singly or
in the aggregate, materially and adversely affect its business as
presently conducted or its prospects, financial condition or results of
operations, and the Company does not know of any basis therefor. To the
best of the Company's knowledge, no others have infringed upon the
Intangibles.
(w) LABOR RELATIONS. Except as disclosed in the Memorandum, no
labor problem exists with the Company's employees or, to its knowledge,
is imminent, which could have a material adverse effect on the Company.
(x) NO ADVERSE CHANGE. Since the date of the latest audited
financial statements in the Memorandum, except as otherwise stated in
the Memorandum, the Company has not (i) incurred any material liability
or obligation, direct or contingent, or entered into any material
transaction, whether or not in the ordinary course of business, or
sustained any material loss or interference with its business from
fire, storm, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, and (ii) there have not been, and prior to the
Final Closing Date there will not be, any changes in the capital stock
or any material increases in the long-term debt of the Company or any
material
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adverse change in or affecting the general affairs, management,
financial condition, shareholders' equity, results of operations or
prospects of the Company.
In addition, any certificate signed by an officer of the Company and
delivered to Dallas Research, or to counsel for Dallas Research, shall be deemed
to be a representation and warranty by the Company to Dallas Research as to the
matters covered thereby.
6. COVENANTS OF THE COMPANY.
(a) PLACEMENT MEMORANDUM. The Company will furnish Dallas
Research, without charge, with as many copies of the Memorandum as
Dallas Research may reasonably request. If, prior to the Final Closing
Date, any event occurs as the result of which the Memorandum, as then
amended or supplemented, would include an untrue statement of a
material fact, or omit to state a material fact necessary in order to
make the statements made, in light of the circumstances in which they
were made, not misleading, or if it shall be necessary to amend or
supplement the Memorandum to comply with applicable law, the Company
will forthwith notify Dallas Research thereof and furnish to Dallas
Research, in such quantities as Dallas Research may reasonably request,
an amended or supplemental Memorandum which corrects such statements or
omissions or causes the Memorandum to comply with applicable law.
Without the prior written consent of Dallas Research, no copies of the
Memorandum or any other material prepared by the Company in connection
with the Offering will be given by the Company or its counsel, or by
any employee, director or agent of the Company, to any person in the
United States except as contemplated by the Dallas Research Agreement.
(b) ADDITIONAL INFORMATION. The Company will furnish Dallas
Research with such other information, documents and instruments as may
be required for an offer made solely to accredited investors under
Sections 3(b), 4(2) or 4(6) of the Securities Act and Reg D.
(c) STATE SECURITIES QUALIFICATION. The Company will provide
Dallas Research's counsel with all information which such counsel
determines to be necessary and otherwise cooperate with such counsel,
to permit such counsel to take all necessary action to (i) qualify or
register the Special Warrants for sale under the Blue Sky laws of the
states of the United States in which Dallas Research determines that
offers or sales will be made, or (ii) obtain an exemption from such
qualification or registration in such states. The Company will promptly
advise Dallas Research:
(A) Of any order, request or suggestion by a
securities regulator of any state for any amendment to the
Memorandum or any other filed materials, or for additional
information; and
(B) Of any action by a securities regulator of any
state suspending the registration or qualification of the
Special Warrants for offer or sale in such state or denying an
exemption from such registration or qualification, or of the
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initiation or threat of any proceeding for such purpose, and
the Company will use its best efforts to prevent such action,
or if such action shall be taken, to obtain the withdrawal
thereof at the earliest practicable date.
The Company will provide Dallas Research any additional information,
documents and instruments which Dallas Research shall deem necessary to
comply with the rules, regulations and judicial and administrative
interpretations in those states and jurisdictions where the Special
Warrants are to be offered for sale or sold. The Company will cooperate
with Dallas Research's counsel in filing all post-Offering forms,
documents or materials and take all other post-Offering actions
required by the Blue Sky laws of the states in which the Special
Warrants have been offered or sold.
(d) USE OF PROCEEDS. The Company will use its reasonable best
efforts to use the net proceeds of the Offering as set forth in the
Memorandum under the caption "Use of Proceeds."
(e) REG D COMPLIANCE; PROSPECTUS UNDERTAKINGS. The Company
will comply in all respects with the terms and conditions of Reg D and
applicable Blue Sky laws with respect to the offering and the sale of
the Special Warrants only to "accredited investors" within the meaning
of Rule 501(a) of Reg. D. The Company will perform and fulfill in all
respects the agreements and undertakings made by it in the Agency
Agreement and the Subscription Agreements with respect to filing and
obtaining receipts for a prospectus in Canada.
(f) RESTRICTION ON ISSUANCE OF SECURITIES. During the period
commencing on the date hereof and terminating on the Final Closing Date
the Company will not, without the prior written consent of Dallas
Research, issue any securities other than upon the exercise of rights
to acquire such securities exercised by holders of outstanding
Convertible Securities or Options of the Company described in the
Memorandum and other than stock options granted under the Plan
described under the caption "Options to Purchase Shares" in the
Memorandum.
(g) REGISTRATION RIGHTS. The Company will register Common
Shares under the Securities Act for the public resale thereof in the
United States in accordance with, and will be bound by the provisions
of, Exhibit B to this Agreement which is incorporated herein by
reference.
7. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY AND
DALLAS RESEARCH.
7.1. The Company hereby confirms the representations, warranties and
covenants made by it in Schedule A to the Agency Agreement as of the date made
and as of the date hereof.
7.2. The Company hereby represents and agrees to the following:
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(a) The Company was on September 23, 1996 (the date of the
sale of September Special Warrants under the Canadian Offer) a "foreign
issuer" as defined in Rule 902(f) of Regulation S and reasonably
believes that as of the date hereof there is and as of the dates of
issuance of the Special Warrants and the Common Shares and Warrants
(collectively, the "Securities") there will be no "substantial U.S.
market interest" (as defined in Rule 902(n) of Regulation S) in the
Securities.
(b) The Company is not an open-end investment company,
closed-end investment company, unit investment trust or face-amount
certificate company that is registered or required to be registered
under the United States Investment Company Act of 1940, as amended.
(c) Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (other than the Agent, Dallas
Research and Sunrise, as to which the Company makes no representation)
has taken or will take any action which would cause the safe harbor
provision afforded by Rule 903 of Regulation S to be unavailable for
the Canadian Offer or the private offering exemption under Section 4(2)
of the Securities Act to be unavailable for the Dallas Research Offer
or which would constitute a violation of Rule 10b-6 or Rule 10b-7 under
the United States Securities Exchange Act of 1934, as amended (the
"Exchange Act") under the Exchange Act.
(d) None of the Company, its affiliates or any person acting
on its or their behalf (other than the Agent, Dallas Research and
Sunrise as to which the Company makes no representation) has offered or
will offer to sell the Securities by means of any form of general
solicitation or general advertising (as those terms are used in Reg D)
or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(e) Neither the Company nor its affiliates nor any person
acting on its or their behalf (other than the Agent, Dallas Research
and Sunrise as to which the Company makes no representation) has
offered or will offer any of the Securities other than pursuant to the
Canadian Offer, the Dallas Research Agreement and this Agreement or has
made or will make any "directed selling efforts" within the meaning of
Rule 902(b) of Regulation S with respect to the Securities, to the
extent that any such action would cause the exemption afforded by
Regulation S to be unavailable for offers and sales in the Canadian
Offer.
7.3 Dallas Research represents and agrees to the following:
(a) it will comply in all respects with the terms and
conditions of Reg D and applicable Blue Sky laws with respect to the
offering and the sale of the Special Warrants only to "accredited
investors" within the meaning of Rule 501(a) of Reg D.
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<PAGE>
(b) it will not make offers or sales of the Special Warrants
in any jurisdiction in which the Special Warrants have not been
qualified or registered, or are not exempt from such qualification or
registration.
(c) it has not and will not engage in any "directed selling
efforts" within the meaning of Rule 902(b) of Regulation S or in any
general solicitation or advertising within the meaning of Reg D in
connection with the Dallas Research Offer, and (e) it has not and will
not take any action in connection with the Dallas Research Offer that
would constitute a violation of Rule 10b-6 or 10b-7 under the Exchange
Act.
8.(a) CONDITIONS TO DALLAS RESEARCH'S OBLIGATIONS. The obligations of
Dallas Research hereunder on each Closing Date will be subject to the accuracy
of the representations and warranties of the Company contained herein as of the
date hereof and as of such Closing Date, to the performance by the Company of
all its obligations hereunder and to the following additional conditions:
(i) DUE QUALIFICATION OR EXEMPTION. (A) The Dallas
Research Offer will have been registered or qualified, or be
exempt from registration or qualification, under the Blue Sky
laws of all necessary states pursuant to Section 6(c) above,
and (B) no order suspending the offer or sale of the Special
Warrants, will have been issued by the Commission or any other
governmental authority, and no proceeding for that purpose
will have been initiated or threatened;
(ii) NO MATERIAL MISSTATEMENTS. Dallas Research will
not have notified the Company that any Blue Sky law filing,
the Memorandum or any amendment or supplement thereto contains
an untrue statement of a fact which in Dallas Research's
opinion is material, or omits to state a fact which in its
opinion is material and is required to be stated therein or is
necessary to make the statements therein not misleading;
(iii) CERTIFICATE OF CHAIRMAN. The Company will have
delivered to Dallas Research a certificate of the Company's
Chairman, dated as of such Closing Date, to the effect that
all the representations and warranties of the Company set
forth in Section 5 and Section 7 of this Agreement remain true
and in full force and effect as of such Closing Date;
(iv) OPINION OF COUNSEL. Dallas Research will have
received from Ballem MacInnes, counsel to the Company, a
signed opinion, dated as of such Closing Date, substantially
in the form attached as Exhibit C hereto or in such other form
as may be proposed by Ballem MacInnes and is acceptable to
Dallas Research and its counsel; and
(v) LOCK-UP AGREEMENTS. Dallas Research will have
received from each director and each officer of the Company a
written undertaking in the form of Exhibit D hereto
prohibiting dispositions of Common Shares and other equity
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<PAGE>
securities of the Company without the prior written consent of
Dallas Research at any time prior to the date specified
therein.
(b) CONDITIONS OF THE COMPANY'S OBLIGATIONS. The obligations
of the Company hereunder on each Closing Date will be subject to the
accuracy of the representations and warranties of Dallas Research
contained herein as of the date hereof and as of such Closing Date, to
the performance by Dallas Research of its obligations hereunder and to
the following additional conditions:
(i) ABSENCE OF GOVERNMENT ACTION. No order
suspending the offer or sale of the Special Warrants will have
been issued by the Commission or any other governmental
authority, and no proceeding for that purpose will have been
initiated or threatened; and
(ii) NO MATERIAL MISSTATEMENTS. The Company will not
have notified Dallas Research that any Blue Sky law filing,
the Memorandum or any amendment or supplement thereto contains
an untrue statement of a fact which in the Company's opinion
is material, or omits to state a fact which in its opinion is
material and is required to be stated therein or is necessary
to make the statements therein not misleading, in each case
only with respect to information contained therein concerning
Dallas Research.
9. EXPENSES OF SALE. In addition to those items referred to in Section
4 hereof, the Company will pay or cause to be paid all costs and expenses
incident to the Dallas Research Offer, whether or not it is consummated,
including, without limitation, all taxes, if any, payable as a result thereof
and the fees, disbursements and expenses of (a) the Company's counsel and
accountants, (b) the preparation, printing or other reproduction and the mailing
of the Memorandum and other documents (all in such quantities as Dallas Research
may reasonably require), and (c) the registration or qualification of the
Special Warrants for offer and sale in the applicable states as provided in
Section 6(c), or obtaining exemptions from such registration or qualification,
including the fees, expenses and disbursements of Dallas Research's counsel in
connection therewith.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless Dallas Research and each person, if any,
who controls Dallas Research within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several,
to which Dallas Research or such controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of
a material fact contained (A) in the Memorandum, or (B) in any Blue Sky
law filing to the extent such statement was based on information
furnished by the Company, or (ii) the omission or alleged omission to
state in the Memorandum or in any Blue Sky law filing a material fact
required to be
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<PAGE>
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; and will reimburse Dallas Research and each such
controlling person for any legal or other expenses reasonably incurred
by Dallas Research or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Memorandum in reliance upon
and in conformity with written information furnished to the Company by
Dallas Research specifically for use in the Memorandum.
(b) INDEMNIFICATION BY DALLAS RESEARCH. Dallas Research agrees
to indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several, to which
the Company or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in the Memorandum, or (B) in any Blue Sky filing to
the extent such statement relates solely to Dallas Research, or (ii)
the omission or alleged omission to state a material fact required to
be stated in the Memorandum or (to the extent such omission was of a
material fact relating solely to Dallas Research) in any Blue Sky law
filing, or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided that Dallas Research will be liable in any such case based on
the Memorandum only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission in the Memorandum was
made in reliance upon and in conformity with written information
furnished to the Company by Dallas Research specifically for use in the
Memorandum.
(c) PROCEDURE. Promptly after receipt by an indemnified party
under this Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 10, notify in writing
the indemnifying party of the commencement thereof; and the omission so
to notify the indemnifying party will (unless the indemnifying party
was unaware of such action and was materially prejudiced by such
omission) relieve it from any liability under this Section 10 as to the
particular item for which indemnification is then being sought, but not
from any other liability which it may have to any indemnified party. In
case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent that it may wish, jointly with any other indemnifying party,
similarly notified, to assume the defense thereof, with counsel who
shall be to the reasonable satisfaction of such indemnified party, and
after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 10 for
any legal or other expenses subsequently incurred by such indemnified
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<PAGE>
party in connection with the defense thereof other than reasonable
costs of investigation; provided that if, in the reasonable judgment of
the indemnified party, it is advisable for the indemnified party to be
represented by separate counsel, the indemnified party shall have the
right to employ a single counsel in each jurisdiction to represent the
indemnified parties who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the indemnified
parties thereof against the indemnifying party, in which event the fees
and expenses of such separate counsel shall be borne by the
indemnifying party. Any such indemnifying party shall not be liable to
any such indemnified party on account of any settlement of any claim or
action effected without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 10 is unavailable to any indemnified party in respect to any
losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified
party, will contribute to the amount paid or payable by such
indemnified party, as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand,
and Dallas Research on the other hand, from the Offering, or (ii) if
the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand, and of Dallas Research
on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as
well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand, and Dallas Research
on the other hand, shall be deemed to be in the same proportion as the
total proceeds from the Dallas Research Offer before deducting
expenses) received by the Company, bear to the initial value of the
compensation and to Dallas Research pursuant to Section 4.1 of this
Agreement. The relative fault of the Company on the one hand, and
Dallas Research on the other hand, will be determined with reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company, and its relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount payable by a party as a result
of the losses, claims, damages, liabilities or expenses referred to
above will be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. The Company and Dallas Research agree
that it would not be just and equitable if contribution pursuant to
this Section 10 were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in this Section 10(d).
11. REPRESENTATIONS AND COVENANTS TO SURVIVE DELIVERY. All
representations, warranties and covenants of the Company and of Dallas Research
herein will survive the delivery and execution hereof and each Closing
hereunder, and shall remain operative and in full
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<PAGE>
force and effect regardless of any investigation made by or on behalf of Dallas
Research or any person who controls Dallas Research within the meaning of the
Securities Act, or by the Company or any person who controls the Company within
the meaning of the Securities Act, and will survive delivery of the Special
Warrants hereunder and any termination of this Agreement.
12. TERMINATION BY DALLAS RESEARCH. Dallas Research will have the right
to terminate this Agreement by giving written notice as herein specified, at any
time:
(a) If the Company shall have failed, refused, or been unable
to perform any of its obligations hereunder;
(b) If any condition set forth in Section 8 hereof is not
fulfilled; or
(c) If there has occurred an event materially or adversely
affecting the value of the Special Warrants.
If Dallas Research elects to terminate this Agreement pursuant to this Section
12, the Company will be notified promptly in accordance with Section 13 hereof.
If this Agreement is terminated pursuant to this Section 12 prior to the Final
Closing, the Company will reimburse Dallas Research for all reasonable
out-of-pocket disbursements (including fees and disbursements of Dallas
Research's counsel) actually incurred by Dallas Research in connection with the
Dallas Research Offer and not theretofore paid. Notwithstanding the foregoing,
nothing contained in this Section 12 shall imply that Dallas Research has
undertaken any commitment to sell the Special Warrants other than to use its
best efforts.
13. NOTICES. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or seven
business days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, to the appropriate party or parties, at the
following addresses: if to Dallas Research, to Dallas Research & Trading, Inc.,
4851 LBJ Freeway, Suite 400, Dallas, Texas 75244 (facsimile 972-239-2110),
Attention: Mr. Mark Still, with a copy to Carter, Ledyard & Milburn, 2 Wall
Street, New York, New York 10005, Attention: Steven J. Glusband (facsimile
212-732-3232); if to the Company, to HealthCare Capital Corp., 1120-595 Howe
Street, Vancouver, B.C. V6C 2T5, Canada, Attn: Douglas F. Good, with a copy to
Ballem MacInnes, 1800 First Canadian Centre, 350 - 7th Avenue S.W., Calgary,
Alberta T2P 3N9, Canada, Attn: William DeJong (facsimile 403-233- 8979), or, in
each case, to such other address as the parties may hereinafter designate by
like notice.
14. PARTIES. This Agreement will inure to the benefit of and be binding
upon Dallas Research, the Company and their respective successors and assigns.
This Agreement is intended to be, and is for the sole and exclusive benefit of
the parties hereto and the other indemnified parties described in subsections
10(a) and 10(b) hereof and Exhibit B hereto, and their respective successors and
assigns, and for the benefit of no other person, and no other person will have
any legal or equitable right, remedy or claim under, or in respect of this
Agreement. No purchaser
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<PAGE>
of any of the Special Warrants will be construed as successor or assign merely
by reason of such purchase.
15. AMENDMENT OR MODIFICATION. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated or in any manner other than by an instrument in writing signed by
each of the parties hereto.
16. FURTHER ASSURANCES. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intent and purposes of this
Agreement and to carry out its provisions.
17. VALIDITY. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
18. WAIVER OF BREACH. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understanding relating thereto, including without limitation,
that certain letter of intent dated August 23, 1996, between the Company and
Dallas Research, are superseded hereby. There are no conditions precedent to the
effectiveness of this Agreement other than as stated herein, and there are no
related collateral agreements existing between the parties that are not referred
to herein.
20. COUNTERPARTS. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
21. LAW. This Agreement will be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of New York. The Company (a) agrees that any legal suit,
action or proceeding arising out of or relating to this letter will be
instituted exclusively in the federal or state courts in Dallas, Texas, (b)
waives any objection which the Company may have now or hereafter to the venue of
any such suit, action or proceeding, and (c) irrevocably consents to the
jurisdiction of such courts in any such suit, action or proceeding. The Company
further agrees to accept and acknowledge service of any and all process which
may be served in any such suit, action or proceeding in such courts and agrees
that service of process upon the Company mailed by certified mail to the
Company's address will be deemed in every respect effective service of process
upon the Company, in any suit, action or proceeding.
- 19 -
<PAGE>
If the foregoing correctly sets forth our understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
will constitute a binding agreement between us dated for reference October 14,
1996 but effective November 7, 1996.
HEALTHCARE CAPITAL CORP.
By: /S/ DOUGLAS F. GOOD
Name: Douglas F. Good
Title: Chairman
CONFIRMED AND ACCEPTED: Confirmed as to Section 2:
DALLAS RESEARCH & TRADING, INC. C.M. OLIVER & COMPANY LIMITED
By: By: /S/ C. M. O'BRIAN
Name: Name: C. Michael O'Brian
Title: Title: Director and Chairman
- 21 -
<PAGE>
EXHIBIT A
AGENT'S SPECIAL OPTION
for Shares
of
HEALTHCARE CAPITAL CORP. (the "Company")
(Incorporated under the laws of Alberta)
THIS IS TO CERTIFY THAT, of o (the "Agent") is the registered holder of an
option whereby it is entitled, without payment of any additional consideration,
to be issued o warrants (the "Agent's Warrants") of HealthCare Capital Corp.
(the "Company") during the exercise period referred to below, subject to
adjustment as provided for herein. The Agent's Warrants will entitle the Agent
to purchase up to o common shares of the Company at a price of $1.25 (U.S.) per
share on or prior to August 31, 1998 unless cancelled earlier as described in
the certificate for the agent's Warrants. The Agent's Warrants will be in the
form attached as Schedule "B".
This Special Option may be exercised only at the offices The R-M Trust Company
(the "Transfer Agent"), at 600 The Dome Tower, 333 - 7th Avenue S.W., Calgary,
Alberta, T2P 2Z1, by completing the exercise form attached hereto as Schedule
"A".
The Company has covenanted under the placement agreement between the Company and
the Agent dated as of October 14, 1996 (the "Placement Agreement") that, among
other things, it will use its reasonable best efforts to expeditiously obtain
receipts for a final prospectus (the "Final Prospectus") from the securities
regulatory authority of each of British Columbia, Alberta and such other
jurisdictions as approved by the Agent and the Company (the "Qualifying
Jurisdictions"), for the purposes of qualifying, under the applicable laws of
such provinces, the distribution of the Agent's Warrants, issuable upon the
exercise of this Special Option. This Special Option will be deemed to have been
exercised by the Agent (without any further action on the part of the Agent), on
the earlier of the fifth business day following the day (the "Qualification
Date") on which a receipt is issued for the Final Prospectus by the last of the
securities regulatory authorities of the Provinces of the Qualifying
Jurisdictions and the first anniversary of the date of this Special Option (such
earlier date being herein called the "Deemed Exercise Date").
This Special Option may be exercised by the Agent during the period commencing
on the day this Special Option is issued and ending at 5:00 p.m. (Calgary time)
on the day prior to the Deemed Exercise Date. The Agent may not exercise less
than all of this Special Option.
If this Special Option is exercised by the Agent on or before the day prior to
the Qualification Date, the Agent's Warrants issued on the exercise may be
subject to statutory restrictions on
<PAGE>
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transfer and the Agent's Warrants will be endorsed with a legend stating that
they may not be traded in Alberta until the day which is one year from the date
of this Special Option.
On and after the date of any exercise or deemed exercise of this Special Option
evidenced by this Special Option Certificate, the Agent will have no rights
hereunder except to receive certificates representing the Agent's Warrants
registered in the names and amounts directed by the Agent upon surrender of this
Special Option to the Transfer Agent at its principal office in Calgary,
Alberta.
The number of common shares issuable upon the exercise or deemed exercise of
this Special Option shall be adjusted in the events and in the manner following
(a) If, after November 20, 1996, the Company consolidates or
subdivided its shares or pays a stock dividend, the number of
shares to be issued on the exercise of the Agent's Special
Option will be increased or decreased proportionately so that
the Agent's Special Option will entitle the Agent to the same
percentage of shares of the Company immediately after the
subdivision, consolidation or stock dividend as the Agent was
entitled to immediately before that event occurred.
(b) In case of any capital reorganization or reclassification of
the capital of the Company or the merger or amalgamation of
the Company with or into any other company after November 20,
1996, this Special Option will, after the capital
reorganization, reclassification of capital, merger or
amalgamation, confer the right to purchase the number of
shares or other securities of the Company or of the company
resulting from the capital reorganization, reclassification,
merger or amalgamation, as the case may be, which would have
been issued to the Agent if the Agent had fully exercised this
Special Option immediately before the capital reorganization,
reclassification, consolidation, merger or amalgamation and in
any such case, if necessary, appropriate adjustments will be
made in the application of the provisions of this Special
Option so that rights of the Agent after the event correspond
as nearly as possible to the rights of the Agent before the
event.
(c) The adjustments provided for herein are cumulative.
On presentation at the offices of the Transfer Agent as set out above, this
Special Option may be exchanged for the Agent's Warrants.
This Special Option is non-transferable other than to members of the Agent's
selling group, as contemplated in the Agency Agreement.
The Holding of this Special Option does not constitute the Agent a shareholder
of the Company or entitle it to any right or interest in respect thereof except
as otherwise provided herein.
Time will be of the essence hereof.
<PAGE>
- 3 -
IN WITNESS WHEREOF HealthCare Capital Corp. has caused this Special Option to be
signed by an officer duly authorized in that behalf as of November o, 1996.
HEALTHCARE CAPITAL CORP.
Authorized Signatory
<PAGE>
SCHEDULE "A"
NOTICE OF EXERCISE OF AGENT'S SPECIAL OPTION
TO: HEALTHCARE CAPITAL CORP.
c/o THE R-M TRUST COMPANY
600 The Dome Tower
333 - 7th Avenue S.W.
Calgary, Alberta
T2P 2Z1
The undersigned, o hereby exercises its right to be issued o warrants of
HealthCare Capital Corp. (the "Agent's Warrants") that are issuable pursuant to
an option.
The undersigned hereby irrevocably directs that the said Agent's Warrants be
issued and delivered as follows:
c/o o
DATED THIS day of , 19 .
---------- --------------------------------------- ------
Witness Signature
Position
<PAGE>
SCHEDULE "B"
No. B-1 HEALTHCARE CAPITAL CORP.
NON-TRANSFERABLE SHARE PURCHASE WARRANTS
THIS IS TO CERTIFY that for value received, o of o is entitled to purchase up to
o fully paid and non-assessable common shares of HealthCare Capital Corp. (the
"Company") pursuant to this share purchase warrant (the "Warrant") on the
following terms and conditions:
(a) the o common shares may be purchased at any time up to 5:00
p.m., Calgary Time, on August 31, 1998, unless cancelled
earlier in accordance with the terms and conditions attached
as Appendix I (the "Terms and Conditions");
(b) the exercise price is $1.25 (U.S.) per share;
(c) this Warrant may be exercised only at the offices of The R-M
Trust Company, 600 The Dome Tower, 333 - 7th Avenue S.W.,
Calgary, Alberta, T2P 2Z1, the Registrar and Transfer Agent of
the Company, or at the offices of another Registrar and
Transfer Agent appointed by the Company;
(d) this Warrant is non-transferable;
(e) this Warrant is subject to the Terms and Conditions.
The terms used in this certificate have the same meaning set out in the Terms
and Conditions.
DATED:
HEALTHCARE CAPITAL CORP.
c/s
By:
Authorized Signatory
COUNTERSIGNED BY:
THE R-M TRUST COMPANY
By:
Authorized Signatory
<PAGE>
Appendix I
WARRANT
HEALTHCARE CAPITAL CORP.
These are the terms and conditions attached to the non-transferable share
purchase warrant of Dallas Research & Trading Inc. issued by HealthCare Capital
Corp. (the "Warrant"):
1. INTERPRETATION
1.1 Definitions
In these terms and condition:
(a) "Company" means HealthCare Capital Corp. or a successor
corporation bound under this agreement pursuant to section 6;
(b) "Company's Auditors" means the independent firm of accountants
appointed from time to time as auditors of the Company;
(c) "Company's Registrar and Transfer Agent") means The R-M Trust
Company, of 600 The Dome Tower, 333 - 7th Avenue S.W.,
Calgary, Alberta, T2P 2Z1, or another registrar and transfer
agent of the Company duly appointed by the Company as its
registrar and transfer agent;
(d) "Director" means a director of the Company for the time being,
and reference, without more, to action by the directors means
action by the directors of the Company as a board, or whenever
duly empowered, action by a committee of the board;
(e) "person" means an individual, corporation, partnership,
trustee or any unincorporated organization;
(f) "Warrant"" means the share purchase warrant of the Company
authorized under subsection 2.1 and outstanding from time to
time.
(g) "shares" means the common shares in the capital of the Company
as it is constituted at the date of the Warrant and any shares
substituted for such shares or resulting from any subdivision
or consolidation of such shares;
(h) "Warrant Holder" or "Holder" means the bearer of the Warrant
for the time being; and
(i) Words importing the singular number include the plural and
vice versa and words importing the masculine gender include
the feminine and neuter genders.
<PAGE>
- 2 -
1.2 Interpretation Not Affected by Headings
The division of these terms and conditions into sections, subsections,
paragraphs and subparagraphs and the insertion of headings are for convenience
of reference only and do not affect the construction or interpretation of those
terms and conditions.
1.3 Applicable Law
The Warrant will be governed by the law of Alberta.
1.4 Currency
A reference to currency in the Warrant means United States dollars, unless
otherwise indicated.
2. ISSUE OF WARRANT
2.1 Issue of Warrant
The Warrant entitles the Warrant Holder to purchase an aggregate of opreviously
unissued common shares in the capital of the Company, subject to adjustment
under section 4.9 hereof.
2.2 Additional Warrant
The Warrant will not restrict the Company from issuing further shares in its
capital or rights to purchase shares while the Warrant is outstanding.
2.3 Issue in Substitution of Loss Warrant
If a Warrant is mutilated, lost, destroyed or stolen:
(a) the Company in its discretion may issue and deliver a new
Warrant in substitution for the one mutilated, lost, destroyed
or stolen, and the substituted Warrant will entitle the Holder
to the same rights and benefits as the mutilated, lost,
destroyed or stolen Warrant;
(b) the Company will be entitled to require the Holder to provide:
(i) appropriate evidence of ownership of the lost,
destroyed or mutilated Warrant;
(ii) proof of loss, destruction or mutilation of the
Warrant;
(iii) an indemnity in the amount and form acceptable to the
Company; and
(iv) payment of the reasonable costs of the Company to
replace the Warrant.
<PAGE>
- 3 -
2.4 Warrant Holder Not a Shareholder
The Warrant does not entitle the Holder to any rights as a share holder of the
Company.
3. TRANSFER AND NOTICE
3.1 Warrant Not Transferable
The Warrant is not transferable.
3.2 Notice to Warrant Holder
Any notice by the Company to a Holder may be delivered, mailed or sent by
facsimile. Notices delivered are deemed to be received on actual delivery.
Notices mailed are deemed to be received on the second business day after
mailing and notices sent by facsimile are deemed to be received at the time of
transmission.
3.3 Early Cancellation
Upon the acceptance for listing or quotation of the Company's shares on a
recognized stock exchange or national trading market in the United States, if
the closing bid for the Company's shares is not less than $3.00 (U.S.) per share
for a period of twenty consecutive trading days, the Company will have the
option, on 45 days written notice to the Holder, to force the exercise or
cancellation of the Warrant.
4. EXERCISE OF WARRANT
4.1 Method of Exercise of Warrant
The rights to acquire the shares of the Company granted by this Warrant
Certificate may be exercised by the Holder, in whole or in part (but not as to a
fractional Common Share), by:
(1) duly completing in the manner indicated and executing the
subscription form attached hereto;
(2) delivering and surrendering this Warrant certificate at the
offices of the Company's Registrar and Transfer Agent; and
(3) delivering to the Company's Registrar and Transfer Agent cash,
certified cheque or bank draft payable to the Company for the
amount then due to the Company for the number of shares
purchased on the exercise of this Warrant.
4.2 Effective Date of Issue
Any shares issued on the exercise of the Warrant will be issued effective on the
date the Warrant is surrendered and payment is made.
<PAGE>
- 4 -
4.4 Delivery of Share Certificates
Unless otherwise directed, the Company will, within ten days of the date a
Warrant is validly exercised, mail to the Holder a certificate or certificates
representing the shares purchased.
4.5 Subscription for Less than Entitlement
The Holder of any Warrant may subscribe for and purchase a number of shares less
than the number to which he is entitled to purchase pursuant to the surrendered
Warrant and the Company will deliver to the Holder a new Warrant representing
the right to purchase the balance of the shares which he was entitled to
purchase pursuant to the surrendered Warrant at the same price and on the same
terms and conditions as the surrendered Warrant.
4.6 Warrant for Fractions of Shares
The Warrant will not entitle the Holder to purchase a fraction of a share.
4.7 Expiry of Warrant
After the expiry of the period within which a Warrant is exercisable, all rights
will wholly cease and terminate and such Warrant will be void and of no effect.
4.8 Exercise Price
Except as adjusted pursuant to these terms and conditions, the exercise price of
the Warrant is the price set out on the face of the Warrant.
4.9 Adjustment of Number and Price
The exercise price and the number of shares deliverable upon the exercise of the
Warrant are subject to adjustment in the events and in the manner following:
(a) If, after November 20, 1996, the Company consolidates or
subdivides its shares or pays a stock dividend, the exercise
price and the number of shares to be issued on the exercise of
the Warrant will be increased or decreased proportionately so
that the Warrant will entitle the Holder to purchase the same
percentage of shares of the Company at the same total price
immediately after the subdivision, consolidation or stock
dividend as the Holder could purchase immediately before that
event occurred.
(b) In case of any capital reorganization or reclassification of
the capital of the Company or the merger or amalgamation of
the Company with or into any other company, after November 20,
1996, each Warrant will, after the capital reorganization,
reclassification of capital, merger or amalgamation, confer
the right to purchase the number of shares or other securities
of the Company or of the company resulting from the capital
reorganization, reclassification, merger or amalgamation, as
the case may be, which would have been issued to the Holder if
the Holder had fully exercised the Warrant immediately before
the capital reorganization, reclassification, consolidation,
merger or
<PAGE>
- 5 -
amalgamation and in any such case, if necessary, appropriate
adjustments will be made in the price and the application of
the provisions of the Warrant so that rights of the Holder
after the event correspond as nearly as possible to the rights
of the Holder before the event.
(c) The Adjustments provided for in this subsection are
cumulative.
4.10 Determination of Adjustments
Any disputes between the company and any Holder relating to adjustments made
under this section will be finally determined by the Company's Auditors or, if
they will not consent to determine the dispute, another firm of Chartered
Accountants in Calgary, Alberta, appointed by the Company.
5. COVENANTS BY THE COMPANY
5.1 General Covenants
The Company will reserve and set aside sufficient shares in its authorized
capital to issue all the shares which may be issued from time to time on the
exercise of the Warrant.
6. MODIFICATION OF TERMS, MERGER, SUCCESSORS
6.1 Modification of Terms and Conditions for Certain Purposes
The Company may modify these terms and conditions for any one or more or all of
the following purposes:
(a) to add to these terms and conditions any additional covenants
and enforcement provisions as, in the opinion of counsel for
the Company, are necessary or advisable to clarify or more
fully articulate the terms of the Warrant, if additional
covenants and enforcement provisions do not affect the
substantive rights or obligations of the Warrant Holder;
(b) to add to or alter the provisions of these terms and
conditions for the registration, transfer or exchange of the
Warrant which do not affect the substance of these terms and
conditions;
(c) for any other purpose not inconsistent with the terms hereof,
including the correction or rectification of any ambiguities,
defective provisions, errors or omissions herein; and
(d) to evidence the succession of any corporation and the
assumption by any successor of the covenants of the Company
under the Warrant.
6.2 Company May Merge on Certain Terms
<PAGE>
- 6 -
The Warrant will not prevent the Company from amalgamating or otherwise merging
with another corporation or corporations, if the resulting entity is bound or
agrees to be bound by the terms of the Warrant.
6.3 Successor Company Substituted
If the Company is amalgamated or otherwise merged with or into any other
corporation or corporations, the successor corporation formed by such
consolidation or amalgamation, or into which the Company is merged will be
substituted for the Company hereunder. such changes in phraseology and form (but
not in substance) may be made in the Warrant as may be appropriate in view of
such consolidation, amalgamation, merger or transfer.
<PAGE>
SUBSCRIPTION FORM
TO: HEALTHCARE CAPITAL CORP.
The undersigned holder of this Warrant hereby subscribes for previously unissued
common shares in the capital of HealthCare Capital Corp. (the "Company")
pursuant to this Warrant on the terms specified in the said Warrant. This
subscription is accompanied by a certified cheque or money order payable to the
Company for the whole amount of the purchase price of the said shares.
Please register the shares in the name and address appearing on the face of the
Warrant or as follows:
Name
Address
TOTAL:
Number of Shares
(Please print full name in which share certificates are to be issued.)
Dated this day of , 199 .
----------- ----------------------------------- ---
In the presence of:
Signature of Witness Signature of Warrant Holder
Name of Witness
<PAGE>
- 8 -
Address of Witness
<PAGE>
EXHIBIT B
1. REGISTRATION UNDERTAKINGS.
(a) For the purpose of this Exhibit B, the term "Registerable
Shares" shall mean the Common Shares of the Company issuable upon (i) the
exercise or deemed exercise of the Special Warrants (including the Compensation
Warrants) issued in connection with the Dallas Research Offer; (ii) the exercise
of the Warrants issued upon the exercise or deemed exercise of such Special
Warrants and (iii) the exercise of the Dallas Research Warrants issued upon the
exercise of the Dallas Research Option.
(b) At any time prior to the fourth anniversary of the Final
Closing Date, the holder or holders (the "Holders") of at least twenty percent
(20%) of the Registerable Shares (counting as Registerable Shares for this
purpose securities referred to in Section 1(a) above that are exercisable for
Registerable Shares) may request, in writing, that the Company register for
resale under the Securities Act not less than twenty percent (20%) of the
Registerable Shares. The Company will give prompt written notice (the "Notice")
of such request to each other Holder and will, as promptly as practicable (but
in any event within 60 days), after receipt of such request prepare and file
with the United States Securities and Exchange Commission (the "Commission") (at
the Company's own expense) a registration statement under the Securities Act
sufficient to permit the public offering of the Registerable Shares specified by
the Holders in the aforementioned request and such other Registerable Shares as
may be specified by other Holders by written notice to the Company given within
twenty (20) days after the receipt by them of the Notice. The Company will use
its reasonable best efforts to cause such registration statement to become
effective under the Securities Act as promptly as practicable and to maintain
such effectiveness so as to permit resale of the Registerable Shares covered
thereby until the earlier of the time that all such Registerable Shares have
been sold and the time that all such Registerable Shares may be sold pursuant to
the provisions of Rule 144(k) under the Securities Act; provided that the
Company shall only be obligated to file one such registration statement under
this Section 1(b).
(c) If at any time from and after the Final Closing Date the
Company proposes to register any of its securities under the Securities Act (on
a form other than Form S-4 or S-8 or their equivalents), the Company will (i)
promptly notify all Holders that such registration statement will be filed and
that the Registerable Shares which are then held by such Holders will be
included in such registration statement at their request and (ii) subject to the
last sentence of this subsection (c), cause such registration statement to cover
all Registerable Shares which it has been so requested to include by the
Holders, provided such request is delivered to the Company not later than 20
days after such notice is given to the Holders and specifies the number of
Registerable Shares to be included in the proposed registration statement.
Notwithstanding the foregoing provisions, if such registration statement relates
to an underwritten offer of Common Shares and the managing underwriter shall
inform in writing the Company and the Holders that the managing underwriter
believes that the number of shares requested to be included in such registration
statement would materially, adversely affect its
- 1 -
<PAGE>
ability to effect such offering, then the Company will include in such
registration statement the number of Common Shares which the Company is so
advised can be sold in (or during the time of) such offering as follows: First,
all shares proposed by the Company to be sold for its own account, and, second,
such Registerable Shares requested to be included in such registration, pro rata
by the Holders and other security holders having registration rights on the
basis of the number of Registerable Shares and other Common Shares so proposed
to be sold by the Holders and by such other security holders and so requested to
be included; PROVIDED, HOWEVER, that the Company shall be obligated to register
any Registerable Shares and other Common Shares so excluded from the
registration statement pursuant to a registration statement within ninety (90)
days after the effectiveness of such registration statement or such greater
number of days as may be specified in "lock-up" agreements entered into with the
managing underwriter.
(d) In connection with any registration statement filed
pursuant to this Section 1 (a "Registration Statement"), the Company shall take
such action as may be necessary to register or qualify the Registerable Shares
registered thereunder under the securities or blue sky laws of such states of
the United States as shall reasonably be requested by the prospective sellers,
and shall do any and all other acts which may be necessary or advisable to
permit the proposed sale or other disposition of such Registerable Shares in any
such state; provided that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation in any jurisdiction
where it is not already so qualified, or to execute a general consent for
service of process in suits other than those arising out of the offer and sale
of the Registerable Shares, or to take any action which would subject it to
taxation in any jurisdiction where it is not then so subject.
(e) The Company's obligations to register and qualify under
this Section 1 Registerable Shares of any Holder shall be conditioned in each
instance upon the timely receipt by the Company in writing of (1) information
from such Holder as to the proposed plan of distribution of such Holder's
Registerable Shares to be included in the Registration Statement, and (2) such
other information as the Company may reasonably require from such Holder for
inclusion in the Registration Statement.
(f) All fees, disbursements and out-of-pocket expenses (other
than any brokerage fees and commissions and legal fees of counsel to any Holder)
in connection with the Registration Statement (or seeking or obtaining the
opinion of counsel to the Company under Section 1(g) and, if in the sole
discretion of the Company deemed desirable, any no-action position of the
Commission with respect to sales pursuant to Rule 144 under the Securities Act)
and in complying with applicable state securities laws shall be borne by the
Company. The Company at its expense will supply the Holders of Registerable
Shares included in the Registration Statement with copies of such Registration
Statement and the prospectus included therein and in such quantities as may be
reasonably requested by them. In connection with each Registration Statement,
the Company shall furnish to Holders of Registerable Shares included therein
with such opinions of counsel, comfort letters of accountants, certificates and
such other documents that are customary in connection with underwritten public
offerings and that are reasonably requested by such Holders.
- 2 -
<PAGE>
(g) The Company shall not be required by this Section 1 to
file any Registration Statement relating to Registerable Shares of any Holder if
the Company shall furnish such Holder with a written opinion of counsel
reasonably satisfactory to such Holder to the effect that the proposed public
offering or other transfer of Registerable Shares as to which registration is
requested is exempt from the registration or qualification requirements of all
applicable federal and state securities laws and would result in all purchasers
or transferees thereof obtaining securities which are not "restricted
securities" as defined in Rule 144 under the Securities Act.
(h) If, after the date of the Memorandum, the Company grants
to any person registration rights which are more favorable to such person than
those afforded to the Holders under this Section 1, the Holders shall without
further action be entitled to the benefits of such more favorable rights.
2. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
pursuant to Section 1 hereof, the Company agrees to indemnify and hold harmless
each Holder of Registerable Shares identified as a selling security holder
therein and each person, if any, who controls such Holder within the meaning of
the Securities Act, against any and all losses, claims, damages or liabilities,
joint or several (including the costs of any reasonable investigation and legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted) to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, or any
related preliminary prospectus, final prospectus, or amendment thereof or
supplement thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company shall
not be liable under this Section 2(a) in any such case to the extent that any
such losses, claims, damages or liabilities arise solely out of or are based
upon an untrue statement of a material fact contained in or any omission of a
material fact from such Registration Statement, preliminary prospectus, final
prospectus or amendment thereof or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by such Holder
specifically for use therein. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Holder of Registerable Shares who is identified as a
selling security holder in a Registration Statement referred to in Section 2(a)
will agree, severally and not jointly, to indemnify and hold harmless the
Company, each other person referred to in subparts (1), (2) and (3) of Section
11(a) of the Securities Act in respect of such Registration Statement, and each
person, if any, who controls the Company or any such person within the meaning
of Section 15 of the Securities Act, against any and all losses, claims, damages
or liabilities (including costs of any reasonable investigation and legal and
other expenses incurred in
- 3 -
<PAGE>
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state law
or regulation, at common law, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, or any related preliminary prospectus,
final prospectus or amendment thereof or supplement thereto, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
omission was made in such Registration Statement, preliminary prospectus, final
prospectus or amendment thereof or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by such Holder
specifically for use therein. This indemnity agreement will be in addition to
any liability which a Holder may otherwise have to the Company.
(c) Any party that proposes to assert the right to be
indemnified under this Section 2 shall, promptly after receipt of notice of the
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section 2, notify each such indemnifying party of the commencement thereof,
enclosing a copy of all papers served. No indemnification provided for in
Section 2(a) or 2(b) shall be available to any party who shall fail to give
notice as provided in this Section 2(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice but the omission so
to notify such indemnifying party of any such action, suit or proceeding shall
not relieve it from any liability that it may have to any indemnified party
other than under this Section 2 or Section 3 below. In case any such action,
suit or proceeding is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, such indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof and the approval by the indemnified party of such
counsel (which shall not be unreasonably withheld), the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, suit or proceeding but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be differing or additional defenses available to it and not to one or more
of the indemnifying parties in such action, suit or proceeding so that it would
be inappropriate for counsel to represent both the indemnified party and the
indemnifying party in view of actual or potential conflicts of interest (in
which case if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying
party, the
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<PAGE>
indemnifying party shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such indemnified party); or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of the indemnified party's counsel
shall be at the expense of the indemnifying parties, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the Holders and their
controlling persons, which firm shall be designated in writing by a majority in
interest of such Holders (based upon the value of the securities included in the
Registration Statement). An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
3. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 2 is due in accordance with its terms but for any reason is held to be
unavailable or insufficient to hold harmless an indemnified party, the Company
on the one hand and any Holder on the other hand shall, in lieu of indemnifying
such indemnified party, contribute to the aggregate losses, claims, damages or
liabilities referred to in Section 2 above (including costs of any investigation
and legal and other expenses reasonably incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted), in such proportions as is appropriate to reflect the relative
benefits received by the Company and the Holders from any offering of
Registerable Shares and the relative fault of the Company and such Holder in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and any Holder shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission related to information supplied
by the Company (including for this purpose information supplied by any officer,
director, employee or agent of the Company) or to written information furnished
to the Company by or on behalf of such Holder specifically for use in the
preparation of the Registration Statement or any amendment thereof or supplement
thereto, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. It is understood
and agreed that it would not be just and equitable if contribution pursuant to
this Section 3 were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 3 in no case shall any Holder
(except as may be provided by agreement among them) be liable or responsible for
any amount in excess of the proceeds received by such Holder from the sale of
the Registerable Shares included in the Registration Statement, provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 3, each person, if any, who
controls a Holder within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
such Holder, and each person, if any, who controls the Company within the
meaning of the
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<PAGE>
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each
director of the Company and each officer of the Company who shall have signed
the Registration Statement shall have the same rights to contribution as the
Company, subject to the immediately preceding sentence of this Section 3. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 3, notify such party or parties from whom contribution may be
sought, and the omission so to notify such party or parties from whom
contribution may be sought shall relieve the party or parties from whom
contribution may be sought (if such party was unaware of such action suit,
proceeding and was materially prejudiced by such omission) from any liability
under this Section 3, but not from any other obligation it or they may have
hereunder or other than under this Section 3. No party shall be liable for
contribution with respect to the settlement of any action, suit, proceeding or
claim effected without its written consent. The obligations of the Holders to
contribute pursuant to this Section 3 are several in proportion to their
respective number of Registerable Shares included in the Registration Statement
and not joint.
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<PAGE>
EXHIBIT C
OPINION OF COMPANY COUNSEL
(A) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Alberta, with full corporate power and
authority to own or lease and operate its properties and to conduct its business
as described in the Memorandum.
(B) The Company is the direct or indirect beneficial owner of all of
the outstanding securities of each of the corporations (a "Subsidiary") listed
in Section 5(b) of the U.S. Placement Agreement. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full power and authority, corporate
and other, to own or lease and operate its properties and to conduct its
business as currently conducted, and is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where such
qualification is necessary and where failure so to qualify could have a material
adverse effect on its financial condition, results of operations, business,
properties or prospects. Except for the Subsidiaries, the Company has no
subsidiaries.
(C) Except as may be required under applicable securities laws in the
United States, no authorization, approval, consent, order, registration, license
or permit of any court or governmental agency or body is required for the valid
authorization, issuance, sale and delivery of the Special Warrants, the Common
Shares and Warrants issuable upon exercise of the Special Warrants, the Dallas
Research Option, the Dallas Research Warrants and the Common Shares issuable
upon the exercise of any of the foregoing, and the consummation by the Company
of all the transactions contemplated by the Subject Agreements.
(D) The Company has full power and authority, corporate and other, to
execute, deliver and perform the Subject Agreements and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Subject Agreements by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company with the
terms of the Subject Agreements have been duly authorized by all necessary
corporate action on the part of the Company. Each of the Subject Agreements has
been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by the other parties thereto, is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except insofar as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and by the discretion of courts in granting equitable
remedies, and except that enforceability of the indemnification provisions and
the contribution provisions set forth in the U.S. Placement Agreement may be
limited by the securities laws in the United States or the public policy
underlying such laws.
(E) The execution, delivery and performance of the Subject Agreements
by the Company, the consummation by the Company of the transactions therein
contemplated, and the
<PAGE>
compliance by the Company with the terms of the Subject Agreements do not, and
will not, with or without the giving of notice or the lapse of time, or both,
(1) result in a violation of the constating documents of the Company, (2) result
in a breach of or conflict with any terms or provisions of, or constitute a
default under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to, any indenture,
mortgage, note, contract, commitment or other agreement or instrument of which
we are aware and to which the Company is a party or by which the Company or any
of its properties or assets are or may be bound or affected, (3) violate any
existing applicable law, rule, regulation or, to the best of our knowledge, any
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
businesses, or (4) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company to own or lease and operate any of its properties and to conduct
its business or the ability of the Company to make use thereof.
(F) The Common Shares conform to the description thereof contained in
the Memorandum under the caption "Description of Securities." All the
outstanding Common Shares have been duly authorized and validly issued and are
fully paid and nonassessable. Except as set forth in Section 5(e) to the U.S.
Placement Agreement, there are no outstanding securities convertible into Common
Shares ("Convertible Securities") or any options, warrants or other rights to
purchase any Common Shares or Convertible Securities ("Options"). All such
Options constitute the valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms. None of the
outstanding Common Shares, Options or Convertible Securities has been issued in
violation of the preemptive rights of any securityholder of the Company, and
none of the holders of the outstanding Common Shares, Options or Convertible
Securities is subject to personal liability solely by reason of being such a
holder. The offers and sales of the outstanding Common Shares, Options and
Convertible Securities were in full compliance with all applicable Canadian
federal and provincial laws. To the best of our knowledge, after due
investigation, except as described in the Memorandum or as provided in Section
5(e) of the U.S. Placement Agreement, no holder of any of the Company's issued
securities has any rights ("demand," "piggyback" or otherwise) to have such
securities registered under the Securities Act.
(G) The issuance and sale of the Special Warrants (including the
Compensation Warrants), the Warrants, and the Dallas Research Warrants and the
securities issuable upon the exercise of such warrants have been duly
authorized, and when they are issued as contemplated by the Agreements, will be
validly issued, and, in the case of Common Shares, fully paid and nonassessable,
and the holders thereof will not be subject to personal liability solely by
reason of being such holders. None of such warrants or other securities will be
subject to preemptive rights of any security-holder of the Company.
(H) The certificates representing the securities referred to in (G)
above are in proper legal form.
<PAGE>
(I) The descriptions in the Memorandum of statutes, regulations,
government classifications, contracts, instruments and other documents have been
reviewed by us and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and there
are no material statutes, regulations or government classifications or, to the
best of our knowledge, after due investigation, material contracts or documents,
which should be described in the Memorandum that are not so described. None of
the material provisions of the contracts or instruments described above violates
any existing applicable law, rule, regulation, or, to the best of our knowledge,
any judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its assets or businesses. To the best of
our knowledge, the Company is not in default under any contract or agreement
material to its business or under any promissory note or other evidence of
indebtedness for borrowed funds.
(J) Upon delivery of the Special Warrants (including the Compensation
Warrants) and the Dallas Research Warrants as provided in the U.S. Placement
Agreement, the persons acquiring the same will acquire good title thereto free
and clear of all liens, encumbrances, equities, security interests and claims,
other then such liens, encumbrances, equities, security interests or claims
placed on the securities by such persons.
(K) To the best of our knowledge, after due investigation, the Company
is not in violation of, or in default under, any term or provision of (i) its
constating documents, (ii) any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its properties or business is or may be bound or subject, or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, Canadian or otherwise, having jurisdiction over the Company or
any Subsidiary or any of their respective properties or businesses. The Company
owns, possesses or has obtained all governmental and other licenses, permits,
certifications, registrations, approvals or consents and other authorizations
necessary to own or lease, as the case may be, and to operate its properties and
to conduct its business as currently conducted and described in the Memorandum,
and all such licenses, permits, certifications, registrations, approvals,
consents and other authorizations are outstanding and in good standing. To the
best of our knowledge, after due investigation, there are no proceedings pending
or threatened, nor is there any basis therefor, seeking to cancel, terminate or
limit such licenses, permits, certifications, registrations, approvals or
consents or authorizations.
(L) To the best of our knowledge, after due investigation, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, Canadian or otherwise, or
before any private arbitration tribunal, pending or threatened against the
Company, or involving the properties or business of the Company which, if
determined adversely to the Company, would, individually or in the aggregate,
result in any material adverse change in the financial position, shareholders'
equity, results of operations, properties, business, management or affairs of
the Company, or which relate in any way to the validity of the capital stock of
the Company or the validity of the U.S. Placement Agreement or of any action
taken or to be taken by the Company pursuant to, or in connection with, the U.S.
Placement Agreement.
<PAGE>
(M) The Company and the Subsidiaries own or possess adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of their businesses
currently conducted and described in the Memorandum (collectively, the
"Intangibles"). To the best of our knowledge, after due investigation, neither
the Company nor any Subsidiary has infringed upon, and is not infringing upon,
the rights of others with respect to the Intangibles, and we are not aware of
any licenses with respect to the Intangibles which are required to be obtained
by the Company; and, to the best of our knowledge, no other party has infringed
or is infringing upon the Intangibles.
While we have not made any independent investigation of, are
not passing upon, and do not assume responsibility for, the accuracy or
completeness of the statements contained in the Memorandum (other than as
indicated in paragraph (F) of this opinion), on the basis of discussions
regarding the business and affairs of the Company and our familiarity with such
business and affairs as a result of having served as counsel for the Company,
nothing has come to our attention that would lead us to believe that the
Memorandum (other than the financial statements and notes and other financial
and statistical data included therein, as to which we express no view) contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
<PAGE>
UNDERTAKING
The undersigned officer or director of HealthCare Capital
Corp., an Alberta corporation (the "Company"), pursuant to the provisions of
Section 8(a)(v) of the U.S. Placement Agreements dated for reference October 14,
1996 relating to the private placement of Special Warrants of the Company,
hereby agrees that he shall not, directly or indirectly, without the prior
written consent of Sunrise Securities Corporation ("Sunrise") and Dallas
Research & Trading, Inc. ("Dallas Research") offer, sell or otherwise dispose or
contract to dispose of (or announce any offer, sale, grant of any option to
purchase, or other disposition of) any Common Shares or other equity securities
of the Company at any time prior to the earliest of (a) date on which Dallas
Research and Sunrise may effect without registration under the United States
Securities Act of 1933, as amended, an offer and sale to the public in the
United States of the Common Shares of the Company acquired by them on the
exercise of the Warrants granted to them as compensation pursuant to Section 4.1
of the aforementioned U.S. Placement Agreements, (b) the date on which said
Common Shares are so registered, and (c) the date on which said Common Shares
are eligible for trading through the facilities of the Alberta Stock Exchange.
IN WITNESS WHEREOF, I have signed this Undertaking as of the
15th day of November, 1996.
/s/ Brandon M. Dawson
/s/ Gregory J. Frazer
/s/ Douglas F. Good
/s/ Edwin J. Kawasaki
/s/ Kathy Foltner
/s/ William DeJong
/s/ Gene K. Balzer, Ph.D.
/s/ Hugh T. Hornibrook
/s/ Randall E. Drullinger
<PAGE>
HEALTHCARE CAPITAL CORP.
1120-595 Howe Street
Vancouver, B.C. V6C 2T5
Canada
U.S. PLACEMENT AGREEMENT
October 14, 1996
Sunrise Securities Corporation
135 East 57th Street, 11th Floor
New York, New York 10022
Ladies and Gentlemen:
HealthCare Capital Corp., an Alberta corporation (the "Company"),
hereby confirms its agreement with you ("Sunrise") as follows:
1. DESCRIPTION OF TRANSACTION. The Company is in the process of
offering and selling in a private offering (the "Offering") up to 4,810,000
special warrants in the capital of the Company (the "Special Warrants") at a
price of U.S. $1.25 per Special Warrant for gross proceeds of up to U.S.
$6,012,500 and, in an Agency Agreement (the "Agency Agreement") dated August 22,
1996 between it and C.M. Oliver & Company Limited (the "Agent") appointed the
Agent as the Company's project manager for the Offering and as its exclusive
agent in Canada, on a best efforts basis, to solicit subscriptions under the
Offering from persons resident in certain provinces of Canada (the "Canadian
Offer"). The Canadian Offer was completed, with the sale thereunder of 810,000
Special Warrants, on September 23, 1996. Each Special Warrant entitles the
holder thereof to receive, without the payment of any additional consideration,
one common share in the capital of the Company (a "Common Share") and one share
purchase warrant (a "Warrant") entitling the holder thereof to purchase, until
August 31, 1998, one Common Share at a price of U.S. $2.00.
2. APPOINTMENT OF SUNRISE. The Company hereby appoints Sunrise as its
co-agent to solicit subscriptions in the United States, on a best efforts basis,
for up to 2,000,000 Special Warrants constituting a part of the Offering (the
"Sunrise Offer"). (Dallas Research & Trading Inc. ("Dallas Research") may as
co-agent solicit subscriptions for an additional 2,000,000 Special Warrants).
Sunrise, on the basis of the representations, warranties, covenants and
agreements of the Company herein, and subject to the conditions herein, accepts
such appointment and agrees, in connection with the Offering that it will
endeavor to obtain, on a best efforts basis, subscribers ("Subscribers") for the
Special Warrants offered as part of the Sunrise Offer. By executing this
Agreement, the Agent: (a) consents to the execution, delivery and
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<PAGE>
performance by the Company and Sunrise of this Agreement; (b) makes for itself
the representations and agreements made by the Company in Sections 7.2(c), (d)
and (e) of this Agreement (deleting for this purpose the parenthetical
exclusions contained therein); and (c) confirms the representations, warranties
and covenants made by it in Schedule A to the Agency Agreement as of the date
made and as of the date hereof.
3. PURCHASE, SALE AND DELIVERY OF UNITS. Subject to the terms and
conditions set forth herein, the Company and Sunrise agree as follows:
(a) REGULATION D OFFERING. Neither the offer nor the sale of
the Special Warrants has been or will be registered with the United
States Securities and Exchange Commission (the "Commission") under the
United States Securities Act of 1933, as amended (the "Securities
Act"). The Special Warrants will be offered and sold pursuant to the
Sunrise Offer in reliance upon and in compliance with the exemptions
from registration provided by Sections 3(b), 4(2) and 4(6) of the
Securities Act and Regulation D thereunder ("Reg D") and will only be
sold to "accredited investors" as such term is defined in Reg D. Such
Special Warrants will be offered for sale only in those states in which
the Special Warrants shall have been qualified or registered for sale
or are exempt from such qualification or registration. The Company will
provide Sunrise, for delivery to all offerees and purchasers and their
representatives, copies of the United States Confidential Offering
Memorandum dated October 16, 1996 of the Company (the "Memorandum") and
such other information, documents and instruments which Sunrise deems
necessary to comply with the statutes, rules, regulations and judicial
and administrative interpretations applicable to the Sunrise Offer.
(b) SUBSCRIPTION FOR SPECIAL WARRANTS. Purchase of Special
Warrants shall occur by execution and delivery by a Subscriber of two
copies of a Subscription Agreement in the form annexed to the
Memorandum (the "Subscription Agreement"), together with such other
documents and instruments as the Company or Sunrise shall deem
appropriate.
(c) SEGREGATION OF FUNDS. Each Subscriber shall tender a check
or money order payable to "Sunrise Securities Corporation, as agent for
HealthCare Capital Corp.," or wire transfer funds to the Escrow Account
(defined below), in payment of the full purchase price of the Special
Warrants subscribed for. The proceeds of such checks and such funds
shall be held in an escrow account (the "Escrow Account") at United
States Trust Company of New York (the "Bank"). Fees charged by the Bank
in connection with the Escrow Account shall be paid by the Company and
the Company shall be entitled to any interest earned in the Escrow
Account.
(d) CLOSING; TERMINATION OF OFFERING. The Closing of the
Sunrise Offer (the "Final Closing") shall occur on November 15, 1996 or
such later date as may be mutually agreed upon by the Company and
Sunrise (the "Final Closing Date"). By mutual agreement of the Company
and Sunrise, an interim closing (the "Initial Closing") of the Sunrise
Offer may occur prior to the Final Closing Date. Each of the Initial
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Closing and the Final Closing is referred to herein as a "Closing" and
the date on which each occurs is referred to herein as a "Closing
Date". At each Closing, the Company shall deliver to Sunrise, on behalf
of the appropriate Subscribers, the certificates representing the
Special Warrants being purchased by such Subscribers at such Closing
against payment therefor out of the Escrow Account. In the event that
no Special Warrants are sold hereunder, on the Final Closing Date all
terms of this Agreement shall be automatically terminated and neither
party shall have any further obligation to the other party under this
Agreement other than the Company's obligation to pay expenses as set
forth in Section 4.3 and Section 9 of this Agreement.
4. COMPENSATION OF SUNRISE.
4.1. At each Closing, the Company shall pay Sunrise (or, subject to
applicable securities laws, its designee), as compensation for its services
rendered under this Agreement, the following:
(a) A selling commission equal to 9% of the gross proceeds
from the sale of Special Warrants at such Closing, payable, at the
option of Sunrise, in cash or in Special Warrants (the "Compensation
Warrants") valued for this purpose at U.S. $1.25 per Special Warrant;
and
(b) A special option in the form of Exhibit A hereto (the
"Sunrise Option") entitling Sunrise to acquire without the payment of
any consideration warrants (the "Sunrise Warrants") to purchase, at an
exercise price of U.S. $1.25 per share, Common Shares in a number equal
to 10% of the number of Special Warrants sold at such Closing.
In addition, at each Closing the Company shall, to the extent not theretofore
paid, pay to Sunrise a non-refundable consulting fee equal to 1% of the gross
proceeds from the sale of Special Warrants in the Sunrise Offer (not to exceed
U.S. $25,000) for financial advisory services to be rendered by Sunrise to the
Company.
4.2. The Compensation Warrants, the Sunrise Option, the securities
issuable upon the exercise or deemed exercise of each, and the Common Shares
issuable upon exercise of the Sunrise Warrants and of the Warrants acquired upon
the exercise or deemed exercise of the Compensation Warrants will all be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and the certificates therefor (and any certificates issued in exchange therefor
or replacement thereof) shall bear an appropriate restrictive legend reflecting
applicable restrictions on transfer.
4.3. In addition to the compensation payable to Sunrise under Section
4.1 of this Agreement, the Company shall, at each Closing, pay, or reimburse
Sunrise for, the previously unpaid reasonable fees, disbursements and costs of
Carter, Ledyard & Milburn, legal counsel to Sunrise, in connection with this
Agreement and the transactions contemplated hereby and in
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<PAGE>
connection with the Agency Agreement and the Dallas Research Agreement
(hereinafter defined).
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Sunrise as follows:
(a) OFFERING MEMORANDUM. The Memorandum, as of its date and as
of the date of this Agreement does not, and at all subsequent times up
to and including the Final Closing Date will not, contain any untrue
statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading.
(b) ORGANIZATION; GOOD STANDING; SUBSIDIARIES. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of Alberta, with full power and authority, corporate and
other, to own or lease and operate its properties and to conduct its
business as currently conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in the States
of Oregon and Washington, the only jurisdictions in which such
qualification is necessary and where failure so to qualify could have a
material adverse effect on the financial condition, results of
operations, business, properties or prospects of the Company and its
Subsidiaries taken as a whole. The Company is the direct or indirect
beneficial owner of all of the outstanding securities of the following
corporations (each, a "Subsidiary" and, collectively, the
"Subsidiaries"):
HC HealthCare Hearing Clinics Ltd., a British Columbia
corporation;
Pacific Hearing Clinic Inc., a British Columbia corporation;
Oakridge Hearing Clinic Inc., a British Columbia corporation;
HealthCare Hearing Clinics Inc., a Washington corporation; and
Pacific Audiology Inc., a British Columbia corporation.
Each Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation,
with full power and authority, corporate and other, to own or lease and
operate its properties and to conduct its business as currently
conducted, and is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where such
qualification is necessary and where failure so to qualify could have a
material adverse effect on its financial condition, results of
operations, business, properties or prospects. Except for the
Subsidiaries, the Company has no subsidiaries.
(c) GOVERNMENTAL AUTHORITY. Except as may be required under
applicable state securities laws in the United States ("Blue Sky
laws"), no authorization, approval,
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<PAGE>
consent, order, registration, license or permit of any court or
governmental agency or body, is required for the valid authorization,
issuance, sale and delivery of the Special Warrants, the securities
issuable upon the exercise or deemed exercise of the Special Warrants
and upon the exercise of the Warrants issued upon the exercise or
deemed exercise, and the securities referred to in Section 4.2, and the
consummation by the Company of all the transactions contemplated by
this Agreement, the Subscription Agreements, the Sunrise Option, the
Sunrise Warrants, the indenture dated as of September 17, 1996 between
the Company and The R-M Trust Company relating to the Special Warrants
(the "Special Warrant Indenture") and the indenture dated as of
September 17, 1996 between the Company and The R-M Trust Company
relating to the Warrants (the "Warrant Indenture") (collectively, the
"Subject Agreements").
(d) AUTHORIZATION OF AGREEMENTS. The Company has full power
and authority, corporate and other, to execute, deliver and perform the
Subject Agreements and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Subject
Agreements by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company
with the terms of the Subject Agreements have been duly authorized by
all necessary corporate action on the part of the Company. This
Agreement, the Special Warrant Indenture and Warrant Indenture have
been, and the Subscription Agreement and the Sunrise Option will be,
duly executed and delivered by the Company and are or will be the valid
and binding obligations of the Company enforceable against the Company
in accordance with their respective terms, except insofar as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of
creditors generally and by the discretion of courts in granting
equitable remedies, and except that enforceability of the
indemnification provisions and the contribution provisions set forth in
this Agreement may be limited by the federal securities laws of the
United States or state securities laws or the public policy underlying
such laws. The execution, delivery and performance of the Subject
Agreements by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company
with the terms of the Subject Agreements do not, and will not, with or
without the giving of notice or the lapse of time, or both, (i) result
in any violation of the constating documents of the Company or any of
its Subsidiaries, (ii) result in a breach of or conflict with any of
the terms or provisions of, or constitute a default under, or result in
the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, any indenture, mortgage, note, contract,
commitment or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any
of its or their properties or assets are or may be bound or affected;
(iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or its
or their properties or business; or (iv) have any material adverse
effect on any permit, certification, registration, approval, consent,
license or franchise necessary for the Company or any Subsidiary to own
or lease and operate any of its
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properties and to conduct its business or the ability of the Company or
such Subsidiary to make use thereof.
(e) CAPITALIZATION. The Company had, at July 31, 1996, a duly
authorized and outstanding capitalization as set forth in the
Memorandum under the caption "Capitalization," and the Common Shares,
special warrants and warrants described in the description thereof
contained in the Memorandum under the caption "Description of Share
Capital" conform to such description. All the outstanding Common Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in the Memorandum and except as
contemplated by the Offering, there are, and until the Closing Date
there will be, no outstanding securities convertible into Common Shares
("Convertible Securities") or any options, warrants or other rights to
purchase any Common Shares or Convertible Securities ("Options"). All
such outstanding Options constitute the valid and binding obligations
of the Company, enforceable against the Company in accordance with
their respective terms. None of the outstanding Common Shares, Options
or Convertible Securities have been issued in violation of any
preemptive or similar right of any securityholder of the Company, and
none of the holders of the outstanding Common Shares, Options or
Convertible Securities is subject to personal liability solely by
reason of being such a holder. The offers and sales of the outstanding
Common Shares, Options and Convertible Securities were at all relevant
times exempt from registration or qualification under the Securities
Act and any applicable Blue Sky Laws and were in full compliance with
all applicable Canadian federal and provincial laws and stock exchange
regulations. Except as provided in Exhibit B hereto and except for
registration rights granted in connection with the acquisition by the
Company of Hearing Care Associates and proposed to be granted, in the
"SONUS" acquisition described in the Memorandum, no holder of any of
the Company's issued securities has any rights ("demand," "piggyback"
or otherwise) to have such securities registered under the Securities
Act.
(f) AUTHORIZATION OF SHARES AND WARRANTS. The issuance and
sale of the Special Warrants (including the Compensation Warrants), the
Sunrise Option and the securities issuable upon the exercise of any of
the foregoing and of the Warrants and the Sunrise Warrants have been
duly authorized, and when issued as contemplated by the indentures or
agreements relevant thereto, will be validly issued and fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. None of such
securities is or will be subject to preemptive rights of any
securityholder of the Company.
(g) NO ANTI-DILUTION ADJUSTMENT. The issuance of the
securities of the Company contemplated by this Agreement will not
result in any adjustment in the number of Common Shares, or the
exercise price or conversion ratio per Common Share, under any of the
Company's outstanding Options or Convertible Securities.
(h) NONCONTRAVENTION. Neither the Company nor any of its
Subsidiaries is in violation of, or in default under, any term or
provision of (i) its constating documents,
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(ii) any indenture, mortgage, contract, commitment or other agreement
or instrument to which it is a party or by which it or any of its
properties or business is or may be bound or subject, or (iii) any
existing applicable law, rule, regulation, judgment, order or decree of
any governmental agency or court, Canadian or otherwise, having
jurisdiction over the Company or the Subsidiary or any of their
respective properties or businesses. The Company and each Subsidiary
owns, possesses or has obtained all governmental and other licenses,
permits, certifications, registrations, approvals or consents and other
authorizations necessary to own or lease, as the case may be, and to
operate its properties and to conduct its business as currently
conducted and described in the Memorandum, and all such licenses,
permits, certifications, registrations, approvals, consents and other
authorizations are in good standing. There are no proceedings pending
or, to the best of the Company's knowledge, threatened, nor is there
any basis therefor, seeking to cancel, terminate or limit any such
licenses, permits, certifications, registrations, approvals or consents
or authorizations.
(i) LITIGATION. Except as set forth in the Memorandum, there
are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or
tribunal, Canadian or otherwise, or before any private arbitration
tribunal, pending or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary or involving the
properties or business of the Company or any Subsidiary which, if
determined adversely, would, individually or in the aggregate, result
in any material adverse change in the financial position, shareholders'
equity, results of operations, properties, business, management or
affairs of the Company and the Subsidiaries taken as a whole, or which
relate in any way to the validity of the capital stock of the Company
or the validity of this Agreement, or of any action taken or to be
taken by the Company pursuant to, or in connection with this Agreement,
nor, to the best of the Company's knowledge, is there any basis for any
such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any
court, governmental agency or other tribunal specifically naming the
Company or any Subsidiary and enjoining the Company or any Subsidiary
from taking, or requiring the Company or any Subsidiary to take, any
action, or to which the Company or any Subsidiary or its or their
properties or business is bound or subject.
(j) FINANCIAL STATEMENTS. Shikaze Ralston, the chartered
accountants who have rendered a report with respect to the financial
statements included in the Memorandum, are "independent public
accountants" within the meaning of the Securities Act and the
regulations promulgated under the Securities Act. The financial
statements and notes thereto included in the Memorandum are complete
and correct and present fairly the financial position of the Company as
of the dates thereof, and the results of operations and changes in
financial position of the Company for the periods indicated therein,
all in conformity with generally accepted accounting principles in
Canada applied on a consistent basis throughout the periods involved.
(k) LIABILITIES. Except as and to the extent reflected or
reserved against in the financial statements of the Company included in
the Memorandum, the Company as at
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July 31, 1996, had no material liabilities, debts, obligations or
claims asserted against it, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, including, but not limited
to, liabilities on account of taxes, other governmental charges or
lawsuits brought subsequent to such date.
(l) TAXES. The Company and each Subsidiary has filed all tax
returns required to be filed with the appropriate taxing authorities in
Canada and the United States, including all provincial, state,
municipal and other local authorities (whether relating to income,
sales, franchise, withholding, real or personal property or other types
of taxes) or has duly obtained extensions of time for the filing
thereof, and has paid in full all taxes which have become due pursuant
to such returns or claimed to be due by any such taxing authority or
otherwise due and owing; and the provisions for income taxes payable,
if any, shown on the consolidated financial statements contained in the
Memorandum are sufficient for all accrued and unpaid taxes, whether or
not disputed, and for all periods to and including the dates of such
consolidated financial statements. Each of the tax returns heretofore
filed by the Company and each Subsidiary correctly and accurately
reflects the amount of its tax liability thereunder. The Company and
each Subsidiary has withheld, collected and paid all other levies,
assessments, license fees and taxes to the extent required and, with
respect to payments, to the extent that the same have become due and
payable. Except as disclosed in writing to Sunrise, neither the Company
nor any Subsidiary has executed or filed with any taxing authority,
United States, Canada or otherwise, any agreement extending the period
for assessment or collection of any income taxes and is not a party to
any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes, and no
claims for assessment or collection of taxes have been asserted against
the Company.
(m) CONDUCT OF BUSINESS. Since the respective dates as of
which information is given in the Memorandum, neither the Company nor
any Subsidiary has (i) canceled, without payment in full, any notes,
loans or other obligations receivable or other debts or claims held by
it other than in the ordinary course of business; (ii) sold, assigned,
transferred, abandoned, mortgaged, pledged or subjected to lien any of
its properties, tangible or intangible, or rights under any contract,
permit, license, franchise or other agreement other than sales or other
dispositions of goods or services in the ordinary course of business at
customary terms and prices; (iii) increased the compensation payable to
any of its officers, directors or other employees (including salaries,
fringe benefits, pensions, profit participations and payments or
benefits of any kind whatsoever but excluding an increase of US $20,000
in the base annual salary of the Vice-President Finance); (iv) entered
into any line of business other than that conducted by it on such date
or entered into any transaction not in the ordinary course of its
business; (v) conducted any line of business in any manner except by
transactions customary in the operation of its business as conducted on
such date; or (vi) declared, made or paid or set aside for payment any
cash or non-cash distribution on any shares of its capital stock.
(n) PROPERTIES. The Company and each Subsidiary has good and
marketable title in fee simple to all real property, and good title to
all personal property (tangible
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and intangible), owned by it, free and clear of all security interests,
charges, mortgages, liens, encumbrances and defects, except such as are
described in the Memorandum or such as do not materially affect the
value or transferability of such property and do not interfere with the
use of such property made or proposed to be made by the Company or such
Subsidiary. The leases, licenses or other contracts or instruments
under which the Company and each Subsidiary leases, holds or is
entitled to use any property, real or personal, are valid, subsisting
and enforceable only with such exceptions as are not material and do
not interfere with the use of such property made, or proposed to be
made, by the Company or such Subsidiary, and all rentals, royalties or
other payments accruing thereunder which became due prior to the date
of this Agreement have been duly paid, and neither the Company nor any
Subsidiary is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default thereunder.
Neither the Company nor any Subsidiary has received notice of any
violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties.
(o) INSURANCE. The Company and each Subsidiary has adequately
insured its properties against loss or damage by fire or other casualty
and maintains, in adequate amounts, such other insurance, including but
not limited to, liability insurance, as is usually maintained by
prudent companies engaged in the same or similar businesses.
(p) CONTRACTS. Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a
party, or to which the Company's or any Subsidiary's properties or
businesses are or may be subject, has been duly and validly executed,
is in full force and effect in all material respects and is enforceable
against the parties thereto in accordance with its terms, and none of
such contracts or instruments has been assigned by the Company or a
Subsidiary. Neither the Company nor the Subsidiary nor, to the best of
the Company's knowledge, any other party to such contract or instrument
is in default thereunder and, to the best of the Company's knowledge,
no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder. None of the
material provisions of such contracts or instruments violates any
existing applicable law, rule, regulation, judgment, order or decree of
any governmental agency or court having jurisdiction over the Company
or any Subsidiary or any of its or such Subsidiary's assets or
businesses.
(q) EMPLOYMENT AGREEMENTS. The employment agreements described
in the Memorandum under the caption "Management and Directors --
Employment and Consulting Agreements" are valid and binding agreements
enforceable against the Company and the respective other parties
thereto in accordance with their terms, except insofar as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors'
rights generally and subject to principles of equity.
(r) BENEFIT PLANS. Except for the Incentive Stock Option Plan
described in the Memorandum under the caption "Options to Purchase
Shares," the Company has no
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<PAGE>
employee benefit plans (including, without limitation, profit sharing
and welfare benefit plans) or deferred compensation arrangements.
(s) CONTRIBUTIONS. Neither the Company nor any Subsidiary,
directly or indirectly, at any time (i) made any contributions to any
candidate for political office, or failed to disclose fully any such
contribution in violation of law, or (ii) made any payment to any
governmental officer or official, or other person charged with public
or quasi-public duties, other than payments or contributions required
or allowed by applicable law.
(t) REG D QUALIFICATION. Subject to the warranties and
covenants of Sunrise in Section 7.2 of this Agreement, the offer and
sale of the Special Warrants by the Company have satisfied and on each
Closing Date will have satisfied, all of the requirements of Rule 506
of Reg D, and the Company is not disqualified from the exemption under
Rule 506 of Reg D by virtue of Rule 507 of Reg D because neither it,
nor any of its predecessors or affiliates has been subject to any
order, judgment, or decree of any court of competent jurisdiction
temporarily, preliminarily or permanently enjoining such person for
failure to comply with Rule 503 of Reg D.
(u) FINDER'S FEE. Except for amounts paid or payable pursuant
to the Agency Agreement, this Agreement and the U.S. Placement
Agreement dated the date hereof between the Company and Dallas Research
(the "Dallas Research Agreement"), neither the Company nor any
Subsidiary incurred any liability for, or is aware of any claim for,
any finder's or broker's fees or similar payments in connection with
the Offering.
(v) INTANGIBLES. The Company and each Subsidiary owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade
secrets, confidential information, processes and formulations used or
proposed to be used in the conduct of its business as currently
conducted (collectively, the "Intangibles"). To the best of the
Company's knowledge, neither the Company nor any Subsidiary has
infringed upon, or is presently infringing upon, the rights of others
with respect to the Intangibles, and neither the Company nor any
Subsidiary has received (i) any notice that it has or may have
infringed or is infringing upon the rights of others with respect to
the Intangibles, or (ii) any notice of conflict with the asserted
rights of others with respect to the Intangibles which could, singly or
in the aggregate, materially and adversely affect its business as
presently conducted or its prospects, financial condition or results of
operations, and the Company does not know of any basis therefor. To the
best of the Company's knowledge, no others have infringed upon the
Intangibles.
(w) LABOR RELATIONS. Except as disclosed in the Memorandum, no
labor problem exists with the Company's employees or, to its knowledge,
is imminent, which could have a material adverse effect on the Company.
(x) NO ADVERSE CHANGE. Since the date of the latest audited
financial statements in the Memorandum, except as otherwise stated in
the Memorandum, the
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Company has not (i) incurred any material liability or obligation,
direct or contingent, or entered into any material transaction, whether
or not in the ordinary course of business, or sustained any material
loss or interference with its business from fire, storm, explosion,
flood or other casualty, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, and
(ii) there have not been, and prior to the Final Closing Date there
will not be, any changes in the capital stock or any material increases
in the long-term debt of the Company or any material adverse change in
or affecting the general affairs, management, financial condition,
shareholders' equity, results of operations or prospects of the
Company.
In addition, any certificate signed by an officer of the Company and
delivered to Sunrise, or to counsel for Sunrise, shall be deemed to be a
representation and warranty by the Company to Sunrise as to the matters covered
thereby.
6. COVENANTS OF THE COMPANY.
(a) PLACEMENT MEMORANDUM. The Company will furnish Sunrise,
without charge, with as many copies of the Memorandum as Sunrise may
reasonably request. If, prior to the Final Closing Date, any event
occurs as the result of which the Memorandum, as then amended or
supplemented, would include an untrue statement of a material fact, or
omit to state a material fact necessary in order to make the statements
made, in light of the circumstances in which they were made, not
misleading, or if it shall be necessary to amend or supplement the
Memorandum to comply with applicable law, the Company will forthwith
notify Sunrise thereof and furnish to Sunrise, in such quantities as
Sunrise may reasonably request, an amended or supplemental Memorandum
which corrects such statements or omissions or causes the Memorandum to
comply with applicable law. Without the prior written consent of
Sunrise, no copies of the Memorandum or any other material prepared by
the Company in connection with the Offering will be given by the
Company or its counsel, or by any employee, director or agent of the
Company, to any person in the United States except as contemplated by
the Dallas Research Agreement.
(b) ADDITIONAL INFORMATION. The Company will furnish Sunrise
with such other information, documents and instruments as may be
required for an offer made solely to accredited investors under
Sections 3(b), 4(2) or 4(6) of the Securities Act and Reg D.
(c) STATE SECURITIES QUALIFICATION. The Company will provide
Sunrise's counsel with all information which such counsel determines to
be necessary and otherwise cooperate with such counsel, to permit such
counsel to take all necessary action to (i) qualify or register the
Special Warrants for sale under the Blue Sky laws of the states of the
United States in which Sunrise determines that offers or sales will be
made,
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or (ii) obtain an exemption from such qualification or registration in
such states. The Company will promptly advise Sunrise:
(A) Of any order, request or suggestion by a
securities regulator of any state for any amendment to the
Memorandum or any other filed materials, or for additional
information; and
(B) Of any action by a securities regulator of any
state suspending the registration or qualification of the
Special Warrants for offer or sale in such state or denying an
exemption from such registration or qualification, or of the
initiation or threat of any proceeding for such purpose, and
the Company will use its best efforts to prevent such action,
or if such action shall be taken, to obtain the withdrawal
thereof at the earliest practicable date.
The Company will provide Sunrise any additional information, documents
and instruments which Sunrise shall deem necessary to comply with the
rules, regulations and judicial and administrative interpretations in
those states and jurisdictions where the Special Warrants are to be
offered for sale or sold. The Company will co-operate with Sunrise's
counsel in filing all post-Offering forms, documents or materials and
take all other post-Offering actions required by the Blue Sky laws of
the states in which the Special Warrants have been offered or sold.
(d) USE OF PROCEEDS. The Company will use its reasonable best
efforts to use the net proceeds of the Offering as set forth in the
Memorandum under the caption "Use of Proceeds."
(e) REG D COMPLIANCE; PROSPECTUS UNDERTAKINGS. The Company
will comply in all respects with the terms and conditions of Reg D and
applicable Blue Sky laws with respect to the offering and the sale of
the Special Warrants only to "accredited investors" within the meaning
of Rule 501(a) of Reg. D. The Company will perform and fulfill in all
respects the agreements and undertakings made by it in the Agency
Agreement and the Subscription Agreements with respect to filing and
obtaining receipts for a prospectus in Canada.
(f) RESTRICTION ON ISSUANCE OF SECURITIES. During the period
commencing on the date hereof and terminating on the Final Closing Date
the Company will not, without the prior written consent of Sunrise,
issue any securities other than upon the exercise of rights to acquire
such securities exercised by holders of outstanding Convertible
Securities or Options of the Company described in the Memorandum and
other than stock options granted under the Plan described under the
caption "Options to Purchase Shares" in the Memorandum.
(g) REGISTRATION RIGHTS. The Company will register Common
Shares under the Securities Act for the public resale thereof in the
United States in accordance with,
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and will be bound by the provisions of, Exhibit B to this Agreement
which is incorporated herein by reference.
7. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY AND SUNRISE.
7.1. The Company hereby confirms the representations, warranties and
covenants made by it in Schedule A to the Agency Agreement as of the date made
and as of the date hereof.
7.2. The Company hereby represents and agrees to the following:
(a) The Company was on September 23, 1996 (the date of the
sale of September Special Warrants under the Canadian Offer) a "foreign
issuer" as defined in Rule 902(f) of Regulation S and reasonably
believes that as of the date hereof there is and as of the dates of
issuance of the Special Warrants and the Common Shares and Warrants
(collectively, the "Securities") there will be no "substantial U.S.
market interest" (as defined in Rule 902(n) of Regulation S) in the
Securities.
(b) The Company is not an open-end investment company,
closed-end investment company, unit investment trust or face-amount
certificate company that is registered or required to be registered
under the United States Investment Company Act of 1940, as amended.
(c) Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (other than the Agent, Sunrise and
Dallas Research, as to which the Company makes no representation) has
taken or will take any action which would cause the safe harbor
provision afforded by Rule 903 of Regulation S to be unavailable for
the Canadian Offer or the private offering exemption under Section 4(2)
of the Securities Act to be unavailable for the Sunrise Offer or which
would constitute a violation of Rule 10b- 6 or Rule 10b-7 under the
United States Securities Exchange Act of 1934, as amended (the
"Exchange Act") under the Exchange Act.
(d) None of the Company, its affiliates or any person acting
on its or their behalf (other than the Agent, Sunrise and Dallas
Research as to which the Company makes no representation) has offered
or will offer to sell the Securities by means of any form of general
solicitation or general advertising (as those terms are used in Reg D)
or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(e) Neither the Company nor its affiliates nor any person
acting on its or their behalf (other than the Agent, Sunrise and Dallas
Research as to which the Company makes no representation) has offered
or will offer any of the Securities other than pursuant to the Canadian
Offer, the Dallas Research Agreement and this Agreement or has made or
will make any "directed selling efforts" within the meaning of Rule
902(b) of Regulation S with respect to the Securities, to the extent
that any such action would
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<PAGE>
cause the exemption afforded by Regulation S to be unavailable for
offers and sales in the Canadian Offer.
7.3 Sunrise represents and agrees to the following:
(a) it will comply in all respects with the terms and
conditions of Reg D and applicable Blue Sky laws with respect to the
offering and the sale of the Special Warrants only to "accredited
investors" within the meaning of Rule 501(a) of Reg D.
(b) it will not make offers or sales of the Special Warrants
in any jurisdiction in which the Special Warrants have not been
qualified or registered, or are not exempt from such qualification or
registration.
(c) it has not and will not engage in any "directed selling
efforts" within the meaning of Rule 902(b) of Regulation S or in any
general solicitation or advertising within the meaning of Reg D in
connection with the Sunrise Offer, and (e) it has not and will not take
any action in connection with the Sunrise Offer that would constitute a
violation of Rule 10b-6 or 10b-7 under the Exchange Act.
8.(a) CONDITIONS TO SUNRISE'S OBLIGATIONS. The obligations of Sunrise
hereunder on each Closing Date will be subject to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of such Closing Date, to the performance by the Company of all its
obligations hereunder and to the following additional conditions:
(i) DUE QUALIFICATION OR EXEMPTION. (A) The Sunrise
Offer will have been registered or qualified, or be exempt
from registration or qualification, under the Blue Sky laws of
all necessary states pursuant to Section 6(c) above, and (B)
no order suspending the offer or sale of the Special Warrants,
will have been issued by the Commission or any other
governmental authority, and no proceeding for that purpose
will have been initiated or threatened;
(ii) NO MATERIAL MISSTATEMENTS. Sunrise will not have
notified the Company that any Blue Sky law filing, the
Memorandum or any amendment or supplement thereto contains an
untrue statement of a fact which in Sunrise's opinion is
material, or omits to state a fact which in its opinion is
material and is required to be stated therein or is necessary
to make the statements therein not misleading;
(iii) CERTIFICATE OF CHAIRMAN. The Company will have
delivered to Sunrise a certificate of the Company's Chairman,
dated as of such Closing Date, to the effect that all the
representations and warranties of the Company set forth in
Section 5 and Section 7 of this Agreement remain true and in
full force and effect as of such Closing Date;
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<PAGE>
(iv) OPINION OF COUNSEL. Sunrise will have received
from Ballem MacInnes, counsel to the Company, a signed
opinion, dated as of such Closing Date, substantially in the
form attached as Exhibit C hereto or in such other form as may
be proposed by Ballem MacInnes and is acceptable to Sunrise
and its counsel; and
(v) LOCK-UP AGREEMENTS. Sunrise will have received
from each director and each officer of the Company a written
undertaking in the form of Exhibit D hereto prohibiting
dispositions of Common Shares and other equity securities of
the Company without the prior written consent of Sunrise at
any time prior to the date specified therein.
(b) CONDITIONS OF THE COMPANY'S OBLIGATIONS. The obligations
of the Company hereunder on each Closing Date will be subject to the
accuracy of the representations and warranties of Sunrise contained
herein as of the date hereof and as of such Closing Date, to the
performance by Sunrise of its obligations hereunder and to the
following additional conditions:
(i) ABSENCE OF GOVERNMENT ACTION. No order suspending
the offer or sale of the Special Warrants will have been
issued by the Commission or any other governmental authority,
and no proceeding for that purpose will have been initiated or
threatened; and
(ii) NO MATERIAL MISSTATEMENTS. The Company will not
have notified Sunrise that any Blue Sky law filing, the
Memorandum or any amendment or supplement thereto contains an
untrue statement of a fact which in the Company's opinion is
material, or omits to state a fact which in its opinion is
material and is required to be stated therein or is necessary
to make the statements therein not misleading, in each case
only with respect to information contained therein concerning
Sunrise.
9. EXPENSES OF SALE. In addition to those items referred to in Section
4 hereof, the Company will pay or cause to be paid all costs and expenses
incident to the Sunrise Offer, whether or not it is consummated, including,
without limitation, all taxes, if any, payable as a result thereof and the fees,
disbursements and expenses of (a) the Company's counsel and accountants, (b) the
preparation, printing or other reproduction and the mailing of the Memorandum
and other documents (all in such quantities as Sunrise may reasonably require),
and (c) the registration or qualification of the Special Warrants for offer and
sale in the applicable states as provided in Section 6(c), or obtaining
exemptions from such registration or qualification, including the fees, expenses
and disbursements of Sunrise's counsel in connection therewith.
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<PAGE>
10. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless Sunrise and each person, if any, who
controls Sunrise within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which
Sunrise or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in the Memorandum, or (B) in any Blue Sky law filing
to the extent such statement was based on information furnished by the
Company, or (ii) the omission or alleged omission to state in the
Memorandum or in any Blue Sky law filing a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; and will reimburse Sunrise and each such controlling person
for any legal or other expenses reasonably incurred by Sunrise or such
controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in the Memorandum in reliance upon and in conformity with
written information furnished to the Company by Sunrise specifically
for use in the Memorandum.
(b) INDEMNIFICATION BY SUNRISE. Sunrise agrees to indemnify
and hold harmless the Company and each person, if any, who controls the
Company within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which the Company
or such controlling person may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact
contained (A) in the Memorandum, or (B) in any Blue Sky filing to the
extent such statement relates solely to Sunrise, or (ii) the omission
or alleged omission to state a material fact required to be stated in
the Memorandum or (to the extent such omission was of a material fact
relating solely to Sunrise) in any Blue Sky law filing, or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that Sunrise will
be liable in any such case based on the Memorandum only to the extent
that such untrue statement or alleged untrue statement or omission or
alleged omission in the Memorandum was made in reliance upon and in
conformity with written information furnished to the Company by Sunrise
specifically for use in the Memorandum.
(c) PROCEDURE. Promptly after receipt by an indemnified party
under this Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 10, notify in writing
the indemnifying party of the commencement thereof; and the omission so
to notify the indemnifying party will (unless the indemnifying party
was unaware of such action and was materially prejudiced by such
omission) relieve it from
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any liability under this Section 10 as to the particular item for which
indemnification is then being sought, but not from any other liability
which it may have to any indemnified party. In case any such action is
brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to
assume the defense thereof, with counsel who shall be to the reasonable
satisfaction of such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation;
provided that if, in the reasonable judgment of the indemnified party,
it is advisable for the indemnified party to be represented by separate
counsel, the indemnified party shall have the right to employ a single
counsel in each jurisdiction to represent the indemnified parties who
may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the indemnified parties thereof
against the indemnifying party, in which event the fees and expenses of
such separate counsel shall be borne by the indemnifying party. Any
such indemnifying party shall not be liable to any such indemnified
party on account of any settlement of any claim or action effected
without the consent of such indemnifying party, which consent shall not
be unreasonably withheld.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 10 is unavailable to any indemnified party in respect to any
losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified
party, will contribute to the amount paid or payable by such
indemnified party, as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand,
and Sunrise on the other hand, from the Offering, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand, and of Sunrise on the other hand,
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses as well as any other
relevant equitable considerations. The relative benefits received by
the Company on the one hand, and Sunrise on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the
Sunrise Offer before deducting expenses) received by the Company, bear
to the initial value of the compensation and to Sunrise pursuant to
Section 4.1 of this Agreement. The relative fault of the Company on the
one hand, and Sunrise on the other hand, will be determined with
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Company, and its relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount payable by a party as a
result of the losses, claims, damages, liabilities or expenses referred
to above will be deemed to include any legal or other fees or expenses
reasonably incurred by such party
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in connection with investigating or defending any action or claim. The
Company and Sunrise agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata
allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in this Section
10(d).
11. REPRESENTATIONS AND COVENANTS TO SURVIVE DELIVERY. All
representations, warranties and covenants of the Company and of Sunrise herein
will survive the delivery and execution hereof and each Closing hereunder, and
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Sunrise or any person who controls Sunrise
within the meaning of the Securities Act, or by the Company or any person who
controls the Company within the meaning of the Securities Act, and will survive
delivery of the Special Warrants hereunder and any termination of this
Agreement.
12. TERMINATION BY SUNRISE. Sunrise will have the right to terminate
this Agreement by giving written notice as herein specified, at any time:
(a) If the Company shall have failed, refused, or been unable
to perform any of its obligations hereunder;
(b) If any condition set forth in Section 8 hereof is not
fulfilled; or
(c) If there has occurred an event materially or adversely
affecting the value of the Special Warrants.
If Sunrise elects to terminate this Agreement pursuant to this Section 12, the
Company will be notified promptly in accordance with Section 13 hereof. If this
Agreement is terminated pursuant to this Section 12 prior to the Final Closing,
the Company will reimburse Sunrise for all reasonable out-of-pocket
disbursements (including fees and disbursements of Sunrise's counsel) actually
incurred by Sunrise in connection with the Sunrise Offer and not theretofore
paid. Notwithstanding the foregoing, nothing contained in this Section 12 shall
imply that Sunrise has undertaken any commitment to sell the Special Warrants
other than to use its best efforts.
13. NOTICES. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or seven
business days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, to the appropriate party or parties, at the
following addresses: if to Sunrise, to Sunrise Securities Corporation, 135 East
57th Street, 11th Floor, New York, New York 10022 (facsimile 212-421-5924),
Attention: Mr. Alan Swerdloff, with a copy to Carter, Ledyard & Milburn, 2 Wall
Street, New York, New York 10005, Attention: Steven J. Glusband (facsimile
212-732-3232); if to the Company, to HealthCare Capital Corp., 1120-595 Howe
Street, Vancouver, B.C. V6C 2T5, Canada, Attn: Douglas F. Good, with a copy to
Ballem MacInnes, 1800 First Canadian Centre, 350 - 7th Avenue S.W., Calgary,
Alberta T2P 3N9, Canada, Attn: William DeJong (facsimile 403-233-
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<PAGE>
8979), or, in each case, to such other address as the parties may hereinafter
designate by like notice.
14. PARTIES. This Agreement will inure to the benefit of and be binding
upon Sunrise, the Company and their respective successors and assigns. This
Agreement is intended to be, and is for the sole and exclusive benefit of the
parties hereto and the other indemnified parties described in subsections 10(a)
and 10(b) hereof and Exhibit B hereto, and their respective successors and
assigns, and for the benefit of no other person, and no other person will have
any legal or equitable right, remedy or claim under, or in respect of this
Agreement. No purchaser of any of the Special Warrants will be construed as
successor or assign merely by reason of such purchase.
15. AMENDMENT OR MODIFICATION. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated or in any manner other than by an instrument in writing signed by
each of the parties hereto.
16. FURTHER ASSURANCES. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intent and purposes of this
Agreement and to carry out its provisions.
17. VALIDITY. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
18. WAIVER OF BREACH. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understanding relating thereto, including without limitation,
that certain letter of intent dated August 23, 1996, between the Company and
Sunrise, are superseded hereby. There are no conditions precedent to the
effectiveness of this Agreement other than as stated herein, and there are no
related collateral agreements existing between the parties that are not referred
to herein.
20. COUNTERPARTS. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
21. LAW. This Agreement will be deemed to have been made and delivered
in New York City and will be governed as to validity, interpretation,
construction, effect and in all other
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respects by the internal laws of the State of New York. The Company (a) agrees
that any legal suit, action or proceeding arising out of or relating to this
letter will be instituted exclusively in the Supreme Court of the State of New
York, County of New York, or in the United States District Court for the
Southern District of New York, (b) waives any objection which the Company may
have now or hereafter to the venue of any such suit, action or proceeding, and
(c) irrevocably consents to the jurisdiction of the Supreme Court of the State
of New York, County of New York, and the United States District Court for the
Southern District of New York in any such suit, action or proceeding. The
Company further agrees to accept and acknowledge service of any and all process
which may be served in any such suit, action or proceeding in such courts and
agrees that service of process upon the Company mailed by certified mail to the
Company's address will be deemed in every respect effective service of process
upon the Company, in any suit, action or proceeding.
If the foregoing correctly sets forth our understanding, please so
indicate in the space
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<PAGE>
provided below for that purpose, whereupon this letter will constitute a binding
agreement between us dated for reference October 14, 1996 but effective November
7, 1996.
HEALTHCARE CAPITAL CORP.
By: /S/ DOUGLAS F. GOOD
Name: Douglas F. Good
Title: Chairman
CONFIRMED AND ACCEPTED: Confirmed as to Section 2:
SUNRISE SECURITIES CORPORATION C.M. OLIVER & COMPANY
LIMITED
By: /S/ ALAN SWERDLOFF By: /S/ C. M. O'BRIAN
Name: Alan Swerdloff Name:
Title: Vice President Title:
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EXHIBIT A
[HERE WILL BE INSERTED THE SUNRISE OPTION AND RELATED WARRANT]
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<PAGE>
EXHIBIT B
1. REGISTRATION UNDERTAKINGS.
(a) For the purpose of this Exhibit B, the term "Registerable
Shares" shall mean the Common Shares of the Company issuable upon (i) the
exercise or deemed exercise of the Special Warrants (including the Compensation
Warrants) issued in connection with the Sunrise Offer; (ii) the exercise of the
Warrants issued upon the exercise or deemed exercise of such Special Warrants
and (iii) the exercise of the Sunrise Warrants issued upon the exercise of the
Sunrise Option.
(b) At any time prior to the fourth anniversary of the Final
Closing Date, the holder or holders (the "Holders") of at least twenty percent
(20%) of the Registerable Shares (counting as Registerable Shares for this
purpose securities referred to in Section 1(a) above that are exercisable for
Registerable Shares) may request, in writing, that the Company register for
resale under the Securities Act not less than twenty percent (20%) of the
Registerable Shares. The Company will give prompt written notice (the "Notice")
of such request to each other Holder and will, as promptly as practicable (but
in any event within 60 days), after receipt of such request prepare and file
with the United States Securities and Exchange Commission (the "Commission") (at
the Company's own expense) a registration statement under the Securities Act
sufficient to permit the public offering of the Registerable Shares specified by
the Holders in the aforementioned request and such other Registerable Shares as
may be specified by other Holders by written notice to the Company given within
twenty (20) days after the receipt by them of the Notice. The Company will use
its reasonable best efforts to cause such registration statement to become
effective under the Securities Act as promptly as practicable and to maintain
such effectiveness so as to permit resale of the Registerable Shares covered
thereby until the earlier of the time that all such Registerable Shares have
been sold and the time that all such Registerable Shares may be sold pursuant to
the provisions of Rule 144(k) under the Securities Act; provided that the
Company shall only be obligated to file one such registration statement under
this Section 1(b).
(c) If at any time from and after the Final Closing Date the
Company proposes to register any of its securities under the Securities Act (on
a form other than Form S-4 or S-8 or their equivalents), the Company will (i)
promptly notify all Holders that such registration statement will be filed and
that the Registerable Shares which are then held by such Holders will be
included in such registration statement at their request and (ii) subject to the
last sentence of this subsection (c), cause such registration statement to cover
all Registerable Shares which it has been so requested to include by the
Holders, provided such request is delivered to the Company not later than 20
days after such notice is given to the Holders and specifies the number of
Registerable Shares to be included in the proposed registration statement.
Notwithstanding the foregoing provisions, if such registration statement relates
to an underwritten offer of Common Shares and the managing underwriter shall
inform in writing the Company and the Holders that the managing underwriter
believes that the number of shares requested to be included in such registration
statement would materially, adversely affect its
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<PAGE>
ability to effect such offering, then the Company will include in such
registration statement the number of Common Shares which the Company is so
advised can be sold in (or during the time of) such offering as follows: First,
all shares proposed by the Company to be sold for its own account, and, second,
such Registerable Shares requested to be included in such registration, pro rata
by the Holders and other security holders having registration rights on the
basis of the number of Registerable Shares and other Common Shares so proposed
to be sold by the Holders and by such other security holders and so requested to
be included; PROVIDED, HOWEVER, that the Company shall be obligated to register
any Registerable Shares and other Common Shares so excluded from the
registration statement pursuant to a registration statement within ninety (90)
days after the effectiveness of such registration statement or such greater
number of days as may be specified in "lock-up" agreements entered into with the
managing underwriter.
(d) In connection with any registration statement filed
pursuant to this Section 1 (a "Registration Statement"), the Company shall take
such action as may be necessary to register or qualify the Registerable Shares
registered thereunder under the securities or blue sky laws of such states of
the United States as shall reasonably be requested by the prospective sellers,
and shall do any and all other acts which may be necessary or advisable to
permit the proposed sale or other disposition of such Registerable Shares in any
such state; provided that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation in any jurisdiction
where it is not already so qualified, or to execute a general consent for
service of process in suits other than those arising out of the offer and sale
of the Registerable Shares, or to take any action which would subject it to
taxation in any jurisdiction where it is not then so subject.
(e) The Company's obligations to register and qualify under
this Section 1 Registerable Shares of any Holder shall be conditioned in each
instance upon the timely receipt by the Company in writing of (1) information
from such Holder as to the proposed plan of distribution of such Holder's
Registerable Shares to be included in the Registration Statement, and (2) such
other information as the Company may reasonably require from such Holder for
inclusion in the Registration Statement.
(f) All fees, disbursements and out-of-pocket expenses (other
than any brokerage fees and commissions and legal fees of counsel to any Holder)
in connection with the Registration Statement (or seeking or obtaining the
opinion of counsel to the Company under Section 1(g) and, if in the sole
discretion of the Company deemed desirable, any no-action position of the
Commission with respect to sales pursuant to Rule 144 under the Securities Act)
and in complying with applicable state securities laws shall be borne by the
Company. The Company at its expense will supply the Holders of Registerable
Shares included in the Registration Statement with copies of such Registration
Statement and the prospectus included therein and in such quantities as may be
reasonably requested by them. In connection with each Registration Statement,
the Company shall furnish to Holders of Registerable Shares included therein
with such opinions of counsel, comfort letters of accountants, certificates and
such other documents that are customary in connection with underwritten public
offerings and that are reasonably requested by such Holders.
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<PAGE>
(g) The Company shall not be required by this Section 1 to
file any Registration Statement relating to Registerable Shares of any Holder if
the Company shall furnish such Holder with a written opinion of counsel
reasonably satisfactory to such Holder to the effect that the proposed public
offering or other transfer of Registerable Shares as to which registration is
requested is exempt from the registration or qualification requirements of all
applicable federal and state securities laws and would result in all purchasers
or transferees thereof obtaining securities which are not "restricted
securities" as defined in Rule 144 under the Securities Act.
(h) If, after the date of the Memorandum, the Company grants
to any person registration rights which are more favorable to such person than
those afforded to the Holders under this Section 1, the Holders shall without
further action be entitled to the benefits of such more favorable rights.
2. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
pursuant to Section 1 hereof, the Company agrees to indemnify and hold harmless
each Holder of Registerable Shares identified as a selling security holder
therein and each person, if any, who controls such Holder within the meaning of
the Securities Act, against any and all losses, claims, damages or liabilities,
joint or several (including the costs of any reasonable investigation and legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted) to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, or any
related preliminary prospectus, final prospectus, or amendment thereof or
supplement thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company shall
not be liable under this Section 2(a) in any such case to the extent that any
such losses, claims, damages or liabilities arise solely out of or are based
upon an untrue statement of a material fact contained in or any omission of a
material fact from such Registration Statement, preliminary prospectus, final
prospectus or amendment thereof or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by such Holder
specifically for use therein. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Holder of Registerable Shares who is identified as a
selling security holder in a Registration Statement referred to in Section 2(a)
will agree, severally and not jointly, to indemnify and hold harmless the
Company, each other person referred to in subparts (1), (2) and (3) of Section
11(a) of the Securities Act in respect of such Registration Statement, and each
person, if any, who controls the Company or any such person within the meaning
of Section 15 of the Securities Act, against any and all losses, claims, damages
or liabilities (including costs of any reasonable investigation and legal and
other expenses incurred in
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<PAGE>
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state law
or regulation, at common law, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, or any related preliminary prospectus,
final prospectus or amendment thereof or supplement thereto, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
omission was made in such Registration Statement, preliminary prospectus, final
prospectus or amendment thereof or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by such Holder
specifically for use therein. This indemnity agreement will be in addition to
any liability which a Holder may otherwise have to the Company.
(c) Any party that proposes to assert the right to be
indemnified under this Section 2 shall, promptly after receipt of notice of the
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section 2, notify each such indemnifying party of the commencement thereof,
enclosing a copy of all papers served. No indemnification provided for in
Section 2(a) or 2(b) shall be available to any party who shall fail to give
notice as provided in this Section 2(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice but the omission so
to notify such indemnifying party of any such action, suit or proceeding shall
not relieve it from any liability that it may have to any indemnified party
other than under this Section 2 or Section 3 below. In case any such action,
suit or proceeding is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, such indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof and the approval by the indemnified party of such
counsel (which shall not be unreasonably withheld), the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, suit or proceeding but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be differing or additional defenses available to it and not to one or more
of the indemnifying parties in such action, suit or proceeding so that it would
be inappropriate for counsel to represent both the indemnified party and the
indemnifying party in view of actual or potential conflicts of interest (in
which case if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying
party, the
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<PAGE>
indemnifying party shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such indemnified party); or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of the indemnified party's counsel
shall be at the expense of the indemnifying parties, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the Holders and their
controlling persons, which firm shall be designated in writing by a majority in
interest of such Holders (based upon the value of the securities included in the
Registration Statement). An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
3. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 2 is due in accordance with its terms but for any reason is held to be
unavailable or insufficient to hold harmless an indemnified party, the Company
on the one hand and any Holder on the other hand shall, in lieu of indemnifying
such indemnified party, contribute to the aggregate losses, claims, damages or
liabilities referred to in Section 2 above (including costs of any investigation
and legal and other expenses reasonably incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted), in such proportions as is appropriate to reflect the relative
benefits received by the Company and the Holders from any offering of
Registerable Shares and the relative fault of the Company and such Holder in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and any Holder shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission related to information supplied
by the Company (including for this purpose information supplied by any officer,
director, employee or agent of the Company) or to written information furnished
to the Company by or on behalf of such Holder specifically for use in the
preparation of the Registration Statement or any amendment thereof or supplement
thereto, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. It is understood
and agreed that it would not be just and equitable if contribution pursuant to
this Section 3 were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 3 in no case shall any Holder
(except as may be provided by agreement among them) be liable or responsible for
any amount in excess of the proceeds received by such Holder from the sale of
the Registerable Shares included in the Registration Statement, provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 3, each person, if any, who
controls a Holder within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
such Holder, and each person, if any, who controls the Company within the
meaning of the
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<PAGE>
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each
director of the Company and each officer of the Company who shall have signed
the Registration Statement shall have the same rights to contribution as the
Company, subject to the immediately preceding sentence of this Section 3. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 3, notify such party or parties from whom contribution may be
sought, and the omission so to notify such party or parties from whom
contribution may be sought shall relieve the party or parties from whom
contribution may be sought (if such party was unaware of such action suit,
proceeding and was materially prejudiced by such omission) from any liability
under this Section 3, but not from any other obligation it or they may have
hereunder or other than under this Section 3. No party shall be liable for
contribution with respect to the settlement of any action, suit, proceeding or
claim effected without its written consent. The obligations of the Holders to
contribute pursuant to this Section 3 are several in proportion to their
respective number of Registerable Shares included in the Registration Statement
and not joint.
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EXHIBIT C
OPINION OF COMPANY COUNSEL
(A) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Alberta, with full corporate power and
authority to own or lease and operate its properties and to conduct its business
as described in the Memorandum.
(B) The Company is the direct or indirect beneficial owner of all of
the outstanding securities of each of the corporations (a "Subsidiary") listed
in Section 5(b) of the U.S. Placement Agreement. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full power and authority, corporate
and other, to own or lease and operate its properties and to conduct its
business as currently conducted, and is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where such
qualification is necessary and where failure so to qualify could have a material
adverse effect on its financial condition, results of operations, business,
properties or prospects. Except for the Subsidiaries, the Company has no
subsidiaries.
(C) Except as may be required under applicable securities laws in the
United States, no authorization, approval, consent, order, registration, license
or permit of any court or governmental agency or body is required for the valid
authorization, issuance, sale and delivery of the Special Warrants, the Common
Shares and Warrants issuable upon exercise of the Special Warrants, the Sunrise
Option, the Sunrise Warrants and the Common Shares issuable upon the exercise of
any of the foregoing, and the consummation by the Company of all the
transactions contemplated by the Subject Agreements.
(D) The Company has full power and authority, corporate and other, to
execute, deliver and perform the Subject Agreements and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Subject Agreements by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company with the
terms of the Subject Agreements have been duly authorized by all necessary
corporate action on the part of the Company. Each of the Subject Agreements has
been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by the other parties thereto, is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except insofar as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and by the discretion of courts in granting equitable
remedies, and except that enforceability of the indemnification provisions and
the contribution provisions set forth in the U.S. Placement Agreement may be
limited by the securities laws in the United States or the public policy
underlying such laws.
(E) The execution, delivery and performance of the Subject Agreements
by the Company, the consummation by the Company of the transactions therein
contemplated, and the
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compliance by the Company with the terms of the Subject Agreements do not, and
will not, with or without the giving of notice or the lapse of time, or both,
(1) result in a violation of the constating documents of the Company, (2) result
in a breach of or conflict with any terms or provisions of, or constitute a
default under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to, any indenture,
mortgage, note, contract, commitment or other agreement or instrument of which
we are aware and to which the Company is a party or by which the Company or any
of its properties or assets are or may be bound or affected, (3) violate any
existing applicable law, rule, regulation or, to the best of our knowledge, any
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
businesses, or (4) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company to own or lease and operate any of its properties and to conduct
its business or the ability of the Company to make use thereof.
(F) The Common Shares conform to the description thereof contained in
the Memorandum under the caption "Description of Securities." All the
outstanding Common Shares have been duly authorized and validly issued and are
fully paid and nonassessable. Except as set forth in Section 5(e) to the U.S.
Placement Agreement, there are no outstanding securities convertible into Common
Shares ("Convertible Securities") or any options, warrants or other rights to
purchase any Common Shares or Convertible Securities ("Options"). All such
Options constitute the valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms. None of the
outstanding Common Shares, Options or Convertible Securities has been issued in
violation of the preemptive rights of any securityholder of the Company, and
none of the holders of the outstanding Common Shares, Options or Convertible
Securities is subject to personal liability solely by reason of being such a
holder. The offers and sales of the outstanding Common Shares, Options and
Convertible Securities were in full compliance with all applicable Canadian
federal and provincial laws. To the best of our knowledge, after due
investigation, except as described in the Memorandum or as provided in Section
5(e) of the U.S. Placement Agreement, no holder of any of the Company's issued
securities has any rights ("demand," "piggyback" or otherwise) to have such
securities registered under the Securities Act.
(G) The issuance and sale of the Special Warrants (including the
Compensation Warrants), the Warrants, and the Sunrise Warrants and the
securities issuable upon the exercise of such warrants have been duly
authorized, and when they are issued as contemplated by the Agreements, will be
validly issued, and, in the case of Common Shares, fully paid and nonassessable,
and the holders thereof will not be subject to personal liability solely by
reason of being such holders. None of such warrants or other securities will be
subject to preemptive rights of any security-holder of the Company.
(H) The certificates representing the securities referred to in (G)
above are in proper legal form.
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(I) The descriptions in the Memorandum of statutes, regulations,
government classifications, contracts, instruments and other documents have been
reviewed by us and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and there
are no material statutes, regulations or government classifications or, to the
best of our knowledge, after due investigation, material contracts or documents,
which should be described in the Memorandum that are not so described. None of
the material provisions of the contracts or instruments described above violates
any existing applicable law, rule, regulation, or, to the best of our knowledge,
any judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its assets or businesses. To the best of
our knowledge, the Company is not in default under any contract or agreement
material to its business or under any promissory note or other evidence of
indebtedness for borrowed funds.
(J) Upon delivery of the Special Warrants (including the Compensation
Warrants) and the Sunrise Warrants as provided in the U.S. Placement Agreement,
the persons acquiring the same will acquire good title thereto free and clear of
all liens, encumbrances, equities, security interests and claims, other then
such liens, encumbrances, equities, security interests or claims placed on the
securities by such persons.
(K) To the best of our knowledge, after due investigation, the Company
is not in violation of, or in default under, any term or provision of (i) its
constating documents, (ii) any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its properties or business is or may be bound or subject, or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, Canadian or otherwise, having jurisdiction over the Company or
any Subsidiary or any of their respective properties or businesses. The Company
owns, possesses or has obtained all governmental and other licenses, permits,
certifications, registrations, approvals or consents and other authorizations
necessary to own or lease, as the case may be, and to operate its properties and
to conduct its business as currently conducted and described in the Memorandum,
and all such licenses, permits, certifications, registrations, approvals,
consents and other authorizations are outstanding and in good standing. To the
best of our knowledge, after due investigation, there are no proceedings pending
or threatened, nor is there any basis therefor, seeking to cancel, terminate or
limit such licenses, permits, certifications, registrations, approvals or
consents or authorizations.
(L) To the best of our knowledge, after due investigation, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, Canadian or otherwise, or
before any private arbitration tribunal, pending or threatened against the
Company, or involving the properties or business of the Company which, if
determined adversely to the Company, would, individually or in the aggregate,
result in any material adverse change in the financial position, shareholders'
equity, results of operations, properties, business, management or affairs of
the Company, or which relate in any way to the validity of the capital stock of
the Company or the validity of the U.S. Placement Agreement or of any action
taken or to be taken by the Company pursuant to, or in connection with, the U.S.
Placement Agreement.
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(M) The Company and the Subsidiaries own or possess adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of their businesses
currently conducted and described in the Memorandum (collectively, the
"Intangibles"). To the best of our knowledge, after due investigation, neither
the Company nor any Subsidiary has infringed upon, and is not infringing upon,
the rights of others with respect to the Intangibles, and we are not aware of
any licenses with respect to the Intangibles which are required to be obtained
by the Company; and, to the best of our knowledge, no other party has infringed
or is infringing upon the Intangibles.
While we have not made any independent investigation of, are
not passing upon, and do not assume responsibility for, the accuracy or
completeness of the statements contained in the Memorandum (other than as
indicated in paragraph (F) of this opinion), on the basis of discussions
regarding the business and affairs of the Company and our familiarity with such
business and affairs as a result of having served as counsel for the Company,
nothing has come to our attention that would lead us to believe that the
Memorandum (other than the financial statements and notes and other financial
and statistical data included therein, as to which we express no view) contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
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UNDERTAKING
The undersigned officer or director of HealthCare Capital
Corp., an Alberta corporation (the "Company"), pursuant to the provisions of
Section 8(a)(v) of the U.S. Placement Agreements dated for reference October 14,
1996 relating to the private placement of Special Warrants of the Company,
hereby agrees that he shall not, directly or indirectly, without the prior
written consent of Sunrise Securities Corporation and Dallas Research & Trading
Inc. offer, sell or otherwise dispose or contract to dispose of (or announce any
offer, sale, grant of any option to purchase, or other disposition of) any
Common Shares or other equity securities of the Company at any time prior to the
earliest of (a) date on which Sunrise and Dallas may effect without registration
under the United States Securities Act of 1933, as amended, an offer and sale to
the public in the United States of the Common Shares of the Company acquired by
them on the exercise of the Warrants granted to them as compensation pursuant to
Section 4.1 of the aforementioned U.S. Placement Agreements, (b) the date on
which said Common Shares are so registered, and (c) the date on which said
Common Shares are eligible for trading through the facilities of the Alberta
Stock Exchange.
IN WITNESS WHEREOF, I have signed this Undertaking as of the
15th day of November, 1996.
(see Exhibit 10.17)
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STOCK PURCHASE AND SALE AGREEMENT
(ARCADIA)
AGREEMENT dated as of February 28, 1997, by and between the individuals
named in Section 1.1 below (referred to herein individually as "Seller" and
collectively as "Sellers") and HEALTHCARE HEARING CLINICS, INC., a Washington
corporation ("Purchaser").
RECITALS
A. Hearing Care Associates-Arcadia, Inc., a California corporation (the
"Company"), operates an audiology and hearing aid clinic in Arcadia, California,
which performs testing and evaluation of patients' hearing, prescribes and fits
hearing aids, and provides related services and products.
B. Sellers own all shares of the issued and outstanding capital stock
of the Company (the "Shares").
C. Purchaser and Sellers desire that Purchaser acquire ownership of the
Company through a purchase of the Shares.
TERMS
In consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Ownership of Shares. The Shares are owned by Sellers as follows:
Sellers Shares Percentage
------- ------ ----------
Gregory J. Frazer 50 50
Laurie Van Duivenbode 50 50
--- ---
100 100
1.2 Purchase and Sale of Shares. At the Closing (as defined in Section
2.1), on the terms and subject to the conditions set forth in this Agreement,
Sellers shall sell and deliver to Purchaser, and Purchaser shall purchase the
Shares from Sellers.
1.3 Purchase Price. Subject to adjustment as set forth in Section 1.4
hereof, the purchase price for the Shares (the "Purchase Price") shall be a
total of $410,338 payable to Sellers as follows:
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Sellers
-------
Gregory J. Frazer $205,169
Laurie Van Duivenbode 205,169
$410,338
At the Closing, Purchaser shall pay the Purchase Price to Sellers by certified
or cashier's check.
1.4 Purchase Price Adjustments. The Purchase Price shall be subject to
post- closing adjustment as set forth below:
(a) Accounts Receivable. On the 200th day following the
Closing, Sellers shall reimburse Purchaser on a pro rata basis in an
amount equal to the total of the accounts receivable reflected on the
Statement of Net Working Capital (as defined in subsection 1.4(c)(i)
below) net of the allocable portion of the reserve for bad debts, which
remain uncollected as of such date provided that with respect to the
accounts receivable listed on Schedule 1.4(a) attached hereto, the
reimbursement date shall be the first anniversary of the Closing date.
Upon such reimbursement, the uncollected accounts shall be assigned to
Sellers. During such 200-day period (or the 365-day period with respect
to the accounts receivable listed on Schedule 1.4(a), Sellers may
participate in the collection process of such accounts receivable. In
the event the total amount collected with respect to accounts
receivable reflected on the Statement of Net Working Capital exceeds
the amount of such accounts receivable net of the applicable reserve
for bad debts, Purchaser shall pay the excess to Sellers pro rata on
the 200th day following Closing.
(b) Liabilities. Sellers acknowledge that the Purchase Price
was negotiated on the assumption that Company would have no long-term
liabilities, including debt. In the event that at Closing Company has
long-term liabilities, Sellers shall pay to Purchaser, on a pro rata
basis, an amount equal to the total of any such long-term liabilities.
(c) Net Working Capital Adjustment.
(i) For purposes of this Agreement, "Net Working
Capital" shall equal (i) cash, money market accounts, accounts
receivable (net of reasonable provisions for doubtful
accounts), cash surrender value of life insurance policies,
and prepaid expenses including rental payments if paid in
advance, as of Closing less (ii) all current liabilities of
the Company as of Closing, including but not limited to
liabilities for inventory, office supplies, ordinary
compensation payables, employee benefits and taxes (excluding
accrued paid time off for vacation and sick leave), bonuses
(including all related payroll taxes and employee benefits),
personal and real property taxes, water, gas, electric and
other utility charges, business and other license fees and
taxes (excluding fees for audiology and hearing aid dispensing
licenses), merchants'
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association dues, rental payments under any leases, any
customer refunds for hearing aids delivered prior to Closing,
and all other operating liabilities (including legal,
accounting, and other professional fees and expenses incurred
in the ordinary course of business), vendor accounts payable
and intercompany accounts. In computing Net Working Capital,
(i) all hearing aids ordered but not fitted to the patient as
of the Closing date will not be included in accounts
receivable and (ii) all payments made by Company with respect
to such hearing aid orders shall be treated as prepaid items.
(ii) As promptly as practicable following the
Closing, but in no event later than 45 days thereafter,
Sellers and Purchaser shall cooperate in preparing a mutually
agreeable statement of the Net Working Capital which shall set
forth the computation and components thereof in reasonable
detail (the "Statement of Net Working Capital").
(iii) On the fifteenth day after the date on which
the Statement of Net Working Capital is completed (or such
earlier date as such statement is mutually agreed upon by
Sellers and Purchaser in writing), (i) in the event that the
Net Working Capital exceeds $150,000, then Purchaser shall pay
to Sellers pro rata an amount equal to the excess, or (ii) in
the event that Net Working Capital is less than $150,000, then
Sellers shall pay to Purchaser, pro rata, the amount of the
deficiency.
ARTICLE II
CLOSING
2.1 Closing. The closing of the transaction provided for herein (the
"Closing") shall occur on such date on or before February 28, 1997, and at such
time and place as the parties shall mutually agree.
2.2 Closing Transactions. The following actions shall be taken at
Closing, each of which shall be conditional on completion of all the others and
all of which shall be deemed to have taken place simultaneously:
(a) Deliveries by Sellers. Sellers shall deliver to Purchaser:
(i) Certificates representing the Shares;
(ii) An opinion of counsel to Sellers, dated as of
the Closing date, substantially in the form of Schedule
2.2(a)(ii) attached hereto; and
(iii) The stock and minute books of the Company;
(iv) All consents required in connection with the
transactions contemplated hereunder.
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(b) Deliveries by Purchaser. Purchaser shall deliver to
Sellers:
(i) The payments provided for in Section 1.3; and
(ii) An opinion of counsel to Purchaser, dated as of
the Closing date, substantially in the form of Schedule
2.2(b)(ii) attached hereto.
(c) Joint Delivery.
(i) Purchaser and Sellers shall execute and deliver
counterparts of the Noncompetition Agreements provided for in
Section 6.5(a) hereof; and
(ii) Purchaser and Laurie Van Duivenbode shall
execute and deliver to each other counterparts of the
Employment Agreement provided for in Subsection 6.5(b) hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise set forth in the Disclosure Statement attached
hereto as Schedule III, Sellers represent and warrant to Purchaser as set forth
below in this Article III. Subject to the limitations set forth in Section
8.1(a), the Sellers shall be jointly and severally liable for breaches of such
representations and warranties except to the extent otherwise expressly set
forth in Section 3.1(b) hereof.
3.1 Corporate.
(a) Organization. The Company is a corporation duly organized
and existing under the laws of the state of California.
(b) Capitalization. The authorized capital stock of the
Company consists of 2,000 shares of a single class of common stock, of
which 100 shares are issued and outstanding. All issued and outstanding
Shares have been validly issued and are fully paid and nonassessable.
Each Seller separately warrants that such Seller is the owner of the
number of shares shown in Section 1.1 hereof (beneficially and of
record) free and clear of all liens, claims, and encumbrances
whatsoever. The Shares constitute all the outstanding shares of capital
stock of the Company. Except for a Buy-Out Agreement to which the
Sellers are parties, no person has any agreement, option or other
right, present or future, to purchase or otherwise acquire any of the
shares of Company. Such Buy-Out Agreement will be terminated effective
as of the Closing date.
(c) Corporate Power. The Company has all requisite corporate
power and authority to own, operate and lease its properties and to
carry on its business as and where such is now being conducted.
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(d) No Subsidiaries. The Company does not own an interest in
any corporation, partnership or other entity.
(e) Articles of Incorporation; Bylaws. The copies of Company's
articles of incorporation (certified by the Secretary of State of
California) and bylaws (certified by Company's secretary) which have
heretofore been delivered to Purchaser are complete and correct as
amended or restated to the date hereof.
3.2 No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the
Sellers pursuant hereto, nor the consummation by the Sellers of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien (as defined in Section 3.8(b)) upon any of the
assets of the Company under, any term or provision of the articles of
incorporation or bylaws of the Company or of any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which the Company is a party or by which the Company or any of the Company's
assets or properties or the shares of the Company may be bound or affected.
3.3 Financial Statements. The Sellers have heretofore delivered to
Purchaser the following financial statements of the Company including balance
sheets and statements of income (the "Financial Statements"):
(a) Financial Statements for the Company's 1993, 1994, and
1995 fiscal years; and
(b) Financial Statements for the interim period ended November
30, 1996.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Company at the dates indicated and
results of its operations and changes in its financial position for the periods
then ended.
3.4 Absence of Certain Changes. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
3.4(a) Adverse Change. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the Company;
3.4(b) Damage. Any material loss, damage or destruction,
whether covered by insurance or not, affecting the Company's business
or assets;
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3.4(c) Increase in Compensation. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the Company (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee
benefit granted, made or accrued;
3.4(d) Labor Disputes. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company;
3.4(e) Commitments. Any commitment or transaction by the
Company (including, without limitation, any capital expenditure) other
than in the ordinary course of business consistent with past practice;
3.4(f) Dividends. Any declaration, setting aside, or payment
of any dividend or any other distribution in respect of the Company's
capital stock; any redemption, purchase or other acquisition by the
Company of any capital stock of the Company, or any security relating
thereto; or any other payment to any Shareholder as a shareholder;
3.4(g) Disposition of Property. Any sale, lease or other
transfer or disposition of any properties or assets of the Company
except for sales of inventory, consumption of supplies, and nonmaterial
dispositions of worn or broken parts and equipment in the ordinary
course of business;
3.4(h) Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company other than changes in
the Company's line of credit in the ordinary course of business;
3.4(i) Amendment of Contracts. Any entering into, amendment or
termination by the Company of any contract, or any waiver of material
rights thereunder, other than in the ordinary course of business;
3.4(j) Loans, Advances, or Credit. Any loan or advance or any
grant of credit by the Company; or
3.4(k) Unusual Events. Any other event or condition
specifically related to the Company not in the ordinary course of
business which would have a material adverse effect on the assets or
the business of the Company.
3.5 Absence of Undisclosed Liabilities. Except as and to the extent
specifically disclosed in the most recent balance sheet included in the
Financial Statements or this Agreement, the Company does not have any
liabilities other than commercial liabilities and obligations incurred since the
date of such balance sheet in the ordinary course of business consistent with
past practices none of which has or will have a material adverse effect on the
business, financial condition or results of operations of the Company.
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3.6 No Litigation. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Sellers threatened
against the Company, its directors (in such capacity), its business or any of
its assets, nor do the Sellers know of any such proceeding, investigation or
inquiry threatened against the Company. The Disclosure Schedule identifies all
actions, suits, proceedings, investigations and inquiries to which the Company
has been a party since January 1, 1993. Neither the Company nor its business or
assets are subject to any judgment, order, writ or injunction of any court,
arbitrator or federal, state, foreign, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.7 Compliance With Laws.
3.7(a) Compliance. The Company (including each and all of its
operations, practices, properties and assets) is in material compliance
with all applicable federal, state, local and foreign laws, ordinances,
orders, rules and regulations (collectively, "Laws"), including,
without limitation, those applicable to discrimination in employment,
occupational safety and health, trade practices, environmental
protection, competition and pricing, product warranties, zoning,
building and sanitation, employment, retirement and labor relations,
and product advertising except to the extent any noncompliance would
not have a material adverse effect upon the assets or the business of
the Company taken as a whole. The Company has not received notice of
any violation or alleged violation of, and is not subject to liability
for past or continuing violation of, any Laws. All reports and returns
required to be filed by the Company with any governmental authority
have been filed, and were accurate and complete when filed except to
the extent any deficiency would not have a material adverse effect upon
the assets or the business of the Company taken as whole.
3.7(b) Licenses and Permits. The Company has obtained all
licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification
organizations required for the conduct of its businesses (as presently
conducted) except to the extent failure to do so would not have a
material adverse effect upon the assets or the business of the Company
taken as a whole. All such licenses, permits, approvals, authorizations
and consents are described in the Disclosure Schedule and are in full
force and effect. The Company (including its operations, properties and
assets) is and has been in compliance with all such permits and
licenses, approvals, authorizations and consents, except to the extent
any noncompliance would not have a material adverse effect upon the
assets or the business of the Company taken as a whole.
3.8 Title to and Condition of Properties.
3.8(a) Real Property. Except as set forth on the Disclosure
Schedule, the Company does not own any interest in any real property
other than the leases referred to in Section 3.10(a) hereof.
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3.8(b) Personal Property. The Company has good and marketable
title to all its assets, free and clear of all mortgages, liens
(statutory or otherwise), security interests, claims, pledges,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, exceptions,
limitations, charges or encumbrances of any nature whatsoever
(collectively, "Liens"). All the Company's tangible assets are located
at the business premises leased by the Company. No personal property
owned by Sellers is located at Company's business premises.
3.8(c) Condition. All the Company's tangible assets are, taken
as a whole, in good operating condition and repair, normal wear and
tear excepted.
3.8(d) Land Use Regulations. There are no condemnation,
environmental, zoning, land use, or other regulatory proceedings,
pending or, to the knowledge of the Sellers, planned to be instituted,
that could detrimentally affect the ownership, use, or occupancy of the
real property presently occupied by the Company or the continued
operation of the Company's business as it is presently being conducted.
3.9 Insurance. The Company maintain policies of fire, liability,
product liability, workers compensation, health and other forms of insurance
with such coverage limits and deductible amounts as are reasonable and prudent
in light of the nature of its assets and the risks of its business.
3.10 Contracts and Commitments.
3.10(a) Leases. Set forth in Schedule 3.10(a) of the
Disclosure Schedule is a list of all real and personal property leases
to which the Company is a party. Complete and correct copies of each
lease listed on the schedule, and all amendments thereto, have
heretofore been made available to Purchaser.
3.10(b) Purchase Commitments. Set forth in Schedule 3.10(b) of
the Disclosure Schedule is a list of all agreements (written or oral)
between the Company and third parties for the purchase of goods and
supplies by the Company which individually call for the payment by the
Company after the date hereof of more than $1,000 or which obligate the
Company for a period of more than 90 days from the date hereof.
Complete and correct copies of all such written agreements have
heretofore been made available to Purchaser.
3.10(c) Sales Commitments. Set forth in Schedule 3.10(c) of
the Disclosure Schedule is a list and description of all presently
effective agreements (written or oral) between the Company and third
parties for the distribution and sale of its products. Complete and
correct copies of all such written contracts have heretofore been made
available to Purchaser.
3.10(d) Contracts With Sellers and Certain Others. Except for
the employment relationships which exist between the Sellers and the
Company, the
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Company has no agreement, understanding, contract or commitment
(written or oral) with any Seller, or any relative of a Seller.
3.10(e) Collective Bargaining Agreements. The Company is not a
party to any collective bargaining agreement with any union.
3.10(f) Loan Agreements. Except as set forth on the Disclosure
Schedule, the Company is not obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness as
signatories, guarantors or otherwise.
3.10(g) Guarantees. The Company has not under any instrument
which is presently effective guaranteed the payment or performance of
any person, firm or corporation, agreed to indemnify any person or act
as a surety, or otherwise agreed to be contingently or secondarily
liable for the obligations of any person.
3.10(h) Restrictive Agreements. The Company is not a party to
nor is it bound by any agreement requiring it to assign any interest in
any trade secret or proprietary information, or prohibiting or
restricting it from competing in any business or geographical area or
soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
3.10(i) Other Material Contracts. The Company is not a party
to any lease, license, contract (including without limitation contracts
with health maintenance organizations) or commitment of any nature
involving consideration or other expenditure in excess of $1,000, or
involving performance over a period of more than 90 days from the date
hereof, or which is otherwise individually material to the operations
of the Company, except as set forth in Schedule 3.10(i) of the
Disclosure Schedule.
3.10(j) No Default. The Company is not in default under any
lease, agreement, contract or commitment, nor has any event or omission
occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration
of any of the Company's obligations or result in the creation of any
Lien on any of the assets owned, used or occupied by the Company. To
the knowledge of the Sellers, no third party is in default under any
lease, agreement, contract or commitment to which the Company is a
party, nor has any event or omission occurred which, through the
passage of time or the giving of notice, or both, would constitute a
default thereunder or give rise to an automatic termination, or the
right of discretionary termination thereof.
3.11 Employee Benefit Plans. Set forth in Schedule 3.11 of the
Disclosure Schedule, is a description of all pension, profit sharing,
retirement, bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," severance agreements or
plans, vacation and sick leave plans including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA")), all employee
manuals, and all written or binding oral statements of policies, practices or
understandings relating to employment, which are provided to, for the benefit
of, or relate to, any persons employed by the Company. The items described in
the foregoing sentence are hereinafter sometimes referred to collectively as
"Employee Plans/Agreements." True and correct copies of all written Employee
Plans/Agreements, including all amendments thereto, have heretofore been
provided to Purchaser. The Company is in compliance with and have made all
payments due under all Employee Plans/Agreements and with respect thereto the
Company is in compliance with all applicable federal and state laws and
regulations. The Company is not a contributor to any multi-employer pension plan
which has an unfunded liability with respect to benefits due its participants.
3.12 Employment Compensation. Set forth in Schedule 3.12 of the
Disclosure Schedule is a true and correct list of:
(a) All employees to whom the Company is paying compensation;
and in the case of salaried employees such list identifies the current
annual rate of compensation for each employee and in the case of hourly
or commission employees identifies certain reasonable ranges of rates
and the number of employees falling within each such range;
(b) All amounts owed to employees of the Company (including
the Sellers) for accrued sick pay, vacation pay, and bonus pay.
3.13 Patents, Trademarks, etc. Set forth in Schedule 3.13 of the
Disclosure Schedule attached hereto is a list of all United States and foreign
trademarks, service marks, trade names, brand names, copyrights, including
registrations and applications, patent and patent applications, and employee
covenants and agreements respecting intellectual property ("Trade Rights") in
which the Company now has any interest, specifying the basis on which such Trade
Rights are owned, controlled, used or held (under license or otherwise) by the
Company, and also indicating which of such Trade Rights are registered. All
Trade Rights shown as registered in Schedule 3.13 of the Disclosure Schedule
have been properly registered, all pending registrations and applications have
been properly made and filed and all annuity, maintenance, renewal and other
fees relating to registrations or applications are current. In order to conduct
the business of the Company, as such is currently being conducted, the Company
does not require any Trade Rights that it does not already have. The Company is
not infringing and has not infringed on any Trade Rights of another in the
operation of its business, nor to the knowledge of the Sellers is any other
person infringing on the Trade Rights of the Company. The Company has not
granted any license or made any assignment of any Trade Right and no other
person has any right to use any Trade Right owned or held by the Company. The
Company does not pay any royalties or other consideration for the right to use
any Trade Rights of others. Except as set forth in Schedule 3.13 of the
Disclosure Schedule, to the knowledge of Sellers, there are no inquiries,
investigations or claims or litigation challenging or threatening to challenge
the Company's right, title and interest with respect to its continued use and
right to preclude others from using any Trade Rights of the Company. To the
knowledge of Sellers, all Trade
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Rights of the Company are valid, enforceable and in good standing, and there are
no equitable defenses to enforcement based on any act or omission of the
Company.
3.14 Product Warranty and Product Liability. Set forth in Schedule 3.14
of the Disclosure Schedule is a true, correct and complete copy of the Company's
standard warranty or warranties for sales of its products.
3.15 Tax Matters. The Company has properly completed and filed in
correct form all federal, state, and other tax returns (including Forms 1099 and
other informational returns) of every nature required to be filed by it and has
paid all taxes (whether or not requiring the filing of returns) including all
deficiencies, assessments, additions to tax, penalties and interest of which
notice has been received to the extent such amounts have become due. The Company
has obtained all required Forms W-9. Complete and correct copies of the
Company's federal and California income tax returns for 1993, 1994, and 1995
have been delivered by the Sellers to Purchaser. All tax liabilities have been
fully and properly reflected in the Financial Statements. The income tax returns
of the Company have not been examined by the Internal Revenue Service. There are
no outstanding agreements or waivers extending the statutory period of
limitation for any federal or state tax return of the Company for any period.
The Company has made all required deductions and payments and has properly
prepared and delivered all required documents in connection with the withholding
of taxes from the wages and other compensation of its employees. The Company has
filed all sales/use tax returns and have paid all such taxes for all states in
which they have responsibility to do so. The Company has obtained and maintains,
to the extent required by law, a current sales and use tax exemption certificate
for each customer to which it makes tax-exempt sales.
3.16 Key Employees; Bank; Etc. Set forth in Schedule 3.16 of the
Disclosure Schedule is a list showing:
(a) The names of all the Company's officers and directors;
(b) The name of each bank at which the Company has (i) an
account and the numbers of all accounts, (ii) a line of credit, or
(iii) a safe deposit box and the name of each person authorized to draw
thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the Company and a summary of the terms thereof.
3.17 Records. The books of account of the Company fairly reflect the
items of income and expense and the assets, liabilities, and accruals of its
business and operations.
3.18 Disclosure. No representation or warranty by the Sellers in this
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of the Sellers pursuant to this Agreement,
nor any document or certificate delivered to Purchaser pursuant to this
Agreement or in connection with transactions contemplated
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hereby, contains or shall contain any untrue statement of material fact or omits
or shall omit a material fact necessary to make the statements contained therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Sellers as follows:
4.1 Corporate.
(a) Organization. Purchaser is a corporation duly organized
and validly existing under the laws of the state of Washington.
(b) Corporate Power. Purchaser has all requisite corporate
power and authority to own, operate and lease its properties, to carry
on its business as and where such is now being conducted, to enter into
this Agreement and the other documents and instruments to be executed
and delivered by Purchaser pursuant hereto and to carry out the
transactions contemplated hereby and thereby.
(c) Authority. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been
duly authorized by the board of directors of HealthCare. This Agreement
constitutes the valid and binding agreement of Purchaser, enforceable
against Purchaser in accordance with its terms.
(d) Qualification. Purchaser is duly licensed or qualified to
do business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by
it, or the nature of its business, makes such licensing or
qualification necessary.
4.2 No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by Purchaser
pursuant hereto, nor the consummation by Purchaser of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body, or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien upon any of the assets of Purchaser under, any
term or provision of the Articles of Incorporation or By-laws of Purchaser or of
any material contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Purchaser is a party or by which
Purchaser or any of its assets or properties may be bound or affected.
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4.3 Disclosure. No representation or warranty by Purchaser in this
Agreement nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Purchaser pursuant to this Agreement, nor
any document or certificate delivered to Purchaser pursuant to this Agreement or
in connection with transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
ARTICLE V
COVENANTS
5.1 Covenants of Sellers.
(a) Access to Information and Records. The Sellers agree that
during the period after the date hereof and prior to the Closing,
Purchaser, its counsel, accountants and other representatives shall be
provided (i) reasonable access during normal business hours to all of
the properties, books, records, contracts and documents of the Company
for the purpose of such inspection, investigation and testing as
Purchaser deems appropriate (and Sellers shall furnish or cause to be
furnished to Purchaser and its representatives all information with
respect to the business and affairs of the Company as Purchaser may
reasonably request); (ii) reasonable access to employees and agents of
the Company for such meetings and communications as Purchaser
reasonably desires; and (iii) with the prior consent of the Company in
each instance (which consent shall not be unreasonably withheld),
access to vendors, customers, and others having business dealings with
the Company.
(b) Conduct of Business Pending the Closing. The Sellers agree
that from the date hereof until the Closing, except as otherwise
approved in writing by Purchaser:
(i) No Changes. The Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) Maintain Organization. The Company will use its
best efforts to maintain, preserve, renew and keep in force
and effect the existence, rights and franchises of the Company
and to preserve the business organization of the Company
intact, to keep available to Purchaser the present officers
and employees of the Company, and to preserve for Purchaser
its present relationships with suppliers and customers and
others having business relationships with the Company.
(iii) No Breach. The Company will use its best
efforts to avoid any act, or any omission to act, which may
cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty,
covenant or agreement made by the Sellers.
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(iv) No Material Contracts. No contract or commitment
will be entered into, and no purchase of assets (tangible or
intangible) will be made, by or on behalf of the Company,
except contracts, commitments, purchases or sales which are in
the ordinary course of business and consistent with past
practice.
(v) No Corporate Changes. The Company shall not amend
its Articles of Incorporation or Bylaws or make any changes in
its authorized or issued capital stock; the Company shall not
grant any option or other right to acquire any share of its
authorized capital stock;
(vi) Maintenance of Insurance. The Company shall
maintain all of its insurance in effect as of the date hereof
or replace such insurance with comparable coverage and shall
procure such additional insurance as shall be reasonably
requested by Purchaser at Purchaser's expense.
(vii) Maintenance of Property. The Company shall use,
operate, maintain and repair all its assets and properties in
a normal business manner consistent with the Company's past
practices.
(viii) Interim Financials. The Company will provide
Purchaser with interim monthly financial statements and other
management reports as and when they are available.
(ix) No Dividends. The Company shall not declare or
pay any dividend (whether in cash, stock or property) or make
any other distribution to the Sellers, except for the
repayment of loans made by the Sellers to the Company.
(x) Compensation. The Company shall not increase the
compensation or benefits of any of its employees nor make any
other change in the terms of their employment.
(c) Repayment of Sellers' Loans. As of the date hereof, the
Company is indebted to the Sellers as set forth on Schedule 5.1(c). For
purposes of Section 1.4(b) hereof, such debts shall not be deemed to be
long-term liabilities. Notwithstanding any other provision of this
Agreement, on or prior to the Closing date, Sellers shall have the
right to cause the Company to repay such indebtedness to the extent the
Company has funds available for such purposes. To the extent any such
debts are not paid prior to Closing, (i) such debts shall be taken into
account in computing the Net Working Capital adjustment provided for in
Section 1.4(c), and (ii) Purchaser shall cause the Company to pay all
such debts at the time the Net Working Capital adjustment is made
pursuant to Section 1.4(c)(iii). To the extent necessary, Purchaser
shall advance funds to the Company for such debt repayment.
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(d) Reimbursement of Sick and Vacation Pay. In preparing the
Statement of Net Working Capital it has been agreed that no accrual
shall be made for sick and vacation pay entitlements for employees of
Company. In consideration of this exclusion, Sellers agree to reimburse
Purchaser for any sick or vacation pay payments Purchaser is required
to make to former employees of Company who become employees of
Purchaser and whose employment terminates for any reason within the
first six months following the Closing date to the extent such payments
relate to accruals of sick or vacation pay prior to the Closing date.
5.2 Release of Sellers' Personal Guarantees. Certain Sellers have
provided personal guarantees or have otherwise become individually liable with
respect to certain leases, line of credit agreements, purchase agreements with
manufacturers, or other agreements for the benefit for the Company, including,
without limitation, those described on Schedule 5.2. Following the Closing,
Purchaser will use its best efforts to obtain the release of the Sellers from
all such personal liabilities. To the extent that any such release cannot be
obtained, Purchaser will indemnify and hold the Sellers harmless with respect to
any loss, cost, or expense the Sellers may incur as a result of not being
released.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser to be performed at Closing shall
be subject to the satisfaction prior to or at the Closing (or the waiver by
Purchaser) of each of the following conditions:
6.1 Representations and Warranties True at Closing. Each of the
representations and warranties made by the Sellers in this Agreement, or in any
instrument, schedule, list, certificate or writing delivered by Sellers pursuant
to this Agreement, shall be true and correct when made and shall be true and
correct in all material respects at and as of the Closing as though such
representations and warranties were made as of the Closing.
6.2 Compliance With Agreement. The Sellers shall have in all material
respects performed and complied with all of their agreements and obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing, including the delivery of the closing documents specified in
Section 2.2(a) hereof.
6.3 Absence of Suit. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of Purchaser
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, investigation, or proceeding Purchaser will be unable to
retain substantially all the practical benefits of the transaction to which it
is entitled under this Agreement.
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6.4 Approvals; Consents. All consents, permits, approvals, licenses or
orders from any governmental or regulatory body or other third party required to
be obtained by Sellers for the consummation of the transactions contemplated by
this Agreement shall have been obtained except where failure to obtain such
consents, permits, approvals, licenses or orders would not have a material
adverse effect (whether or not such effect is referred to or described in any
Schedule) on the business, prospects, financial conditions, assets, reserves or
operations of the Company taken as a whole.
6.5 Agreements.
(a) Noncompetition Agreements. Each Seller shall have executed
and delivered to Purchaser a Noncompetition Agreement substantially in
the form attached hereto as Schedule 6.5(a).
(b) Employment Agreement. Laurie Van Duivenbode shall have
executed and delivered to Purchaser an Employment Agreement
substantially in the form of Schedule 6.5(b) hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
Each and every obligation of the Sellers to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by the Sellers) of the following conditions:
7.1 Representations and Warranties True at Closing. Each of the
representations and warranties made by Purchaser in this Agreement, or in any
instrument, list, certificate or writing delivered by Purchaser pursuant to this
Agreement, shall be true and correct when made and shall be true and correct at
and as of the Closing as though such representations and warranties were made as
of the Closing.
7.2 Compliance With Agreement. Purchaser shall have in all material
respects performed and complied with all of Purchaser's agreements and
obligations under this Agreement which are to be performed or complied with by
Purchaser prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(b) hereof.
7.3 Absence of Suit. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Sellers shall not be affected unless there is a reasonable likelihood that as a
result of such action, suit, proceeding or investigation, the Sellers will be
unable to retain substantially all the consideration to which they are entitled
under this Agreement.
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7.4 Agreements.
(a) Noncompetition Agreements. Purchaser shall have executed
and delivered to each Seller a Noncompetition Agreement substantially
in the form attached hereto as Schedule 6.5(a).
(b) Employment Agreement. Purchaser shall have executed and
delivered to Laurie Van Duivenbode an Employment Agreement
substantially in the form attached hereto as Schedule 6.5(b).
ARTICLE VIII
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
8.1 Indemnification by the Sellers.
(a) The Sellers hereby agree to indemnify, defend, and hold
Purchaser (and its directors, officers, shareholders, employees,
affiliates, agents and assigns) harmless from and against all Claims
(as defined below) asserted against, resulting to, imposed upon, or
incurred by Purchaser directly or indirectly by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any
representation or warranty of the Sellers contained in or made pursuant
to this Agreement or (b) the non-performance or breach of any covenant,
term or provision to be performed by the Sellers contained in this
Agreement. The indemnification obligation of Sellers hereunder is with
respect to the full amount of the Claims (as defined below). As used in
this Article VIII, the term "Claim" shall include any and all losses,
liabilities, damages, deficiencies, assessments, judgments, awards,
settlements, costs, and expenses including without limitation
penalties, court costs, and attorney fees and expenses at trial and on
appeal. Notwithstanding the foregoing, Sellers' indemnity obligations
shall be subject to the following limitations:
(i) Sellers shall be responsible for indemnifying
Purchaser only to the extent Claims in the aggregate exceed
the sum of $8,000.
(ii) Each Seller shall be solely responsible for
indemnification with respect to such Seller's warranty of
title regarding Seller's Shares and such Seller's warranty
regarding the absence of liens and encumbrances applicable to
such Shares;
(iii) Each Seller's liability with respect to a Claim
shall be limited to a percentage of such Claim equal to such
Seller's percentage ownership of the Shares as set forth in
Section 1.1; and
(iv) Each Seller's maximum liability to Purchaser for
indemnification shall not exceed an amount equal the portion
of the Purchase Price being paid to such Seller as set forth
in Section 1.3 hereof.
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(v) Any Claims shall be asserted by Purchaser jointly
against Sellers on a uniform basis and any waiver, compromise
or settlement of a Claim offered by Purchaser shall be offered
on the same terms to all Sellers.
(b) Purchaser's right to indemnification as provided in this
Section 8.1 shall not be eliminated, reduced or modified in any way as
a result of the fact that (i) Purchaser had notice of a breach or
inaccuracy of any representation, warranty or covenant contained herein
(except as set forth in the Disclosure Schedule), (ii) Purchaser had
been provided with access, as requested by Purchaser, to officers and
employees of the Company and such of Company's books, documents,
contracts and records as has been provided to Purchaser in response to
Purchaser's requests.
8.2 Indemnification by Purchaser. Purchaser hereby agrees to indemnify,
defend, and hold harmless the Sellers from and against all Claims asserted
against, resulting to, imposed upon, or incurred by the Sellers directly or
indirectly by reason of, arising out of, or resulting from (a) the inaccuracy or
breach of any representation or warranty of Purchaser contained in or made
pursuant to this Agreement or in any of the documents delivered pursuant hereto,
or (b) the non-performance or breach of any covenant, term or provision to be
performed by Purchaser contained in this Agreement or in any of the documents
delivered pursuant hereto. The indemnification obligation of Purchaser hereunder
is with respect to the full amount of the Claims.
8.3 Notice; Defense of Claims. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying party's cost, risk and expense provided that the
indemnifying party and its counsel shall proceed with diligence and in good
faith with respect thereto. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom.
8.4 Survival of Representations. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement until October 31, 1998
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(except for the representations and warranties of the Sellers set forth in
Section 3.10 hereof which shall expire 90 days after the applicable statutes of
limitation shall have run with respect to all tax returns filed by the Company
for all periods ended on or before the Closing), after which all such
representations and warranties shall expire except with respect to claims
asserted in writing prior to such date.
ARTICLE IX
MISCELLANEOUS
9.1 Termination.
(a) Right of Termination Without Breach. This Agreement may be
terminated without further liability of any party at any time prior to
the Closing:
(i) By mutual written agreement of the parties, or
(ii) By either Purchaser or the Sellers if the
Closing shall not have occurred on or before the 90th day
after the date hereof, provided the terminating party has not,
through breach of a representation, warranty or covenant,
prevented the Closing from occurring on or before such date.
(b) Termination for Breach.
(i) Termination by Purchaser. If there has been a
material breach by the Sellers of any of their agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by Purchaser, then
Purchaser may, by written notice to Sellers at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii)
hereof.
(ii) Termination by Sellers. If there has been a
material breach by Purchaser of any of its agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by the Sellers, then the
Sellers may, by written notice to Purchaser at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii).
(iii) Effect of Termination. Termination of this
Agreement pursuant to this Section 9.1 shall not in any way
terminate, limit or restrict the rights and remedies of any
party hereto against any other party which has breached or
failed to perform any of the representations, warranties,
covenants, or agreements of this Agreement prior to
termination hereof.
9.2 Waiver. Sellers or Purchaser may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered
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pursuant hereto and (c) waive compliance with any of the agreements of the other
or satisfaction of any of the conditions to its obligations contained herein.
Any extension or waiver made pursuant to this Section 9.2 must be by an
instrument in writing signed on behalf of the party granting the extension or
waiver. A waiver by any party of any provision hereof or breach hereof shall not
operate or be construed as the waiver of any other provision or any subsequent
breach.
9.3 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable and any purported
assignment shall be null and void. Nothing contained in this Agreement shall be
deemed to confer any right or benefit upon any person other than the parties
hereto to the extent herein provided.
9.4 Dollars. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
9.5 Brokers and Finders. Sellers on the one hand and Purchaser on the
other, each agree to indemnify and hold the other harmless from and against any
claim made for a broker's or a finder's fee or other similar compensation (and
all related costs and expenses) asserted against an indemnified party which
arises out of or results from an action taken by an indemnifying party.
9.6 Headings; Severability. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of this Agreement shall be treated as separate and distinct
and, in the event of any provision hereof being declared invalid, such invalid
provision shall be deemed to be severable and all other provisions hereof shall
remain in full force and effect.
9.7 Schedules. The Schedules are a part of this Agreement as if fully
set forth herein.
9.8 Disclosures and Announcements. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either Sellers or Purchaser shall
be subject to the approval of the other in all essential respects, except that
the Sellers' approval shall not be required as to any announcements or filings
Purchaser may be required to make under applicable laws or regulations.
9.9 Expenses. Sellers agree that all fees and expenses incurred by them
in connection with this Agreement shall be borne by Sellers including, without
limitation, all fees of counsel and accountants; and Purchaser agrees that all
fees and expenses incurred by it in connection with this Agreement shall be
borne by it, including, without limitation, all fees of counsel and accountants.
9.10 Notice. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier,
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<PAGE>
facsimile transmission or other electronic means of transmitting written
documents; or (c) sent to the parties at their respective addresses indicated
herein by private overnight courier service. The respective addresses and
telephone numbers to be used for all such notices, demands or requests are as
follows:
If to Purchaser: HealthCare Hearing Clinics, Inc.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
with a copy to: Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attn: G. Todd Norvell
Facsimile: (503) 224-0155
If to Sellers: Laurie Van Duivenbode
3242 Rowena Drive
Los Alamitos, California 90720
Facsimile: (562) 493-2932
with a copy to: Richard P. Manson
Graham & James
801 S. Figueroa St., 14 Fl.
Los Angeles, California 90017
Facsimile: (213) 623-4581
and to: Gregory J. Frazer
1477 Dwight Drive
Glendale, California 91207
Facsimile (818) 244-8889
with a copy to: Ms. Nancy Borders
Gardner, Carton & Douglas
321 N. Clark Street, Ste. 3400
Chicago, Illinois 60610
Facsimile: (312) 644-3381
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed
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<PAGE>
delivered upon receipt. Any party to this Agreement may change its address for
the purposes of this Agreement by giving notice thereof in accordance with this
section.
9.11 Resolution of Disputes.
(a) Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of
its terms shall be settled by binding arbitration held in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 9.11. Notwithstanding the foregoing,
HealthCare, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened
violation of the covenants of the Shareholders under Section 5.1(b) of
this Agreement.
(b) Arbitrators. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand
for arbitration, to exceed $50,000, then the panel to be appointed
shall consist of three neutral arbitrators; otherwise, one neutral
arbitrator.
(c) Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the
circumstances and shall resolve the dispute as expeditiously as
practicable, and if reasonably practicable, within 120 days after the
selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set
out, and shall have thirty (30) days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days
after the decision. Thereafter, the decision of the arbitrator(s) shall
be final, binding, and nonappealable with respect to all persons,
including (without limitation) persons who have failed or refused to
participate in the arbitration process.
(d) Authority. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorney fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and
subject matter jurisdiction. The Shareholders and HealthCare hereby
submit to the in personam jurisdiction of the federal and state courts
in California for the purpose of confirming any such award and entering
judgment thereon.
(f) Confidentiality. All proceedings under this Section 9.11,
and all evidence given or discovered pursuant hereto, shall be
maintained in confidence by all parties.
(g) Continued Performance. The fact that the dispute
resolution procedures specified in this Section 13 shall have been or
may be invoked shall not excuse any
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<PAGE>
party from performing its obligations under this Agreement, and during
the pendency of any such procedure all parties shall continue to
perform their respective obligations in good faith, subject to any
rights to terminate this Agreement that may be available to any party.
9.12 Governing Law. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the state of California, excluding any choice of law rules that may direct the
application of the laws of another jurisdiction.
9.13 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
9.14 Entire Agreement. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
9.15 Further Assurances. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents, instruments, or conveyances of any kind that
may be reasonable necessary or desirable to carry out any of the transactions
contemplated hereunder.
9.16 Sellers Action. Whenever in this Agreement the Sellers are given
the discretion to take or not to take any action, the decision of the Sellers
shall be made pursuant to the vote of the Sellers holding a majority of the
Shares.
9.17 Termination of Restrictions. Upon the consummation of the
transactions provided for herein, any restrictions on the transfer of the Shares
shall be waived by Sellers and shall become void and of no further effect.
9.18 Automobile Purchase. Prior to the Closing, Company shall sell to
Laurie Van Duivenbode, and she shall purchase from Company, the 1987 Acura
Legend automobile she has heretofore utilized as her company car, for a total
price of $5,100.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
SELLERS: PURCHASER:
HEALTHCARE HEARING CLINICS, INC., a
Washington corporation
/S/ LAURI VAN DUIVENBODE By: /S/ EDWIN J. KAWASAKI
Laurie Van Duivenbode Edwin J. Kawasaki
Vice President
/S/ GREGORY J. FRAZER
Gregory J. Frazer
The undersigned, being the spouses of the Sellers named in the foregoing Stock
Purchase and Sale Agreement, hereby relinquish all right, title, and interest,
including, without limitation, any community property rights under California
law to the Shares (as defined in such Agreement) and hereby consent and agree to
the transfer of such Shares pursuant to such Agreement.
/S/ CARISSA BENNETT /S/ ROY VAN DUIVENBODE
Carissa Bennett Roy Van Duivenbode
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<PAGE>
SCHEDULES
Schedule 1.4(a) 365-Day Accounts Receivable
Schedule 2.2(a)(ii) Opinion of Sellers' Counsel
Schedule 2.2(b)(ii) Opinion of Purchaser's Counsel
Schedule III Disclosure Statement
Schedule 3.10(a) Leases
Schedule 3.10(b) Purchase Commitments
Schedule 3.10(c) Sales Commitments
Schedule 3.10(i) Other Material Contracts
Schedule 3.11 Employee Benefit Plans
Schedule 3.12 Employee Compensation
Schedule 3.13 Patents, Trademarks
Schedule 3.14 Product Warranty
Schedule 3.16 Key Employees; Banks
Schedule 5.1(c) Sellers' Loans
Schedule 5.2 Sellers' Personal Guarantees
Schedule 6.5(a) Noncompetition Agreement
Schedule 6.5(b) Employment Agreement
- 25 -
MERGER AGREEMENT
AGREEMENT dated as of October 1, 1996, by and among HEALTHCARE
CAPITAL CORP., a corporation organized under the laws of the Province of
Alberta, Canada ("HealthCare"), and HEARING CARE ASSOCIATES - GLENDALE, INC., a
California corporation ("Glendale"), HEARING CARE ASSOCIATES - GLENDORA, INC., a
California corporation ("Glendora"), and HEARING CARE ASSOCIATES - NORTHRIDGE,
INC., a California corporation ("Northridge"); Glendale, Glendora, and
Northridge are hereinafter referred to from time to time as the "HCA
Corporations" and GREGORY J. FRAZER, CARISSA BENNETT, and JAMI TANIHANA (the
"Shareholders").
RECITALS
A. The Shareholders own all the issued and outstanding capital
stock of the HCA Corporations.
B. The HCA Corporations operate audiology and hearing aid
clinics in the greater Los Angeles, California, metropolitan area which perform
testing and evaluation of patients' hearing, prescribe and fit hearing aids, and
provide related services and products.
C. HealthCare and the HCA Corporations and the Shareholders
desire that HealthCare acquire the HCA Corporations through a merger of the HCA
Corporations into HealthCare Hearing Clinics, Inc., a Washington corporation
("Newco"), which is a wholly owned subsidiary of HealthCare. The parties intend
such merger to qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
TERMS
In consideration of the premises and the covenants of the
parties set forth herein and subject to all the terms and conditions set forth
herein, the parties agree as follows:
1. MERGER
1.1 AGREEMENT AND PLAN OF MERGER. The parties agree that the HCA
Corporations shall be merged into Newco pursuant to an Agreement and Plan of
Merger prepared in accordance with Section 1101 of the California General
Corporation Law and Section 23B.11.010 of the Washington Business Corporation
Act which shall be in the form of SCHEDULE 1.1 attached hereto (the "Agreement
and Plan of Merger"). The merger of the HCA Corporations into Newco (the
"Merger") shall be on the terms set forth in the Agreement and Plan of Merger
and in this Agreement.
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<PAGE>
1.2 MANNER OF MERGER. Upon the consummation of the Merger:
(a) Newco shall be the surviving corporation (the "Surviving
Corporation") and shall continue its existence as a Washington
corporation under the name "HealthCare Hearing Clinics, Inc.";
(b) The separate corporate existences of the HCA Corporations
shall terminate;
(c) The presently issued and outstanding shares of the stock
of the HCA Corporations shall be converted into shares of the common
stock of HealthCare as provided in Section 1.4(a),(b), and (c) hereof;
and
(d) The presently issued and outstanding stock of Newco shall
be converted into shares of the stock of Newco as provided in Section
1.4(d) hereof.
1.3 CONSUMMATION. The consummation of the Merger shall take place on
the Closing Date (as defined in Section 2.1 hereof). The Merger shall be
consummated by filing
(a) A copy of the California Merger Agreement accompanied by
an appropriate officer's certificate with the Secretary of State of the
state of California; and
(b) Articles of Merger with the Secretary of State of the
state of Washington.
The term "Effective Time" shall mean the time when the second of the two filings
is completed and the Merger becomes effective.
1.4 CONVERSION OF SHARES. The basis for converting and exchanging the
issued and outstanding shares of the HCA Corporations and Newco upon the
consummation of the Merger will be as follows:
(a) The 400 issued and outstanding shares of Glendale which
are owned as follows:
SHAREHOLDER NUMBER OF GLENDALE SHARES
Gregory J. Frazer 200
Carissa Bennett 200
Total 400
shall, as of the Effective Time by virtue of the Merger and without any
action on the part of the holders thereof, be converted into and
exchanged for 506,181 shares of the common stock of HealthCare and cash
in the total amount of $68,364 so that immediately
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<PAGE>
following Effective Time the Shareholders named below shall become
holders of HealthCare common stock ("HealthCare Shares") and cash as
follows:
<TABLE>
<CAPTION>
SHAREHOLDER HEALTHCARE SHARES CASH
<S> <C> <C>
Gregory J. Frazer 253,091 $34,182
Carissa Bennett 253,091 34,182
------- -------
Total 506,182 $68,364
</TABLE>
(b) The 2,000 issued and outstanding shares of Glendora which
are owned as follows:
SHAREHOLDER NUMBER OF GLENDORA SHARES
Gregory J. Frazer 2,000
shall, as of the Effective Time by virtue of the Merger and without any
action on the part of the holders thereof, be converted into and
exchanged for 45,000 shares of the common stock of HealthCare and cash
in the amount of $9,500 so that immediately following Effective Time
the Shareholders named below shall become holders of HealthCare Shares
and cash as follows:
<TABLE>
<CAPTION>
SHAREHOLDER HEALTHCARE SHARES CASH
<S> <C> <C> <C>
Gregory J. Frazer 45,000 $9,500
(c) The 200 issued and outstanding shares of Northridge which are owned as
follows:
SHAREHOLDER NUMBER OF NORTHRIDGE SHARES
Gregory J. Frazer 100
Jami Tanihana 100
Total 200
</TABLE>
shall, as of the Effective Time by virtue of the Merger and without any
action on the part of the holders thereof, be converted into and
exchanged for 1,838,354 shares of the common stock of HealthCare and
cash in the total amount of $236,859 so that
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<PAGE>
immediately following Effective Time the Shareholders shall become
holders of HealthCare Shares and cash as follows:
<TABLE>
<CAPTION>
SHAREHOLDER HEALTHCARE SHARES CASH
<S> <C> <C> <C>
Gregory J. Frazer 919,177 $118,430
Jami Tanihana 919,177 118,430
------- --------
Total 1,838,354 $236,860
</TABLE>
(d) Each share of Newco stock issued and outstanding at the
Effective Time shall, as of the Effective Time by virtue of the Merger
and without any action on the part of the holder thereof, be converted
into and exchanged for one share of the stock of the Surviving
Corporation.
1.5 ISSUANCE OF HEALTHCARE SHARE CERTIFICATES. At the Closing
each holder of a certificate or certificates representing shares of stock of the
HCA Corporations issued and outstanding at the Effective Time (other than
treasury shares) shall surrender such certificate or certificates duly endorsed
as HealthCare may require and shall receive in exchange therefore a certificate
or certificates representing 75 percent of the number of HealthCare Shares into
which the stock of the HCA Corporations theretofore represented by the
certificate or certificates so surrendered shall have been converted and
exchanged as provided in Section 1.4 hereof. Certificates for the remaining 25
percent balance of such HealthCare Shares (the "Retained Shares") shall be held
and canceled or delivered as set forth in subsections 1.6(c), (d) or (e) below.
1.6 CLOSING BALANCE SHEET ADJUSTMENTS.
(a) Promptly after the Closing Date, the HCA Corporations will
prepare balance sheets (the "Closing Balance Sheets") as of the close
of business on the Closing Date. The Closing Balance Sheets will be
prepared on an accrual basis in accordance with generally accepted
accounting principals except to the extent set forth in this Subsection
1.6(a) and shall be audited by a certified public accounting firm
approved by HealthCare. The Closing Balance Sheets shall include
accruals for liabilities as of the Closing Date, including but not
limited to, all applicable taxes (including income taxes for the
current period through Closing Date) and salaries, wages, and benefits
(including any outstanding bonuses but excluding sick and vacation pay
entitlements as set forth on SCHEDULE 3.13 of the Disclosure Schedule
as defined in Section 6.5 hereof). In preparing the Closing Balance
Sheets, (i) all hearing aids ordered but not fitted to the patient as
of the Closing Date will not be deemed sold and will not be included in
sales or Closing Balance Sheet accounts receivable, and (ii) all
payments made by the HCA Corporations with respect to such hearing aid
orders shall be treated as prepaid items. The Closing Balance Sheets
shall be subject to review and reasonable approval by HealthCare.
(b) When the Closing Balance Sheets have been prepared and
approved by HealthCare, the "Net Current Assets" of each HCA
Corporation shall be determined.
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<PAGE>
"Net Current Assets" shall equal (i) cash, money market accounts,
accounts receivable (net of reasonable provisions for doubtful
accounts), and prepaid expenses less (ii) all current liabilities
(including but not limited to trade accounts payable, accrued expenses
and supplier loans).
(c) The HCA Corporations shall have "Target Net Current
Assets" as follows:
(i) Glendale - $95,000; (ii) Glendora -($11,000); and
(iii) Northridge - $417,200.
To the extent that the Net Current Assets of an HCA Corporation as
shown on its Closing Balance Sheet exceed such HCA Corporation's Target
Net Current Assets, HealthCare shall either (i) issue to the
Shareholders in the aggregate one HealthCare Share for each dollar (all
dollar references herein are to United States dollars) of such excess
or (ii) pay to the shareholders one dollar for each dollar of such
excess. Such HealthCare Shares or cash shall be apportioned among the
Shareholders pro rata based upon their holdings of the shares of the
applicable HCA Corporation. To the extent that an HCA Corporation's
Closing Balance Sheet Net Current Assets are less than such
corporation's Target Net Current Assets, the Shareholders shall elect
either (i) to cancel Retained Shares in an aggregate amount equal to
one share for each dollar of the shortfall or (ii) to pay to HealthCare
one dollar for each dollar of shortfall. The Retained Shares canceled
or the repayment shall be apportioned among the Shareholders pro rata
based upon each Shareholder's holdings of the shares of the HCA
Corporation with respect to which cancellation or repayment is
required. Fractional HealthCare Shares resulting from any of the
foregoing calculations shall be rounded up to the nearest whole share.
(d) At the Closing Date, the HCA Corporations shall have no
long term debt (with the exception of a promissory note of Northridge
in the aggregate principal amount of $56,898 payable to Starkey Labs)
or any other forms of noncurrent liabilities. To the extent that the
Closing Balance Sheets disclose any such long term debt or noncurrent
liability other than such promissory note, Retained Shares shall be
canceled in an aggregate amount equal to one share for each dollar of
long term debt or noncurrent liability or, alternatively, the
Shareholders shall pay HealthCare one dollar for each dollar of
long-term debt or noncurrent liability. The Retained Shares canceled or
amount repaid shall be proportioned among the Shareholders as set forth
in Section (c) above.
(e) When the requirements of Subsections 1.3(c) and (d) have
been implemented, an amount equal to 60 percent of the Retained Shares
less any shares canceled pursuant to Subsections 1.6(c) and (d) shall
be delivered to the Shareholders. On the 200th day following the
Closing Date (with the exception of those accounts receivable listed on
SCHEDULE 1.6(E) for which the applicable collection period shall be 365
days), one Retained Share shall be canceled for each dollar of the
accounts receivable shown on the Closing Balance Sheet which remains
uncollected in excess of the reserves for doubtful accounts set out on
the Closing Balance Sheet and any remaining balance of the Retained
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<PAGE>
Shares shall be delivered pro rata to the Shareholders, provided,
however, that the Shareholders may elect to reimburse HealthCare one
dollar for each dollar of uncollected accounts receivable shown on the
Closing Balance Sheets in lieu of such cancellation. Shareholders shall
promptly reimburse Healthcare one dollar for each dollar of accounts
receivable listed on SCHEDULE 1.6(E) which remains uncollected in
excess of the reserve for doubtful accounts as of the 365th day
following the Closing Date.
2. CLOSING
2.1 CLOSING DATE. The closing of the transaction provided for herein
(the "Closing") shall occur on October 1, 1996, or on such other date as the
parties may mutually agree (the "Closing Date"). Notwithstanding the foregoing,
HealthCare shall have the right to extend the Closing Date for up to 90 days if,
in its judgment, it becomes necessary to do so as a result of requirements of
the Province of Alberta, the Alberta Stock Exchange, United States or California
securities laws, regulations or rules. The Closing shall take place at the
offices of HealthCare at 111 S.W. Fifth Avenue, Suite 2390, Portland, Oregon
97204, at such time as the parties shall mutually agree.
2.2 CLOSING TRANSACTIONS. At the Closing:
(a) HealthCare will deliver to the Shareholders:
(i) Certificates for HealthCare Shares as specified
in Section 1.5 hereof; and
(ii) The opinion of counsel referred to in Section
8.4;
(b) The Shareholders will deliver to HealthCare:
(i) Certificates for the shares of the HCA
Corporations listed in Section 1.4 hereof; and
(ii) Counterparts of the Noncompetition and
Confidentiality Agreements provided for in Section 5.1 hereof
duly executed by the Shareholders; and
(c) The Shareholders and HealthCare will deliver to each other
duly executed counterparts of the Employment Agreements provided for in
Section 6.1 hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except to the extent otherwise expressly set forth in the Disclosure
Schedule (as defined in Section 6.5 hereof), Gregory J. Frazer and Carissa
Bennett jointly and severally represent and warrant to HealthCare with respect
to Glendale and Glendora and the Shareholders jointly and
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<PAGE>
severally represent and warrant to HealthCare with respect to Northridge that as
of the date hereof:
3.1 CORPORATE.
3.1(a) ORGANIZATION. The HCA Corporations are corporations
duly organized and existing under the laws of the state of California.
3.1(b) CAPITALIZATION. The authorized capital stock of each of
the HCA Corporations consists of a single class of common stock. The
number of authorized, issued, and outstanding shares of the HCA
Corporations are as follows:
(i) Glendale
Authorized: 2,000 shares
Issued and outstanding: 400 shares
(ii) Glendora
Authorized capital: 2,000 shares
Issued and outstanding: 2,000 shares
(iii) Northridge
Authorized capital: 10,000 shares
Issued and outstanding: 200 shares
All issued and outstanding shares of the HCA Corporations have been
validly issued and are fully paid and nonassessable. Each Shareholder
is the owner (beneficially and of record) of the number of shares of
the common stock of the HCA Corporations as set forth in section 1.4
hereof free and clear of all liens, claims, and encumbrances whatsoever
and such shares constitute all the outstanding shares of capital stock
of the HCA Corporations. Except for Buy-Out Agreements to which the
Shareholders are parties, no person has any agreement, option or other
right, present or future, to purchase or otherwise acquire any of the
shares of the HCA Corporations. Such Buy-Out Agreements will be
terminated effective as of the Closing Date.
3.1(c) CORPORATE POWER. The HCA Corporations have all
requisite corporate power and authority to own, operate and lease their
properties and to carry on their business as and where such is now
being conducted.
3.1(d) NO SUBSIDIARIES. The HCA Corporations do not own an
interest in any corporation, partnership or other entity.
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<PAGE>
3.1(e) ARTICLES OF INCORPORATION; BYLAWS. The copies of the
HCA Corporations' articles of incorporation (certified by the Secretary
of State of California) and bylaws (certified by the HCA Corporations'
secretaries) which have heretofore been delivered to HealthCare are
complete and correct as amended or restated to the date hereof.
3.2 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the HCA
Corporations or the Shareholders pursuant hereto, nor the consummation by the
Shareholders of the transactions contemplated hereby and thereby (a) will
violate any statute or law or any rule, regulation, order, writ, injunction or
decree of any court or governmental authority, (b) will require any
authorization, consent, approval, exemption or other action by or notice to any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body or (c) will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or accelerate
the performance required by, or result in the creation of any material Lien (as
defined in Section 3.9(b)) upon any of the assets of the HCA Corporations under,
any term or provision of the articles of incorporation or bylaws of the HCA
Corporations or of any material contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which any of
the HCA Corporations is a party or by which any of the HCA Corporations or any
of the HCA Corporations' assets or properties or the shares of the HCA
Corporations may be bound or affected.
3.3 FINANCIAL STATEMENTS. The Shareholders have heretofore delivered to
HealthCare the following financial statements of the HCA Corporations including
balance sheets and statements of income (the "Financial Statements"):
(a) Financial statements for the HCA Corporations' 1993, 1994,
and 1995 fiscal years and where applicable the 1996 fiscal year; and
(b) Financial statements for the interim period ended August
31, 1996.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the HCA Corporations at the dates
indicated and results of their operations and changes in their financial
position for the periods then ended.
3.4 INVENTORY. The inventories of the HCA Corporations are of a quality
and quantity usable and salable in the ordinary course of business, have a
commercial value at least equal to the value shown on the HCA Corporations'
books.
3.5 ABSENCE OF CERTAIN CHANGES. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
3.5(a) ADVERSE CHANGE. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the HCA Corporations;
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<PAGE>
3.5(b) DAMAGE. Any material loss, damage or destruction,
whether covered by insurance or not, affecting the HCA Corporations'
businesses or assets;
3.5(c) INCREASE IN COMPENSATION. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the HCA Corporations (including, without
limitation, any increase or change pursuant to any bonus, pension,
profit sharing, retirement or other plan or commitment), or any bonus
or other employee benefit granted, made or accrued;
3.5(d) LABOR DISPUTES. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the HCA
Corporations;
3.5(e) COMMITMENTS. Any commitment or transaction by the HCA
Corporations (including, without limitation, any capital expenditure)
other than in the ordinary course of business consistent with past
practice;
3.5(f) DIVIDENDS. Any declaration, setting aside, or payment
of any dividend or any other distribution in respect of the HCA
Corporations' capital stock; any redemption, purchase or other
acquisition by the HCA Corporations of any capital stock of the HCA
Corporations, or any security relating thereto; or any other payment to
any Shareholder as a shareholder;
3.5(g) DISPOSITION OF PROPERTY. Any sale, lease or other
transfer or disposition of any properties or assets of the HCA
Corporations except for sales of inventory, consumption of supplies,
and nonmaterial dispositions of worn or broken parts and equipment in
the ordinary course of business;
3.5(h) INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the HCA Corporations other than
changes in the HCA Corporations' lines of credit in the ordinary course
of business, except for loans to the HCA Corporations by the
Shareholders which loans shall be treated as provided in Section 6.7
hereof;
3.5(i) AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by the HCA Corporations of any contract, or any waiver of
material rights thereunder, other than in the ordinary course of
business;
3.5(j) LOANS, ADVANCES, OR CREDIT. Any loan or advance or any
grant of credit by the HCA Corporations; or
3.5(k) UNUSUAL EVENTS. Any other event or condition
specifically related to the HCA Corporations not in the ordinary course
of business which would have a material adverse effect on the assets or
the business of the HCA Corporations.
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<PAGE>
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
specifically disclosed in the most recent balance sheets included in the
Financial Statements or this Agreement, the HCA Corporations do not have any
liabilities other than commercial liabilities and obligations incurred since the
date of such balance sheet in the ordinary course of business consistent with
past practices none of which has or will have a material adverse effect on the
business, financial condition or results of operations of the HCA Corporations.
3.7 NO LITIGATION. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Shareholders
threatened against the HCA Corporations, their directors (in such capacity),
their businesses or any of their assets, nor do the Shareholders know of any
such proceeding, investigation or inquiry threatened against the HCA
Corporations. The Disclosure Schedule identifies all actions, suits,
proceedings, investigations and inquiries to which the HCA Corporations have
been a party since January 1, 1993. Neither the HCA Corporations nor their
businesses or assets are subject to any judgment, order, writ or injunction of
any court, arbitrator or federal, state, foreign, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
3.8 COMPLIANCE WITH LAWS.
3.8(a) COMPLIANCE. The HCA Corporations (including each and
all of their operations, practices, properties and assets) are in
material compliance with all applicable federal, state, local and
foreign laws, ordinances, orders, rules and regulations (collectively,
"Laws"), including, without limitation, those applicable to
discrimination in employment, occupational safety and health, trade
practices, environmental protection, competition and pricing, product
warranties, zoning, building and sanitation, employment, retirement and
labor relations, and product advertising except to the extent any
noncompliance would not have a material adverse effect upon the assets
or the businesses of the HCA Corporations taken as a whole. The HCA
Corporations have not received notice of any violation or alleged
violation of, and are not subject to liability for past or continuing
violation of, any Laws. All reports and returns required to be filed by
the HCA Corporations with any governmental authority have been filed,
and were accurate and complete when filed except to the extent any
deficiency would not have a material adverse effect upon the assets or
the business of the HCA Corporations taken as whole.
3.8(b) LICENSES AND PERMITS. The HCA Corporations have
obtained all licenses, permits, approvals, authorizations and consents
of all governmental and regulatory authorities and all certification
organizations required for the conduct of their businesses (as
presently conducted) except to the extent failure to do so would not
have a material adverse effect upon the assets or the businesses of the
HCA Corporations taken as a whole. All such licenses, permits,
approvals, authorizations and consents are described in the Disclosure
Schedule and are in full force and effect. The HCA Corporations
(including their operations, properties and assets) are and have been
in compliance with all such permits and licenses, approvals,
authorizations and consents, except to the extent
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any noncompliance would not have a material adverse effect upon the
assets or the businesses of the HCA Corporations taken as a whole.
3.9 TITLE TO AND CONDITION OF PROPERTIES.
3.9(a) REAL PROPERTY. Except as set forth on the Disclosure
Schedule, the HCA Corporations do not own any interest in any real
property other than the leases referred to in Section 3.11(a) hereof.
3.9(b) PERSONAL PROPERTY. The HCA Corporations have good and
marketable title to all their assets, free and clear of all mortgages,
liens (statutory or otherwise), security interests, claims, pledges,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, exceptions,
limitations, charges or encumbrances of any nature whatsoever
(collectively, "Liens"). All the HCA Corporations' tangible assets are
located at the business premises leased by the HCA Corporations and all
tangible assets located at such premises are owned by the HCA
Corporations.
3.9(c) CONDITION. All the HCA Corporations' tangible assets
are, taken as a whole, in good operating condition and repair, normal
wear and tear excepted.
3.9(d) LAND USE REGULATIONS. There are no condemnation,
environmental, zoning, land use, or other regulatory proceedings,
pending or, to the knowledge of the Shareholders, planned to be
instituted, that could detrimentally affect the ownership, use, or
occupancy of the real property presently occupied by the HCA
Corporations or the continued operation of the HCA Corporations'
business as they are presently being conducted.
3.10 INSURANCE. The HCA Corporations maintain policies of fire,
liability, product liability, workers compensation, health and other forms of
insurance with such coverage limits and deductible amounts as are reasonable and
prudent in light of the nature of its assets and the risks of its business.
3.11 CONTRACTS AND COMMITMENTS.
3.11(a) LEASES. Set forth in SCHEDULE 3.11(A) of the
Disclosure Schedule is a list of all real and personal property leases
to which the HCA Corporations are parties. Complete and correct copies
of each lease listed on the schedule, and all amendments thereto, have
heretofore been made available to HealthCare.
3.11(b) PURCHASE COMMITMENTS. Set forth in SCHEDULE 3.11(B) of
the Disclosure Schedule is a list of all agreements (written or oral)
between the HCA Corporations and third parties for the purchase of
goods and supplies by the HCA Corporations which individually call for
the payment by the HCA Corporations after the date hereof of more than
$1,000 or which obligate the HCA Corporations for a period extending
beyond
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December 31, 1996. Complete and correct copies of all such written
agreements have heretofore been made available to HealthCare.
3.11(c) SALES COMMITMENTS. Set forth in SCHEDULE 3.11(C) of
the Disclosure Schedule is a list and description of all presently
effective agreements (written or oral) between the HCA Corporations and
third parties for the distribution and sale of their products. Complete
and correct copies of all such written contracts have heretofore been
made available to HealthCare.
3.11(d) CONTRACTS WITH SHAREHOLDERS AND CERTAIN OTHERS. Except
for the employment relationships which exist between the Shareholders
and the HCA Corporations, the HCA Corporations have no agreement,
understanding, contract or commitment (written or oral) with any
Shareholder, or any relative of a Shareholder.
3.11(e) COLLECTIVE BARGAINING AGREEMENTS. The HCA Corporations
are not parties to any collective bargaining agreements with any union.
3.11(f) LOAN AGREEMENTS. Except as set forth on the Disclosure
Schedule, the HCA Corporations are not obligated under any loan
agreement, promissory note, letter of credit, or other evidence of
indebtedness as signatories, guarantors or otherwise.
3.11(g) GUARANTEES. The HCA Corporations have not under any
instrument which is presently effective guaranteed the payment or
performance of any person, firm or corporation, agreed to indemnify any
person or act as a surety, or otherwise agreed to be contingently or
secondarily liable for the obligations of any person.
3.11(h) RESTRICTIVE AGREEMENTS. The HCA Corporations are not
parties to nor are they bound by any agreement requiring them to assign
any interest in any trade secret or proprietary information, or
prohibiting or restricting them from competing in any business or
geographical area or soliciting customers or otherwise restricting them
from carrying on its business anywhere in the world.
3.11(i) OTHER MATERIAL CONTRACTS. The HCA Corporations are not
parties to any lease, license, contract (including without limitation
contracts with health maintenance organizations) or commitment of any
nature involving consideration or other expenditure in excess of
$1,000, or involving performance over a period of more than 90 days, or
which is otherwise individually material to the operations of the HCA
Corporations, except as set forth in SCHEDULE 3.11(I) of the Disclosure
Schedule.
3.11(j) NO DEFAULT. The HCA Corporations are not in default
under any lease, agreement, contract or commitment, nor has any event
or omission occurred which through the passage of time or the giving of
notice, or both, would constitute a default thereunder or cause the
acceleration of any of the HCA Corporations' obligations or result in
the creation of any Lien on any of the assets owned, used or occupied
by the HCA Corporations. To the knowledge of the Shareholders, no third
party is in default
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under any lease, agreement, contract or commitment to which any of the
HCA Corporations is a party, nor has any event or omission occurred
which, through the passage of time or the giving of notice, or both,
would constitute a default thereunder or give rise to an automatic
termination, or the right of discretionary termination thereof.
3.12 EMPLOYEE BENEFIT PLANS. Set forth in SCHEDULE 3.12 of the
Disclosure Schedule, is a description of all pension, profit sharing,
retirement, bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," severance agreements or
plans, vacation and sick leave plans including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all employee manuals, and
all written or binding oral statements of policies, practices or understandings
relating to employment, which are provided to, for the benefit of, or relate to,
any persons employed by the HCA Corporations. The items described in the
foregoing sentence are hereinafter sometimes referred to collectively as
"Employee Plans/Agreements." True and correct copies of all written Employee
Plans/Agreements, including all amendments thereto, have heretofore been
provided to HealthCare. The HCA Corporations are in compliance with and have
made all payments due under all Employee Plans/Agreements and with respect
thereto the HCA Corporations are in compliance with all applicable federal and
state laws and regulations. The HCA Corporations are not contributors to any
multi-employer pension plan which has an unfunded liability with respect to
benefits due its participants.
3.13 EMPLOYMENT COMPENSATION. Set forth in SCHEDULE 3.13 of the
Disclosure Schedule is a true and correct list of:
(a) All employees to whom the HCA Corporations are paying
compensation; and in the case of salaried employees such list
identifies the current annual rate of compensation for each employee
and in the case of hourly or commission employees identifies certain
reasonable ranges of rates and the number of employees falling within
each such range;
(b) All amounts owed to employees of the HCA Corporations
(including the Shareholders) for accrued sick pay, vacation pay, and
bonus pay.
3.14 PATENTS, TRADEMARKS, ETC. Set forth in SCHEDULE 3.14 of the
Disclosure Schedule attached hereto is a list of all United States and foreign
trademarks, service marks, trade names, brand names, copyrights, including
registrations and applications, patent and patent applications, and employee
covenants and agreements respecting intellectual property ("Trade Rights") in
which the HCA Corporations now have any interest, specifying the basis on which
such Trade Rights are owned, controlled, used or held (under license or
otherwise) by the HCA Corporations, and also indicating which of such Trade
Rights are registered. All Trade Rights shown as registered in SCHEDULE 3.14 of
the Disclosure Schedule have been properly registered, all pending registrations
and applications have been properly made and filed and all annuity, maintenance,
renewal and other fees relating to registrations or applications are current. In
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order to conduct the business of the HCA Corporations, as such is currently
being conducted, the HCA Corporations do not require any Trade Rights that they
do not already have. The HCA Corporations are not infringing and have not
infringed on any Trade Rights of another in the operation of the business of the
HCA Corporations, nor to the knowledge of the Shareholders is any other person
infringing on the Trade Rights of the HCA Corporations. The HCA Corporations
have not granted any license or made any assignment of any Trade Right and no
other person has any right to use any Trade Right owned or held by the HCA
Corporations. The HCA Corporations do not pay any royalties or other
consideration for the right to use any Trade Rights of others. Except as set
forth in SCHEDULE 3.14 of the Disclosure Schedule, to the knowledge of
Shareholders, there are no inquiries, investigations or claims or litigation
challenging or threatening to challenge the HCA Corporations' right, title and
interest with respect to their continued use and right to preclude others from
using any Trade Rights of the HCA Corporations. To the knowledge of
Shareholders, all Trade Rights of the HCA Corporations are valid, enforceable
and in good standing, and there are no equitable defenses to enforcement based
on any act or omission of the HCA Corporations.
3.15 PRODUCT WARRANTY AND PRODUCT LIABILITY. Set forth in SCHEDULE 3.15
of the Disclosure Schedule is a true, correct and complete copy of the HCA
Corporations' standard warranty or warranties for sales of its products.
3.16 TAX MATTERS. The HCA Corporations have properly completed and
filed in correct form all federal, state, and other tax returns (including Forms
1099 and other informational returns) of every nature required to be filed by
them and have paid all taxes (whether or not requiring the filing of returns)
including all deficiencies, assessments, additions to tax, penalties and
interest of which notice has been received to the extent such amounts have
become due. The HCA Corporations have obtained all required Forms W-9. Complete
and correct copies of the HCA Corporations' federal and California income tax
returns for 1993, 1994, and 1995 have been delivered by the Shareholders to
HealthCare. All tax liabilities have been fully and properly reflected in the
Financial Statements. The income tax returns of the HCA Corporations have not
been examined by the Internal Revenue Service. There are no outstanding
agreements or waivers extending the statutory period of limitation for any
federal or state tax return of the HCA Corporations for any period. The HCA
Corporations have made all required deductions and payments and has properly
prepared and delivered all required documents in connection with the withholding
of taxes from the wages and other compensation of its employees. The HCA
Corporations have filed all sales/use tax returns and have paid all such taxes
for all states in which they have responsibility to do so. The HCA Corporations
have obtained and maintain, to the extent required by law, a current sales and
use tax exemption certificate for each customer to which it makes tax-exempt
sales.
3.17 KEY EMPLOYEES; BANK; ETC. Set forth in SCHEDULE 3.17 of the
Disclosure Schedule is a list showing:
(a) The names of all the HCA Corporations' officers and
directors;
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(b) The name of each bank at which the HCA Corporations have
(i) an account and the numbers of all accounts, (ii) a line of credit,
or (iii) a safe deposit box and the name of each person authorized to
draw thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the HCA Corporations and a summary of the terms thereof.
3.18 RECORDS. The books of account of the HCA Corporations fairly
reflect the items of income and expense and the assets, liabilities, and
accruals of their businesses and operations. The minute books and stock transfer
records of the HCA Corporations contain records which are complete and accurate
in all material respects of all minutes, consents of shareholders and directors,
all corporate actions, and all stock transfers of the HCA Corporations.
3.19 ADVERSE CONDITIONS. There are no conditions known to any
Shareholder with respect to the markets, products, facilities, or personnel of
the HCA Corporations which might materially adversely affect its business or
prospects other than such conditions as may affect the industry in which the HCA
Corporations participates as a whole.
3.20 DISCLOSURE. No representation or warranty by the Shareholders in
this Agreement, nor any statement, certificate, schedule or exhibit hereto
furnished or to be furnished by or on behalf of the Shareholders pursuant to
this Agreement, nor any document or certificate delivered to HealthCare pursuant
to this Agreement or in connection with transactions contemplated hereby,
contains or shall contain any untrue statement of material fact or omits or
shall omit a material fact necessary to make the statements contained therein
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF HEALTHCARE
HealthCare represents and warrants to the Shareholders as follows:
4.1 CORPORATE.
4.1(a) ORGANIZATION. HealthCare is a corporation duly
organized and validly existing under the laws of the Province of
Alberta, Canada.
4.1(b) CORPORATE POWER. HealthCare has all requisite corporate
power and authority to own, operate and lease its properties, to carry
on its business as and where such is now being conducted, to enter into
this Agreement and the other documents and instruments to be executed
and delivered by HealthCare pursuant hereto and to carry out the
transactions contemplated hereby and thereby.
4.1(c) QUALIFICATION. HealthCare is duly licensed or qualified
to do business as a foreign corporation, and is in good standing, in
each jurisdiction wherein the character
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of the properties owned or leased by it, or the nature of its business,
makes such licensing or qualification necessary.
4.2 CAPITALIZATION. The authorized and issued capital stock of
HealthCare is set forth in the Prospectus referred to in 6.2(a)(ii) as of the
date thereof. All of the issued and outstanding shares have been validly issued
and are fully paid and nonassessable. The HealthCare Shares to be issued to the
Shareholders pursuant to this Agreement will, upon issuance, be validly issued,
fully paid, and nonassessable and free and clear of any lien.
4.3 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by HealthCare
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the board of directors of HealthCare. This
Agreement constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by HealthCare pursuant hereto will
constitute, valid and binding agreements of HealthCare, enforceable in
accordance with their respective terms.
4.4 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by
HealthCare pursuant hereto, nor the consummation by HealthCare of the
transactions contemplated hereby and thereby (a) will violate any statute or law
or any rule, regulation, order, writ, injunction or decree of any court or
governmental authority, (b) will require any authorization, consent, approval,
exemption or other action by or notice to any court, administrative or
governmental agency, instrumentality, commission, authority, board or body
(except the Alberta Stock Exchange), or (c) will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any
material Lien upon any of the assets of HealthCare under, any term or provision
of the Articles of Incorporation or By-laws of HealthCare or of any material
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which HealthCare is a party or by which HealthCare or
any of its assets or properties may be bound or affected.
4.5 WARRANTIES RELATED TO TAX FREE REORGANIZATION.
(a) HealthCare controls Newco within the meaning of Section
368(c) of the Code;
(b) HealthCare has no plan or intention to reacquire any of
its stock issued in the transaction, except as provided in Sections 1.6
and 6.9 hereof;
(c) HealthCare has no plan or intention to liquidate Newco; to
merge Newco with and into another corporation; to sell or otherwise
dispose of the stock of Newco; or to cause Newco to sell or otherwise
dispose of any of the assets of the HCA Corporations acquired in the
transaction except for dispositions made
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in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code;
(d) Neither HealthCare nor Newco is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code;
(e) The HealthCare Shares issued in exchange for the stock of
the HCA Corporations hereunder, including all Retained Shares,
constitutes less than 50 percent of both the voting power and the value
of all HealthCare stock that will be outstanding immediately following
the transaction; and
(f) HealthCare has been engaged in the active conduct of a
trade or business that is substantial in comparison to each of the
businesses of the HCA Corporations for the entire 36 month period
immediately preceding the Effective Time.
4.6 DISCLOSURE. To HealthCare's knowledge, no representation or
warranty by HealthCare in this Agreement nor any statement, certificate,
schedule or exhibit hereto furnished or to be furnished by or on behalf of
HealthCare pursuant to this Agreement, nor any document or certificate delivered
to HealthCare pursuant to this Agreement or in connection with transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statements
contained therein not misleading.
5. COVENANTS OF SHAREHOLDERS
5.1 NONCOMPETITION; CONFIDENTIALITY. As an inducement to HealthCare to
execute this Agreement and complete the transactions contemplated hereby, and in
order to preserve the goodwill associated with the businesses of the HCA
Corporations being acquired pursuant to this Agreement, the Shareholders hereby
covenant and agree to deliver to HealthCare at the Closing Noncompetition and
Confidentiality Agreements in the form attached hereto as SCHEDULE 5.1.
5.2 ACCESS TO INFORMATION AND RECORDS. The Shareholders agree that
during the period prior to the Closing, HealthCare, its counsel, accountants and
other representatives shall be provided (i) reasonable access during normal
business hours to all of the properties, books, records, contracts and documents
of the HCA Corporations for the purpose of such inspection, investigation and
testing as HealthCare deems appropriate (and Shareholders shall furnish or cause
to be furnished to HealthCare and its representatives all information with
respect to the business and affairs of the HCA Corporations as HealthCare may
reasonably request); (ii) reasonable access to employees and agents of the HCA
Corporations for such meetings and communications as HealthCare reasonably
desires; and (iii) with the prior consent of the HCA Corporations in each
instance (which consent shall not be unreasonably withheld), access to vendors,
customers, and others having business dealings with the HCA Corporations.
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5.3 CONDUCT OF BUSINESS PENDING THE CLOSING. The Shareholders agree
that from the date hereof until the Closing, except as provided in Section 6
hereof or otherwise approved in writing by HealthCare:
5.3(a) NO CHANGES. The HCA Corporations will carry on their
businesses diligently and in the same manner as heretofore and will not
make or institute any changes in their methods of purchase, sale,
management, accounting or operation.
5.3(b) MAINTAIN ORGANIZATION. The HCA Corporations will use
their best efforts to maintain, preserve, renew and keep in force and
effect the existence, rights and franchises of the HCA Corporations and
to preserve the business organization of the HCA Corporations intact,
to keep available to HealthCare the present officers and employees of
the HCA Corporations, and to preserve for HealthCare their present
relationships with suppliers and customers and others having business
relationships with the HCA Corporations.
5.3(c) NO BREACH. The HCA Corporations will use their best
efforts to avoid any act, or any omission to act, which may cause a
breach of any material contract, commitment or obligation, or any
breach of any representation, warranty, covenant or agreement made by
the Shareholders.
5.3(d) NO MATERIAL CONTRACTS. No contract or commitment will
be entered into, and no purchase of assets (tangible or intangible)
will be made, by or on behalf of the HCA Corporations, except
contracts, commitments, purchases or sales which are in the ordinary
course of business and consistent with past practice.
5.3(e) NO CORPORATE CHANGES. The HCA Corporations shall not
amend their Articles of Incorporation or Bylaws or make any changes in
their authorized or issued capital stock.
5.3(f) MAINTENANCE OF INSURANCE. The HCA Corporations shall
maintain all of their insurance in effect as of the date hereof or
replace such insurance with comparable coverage and shall procure such
additional insurance as shall be reasonably requested by HealthCare at
HealthCare's expense.
5.3(g) MAINTENANCE OF PROPERTY. The HCA Corporations shall
use, operate, maintain and repair all their assets and properties in a
normal business manner consistent with the HCA Corporations' past
practices.
5.3(h) INTERIM FINANCIALS. The HCA Corporations will provide
HealthCare with interim monthly financial statements and other
management reports as and when they are available.
5.3(i) NO DIVIDENDS. The HCA Corporations shall not declare or
pay any dividend (whether in cash, stock or property) or make any other
distribution to the
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Shareholders, except for (i) the repayment of loans made by the
Shareholders to the HCA Corporations and (ii) the distribution of a
Dodge Caravan automobile to Carissa Bennett.
5.3(j) COMPENSATION. The HCA Corporations shall not increase
the compensation or benefits of any of their employees nor make any
other change in the terms of their employment.
5.4 REIMBURSEMENT OF SICK AND VACATION PAY. In preparing the Closing
Balance Sheets it has been agreed that no accrual shall be made for sick and
vacation pay entitlements for employees of the HCA Corporations. In
consideration of this exclusion, the Shareholders agree to reimburse Newco for
any sick or vacation pay payments Newco is required to make to former employees
of the HCA Corporations who become employees of Newco as of the Closing and
whose employment terminates for any reason within the first six months following
the Closing Date to the extent such payments relate to accruals of sick or
vacation pay prior to the Closing Date.
5.5 PRESERVATION OF TAX-FREE REORGANIZATION STATUS. The Shareholders
consent and agree as follows:
(a) There is no plan or intention by the Shareholders to sell,
exchange or otherwise dispose of a number of HealthCare Shares received
in the Merger that would reduce the Shareholders' ownership of
HealthCare Shares to a number of shares having a value, as of the date
of the Merger, of less than 50 percent of the value of all of the
formerly outstanding stock of the HCA Corporations as of the same date.
(b) Newco will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market
value of the gross assets held by each of the HCA Corporations
immediately prior to the Merger.
(c) The liabilities of the HCA Corporations assumed by Newco
and the liabilities to which the transferred assets of the HCA
Corporations are subject were incurred by the HCA Corporations in the
ordinary course of its business.
(d) The HCA Corporations, and the Shareholders will pay their
respective expenses, if any, incurred in connection with the
transaction.
(e) The HCA Corporations are not investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(f) The HCA Corporations are not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(g) The fair market value of the assets of the HCA
Corporations transferred to Newco will equal or exceed the sum of the
liabilities assumed by
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Newco, plus the amount of liabilities, if any, to which the transferred
assets are subject.
6. OTHER MATTERS
6.1 EMPLOYMENT AGREEMENT. At the Closing, Newco and each of the
Shareholders shall execute and deliver counterparts of Employment Agreements in
the form attached hereto as SCHEDULES 6.1-A (GREGORY J. FRAZER); 6.1-B (CARISSA
BENNETT); AND 6.1-C (JAMI TANIHANA).
6.2 SECURITIES LAWS.
6.2(a) INVESTMENT REPRESENTATIONS. The Shareholders represent
to HealthCare as follows:
(i) The HealthCare Shares are being acquired for their own
accounts and for investment only, and not with a view to the
distribution of all or any part of the HealthCare Shares, and the
acquisition of the HealthCare Shares by the Shareholders and their
continued holding thereof as may be required by law and the terms
hereof are consistent with their respective financial positions.
(ii) The Shareholders have had access to complete information
regarding the business and finances of HealthCare, have met and
discussed the business and finances of HealthCare with its management
employees to the extent they deem necessary, and have received, read,
and understood the contents of the Healthcare Capital Corp. Preliminary
Prospectus dated July __, 1996; draft dated July 12, 1996 (the
"Prospectus").
6.2(b) LIMITATIONS ON TRANSFER. Except as expressly provided
in this Agreement, the Shareholders shall not, directly or indirectly,
offer or sell, pledge, transfer, or otherwise dispose of all or any
portion of the HealthCare Shares, or solicit any offer to buy,
purchase, or otherwise acquire or take a pledge of all or any portion
of the HealthCare Shares, except (A) in the manner and to the extent
described in (i) a registration statement in effect under the
Securities Act of 1933 (the "Act") covering the HealthCare Shares and
as to which a prospectus meeting the requirements of the Act is duly
delivered or (ii) an opinion of counsel for the Shareholders, which
opinion is in form and substance satisfactory to counsel for
HealthCare, to the effect that such proposed offer, sale, pledge,
transfer, or other disposition of HealthCare Shares may lawfully be
made without such registration and delivery or (B) pursuant to trades
made on the Alberta Stock Exchange ("ASE") after 90 days following the
Closing Date pursuant to Rule 904 of Regulation S under the Act. The
Shareholders acknowledge that they have consulted with counsel
concerning the limited availability of exemptions from registration
under the Act and they understand that they (i) may bear the economic
risk of investment in the HealthCare Shares for an indefinite period of
time because the HealthCare Shares have not been registered under the
Act and, therefore, cannot be sold unless they are subsequently
registered under the Act or an exemption from such
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registration, such as that contained in Rule 904 is available, (ii)
HealthCare is not obligated to register the HealthCare Shares under the
Act, (iii) that absent registration, the HealthCare Shares ordinarily
may not be sold in the United States for at least two years after the
Closing Date and then only in accordance with Rule 144 under the Act,
and (iv) the HealthCare Shares may not be sold, transferred or
otherwise disposed of in the province of Alberta, Canada, or traded
through the facilities of the ASE for a period of 90 days following the
Closing Date.
6.2(c) LEGENDS ON CERTIFICATES. Certificates representing the
HealthCare Shares shall be endorsed with legends, (i) substantially in
the form set forth in SCHEDULE 6.2(D)(I) hereto, and (ii) to the effect
that the HealthCare Shares may not be traded in Canada for 90 days
following the Closing Date. HealthCare need not recognize any person
other than the Shareholders as having any interest in or to the
HealthCare Shares unless the acquisition thereof shall have been made
in compliance with Subsection 6.2(b) above. HealthCare may issue
appropriate stop transfer instructions to the transfer agent for the
HealthCare Shares to prevent transfers in violation of Subsection
6.2(b) hereof.
6.2(d) REMOVAL OF LEGENDS. (i) At any time while the
HealthCare Shares are registered under the Act, HealthCare shall, upon
written request, cause the certificates representing the HealthCare
Shares to be reissued free of all legends and withdraw all stop
transfer instructions. Upon the termination of any such registration, a
Shareholder who owns HealthCare Shares represented by a certificate
without such legends, shall, upon written request, promptly return such
certificate to HealthCare for reissue for a certificate endorsed with
the legends specified in, and otherwise subject to, the provisions of
Subsection 6.2(c). Three years after the Closing Date, HealthCare's
right to request the return of unlegended certificates for previously
registered HealthCare Shares shall terminate and HealthCare shall, upon
written request of the Shareholders, cause any certificates bearing one
or more legends to be reissued free of such legends and withdraw all
stop transfer instructions, provided that Rule 144(k) under the Act, or
a comparable rule, is in effect in substantially its present form and
the Shareholders furnish to HealthCare evidence satisfactory to
HealthCare and its counsel that they meet the requirements of such
rule.
(ii) HealthCare shall, upon written request, cause a
certificate representing all or a portion of the HealthCare Shares to
be reissued free of all legends and shall withdraw all stop transfer
instructions upon the provision by a Shareholder of a declaration to
The R-M Trust Company as transfer agent in substantially the form set
forth in EXHIBIT 6.2(D)(II) hereto.
6.3 REGISTRATION UNDERTAKING.
(a) HealthCare agrees that, if at any time from and after the
Closing Date and before the second anniversary of such date, the board
of directors of HealthCare shall authorize the filing of a registration
statement under the Act to permit the trading of HealthCare Shares in
the United States, HealthCare will (i) promptly notify the
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Shareholders that such registration statement will be filed and that
the HealthCare Shares which are then held by the Shareholders will be
included in such registration statement at their request, (ii) subject
to the last sentence of this subsection (a), cause such registration
statement to cover all HealthCare Shares which it has been so requested
to include by the Shareholders, provided such request is delivered to
HealthCare not later than 20 days after such notice is given to the
Shareholders and specifies the number of HealthCare Shares to be
included in the proposed registration, (iii) use reasonable efforts
subject to market conditions to cause such registration statement to
become effective and remain effective and current for such period as
may be necessary to permit the underwriters to complete the
distribution of the securities covered by the registration statement,
if such offering is an underwritten offering, or, if not, for such
period, not in excess of 90 days, as may be necessary for the
Shareholders to effect a proposed sale or other distribution, and (iv)
take all other action necessary under any federal or state law or
regulation of any governmental authority (other than the state
securities or blue sky laws) to permit the shares included in such
registration statement to be sold or otherwise disposed of and will
maintain such compliance with each such federal and state law and
regulation of governmental authority for the period necessary for the
underwriters or the Shareholders, as the case may be, to effect the
proposed sale or other disposition. Notwithstanding the foregoing
provisions, if the registration statement relates to an underwritten
offering of HealthCare Shares and the managing underwriter shall inform
in writing HealthCare and the Shareholders and any other holders of
HealthCare Shares requesting such registration that the managing
underwriter believes that the number of shares requested to be included
in such registration would materially, adversely affect its ability to
effect such offering, then HealthCare will include in such registration
the number of HealthCare Shares which HealthCare is so advised can be
sold in (or during the time of) such offering as follows: first, all
shares proposed by HealthCare to be sold for its own account, and,
second, such HealthCare Shares requested to be included in such
registration, pro rata by the Shareholders and other holders of
HealthCare Shares on the basis of the number of HealthCare Shares so
proposed to be sold and so requested to be included; PROVIDED, HOWEVER,
that HealthCare shall be obligated to register any HealthCare Shares so
excluded from the registration statement pursuant to a registration
statement filed 90 days after the effectiveness of such initial
registration statement or such greater number of days as may be
specified in "lock-up" agreements entered into with the managing
underwriter.
(b) Whenever HealthCare is required pursuant to the provisions
of this Section 6.3 to include HealthCare Shares in a registration
statement, HealthCare shall (i) furnish each Shareholder and each
underwriter of such HealthCare Shares with such copies of a prospectus,
including the preliminary prospectus, conforming to the Act (and such
other documents as each Shareholder and each such underwriter may
reasonably request) in order to facilitate the sale or distribution of
HealthCare Shares, (ii) use its best efforts to register or qualify
such HealthCare Shares under the blue sky laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Shareholders
and each underwriter of HealthCare Shares being sold shall reasonably
request and (iii) take such other
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actions as may be reasonably necessary or advisable to enable the
Shareholders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which such
holders shall have reasonably requested that the HealthCare Shares be
sold. Each Shareholder shall furnish to HealthCare in writing such
information relating to themselves as HealthCare may reasonably request
in connection with the preparation of such registration statement.
(c) HealthCare shall pay all expenses incurred in connection
with any registration or other action pursuant to the provisions of
this Section 6.3, other than underwriting discounts and applicable
transfer taxes relating to the HealthCare Shares sold by Shareholders
and attorney fees and expenses of the Shareholders.
(d) HealthCare agrees to indemnify and hold harmless the
Shareholders from and against any and all losses, claims, damages,
liabilities or actions, joint or several, to which the Shareholders may
become subject under the Act for any legal or other expenses (including
the cost of any investigation and preparation) incurred by them in
connection with any litigation or threatened litigation, whether or not
resulting in any liability, but only insofar as such losses, claims,
damages, liabilities or actions arise out of, or are based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained in any registration statement pursuant to which HealthCare
Shares were registered under the Act (hereinafter called a
"Registration Statement"), any preliminary prospectus, the final
prospectus or any amendment or supplement thereto (or in any
application or document filed in connection therewith) or any document
filed by HealthCare in any jurisdiction in order to register or qualify
the HealthCare Shares under the securities laws thereof or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or (ii) the employment by HealthCare of any device, scheme or artifice
to defraud, or the engaging by HealthCare in any act, practice or
course of business which operates or would operate as a fraud or
deceit, or any conspiracy with respect thereto, in which HealthCare
shall participate, in connection with the issuance and sale of any of
the HealthCare Shares; PROVIDED, HOWEVER that (i) the indemnity
agreement contained in this Subsection (d) shall not extend to any
Shareholder in respect of any such losses, claims, damages, liabilities
or actions arising out of, or based upon any such untrue statement or
alleged untrue statement, or any such omission or alleged omission, if
such statement or omission was based upon and made in conformity with
information furnished in writing to HealthCare by a Shareholder
specifically for use in connection with the preparation of such
Registration Statement, any final prospectus, any preliminary
prospectus or any such amendment or supplement thereto (or in any
application or document filed in connection therewith) or document
filed in any jurisdiction in order to register or qualify the
HealthCare Shares under the securities laws thereof. HealthCare agrees
to pay any legal and
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other expenses for which it is liable under this Subsection (d) from
time to time (but not more frequently than monthly) within 30 days
after its receipt of a bill therefor.
(e) Each Shareholder, severally and not jointly, will
indemnify and hold harmless HealthCare, its directors, its officers who
shall have signed the Registration Statement and each person, if any,
who controls HealthCare within the meaning of Section 15 of the Act to
the same extent as the foregoing indemnity from HealthCare, but in each
case to the extent, and only to the extent, that any statement in or
omission from or alleged omission from such Registration Statement, any
final prospectus, any preliminary prospectus or any amendment or
supplement thereto (or in any application or document filed in
connection therewith) or document filed in any jurisdiction in order to
register or qualify the HealthCare Shares under the securities laws
thereof was made in reliance upon information furnished in writing to
HealthCare by such Shareholder specifically for use in connection with
the preparation of the Registration Statement, any final prospectus or
the preliminary prospectus or any such amendment or supplement thereto
(or in any application or document filed in connection therewith) or
document filed in any jurisdiction in order to register or qualify the
HealthCare Shares under the securities laws thereof; PROVIDED, HOWEVER,
that the obligation of any Shareholder to indemnify HealthCare under
the provisions of this Subsection (e) shall be limited to the product
of the number of HealthCare Shares being sold by the Shareholder and
the market price of HealthCare Shares on the date of the sale to the
public of these HealthCare Shares. Each Shareholder agrees to pay any
legal and other expenses for which he or she is liable under this
Subsection (e) from time to time (but not more frequently than monthly)
within 30 days after receipt of a bill therefor.
(f) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Subsections (d) and (e) (an
"indemnified party") in respect of which indemnity may be sought
against a person granting indemnification (an "indemnifying party")
pursuant to such Subsections (d) and (e), such indemnified party shall
promptly notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party of any
such action shall not release the indemnifying party from any liability
it, he or she may have to such indemnified party otherwise than on
account of the indemnity agreement contained in Subsections (d) and (e)
of this Section 6.3. In case any such action is brought against an
indemnified party and it, he or she notifies an indemnifying party of
the commencement thereof, the indemnifying party against which a claim
is to be made will be entitled to participate therein at its, his or
her own expense and, to the extent that it, he or she may wish, to
assume at its, his or her own expense the defense thereof, with counsel
reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER,
that (i) if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnifying party
shall have reasonably concluded
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based upon advice of counsel that there may be legal defenses available
to it, he or she and/or other indemnified parties which are different
from or additional to those available to the indemnified party, the
indemnified party shall have the right to select separate counsel to
assume such legal defenses and otherwise to participate in the defense
of such action on behalf of such indemnified party or parties and (ii)
in any event, the indemnified party shall be entitled to have counsel
chosen by such indemnified party participate in, but not conduct, the
defense at the expense of the indemnifying party. Upon receipt of
notice from the indemnifying party to such indemnified party of its,
his or her election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 6.3 for
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (i) the indemnified
party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel), (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement
of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. An indemnifying party shall not be liable for any
settlement of any action or proceeding effected without its written
consent.
(g) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in
Subsections (d) and (e) of this Section 6.3 is unavailable to an
indemnified party in accordance with its terms, HealthCare and the
Shareholders shall contribute to the aggregate losses, claims, damages
and liabilities, of the nature contemplated by said indemnity
agreement, incurred by HealthCare and the Shareholders, in such
proportions as are appropriate to reflect the relative benefits
received by HealthCare and the Shareholders from any offering of the
HealthCare Shares; PROVIDED, HOWEVER, that if such allocation is not
permitted by applicable law or if the indemnified party failed to give
the notice required under Subsection (f) of this Section 6.3, then the
relative fault of HealthCare and the Shareholders in connection with
the statements or omissions which resulted in such losses, claims,
damages and liabilities and other relevant equitable considerations
will be considered together with such relative benefits.
(h) The respective indemnity and contribution agreements by
HealthCare and the Shareholders in Subsections (d), (e), (f) and (g) of
this Section 6.3 shall remain operative and in full force and effect
regardless of (i) any investigation made by any Shareholder or by
HealthCare or any controlling person of HealthCare or any director or
any officer of HealthCare, (ii) payment for any of the HealthCare
Shares or (iii) any termination of this
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Agreement, and shall survive the delivery of the HealthCare Shares, and
any successor of HealthCare, or of any Shareholder, or of any person
who controls HealthCare, as the case may be, shall be entitled to the
benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by HealthCare and the
Shareholders contained in Subsections (d), (e), (f) and (g) of this
Section 6.3 shall be in addition to any liability which HealthCare and
the Shareholders may otherwise have.
(i) If, after the date hereof, HealthCare issues unregistered
HealthCare Shares and provides to the recipient registration rights
which are more favorable than those afforded to the Shareholders in
this Section 6.3, the Shareholders shall without further action be
entitled to the benefit of such more favorable registration provision.
6.4 NASDAQ LISTING. HealthCare intends to apply for and shall use its
best efforts to obtain not later than six months after the Closing Date
quotation of HealthCare Shares on the National Market System tier of The Nasdaq
Stock Market.
6.5 DISCLOSURE SCHEDULE. The "Disclosure Schedule" has been compiled in
a bound volume executed by the Shareholders and dated and delivered on the date
of this Agreement. The Disclosure Schedule includes a table of contents or index
of all the information and documents contained therein.
6.6 RELEASE OF SHAREHOLDERS. The Shareholders have provided personal
guarantees or have otherwise become individually liable with respect to certain
leases, line of credit agreements, purchase agreements with manufacturers, or
other agreements for the benefit for the HCA Corporations, including, without
limitation, those described on SCHEDULE 6.4 of the Disclosure Schedule. After
the Closing Date, HealthCare will use its best efforts to obtain the release of
the Shareholders from all such personal liabilities. To the extent that any such
release cannot be obtained, HealthCare will indemnify and hold the Shareholders
harmless with respect to any loss, cost, or expense Shareholders may incur as a
result of not being released.
6.7 SHAREHOLDER LOANS. As of the date hereof, the HCA Corporations are
indebted to the Shareholders as set forth on SCHEDULE 6.5 of the Disclosure
Schedule. Notwithstanding any other provision of this Agreement, the
Shareholders shall have the option to (i) contribute such indebtedness to the
capital of the HCA Corporations on or prior to the Closing Date, or (ii) cause
the HCA Corporations to repay such indebtedness to the extent the HCA
Corporations have funds available for such purpose. In the event any
indebtedness of the HCA Corporations to the Shareholders remains unpaid
following the Closing Date, HealthCare shall cause Newco to repay such
indebtedness in full within 45 days of the Closing Date.
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6.8 COVENANTS OF HEALTHCARE.
(a) Following the Merger, Newco will not issue additional
shares of its stock that would result in HealthCare losing control of
Newco within the meaning of Section 368(c) of the Code.
(b) Following the Merger, Newco will continue the historic
business of each of the HCA Corporations or use a significant portion
of each of the HCA Corporations' business assets in a business.
(c) HealthCare will comply, and will cause Newco to comply,
with the reporting requirements set forth in ss. 1.367(a)-3T(c)(4) of
the U.S. Treasury Regulations following consummation of the Merger.
(d) HealthCare and Newco will treat the Merger as tax-free
reorganizations of the HCA Corporations for U.S. tax purposes on all
tax returns filed by them in the United States, and neither HealthCare
nor Newco will take any action inconsistent with such treatment of the
Merger, or which would cause the Merger to fail to qualify as tax-free
reorganizations.
6.9 REDEMPTION OF HEALTHCARE SHARES. As of the last business day of
each calendar quarter for the 20 calendar quarters immediately following the
Closing Date, the Shareholders shall have a right to tender to HealthCare, in
the numbers set forth below, HealthCare Shares they own, in which event
HealthCare shall redeem from the Shareholders and pay for within 20 business
days of the end of the applicable quarter the number of shares tendered at $1.67
(U. S.) per HealthCare Share. The number of HealthCare Shares which each
Shareholder shall be entitled to tender for redemption as of the end of each
calendar quarter is as follows:
SHAREHOLDER NUMBER OF SHARES
Gregory J. Frazer 1,800
Carissa Bennett 6,600
Jami Tanihana 6,600
The Shareholders' rights to tender HealthCare Shares shall be noncumulative and
to the extent not exercised as of the end of any calendar quarter shall expire
and thereafter be of no further force and effect.
7. CONDITIONS PRECEDENT TO HEALTHCARE'S OBLIGATIONS
Each and every obligation of HealthCare to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by HealthCare) of each of the following conditions:
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7.1 REPRESENTATIONS AND WARRANTIES TRUE CLOSING. Each of the
representations and warranties made by the Shareholders in this Agreement, or in
any instrument, schedule, list, certificate or writing delivered by Shareholders
pursuant to this Agreement, shall be true and correct when made and shall be
true and correct in all material respects at and as of the Closing as though
such representations and warranties were made as of the Closing.
7.2 COMPLIANCE WITH AGREEMENT. The Shareholders shall have in all
material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing, including the delivery of the closing documents
specified in Section 2.2(b) hereof.
7.3 ABSENCE OF SUIT. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against HealthCare, the HCA Corporations or any of the affiliates,
officers or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of HealthCare
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, investigation, or proceeding HealthCare will be unable to
retain substantially all the practical benefits of the transaction to which it
is entitled under this Agreement.
7.4 RELATED TRANSACTIONS. HealthCare shall have entered into
arrangements satisfactory to HealthCare in its sole discretion, pursuant to
which HealthCare will acquire part of or all the shares of the corporations
operating under the name "Hearing Care Associates" which are listed on SCHEDULE
7.4 of the Disclosure Schedule.
7.5 ALBERTA STOCK EXCHANGE. The issuance of the HealthCare Shares to
the Shareholders shall have been approved by the ASE.
7.6 SANTA CLARITA. Prior to Closing, Northridge shall have delivered to
Jennifer Burstein its note in the amount of $236,550 payable 30 days after the
Closing Date to satisfy her claim against the corporation with respect to the
Santa Clarita clinic, and Northridge shall have received a release of claims and
noncompetition agreement from Burstein in form reasonably satisfactory to
HealthCare and its counsel.
7.7 AGREEMENTS WITH SHAREHOLDERS. The Shareholders shall have executed
and delivered to HealthCare the noncompetition and confidentiality agreements
provided for in Section 5.1 hereof and the employment agreements provided for in
Section 6.1 hereof.
8. CONDITIONS PRECEDENT TO THE SHAREHOLDERS' OBLIGATIONS
Each and every obligation of the Shareholders to be performed at
Closing shall be subject to the satisfaction prior to or at the Closing (or the
waiver by the Shareholders) of the following conditions:
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8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by HealthCare in this Agreement, or in any
instrument, list, certificate or writing delivered by HealthCare pursuant to
this Agreement, shall be true and correct when made and shall be true and
correct at and as of the Closing Date as though such representations and
warranties were made as of the Closing.
8.2 COMPLIANCE WITH AGREEMENT. HealthCare shall have in all material
respects performed and complied with all of HealthCare's agreements and
obligations under this Agreement which are to be performed or complied with by
HealthCare prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(a) hereof.
8.3 ABSENCE OF SUIT. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against HealthCare, the HCA Corporations or any of the affiliates,
officers or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Shareholders shall not be affected unless there is a reasonable likelihood that
as a result of such action, suit, proceeding or investigation, the Shareholders
will be unable to retain substantially all the consideration to which they are
entitled under this Agreement.
8.4 OPINION OF COUNSEL. The Shareholders shall have received an opinion
of HealthCare's counsel, Ballem MacInnes, substantially in the form of SCHEDULE
8.4 attached hereto.
8.5 RELATED TRANSACTIONS. The Shareholders shall have entered into
arrangements satisfactory to the Shareholders in their sole discretion pursuant
to which HealthCare will acquire part of or all the shares of the corporations
operating under the name "Hearing Care Associates" which are listed on SCHEDULE
7.4 of the Disclosure Schedule.
8.6 SHARE PRICE. The Shares as traded on The Alberta Stock Exchange
shall not have traded for any three consecutive trading days between the date
hereof and the Closing Date at a price of less than $1.40 (Canadian) or less.
8.7 EMPLOYMENT AGREEMENTS. Newco shall have executed and
delivered the employment agreements with the Shareholders provided for
in Section 6.1 hereof.
8.8 ASE PERFORMANCE ESCROW. Terms of any performance escrow required by
the ASE with respect to HealthCare's shares issued to the Shareholders hereunder
shall be reasonably satisfactory to the Shareholders.
9. INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
9.1 INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders hereby agree
to indemnify, defend, and hold HealthCare harmless from and against all Claims
(as defined below)
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asserted against, resulting to, imposed upon, or incurred by HealthCare directly
or indirectly by reason of, arising out of, or resulting from (a) the inaccuracy
or breach of any representation or warranty of the Shareholders contained in or
made pursuant to this Agreement, or (b) the breach of any covenant of the
Shareholders contained in this Agreement. As used in this Section 9.1, the term
"Claim" shall include all losses, damages, judgments, awards, settlements,
costs, and expenses (including without limitation penalties, court costs, and
attorneys fees and expenses at trial and on appeal) awarded by the arbitrator or
arbitrators pursuant to Section 13.1 hereof.
9.2 INDEMNIFICATION BY HEALTHCARE. HealthCare hereby agrees to
indemnify, defend, and hold harmless the Shareholders from and against all
Claims (as defined in Section 10.1) asserted against, resulting to, imposed
upon, or incurred by the Shareholders directly or indirectly by reason of,
arising out of, or resulting from (a) the inaccuracy or breach of any
representation or warranty of HealthCare contained in or made pursuant to this
Agreement, or (b) the breach of any covenant of HealthCare contained in this
Agreement, including without limitation Section 6.6 hereof.
9.3 NOTICE; DEFENSE OF CLAIMS. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying party's cost, risk and expense provided that the
indemnifying party and its counsel shall proceed with diligence and in good
faith with respect thereto. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom.
9.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement for a period ending 90 days after the second fiscal year end
(July 31) of Newco which occurs after the Closing Date (except for the
representations and warranties of the Shareholders set forth in Section 3.16
hereof which shall expire 90 days after the applicable statutes of limitation
shall have run with respect to all tax returns filed by the HCA Corporations for
all periods ended on or before the Closing Date) after which all such
representations and warranties shall expire except with respect to claims
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asserted in writing prior to such date. Notwithstanding the foregoing,
HealthCare's representations and warranties set forth in Section 4.2 hereof
shall survive indefinitely.
10. TERMINATION
10.1 RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to the
Closing:
(a) By mutual written agreement of the parties, or
(b) By either HealthCare or the Shareholders if the Closing
shall not have occurred on or before December 31, 1996, provided the
terminating party has not, through breach of a representation, warranty
or covenant, prevented the Closing from occurring on or before such
date.
10.2 TERMINATION FOR BREACH.
10.2(a) TERMINATION BY HEALTHCARE. If there has been a
material breach by the Shareholders of any of their agreements,
representations or warranties contained in this Agreement which has not
been waived in writing by HealthCare, then HealthCare may, by written
notice to Shareholders at any time prior to the Closing that such
breach is continuing, terminate this Agreement with the effect set
forth in Section 10.2(c) hereof.
10.2(b) TERMINATION BY SHAREHOLDERS. If there has been a
material breach by HealthCare of any of its agreements, representations
or warranties contained in this Agreement which has not been waived in
writing by the Shareholders, then the Shareholders may, by written
notice to HealthCare at any time prior to the Closing that such breach
is continuing, terminate this Agreement with the effect set forth in
Section 10.2(c).
10.2(c) EFFECT OF TERMINATION. Termination of this Agreement
pursuant to this Section 10.2 shall not in any way terminate, limit or
restrict the rights and remedies of any party hereto against any other
party which has breached or failed to perform any of the
representations, warranties, covenants, or agreements of this Agreement
prior to termination hereof.
11. DISCLOSURES AND ANNOUNCEMENTS
Both the timing and the content of all disclosures to third parties and
public announcements concerning the transactions provided for in this Agreement
by either Shareholders or HealthCare shall be subject to the approval of the
other in all essential respects, except that the Shareholders' approval shall
not be required as to any announcements or filings HealthCare may be required to
make under applicable laws or regulations.
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12. ASSIGNMENT; PARTIES IN INTEREST
12.1 ASSIGNMENT. Except as expressly provided herein, the rights and
obligations of a party hereunder may not be assigned, transferred or encumbered
without the prior written consent of the other parties.
12.2 PARTIES IN INTEREST. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective heirs, successors and
permitted assigns of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by reason of
this Agreement.
13. RESOLUTION OF DISPUTES
13.1 ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or the performance by the parties of its terms shall
be settled by binding arbitration held in Los Angeles, California, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
then in effect, except as specifically otherwise provided in this Section 13.
Notwithstanding the foregoing, HealthCare, in its discretion, apply to a court
of competent jurisdiction for equitable relief from any violation or threatened
violation of the covenants of the Shareholders under Section 5.1 of this
Agreement.
13.2 ARBITRATORS. If the matter in controversy (exclusive of attorney
fees and expenses) shall appear, as at the time of the demand for arbitration,
to exceed $50,000, then the panel to be appointed shall consist of three neutral
arbitrators; otherwise, one neutral arbitrator.
13.3 PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances and
shall resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within 120 days after the selection of the arbitrator(s). The
arbitrator(s) shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have thirty (30) days thereafter to
reconsider and modify such decision if any party so requests within ten (10)
days after the decision. Thereafter, the decision of the arbitrator(s) shall be
final, binding, and nonappealable with respect to all persons, including
(without limitation) persons who have failed or refused to participate in the
arbitration process.
13.4 AUTHORITY. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorney fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
13.5 ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. The Shareholders and HealthCare hereby submit to the in personam
jurisdiction of the federal and state courts in California for the purpose of
confirming any such award and entering judgment thereon.
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13.6 CONFIDENTIALITY. All proceedings under this Section 13, and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
13.7 CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Section 13 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement, and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party.
14. LAW GOVERNING AGREEMENT
This Agreement may not be modified or terminated orally, and shall be
construed and interpreted according to the internal law of the state of
California, excluding any choice of law rules that may direct the application of
the laws of another jurisdiction.
15. AMENDMENT AND MODIFICATION
HealthCare and the Shareholders may amend, modify and supplement this
Agreement in such manner as may be agreed upon by them in writing.
16. NOTICE
All notices, requests, demands and other communications hereunder shall
be given in writing and shall be: (a) personally delivered; (b) sent by
telecopier, facsimile transmission or other electronic means of transmitting
written documents; or (c) sent to the parties at their respective addresses
indicated herein by private overnight courier service. The respective addresses
and telephone numbers to be used for all such notices, demands or requests are
as follows:
If to HealthCare: HealthCare Capital Corp.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President, Personal & Confidential
with a copy to: G. Todd Norvell
Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Facsimile: (503) 224-0155
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If to the Shareholders:
Gregory J. Frazer
1477 Dwight Drive
Glendale, California 91207
Carissa Bennett
1477 Dwight Drive
Glendale, California 91207
Jami Tanihana
16748 Tribune Street
Granada Hills, California 91344
with a copy to: Mr. Quin Frazer
Gardner, Carton & Douglas
321 N. Clark St., Ste. 3400
Chicago, Illinois 60610
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this section.
17. EXPENSES
Regardless of whether or not the transactions contemplated hereby are
consummated:
17.1 BROKERAGE. The Shareholders and HealthCare each represent and
warrant to the other that there is no broker involved or in any way connected
with the transaction provided for herein. HealthCare agrees to hold the
Shareholders harmless from and against all claims for brokerage commissions or
finder's fees incurred through any act of HealthCare in connection with the
execution of this Agreement or the transactions provided for herein. The
Shareholders agree to hold HealthCare harmless from and against all claims for
brokerage commissions or finder's fees incurred through any act of the
Shareholders in connection with the execution of this Agreement or the
transactions provided for herein.
17.2 EXPENSES TO BE PAID BY THE SHAREHOLDERS. The Shareholders shall
pay all their fees and expenses for legal, accounting, and other professional
services in connection with the transactions contemplated hereby.
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18. ENTIRE AGREEMENT
This instrument embodies the entire agreement between the parties
hereto with respect to the transactions contemplated herein, and there have been
and are no agreements, representations or warranties between the parties other
than those set forth or provided for herein.
19. SHAREHOLDER ACTION
Whenever in this Agreement the Shareholders are given the discretion to
take or not to take any action, the decision of the Shareholders shall be made
pursuant to the per capita majority vote of the Shareholders.
20. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. HEADINGS
The headings in this Agreement are inserted for convenience only and
shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
SHAREHOLDERS: HEALTHCARE CAPITAL CORP.
/S/ GREGORY J. FRAZER By: /s/ Brandon M. Dawson
Gregory J. Frazer President
/S/ CARISSA BENNETT
Carissa Bennett
/S/ JAMI TANIHANA
Jami Tanihana
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HCA CORPORATIONS:
HEARING CARE ASSOCIATES - GLENDALE, INC.
By /s/ Gregory J. Frazer
President
HEARING CARE ASSOCIATES - GLENDORA, INC.
By /s/ Gregory J. Frazer
President
HEARING CARE ASSOCIATES - NORTHRIDGE, INC.
By /s/ Gregory J. Frazer
President
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SCHEDULES TO MERGER AGREEMENT
Schedule 1.1 Agreement and Plan of Merger
Schedule 1.6(e) Accounts Receivable
Schedule 3.11(a) Real and Personal Property Leases
Schedule 3.11(b) Purchase Commitments
Schedule 3.11(c) Sales Commitments
Schedule 3.11(i) Other Material Contracts
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Employment Compensation
Schedule 3.14 Patents, Trademarks, etc.
Schedule 3.15 Product Warranty and Product Liability
Schedule 3.17 Key Employees; Bank; Etc.
Schedule 5.1 Noncompetition; Confidentiality
Schedule 6.1-A Employment Agreement-Gregory J. Frazer
Schedule 6.1-B Employment Agreement-Carissa Bennett
Schedule 6.1-C Employment Agreement-Jami Tanihana
Schedule 6.4 Personal Liabilities
Schedule 7.6 Related Transactions
Schedule 8.4 Opinion of Counsel
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ASSET PURCHASE AGREEMENT
This asset purchase agreement ("Agreement") is effective as of October
31, 1996, by and among HealthCare Capital Corp., a corporation organized under
the laws of the Province of Alberta, Canada ("HealthCare"), and HealthCare
Hearing Clinics, Inc., a Washington corporation ("Buyer"), and Hearing Health
Services, Inc., a Delaware corporation ("Hearing Health"), and Audio-Vestibular
Testing Center, Inc., a Michigan corporation ("AVTC"). Hearing Health and AVTC
are collectively referred to herein as "Seller."
RECITALS:
WHEREAS, Seller operates audiology and hearing aid clinics in the
greater Chicago, Illinois, metropolitan area, the greater Lansing, Michigan,
metropolitan area and Highland, Indiana, which perform testing and evaluation of
patients' hearing, prescribe and fit hearing aids, and provide related services
and products; and
WHEREAS, Buyer and Seller desire that Buyer purchase from Seller, and
that Seller sell to Buyer, substantially all of the operating and intangible
assets used in the business of Seller within the states of Illinois, Michigan
and Indiana (the "Midwest Division") on the terms and conditions set forth
herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants, representations, warranties and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES
1.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions of this Agreement, Seller hereby agrees to sell, transfer, convey,
assign and deliver to Buyer, and Buyer hereby agrees to purchase, acquire and
accept from Seller, free and clear of all liens, charges and encumbrances other
than the Permitted Liens (as hereinafter defined), all of Seller's right, title
and interest in and to the business, assets, tangible and intangible, of Seller
located at the business premises of Seller in the states of Illinois, Michigan
and Indiana, held, owned, or leased by, or used or acquired for use in
connection with, Seller's Midwest Division (collectively, the "Transferred
Assets").
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The Transferred Assets shall include, without limitation,
Seller's right, title, and interest in and to the following to the extent
assignable and to the extent located on the Business Premises (as defined below)
and except as set forth on Schedule 1.2:
(a) all accounts receivable of Midwest Division of Seller;
(b) all of Seller's right, title and interest under, in, and
to, the real estate leases listed on Schedule 1.1(b) (collectively, the "Leased
Premises"), which shall be transferred to Buyer in each case by an assignment
and assumption of lease agreement substantially in the form of Schedule
1.1(b)(i) hereto (the "Assignment and Assumption of Lease Agreement");
(c) all other tangible assets (including, but not limited to,
machinery and equipment, motor vehicles, furniture, office supplies, and
furnishings and fixtures) owned by Midwest Division of Seller, located at or on
the Leased Premises and the real estate covered by the Excluded Leases
(collectively, the "Business Premises"), and including, without limitation, the
assets listed on Schedule 1.1(c);
(d) all of Seller's right, title and interest in and to all,
contracts (including, without limitation, contracts with Seller's customers),
arrangements, obligations, leases with respect to personal property (including,
without limitation, computer leases), franchises, guarantees, commitments,
orders, and other agreements whether written or oral, between Midwest Division
of Seller and any other party, including without limitation, the agreements
listed on Schedule 1.1(d) hereto (collectively, "Contracts") to the extent such
Contracts are assignable and are not fully performed as of the Closing;
(e) all prepaid expenses and cash of Midwest Division of
Seller existing at Closing, except such amounts of cash as are excluded pursuant
to Section 1.2 hereof and are set forth in Schedule 1.2;
(f) all goodwill; customer lists; patient files; all patents,
trade names, trademarks, service marks and copyrights (including all
registrations and applications); slogans; computer programs (and all versions
thereof), compilations and data bases; all inventions, formulae, processes
(secret or otherwise), techniques, technical data and information; any service
records and information; any procedures and software utilized by Seller in the
operation of Seller's Midwest Division; the names "Sonus," "Advanced Hearing Aid
Services," and "Advanced Marketing Resources" (collectively, the "Trade Names");
trade secrets and know-how and all permits, grants, franchises and licenses or
other rights relating to any of the foregoing that are attributable to the
conduct of, used in or related to, the Midwest Division of Seller and, subject
to Section 1.1(h), all books and records located at the Business Premises
relating thereto and any other item of intangible property referred to in this
clause (f) (collectively, "Intangible Property"); and other intangible property
rights of Seller relating to the Midwest Division;
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(g) all claims against third parties (including insurers)
arising out of or in connection with the operation of the Midwest Division
including but not limited to claims against third parties for infringement of
Seller's rights to the Intangible Property;
(h) all books and records of Seller located at the Business
Premises relating to the operations of the Midwest Division;
(i) all rights of Seller under express or implied warranties
from its suppliers to the Midwest Division or with respect to the Transferred
Assets;
(j) all original mechanicals and inventories of advertising,
promotional and point-of-sale materials used in connection with the sale of
Midwest Division of Seller's products;
(k) all licenses, permits, orders or approvals of any
governmental or regulatory body or other applicable authority required or used
in the operations of the Midwest Division (collectively, the "Permits") to the
extent assignable; and
(l) all other assets and properties of any nature whatsoever
held by Seller, either directly or indirectly, located at the Business Premises
and used in, allocated to, or required for the operation of the Midwest
Division, including, without limitation, product development and market research
studies, surveys, reports, analyses and similar information, all stationery,
invoice and other forms, all supplies and all other records of every kind or
type.
1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1, Seller shall
not sell, and Buyer shall not purchase, any assets, property or rights of Seller
listed on Schedule 1.2 (the "Excluded Assets").
1.3 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to transfer to Buyer and Buyer
agrees to assume and undertake to pay, perform and discharge only those
liabilities of Seller (the "Assumed Liabilities") specifically set forth below:
(a) All liabilities of the Midwest Division of Seller as of
the Closing for inventory, office supplies, ordinary compensation payables,
employee benefits and taxes (including, but not limited to, accrued paid time
off), bonuses (including all related payroll taxes and employee benefits),
including amounts owed to employees for achieving revenue targets in September
and October of 1996 as set forth in Schedule 1.3(a), the accrued interest due
and payable as of October 31, 1996, from Hearing Health to Kathy Foltner
pursuant to that certain promissory note dated July 1, 1994, in the original
principal amount of $600,000 issued by Hearing Health to Kathy Foltner, personal
and real property taxes, water, gas, electric and other utility charges,
business or other license fees and taxes, merchants' association dues, rental
payments under any assumed leases, an acquisition bonus payable to Kathy Foltner
as set forth in Schedule 1.3(a)(i) (including all related payroll taxes and
employee benefits), any customer refunds for hearing aids delivered prior to
Closing, and all other operating liabilities (including legal, accounting, and
other professional fees and expenses incurred in the ordinary course of
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business), vendor accounts payable, and similar liabilities (collectively
referred to as "Trade Payables");
(b) All supplier loans set forth in Schedule 1.3(b) and the
Software License, Processing and Support Agreement between Seller and Act Now
Inc. dated January 12, 1995, as amended February 2, 1995;
(c) The obligations of Hearing Health to Kathy Foltner for
"Cash Earn-Out Payments" as such term is defined in Section I.B. of the
Agreement of Purchase and Sale dated June 28, 1994, among AVTC, Kathy Foltner,
and Hearing Health, as amended by Amendment No. 1 thereto dated December 23,
1994 (together, the "Foltner Agreement"); provided, however, that Buyer shall
not assume any liability under Section I.C. in excess of one hundred fifty
thousand dollars ($150,000) in the aggregate, plus interest on payments to be
made by Buyer pursuant to this Section 1.3(c) that are late, if any;
(d) All employment contracts in force at Closing to which
Seller is a party relating to employees of the Midwest Division;
(e) All lease agreements of Midwest Division of Seller in
force at Closing, but excluding the lease agreements set forth on Schedule
1.3(e) (the "Excluded Leases"); and
(f) All obligations with respect to contracts and other
agreements entered into in the ordinary course of business of the Midwest
Division.
All liabilities of Seller not expressly assumed by Buyer under this Section 1.3,
including but not limited to bank obligations, bonuses to employees not within
the definition of Trade Payables or set forth in schedules hereto, loans from
employees, and fees and expenses relating to the transactions contemplated by
this Agreement (but not including any such fees and expenses incurred in the
ordinary course of business owed to accounting, consulting, legal, brokerage,
and investment banking firms) are excluded and are referred to herein as
"Excluded Liabilities".
1.4 PURCHASE PRICE. The purchase price of the Transferred
Assets being sold hereunder (the "Purchase Price") shall be paid simultaneously
at Closing as follows:
(a) Issuance of one (1) year convertible subordinated notes
(collectively, the "Convertible Note") from Buyer and HealthCare in the
aggregate principal amount of two million six hundred thousand dollars
($2,600,000) in the form of Schedule 1.4(a), which Convertible Note shall be
made payable to such payees as Seller shall designate in writing to HealthCare,
together with a security agreement (the "Security Agreement") relating thereto
in the form of Schedule 1.4(a)(i);
(b) Assumption of liabilities pursuant to Section 1.3 above;
(c) Issuance of a promissory note payable to Kathy Foltner in
the principal amount of $360,000 in the form of Schedule 1.4(c) (the "Foltner
Note");
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(d) The Purchase Price shall include an adjustment based on
Net Working Capital as of Closing. For purposes of this Agreement, "Net Working
Capital" shall mean cash, accounts receivable (with adequate reserves for
uncollectible accounts), inventory, and all other current assets and prepaid
expenses less Trade Payables.
(i) As promptly as practicable following the Closing, but in
no event later than 45 days thereafter (the "45-Day Period"), Buyer and Seller
shall cooperate to prepare a mutually agreeable computation of the Net Working
Capital as of the Closing computed in accordance with the terms of this
Agreement, and setting forth the computation and components thereof in
reasonable detail (the "Statement of Net Working Capital").
(ii) During the 45-Day Period, Buyer shall, at the request of
Seller, afford Seller access to the books and records of the Midwest Division
and, upon reasonable prior notice and without unreasonable disruption, to the
employees of Buyer, and afford Seller with the reasonable opportunity to
participate in and consult with Buyer, in connection with the preparation by
Buyer of the Statement of Net Working Capital.
(e) On the fifteenth day after the date on which the Statement
of Closing Working Capital shall have been completed (or such earlier date as
such statement is mutually agreed upon by Seller and Buyer in writing), if the
Net Working Capital shown on the Statement of Net Working Capital is not
disputed by Seller pursuant to section 1.4(f) hereof, (i) in the event that the
Net Working Capital exceeds $50,000, then Buyer shall pay to Seller the amount
by which the Net Working Capital exceeds $50,000, or (ii) in the event that the
Net Working Capital is less than $50,000 (the amount by which the Net Working
Capital is less than $50,000, the "Negative Amount"), then Seller shall promptly
remit to Buyer an amount equal to the Negative Amount;
(f) If Buyer and Seller are unable to mutually agree upon the
Statement of Net Working Capital within the 45-Day Period, all disputed matters
not so resolved shall be submitted to arbitration. One-half of all fees and
disbursements of the arbitration shall be paid by Seller and one-half of such
fees and disbursements shall be paid by Buyer. Any payment to be made as a
consequence of the decision of the arbitrator shall be made not later than three
business days after the receipt of the arbitrator's decision.
1.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Transferred Assets being sold hereunder in the manner required by
Treasury Regulation ss. 1.1060-1T and shall be mutually agreed among Buyer and
Seller. Buyer will submit to Seller a proposed allocation within ninety (90)
days from the date hereof. Buyer and Seller shall thereafter agree upon an
allocation (the "Proposed Allocation"). Buyer and Seller agree that: except as
otherwise required by law, (a) the Proposed Allocation shall be binding on Buyer
and Seller for all federal, state and local tax purposes, and (b) Buyer and
Seller shall file with their respective federal income tax returns consistent
IRS Form 8594-Asset Acquisition Statements under Section 1060, including any
required amendments thereto which shall reflect the allocations set forth in the
Proposed Allocation. Seller agrees to assist Buyer in obtaining accounting
treatment to facilitate a step-up in basis on the Transferred Assets. The
parties
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acknowledge that the allocation of the Purchase Price provided for in the
Proposed Allocation will be reasonable.
1.6 TRANSFER TAXES. Buyer and Seller shall each pay one-half of all
local, city, municipal, county, state and federal sales and transfer taxes
incurred, if any, in connection with the transactions contemplated by this
Agreement. Each party shall in a timely manner sign and swear to any return,
certificate, questionnaire or affidavit as to matters within its knowledge
required in connection with the payment of any such tax.
1.7 EMPLOYEES. In addition to the Excluded Liabilities, Seller shall
retain all liabilities and claims for salary, bonuses, back-pay, commissions,
benefits or other compensation based claims of employees or former employees of
Seller arising prior to the Closing, which are not specifically assumed by Buyer
hereunder. Buyer shall offer employment to all employees of Seller employed
exclusively in connection with the Midwest Division, on such terms and
conditions as determined by Buyer in its sole discretion.
1.8 ASSETS AFTER THE CLOSING. If Seller shall, at any time after the
Closing, receive any Transferred Assets (including any returned products or any
payments) related to the Midwest Division, it shall promptly deliver such assets
to Buyer.
1.9 BULK TRANSFER LAWS. Buyer hereby waives compliance by Seller with
any applicable bulk sale or bulk transfer laws of any jurisdiction in connection
with the sale of the Transferred Assets to Buyer; PROVIDED, HOWEVER, that
nothing in this Section 1.9 shall be construed (a) as an indication that Buyer
or Seller has determined that any bulk sale or transfer law is applicable to the
sale of the Transferred Assets or (b) to undermine Seller's absolute obligation
to pay any liabilities retained by it hereunder.
1.10 CLOSING. The closing of the transaction provided for herein (the
"Closing") shall be deemed to have occurred as of the close of business on
October 31, 1996. Notwithstanding the foregoing, HealthCare shall have the right
to extend the Closing for up to ninety (90) days if, in its judgment, it becomes
necessary to do so as a result of requirements of the Province of Alberta, the
Alberta Stock Exchange (the "ASE"), United States, state of Washington or state
of Delaware securities laws, regulations or rules. The Closing shall take place
at the offices of HealthCare at 111 S.W. Fifth Avenue, Suite 2390, Portland,
Oregon 97204, at such time as the parties shall mutually agree.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
2.1 ORGANIZATION AND QUALIFICATION.
(a) Hearing Health is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to carry on its business as it is now being
conducted and to own, lease and operate the properties and assets used in
connection therewith;
(b) AVTC is a corporation duly organized, validly existing,
and in good standing under the laws of the state of Michigan and has the
requisite corporate power to carry on its business as it is now being conducted
and to own, lease, and operate the properties and assets used in connection
therewith.
2.2 SELLER'S CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) Hearing Health has heretofore delivered to Buyer true and
complete copies of its respective Certificate of Incorporation and Bylaws as in
effect on the date hereof;
(b) AVTC has heretofore delivered to Buyer true and complete
copies of its respective Articles of Incorporation and Bylaws as in effect on
the date hereof.
2.3 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Seller pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the respective boards of directors and stockholders
of Seller. This Agreement constitutes, and when executed and delivered, the
other documents and instruments to be executed and delivered by Seller pursuant
hereto will each constitute, a valid and binding agreement of Seller,
enforceable in accordance with its respective terms.
2.4 SUBSIDIARIES. Except as set forth on Schedule 2.4, Seller does not
own an interest in any corporation, partnership or other entity.
2.5 NO CONFLICT. Neither the execution nor delivery of this Agreement,
nor the consummation by Seller of any of the transactions contemplated hereby or
thereby, will (a) conflict with or violate the Certificate of Incorporation,
Articles of Incorporation, or By-laws of Seller or any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award applicable to
it, or the Transferred Assets, or (b) except as set forth on Schedule 2.5,
constitute a breach of, or default (whether with notice or lapse of time, or
both) under or, result in the termination or cancellation of or acceleration of
the performance required by, or require any consent, authorization or approval
under, or result in the imposition or creation of any lien upon any of the
Transferred Assets under, any note, bond, mortgage, indenture, contract,
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agreement, lease, license, permit, franchise or other instrument to which Seller
is a party or by which Seller or any of the Transferred Assets are bound or
affected.
2.6 FINANCIAL STATEMENTS AND BOOKS AND RECORDS. Seller has heretofore
delivered to Buyer the following financial statements of Hearing Health or the
Midwest Division including balance sheets and related statements of income (the
"Financial Statements"):
(a) Financial Statements for Hearing Health's 1994 fiscal year
and the Midwest Division's 1995 and 1996 fiscal years (except that the
1995 and 1996 Financial Statements do not contain statements of cash
flow); and
(b) Financial statements for the Midwest Division's interim
period ended September 30, 1996 (excluding statements of cash flow).
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Midwest Division at the dates
indicated and results of its operations and changes in its financial position
for the periods then ended in accordance with generally accepted accounting
principles. The books and records of the Midwest Division accurately reflect in
all material respects the transactions to which the Midwest Division is, or was,
a party or by which properties or assets relating to the Midwest Division of
Seller are, or were, subject or bound. The books and records have been kept in
accordance with the normal business practices of the Midwest Division.
2.7 NO MATERIAL ADVERSE CHANGE. Since September 30, 1996, there has
been no material adverse change in the business, operations or condition
(financial or otherwise) of the Midwest Division of Seller excluding those
changes that result from factors affecting the industry generally or that are
caused by general economic conditions and Seller does not know of any such
change, excluding such changes that result from factors affecting the industry
generally or that are caused by general economic conditions, that is threatened
or pending, nor has there been any damage, destruction or loss, whether or not
covered by insurance, which could have a Material Adverse Effect. For purposes
of this Agreement, "Material Adverse Effect" means an adverse effect in excess
of $50,000 on the business, operations or condition (financial or otherwise) of
the Midwest Division, the Transferred Assets, or the Assumed Liabilities, or on
the ability of Seller to consummate the transactions contemplated hereunder
(henceforth, a "Material Adverse Effect").
2.8 NO UNDISCLOSED LIABILITY. Except (a) as described to Buyer on the
schedules hereto as an item which can be reasonably construed as a liability or
obligation or (b) items not required to be disclosed on the schedules hereto by
reason of exceptions, exclusions, or other qualifications contained in the
representations and warranties of this Agreement, the Midwest Division has no
material liabilities or obligations of any nature (absolute, accrued, contingent
or otherwise) which are not properly reflected or reserved against in the
Financial Statements (except for liabilities or obligations which have been
incurred in the ordinary course of business since the date of the most recent
Financial Statement) in a manner consistent with past practice; and the reserves
reflected in the Financial Statements are adequate, appropriate and reasonable.
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2.9 LITIGATION. Except as set forth on Schedule 2.9, there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal by which the Midwest
Division or its assets is bound, except for such items which do not and will not
materially adversely affect the business or operations of Midwest Division of
Seller, the Transferred Assets, or the Assumed Liabilities. Except as set forth
on Schedule 2.9, there are no actions, suits, legal, administrative or arbitral
proceedings or inquiries relating to the Midwest Division, the Transferred
Assets or the Assumed Liabilities pending or, to the knowledge of Seller,
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance) against Seller relating to the Midwest Division, or
any officer, director or employee of Seller other than any such items which do
not and will not materially adversely affect the business or operations of
Midwest Division of Seller, the Transferred Assets or the Assumed Liabilities.
2.10 COMPLIANCE WITH LAWS.
(a) COMPLIANCE. Seller in connection with the Midwest Division
(including each and all of the Midwest Division's operations, practices,
properties and assets) is in material compliance with all applicable federal,
state, local and foreign laws, ordinances, orders, rules and regulations
(collectively, "Laws"), including, without limitation, those applicable to
discrimination in employment, occupational safety and health, trade practices,
environmental protection, competition and pricing, product warranties, zoning,
building and sanitation, employment, retirement and labor relations, and product
advertising except to the extent any noncompliance would not have a material
adverse effect upon the assets or the businesses of Seller taken as a whole. To
the knowledge of Seller, Seller has not received notice of any violation or
alleged violation of, and is not subject to any material liability for past or
continuing violation of, any Laws. All reports and returns required to be filed
by Seller with any governmental authority have been filed, and were accurate and
complete when filed except to the extent failure to file or any deficiency in
accuracy or completeness would not have a material adverse effect upon the
assets or the business of Seller taken as whole.
(b) LICENSES AND PERMITS. Seller has obtained all licenses,
permits, approvals, authorizations and consents of all governmental and
regulatory authorities and all certification organizations required for the
conduct of its Midwest Division (as presently conducted) except to the extent
failure to do so would not have a material adverse effect upon the assets or the
businesses of Midwest Division of Seller taken as a whole. Seller (including its
operations, properties and assets) is and has been in compliance with all such
permits and licenses, approvals, authorizations and consents, except to the
extent any noncompliance would not have a material adverse effect upon the
assets or the businesses of Seller taken as a whole.
2.11 ENVIRONMENTAL COMPLIANCE. Seller has not received any written
communication from any environmental agency with respect to the Transferred
Assets or with respect to the Business Premises and Seller has since June 28,
1994, and has at all times thereafter, operated the Midwest Division, in
material compliance with, or otherwise ceased any material non-compliance with,
all applicable federal, state and local laws and regulations relating to
pollution control and environmental contamination including, without limitation,
all laws and
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regulations governing the generation, use, collection, treatment, storage,
transportation, recovery, removal, discharge or disposal of hazardous materials
(as defined below) and all laws and regulations with regard to record keeping,
notification and reporting requirements respecting Hazardous Materials (as
defined below), except for such noncompliance as would not cause a Material
Adverse Effect. Seller has not received written notice of any administrative or
judicial proceeding pursuant to such laws or regulations. To the knowledge of
Seller, there is no basis for the assertion of a valid material claim against
Seller relating to environmental matters including, without limitation, any
claim arising from past or present environmental practices, asserted under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time ("CERCLA", the Resource Conservation and Recovery Act,
as amended form time to time ("RCRA") or any other federal, state, or local
statute, code, rule, regulation, ordinance, order, decree, or other governmental
authority as now in effect. For purposes of this Section 2.11, the term
"Hazardous Materials" means materials defined as "hazardous wastes" or "solid
wastes" in CERCLA, RCRA or in any similar federal, state, or local statute,
code, rule, regulation, ordinance, order, decree, or other governmental
authority as now in effect.
2.12 TAX MATTERS.
(a) Except with respect to Taxes (as defined below) for which
adequate reserves are included in the Financial Statements, Seller has timely
paid all federal, state, county, local and foreign taxes, including, without
limitation, income taxes, excise taxes, sales taxes, use taxes, gross receipts
taxes, franchise taxes, employment and payroll taxes, withholding taxes,
property taxes, import duties, and all other taxes of any nature whatsoever and
however denominated together with all penalties, additions to tax, interest,
assessment or other damages imposed thereon with respect to its Midwest Division
(collectively, "Tax" or "Taxes") required to be paid or deposited by Seller
through the Closing. For purposes of this Section 2.12(a), timely payment shall
include payment in accordance with any available extensions and recording of
balances due as a Trade Payable.
(b) Seller has filed on or before the applicable due date
(including extensions) all tax returns which it is required to have filed
through the date hereof and has timely paid all amounts shown as payable
thereon, as well as any deficiencies or other additional amounts subsequently
assessed by any taxing authority with respect to each such tax return. All such
returns are true, correct and complete in all material respects.
(c) Seller has not waived any statute of limitations in
respect of Taxes of Seller or agreed to any extension of time with respect to a
Tax assessment or deficiency of Seller, and the assessment of any additional
Taxes of Seller with respect to periods for which returns have been filed is not
expected.
(d) There are no proposed deficiencies or unresolved claims
concerning Seller's liability for Taxes.
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(e) All federal and state income tax returns (including all
attachments and amendments thereto) of Seller relating to fiscal years 1994 and
1995 (including any extensions or waivers thereof) have been made available to
Buyer.
2.13 INSURANCE. Seller has received no notification of cancellation,
modification or denial of renewal of any material policies of fire, product
liability, malpractice or other forms of insurance.
2.14 SUPPLIERS. Seller has received no notice of termination or an
intention to terminate the relationship with Midwest Division of Seller, from
any material supplier.
2.15 PATENTS, TRADEMARKS, ETC. Set forth in Schedule 2.15 attached
hereto is a list of United States and foreign trademarks, service marks, trade
names, brand names, copyrights, including registrations and applications, patent
and patent applications, and employee covenants and agreements respecting
intellectual property ("Trade Rights") in which Seller, in connection with the
Midwest Division, now has any interest, specifying the basis on which such Trade
Rights are owned, controlled, used or held (under license or otherwise) by
Seller, and also indicating which of such Trade Rights are registered. All Trade
Rights shown as registered in Schedule 2.15 have been properly registered, all
pending registrations and applications have been properly made and filed and all
annuity, maintenance, renewal and other fees relating to registrations or
applications are current. To the knowledge of Seller, Seller is not infringing
and has not infringed on any Trade Rights of another in the operation of the
Midwest Division of Seller, nor to the knowledge of Seller is any other person
infringing on the Trade Rights of Seller relating to the Midwest Division.
Seller has not granted any license or made any assignment of any Trade Right,
and to the knowledge of Seller, no other person has any right to use any Trade
Right owned or held by Seller relating to the Midwest Division. Seller does not
pay any royalties or other consideration for the right to use any Trade Rights
of others. Except as set forth in Schedule 2.15, there are no inquiries,
investigations or claims or litigation challenging or threatening to challenge
Seller's right, title and interest with respect to its continued use and right
to preclude others from using any Trade Rights of Seller. To the knowledge of
Seller, all Trade Rights of Seller relating to the Midwest Division are valid,
enforceable and in good standing and, to the knowledge of Seller, there are no
equitable defenses to enforcement based on any act or omission of Seller.
2.16 PRODUCT WARRANTY. Set forth in Schedule 2.16 is a true, correct
and complete copy of Seller's standard warranty or warranties for sales of its
products.
2.17 PRODUCT LIABILITY. No action is pending or, to the knowledge of
Seller, threatened against or involving Seller relating to any product alleged
to have been manufactured or sold by Seller in connection with Midwest Division
of Seller and alleged to have been defective, or improperly designed or
manufactured.
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2.18 CONTRACTS AND COMMITMENTS.
(a) PERSONAL PROPERTY LEASES. Set forth on Schedule 2.18(a) is
a list of all personal property leases to which the Midwest Division of Seller
is a party.
(b) PURCHASE COMMITMENTS. Set forth in Schedule 2.18(b) is a
list of all agreements (written or oral) between Midwest Division of Seller and
third parties for the purchase of goods and supplies by Seller which
individually call for the payment by Seller after the date hereof of more than
five thousand dollars ($5,000) or which obligate Seller for a period extending
beyond December 31, 1996. Complete and correct copies of all such written
agreements have heretofore been made available to Buyer and HealthCare.
(c) SALES COMMITMENTS. Set forth in Schedule 2.18(c) is a list
and description of all presently effective agreements (written or oral) between
Midwest Division of Seller and third parties for the distribution and sale of
its products. Complete and correct copies of all such written contracts have
heretofore been made available to Buyer and HealthCare.
(d) CONTRACTS WITH SHAREHOLDERS AND CERTAIN OTHERS. Except as
set forth on Schedule 2.18(d), Seller has no agreement, understanding, contract
or commitment (written or oral) with any of its shareholders, or any affiliate
of a shareholder.
(e) COLLECTIVE BARGAINING AGREEMENTS. Midwest Division of
Seller is not party to any collective bargaining agreements with any union.
(f) LOAN AGREEMENTS. Except as set forth in the Agreement and
on Schedule 2.18(f) hereto, Midwest Division of Seller is not obligated under
any loan agreement, promissory note, letter of credit, or other evidence of
indebtedness as signatories, guarantors or otherwise.
(g) GUARANTEES. Except as set forth in Schedule 2.18(g),
Seller is not a party to any instrument under which Seller guaranteed the
payment or performance of any person, firm or corporation, agreed to indemnify
any person or act as a surety, or otherwise agreed to be contingently or
secondarily liable for the obligations of any person.
(h) RESTRICTIVE AGREEMENTS. Except as set forth in Schedule
2.18(h), Midwest Division of Seller is not party to nor is it bound by any
agreement requiring it to assign any interest in any trade secret or proprietary
information, or prohibiting or restricting it from competing in any business or
geographical area or soliciting customers or otherwise restricting it from
carrying on its business anywhere in the world.
(i) OTHER MATERIAL CONTRACTS. Midwest Division of Seller is
not party to any lease, license, contract (including without limitation
contracts with health maintenance organizations) or commitment of any nature
involving consideration or other expenditure in excess of ten thousand dollars
($10,000), or involving performance over a period of more than
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ninety (90) days, or which is otherwise individually material to the operations
of Seller, except as set forth in Schedule 2.18(i).
(j) NO DEFAULT. Midwest Division of Seller is not in default
under any lease, agreement, contract or commitment where such default would have
a Material Adverse Effect, nor has any event or omission occurred which through
the passage of time or the giving of notice, or both, would constitute a default
thereunder or cause the acceleration of any of Seller's obligations or result in
the creation of any lien on any of the assets owned, used or occupied by Midwest
Division of Seller where such default, acceleration or creation of lien would
have a Material Adverse Effect. To the knowledge of Seller, no third party is in
default under any lease, agreement, contract or commitment to which Midwest
Division of Seller is a party where such default would have a Material Adverse
Effect, nor, to the knowledge of Seller, has any event or omission occurred
which, through the passage of time or the giving of notice, or both, would
constitute a default thereunder or give rise to an automatic termination, or the
right of discretionary termination thereof.
2.19 LEASES.
(a) Seller does not own any real property. Seller has
heretofore delivered to Buyer true and complete copies of all leases of real
property to which they are a party, which leases are listed on Schedule 1.1(b)
and 1.3(f) (the "Leases"). Except as set forth on Schedule 2.19, no consent of
any third party is required in order to effectuate the assignment of the leases
described in Schedule 1.1(b) to Buyer. The Leases are currently in full force
and effect. No notices of default of Seller under any of the Leases have been
received by Seller and no condition exists which, with the passage of time or
giving of notice or both, would constitute a material default thereunder.
(b) To the knowledge of Seller, there are no defaults by the
landlord under any of the Leases except as set forth on Schedule 2.19(b). Seller
has not waived any rights under any of the Leases.
(c) There is no pending or, to the knowledge of Seller,
threatened action or proceeding which could materially adversely affect Buyer's
use of the Business Premises after the consummation of the transaction
contemplated by this Agreement. Except as set forth on Schedule 2.19(b), there
are no violations by Seller or, to the knowledge of Seller, by Seller's
landlords of laws, ordinances, regulations or codes materially adversely
affecting Seller's use of the Business Premises.
2.20 TANGIBLE PROPERTY. The equipment, computers and related
peripherals, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other similar tangible property constituting
part of the Transferred Assets (the "Tangible Property"), are in operating
condition and repair, subject to normal wear and tear, and Seller has not
received notice that any of the Tangible Property is in material violation of
any existing law of any building, zoning, health, safety or other ordinance,
code or regulation and, to the knowledge of Seller, no such material violation
exists. During the past three years there has not been any
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significant interruption of the operations of Seller due to inadequate
maintenance of the Tangible Property.
2.21 INTANGIBLE PROPERTY. Seller has taken all necessary action to
maintain the continued validity of the Intangible Property except where failure
to do so has not and will not have a Material Adverse Effect. Seller possesses
and hereby conveys to Buyer all rights, licenses or other authority necessary to
enable Buyer to have and enjoy the full, free and unencumbered use of all of
Seller's rights in the Intangible Property without conflict or infringement of
the rights of others relating directly or indirectly to the Intangible Property
and without payment of any royalties or other consideration to any party to this
Agreement or to any other person. Seller has not granted any outstanding
licenses in any of the Intangible Property, nor is Seller under any obligation
to grant the same.
2.22 LIENS. Except as set forth on Schedule 2.22, (a) Seller owns
outright and has good and marketable title to all of the Transferred Assets
(tangible and intangible), and (b) Seller will convey to Buyer at the
consummation of the transactions contemplated by this Agreement good and
marketable title to the Transferred Assets, in the case of each of clauses (a)
and (b) above, free and clear of any lien, charge or other encumbrance, except
for leasehold interests, security interests and liens or other encumbrances
specifically set forth in Schedule 2.22 or liens or other encumbrances securing
Taxes not yet due or payable (collectively, "Permitted Liens").
2.23 EMPLOYEE BENEFIT PLANS. Set forth in Schedule 2.23, is a list of
all pension, profit sharing, retirement, bonus, executive or deferred
compensation, hospitalization and other similar fringe or employee benefit
plans, programs and arrangements, and any employment or consulting contracts,
"golden parachutes", severance agreements or plans, vacation and sick leave
plans including, without limitation, all "employee benefit plans" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), all employee manuals, and all written or binding oral statements of
policies, practices or understandings relating to employment, which are provided
to, for the benefit of, or relate to, any persons employed by the Midwest
Division of Seller. The items described in the foregoing sentence are
hereinafter sometimes referred to collectively as "Employee Plans/Agreements."
True and correct copies of all written Employee Plans/Agreements, including all
amendments thereto, have heretofore been provided to Buyer. Seller is in
material compliance with and has made all payments due under all Employee
Plans/Agreements and with respect thereto Seller is in material compliance with
all applicable federal and state laws and regulations. Seller is not
contributors to any multi-employer pension plan which has an unfunded liability
with respect to benefits due its participants.
2.24 EMPLOYMENT COMPENSATION. Set forth in Schedule 2.24 is a true and
correct list of:
(a) All employees of Midwest Division to whom Seller is paying
compensation; and in the case of salaried employees such list identifies the
current annual rate of compensation for each employee and in the case of hourly
or commission employees identifies
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certain reasonable ranges of rates and the number of employees falling within
each such range; and
(b) All amounts owed to employees of Midwest Division of
Seller for accrued sick pay, vacation pay, and bonus pay.
2.25 BANK ACCOUNTS. Schedule 2.25 sets forth the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which Midwest Division of Seller maintains safe deposit boxes or
accounts of any nature and names of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
2.26 ACCOUNTS RECEIVABLE. Each of the accounts receivable of Seller (a)
arose from bona fide sales in the ordinary course of business, (b) was entered
into under circumstances and by methods usual and customary in Seller's business
in the applicable state and the collection practices used with respect thereto
have been in all respects legal and proper and (c) was entered into, and credit
granted pursuant thereto, consistent with Seller's historical credit policies
and practices. The books of Seller correctly record the principal balance of all
accounts receivable and each of the security instruments securing any account
receivable, if any, constitutes a valid lien in favor of Seller upon the
property which it describes, and is enforceable (subject to the qualifications
that enforcement of the rights and remedies created thereby is subject to (a)
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting the rights and remedies of creditors, and (b) general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law)) by Seller and its transferees. The reserves for
doubtful accounts shown or reflected on the Financial Statements are adequate
and were calculated consistent with past practice.
2.27 INVENTORY. The inventories of the Midwest Division of Seller have
a commercial value (lower of cost or market value) at least equal to the value
shown on Seller's Financial Statements.
2.28 BROKERS AND FINDERS. Neither Seller nor any of its respective
officers, directors, employees or shareholder has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders fees in
connection with the transactions contemplated by this Agreement.
2.29 DISCLOSURE. No representations or warranties of Seller contained
in this Agreement and no statement contained in any document (including, without
limitation, the Financial Statements and the schedules to this Agreement),
certificate, or other writing furnished or to be furnished by Seller to Buyer,
HealthCare or any of its representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary, in the context in
which made, to make the statements herein or therein not false or misleading.
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2.30 MINUTES. Nothing within Seller's minute book, as it pertains to
operation of the Midwest Division, would be deemed material to Buyer or would be
deemed to have a Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND HEALTHCARE
Buyer and HealthCare hereby represent and warrant to Seller as follows:
3.1 ORGANIZATION.
(a) Buyer is a corporation duly organized, validly existing
and in good standing under the laws of Washington and has the requisite
corporate power to carry on its business and to own, lease and operate the
properties and assets used in connection therewith; and
(b) HealthCare is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Alberta, Canada,
and has the requisite corporate power to carry on its business and to own, lease
and operate the properties and assets used in connection therewith.
3.2 CAPITALIZATION. The authorized and issued capital stock of
HealthCare is set forth in the Prospectus referred to in Section 3.11 as of the
date thereof. All of the issued and outstanding shares have been validly issued
and are fully paid and nonassessable. The common stock of HealthCare to be
issued to Seller pursuant to the Convertible Note described in Section 1.4(a)
(the "HealthCare Shares") will, upon issuance, be validly issued, fully paid,
and nonassessable and free and clear of any lien.
3.3 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Buyer and
HealthCare pursuant hereto and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the respective boards of
directors of Buyer and HealthCare. This Agreement constitutes, and when executed
and delivered, the other documents and instruments to be executed and delivered
by Buyer and HealthCare pursuant hereto will each constitute, a valid and
binding agreement of Buyer and HealthCare, enforceable in accordance with their
respective terms.
3.4 NO CONFLICT. Neither the execution nor delivery of this Agreement,
nor the consummation by Buyer or HealthCare of any of the transactions
contemplated hereby, will (a) conflict with or violate the Articles of
Incorporation or Bylaws of Buyer or HealthCare or any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award applicable to
them, or the Transferred Assets, or (b) constitute a breach of, or default
(whether with notice or lapse of time, or both) under or, result in the
termination or cancellation of or acceleration of the performance required by,
or require any consent, authorization or approval under, or result in the
imposition or creation of any lien upon any of the Transferred Assets under, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
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franchise or other instrument to which Buyer or HealthCare are a party or by
which Buyer or HealthCare are bound or affected.
3.5 BROKERS AND FINDERS. Neither Buyer, HealthCare nor any of its
officers, directors, employees or shareholders has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated by this Agreement.
3.6 DISCLOSURE. No representations or warranties of Buyer or HealthCare
contained in this Agreement and no statement contained in any document,
certificate or other writing furnished or to be furnished by Buyer or HealthCare
to Seller or any of its representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary, in the context in
which made, to make the statements herein or therein not false or misleading.
3.7 [Not used]
3.8 COMPLIANCE WITH LAW. Buyer and HealthCare are in material
compliance with all applicable laws, including, without limitation, those
applicable to discrimination in employment, occupational safety and health,
trade practices, environmental protection, competition and pricing, product
warranties, zoning, building and sanitation, employment, retirement and labor
relations, and product advertising except to the extent any noncompliance would
not have a material adverse effect upon the assets or the businesses of Buyer
and HealthCare taken as a whole. Neither Buyer nor HealthCare have received
notice of any violation or alleged violation of, and are not subject to any
material liability for past or continuing violation of, any Laws. All reports
and returns required to be filed by Buyer and HealthCare with any governmental
authority have been filed, and were accurate and complete when filed except to
the extent failure to file or any deficiency in accuracy or completeness would
not have a material adverse effect upon the assets or the business of Buyer and
HealthCare taken as whole.
3.9 NO MATERIAL ADVERSE CHANGE. Since July 31, 1996, there has been no
material adverse change in the business, operations or condition (financial or
otherwise) of Buyer and HealthCare excluding those changes that result from
factors affecting the industry generally or that are caused by general economic
conditions and neither Buyer nor HealthCare know of any such change, excluding
such changes that result from factors affecting the industry generally or that
are caused by general economic conditions, that is threatened or pending, nor
has there been any damage, destruction or loss, whether or not covered by
insurance, which could have a an adverse effect in excess of $50,000 on the
business, operations or condition (financial or otherwise) of Buyer and
HealthCare, on the ability of Buyer and HealthCare to consummate the
transactions contemplated hereunder.
3.10 LITIGATION. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal by which Buyer
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or Healthcare, or their assets are bound, except for such items which do not and
will not materially adversely affect the business or operations of Buyer or
HealthCare. There are no actions, suits, legal, administrative or arbitral
proceedings or inquiries relating to Buyer or HealthCare pending or, to the
knowledge of Buyer or Healthcare, threatened (whether or not the defense thereof
or liabilities in respect thereof are covered by insurance) against Buyer or
HealthCare or any officer, director or employee of Buyer or HealthCare other
than any such items which do not and will not materially or adversely affect the
business or operations of Buyer or HealthCare.
3.11 SECURITIES FILINGS. The documents filed by HealthCare with the ASE
and the HealthCare Capital Corp. United States Confidential Offering Memorandum
dated October 16, 1996 (the "Prospectus"), do not contain any untrue statements
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
3.12 TRANSFERABILITY OF HEALTHCARE SHARES. Based upon the knowledge of
HealthCare and Buyer regarding the practice, interpretation, and use of Alberta
Securities Commission Notice 7 entitled "Distribution of Securities Outside
Alberta" by the staff of the ASE and Alberta, Canada securities practitioners,
the HealthCare Shares may be sold, transferred, or otherwise disposed of in the
Province of Alberta, Canada, and traded through the facilities of the ASE,
beginning on the 91st day following the Closing.
ARTICLE IV
COVENANTS OF SELLER
Seller hereby covenants and agrees as follows:
4.1 NONCOMPETITION; CONFIDENTIALITY. As an inducement to Buyer to
execute this Agreement and complete the transactions contemplated hereby, and in
order to preserve the goodwill associated with the Midwest Division of Seller
being acquired pursuant to this Agreement, Seller hereby covenants and agrees to
deliver to Buyer at the Closing Noncompetition and Confidentiality Agreements in
the form attached hereto as Schedule 7.6(a)(i).
4.2 ACCESS TO INFORMATION AND RECORDS. Seller agrees that during the
period prior to the Closing, Buyer, its counsel, accountants and other
representatives shall be provided (i) reasonable access during normal business
hours to all of the properties, books, records, contracts and documents of
Seller relating to the Midwest Division for the purpose of such inspection,
investigation and testing as Buyer deems appropriate (and Seller shall furnish
or cause to be furnished to Buyer and its representatives all information with
respect to the business and affairs of Midwest Division of Seller as Buyer may
reasonably request); (ii) reasonable access to employees and agents of Seller
for such meetings and communications as Buyer reasonably desires; and (iii) with
the prior consent of Seller in each instance (which consent shall not be
unreasonably withheld), access to vendors, customers, and others having business
dealings with Seller.
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4.3 CONDUCT OF BUSINESS PENDING THE CLOSING. Seller agrees that from
the date hereof until the Closing, except as provided herein or otherwise
approved in writing by Buyer:
(a) NO CHANGES. Midwest Division of Seller will carry on its businesses
diligently and in the same manner as heretofore and will not make or institute
any material changes in its methods of purchase, sale, management, accounting or
operation.
(b) MAINTAIN ORGANIZATION. Seller will use its best efforts to
maintain, preserve, renew and keep in force and effect the existence, rights and
franchises of the Midwest Division and to preserve the business organization of
the Midwest Division intact, to keep available to Buyer the present officers and
employees of the Midwest Division, and to preserve for Buyer the Midwest
Division's present relationships with suppliers and customers and others having
business relationships with the Midwest Division.
(c) NO BREACH. Seller will use its best efforts to avoid any
act, or any failure to act, which may cause a breach of any material contract,
commitment or obligation by which the Midwest Division is bound, or any breach
of any representation, warranty, covenant or agreement made by Seller in this
Agreement.
(d) NO MATERIAL CONTRACTS. Midwest Division of Seller will not
enter into any contract or commitment or purchase any assets (tangible or
intangible) other than in the ordinary course of business and consistent with
past practice, except where the value of any such contract, commitment or asset
is less than five thousand dollars ($5,000).
(e) MAINTENANCE OF INSURANCE. Midwest Division of Seller shall
maintain all of the insurance on the Transferred Assets in effect as of the date
hereof or replace such insurance with comparable coverage and shall procure such
additional insurance as shall be reasonably requested by Buyer at Buyer's
expense.
(f) MAINTENANCE OF PROPERTY. Midwest Division of Seller shall
use, operate, maintain and repair all its assets and properties in a normal
business manner consistent with Seller's past practices.
(g) INTERIM FINANCIALS. Seller will provide Buyer with interim
monthly financial statements and other management reports as and when they are
available.
(h) NO DIVIDENDS. Seller shall not declare or pay any property
dividend of assets of the Midwest Division.
(i) COMPENSATION. Except in the usual course of business
consistent with the past practices, Midwest Division of Seller shall not
increase the compensation or benefits of any of its employees nor make any other
change in the terms of their employment.
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ARTICLE V
SECURITIES LAWS AND UNDERTAKINGS
5.1 SECURITIES LAWS.
(a) INVESTMENT REPRESENTATIONS. Seller represents to
HealthCare as follows:
(i) The Convertible Note and the HealthCare Shares
are being acquired for its own account and for investment only, and not with a
view to the distribution of all or any part of the Convertible Note or the
HealthCare Shares, except pursuant to (i) an effective registration statement
covering such Convertible Note or such shares as contemplated in Section 5.2 or
(ii) an available exemption from registration, and the acquisition of the
Convertible Note and the HealthCare Shares by Seller and their continued holding
thereof as may be required by law and the terms hereof are consistent with its
financial position.
(ii) Seller has had such access to information
regarding the business and finances of HealthCare, and has met and discussed the
business and finances of HealthCare with its management employees to the extent
it deems necessary, and has received and read, and understands the contents of
the Prospectus.
(b) LIMITATIONS ON TRANSFER.
(i) Except as expressly provided in this Agreement,
Seller shall not, directly or indirectly, offer or sell, pledge, transfer, or
otherwise dispose of all or any portion of the Convertible Note or the
HealthCare Shares, or solicit any offer to buy, purchase, or otherwise acquire
or take a pledge of all or any portion of the Convertible Note or the HealthCare
Shares, as the case may be, except (A) in the manner and to the extent described
in (i) a registration statement in effect under the Securities Act of 1933 (the
"Act") covering the Convertible Note or the HealthCare Shares and as to which a
prospectus meeting the requirements of the Act is duly delivered and filed as
necessary to qualify the shares under applicable state securities laws or (ii)
an opinion of counsel for Seller, which opinion is in form and substance
reasonably satisfactory to counsel for HealthCare, to the effect that such
proposed offer, sale, pledge, transfer, or other disposition of the Convertible
Note or the HealthCare Shares may lawfully be made without such registration,
delivery, and qualification or (B) pursuant to trades made on the ASE after 90
days following the Closing pursuant to Rule 904 of Regulation S under the Act,
provided such resale on the ASE complies with applicable state securities laws.
Seller acknowledges that it has consulted with counsel concerning the limited
availability of exemptions from registration under the Act and it understands
that it (i) may bear the economic risk of investment in the Convertible Note and
the HealthCare Shares for an indefinite period of time because neither the
Convertible Note nor the HealthCare Shares have been registered under the Act
and, therefore, cannot be sold unless they are subsequently registered under the
Act or qualified as necessary under applicable state securities laws or an
exemption from registration under the Act, such as that contained in Rule 904,
or from qualification under state securities laws, is available, (ii) except as
provided in this Agreement,
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HealthCare is not obligated to register the Convertible Note or the HealthCare
Shares under the Act or qualify them under applicable state securities laws,
(iii) that absent registration under the Act, neither the Convertible Note nor
the HealthCare Shares may ordinarily be sold in the United States for at least
two years after the Closing and then only in accordance with Rule 144 under the
Act or in a bona fide transaction not involving a public offering to a purchaser
who shall be subject to the same restrictions on any resale, (iv) that absent
qualification under applicable state securities laws, the sale of the
Convertible Note and the HealthCare Shares may be restricted by such laws; and
(v) the HealthCare Shares may not be sold, transferred or otherwise disposed of
in the province of Alberta, Canada, or traded through the facilities of the ASE
for a period of 90 days following the Closing.
(ii) Notwithstanding any other provisions of this
Agreement, Seller shall not, directly or indirectly, sell, transfer, or
otherwise dispose of all or any portion of the Convertible Note or the
HealthCare Shares within 12 months after the date of purchase of the Convertible
Note or the HealthCare Shares, as the case may be, except in accordance with
Regulation 204.011 of the Pennsylvania Code.
(c) LEGENDS ON CERTIFICATES. Certificates representing the
HealthCare Shares shall be endorsed with legends, (i) substantially in the form
set forth in Schedule 5.1(c)(i) hereto, and (ii) to the effect that the
HealthCare Shares may not be traded in Canada for 90 days following the Closing.
HealthCare need not recognize any person other than Seller as having any
interest in or to the HealthCare Shares unless the acquisition thereof shall
have been made in compliance with Subsection 5.1(b) above. HealthCare may issue
appropriate stop transfer instructions to the transfer agent for the HealthCare
Shares to prevent transfers in violation of Subsection 5.1(b) hereof.
(d) REMOVAL OF LEGENDS.
(i) At any time while the HealthCare Shares are
registered under the Act and qualified as necessary under applicable state
securities laws, HealthCare shall, upon written request, cause the certificates
representing the HealthCare Shares to be reissued free of all legends and
withdraw all stop transfer instructions. Upon the termination of any such
registration, Seller and any transferee who owns HealthCare Shares represented
by a certificate without such legends, shall, upon written request, promptly
return such certificate to HealthCare for reissue for a certificate endorsed
with the legends specified in, and otherwise subject to, the provisions of
Subsection 5.1(c). Three years after the Closing, HealthCare's right to request
the return of unlegended certificates for previously registered HealthCare
Shares shall terminate and HealthCare shall, upon written request of Seller,
cause any certificates bearing one or more legends to be reissued free of such
legends and withdraw all stop transfer instructions, provided that Rule 144(k)
under the Act, or a comparable rule, is in effect in substantially its present
form and Seller furnishes to HealthCare evidence satisfactory to HealthCare and
its counsel that they meet the requirements of such rule.
(ii) HealthCare shall, upon written request, cause a
certificate representing all or a portion of the HealthCare Shares to be
reissued free of all legends
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and shall withdraw all stop transfer instructions upon the provision by Seller
of a declaration to The R-M Trust Company as transfer agent in substantially the
form set forth in Schedule 5.1(d)(ii) hereto.
5.2 REGISTRATION UNDERTAKING.
(a) DEMAND REGISTRATION.
(i) REQUEST FOR REGISTRATION. The holders of
HealthCare Shares may request registration under the Act of such HealthCare
Shares as are described in the notice to HealthCare requesting such registration
as provided in Section 5.2(b)(ii). Within ten days after receipt of any such
request, HealthCare will give written notice of such request to all other
holders of HealthCare Shares and will include in such registration all
HealthCare Shares with respect to which the holder has given notice to
HealthCare of such holder<018>s request for inclusion therein within 30 days
after the receipt by such holder of HealthCare<018>s notice.
(ii) DEMAND REGISTRATION. The holders of HealthCare
Shares will collectively be entitled to two requests for demand registration as
provided in subsection (i) above (the "Demand Registrations") and those requests
may be made at any time specified by the holders of at least 25% of all the
outstanding HealthCare Shares. The Demand Registrations will be short-form
registrations on Form S-3 or any successor form thereof if HealthCare is
permitted to use such short form. Except for (i) shares of HealthCare common
stock owned by Gregory J. Frazer, Carissa Bennett or Jami Tanihana for which
registration rights have been granted prior to the date of this Agreement, (ii)
all shares of HealthCare common stock or warrants to purchase such shares issued
or issuable in connection with the offer of the February Special Warrants
described in the HealthCare Capital Corp. Preliminary Prospectus dated July ___,
1996, draft dated July 12, 1996, (iii) all shares of HealthCare common stock or
warrants to purchase such shares issued or issuable in connection with the offer
of the September Special Warrants described in the Prospectus, no securities
other than the HealthCare Shares shall be included in the Demand Registrations
without the consent of the holders of at least 50 percent of all then
outstanding HealthCare Shares that have not been previously registered pursuant
to this Article V, which consent shall not be unreasonably withheld.
(b) PIGGYBACK REGISTRATION. HealthCare agrees that, if at any
time from and after the Closing HealthCare proposes to register any of its
securities under the Act, HealthCare will (i) promptly notify the holders of
HealthCare Shares that such Registration Statement (as hereinafter defined) will
be filed and that the HealthCare Shares which are then held by such holders will
be included in such Registration Statement at their request and (ii) subject to
the next sentence of this subsection (b), cause such Registration Statement to
cover all HealthCare Shares which it has been so requested to include by the
Participating Holders (as hereinafter defined), provided such request is
delivered to HealthCare not later than 20 days after such notice is given to the
holders of HealthCare Shares and specifies the number of HealthCare Shares to be
included in the proposed registration. Notwithstanding the foregoing provisions,
if the registration statement relates to an underwritten offering of HealthCare
Shares and the managing underwriter shall inform in writing HealthCare and the
Participating Holders that the
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managing underwriter believes that the number of shares requested to be included
in such registration would materially, adversely affect its ability to effect
such offering, then HealthCare will include in such registration the number of
HealthCare Shares which HealthCare is so advised can be sold in (or during the
time of) such offering as follows: first, all shares proposed by HealthCare to
be sold for its own account, and, second, such HealthCare Shares requested to be
included in such registration, pro rata by the Participating Holders on the
basis of the number of HealthCare Shares so proposed to be sold and so requested
to be included; PROVIDED, HOWEVER, that HealthCare shall be obligated to
register any HealthCare Shares so excluded from the registration statement
pursuant to a registration statement filed 90 days after the effectiveness of
such initial registration statement or such greater number of days as may be
specified in "lock-up" agreements entered into with the managing underwriter.
For the purposes of this Agreement, "Registration Statement" shall mean any
registration statement of HealthCare that covers any of its securities under the
Act, including the prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
(c) Whenever the holders of HealthCare Shares have requested
that any HealthCare Shares be registered pursuant to this Agreement, HealthCare
will use its best efforts to effect the registration and the sale of such
HealthCare Shares in accordance with the intended method of disposition thereof,
and pursuant thereto HealthCare will as expeditiously as possible:
(i) prepare and file with the United States
Securities and Exchange Commission (the "SEC") a Registration Statement with
respect to such HealthCare Shares and use its reasonable best efforts to cause
such Registration Statement to become effective and to remain continuously
effective for a period which will terminate when all HealthCare Shares covered
by such Registration Statement, as amended from time to time, have been sold or
a period of one year, whichever is shorter;
(ii) prepare and file with the SEC such amendments
and post- effective amendments to the Registration Statement and the prospectus
as may be necessary to keep the Registration Statement effective for the period
specified in Section 5.2(c)(i) and to comply with the provisions of the Act and
the Securities Exchange Act of 1934 (the "1934 Act") with respect to the
distribution of all HealthCare Shares covered by such Registration Statement;
PROVIDED that, at a time reasonably prior to the filing of a Registration
Statement or prospectus, or any amendments or supplements thereto, HealthCare
will furnish to the Participating Holders copies of all documents proposed to be
filed, in order to allow the Participating Holders and their counsel to comment
on such documents;
(iii) notify the Participating Holders promptly, and
confirm such advice in writing, (a) when the prospectus or any supplement or
post-effective amendment has been filed, and with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(b) of any request by the SEC for amendments or supplements to the Registration
Statement or the prospectus or
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for additional information, (c) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, and (d) of the receipt by HealthCare of any
notification with respect to the suspension of the qualification of such
HealthCare Shares for which registration has been requested for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose;
(iv) make reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Registration Statement;
(v) furnish to the Participating Holders at least
five copies of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference);
(vi) deliver to each Participating Holder as many
copies of the prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such holder may reasonably request in order
to facilitate the disposition of the HealthCare Shares covered by such
Registration Statement;
(vii) prior to any public offering of HealthCare
Shares, use its reasonable best efforts to register or qualify or cooperate with
the Participating Holders and the underwriters, if any, and their respective
counsel in connection with the registration or qualification of such HealthCare
Shares for offer and sale under the securities or blue sky laws of such
jurisdictions as the Participating Holders or any underwriter reasonably
requests in writing and do any and all other reasonable acts or things necessary
or advisable to enable the distribution in such jurisdictions of the HealthCare
Shares covered by such Registration Statement; PROVIDED that HealthCare will not
be required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action which would subject it to general
service of process in any such jurisdiction where it is not then so subject;
(viii) [Not used];
(ix) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, usual and customary in form, with the managing underwriter of such
offering; the Participating Holders shall also enter into and perform their
obligations under such agreement, usual and customary in form; HealthCare shall
take such other actions as the underwriters reasonably request in order to
expedite or facilitate a disposition of the HealthCare Shares covered by such
Registration Statement;
(x) upon request, furnish to each Participating
Holder a signed counterpart, addressed to such holder, of (a) an opinion of
counsel for HealthCare, dated the effective date of such registration statement
(or, if such registration includes an
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underwritten public offering, dated the date of the closing under the
underwriting agreement), and (b) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified
HealthCare's financial statements included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities and, in the case of the accountants' letter, such other
financial matters, as the principal underwriter with respect to such
registration may reasonably request (or, if such registration does not involve
an underwritten offering, as may reasonably (i.e., in conformity with Statement
on Auditing Standards No. 72, as amended, or any successor statement thereto) be
requested by holders of a majority of the HealthCare Shares included in such
registration);
(xi) immediately notify each Participating Holder at
any time when a prospectus relating thereto is required to be delivered under
the Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and at
the request of any such holder, promptly prepare and furnish to such holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such HealthCare Shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
(xii) Otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the SEC under the Act and the 1934
Act, take such other actions as may be reasonably necessary to facilitate the
registration or the disposition of the HealthCare Shares hereunder; and make
available to its security holders, as soon as reasonably practicable, but not
later than the Availability Date (as defined below), an earnings statement
covering a period of at least twelve months, beginning after the effective date
of the applicable Registration Statement, which earnings statement shall satisfy
the provisions of subsection 11(a) of the Act. For the purpose of this
subsection 5.2(c)(xii), "Availability Date" means the 45th day following the end
of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last
quarter of the HealthCare's fiscal year, "Availability Date" means the 90th day
after the end of such fourth fiscal quarter).
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(xiii) For purposes of this Article V "Participating
Holder" shall mean any holder of the HealthCare Shares whose shares are being
registered pursuant to this Article V.
(d) HealthCare shall pay all expenses incurred in connection
with any registration or other action pursuant to the provisions of this Section
5.2, other than underwriting discounts and applicable transfer taxes relating to
the HealthCare Shares sold by Seller and attorney fees and expenses of Seller in
excess of $10,000.
(e) HealthCare agrees to indemnify and hold harmless Seller
from and against any and all losses, claims, damages, liabilities or actions,
joint or several, to which Seller may become subject under the Act for any legal
or other expenses (including the cost of any investigation and preparation)
incurred by them in connection with any litigation or threatened litigation,
whether or not resulting in any liability, but only insofar as such losses,
claims, damages, liabilities or actions arise out of, or are based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement pursuant to which HealthCare Shares were registered under
the Act (hereinafter called a "Registration Statement"), any preliminary
prospectus, the final prospectus or any amendment or supplement thereto (or in
any application or document filed in connection therewith) or any document filed
by HealthCare in any jurisdiction in order to register or qualify the HealthCare
Shares under the securities laws thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or (ii) the employment by HealthCare of any device, scheme
or artifice to defraud, or the engaging by HealthCare in any act, practice or
course of business which operates or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which HealthCare shall participate, in
connection with the issuance and sale of any of the HealthCare Shares; PROVIDED,
HOWEVER that (i) the indemnity agreement contained in this Subsection (e) shall
not extend to Seller in respect of any such losses, claims, damages, liabilities
or actions arising out of, or based upon any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such statement or
omission was based upon and made in conformity with information furnished in
writing to HealthCare by Seller specifically for use in connection with the
preparation of such Registration Statement, any final prospectus, any
preliminary prospectus or any such amendment or supplement thereto (or in any
application or document filed in connection therewith) or document filed in any
jurisdiction in order to register or qualify the HealthCare Shares under the
securities laws thereof. HealthCare agrees to pay any legal and other expenses
for which it is liable under this Subsection (e) from time to time (but not more
frequently than monthly) within 30 days after its receipt of a bill therefor.
(f) Seller will indemnify and hold harmless HealthCare, its
directors, its officers who shall have signed the Registration Statement and
each person, if any, who controls HealthCare within the meaning of Section 15 of
the Act to the same extent as the foregoing indemnity from HealthCare, but in
each case to the extent, and only to
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the extent, that any statement in or omission from or alleged omission from such
Registration Statement, any final prospectus, any preliminary prospectus or any
amendment or supplement thereto (or in any application or document filed in
connection therewith) or document filed in any jurisdiction in order to register
or qualify the HealthCare Shares under the securities laws thereof was made in
reliance upon information furnished in writing to HealthCare by such Seller
specifically for use in connection with the preparation of the Registration
Statement, any final prospectus or the preliminary prospectus or any such
amendment or supplement thereto (or in any application or document filed in
connection therewith) or document filed in any jurisdiction in order to register
or qualify the HealthCare Shares under the securities laws thereof; PROVIDED,
HOWEVER, that the obligation of Seller to indemnify HealthCare under the
provisions of this Subsection (f) shall be limited to the product of the number
of HealthCare Shares being sold by Seller and the market price of HealthCare
Shares on the date of the sale to the public of such HealthCare Shares. Seller
agrees to pay any legal and other expenses for which it is liable under this
Subsection (f) from time to time (but not more frequently than monthly) within
30 days after receipt of a bill therefor.
(g) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Subsections (e) and (f) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
Subsections (e) and (f), such indemnified party shall promptly notify such
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party of any such action shall not release the
indemnifying party from any liability it may have to such indemnified party
otherwise than on account of the indemnity agreement contained in Subsections
(e) and (f) of this Section 5.2. In case any such action is brought against an
indemnified party and it notifies an indemnifying party of the commencement
thereof, the indemnifying party against which a claim is to be made will be
entitled to participate therein at its own expense and, to the extent that it
may wish, to assume at its own expense the defense thereof, with counsel
reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, that (i)
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnifying party shall have reasonably concluded
based upon advice of counsel that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnified party, the indemnified party shall have the right
to select separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties and (ii) in any event, the indemnified party shall be entitled to have
counsel chosen by such indemnified party participate in, but not conduct, the
defense at the expense of the indemnifying party. Upon receipt of notice from
the indemnifying party to such indemnified party of its election so to assume
the defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 5.2 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with
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proviso (i) to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel), (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. An indemnifying
party shall not be liable for any settlement of any action or proceeding
effected without its written consent.
(h) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Subsections (e)
and (f) of this Section 5.2 is unavailable to an indemnified party in accordance
with its terms, HealthCare and Seller shall contribute to the aggregate losses,
claims, damages and liabilities, of the nature contemplated by said indemnity
agreement, incurred by HealthCare and Seller, in such proportions as are
appropriate to reflect the relative benefits received by HealthCare and Seller
from any offering of the HealthCare Shares; PROVIDED, HOWEVER, that if such
allocation is not permitted by applicable law or if the indemnified party failed
to give the notice required under Subsection (g) of this Section 5.2, then the
relative fault of HealthCare and Seller in connection with the statements or
omissions which resulted in such losses, claims, damages and liabilities and
other relevant equitable considerations will be considered together with such
relative benefits.
(i) The respective indemnity and contribution agreements by
HealthCare and Seller in Subsections (e), (f), (g), and (h) of this Section 5.2
shall remain operative and in full force and effect regardless of (i) any
investigation made by Seller or by HealthCare or any controlling person of
HealthCare or any director or any officer of HealthCare, (ii) payment for any of
the HealthCare Shares or (iii) any termination of this Agreement, and shall
survive the delivery of the HealthCare Shares, and any successor of HealthCare,
or of Seller, or of any person who controls HealthCare, as the case may be,
shall be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by HealthCare
and Seller contained in Subsections (e), (f), (g), and (h) of this Section 5.2
shall be in addition to any liability which HealthCare and Seller may otherwise
have.
5.3 SELL ALONG RIGHT. Except pursuant to a registration
statement filed pursuant to Sections 5.2(a) or 5.2(b) hereof, whenever Brandon
M. Dawson (the "Selling Stockholder") shall receive a bona fide offer to acquire
all or substantially all of the shares of HealthCare Common Stock held by the
Selling Stockholder from a prospective acquiror which the Selling Stockholder
wishes to accept, the Selling Stockholder shall give a written notice (the
"Notice") to each holder of HealthCare Shares (collectively, the "Offerees") to
such effect, specifying the number of shares of Common Stock of HealthCare which
the Selling Stockholder desires to transfer. Upon receipt of the Notice, each of
the Offerees shall have the right, at such Offeree<018>s option, to require the
Selling Stockholder to arrange for the sale to the prospective acquiror (on
terms and
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conditions at least as favorable to such Offeree as the terms and conditions set
out in the offer received by the Selling Stockholder) of the number of such
Offeree<018>s holdings of shares of Common Stock which bears the same proportion
to the number of shares of Common Stock owned by such Offeree as the number of
shares of Common Stock being sold by the Selling Stockholder bears to the total
number of shares of Common Stock owned by the Selling Stockholder. If the
prospective acquiror will not acquire all the shares of Common Stock which the
Selling Stockholder and the Offerees wish to dispose of pursuant to this Section
5.3, the number of shares of Common Stock which the Selling Stockholder and each
of the Offerees exercising its right and option pursuant to this Section 5.3
shall be permitted to transfer to such prospective acquiror shall be a number of
shares equal to the number of shares which the prospective acquiror desires to
acquire multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock owned by the Selling Stockholder or each such Offeree, as
applicable, and the denominator of which shall be the aggregate number of shares
of Common Stock owned by the Selling Stockholder and all such Offerees. An
Offeree may exercise such person<018>s right under this Section 5.3 by written
notice given within ten days after the date on which such person received the
Notice.
5.4 ASSIGNMENTS AND TRANSFERS.
(a) ASSIGNMENTS AND TRANSFERS BY SELLER. All of the
rights and obligations of Seller under this Article V may be assigned or
transferred by any holder of HealthCare Shares to any transferee or assignee of
any HealthCare Shares, PROVIDED, that such transfer is made expressly subject to
the terms and conditions of this Article V and HealthCare is provided with
written notice of such assignment. HealthCare hereby expressly consents to any
transfers or assignments of the rights and obligations of Seller under this
Article V and all the rights and obligations of a transferee hereunder,
including by such transferee that is a partnership to its partners, pro rata in
accordance with their ownership interests in such transferee, by a transferee
that is a corporation, to its executive officers, directors, or shareholders,
and by a transferee that is an individual to his or her spouse or children,
PROVIDED, HOWEVER, that such transfer is made expressly subject to the terms and
conditions of this Article V and HealthCare is provided with written notice of
any such assignment.
(b) ASSIGNMENTS AND TRANSFERS BY HEALTHCARE. The
rights and obligations of HealthCare under this Article V may not be assigned by
HealthCare without the prior written consent of the holders of a majority of the
HealthCare Shares which have not been previously registered pursuant to this
Article V (the "Majority Holders"), except that without the prior written
consent of the Majority Holders, but after notice duly given, HealthCare shall
assign its rights and delegate its duties hereunder to any successor-in-interest
corporation, and such successor-in-interest shall assume such rights and duties,
in the event of a merger or consolidation of HealthCare with or into another
corporation, or any merger or consolidation of another corporation with or into
HealthCare which results directly or indirectly in an aggregate change in the
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ownership or control of more than 50% of the voting rights of the equity
securities of HealthCare, or the sale of all or substantially all of
HealthCare<018>s assets.
(c) ASSIGNMENT OF CONVERTIBLE NOTE. Subject to the
provisions of Section 5.1, the Convertible Note may be assigned or transferred
by Hearing Health to its subsidiaries or any of the investment partnerships that
are shareholders of Hearing Health.
ARTICLE VI
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Each and every obligation of Seller to be performed at Closing shall be
subject to the satisfaction prior to or at the Closing (or the waiver by Seller)
of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by Buyer and HealthCare in this Agreement,
or in any instrument, list, certificate or writing delivered by Buyer or
HealthCare pursuant to this Agreement, shall be true and correct when made and
shall be true and correct at and as of the Closing as though such
representations and warranties were made as of the Closing.
6.2 COMPLIANCE WITH AGREEMENT. Buyer and HealthCare shall have in all
material respects performed and complied with all of Buyer's and HealthCare's
agreements and obligations under this Agreement which are to be performed or
complied with by Buyer and HealthCare prior to or at the Closing, including the
delivery of the closing documents specified in Section 8.5 and 8.6 hereof.
6.3 ABSENCE OF SUIT. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against Buyer, HealthCare, Seller or any of the affiliates, officers
or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
6.4 SUB-LEASE AGREEMENTS. Buyer and Seller shall have executed
sub-lease agreements relating to the Excluded Leases substantially in the form
of Schedule 6.4 hereto.
6.5 ASSUMPTION AGREEMENT. Each of Buyer, HealthCare, and Kathy Foltner
shall have executed an Assumption Agreement in the form of Schedule 6.5 thereof.
6.6 FOLTNER NOTE. Buyer shall have issued to Kathy Foltner the Foltner
Note.
6.7 RELEASE FROM FOLTNER. Buyer and Foltner shall have executed an
Assumption Agreement providing for the release of Seller in the form of Schedule
6.7 attached hereto.
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6.8 CANCELLATION OF NOTE. Seller shall have received that certain
promissory note dated July 1, 1994, in the original principal amount of $600,000
made by Hearing Health to Kathy Foltner.
6.9 ASE LISTING. Seller shall have received evidence reasonably
satisfactory to it that the HealthCare Shares have been conditionally accepted
for listing on the ASE.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S AND HEALTHCARE'S OBLIGATIONS
Each and every obligation of Buyer and HealthCare to be performed at
Closing shall be subject to the satisfaction prior to or at the Closing (or the
waiver by Buyer or HealthCare) of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by Seller in this Agreement, or in any
instrument, schedule, list, certificate or writing delivered by Seller pursuant
to this Agreement, shall be true and correct when made and shall be true and
correct in all material respects at and as of the Closing as though such
representations and warranties were made as of the Closing.
7.2 COMPLIANCE WITH AGREEMENT. Seller shall have in all material
respects performed and complied with all of its agreements and obligations under
this Agreement which are to be performed or complied with by it prior to or at
the Closing, including the delivery of the closing documents specified in
Section 8.4 hereof.
7.3 ABSENCE OF SUIT. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against HealthCare, Buyer, Seller or any of the affiliates, officers
or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of HealthCare
and Buyer shall not be affected unless there is a reasonable likelihood that as
a result of such action, suit, investigation, or proceeding HealthCare and Buyer
will be unable to retain substantially all the practical benefits of the
transaction to which they are entitled under this Agreement.
7.4 APPROVALS; CONSENTS. The consents, permits, approvals, licenses or
orders from any governmental or regulatory body or other third party required to
be obtained by Seller for the lawful consummation of the transactions
contemplated by this Agreement and listed in Schedule 2.5 hereto shall have been
obtained except where failure to obtain such consents, permits, approvals,
licenses or orders would not have a Material Adverse Effect (whether or not such
effect is referred to or described in any Schedule) on the business, prospects,
financial conditions, assets, reserves or operations of Seller taken together.
7.5 MATERIAL ADVERSE CHANGE. From the date of the Financial Statements
to the Closing, Seller shall not have suffered any change which has a Material
Adverse Effect (whether
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or not such effect is referred to or described in any Schedule) on the business,
prospects, financial condition, assets, reserves or operations of Seller taken
together.
7.6 AGREEMENTS.
(a) NONCOMPETITION AND CONFIDENTIALITY AGREEMENT. Seller, Foster
Management Company and the Foster Investment Partnerships shall have executed
and delivered to Buyer and HealthCare Noncompetition and confidentiality
agreements in the forms attached hereto as Schedules 7.6(a)(i), 7.6(a)(ii) and
7.6(a)(iii) respectively.
(b) SUB-LEASE AGREEMENT. Buyer and Seller shall have executed a
sub-lease agreement substantially in the form of Schedule 6.4 hereto.
(c) EMPLOYMENT AGREEMENT. Buyer and Ms. Kathy Foltner shall have
executed an Employment Agreement substantially in the form of Schedule 7.6(c)
hereto.
(d) AGREEMENT OF PARTNERSHIPS. Abbington Venture Partners Limited
Partnership, Abbington Venture Partners Limited Partnership-II, Business
Development Capital Limited Partnership-III, and Brownscreek, Inc., shall each
have executed a letter agreement in the form attached hereto as Schedule 7.6(d).
ARTICLE VIII
ACTIONS TO BE TAKEN AT CLOSING
The following actions shall be taken at Closing, each of which shall be
conditional on completion of all the others and all of which shall be deemed to
have taken place simultaneously:
8.1 TITLE. Seller shall deliver to Buyer all conveyances, assignments,
bills of sale (as set forth in Schedule 8.1), powers of attorney and any and all
further instruments and documents as may be reasonably requested by Buyer in
order to complete any and all conveyances, transfers and assignments herein
provided and any approvals and consents required to be delivered pursuant to the
terms of this Agreement, including, but not limited to, the items referred to in
Section 8.4 hereof.
8.2 PAYMENT OF PURCHASE PRICE. Buyer shall deliver to Seller:
(a) the Convertible Note; and
(b) all instruments of assumption and any and all further
instruments and documents as may be reasonably requested by Seller in order to
complete the assumption by Buyer of the Assumed Liabilities.
8.3 CORPORATE NAME. Seller shall transfer to Buyer Seller's right to
the use of the Trade Names and all variations thereof and combinations embodying
the words included therein.
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Seller shall furnish such written consents as Buyer shall have reasonably
requested (if any) to the use of the Trade Names, and from and after the date
hereof, Seller will cooperate with Buyer to the end that Buyer may use the Trade
Names in any jurisdiction in which Seller is currently doing business.
8.4 ADDITIONAL DELIVERIES BY SELLER. Seller shall also deliver the
following to Buyer at the consummation of the transactions contemplated by this
Agreement:
(a) An opinion of counsel to Seller, dated as of the date
hereof, in form and substance satisfactory to Buyer, substantially in the form
of Schedule 8.4(a);
(b) Certificates dated the date hereof of an officer of Seller
certifying to the fulfillment of the conditions set forth in Sections 7.1 and
7.2;
(c) A copy of the resolutions of Seller's Board of Directors
and shareholders, certified by its corporate secretary, which resolutions shall
be in full force and effect on the date hereof, authorizing the execution,
delivery and performance of this Agreement and the other agreements and
transactions contemplated hereby;
(d) All bills of sale and such other evidences of the transfer
of the Transferred Assets reasonably necessary to complete the transaction;
(e) All consents received in connection with the transactions
contemplated hereunder.
8.5 DELIVERIES BY BUYER. Buyer shall also deliver the following to
Seller at the Closing:
(a) An opinion of counsel to Buyer, dated as of the date
hereof, in form and substance satisfactory to Seller, substantially in the form
of Schedule 8.5(a);
(b) A certificate dated the date hereof of the President of
Buyer certifying to the fulfillment of the conditions set forth in Sections 6.1
and 6.2; and
(c) A copy of the resolutions of Buyer's Board of Directors,
certified by its corporate secretary, which resolutions shall be in full force
and effect on the date hereof, authorizing the execution, delivery and
performance of this Agreement and the other agreements and transactions
contemplated hereby.
8.6 DELIVERIES BY HEALTHCARE. HealthCare shall deliver the following
additional closing documents to Seller at the Closing:
(a) An opinion of counsel to HealthCare, dated as of the date
hereof, in form and substance satisfactory to Seller, substantially in the form
of Schedule 8.6(a);
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(b) A certificate dated the date hereof of the President of
HealthCare certifying to the fulfillment of the conditions set forth in Sections
6.1 and 6.2; and
(c) A copy of the resolutions of HealthCare's Board of
Directors, certified by its corporate secretary, which resolutions shall be in
full force and effect on the date hereof, authorizing the execution, delivery
and performance of this Agreement and the other agreements and transactions
contemplated hereby.
8.7 POSSESSION. Seller shall deliver possession of all tangible
Transferred Assets to Buyer.
ARTICLE IX
INDEMNIFICATION; SURVIVAL
9.1 INDEMNIFICATION.
(a) Seller agrees to indemnify and hold harmless Buyer and
HealthCare (and its directors, officers, shareholders, employees, affiliates,
agents and assigns) from and against any and all losses, liabilities, damages,
deficiencies, assessments, judgments, costs or expenses (including, without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements) (collectively, "Claims") arising out of or based upon the breach
or inaccuracy of any representation or warranty contained herein or in any of
the documents delivered pursuant hereto made by Seller, the non-performance or
breach by Seller of any covenant, term or provision to be performed by it
hereunder or in any of the documents delivered pursuant hereto, or any Excluded
Liability which may be imposed or sought to be imposed on Buyer (including,
without limitation, as a result of noncompliance by any party with any
applicable bulk sales law or any comparable statute relating to notice to and
rights of creditors of Seller in connection with the transactions contemplated
hereunder).
(b) Buyer and HealthCare agree to indemnify and hold harmless
Seller (and its directors, officers, shareholders, employees, affiliates, agents
and assigns) from and against any Claims arising out of or based upon the breach
or inaccuracy of any representation or warranty contained herein or in any of
the documents delivered pursuant hereto made by Buyer or HealthCare, the
non-performance or breach by Buyer or HealthCare of any covenant, term or
provision to be performed by it hereunder or in any of the documents delivered
pursuant hereto, or any Assumed Liability which may be imposed or sought to be
imposed on Seller. The indemnification obligation of Buyer and HealthCare
hereunder is with respect to the full amount of the Claims.
(c) Buyer and HealthCare shall be entitled to indemnification
from Seller under the provisions of this Section 9.1 only to the extent that (i)
Buyer and HealthCare have made a claim for indemnification within 180 days after
Closing and (ii) the Claims subject to indemnification (other than Claims for
indemnification based on any Excluded Liabilities) exceed ten thousand dollars
($10,000) in the aggregate. Notwithstanding the foregoing, Seller's liability
for all Claims subject to indemnification under the provisions of this Section
9.1 shall be limited
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to one hundred thousand dollars ($100,000) in the aggregate. The foregoing shall
have no effect on the indemnification obligations of Seller set forth in Section
5.2(f).
(d) Buyer's and HealthCare's right to, indemnification as
provided in this Section 9.1 shall not be eliminated, reduced or modified in any
way as a result of the fact that (i) Buyer or HealthCare had notice of a breach
or inaccuracy of any representation, warranty or covenant contained herein, (ii)
Buyer or HealthCare had been provided with access, as requested by Buyer or
HealthCare, to officers and employees of Seller and such of Seller's books,
documents, contracts and records as has been provided to Buyer or HealthCare in
response to Buyer's or HealthCare's requests.
(e) Buyer's and HealthCare's sole remedy to Claims made
pursuant to this Section 9.1 shall be offset, by notice to Seller, any amount
due from Seller pursuant to the indemnification provisions of this Agreement
against (i) any payment due to Seller under the Convertible Note and (ii) the
HealthCare Shares, valued for the purposes of this section as the greater of the
five (5) day average trading price or one and 30/100 dollars ($1.30) per share.
If Seller disputes the validity of the offset, the amount proposed to be offset
shall be deposited by Seller in a segregated bank account under joint control of
Buyer and Seller and the matter shall be resolved by arbitration under Section
10.12. Any undisputed portion shall be paid to the obligee. The disputed amount
proposed to be offset shall be transferred to the control of the arbitrator(s)
promptly following their appointment.
9.2 CONDITIONS OF INDEMNIFICATION.
(a) A party entitled to indemnification hereunder (the
"Indemnified Party") shall notify the party or parties liable for such
indemnification (the "Indemnifying Party") in writing of any Claim which the
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement. Such notice shall be given within a
reasonable (taking into account the nature of the Claim) period of time after
the Indemnified Party has actual knowledge thereof. The Indemnifying Party shall
satisfy its obligations under this Article IX within ten (10) days after receipt
of subsequent written notice from the Indemnified Party if an amount is
specified therein, or promptly following receipt of subsequent written notice or
notices specifying the amount of such Claim or additions thereto; provided,
however, that for so long as the Indemnifying Party is in good faith defending a
Claim pursuant to Section 9.2(b) hereof, its obligation to indemnify the
Indemnified Party with respect thereto shall be suspended (other than with
respect to any costs, expenses or other liabilities incurred by the Indemnified
Party prior to the assumption of the defense by the Indemnifying Party). Failure
to provide a notice of Claim within the time period referred to above shall not
constitute a defense to a Claim or release the Indemnifying Party from any
obligation hereunder to the extent that such failure does not prejudice the
position of the Indemnifying Party.
(b) If the facts giving rise to any such indemnification
involve any actual, threatened or possible Claim or demand by any person not a
party to this Agreement against the Indemnified Party, the Indemnifying Party
shall be entitled to contest or defend such Claim or demand at its expense and
through counsel of its own choosing, which counsel shall be
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reasonably acceptable to the Indemnified Party, if the Indemnifying Party gives
written notice of its intention to assume the contest and defense of such Claim
or demand to the Indemnified Party as soon as practicable, but in no event more
than ten (10) days after receipt of the notice of Claim, and provides the
Indemnified Party with appropriate assurances as to the creditworthiness of
Indemnifying Party, that the Indemnifying Party will be in a position to pay all
fees, expenses and judgments that might arise out of such Claim or demand. The
Indemnified Party shall have the obligation to cooperate in the defense of any
such Claim or demand and the right, at its own expense, to participate in the
defense of any Claim. So long as the Indemnifying Party is defending in good
faith any such Claim or demand asserted by a third party against the Indemnified
Party, the Indemnified Party shall not settle or compromise such Claim or
demand. The Indemnifying Party shall have the right to settle or compromise any
such Claim or demand without the consent of the Indemnified Party at any time
utilizing its own funds to do so if in connection with such settlement or
compromise the Indemnified Party is fully released by the third party and is
paid in full any indemnification amounts due hereunder. The Indemnified Party
shall make available to the Indemnifying Party or its agents all records and
other materials in the Indemnified Party's possession reasonably required by it
for its use in contesting any third party Claim or demand and shall otherwise
cooperate, at the expense of the Indemnifying Party, in the defense thereof in
such manner as the Indemnifying Party may reasonably request. Whether or not the
Indemnifying Party elects to defend such Claim or demand, the Indemnified Party
shall have no obligation to do so.
(c) The Indemnifying Party shall pay to the Indemnified Party
all reasonable costs and expenses (including, but not limited to, the fees and
disbursements of any Indemnified Party's outside legal counsel and the charges
of any Indemnified Party's in-house legal counsel) incurred by such party in
connection with this indemnity or the enforcement hereof.
(d) This indemnity shall be binding upon the Indemnifying
Party, its heirs, representatives, administrators, executors, successors and
assigns and shall inure to the benefit of and shall be enforceable by each
Indemnified Party, its successors, endorsees and assigns (including, but not
limited to, any entity to which Buyer assigns or sells all or any portion of its
interest). If this indemnity is executed by more than one person or entity, the
liability of the undersigned hereunder shall be joint and several.
(e) No failure or delay on the part of any Indemnified Party
to exercise any power, right or privilege under this indemnity shall impair any
such power, right or privilege or be construed to be a waiver of any default or
any acquiescence therein, nor shall any single or partial exercise of power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. No provision of this indemnity may be changed,
waived, discharged or terminated except by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
9.3 SURVIVAL OF REPRESENTATIONS. All representations and warranties
made by the parties in this Agreement set forth in Article II and Article III
hereof shall survive the consummation of the transactions contemplated by this
Agreement for a period ending 180 days after the Closing (except for the
representations and warranties of Seller set forth in Section 2.12
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hereof which shall expire 90 days after the applicable statutes of limitation
shall have run with respect to all tax returns filed by Seller for all periods
ended on or before the Closing) after which all such representations and
warranties shall expire except with respect to claims asserted in writing prior
to such date. Notwithstanding the foregoing, HealthCare's representations and
warranties set forth in Section 3.2 hereof shall survive indefinitely.
9.4 SOLE AND EXCLUSIVE REMEDY. After the Closing, each party hereto
acknowledges and agrees that such party's sole and exclusive remedy with respect
to and any and all Claims relating to a breach of the representations and
warranties contained in Article II and Article III hereof shall be in accordance
with, and limited by, the indemnification provisions set forth in this Article
9.
ARTICLE X
MISCELLANEOUS
10.1 TERMINATION.
(a) RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to the
Closing:
(i) By mutual written agreement of the parties, or
(ii) By either HealthCare, Buyer or Seller if the
Closing shall not have occurred on or before December 31, 1996, provided the
terminating party has not, through breach of a representation, warranty or
covenant, prevented the Closing from occurring on or before such date.
(b) TERMINATION FOR BREACH.
(i) TERMINATION BY BUYER AND HEALTHCARE. If there has
been a material breach by Seller of any of its agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
HealthCare or Buyer, then HealthCare or Buyer may, by written notice to Seller
at any time prior to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 10.1(b)(iii) hereof.
(ii) TERMINATION BY SELLER. If there has been a
material breach by Buyer or HealthCare of any of its agreements, representations
or warranties contained in this Agreement which has not been waived in writing
by Seller, then Seller may, by written notice to Buyer and HealthCare at any
time prior to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 10.1(b)(iii).
(iii) EFFECT OF TERMINATION. Termination of this
Agreement pursuant to this Section 10.1 shall not in any way terminate, limit or
restrict the rights and remedies of any party hereto against any other party
which has breached or failed to perform any of the
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representations, warranties, covenants, or agreements of this Agreement prior to
termination hereof.
(c) RETURN OF DOCUMENTATION. Following a termination in
accordance with this Article X, Buyer, HealthCare, or any affiliate thereof
shall return all agreements, documents, contracts, instruments, books, records,
materials and all other information of Seller or any affiliate thereof provided
by Seller or by any representative of or Seller to Buyer, HealthCare, or any
affiliate thereof or any representatives of Buyer, HealthCare, or any affiliate
thereof in connection with the transactions contemplated by this Agreement, and
Seller shall return all agreements, documents, contracts, instruments, books,
records, materials and all other information of Buyer, HealthCare, or any
affiliate thereof provided by Buyer, HealthCare, or any affiliate thereof or any
representative of Buyer, HealthCare, or any affiliate thereof to Seller in
connection with the transactions contemplated by this Agreement.
10.2 WAIVER. Buyer or Seller may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
of the agreements of the other or satisfaction of any of the conditions to its
obligations contained herein. Any extension or waiver made pursuant to this
Section 10.2 must be by an instrument in writing signed on behalf of the party
granting the extension or waiver. A waiver by any party of any provision hereof
or breach hereof shall not operate or be construed as the waiver of any other
provision or any subsequent breach.
10.3 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives. Except as specifically set forth herein, this Agreement
is not assignable and any purported assignment shall be null and void. Nothing
contained in this Agreement shall be deemed to confer any right or benefit upon
any person other than the parties hereto to the extent herein provided.
10.4 DOLLARS. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
10.5 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
10.6 HEADINGS; SEVERABILITY. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of this Agreement shall be treated as separate and distinct
and, in the event of any provision hereof being declared invalid, such invalid
provision shall be deemed to be severable and all other provisions hereof shall
remain in full force and effect.
10.7 SCHEDULES. The schedules to this Agreement are a part of this
Agreement as if fully set forth herein.
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10.8 DISCLOSURES AND ANNOUNCEMENTS. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by Seller, Buyer or HealthCare shall
be subject to the approval of the other parties in all essential respects,
except that Seller's approval shall not be required as to any announcements or
filings Buyer or HealthCare may be required to make under applicable laws or
regulations.
10.9 CONFIDENTIAL INFORMATION. For a period of two (2) years from the
date hereof, Seller shall use its best efforts to cause all of its agents,
officers, directors and employees to treat and safeguard all Confidential
Information concerning the business and, except as necessary to pursue any
claims of Seller, or as required by law or pursuant to a court proceeding or
legal action, agree not to disclose or reveal any Confidential Information to
any third party or otherwise use such Confidential Information. For purposes of
this Agreement, "Confidential Information" shall mean information of a valuable,
proprietary and confidential nature relating directly to the business, asset
lists and valuations of any kind, customer lists, trade secrets, formulae,
methods or processes, channels of distribution, pricing policies and records.
The term "Confidential Information" does not include information that (a) is or
becomes generally available to the public or is a recognized standard industry
practice; or (b) becomes available subsequent to the date hereof to Seller on a
non-confidential basis from a source other than Buyer, HealthCare or from
records of the business.
10.10 EXPENSES. Seller agrees that all fees and expenses incurred by it
in connection with this Agreement shall be borne by Seller including, without
limitation, all fees of counsel and accountants; and Buyer and HealthCare agree
that all fees and expenses incurred by them in connection with this Agreement
shall be borne by them, including, without limitation, all fees of counsel and
accountants.
10.11 NOTICES. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the
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parties at their respective addresses indicated herein by private overnight
courier service. The respective addresses and telephone numbers to be used for
all such notices, demands or requests are as follows:
If to Buyer: HealthCare Hearing Clinics Inc.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
If to HealthCare: HealthCare Capital Corp.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
with a copy to: Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attn: G. Todd Norvell
Facsimile: (503) 224-0155
If to Seller: Hearing Health Services Inc.
1018 West Ninth Avenue, Suite 310
King of Prussia, PA 19406
Attn: W. Gary Liddick
Facsimile: (610) 992-3392
with a copy to: Haythe & Curley
237 Park Avenue
New York, New York 10017
Attn: Robert A. Ouimette
Facsimile: (212) 682-0200
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this section.
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10.12 RESOLUTION OF DISPUTES.
(a) ARBITRATION. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of its terms
shall be settled by binding arbitration held in Philadelphia, Pennsylvania, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, except as specifically otherwise provided in this
Section 10.12. Notwithstanding the foregoing, Buyer, in its discretion, may
apply to a court of competent jurisdiction for equitable relief from any
violation or threatened violation of the provisions of Seller under any
noncompetition and confidentiality agreements executed pursuant to this
Agreement.
(b) ARBITRATORS. Following thirty (30) days' written notice by
any party of intention to invoke arbitration, any dispute arising under this
Agreement or other schedules hereto and not mutually resolved within such thirty
(30) day period shall be determined by a single arbitrator upon whom the parties
agree or, if the parties cannot agree on a single arbitrator within five (5)
business days following such thirty (30) day period, then by a board of three
(3) arbitrators, which arbitrator(s) shall be selected for each such controversy
so arising hereunder. If three (3) arbitrators are necessary, each party shall
have the right to pick one arbitrator and the two arbitrators so chosen shall
have the right to select a third arbitrator. Any party who is unable or
unwilling to so select an arbitrator in a timely manner, shall forfeit its right
to participate in the selection process. If a selected arbitrator is unable or
unwilling to act, or if for any other reason an appointment of the requisite
number or arbitrators cannot be made, then any party, on behalf of all the
parties, may request appointment of arbitrator(s) by the presiding judge of the
federal courts located in the Eastern District of Pennsylvania.
(c) PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances and
shall resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within 120 days after the selection of the arbitrator(s). The
arbitrator(s) shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have thirty (30) days thereafter to
reconsider and modify such decision if any party so requests within ten (10)
days after the decision. Thereafter, the decision of the arbitrator(s) shall be
final, binding, and nonappealable with respect to all persons, including
(without limitation) persons who have failed or refused to participate in the
arbitration process.
(d) AUTHORITY. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or preliminary
relief, and to allocate responsibility for the costs of the arbitration and to
award recovery of attorney fees and expenses in such manner as is determined to
be appropriate by the arbitrator(s).
(e) ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Seller, Buyer and HealthCare hereby submit to the in personam
jurisdiction of the federal and state courts in the Eastern District of
Pennsylvania for the purpose of confirming any such award and entering judgment
thereon.
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(f) CONFIDENTIALITY. All proceedings under this Section 10.12,
and all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
(g) CONTINUED PERFORMANCE. The fact that the dispute
resolution procedures specified in this Section 10.12 shall have been or may be
invoked shall not excuse any party from performing its obligations under this
Agreement, and during the pendency of any such procedure all parties shall
continue to perform their respective obligations in good faith, subject to any
rights to terminate this Agreement that may be available to any party.
10.13 GOVERNING LAW. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the Commonwealth of Pennsylvania, excluding any choice of law rules that may
direct the application of the laws of another jurisdiction.
10.14 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
10.15 ENTIRE AGREEMENT. This Agreement (including the schedules hereto)
and the agreements, certificates and other documents delivered pursuant hereto
contain the entire agreement between the parties hereto. All parties
collaborated in the preparation of this Agreement and it has been reviewed by
attorneys for each party. No one party should be considered the author of any
specific language for purposes of legal presumptions.
10.16 FURTHER ASSURANCES. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents, instruments, or conveyances of any kind that
may be reasonable necessary or desirable to carry out any of the transactions
contemplated hereunder.
10.17 BOOKS AND RECORDS. For a period of five years after the Closing
(a) Seller shall provide reasonable access during normal business hours to the
books and records of the Midwest Division in existence on the date of Closing
that do not constitute a part of the Transferred Assets and (b) HealthCare and
Buyer shall provide reasonable access during normal business hours to the books
and records relating to the Midwest Division in existence on the date of the
Closing that constitute a part of the Transferred Assets.
10.18 RELEASE OF SELLER. All parties to this Agreement shall use their
best efforts to obtain the consent to assignment and release of Seller from
liability with respect to the Business Premises and the contracts listed in
Schedule 2.5, it being understood and agreed that no party to this Agreement
shall be required to obtain the consent to assignment and release of Seller from
liability with respect to the Contracts listed in Schedule 2.18(a).
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10.19 TRANSFER OF NAME. At the later of the time Hearing Health
dissolves or otherwise ceases the business use of (which shall not be later than
180 days after such dissolution) the names "Hearing Health Services" and
"Audio-Vestibular Testing Center," Hearing Health shall cause such names to be
transferred and conveyed to Buyer without further consideration.
10.20 PASS THROUGH OF RIGHTS AND OBLIGATIONS. In the event that the
parties hereto are unable to obtain any of the necessary consents set forth in
Schedule 2.5 hereto prior to the Closing, each of the parties hereto agrees to
use its reasonable best efforts subsequent to the Closing to obtain such
consents. Seller agrees that until such time as such consents are obtained or in
the event the parties hereto are unable to obtain such consents, Seller shall
pass through to Buyer or HealthCare (or their respective designees) the benefits
and the obligations arising under the agreements listed in Schedule 2.5 as if
such agreements were assigned to Buyer or HealthCare (or their respective
designees) pursuant to this Agreement. Buyer and HealthCare, jointly and
severally, agree to perform fully the obligations under such agreements. Each of
Buyer and HealthCare hereby release and discharge Seller from all Claims (known
or unknown) arising out of or relating to the failure of the parties hereto to
obtain any of the necessary consents set forth in Schedule 2.5 hereto prior to
the Closing.
10.21 LEASE RENEWALS. Each of Buyer and HealthCare covenants and agrees
not to renew or extend any lease currently in effect covering the Business
Premises unless Hearing Health or AVTC, as the case may be, has been released
from all obligations arising under such lease.
10.22 JOINT AND SEVERAL OBLIGATIONS OF SELLER. All representations,
warranties, covenants, and obligations of Seller under this Agreement are the
joint and several representations, warranties, covenants, and obligations of
Hearing Health and AVTC.
10.23 RESTRICTIONS ON ISSUANCE OF SHARES. Except for the sale and
issuance of (i) any warrants or shares of HealthCare common stock issued or
issuable in connection with the offer of the September Special Warrants
described in the Prospectus and (ii) 420,000 shares of HealthCare common stock
to be issued to Deborah L. Cross at a price of $1.72 per share, HealthCare shall
not at any time while the Convertible Note is outstanding, (i) issue or sell any
shares of its common stock or any evidences of indebtedness or other securities
convertible into or exchangeable for shares of its common stock at a price per
share of common stock less than the current market price per share of common
stock, (ii) issue any rights or warrants to all holders of shares of
HealthCare's common stock entitling such holders to subscribe for or purchase
shares of common stock at a price per share less than the current market price
per share of common stock, or (iii) distribute to all holders of shares of
common stock evidences of its indebtedness or securities or assets, except for
cash dividends or cash distributions payable out of consolidated net income or
retained earnings, and dividends payable in shares of common stock. For purposes
of this Section 10.23, the current market price per share of common stock on any
particular date shall be the last reported sale price of such common stock on
the ASE (or if not listed on the ASE, then on such other exchange on which such
common stock is listed as HealthCare may designate) on such date or if there
shall not have been a sale on such date, the
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current market price shall be the average of the bid and asked quotations for
such common stock on such exchange for such date.
10.24 NOTICE TO SELLER. HealthCare shall give Seller not less than 10
days' written notice prior to the issuance or sale of additional shares of
HealthCare<018>s common stock, or evidences of its indebtedness or securities
convertible or exchangeable into shares of common stock, at a price less than
$1.30 per share of common stock; provided, however no notice shall be required
with respect to up to 750,000 shares or options to purchase up to 750,000 shares
issued to employees, officers, directors, consultants, or other persons
performing services for HealthCare or any subsidiary of HealthCare pursuant to
any stock offering, plan, or arrangement approved by the board of directors of
HealthCare.
10.25 QUALIFICATION OF BUYER. Buyer shall use its best efforts to
become duly qualified to transact business as a foreign corporation in the
States of Illinois, Indiana, and Michigan as promptly as practicable following
the Closing.
10.26 PENNSYLVANIA LEGEND. PURSUANT TO SECTION 207(M) OF THE
PENNSYLVANIA SECURITIES ACT OF 1972 (THE "ACT"), EACH PERSON WHO ACCEPTS AN
OFFER TO PURCHASE SECURITIES EXEMPTED FROM REGISTRATION BY SECTION 203(D) OF THE
ACT, DIRECTLY FROM THE ISSUER OR AFFILIATE OF THE ISSUER, SHALL HAVE THE RIGHT
TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE SELLER,
UNDERWRITER (IF ANY), OR ANY OTHER PERSON WITHIN TWO BUSINESS DAYS FROM THE DATE
OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING CONTRACT OF PURCHASE OR, IN THE
CASE OF A TRANSACTION IN WHICH THERE IS NO BINDING CONTRACT OR PURCHASE, WITHIN
TWO BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING
OFFERED.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
HEARING HEALTH:
HEARING HEALTH SERVICES, INC., a Delaware
corporation, dba SONUS
By: /S/ W. GARY LIDDICK
W. Gary Liddick
Vice President of Finance
AVTC:
AUDIO-VESTIBULAR TESTING CENTER, INC.
By: /S/ W. GARRY LIDDICK
W. Gary Liddick, Vice President
BUYER: HEALTHCARE HEARING CLINICS, INC., a
Washington corporation
By: /S/ BRANDON M. DAWSON
Brandon M. Dawson, President
HEALTHCARE: HEALTHCARE CAPITAL CORP., an Alberta,
Canada, corporation
By: /S/ BRANDON M. DAWSON Brandon M. Dawson,
President
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SCHEDULES TO ASSET PURCHASE AGREEMENT
Schedule 1.1(b) Leased Premises
Schedule 1.1(b)(i) Assignment and Assumption of Lease Agreement
Schedule 1.1(c) Fixed Assets
Schedule 1.1(d) Contracts
Schedule 1.2 Excluded Assets
Schedule 1.3(a) Employee Bonuses
Schedule 1.3(a)(i) Foltner's Bonus
Schedule 1.3(b) Supplier Loans
Schedule 1.3(e) Excluded Leases
Schedule 1.4(a) Convertible Subordinated Note
Schedule 1.4(a)(i) Security Agreement
Schedule 1.4(c) Kathy Foltner Note
Schedule 2.4 Subsidiaries
Schedule 2.5 Conflicts
Schedule 2.9 Litigation
Schedule 2.15 Patents, Trademarks, etc.
Schedule 2.16 Product Warranty
Schedule 2.18(a) Leases
Schedule 2.18(b) Purchase Commitments
Schedule 2.18(c) Sales Commitments
Schedule 2.18(d) Contracts with Shareholders
Schedule 2.18(f) Loan Agreements
Schedule 2.18(g) Guarantees
Schedule 2.18(h) Restrictive Agreements
Schedule 2.18(i) Other Material Contracts
Schedule 2.19 Consents
Schedule 2.19(b) Defaults and Violations affecting Business Premises
Schedule 2.22 Liens
Schedule 2.23 Employee Benefit Plans
Schedule 2.24 Employment Compensation
Schedule 2.25 Bank Accounts
Schedule 5.1(c)(i) Legends on Certificates
Schedule 5.1(d)(ii) Declaration for Removal of Legends
Schedule 6.4 Sub-Lease Agreement
Schedule 6.7 Assumption Agreement
Schedule 7.6(a)(i) Noncompetition and Confidentiality Agreements - Seller
Schedule 7.6(a)(ii) Noncompetition and Confidentiality Agreements - Foster
Management
<PAGE>
Schedule 7.6(a)(iii) Noncompetition and Confidentiality Agreements - Foster
Investment
Schedule 7.6(c) Employment Agreement - Foltner
Schedule 7.6(d) Letter Agreement
Schedule 8.1 Bills of Sale
Schedule 8.4(a) Opinion of Seller's Counsel
Schedule 8.5(a) Opinion of Buyer's Counsel
Schedule 8.6(a) Opinion of HealthCare's Counsel
<PAGE>
MERGER AGREEMENT
AGREEMENT ("Agreement") dated as of December 2, 1996, by and among
HEALTHCARE CAPITAL CORP., a corporation organized under the laws of the Province
of Alberta, Canada ("HealthCare"), HEALTHCARE HEARING CLINICS, INC., a
Washington corporation which is a wholly owned subsidiary of HealthCare ("HC
Subsidiary"), and HEARING DYNAMICS, a California corporation (the "Company"),
and DEBORAH LAW CROSS (the "Shareholder").
RECITALS
A. The Shareholder owns all the issued and outstanding capital stock of
the Company.
B. The Company operates audiology and hearing aid clinics in the
greater San Diego, California, metropolitan area which perform testing and
evaluation of patients' hearing, prescribe and fit hearing aids, and provide
related services and products.
C. HealthCare and the Shareholder desire that HealthCare acquire the
Company through a merger of the Company into HC Subsidiary. The parties intend
such merger to qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
AGREEMENT:
In consideration of the foregoing premises and of the mutual covenants,
representations, warranties and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
MERGER
1.1 AGREEMENT AND PLAN OF MERGER. The parties agree that the Company
shall be merged into HC Subsidiary pursuant to an Agreement and Plan of Merger
prepared in accordance with Section 1101 of the California General Corporation
Law and Section 23B.11.010 of the Washington Business Corporation Act which
shall be in the form of SCHEDULE 1.1 attached hereto (the "Agreement and Plan of
Merger"). The merger of the Company into HC Subsidiary (the "Merger") shall be
on the terms set forth in the Agreement and Plan of Merger and in this
Agreement.
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1.2 TERMS OF MERGER. Upon the consummation of the Merger:
(a) HC Subsidiary shall be the surviving corporation (the
"Surviving Corporation") and shall continue its existence as a
Washington corporation under the name "HealthCare Hearing Clinics,
Inc.";
(b) The separate corporate existence of the Company shall
terminate;
(c) The presently issued and outstanding stock of the Company
shall be converted into shares of the common stock of HealthCare as
provided in Section 1.4(a) hereof; and
(d) The presently issued and outstanding stock of HC
Subsidiary shall be converted into shares of the stock of Surviving
Corporation and cash as provided in Section 1.4(b) hereof.
1.3 CONSUMMATION. The consummation of the Merger shall take place at
Closing (as defined in Section 2.1 hereof). The Merger shall be consummated by
filing:
(a) A copy of the Agreement and Plan of Merger accompanied by
an appropriate officer's certificate with the Secretary of State of the
state of California; and
(b) Articles of Merger with the Secretary of State of the
state of Washington.
The term "Effective Time" shall mean the time when the second of the two filings
is completed and the Merger becomes effective.
1.4 CONVERSION OF SHARES. The basis for converting and exchanging the
issued and outstanding shares of the Company and HC Subsidiary upon the
consummation of the Merger will be as follows:
(a) The 1,100 issued and outstanding shares of the Company
which are owned by the Shareholder shall, as of the Effective Time by
virtue of the Merger and without any action on the part of the holders
thereof, be converted into and exchanged for (i) 408,000 shares of the
common stock of HealthCare (the "HealthCare Shares") and (ii) cash in
the amount of $102,600; and
(b) Each share of HC Subsidiary stock issued and outstanding
at the Effective Time shall, as of the Effective Time by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into and exchanged for one share of the stock of the
Surviving Corporation.
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1.5 RESTRICTIONS ON TRANSFER OF THE HEALTHCARE SHARES. Following the
Closing, the HealthCare Shares shall be subject to the provisions of Article VI
hereof and to the following provisions:
(a) 210,000 HealthCare Shares shall be subject to no
additional restrictions; a certificate for such shares shall be issued
to the Shareholder at Closing;
(b) 118,000 HealthCare Shares may not be sold, transferred, or
otherwise disposed of in any manner whatsoever until such shares are
released from such restrictions in the increments and on the dates (the
"Release Dates") set forth below:
Release Number of
DATES SHARES RELEASED
November 30, 1997 39,333
November 30, 1998 39,333
November 30, 1999 39,334
------
Total 118,000
The HealthCare Shares subject to the restrictions of this Subsection
1.5(b) shall be issued in three certificates-one for the number of
shares shown opposite each of the Release Dates which will be delivered
to the Shareholder at Closing. Each such certificate will be endorsed
with a counterpart of the following legend:
"The shares represented by this certificate are subject to
restrictions which do not permit their sale, transfer, or
other disposition prior to [insert appropriate Release Date]."
In addition, HealthCare shall issue appropriate stop transfer
instructions which shall remain applicable to such HealthCare Shares
until the applicable Release Date. Release from the restrictions
provided for in this Section 1.5(b) shall not affect any other transfer
restrictions placed on the HealthCare Shares pursuant to Article VI
hereof.
(c) 80,000 HealthCare Shares shall be held by HealthCare (the
"Retained Shares") and canceled or delivered as set forth in Section
1.6 below.
1.6 POST-CLOSING ADJUSTMENTS OF RETAINED SHARES.
The Retained Shares shall be subject to cancellation as
provided in Subsections (a), (b), and (c) below.
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<PAGE>
(a) EARN-OUT. The income of the business being acquired from
Company hereunder (the "Business") shall be separately determined for
each of the three 12-month periods ending on the Release Dates (the
"Earned-Out Years"). Such income shall be determined in accordance with
generally accepted accounting principles applied on a basis consistent
with HC Subsidiary's accounting practices. If for any Earn-Out Year the
income of the Business before interest, taxes, depreciation and
amortization but after corporate overhead allocation falls below an
amount equal to 20% of the net revenues of the Business for such year,
then for each $1.72 of the shortfall one Retained Share shall be
canceled or alternately Shareholder shall pay HealthCare one dollar for
each one dollar of the shortfall. The corporate overhead allocation to
be charged against the Business shall equal 6% of its net revenues.
Within 60 days following the end of each Earn-Out Year, HealthCare
shall deliver to the Shareholder a certificate for a number of Retained
Shares equal to (i) 26,666 shares after year one and (ii) 26,667 shares
after years two and three less the number of shares (if any) canceled
as a result of the foregoing provision. Notwithstanding the foregoing,
the certificate issued to the Shareholder after the end of the first
Earn-Out Year shall also be reduced by the number of shares, if any,
canceled pursuant to the terms of Subsections 1.6(b) and (c) below. For
purposes of this Section 1.6(a), "net revenues" shall mean gross
revenues less returns and allowances. The HealthCare Shares represented
by the certificates delivered to the Shareholder pursuant to this
subsection shall remain subject to the provisions of Article VI hereof.
(b) ACCOUNTS RECEIVABLE. On the 200th day following the
Closing, one Retained Share shall be canceled for each $1.72 of net
accounts receivable as set forth on the Statement of Net Working
Capital (as defined in Section 1.7 below) which then remains
uncollected, provided, however, that the Shareholder may elect to
reimburse HealthCare one dollar for each dollar of such uncollected
accounts receivable in lieu of such cancellation of Retained Shares.
After such cancellation of Retained Shares or the payment by
Shareholder for such uncollected accounts receivable has been received
by HealthCare, the uncollected accounts receivable shall be assigned to
Shareholder. During the first 200 days following the Closing,
Shareholder and HC Subsidiary shall mutually participate in the
collection process of such accounts receivable.
(c) LONG-TERM DEBT. To the extent that the Company has any
long-term debt or any other noncurrent liabilities as of the Closing
date, Retained Shares shall be canceled in an aggregate amount equal to
one share for each $1.72 of long term debt or noncurrent liability or,
alternatively, the Shareholder shall pay HealthCare one dollar for each
dollar of long-term debt or noncurrent liability.
1.7 NET WORKING CAPITAL ADJUSTMENT.
(a) For purposes of this Agreement, "Net Working Capital"
shall equal (i) cash, money market accounts, accounts receivable (net
of reasonable provisions for doubtful accounts), inventory, prepaid
expenses (including for magazine advertising) and all other current
assets of the Company as of Closing less (ii) all current liabilities
of the
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Company as of Closing including but not limited to liabilities for
inventory, office supplies, ordinary compensation payables, employee
benefits and taxes (excluding accrued sick and vacation pay), bonuses
(including all related payroll taxes and employee benefits), personal
and real property taxes, water, gas, electric and other utility
charges, business and other license fees and taxes, merchants'
association dues, rental payments under any leases, any customer
refunds for hearing aids delivered prior to Closing, and all other
operating liabilities (including legal, accounting, and other
professional fees and expenses incurred in the ordinary course of
business), and vendor accounts payable. The parties anticipate that
computed on this basis Company will have a negative Net Working
Capital.
(b) As promptly as practicable following the Closing, but in
no event later than 45 days thereafter (the "45-Day Period"),
Shareholder and HealthCare shall cooperate in preparing a mutually
agreeable statement of the Net Working Capital which shall set forth
the computation and components thereof in reasonable detail (the
"Statement of Net Working Capital").
(c) On the fifteenth day after the date on which the Statement
of Net Working Capital is completed (or such earlier date as such
statement is mutually agreed upon by Shareholder and HealthCare in
writing), (i) in the event that the Net Working Capital exceeds a
negative $20,000, then HealthCare shall pay to Shareholder an amount
equal to the excess, or (ii) in the event that the Net Working Capital
is less than a negative $20,000, then Shareholder shall pay to
HealthCare the amount by which the Net Working Capital is less than a
negative $20,000.
1.8 SHAREHOLDER LOANS. As of the date hereof, the Company is indebted
to the Shareholder as set forth on SCHEDULE 1.8. Notwithstanding any other
provision of this Agreement, the Shareholder shall have the option, on or prior
to the Closing, to (i) contribute such indebtedness to the capital of the
Company or (ii) cause the Company to repay such indebtedness to the extent the
Company has funds available for such purpose.
ARTICLE II
CLOSING
2.1 CLOSING. The closing of the transaction provided for herein (the
"Closing") shall occur on December 2, 1996, or on such other date as the parties
may mutually agree. Notwithstanding the foregoing, HealthCare shall have the
right to postpone the Closing for up to 90 days if, in its judgment, it becomes
necessary to do so as a result of requirements of the securities laws,
regulations, or rules of the Province of Alberta, the Alberta Stock Exchange,
United States, state of Washington or state of California. The Closing shall
take place at the offices of HealthCare at 111 S.W. Fifth Avenue, Suite 2390,
Portland, Oregon 97204, at such time as the parties shall mutually agree.
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2.2 CLOSING TRANSACTIONS. The following actions shall be taken at
Closing, each of which shall be conditional on completion of all the others and
all of which shall be deemed to have taken place simultaneously:
(a) DELIVERIES BY SHAREHOLDER. Shareholder shall deliver to
HealthCare:
(i) Certificates representing the shares of the
Company;
(ii) An opinion of counsel to Shareholder, dated as
of the Closing date, substantially in the form of SCHEDULE
2.2(A)(II);
(iii) Copies of resolutions adopted by the Company's
Board of Directors and shareholder, certified by its corporate
secretary, which resolutions shall be in full force and effect
on the Closing date, authorizing the execution, delivery and
performance of this Agreement and the other agreements and
transactions contemplated hereby; and
(iv) All consents required in connection with the
transactions contemplated hereunder.
(b) DELIVERIES BY HEALTHCARE. HealthCare shall deliver to
Shareholder:
(i) Certificates for HealthCare Shares as specified
in Section 1.5(a) and (b) hereof;
(ii) A certified or cashier's check for the cash
specified in Section 1.4(a) hereof;
(iii) An opinion of counsel to HealthCare, dated as
of the Closing date, substantially in the form of SCHEDULE
2.2(B)(III); and
(iv) Copies of the resolutions of the Boards of
Directors of HealthCare and HC Subsidiary and the shareholder
of HC Subsidiary, certified by their corporate secretaries,
which resolutions shall be in full force and effect on the
Closing date, authorizing the execution, delivery and
performance of this Agreement and the other agreements and
transactions contemplated hereby.
(c) JOINT DELIVERY. HC Subsidiary and Shareholder shall
deliver to each other counterparts of (i) Shareholder's Noncompetition
and Confidentiality Agreement provided for in Section 7.6(a) hereof,
(ii) Shareholder's Employment Agreement provided for in Section 7.6(b)
hereof and (iii) the Lease Amendment provided for in Section 7.6(c)
hereof.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
Except as otherwise set forth in the Disclosure Statement attached
hereto as SCHEDULE III, Shareholder hereby represents and warrants to HealthCare
as follows:
3.1 CORPORATE.
(a) ORGANIZATION. The Company is a corporation duly organized
and existing under the laws of the state of California.
(b) CAPITALIZATION. The authorized capital stock of the
Company consists of 10,000 shares of a single class of common stock, of
which 1,100 shares are issued, and outstanding. All issued and
outstanding shares of the Company have been validly issued and are
fully paid and nonassessable. Shareholder is the owner (beneficially
and of record) of all the issued and outstanding shares of the common
stock of the Company hereof free and clear of all liens, claims, and
encumbrances whatsoever. No person has any agreement, option or other
right, present or future, to purchase or otherwise acquire any of the
shares of the Company.
(c) CORPORATE POWER. The Company has all requisite corporate
power and authority to own, operate and lease its properties and to
carry on its business as and where such is now being conducted, to
enter into this Agreement and the other documents and instruments to be
executed and delivered by it pursuant hereto and to carry out the
transactions contemplated hereby and thereby. This Agreement
constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by Company pursuant hereto
will constitute valid and binding agreements of Company enforceable in
accordance with their respective terms.
(d) NO SUBSIDIARIES. The Company does not own an interest in
any corporation, partnership or other entity.
(e) ARTICLES OF INCORPORATION; BYLAWS. The copies of the
Company's articles of incorporation and bylaws which have heretofore
been delivered to HealthCare are complete and correct as amended or
restated to the date hereof.
3.2 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the
Company or the Shareholder pursuant hereto, nor the consummation by the Company
and Shareholder of the transactions contemplated hereby and thereby (a) will
violate any statute or law or any rule, regulation, order, writ, injunction or
decree of any court or governmental authority, (b) will require any
authorization, consent, approval, exemption or other action by or notice to any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body or (c) will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or
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accelerate the performance required by, or result in the creation of any
material Lien (as defined in Section 3.18(b)) upon any of the assets of the
Company under, any term or provision of the articles of incorporation or bylaws
of the Company or of any material contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which the
Company is a party or by which the Company or the Company's assets or properties
or the shares of the Company may be bound or affected.
3.3 FINANCIAL STATEMENTS. The Shareholder has heretofore delivered to
HealthCare the following financial statements of the Company including balance
sheets and statements of income (the "Financial Statements"):
(a) Financial statements for the Company's fiscal years ended
March 31, 1994, 1995, and 1996;
(b) Financial Statements for the interim period ended October
31, 1996.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Company at the dates indicated and
results of its operations for the periods then ended in accordance with
generally accepted accounting principles consistently applied.
3.4 RECORDS. The books of account of the Company reflect all items of
income and expense and the assets, liabilities, and accruals of its business and
operations. The minute books and stock transfer records of the Company contain
records which are complete and accurate in all material respects of all minutes,
consents of shareholders and directors, all corporate actions, and all stock
transfers of the Company.
3.5 ABSENCE OF CERTAIN CHANGES. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
(a) ADVERSE CHANGE. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the Company;
(b) DAMAGE. Any material loss, damage or destruction, whether
covered by insurance or not, affecting the Company's businesses or
assets;
(c) INCREASE IN COMPENSATION. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the Company (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee
benefit granted, made or accrued;
(d) LABOR DISPUTES. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company;
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(e) COMMITMENTS. Any commitment or transaction by the Company
(including, without limitation, any capital expenditure) other than in
the ordinary course of business consistent with past practice;
(f) DIVIDENDS. Any declaration, setting aside, or payment of
any dividend or any other distribution in respect of the Company's
capital stock; any redemption, purchase or other acquisition by the
Company of any capital stock of the Company, or any security relating
thereto; or any other payment to Shareholder as a shareholder;
(g) DISPOSITION OF PROPERTY. Any sale, lease or other transfer
or disposition of any properties or assets of the Company except for
sales of inventory, consumption of supplies, and nonmaterial
dispositions of worn or broken parts and equipment all in the ordinary
course of business;
(h) INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company other than changes in
the Company's lines of credit in the ordinary course of business,
except for loans to the Company by the Shareholder which loans shall be
treated as provided in Section 1.8 hereof;
(i) AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by the Company of any contract, or any waiver of material
rights thereunder, other than in the ordinary course of business;
(j) LOANS, ADVANCES, OR CREDIT. Any loan or advance or any
grant of credit by the Company; or
(k) UNUSUAL EVENTS. Any other event or condition specifically
related to the Company not in the ordinary course of business which
would have a material adverse effect on the assets or the business of
the Company.
3.6 ADVERSE CONDITIONS. There are no conditions known to Shareholder
with respect to the markets, products, facilities, or personnel of the Company
which might materially adversely affect its business or prospects other than
such conditions as may affect the industry in which the Company participates as
a whole.
3.7 NO LITIGATION. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Shareholder
threatened against the Company, its directors (in such capacity), its business
or any of its assets. SCHEDULE 3.7 identifies all actions, suits, proceedings,
investigations and inquiries to which the Company or the Shareholder has been a
party since January 1, 1993. Neither the Company nor its business or assets are
subject to any judgment, order, writ or injunction of any court, arbitrator or
federal, state, foreign, municipal or other governmental department, commission,
board, bureau, agency or instrumentality.
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3.8 COMPLIANCE WITH LAWS.
(a) COMPLIANCE. Shareholder warrants (but expressly does not
represent) that the Company (including each and all of its operations,
practices, properties and assets) is in material compliance with all
applicable federal, state, local and foreign laws, ordinances, orders,
rules and regulations (collectively, "Laws"), including, without
limitation, those applicable to discrimination in employment,
occupational safety and health, trade practices, environmental
protection, competition and pricing, product warranties, zoning,
building and sanitation, employment, retirement and labor relations,
and product advertising except to the extent any noncompliance would
not have a material adverse effect upon the assets or the business of
the Company taken as a whole. The Company has not received notice of
any violation or alleged violation of, and are not subject to liability
for past or continuing violation of, any Laws. All reports and returns
required to be filed by the Company with any governmental authority
have been filed, and were accurate and complete when filed except to
the extent any deficiency would not have a material adverse effect upon
the assets or the business of the Company taken as whole.
(b) LICENSES AND PERMITS. The Company has obtained all
licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification
organizations required for the conduct of its businesses (as presently
conducted) except to the extent failure to do so would not have a
material adverse effect upon the assets or the business of the Company
taken as a whole. All such licenses, permits, approvals, authorizations
and consents are described in SCHEDULE 3.8(B) and are in full force and
effect. The Company (including its operations, properties and assets)
is and has been in compliance with all such permits and licenses,
approvals, authorizations and consents, except to the extent any
noncompliance would not have a material adverse effect upon the assets
or the business of the Company taken as a whole.
3.9 ENVIRONMENTAL COMPLIANCE. Shareholder has delivered to HealthCare a
copy of every written communication given or received by the Company to or from
any environmental agency with respect to the Company, with respect to any
property which is now being used or which has heretofore been used by the
Company in the operation of its business, and has at all times thereafter
operated the Company, in compliance with all applicable federal, state and local
laws and regulations relating to pollution control and environmental
contamination including, without limitation, all laws and regulations governing
the generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of hazardous materials (as defined below) and all
laws and regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials (as defined below), except for such
noncompliance as would not cause a material adverse effect on Company's business
or assets. The Company has not received notice of any administrative or judicial
proceeding pursuant to such laws or regulations. There is no basis for the
assertion of a valid claim against the Company relating to environmental matters
including, without limitation, any claim arising from past or present
environmental practices, asserted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time
("CERCLA",
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the Resource Conservation and Recovery Act, as amended from time to time
("RCRA") or any other federal, state, or local statute, code, rule, regulation,
ordinance, order, decree, or other governmental authority as now or at any time
hereafter in effect. For purposes of this Section 3.9, the term "Hazardous
Materials" means materials defined as "hazardous wastes" or "solid wastes" in
CERCLA, RCRA or in any similar federal, state, or local statute, code, rule,
regulation, ordinance, order, decree, or other governmental authority as now or
at any time hereafter in effect.
3.10 NO UNDISCLOSED LIABILITIES. Except (a) as described to HealthCare
on the Schedules attached hereto as an item which can be reasonably construed as
a liability or obligation or (b) items not required to be disclosed on the
Schedules by reason of exceptions, exclusions, or other qualifications contained
in the representations and warranties of this Agreement, the Company has no
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) which are not properly reflected or reserved against in the Financial
Statements (except for liabilities or obligations which have been incurred in
the ordinary course of business since the date of the most recent Financial
Statements) in a manner consistent with past practice; and the reserves
reflected in the Financial Statements are adequate, appropriate and reasonable.
3.11 TAX MATTERS.
(a) Except with respect to Taxes (as defined below) for which
adequate reserves are included in the Financial Statements, the Company
has timely paid all federal, state, county, local and foreign taxes,
including, without limitation, income taxes, excise taxes, sales taxes,
use taxes, gross receipts taxes, franchise taxes, employment and
payroll taxes, withholding taxes, property taxes, import duties, and
all other taxes of any nature whatsoever and however denominated
together with all penalties, additions to tax, interest, assessment or
other damages imposed thereon with respect to the Company
(collectively, "Tax" or "Taxes") required to be paid or deposited by
the Company through the Closing. For purposes of this Section 3.11(a),
timely payment shall include payment in accordance with any available
extensions and recording of balances due as a trade payable.
(b) The Company has filed on or before the applicable due date
(including extensions) all tax returns which it is required to have
filed through the date hereof and has timely paid all amounts shown as
payable thereon, as well as any deficiencies or other additional
amounts subsequently assessed by any taxing authority with respect to
each such tax return. All such returns are true, correct and complete
in all material respects.
(c) The Company has not waived any statute of limitations in
respect of Taxes of the Company or agreed to any extension of time with
respect to a Tax assessment or deficiency of the Company, and the
assessment of any additional Taxes of the Company with respect to
periods for which returns have been filed is not expected.
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(d) There are no proposed deficiencies or unresolved claims
concerning the Company's liability for Taxes.
(e) All federal and state income tax returns (including all
attachments and amendments thereto) of the Company for all taxable
years for which the limitation periods (including any extensions or
waivers thereof) applicable to deficiencies have not expired have been
made available to HealthCare.
(f) Complete and correct copies of the Company's federal and
California income tax returns for 1993, 1994, and 1995 have been
delivered by the Shareholder to HealthCare.
3.12 PRODUCT WARRANTY. Set forth in SCHEDULE 3.12 is a true,
correct and complete copy of the Company's standard warranty or
warranties for sales of its products.
3.13 PRODUCT LIABILITY. No action is pending or, to the knowledge of
Shareholder, threatened against or involving the Company relating to any product
alleged to have been sold by the Company and alleged to have been defective, or
improperly designed or manufactured, and there exists no design, manufacturing
or other defects (the "Defects") in products sold in the course of the Company's
business or held as inventory PROVIDED, HOWEVER, that in no event shall the
Company be responsible for a breach of the representation and warranty in this
sentence of Section 3.13 resulting from any Defects which satisfy the following
two conditions: (a) they are not within Shareholder's knowledge; and (b) they
relate to goods which are sold on or after the Closing.
3.14 INSURANCE. The Company maintains policies of fire, liability,
product liability, malpractice, workers compensation, health and other forms of
insurance with such coverage limits and deductible amounts as are reasonable and
prudent in light of the nature of its assets and the risks of its business. The
Company has received no notification of cancellation, modification or denial of
renewal of any material policies of fire, product liability, malpractice or
other forms of insurance.
3.15 SUPPLIERS. The Company has received no notice of
termination or an intention to terminate the relationship with the
Company, from any material supplier.
3.16 PATENTS, TRADEMARKS, ETC. Set forth in SCHEDULE 3.16 is a list of
all United States and foreign trademarks, service marks, trade names, brand
names, copyrights, including registrations and applications, patent and patent
applications, and employee covenants and agreements respecting intellectual
property ("Trade Rights") in which the Company now has any interest, specifying
the basis on which such Trade Rights are owned, controlled, used or held (under
license or otherwise) by the Company, and also indicating which of such Trade
Rights are registered. All Trade Rights shown as registered in SCHEDULE 3.16
have been properly registered, all pending registrations and applications have
been properly made and filed and all annuity, maintenance, renewal and other
fees relating to registrations or applications are current. In order to conduct
the business of the Company, as such is currently being conducted, the
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Company does not require any Trade Rights that they do not already have. The
Company is not infringing and has not infringed on any Trade Rights of another
in the operation of the business of the Company, nor to the knowledge of the
Shareholder is any other person infringing on the Trade Rights of the Company.
The Company has not granted any license or made any assignment of any Trade
Right and no other person has any right to use any Trade Right owned or held by
the Company. The Company does not pay any royalties or other consideration for
the right to use any Trade Rights of others. Except as set forth in SCHEDULE
3.16, to the knowledge of Shareholder, there are no inquiries, investigations or
claims or litigation challenging or threatening to challenge the Company's
right, title and interest with respect to its continued use and right to
preclude others from using any Trade Rights of the Company. To the knowledge of
Shareholder, all Trade Rights of the Company are valid, enforceable and in good
standing, and there are no equitable defenses to enforcement based on any act or
omission of the Company.
3.17 CONTRACTS AND COMMITMENTS.
(a) LEASES.
(i) Set forth in SCHEDULE 3.17(A) is a list of all
real and personal property leases (the "Leases") to which the
Company is party. Complete and correct copies of each lease
listed on the schedule, and all amendments thereto, have
heretofore been delivered to HealthCare. The Leases are
currently in full force and effect. Shareholder warrants that
Beatrice Law has conveyed to Shareholder the interest owned by
Beatrice Law in the real property referred to in Section
7.6(c) hereof.
(ii) Company is not in default under the Leases; to
the knowledge of Shareholder, there are no defaults by the
lessors under any of the Leases; and no event has occurred
which with the passage of time or the giving of notice would
constitute a default under any of the Leases. The Company has
not waived any rights under any of the Leases.
(b) PURCHASE COMMITMENTS. Set forth in SCHEDULE 3.17(B) is a
list of all agreements (written or oral) between the Company and third
parties for the purchase of goods and supplies by the Company which
individually call for the payment by the Company after the date hereof
of more than $5,000 or which obligate the Company for a period
extending over a period of more than 90 days. Complete and correct
copies of all such written agreements have heretofore been delivered to
HealthCare.
(c) SALES COMMITMENTS. Set forth in SCHEDULE 3.17(C) is a list
and description of all presently effective agreements (written or oral)
between the Company and third parties for the distribution and sale of
its products. Complete and correct copies of all such written contracts
have heretofore been delivered to HealthCare.
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(d) CONTRACTS WITH SHAREHOLDER AND CERTAIN OTHERS. Except for
the employment relationship which exists between the Shareholder and
the Company, the Company has no agreement, understanding, contract or
commitment (written or oral) with the Shareholder, or any relative of
the Shareholder.
(e) COLLECTIVE BARGAINING AGREEMENTS. The Company is not party
to any collective bargaining agreement with any union.
(f) LOAN AGREEMENTS. Except as set forth on SCHEDULE 3.17(F),
the Company is not obligated under any loan agreement, promissory note,
letter of credit, or other evidence of indebtedness as signatories,
guarantors or otherwise.
(g) GUARANTEES. The Company has not under any instrument which
is presently effective guaranteed the payment or performance of any
person, firm or corporation, agreed to indemnify any person or act as a
surety, or otherwise agreed to be contingently or secondarily liable
for the obligations of any person.
(h) RESTRICTIVE AGREEMENTS. The Company is not party to nor is
it bound by any agreement requiring it to assign any interest in any
trade secret or proprietary information, or prohibiting or restricting
it from competing in any business or geographical area or soliciting
customers or otherwise restricting them from carrying on its business
anywhere in the world.
(i) OTHER MATERIAL CONTRACTS. The Company is not party to any
lease, license, contract (including without limitation contracts with
health maintenance organizations) or commitment of any nature involving
consideration or other expenditure in excess of $5,000, or involving
performance over a period of more than 90 days, or which is otherwise
individually material to the operations of the Company, except as set
forth in SCHEDULE 3.17(I).
(j) NO DEFAULT. The Company is not in default under any lease,
agreement, contract or commitment, nor has any event or omission
occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration
of any of the Company's obligations or result in the creation of any
Lien (as defined in Section 3.18(b) below) on any of the assets owned,
used or occupied by the Company. To the knowledge of the Shareholder,
no third party is in default under any lease, agreement, contract or
commitment to which the Company is a party, nor has any event or
omission occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder or give rise to
an automatic termination, or the right of discretionary termination
thereof.
3.18 TITLE TO AND CONDITION OF PROPERTIES.
(a) REAL PROPERTY. The Company does not own any interest in
any real property other than the leases referred to in Section 3.17(a)
hereof.
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(b) PERSONAL PROPERTY. Except as set forth on SCHEDULE
3.18(B), the Company has good and marketable title to all its assets,
free and clear of all mortgages, liens (statutory or otherwise),
security interests, claims, pledges, equities, options, conditional
sales contracts, assessments, levies, easements, covenants,
reservations, restrictions, exceptions, limitations, charges or
encumbrances of any nature whatsoever (collectively, "Liens"). All the
Company's tangible assets are located at the business premises leased
by it and all tangible assets located at such premises are owned by the
Company except as otherwise set forth in SCHEDULE 3.17(A).
(c) CONDITION. All the Company's tangible assets are, taken as
a whole, in good operating condition and repair, normal wear and tear
excepted.
(d) LAND USE REGULATIONS. There are no condemnation,
environmental, zoning, land use, or other regulatory proceedings,
pending or, to the knowledge of the Shareholder, planned to be
instituted, that could detrimentally affect the ownership, use, or
occupancy of the real property presently occupied by the Company or the
continued operation of the Company's business as they are presently
being conducted.
3.19 EMPLOYEE BENEFIT PLANS. Set forth in SCHEDULE 3.19, is a
description of all pension, profit sharing, retirement, bonus, executive or
deferred compensation, hospitalization and other similar fringe or employee
benefit plans, programs and arrangements, and any employment or consulting
contracts, "golden parachutes", severance agreements or plans, vacation and sick
leave plans including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), all employee manuals, and all written or binding oral
statements of policies, practices or understandings relating to employment,
which are provided to, for the benefit of, or relate to, any persons employed by
the Company. The items described in the foregoing sentence are hereinafter
sometimes referred to collectively as "Employee Plans/Agreements." True and
correct copies of all written Employee Plans/Agreements, including all
amendments thereto, have heretofore been provided to HealthCare. The Company is
in compliance with and has made all payments due under all Employee
Plans/Agreements and with respect thereto the Company is in compliance with all
applicable federal and state laws and regulations. The Company is not
contributors to any multi-employer pension plan which has an unfunded liability
with respect to benefits due its participants.
3.20 EMPLOYMENT COMPENSATION. Set forth in SCHEDULE 3.20 is a true and
correct list of:
(a) All employees to whom the Company is paying compensation;
and in the case of salaried employees such list identifies the current
annual rate of compensation for each employee and in the case of hourly
or commission employees identifies certain reasonable ranges of rates
and the number of employees falling within each such range; and
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(b) All amounts owed to employees of the Company (including
the Shareholder) for accrued sick pay, vacation pay, and bonus pay.
3.21 KEY EMPLOYEES; BANK; ETC. Set forth in SCHEDULE 3.21 is a list
showing:
(a) The names of all the Company's officers and directors;
(b) The name of each bank at which the Company has (i) an
account and the numbers of all accounts, (ii) a line of credit, or
(iii) a safe deposit box and the name of each person authorized to draw
thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the Company and a summary of the terms thereof.
3.22 ACCOUNTS RECEIVABLE. Each of the accounts receivable of the
Company (a) arose from bona fide sales in the ordinary course of business, (b)
was entered into under circumstances and by methods usual and customary in the
Company's business in the applicable state and the collection practices used
with respect thereto have been in all respect legal and proper and (c) was
entered into, and credit granted pursuant thereto, consistent with the Company's
historical credit policies and practices. The books of the Company correctly
record the principal balance of all accounts receivable and each of the security
instruments securing any account receivable, if any, constitutes a valid lien in
favor of the Company upon the property which it describes, and is enforceable by
the Company and its transferees. The reserves for doubtful accounts shown or
reflected on the Financial Statements are adequate and were calculated
consistent with past practice.
3.23 INVENTORY. The inventories of the Company are of a quality and
quantity usable and salable in the ordinary course of business and have a
commercial value at least equal to the value shown on the Company's Financial
Statements.
3.24 BROKERS AND FINDERS. Neither the Shareholder, the Company nor any
of its officers, directors, or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
3.25 DISCLOSURE. No representation or warranty by the Shareholder in
this Agreement, nor any statement, certificate, schedule, or exhibit hereto
furnished or to be furnished by or on behalf of the Shareholder pursuant to this
Agreement, nor any document or certificate delivered to HealthCare pursuant to
this Agreement or in connection with transactions contemplated hereby, contains
or shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HEALTHCARE
HealthCare hereby represents and warrants to the Shareholder as
follows:
4.1 CORPORATE.
(a) ORGANIZATION. HealthCare is a corporation duly organized
and validly existing under the laws of the Province of Alberta, Canada.
HC Subsidiary is a corporation duly authorized and validly existing
under the laws of the state of Washington.
(b) CORPORATE POWER. Each of HealthCare and HC Subsidiary has
all requisite corporate power and authority to own, operate and lease
its properties, to carry on its business as and where such is now being
conducted, to enter into this Agreement and the other documents and
instruments to be executed and delivered by them pursuant hereto and to
carry out the transactions contemplated hereby and thereby. This
Agreement constitutes, and when executed and delivered, the other
documents and instruments to be executed and delivered by HealthCare
and HC Subsidiary pursuant hereto will constitute, valid and binding
agreements of HealthCare and HC Subsidiary, enforceable in accordance
with their respective terms.
(c) QUALIFICATION. HC Subsidiary is duly licensed or qualified
to do business as a foreign corporation, and is in good standing, in
each jurisdiction wherein the character of the properties owned or
leased by it, or the nature of its business, makes such licensing or
qualification necessary.
4.2 CAPITALIZATION. As of the date thereof, the authorized and issued
capital stock of HealthCare is set forth in the Offering Memorandum referred to
in Section 6.1(a)(ii). All of the issued and outstanding shares have been
validly issued and are fully paid and nonassessable. The HealthCare Shares to be
issued to the Shareholder pursuant to this Agreement will, upon issuance, be
validly issued, fully paid, and nonassessable and free and clear of any lien or
restriction except as set forth herein.
4.3 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by
HealthCare and HC Subsidiary pursuant hereto, nor the consummation by them of
the transactions contemplated hereby and thereby (a) will violate any statute or
law or any rule, regulation, order, writ, injunction or decree of any court or
governmental authority, (b) will require any authorization, consent, approval,
exemption or other action by or notice to any court, administrative or
governmental agency, instrumentality, commission, authority, board or body
(except the Alberta Stock Exchange), or (c) will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any
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material Lien upon any of the assets of HealthCare or HC Subsidiary under, any
term or provision of their Articles of Incorporation or By-laws or of any
material contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which either is a party or by which they
or any of their assets or properties may be bound or affected.
4.4 TAX FREE REORGANIZATION.
(a) HealthCare controls HC Subsidiary within the meaning of
Section 368(c) of the Code;
(b) HealthCare has no plan or intention to reacquire any of
its stock issued in the transaction, except as provided in Section 1.6
hereof;
(c) HealthCare has no plan or intention to liquidate HC
Subsidiary; to merge HC Subsidiary with and into another corporation;
to sell or otherwise dispose of the stock of HC Subsidiary; or to cause
HC Subsidiary to sell or otherwise dispose of any of the assets of the
Company acquired in the transaction except for dispositions made in the
ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code;
(d) Neither HealthCare nor HC Subsidiary is an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code;
(e) The HealthCare Shares issued in exchange for the stock of
the Company hereunder, including all Retained Shares, constitutes less
than 50 percent of both the voting power and the value of all
HealthCare stock that will be outstanding immediately following the
transaction; and
(f) HealthCare has been engaged in the active conduct of a
trade or business that is substantial in comparison to the business of
the Company for the entire 36 month period immediately preceding the
Effective Time.
4.5 BROKERS AND FINDERS. Neither HealthCare, HC Subsidiary nor any of
their officers, directors, employees or shareholders has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated by this Agreement.
4.6 DISCLOSURE. To HealthCare's knowledge, no representation or
warranty by HealthCare in this Agreement nor any statement, certificate,
schedule, or exhibit hereto furnished or to be furnished by or on behalf of
HealthCare pursuant to this Agreement, nor any document or certificate delivered
to HealthCare pursuant to this Agreement or in connection with transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statements
contained therein not misleading.
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ARTICLE V
COVENANTS
5.1 COVENANTS OF SHAREHOLDER.
(a) ACCESS TO INFORMATION AND RECORDS. The Shareholder agrees
that during the period prior to the Closing, HealthCare, its counsel,
accountants and other representatives shall be provided (i) reasonable
access during normal business hours to all of the properties, books,
records, contracts and documents of the Company for the purpose of such
inspection, investigation and testing as HealthCare deems appropriate
(and Shareholder shall furnish or cause to be furnished to HealthCare
and its representatives all information with respect to the business
and affairs of the Company as HealthCare may reasonably request); (ii)
reasonable access to employees and agents of the Company for such
meetings and communications as HealthCare reasonably desires; and (iii)
with the prior consent of the Company in each instance (which consent
shall not be unreasonably withheld), access to vendors, customers, and
others having business dealings with the Company.
(b) CONDUCT OF BUSINESS PENDING THE CLOSING. The Shareholder
agrees that from the date hereof until the Closing, except as otherwise
approved in writing by HealthCare:
(i) NO CHANGES. The Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) MAINTAIN ORGANIZATION. The Company will use its
best efforts to maintain, preserve, renew and keep in force
and effect the existence, rights and franchises of the Company
and to preserve the business organization of the Company
intact, to keep available to HealthCare the present officers
and employees of the Company, and to preserve for HealthCare
its present relationships with suppliers and customers and
others having business relationships with the Company.
(iii) NO BREACH. The Company will use its best
efforts to avoid any act, or any omission to act, which may
cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty,
covenant or agreement made by the Shareholder.
(iv) NO MATERIAL CONTRACTS. No contract or commitment
will be entered into, and no purchase of assets (tangible or
intangible) will be made, by or on behalf of the Company,
except contracts, commitments, purchases or sales which are in
the ordinary course of business and consistent with past
practice.
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(v) NO CORPORATE CHANGES. The Company shall not amend
its Articles of Incorporation or Bylaws or make any changes in
its authorized or issued capital stock.
(vi) MAINTENANCE OF INSURANCE. The Company shall
maintain all of its insurance in effect as of the date hereof
or replace such insurance with comparable coverage and shall
procure such additional insurance as shall be reasonably
requested by HealthCare at HealthCare's expense.
(vii) MAINTENANCE OF PROPERTY. The Company shall use,
operate, maintain and repair all its assets and properties in
a normal business manner consistent with the Company's past
practices.
(viii) INTERIM FINANCIALS. The Company will provide
HealthCare with interim monthly financial statements and other
management reports as and when they are available.
(ix) NO DIVIDENDS. The Company shall not declare or
pay any dividend (whether in cash, stock or property) or make
any other distribution to the Shareholder, except for the
repayment of loans made by the Shareholder to the Company.
(x) COMPENSATION. The Company shall not increase the
compensation or benefits of any of its employees nor make any
other change in the terms of their employment.
(c) REIMBURSEMENT OF VACATION PAY. In consideration for
excluding accruals for vacation pay entitlements for employees of the
Company from the definition of Net Working Capital, the Shareholder
agrees to reimburse HC Subsidiary for any vacation pay payments HC
Subsidiary is required to make to former employees of the Company who
become employees of HC Subsidiary as of the Closing and whose
employment terminates for any reason within the first six months
following the Closing to the extent such payments relate to accruals of
vacation pay prior to the Closing.
(d) PRESERVATION OF TAX-FREE REORGANIZATION STATUS. The
Shareholder consents and agrees as follows:
(i) There is no plan or intention by the Shareholder
to sell, exchange or otherwise dispose of a number of
HealthCare Shares received in the Merger that would reduce the
Shareholder's ownership of HealthCare Shares to a number of
shares having a value, as of the date of the Merger, of less
than 50 percent of the value of all of the formerly
outstanding stock of the Company as of the same date.
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(ii) HC Subsidiary will acquire at least 90 percent
of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets held by
the Company immediately prior to the Merger.
(iii) The liabilities of the Company assumed by HC
Subsidiary and the liabilities to which the transferred assets
of the Company are subject were incurred by the Company in the
ordinary course of its business.
(iv) The Company, and the Shareholder will pay their
respective expenses, if any, incurred in connection with the
transaction.
(v) The Company is not an investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(vi) The Company is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(vii) The fair market value of the assets of the
Company transferred to HC Subsidiary will equal or exceed the
sum of the liabilities assumed by HC Subsidiary, plus the
amount of liabilities, if any, to which the transferred assets
are subject.
5.2 COVENANTS OF HEALTHCARE.
(a) Following the Merger, HC Subsidiary will not issue
additional shares of its stock that would result in HealthCare losing
control of HC Subsidiary within the meaning of Section 368(c) of the
Code.
(b) Following the Merger, HC Subsidiary will continue the
historic business of the Company or use a significant portion of the
Company's business assets in a business.
(c) HealthCare will comply, and will cause HC Subsidiary to
comply, with the reporting requirements set forth in ss.
1.367(a)-3T(c)(4) of the U.S. Treasury Regulations following
consummation of the Merger.
(d) HealthCare and HC Subsidiary will treat the Merger as a
tax-free reorganization of the Company for U.S. tax purposes on all tax
returns filed by them in the United States, and neither HealthCare nor
HC Subsidiary will take any action inconsistent with such treatment of
the Merger, or which would cause the Merger to fail to qualify as a
tax-free reorganization.
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(e) The Shareholder has provided personal guarantees or has
otherwise become individually liable with respect to certain leases,
line of credit agreements, purchase agreements with manufacturers, or
other agreements for the benefit for the Company, including, without
limitation, those described on SCHEDULE 5.2(E). Following the Merger,
HealthCare will use its best efforts to obtain the release of the
Shareholder from all such personal liabilities. To the extent that any
such release cannot be obtained, HealthCare will indemnify and hold the
Shareholder harmless with respect to any loss, cost, or expense the
Shareholder may incur as a result of not being released.
ARTICLE VI
SECURITIES LAWS
6.1 SECURITIES LAWS.
(a) INVESTMENT REPRESENTATIONS. The Shareholder represents to
HealthCare as follows:
(i) The HealthCare Shares are being acquired for her
own account and for investment only, and not with a view to
the distribution of all or any part of the HealthCare Shares,
and the acquisition of the HealthCare Shares by the
Shareholder and her continued holding thereof as may be
required by law and the terms hereof are consistent with her
financial position.
(ii) The Shareholder has had access to complete
information regarding the business and finances of HealthCare,
has met and discussed the business and finances of HealthCare
with its management employees to the extent she deems
necessary, has received, read, and understood the contents of
the Healthcare Capital Corp. Confidential Offering Memorandum
dated October 16, 1996 (the "Offering Memorandum"), and the
Shareholder believes she has received all the information she
considers necessary or appropriate for deciding whether to
receive the HealthCare Shares as consideration in the Merger.
(iii) The Shareholder can bear the economic risk of
receiving the HealthCare Shares as consideration in the
Merger, and has such knowledge and experience in financial or
business matters that she is capable of evaluating the merits
and risks of receiving such shares.
(iv) The Shareholder is an "accredited investor" as
that term is defined in Rule 501 of Regulation D promulgated
by the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as a result of the following:
(A) The Shareholder has an individual net
worth, or joint worth with the Shareholder's spouse,
which exceeds $1,000,000; and/or
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(B) The Shareholder has an individual income
in excess of $200,000 in each of the two most recent
years or joint income with Shareholder's spouse in
excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income
level in the current year.
or, if not an accredited investor, then the Shareholder by
reason of her business or financial experience or the business
or financial experience of her professional advisers (who are
unaffiliated with and who are not compensated by HealthCare or
any affiliate or selling agent of HealthCare directly or
indirectly), has the capacity to protect her own interests in
connection with the receipt of the HealthCare Shares.
(b) LIMITATIONS ON TRANSFER. Except as expressly provided in
this Agreement, the Shareholder shall not, directly or indirectly,
offer or sell, pledge, transfer, or otherwise dispose of all or any
portion of the HealthCare Shares, or solicit any offer to buy,
purchase, or otherwise acquire or take a pledge of all or any portion
of the HealthCare Shares, except (A) in the manner and to the extent
described in (i) a registration statement in effect under the
Securities Act of 1933 (the "Act") covering the HealthCare Shares and
as to which a prospectus meeting the requirements of the Act is duly
delivered and filed as necessary with any state agency or (ii) an
opinion of counsel for the Shareholder reasonably acceptable to
HealthCare, which opinion is in form and substance satisfactory to
counsel for HealthCare, to the effect that such proposed offer, sale,
pledge, transfer, or other disposition of HealthCare Shares may
lawfully be made without such registration, delivery or state filing or
(B) pursuant to trades made on the Alberta Stock Exchange ("ASE") after
90 days following the Closing pursuant to Rule 904 of Regulation S
under the Act. The Shareholder acknowledges that she has consulted with
counsel concerning the limited availability of exemptions from
registration under the Act or exemptions from qualification under state
securities laws and she understands that she (i) may bear the economic
risk of investment in the HealthCare Shares for an indefinite period of
time because the HealthCare Shares have not been registered under the
Act or qualified under state securities laws and, therefore, cannot be
sold unless they are subsequently registered under the Act or qualified
under state securities laws or an exemption from such registration,
such as that contained in Rule 904, or from state qualification is
available, (ii) HealthCare is not obligated to register the HealthCare
Shares under the Act or qualify them under state securities laws, (iii)
that absent registration, the HealthCare Shares ordinarily may not be
sold in the United States for at least two years after the Closing and
then only in accordance with Rule 144 under the Act, and absent
qualification under state securities laws may be subject to similar
restrictions and (iv) the HealthCare Shares may not be sold,
transferred or otherwise disposed of in the province of Alberta,
Canada, or traded through the facilities of the ASE for a period of 90
days following the Closing.
(c) LEGENDS ON CERTIFICATES. Certificates representing the
HealthCare Shares shall be endorsed with legends, (i) substantially in
the form set forth in SCHEDULE 6.1(C)
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hereto, and (ii) to the effect that the HealthCare Shares may not be
traded in Canada for 90 days following the Closing. HealthCare need not
recognize any person other than the Shareholder as having any interest
in or to the HealthCare Shares unless the acquisition thereof shall
have been made in compliance with Subsection 6.1(b) above. HealthCare
may issue appropriate stop transfer instructions to the transfer agent
for the HealthCare Shares to prevent transfers in violation of
Subsection 6.1(b) hereof.
(d) REMOVAL OF LEGENDS.
(i) At any time while the HealthCare Shares are
registered under the Act, HealthCare shall, upon written
request, cause the certificates representing the HealthCare
Shares to be reissued free of all legends and withdraw all
stop transfer instructions. Upon the termination of any such
registration, if the Shareholder owns HealthCare Shares
represented by a certificate without such legends, the
Shareholder shall, upon written request, promptly return such
certificate to HealthCare for reissue for a certificate
endorsed with the legends specified in, and otherwise subject
to, the provisions of Subsection 6.1(c). Three years after the
Closing, HealthCare's right to request the return of
unlegended certificates for previously registered HealthCare
Shares shall terminate and HealthCare shall, upon written
request of the Shareholder, cause any certificates bearing one
or more legends to be reissued free of such legends and
withdraw all stop transfer instructions, provided that Rule
144(k) under the Act, or a comparable rule, is in effect in
substantially its present form and the Shareholder furnishes
to HealthCare evidence satisfactory to HealthCare and its
counsel that she meets the requirements of such rule.
(ii) HealthCare shall, upon written request, cause a
certificate representing all or a portion of the HealthCare
Shares to be reissued free of all legends (except as provided
in Section 1.5 hereof) and shall withdraw all stop transfer
instructions upon the provision by the Shareholder of a
declaration to The R-M Trust Company as transfer agent in
substantially the form set forth in SCHEDULE 6.1(D)(II)
hereto.
6.2 REGISTRATION UNDERTAKING.
(a) HealthCare agrees that, if at any time from and after the
Closing date and before the second anniversary of such date, the board
of directors of HealthCare shall authorize the filing of a registration
statement under the Act for sale of HealthCare shares by HealthCare in
the United States, HealthCare will (i) promptly notify Shareholder that
such registration statement will be filed and that the HealthCare
Shares which are then held by Shareholder will be included in such
registration statement at her request, (ii) subject to the last
sentence of this subsection (a), cause such registration statement to
cover all HealthCare Shares which it has been so requested to include
by Shareholder, provided such request is delivered to HealthCare not
later than 20 days after such notice is given to Shareholder and
specifies the number of HealthCare Shares to be included in
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the proposed registration, (iii) use reasonable efforts subject to
market conditions to cause such registration statement to become
effective and remain effective and current for such period as may be
necessary to permit the underwriters to complete the distribution of
the securities covered by the registration statement, if such offering
is an underwritten offering, or, if not, for such period, not in excess
of 90 days, as may be necessary for Shareholder to effect a proposed
sale or other distribution, and (iv) take all other action necessary
under any federal or state law or regulation of any governmental
authority (other than the state securities or blue sky laws) to permit
the shares included in such registration statement to be sold or
otherwise disposed of and will maintain such compliance with each such
federal and state law and regulation of governmental authority for the
period necessary for the underwriters or Shareholder, as the case may
be, to effect the proposed sale or other disposition. Notwithstanding
the foregoing provisions, if the registration statement relates to an
underwritten offering of HealthCare Shares and the managing underwriter
shall inform in writing HealthCare and Shareholder and any other
holders of HealthCare Shares requesting such registration that the
managing underwriter believes that the number of shares requested to be
included in such registration would materially, adversely affect its
ability to effect such offering, then HealthCare will include in such
registration the number of HealthCare Shares which HealthCare is so
advised can be sold in (or during the time of) such offering as
follows: first, all shares proposed by HealthCare to be sold for its
own account, and, second, such HealthCare Shares requested to be
included in such registration, pro rata by Shareholder and other
holders of HealthCare Shares on the basis of the number of HealthCare
Shares so proposed to be sold and so requested to be included;
PROVIDED, HOWEVER, that HealthCare shall be obligated to register any
HealthCare Shares so excluded from the registration statement pursuant
to a registration statement filed 90 days after the effectiveness of
such initial registration statement or such greater number of days as
may be specified in "lock-up" agreements entered into with the managing
underwriter.
(b) Whenever HealthCare is required pursuant to the provisions
of this Section 6.2 to include HealthCare Shares in a registration
statement, HealthCare shall (i) furnish Shareholder and each
underwriter of such HealthCare Shares with such copies of a prospectus,
including the preliminary prospectus, conforming to the Act (and such
other documents as Shareholder and each such underwriter may reasonably
request) in order to facilitate the sale or distribution of HealthCare
Shares, (ii) use its best efforts to register or qualify such
HealthCare Shares under the blue sky laws (to the extent applicable) of
such jurisdiction or jurisdictions as Shareholder and each underwriter
of HealthCare Shares being sold shall reasonably request and (iii) take
such other actions as may be reasonably necessary or advisable to
enable the Shareholders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which such
holders shall have reasonably requested that the HealthCare Shares be
sold. Shareholder shall furnish to HealthCare in writing such
information relating to herself as HealthCare may reasonably request in
connection with the preparation of such registration statement.
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<PAGE>
(c) HealthCare shall pay all expenses incurred in connection
with any registration or other action pursuant to the provisions of
this Section 6.2, other than underwriting discounts and applicable
transfer taxes relating to the HealthCare Shares sold by Shareholder
and attorney fees and expenses of Shareholder.
(d) HealthCare agrees to indemnify and hold harmless
Shareholder from and against any and all losses, claims, damages,
liabilities or actions, joint or several, to which Shareholder may
become subject under the Act for any legal or other expenses (including
the cost of any investigation and preparation) incurred by her in
connection with any litigation or threatened litigation, whether or not
resulting in any liability, but only insofar as such losses, claims,
damages, liabilities or actions arise out of, or are based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained in any registration statement pursuant to which HealthCare
Shares were registered under the Act (hereinafter called a
"Registration Statement"), any preliminary prospectus, the final
prospectus or any amendment or supplement thereto (or in any
application or document filed in connection therewith) or any document
filed by HealthCare in any jurisdiction in order to register or qualify
the HealthCare Shares under the securities laws thereof or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or (ii) the employment by HealthCare of any device, scheme or artifice
to defraud, or the engaging by HealthCare in any act, practice or
course of business which operates or would operate as a fraud or
deceit, or any conspiracy with respect thereto, in which HealthCare
shall participate, in connection with the issuance and sale of any of
the HealthCare Shares; PROVIDED, HOWEVER that (i) the indemnity
agreement contained in this Subsection (d) shall not extend to
Shareholder in respect of any such losses, claims, damages, liabilities
or actions arising out of, or based upon any such untrue statement or
alleged untrue statement, or any such omission or alleged omission, if
such statement or omission was based upon and made in conformity with
information furnished in writing to HealthCare by Shareholder
specifically for use in connection with the preparation of such
Registration Statement, any final prospectus, any preliminary
prospectus or any such amendment or supplement thereto (or in any
application or document filed in connection therewith) or document
filed in any jurisdiction in order to register or qualify the
HealthCare Shares under the securities laws thereof. HealthCare agrees
to pay any legal and other expenses for which it is liable under this
Subsection (d) from time to time (but not more frequently than monthly)
within 30 days after its receipt of a bill therefor.
(e) Shareholder will indemnify and hold harmless HealthCare,
its directors, its officers who shall have signed the Registration
Statement and each person, if any, who controls HealthCare within the
meaning of Section 15 of the
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Act to the same extent as the foregoing indemnity from HealthCare, but
in each case to the extent, and only to the extent, that any statement
in or omission from or alleged omission from such Registration
Statement, any final prospectus, any preliminary prospectus or any
amendment or supplement thereto (or in any application or document
filed in connection therewith) or document filed in any jurisdiction in
order to register or qualify the HealthCare Shares under the securities
laws thereof was made in reliance upon information furnished in writing
to HealthCare by Shareholder specifically for use in connection with
the preparation of the Registration Statement, any final prospectus or
the preliminary prospectus or any such amendment or supplement thereto
(or in any application or document filed in connection therewith) or
document filed in any jurisdiction in order to register or qualify the
HealthCare Shares under the securities laws thereof; PROVIDED, HOWEVER,
that the obligation of Shareholder to indemnify HealthCare under the
provisions of this Subsection (e) shall be limited to the product of
the number of HealthCare Shares being sold by Shareholder and the
market price of HealthCare Shares on the date of the sale to the public
of these HealthCare Shares. Shareholder agrees to pay any legal and
other expenses for which she is liable under this Subsection (e) from
time to time (but not more frequently than monthly) within 30 days
after receipt of a bill therefor.
(f) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Subsections (d) and (e) (an
"indemnified party") in respect of which indemnity may be sought
against a person granting indemnification (an "indemnifying party")
pursuant to such Subsections (d) and (e), such indemnified party shall
promptly notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party of any
such action shall not release the indemnifying party from any liability
it or she may have to such indemnified party otherwise than on account
of the indemnity agreement contained in Subsections (d) and (e) of this
Section 6.2. In case any such action is brought against an indemnified
party and it or she notifies an indemnifying party of the commencement
thereof, the indemnifying party against which a claim is to be made
will be entitled to participate therein at its, his or her own expense
and, to the extent that it or she may wish, to assume at its or her own
expense the defense thereof, with counsel reasonably satisfactory to
such indemnified party; PROVIDED, HOWEVER, that (i) if the defendants
in any such action include both the indemnified party and the
indemnifying party and the indemnifying party shall have reasonably
concluded based upon advice of counsel that there may be legal defenses
available to it, she and/or other indemnified parties which are
different from or additional to those available to the indemnified
party, the indemnified party shall have the right to select separate
counsel to assume such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or
parties and (ii) in any event, the indemnified party shall be entitled
to have counsel chosen by such indemnified party participate in, but
not conduct, the defense at the expense of the indemnifying party. Upon
receipt of notice from the indemnifying
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party to such indemnified party of its or her election so to assume the
defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 6.2 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in
accordance with proviso (i) to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel), (ii) the
indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party. An indemnifying party shall not be liable for any settlement of
any action or proceeding effected without its written consent.
(g) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in
Subsections (d) and (e) of this Section 6.2 is unavailable to an
indemnified party in accordance with its terms, HealthCare and
Shareholder shall contribute to the aggregate losses, claims, damages
and liabilities, of the nature contemplated by said indemnity
agreement, incurred by HealthCare and Shareholder, in such proportions
as are appropriate to reflect the relative benefits received by
HealthCare and Shareholder from any offering of the HealthCare Shares;
PROVIDED, HOWEVER, that if such allocation is not permitted by
applicable law or if the indemnified party failed to give the notice
required under Subsection (f) of this Section 6.2, then the relative
fault of HealthCare and Shareholder in connection with the statements
or omissions which resulted in such losses, claims, damages and
liabilities and other relevant equitable considerations will be
considered together with such relative benefits.
(h) The respective indemnity and contribution agreements by
HealthCare and Shareholder in Subsections (d), (e), (f) and (g) of this
Section 6.2 shall remain operative and in full force and effect
regardless of (i) any investigation made by Shareholder or by
HealthCare or any controlling person of HealthCare or any director or
any officer of HealthCare, (ii) payment for any of the HealthCare
Shares or (iii) any termination of this Agreement, and shall survive
the delivery of the HealthCare Shares, and any successor of HealthCare,
or of Shareholder, or of any person who controls HealthCare, as the
case may be, shall be entitled to the benefit of such respective
indemnity and contribution agreements. The respective indemnity and
contribution agreements by HealthCare and Shareholder contained in
Subsections (d), (e), (f) and (g) of this Section 6.2 shall be in
addition to any liability which HealthCare and Shareholder may
otherwise have.
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ARTICLE VII
CONDITIONS PRECEDENT TO HEALTHCARE'S OBLIGATIONS
Each and every obligation of HealthCare to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by HealthCare) of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by the Shareholder in this Agreement, or in
any instrument, schedule, list, certificate or writing delivered by Shareholder
pursuant to this Agreement, shall be true and correct when made and shall be
true and correct in all material respects at and as of the Closing as though
such representations and warranties were made as of the Closing.
7.2 COMPLIANCE WITH AGREEMENT. The Shareholder shall have in all
material respects performed and complied with all of her agreements and
obligations under this Agreement which are to be performed or complied with by
her prior to or on the Closing, including the delivery of the closing documents
specified in Section 2.2(a) hereof.
7.3 ABSENCE OF SUIT. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against HealthCare, the Company or any of the affiliates, officers
or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of HealthCare
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, investigation, or proceeding HealthCare will be unable to
retain substantially all the practical benefits of the transaction to which it
is entitled under this Agreement.
7.4 APPROVALS; CONSENTS. All consents, permits, approvals, licenses or
orders from any governmental or regulatory body or other third party required to
be obtained by Shareholder for the lawful consummation of the transactions
contemplated by this Agreement shall have been obtained except where failure to
obtain such consents, permits, approvals, licenses or orders would not have a
material adverse effect (whether or not such effect is referred to or described
in any Schedule) on the business, prospects, financial conditions, assets,
reserves or operations of the Company taken as a whole.
7.5 NO MATERIAL ADVERSE CHANGE. From the date of the Financial
Statements to the Closing, the Company shall not have suffered any change which
has a material adverse effect (whether or not such effect is referred to or
described in any Schedule) on the business, prospects, financial condition,
assets, reserves or operations of the Company taken as a whole.
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7.6 AGREEMENTS.
(a) NONCOMPETITION AND CONFIDENTIALITY AGREEMENT. Shareholder
shall have executed and delivered to HealthCare a Noncompetition and
Confidentiality Agreement substantially in the form attached hereto as
SCHEDULE 7.6(A).
(b) EMPLOYMENT AGREEMENT. Shareholder shall have executed and
delivered to HC Subsidiary an Employment Agreement substantially in the
form of SCHEDULE 7.6(B) hereto.
(c) LEASE AMENDMENT. Shareholder shall have executed and
delivered to HC Subsidiary a Lease Amendment substantially in the form
of SCHEDULE 7.6(C) hereto.
7.7 ALBERTA STOCK EXCHANGE. The issuance of the HealthCare Shares to
the Shareholder shall have been conditionally approved by the ASE.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE SHAREHOLDER'S OBLIGATIONS
Each and every obligation of the Shareholder to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by the Shareholder) of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by HealthCare in this Agreement, or in any
instrument, list, certificate or writing delivered by HealthCare pursuant to
this Agreement, shall be true and correct when made and shall be true and
correct at and as of the Closing as though such representations and warranties
were made as of the Closing.
8.2 COMPLIANCE WITH AGREEMENT. HealthCare shall have in all material
respects performed and complied with all of HealthCare's agreements and
obligations under this Agreement which are to be performed or complied with by
HealthCare prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(b) hereof.
8.3 ABSENCE OF SUIT. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against HealthCare, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Shareholder shall not be affected unless there is a reasonable likelihood that
as a result of such action, suit, proceeding or investigation, the Shareholder
will be unable to retain substantially all the consideration to which she is
entitled under this Agreement.
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8.4 AGREEMENTS.
(a) EMPLOYMENT AGREEMENT. HC Subsidiary shall have executed
and delivered to Shareholder an Employment Agreement substantially in
the form of SCHEDULE 7.6(B) hereto.
(b) HC Subsidiary shall have executed and delivered to
Shareholder a Lease Amendment
ARTICLE IX
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
9.1 INDEMNIFICATION BY SHAREHOLDER. Shareholder hereby agrees to
indemnify, defend, and hold HealthCare harmless from and against all Claims (as
defined below) asserted against, resulting to, imposed upon, or incurred by
HealthCare directly or indirectly by reason of, arising out of, or resulting
from (a) the inaccuracy or breach of any representation or warranty of the
Shareholder contained in or made pursuant to this Agreement, or (b) the breach
of any covenant of the Shareholder contained in this Agreement. As used in this
Section 9.1, the term "Claim" shall include all losses, damages, judgments,
awards, settlements, costs, and expenses (including without limitation
penalties, court costs, and attorneys fees and expenses at trial and on appeal)
awarded by the arbitrator or arbitrators pursuant to Section 10.12 hereof.
9.2 INDEMNIFICATION BY HEALTHCARE. HealthCare hereby agrees to
indemnify, defend, and hold harmless the Shareholder from and against all Claims
(as defined in Section 9.1) asserted against, resulting to, imposed upon, or
incurred by the Shareholder directly or indirectly by reason of, arising out of,
or resulting from (a) the inaccuracy or breach of any representation or warranty
of HealthCare contained in or made pursuant to this Agreement, or (b) the breach
of any covenant of HealthCare contained in this Agreement.
9.3 NOTICE; DEFENSE OF CLAIMS. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
or she so elects, to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its or her own choice to
handle and defend the same, at the indemnifying party's cost, risk and expense
provided that the indemnifying party and its or her counsel shall proceed with
diligence and in good faith with respect thereto. The indemnified party shall
cooperate in all reasonable respects with the indemnifying party and such
attorneys in the investigation, trial and defense
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of such lawsuit or action and any appeal arising therefrom; provided, however,
that the indemnified party may, at its or her own cost, participate in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom.
9.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement for a period ending 90 days after the second fiscal year end
(July 31) of HC Subsidiary which occurs after the Closing (except for the
representations and warranties of the Shareholder set forth in Section 3.11
hereof which shall expire 90 days after the applicable statutes of limitation
shall have run with respect to all tax returns filed by the Company for all
periods ended on or before the Closing) after which all such representations and
warranties shall expire except with respect to claims asserted in writing prior
to such date.
ARTICLE X
MISCELLANEOUS
10.1 TERMINATION.
(a) RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to
the Closing:
(i) By mutual written agreement of the parties, or
(ii) By either HealthCare or the Shareholder if the
Closing shall not have occurred on or before the 90th day
after the date hereof, provided the terminating party has not,
through breach of a representation, warranty or covenant,
prevented the Closing from occurring on or before such date.
(b) TERMINATION FOR BREACH.
(i) TERMINATION BY HEALTHCARE. If there has been a
material breach by the Shareholder of any of her agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by HealthCare, then
HealthCare may, by written notice to Shareholder at any time
prior to the Closing that such breach is continuing, terminate
this Agreement with the effect set forth in Section
10.1(b)(iii) hereof.
(ii) TERMINATION BY SHAREHOLDER. If there has been a
material breach by HealthCare of any of its agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by the Shareholder, then
the Shareholder may, by written notice to HealthCare at any
time prior to the Closing that such breach is continuing,
terminate this Agreement with the effect set forth in Section
10.1(b)(iii).
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(iii) EFFECT OF TERMINATION. Termination of this
Agreement pursuant to this Section 10.1 shall not in any way
terminate, limit or restrict the rights and remedies of any
party hereto against any other party which has breached or
failed to perform any of the representations, warranties,
covenants, or agreements of this Agreement prior to
termination hereof.
10.2 WAIVER. Shareholder or HealthCare may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
of the agreements of the other or satisfaction of any of the conditions to its
obligations contained herein. Any extension or waiver made pursuant to this
Section 10.2 must be by an instrument in writing signed on behalf of the party
granting the extension or waiver. A waiver by any party of any provision hereof
or breach hereof shall not operate or be construed as the waiver of any other
provision or any subsequent breach.
10.3 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable and any purported
assignment shall be null and void. Nothing contained in this Agreement shall be
deemed to confer any right or benefit upon any person other than the parties
hereto to the extent herein provided.
10.4 DOLLARS. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
10.5 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
10.6 HEADINGS; SEVERABILITY. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of this Agreement shall be treated as separate and distinct
and, in the event of any provision hereof being declared invalid, such invalid
provision shall be deemed to be severable and all other provisions hereof shall
remain in full force and effect.
10.7 SCHEDULES. The Schedules are a part of this Agreement as if fully
set forth herein.
10.8 DISCLOSURES AND ANNOUNCEMENTS. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either Shareholder or HealthCare
shall be subject to the approval of the other in all essential respects, except
that the Shareholder's approval shall not be required as to any announcements or
filings HealthCare may be required to make under applicable laws or regulations.
10.9 CONFIDENTIAL INFORMATION. Following the Closing, Shareholder shall
use her best efforts to cause all of her agents, officers, directors and
employees to treat and safeguard all
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<PAGE>
Confidential Information concerning the Business and, except as required by law,
agree not to disclose or reveal any Confidential Information to any third party
or otherwise use such Confidential Information. For purposes of this Agreement,
"Confidential Information" shall mean information of a valuable, proprietary and
confidential nature relating directly to the Business, asset lists and
valuations of any kind, customer lists, trade secrets, formulae, methods or
processes, channels of distribution, pricing policies and records. The term
"Confidential Information" does not include information that (a) is or becomes
generally available to the public or is a recognized standard industry practice;
or (b) becomes available subsequent to the date hereof to Shareholder on a
non-confidential basis from a source other than HealthCare or from records of
the business.
10.10 EXPENSES. Shareholder agrees that all fees and expenses incurred
by her in connection with this Agreement shall be borne by Shareholder
including, without limitation, all fees of counsel and accountants in excess of
the sum of $5,000 which may be paid by Company; and HealthCare agrees that all
fees and expenses incurred by it in connection with this Agreement shall be
borne by it, including, without limitation, all fees of counsel and accountants.
10.11 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by private overnight courier service. The respective
addresses and telephone numbers to be used for all such notices, demands or
requests are as follows:
If to HealthCare HealthCare Capital Corp.
or HC Subsidiary: 111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
with a copy to: Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attn: G. Todd Norvell
Facsimile: (503) 224-0155
If to Shareholder: Deborah Law Cross
Hearing Dynamics
728 Robinson Avenue
San Diego, California 92103
Facsimile: (619) 792-9683
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<PAGE>
with a copy to: Michael D. Nagle
Imperial Bank Tower, Suite 1000
701 B Avenue
San Diego, California 92101
Facsimile (619) 239-5601
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this section.
10.12 RESOLUTION OF DISPUTES.
(a) ARBITRATION. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of
its terms shall be settled by binding arbitration held in San Diego,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 10.12. Notwithstanding the
foregoing, HealthCare, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened
violation of the provisions of the Shareholder under any noncompetition
and confidentiality agreements executed pursuant to this Agreement.
(b) ARBITRATORS. Following thirty (30) days' written notice by
any party of intention to invoke arbitration, any dispute arising under
this Agreement which have not been mutually resolved shall be
determined by a single arbitrator upon whom the parties agree or, if
the parties cannot agree on a single arbitrator within five (5)
business days following such thirty (30) day period, then by a board of
three (3) arbitrators, which arbitrator(s) shall be selected for each
such controversy so arising hereunder. If three (3) arbitrators are
necessary, each party shall have the right to pick one arbitrator and
the two arbitrators so chosen shall have the right to select a third
arbitrator. Any party who is unable or unwilling to so select an
arbitrator in a timely manner, shall forfeit its right to participate
in the selection process. If a selected arbitrator is unable or
unwilling to act, or if for any other reason an appointment of the
requisite number or arbitrators cannot be made, then any party, on
behalf of all the parties, may request appointment of arbitrator(s) by
the presiding judge of the federal courts located in the
District of California.
(c) PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the
circumstances and shall resolve the dispute as expeditiously as
practicable, and if reasonably practicable, within 120 days after the
selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set
out, and shall have thirty (30) days
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<PAGE>
thereafter to reconsider and modify such decision if any party so
requests within ten (10) days after the decision. Thereafter, the
decision of the arbitrator(s) shall be final, binding, and
nonappealable with respect to all persons, including (without
limitation) persons who have failed or refused to participate in the
arbitration process.
(d) AUTHORITY. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorney fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and
subject matter jurisdiction. The Shareholder and HealthCare hereby
submit to the in personam jurisdiction of the federal and state courts
in California for the purpose of confirming any such award and entering
judgment thereon.
(f) CONFIDENTIALITY. All proceedings under this Section 10.12,
and all evidence given or discovered pursuant hereto, shall be
maintained in confidence by all parties.
(g) CONTINUED PERFORMANCE. The fact that the dispute
resolution procedures specified in this Section 10.12 shall have been
or may be invoked shall not excuse any party from performing its
obligations under this Agreement, and during the pendency of any such
procedure all parties shall continue to perform their respective
obligations in good faith, subject to any rights to terminate this
Agreement that may be available to any party.
10.13 GOVERNING LAW. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the state of California, excluding any choice of law rules that may direct the
application of the laws of another jurisdiction.
10.14 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
10.15 ENTIRE AGREEMENT. This Agreement (including the Schedules) and
the agreements, certificates and other documents delivered pursuant hereto
contain the entire agreement between the parties hereto. All parties
collaborated in the preparation of this Agreement and it has been reviewed by
attorneys for each party. No one party should be considered the author of any
specific language for purposes of legal presumptions.
10.16 FURTHER ASSURANCES. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents,
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<PAGE>
instruments, or conveyances of any kind that may be reasonable necessary or
desirable to carry out any of the transactions contemplated hereunder.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
COMPANY: HEALTHCARE:
HEARING DYNAMICS, HEALTHCARE CAPITAL CORP.,
a California corporation an Alberta, Canada, corporation
By /S/ DEBORAH LAW CROSS By /S/ EDWIN J. KAWASAKI
Deborah Law Cross, President Edwin J. Kawasaki, Vice President
SHAREHOLDER: HC SUBSIDIARY:
HEALTHCARE HEARING CLINICS, INC.
/S/ DEBORAH LAW CROSS By /S/ EDWIN J. KAWASAKI
Deborah Law Cross Edwin J. Kawasaki, Vice President
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<PAGE>
SCHEDULES TO MERGER AGREEMENT
Schedule 1.1 Agreement and Plan of Merger
Schedule 1.8 Shareholder Loans
Schedule 2.2(a)(ii) Opinion of Shareholder's Counsel
Schedule 2.2(b)(iii) Opinion of HealthCare's Counsel
Schedule III Disclosure Statement
Schedule 3.7 No Litigation
Schedule 3.8(b) Licenses and Permits
Schedule 3.12 Product Warranty
Schedule 3.16 Patents, Trademarks, etc.
Schedule 3.17(a) Real Property and Personal Property Leases
Schedule 3.17(b) Purchase Commitments
Schedule 3.17(c) Sales Commitments
Schedule 3.17(f) Loan Agreements
Schedule 3.17(i) Other Material Contracts
Schedule 3.18(a) Real Property
Schedule 3.18(b) Personal Property
Schedule 3.19 Employee Benefit Plans
Schedule 3.20 Employment Compensation
Schedule 3.21 Key Employees, Bank, Etc.
Schedule 5.2(e) Shareholder's Personal Liability
Schedule 6.1(c) Legends on Certificates
Schedule 6.1(d)(ii) Declaration for Removal of Legends
Schedule 7.6(a) Noncompetition and Confidentiality Agreement
Schedule 7.6(b) Employment Agreement
Schedule 7.6(c) Lease Amendment
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<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
(Albuquerque)
AGREEMENT dated as of December 17, 1996, by and between the individuals
named in Section 1.1 below (referred to herein individually as "Seller" and
collectively as "Sellers") and HEALTHCARE HEARING CLINICS, INC., a Washington
corporation ("Purchaser").
RECITALS
A. FHC, Inc., a New Mexico corporation (the "Company"), operates an
audiology and hearing aid clinic in Albuquerque, New Mexico, which performs
testing and evaluation of patients' hearing, prescribes and fits hearing aids,
and provides related services and products.
B. Sellers own all shares of the issued and outstanding capital stock
of the Company (the "Shares").
C. Purchaser is a wholly owned subsidiary of HealthCare Capital Corp.,
a corporation organized under the laws of the Province of Alberta, Canada
("HCC").
D Purchaser and Sellers desire that Purchaser acquire ownership of the
Company through a purchase of the Shares.
TERMS
In consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 OWNERSHIP OF SHARES. The Shares are owned by Sellers as follows:
SELLERS SHARES PERCENTAGE
Jeri S. and Matthew W.F. Smith 537 52.647
Betty A. and Robert J. Schilling 250 24.510
Janet B. and Edgar W. Smith 67 6.569
Catherine Worth 53 5.196
Reathel E. and Herbert F. Lankford 35 3.431
Sarah-Ellen S. and
Thomas E. Hinkebein 34 3.333
Julie L. and Phillip F. Lankford 20 1.961
Mary J. Tedrow 17 1.667
Martha E. and John R. Schilling 5 0.490
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<PAGE>
Jo E. Schilling 2 0.196
--- -------
1,020 100.00
1.2 PURCHASE AND SALE OF SHARES. At the Closing (as defined in Section
2.1), on the terms and subject to the conditions set forth in this Agreement,
Sellers shall sell and deliver to Purchaser, and Purchaser shall purchase the
Shares from Sellers.
1.3 PURCHASE PRICE. Subject to adjustment as set forth in Sections 1.5
and 1.6 hereof, the purchase price for the Shares (the "Purchase Price") shall
be a total of $300,000 payable as provided in Section 1.4 hereof.
1.4 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid as
follows:
(a) At Closing, Purchaser shall pay to Sellers $150,000
allocated as set forth in subsection (c) below by wire transfer to such
accounts as Sellers shall designate in writing to Purchaser at least
three business days prior to Closing; and
(b) At Closing, Purchaser shall deliver to Sellers Purchasers'
three year unsecured subordinated promissory notes (the "Notes") in the
aggregate principal amount of $150,000 which Notes shall be in the form
of SCHEDULE 1.4(B)-A (attached hereto); the principal amount of the
Notes for each Seller shall be as set forth in subsection (c) below;
the Notes shall be subject to set-off as provided in Section 1.5 hereof
and shall be guaranteed by HCC pursuant to a Guaranty in the form of
SCHEDULE 1.4(B)-B attached hereto.
(c) The amounts due Sellers pursuant to subsections 1.4(a) and
(b) shall be allocated among them as follows:
<TABLE>
<CAPTION>
CASH NOTES TOTAL
<S> <C> <C> <C>
Jeri S and Matthew
W.F. Smith $78,970.58 $ 78,970.58 $157,941.16
Betty A. & Robert J. Schilling 36,764.71 36,764.71 73,529.42
Janet B. & Edgar W. Smith 9,852.94 9,852.94 19,705.88
Catherine Worth 7,794.12 7,794.12 15,588.24
Reathel E. & Herbert F.
Lankford 5,147.06 5,147.06 10,294.12
Sarah-Ellen S. &
Thomas E. Hinkebein 5,000.00 5,000.00 10,000.00
Julie L. & Phillip F. Lankford 2,941.18 2,941.18 5,882.36
Mary J. Tedrow 2,500.00 2,500.00 5,000.00
Martha E. & John R. Schilling 735.29 735.29 1,470.58
Jo E. Schilling 294.12 294.12 588.24
------------ ------------ ------------
$150,000.00 $150,000.00 $300,000.00
</TABLE>
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<PAGE>
1.5 POST-CLOSING ADJUSTMENTS TO NOTES. On the payment dates of the
Notes, Purchaser shall pay to the Sellers the respective principal and interest
due them less the set-offs (if any) which result from the following provisions.
(a) EARN-OUT. The income of the business being acquired from
the Company hereunder (the "Business") shall be separately determined
for each of the three 12-month periods ending on November 30, 1997,
1998 and 1999 (the "Earn-Out Years"). Such income shall be determined
in accordance with generally accepted accounting principles applied on
a basis consistent with Purchaser's accounting practices. If for any
Earn-Out Year the income of the Business before interest, taxes,
depreciation and amortization but after the corporate overhead
allocation specified below falls below an amount equal to 20 percent of
the net revenues of the Business for such year, then for each dollar of
the shortfall one dollar shall be set-off pro rata against the
principal and accrued interest due on the Notes. The total maximum
reduction on the Notes for any Earn-Out Year, pursuant to this Section
1.5(a), shall be $12,500. For purposes of this Section 1.5(a), "net
revenues" shall mean gross revenues less returns and allowances. The
corporate overhead allocation to be charged against the Business shall
equal 6 percent of its net revenues.
(b) ACCOUNTS RECEIVABLE. On the 200th day following the
Closing, Purchaser shall set-off pro rata against the principal and
interest due on Notes the total amount of accounts receivable reflected
on the Statement of Net Working Capital (as defined in subsection
1.6(b) below) net of the allocable portion of the reserve for bad
debts, which remain uncollected as of such date. Upon such set-off, the
uncollected accounts shall be assigned to Sellers. During such 200-day
period, Sellers may participate in the collection process of such
accounts receivable.
(c) LIABILITIES. To the extent that the Company has long-term
liabilities, including any amounts owed to Sellers which will be repaid
at Closing pursuant to Section 5.2(b) hereof, in excess of $100,000 as
of the Closing date, each dollar of such excess shall be set-off pro
rata against the principal amounts of the Notes effective as of the
Closing date.
1.6 NET WORKING CAPITAL ADJUSTMENT.
(a) For purposes of this Agreement, "Net Working Capital"
shall equal (i) cash, money market accounts, accounts receivable (net
of reasonable provisions for doubtful accounts), inventory, prepaid
expenses and all other current assets of the Company as of Closing less
(ii) all current liabilities of the Company as of Closing, including
but not limited to liabilities for inventory, office supplies, ordinary
compensation payables, employee benefits and taxes (including, but not
limited to, accrued paid time off for vacation and sick leave), bonuses
(including all related payroll taxes and employee benefits), personal
and real property taxes, water, gas, electric and other utility
charges, business and other license fees and taxes, merchants'
association dues, rental payments under any leases, any customer
refunds for hearing aids delivered
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<PAGE>
prior to Closing, and all other operating liabilities (including legal,
accounting, and other professional fees and expenses incurred in the
ordinary course of business), and vendor accounts payable.
(b) As promptly as practicable following the Closing, but in
no event later than 45 days thereafter, Sellers and Purchaser shall
cooperate in preparing a mutually agreeable statement of the Net
Working Capital which shall set forth the computation and components
thereof in reasonable detail (the "Statement of Net Working Capital").
(c) On the fifteenth day after the date on which the Statement
of Net Working Capital is completed (or such earlier date as such
statement is mutually agreed upon by Sellers and Purchaser in writing),
(i) in the event that the Net Working Capital exceeds $15,000, then
Purchaser shall pay to Sellers pro rata an amount equal to the excess,
or (ii) in the event that Net Working Capital is less than $15,000,
then Sellers shall pay to Purchaser, pro rata, the amount of such
deficiency.
The party obligated to make the adjusting payment required pursuant to
this paragraph shall have the option either to make the payment in cash or by
delivering a promissory note due and payable not more than 180 days after its
date, with interest at the rate of 9 percent per annum. If Sellers are obligated
to make the adjusting payment, Sellers shall also have the option to request
that the amounts they are obligated to pay Purchaser be offset against their
respective Notes.
ARTICLE II
CLOSING
2.1 CLOSING. The closing of the transaction provided for herein (the
"Closing") shall occur on December 17, 1996, or on such other date as the
parties may mutually agree. The Closing shall take place at such time and place
as the parties shall mutually agree.
2.2 CLOSING TRANSACTIONS. The following actions shall be taken at
Closing, each of which shall be conditional on completion of all the others and
all of which shall be deemed to have taken place simultaneously:
(a) DELIVERIES BY SELLERS. Sellers shall deliver to Purchaser:
(i) Certificates representing the Shares;
(ii) An opinion of counsel to Sellers, dated
as of the Closing date, substantially in the form of SCHEDULE
2.2(A)(II) attached hereto; and
(iii) The stock and minute books of the
Company;
(iv) All consents required in connection
with the transactions contemplated hereunder.
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<PAGE>
(b) DELIVERIES BY PURCHASER. Purchaser shall deliver to
Sellers:
(i) The payments provided for in Sections
1.4(a) and 5.2(b);
(ii) The Notes;
(iii) The Guaranties of HCC; and
(iv) An opinion of counsel to Purchaser, dated as of
the Closing date, substantially in the form of SCHEDULE
2.2(B)(III) attached hereto.
(c) JOINT DELIVERY. Purchaser and Sellers shall deliver to
each other counterparts of the Noncompetition and Confidentiality
Agreement provided for in subsection 6.5(a). Purchaser and the Sellers
named in Subsections 6.5(b) and (c) hereof shall deliver to each other
counterparts of the Employment Agreements provided for in such
Subsections.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise set forth in the Disclosure Statement attached
hereto as SCHEDULE III, Sellers hereby jointly and severally represent and
warrant to Purchaser as follows:
3.1 CORPORATE.
(a) ORGANIZATION. The Company is a corporation duly organized
and existing under the laws of the state of New Mexico.
(b) CAPITALIZATION. The authorized capital stock of the
Company consists of 500,000 shares of a single class of common stock,
of which 1,020 shares are issued and outstanding. All issued and
outstanding Shares have been validly issued and are fully paid and
nonassessable and are owned (beneficially and of record) by Sellers as
set forth in Section 1.1 hereof free and clear of all liens, claims,
and encumbrances whatsoever. The Shares constitute all the outstanding
shares of capital stock of the Company. No person has any agreement,
option or other right, present or future, to purchase or otherwise
acquire any shares of the capital stock of the Company.
(c) CORPORATE POWER. The Company has all requisite corporate
power and authority to own, operate and lease its assets and properties
and to carry on its business as and where such is now being conducted.
(d) NO SUBSIDIARIES. The Company does not own an interest in
any corporation, partnership or other entity.
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<PAGE>
(e) ARTICLES OF INCORPORATION; BYLAWS. The copies of the
Company's articles of incorporation and bylaws which have heretofore
been delivered to Purchaser are complete and correct as amended or
restated to the date hereof.
(f) ASSUMED BUSINESS NAME. To the best of Sellers' knowledge,
the Company is authorized to transact business in the state of New
Mexico under the assumed business name "Family Hearing Centers."
3.2 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the
Sellers pursuant hereto, nor the consummation by the Sellers of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien (as defined in Section 3.18(b)) upon any of the
assets of the Company under, any term or provision of the articles of
incorporation or bylaws of the Company or of any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which the Company is a party or by which the Company or the Company's assets or
properties or the Shares of the Company may be bound or affected.
3.3 FINANCIAL STATEMENTS. The Sellers have heretofore delivered to
Purchaser the following financial statements of the Company including balance
sheets and statements of income (the "Financial Statements"):
(a) Financial Statements for the Company's fiscal years ended
December 31, 1993, 1994, and 1995; and
(b) Financial Statements for the interim period ended October
31, 1996.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Company at the dates indicated and
results of its operations for the periods then ended in accordance with
generally accepted accounting principles consistently applied.
3.4 RECORDS. The books of account of the Company reflect all items of
income and expense and the assets, liabilities, and accruals of its business and
operations. The minute books and stock transfer records of the Company contain
records which are complete and accurate in all material respects of all minutes,
consents of shareholders and directors, all corporate actions, and all stock
transfers of the Company.
3.5 ABSENCE OF CERTAIN CHANGES. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
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<PAGE>
(a) ADVERSE CHANGE. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the Company;
(b) DAMAGE. Any material loss, damage or destruction, whether
covered by insurance or not, affecting the Company's business or
assets;
(c) INCREASE IN COMPENSATION. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the Company (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee
benefit granted, made or accrued;
(d) LABOR DISPUTES. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company;
(e) COMMITMENTS. Any commitment or transaction by the Company
(including, without limitation, any capital expenditure) other than in
the ordinary course of business consistent with past practice;
(f) DIVIDENDS. Any declaration, setting aside, or payment of
any dividend or any other distribution in respect of the Company's
capital stock; any stock split; any redemption, purchase or other
acquisition by the Company of any capital stock of the Company, or any
security relating thereto; or any other payment to any Seller as a
shareholder;
(g) DISPOSITION OF PROPERTY. Any sale, lease or other transfer
or disposition of any properties or assets of the Company except for
sales of inventory, consumption of supplies, and nonmaterial
dispositions of worn or broken parts and equipment all in the ordinary
course of business;
(h) INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company other than changes in
the Company's lines of credit in the ordinary course of business,
except for loans to the Company by the Sellers which loans shall be
treated as provided in Section 5.2(b) hereof;
(i) AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by the Company of any contract, or any waiver of material
rights thereunder, other than in the ordinary course of business;
(j) LOANS, ADVANCES, OR CREDIT. Any loan or advance or any
grant of credit by the Company; or
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<PAGE>
(k) UNUSUAL EVENTS. Any other event or condition specifically
related to the Company not in the ordinary course of business which
would have a material adverse effect on the assets or the business of
the Company.
3.6 ADVERSE CONDITIONS. There are no conditions known to any Seller
with respect to the markets, products, facilities, or personnel of the Company
which might materially adversely affect its business or prospects after the
Closing other than such conditions as may affect the industry in which the
Company participates as a whole.
3.7 NO LITIGATION. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Sellers threatened
against the Company, its directors (in such capacity), its business or any of
its assets. SCHEDULE 3.7 identifies all actions, suits, proceedings,
investigations and inquiries to which the Company or the Sellers have been a
party since January 1, 1990. Neither the Company nor its business or assets are
subject to any judgment, order, writ or injunction of any court, arbitrator or
federal, state, foreign, municipal or other governmental department, commission,
board, bureau, agency or instrumentality.
3.8 COMPLIANCE WITH LAWS.
(a) COMPLIANCE. To the best of Sellers' knowledge, the Company
(including each and all of its operations, practices, properties and
assets) is in material compliance with all applicable federal, state,
local and foreign laws, ordinances, orders, rules and regulations
(collectively, "Laws"), including, without limitation, those applicable
to discrimination in employment, occupational safety and health, trade
practices, environmental protection, competition and pricing, product
warranties, zoning, building and sanitation, employment, retirement and
labor relations, and product advertising except to the extent any
noncompliance would not have a material adverse effect upon the assets
or the business of the Company taken as a whole. The Company has not
received notice of any violation or alleged violation of, and are not
subject to liability for past or continuing violation of, any Laws. All
reports and returns required to be filed by the Company with any
governmental authority have been filed, and were accurate and complete
when filed except to the extent any deficiency would not have a
material adverse effect upon the assets or the business of the Company
taken as whole.
(b) LICENSES AND PERMITS. The Company has obtained all
licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification
organizations required for the conduct of its business as presently
conducted except to the extent failure to do so would not have a
material adverse effect upon the assets or the business of the Company
taken as a whole. All such licenses, permits, approvals, authorizations
and consents are described in SCHEDULE 3.8(B) and are in full force and
effect. The Company (including its operations, properties and assets)
is and has been in compliance with all such permits and licenses,
approvals, authorizations and consents, except to the extent any
noncompliance would not have a material adverse effect upon the assets
or the business of the Company taken as a whole.
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3.9 ENVIRONMENTAL COMPLIANCE. Sellers have delivered to Purchaser a
copy of every written communication given or received by the Company to or from
any environmental agency with respect to the Company or with respect to any
property which is now being used or which has heretofore been used by the
Company in the operation of its business. Sellers have at all times operated the
Company, in compliance with all applicable federal, state and local laws and
regulations relating to pollution control and environmental contamination
including, without limitation, all laws and regulations governing the
generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of hazardous materials (as defined below) and all
laws and regulations with regard to record keeping, notification and reporting
requirements respecting Hazardous Materials (as defined below), except for such
noncompliance as would not cause a material adverse effect on the Company's
business or assets. The Company has not received notice of any administrative or
judicial proceeding pursuant to such laws or regulations. There is no basis for
the assertion of a valid claim against the Company relating to environmental
matters including, without limitation, any claim arising from past or present
environmental practices, asserted under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time
("CERCLA"), the Resource Conservation and Recovery Act, as amended from time to
time ("RCRA") or any other federal, state, or local statute, code, rule,
regulation, ordinance, order, decree, or other governmental authority as now or
at any time hereafter in effect. For purposes of this Section 3.9, the term
"Hazardous Materials" means materials defined as "hazardous wastes" or "solid
wastes" in CERCLA, RCRA or in any similar federal, state, or local statute,
code, rule, regulation, ordinance, order, decree, or other governmental
authority as now or at any time hereafter in effect.
3.10 NO UNDISCLOSED LIABILITIES. Except (a) as described on the
Schedules attached hereto as an item which can be reasonably construed as a
liability or obligation or (b) items not required to be disclosed on the
Schedules by reason of exceptions, exclusions, or other qualifications contained
in the representations and warranties of this Agreement, the Company has no
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) which are not properly reflected or reserved against in the Financial
Statements (except for liabilities or obligations which have been incurred in
the ordinary course of business since the date of the most recent Financial
Statements) in a manner consistent with past practice; and the reserves
reflected in the Financial Statements are adequate, appropriate and reasonable.
3.11 TAX MATTERS.
(a) Except with respect to Taxes (as defined below) for which
adequate reserves are included in the Financial Statements, the Company
has timely paid all federal, state, county, local and foreign taxes,
including, without limitation, income taxes, excise taxes, sales taxes,
use taxes, gross receipts taxes, franchise taxes, employment and
payroll taxes, withholding taxes, property taxes, import duties, and
all other taxes of any nature whatsoever and however denominated
together with all penalties, additions to tax, interest, assessment or
other damages imposed thereon with respect to the Company
(collectively, "Tax" or "Taxes") required to be paid or deposited by
the Company through the Closing. For purposes of this Section 3.11(a),
timely
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payment shall include payment in accordance with any available
extensions and recording of balances due as trade payable.
(b) The Company has filed on or before the applicable due date
(including extensions) all tax returns which it is required to have
filed through the date hereof and has timely paid all amounts shown as
payable thereon, as well as any deficiencies or other additional
amounts subsequently assessed by any taxing authority with respect to
each such tax return. All such returns are true, correct and complete
in all material respects.
(c) The Company has not waived any statute of limitations in
respect of Taxes of the Company or agreed to any extension of time with
respect to a Tax assessment or deficiency of the Company, and the
assessment of any additional Taxes of the Company with respect to
periods for which returns have been filed is not expected.
(d) There are no proposed deficiencies or unresolved claims
concerning the Company's liability for Taxes.
(e) All federal and state income tax returns (including all
attachments and amendments thereto) of the Company for all taxable
years for which the limitation periods (including any extensions or
waivers thereof) applicable to deficiencies have not expired have been
made available to Purchaser.
(f) Complete and correct copies of the Company's federal and
New Mexico income tax returns for 1993, 1994, and 1995 have been
delivered by the Sellers to Purchaser.
3.12 PRODUCT WARRANTY. Set forth in SCHEDULE 3.12 is a true, correct
and complete copy of the Company's standard warranty or warranties for sales of
its products.
3.13 PRODUCT LIABILITY. No action is pending or, to the knowledge of
Sellers, threatened against or involving the Company relating to any product
alleged to have been sold by the Company and alleged to have been defective, or
improperly designed or manufactured.
3.14 INSURANCE. The Company maintains policies of fire, liability,
product liability, malpractice, workers compensation, health and other forms of
insurance with such coverage limits and deductible amounts as have been
disclosed to Purchaser. A summary description of the Company's coverage and
effect is attached as SCHEDULE 3.14. The Company has received no notification of
cancellation, modification or denial of renewal of any material policies of
fire, product liability, malpractice or other forms of insurance.
3.15 SUPPLIERS. The Company has received no notice of termination or an
intention to terminate the relationship with the Company, from any material
supplier.
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3.16 PATENTS; TRADEMARKS; ETC. Set forth in SCHEDULE 3.16 is a list of
all United States and foreign trademarks, service marks, trade names, brand
names, copyrights, including registrations and applications, patent and patent
applications, and employee covenants and agreements respecting intellectual
property ("Trade Rights") in which the Company now has any interest, specifying
the basis on which such Trade Rights are owned, controlled, used or held (under
license or otherwise) by the Company, and also indicating which of such Trade
Rights are registered. All Trade Rights shown as registered in SCHEDULE 3.16
have been properly registered, all pending registrations and applications have
been properly made and filed and all annuity, maintenance, renewal and other
fees relating to registrations or applications are current. To the best of
Sellers' knowledge, the Company is not infringing and has not infringed on any
Trade Rights of another in the operation of its business, nor to the knowledge
of the Sellers is any other person infringing on the Trade Rights of the
Company. The Company has not granted any license or made any assignment of any
Trade Right and no other person has any right to use any Trade Right owned or
held by the Company. The Company does not pay any royalties or other
consideration for the right to use any Trade Rights of others. Except as set
forth in SCHEDULE 3.16, to the knowledge of Sellers, there are no inquiries,
investigations or claims or litigation challenging or threatening to challenge
the Company's right, title and interest with respect to its continued use and
right to preclude others from using any Trade Rights of the Company. To the
knowledge of Sellers, all Trade Rights of the Company are valid, enforceable and
in good standing, and there are no equitable defenses to enforcement based on
any act or omission of the Company.
3.17 CONTRACTS AND COMMITMENTS.
(a) LEASES.
(i) Set forth in SCHEDULE 3.17(A)(I) is a list of all
real and personal property leases (the "Leases") to which the
Company is party. Complete and correct copies of each lease
listed on the schedule, and all amendments thereto, have
heretofore been delivered to Purchaser. The Leases are
currently in full force and effect.
(ii) The Company is not in default under the Leases;
to the knowledge of Sellers, there are no defaults by the
lessors under any of the Leases; and no event has occurred
which with the passage of time or the giving of notice would
constitute a default under any of the Leases. The Company has
not knowingly waived any rights under any of the Leases.
(b) PURCHASE COMMITMENTS. Set forth in SCHEDULE 3.17(B) is a
list of all agreements (written or oral) between the Company and third
parties for the purchase of goods and supplies by the Company which
individually call for the payment by the Company after the date hereof
of more than $5,000 or which obligate the Company for a period
extending over a period of more than 90 days after the Closing date.
Complete and correct copies of all such written agreements have
heretofore been delivered to Purchaser.
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(c) SALES COMMITMENTS. Set forth in SCHEDULE 3.17(C) is a list
and description of all presently effective agreements (written or oral)
between the Company and third parties for the distribution and sale of
its products. Complete and correct copies of all such written contracts
have heretofore been delivered to Purchaser.
(d) CONTRACTS WITH SELLERS AND CERTAIN OTHERS. Except for the
debentures and promissory notes owed by Company to Sellers and the
employment relationships which exist between certain of the Sellers and
the Company, the Company has no agreement, understanding, contract or
commitment (written or oral) with any Seller, or any relative of a
Seller.
(e) COLLECTIVE BARGAINING AGREEMENTS. The Company is not party
to any collective bargaining agreement with any union.
(f) LOAN AGREEMENTS. Except as set forth on SCHEDULE 3.17(F),
the Company is not obligated under any loan agreement, promissory note,
letter of credit, or other evidence of indebtedness as signatories,
guarantors or otherwise.
(g) GUARANTEES. Except as disclosed herein, the Company has
not under any instrument which is presently effective guaranteed the
payment or performance of any person, firm or corporation, agreed to
indemnify any person or act as a surety, or otherwise agreed to be
contingently or secondarily liable for the obligations of any person.
(h) RESTRICTIVE AGREEMENTS. The Company is not party to nor is
it bound by any agreement requiring it to assign any interest in any
trade secret or proprietary information, or prohibiting or restricting
it from competing in any business or geographical area or soliciting
customers or otherwise restricting them from carrying on its business
anywhere in the world.
(i) OTHER MATERIAL CONTRACTS. The Company is not a party to
any lease, license, contract (including without limitation contracts
with health maintenance organizations) or commitment of any nature
involving consideration or other expenditure in excess of $5,000, or
involving performance over a period of more than 90 days, or which is
otherwise individually material to the operations of the Company,
except as set forth in SCHEDULE 3.17(I).
(j) NO DEFAULT. The Company is not in default under any lease,
agreement, contract or commitment, nor has any event or omission
occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration
of any of the Company's obligations or result in the creation of any
Lien (as defined in Section 3.18(b) below) on any of the assets owned,
used or occupied by the Company. To the knowledge of the Sellers, no
third party is in default under any lease, agreement, contract or
commitment to which the Company is a party, nor has any event or
omission occurred which, through the passage of time or the giving
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of notice, or both, would constitute a default thereunder or give rise
to an automatic termination, or the right of discretionary termination
thereof.
3.18 TITLE TO AND CONDITION OF PROPERTIES.
(a) REAL PROPERTY. The Company does not own any interest in
any real property other than its lessee<018>s interests under the real
property leases referred to in Section 3.17(a)(i) hereof.
(b) ITEMS OF TANGIBLE PERSONAL PROPERTY. Set forth on SCHEDULE
3.18(B) is a list of all items of tangible personal property owned by
the Company with an individual value of $100 or more. Except as set
forth on SCHEDULE 3.18(B), the Company has good and marketable title to
all its assets, free and clear of all mortgages, liens (statutory or
otherwise), security interests, claims, pledges, equities, options,
conditional sales contracts, assessments, levies, easements, covenants,
reservations, restrictions, exceptions, limitations, charges or
encumbrances of any nature whatsoever (collectively, "Liens"). All the
Company's tangible assets are located at its business premises and all
tangible assets located at such premises are owned by the Company
except for leased property described in SCHEDULE 3.17(A)(I).
(c) CONDITION. All the Company's tangible assets are, taken as
a whole, in good operating condition and repair, normal wear and tear
excepted.
(d) LAND USE REGULATIONS. To the best of Sellers' knowledge,
there are no condemnation, environmental, zoning, land use, or other
regulatory proceedings, pending or, to the knowledge of the Sellers,
planned to be instituted, that could detrimentally affect the
ownership, use, or occupancy of the real property presently occupied by
the Company or the continued operation of the Company's business as
they are presently being conducted.
3.19 EMPLOYEE BENEFIT PLANS. Set forth in SCHEDULE 3.19, is a
description of all pension, profit sharing, retirement, bonus, executive or
deferred compensation, hospitalization and other similar fringe or employee
benefit plans, programs and arrangements, and any employment or consulting
contracts, "golden parachutes", severance agreements or plans, vacation and sick
leave plans including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), all employee manuals, and all written or binding oral
statements of policies, practices or understandings relating to employment,
which are provided to, for the benefit of, or relate to, any persons employed by
the Company. The items described in the foregoing sentence are hereinafter
sometimes referred to collectively as "Employee Plans/Agreements." True and
correct copies of all written Employee Plans/Agreements, including all
amendments thereto, have heretofore been provided to Purchaser. The Company is
in compliance with and has made all payments due under all Employee
Plans/Agreements and with respect thereto the Company is in compliance with all
applicable federal and state laws and regulations. The
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Company is not a contributor to any multi-employer pension plan which has an
unfunded liability with respect to benefits due its participants.
3.20 EMPLOYMENT COMPENSATION. Set forth in SCHEDULE 3.20 is a true and
correct list of:
(a) All employees to whom the Company is paying compensation;
and in the case of salaried employees such list identifies the current
annual rate of compensation for each employee and in the case of hourly
or commission employees identifies certain reasonable ranges of rates
and the number of employees falling within each such range; and
(b) All amounts owed to employees of the Company (including
the Sellers) for accrued sick pay, vacation pay, and bonus pay.
3.21 KEY EMPLOYEES; BANK; ETC. Set forth in SCHEDULE 3.21 is a list
showing:
(a) The names of all the Company's officers and directors;
(b) The name of each bank at which the Company has (i) an
account and the numbers of all accounts, (ii) a line of credit, or
(iii) a safe deposit box and the name of each person authorized to draw
thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the Company and a summary of the terms thereof.
3.22 ACCOUNTS RECEIVABLE. Each of the accounts receivable of the
Company (a) arose from a bona fide sale in the ordinary course of business, (b)
was entered into under circumstances and by methods usual and customary in the
Company's business and the collection practices used with respect thereto have
been in all respect legal and proper and (c) was entered into, and credit
granted pursuant thereto, consistent with the Company's historical credit
policies and practices. The books of the Company correctly record the principal
balance of all accounts receivable and each of the security instruments securing
any account receivable, if any, constitutes a valid lien in favor of the Company
upon the property which it describes, and is enforceable by the Company and its
transferees. The reserves for doubtful accounts shown or reflected on the
Financial Statements are adequate and were calculated consistent with past
practice.
3.23 INVENTORY. The inventories of the Company are of a quality and
quantity usable and salable in the ordinary course of business, have a
commercial value at least equal to the value shown on the Company's books of
account.
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3.24 DISCLOSURE. To the best of Sellers' knowledge, no representation
or warranty by the Sellers in this Agreement, nor any statement, certificate,
schedule, or exhibit hereto furnished or to be furnished by or on behalf of the
Sellers pursuant to this Agreement, nor any document or certificate delivered to
Purchaser pursuant to this Agreement or in connection with transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statements
contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Sellers as follows:
4.1 CORPORATE.
(a) ORGANIZATION. Purchaser is a corporation duly organized
and validly existing under the laws of the state of Washington.
Purchaser is a wholly owned subsidiary of HCC.
(b) CORPORATE POWER. Purchaser has all requisite corporate
power and authority to own, operate and lease its properties, to carry
on its business as and where such is now being conducted, to enter into
this Agreement and the other documents and instruments to be executed
and delivered by Purchaser pursuant hereto and to carry out the
transactions contemplated hereby and thereby.
(c) AUTHORIZATION. The execution and delivery of this
Agreement and the other documents and instruments to be executed and
delivered by HealthCare pursuant hereto in the consummation of the
transactions contemplated hereby and thereby have been duly authorized
by the board of directors of HealthCare. This Agreement constitutes,
and when executed and delivered, the other documents and instruments to
be executed and delivered by Purchaser pursuant hereto will constitute,
valid and binding agreements of Purchaser, enforceable in accordance
with their respective terms.
(d) QUALIFICATION. Purchaser is duly licensed or qualified to
do business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by
it, or the nature of its business, makes such licensing or
qualification necessary.
4.2 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by Purchaser
pursuant hereto, nor the consummation by Purchaser of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality,
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commission, authority, board or body, or (c) will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any
material Lien upon any of the assets of Purchaser under, any term or provision
of the Articles of Incorporation or By-laws of Purchaser or of any material
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which Purchaser is a party or by which Purchaser or any
of its assets or properties may be bound or affected.
4.3 DISCLOSURE. No representation or warranty by Purchaser in this
Agreement nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Purchaser pursuant to this Agreement, nor
any document or certificate delivered to Purchaser pursuant to this Agreement or
in connection with transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
ARTICLE V
COVENANTS
5.1 COVENANTS OF SELLERS.
(a) ACCESS TO INFORMATION AND RECORDS. The Sellers agree that
during the period after the date hereof and prior to the Closing,
Purchaser, its counsel, accountants and other representatives shall be
provided (i) reasonable access during normal business hours to all of
the properties, books, records, contracts and documents of the Company
for the purpose of such inspection, investigation and testing as
Purchaser deems appropriate (and Sellers shall furnish or cause to be
furnished to Purchaser and its representatives all information with
respect to the business and affairs of the Company as Purchaser may
reasonably request); (ii) reasonable access to employees and agents of
the Company for such meetings and communications as Purchaser
reasonably desires; and (iii) with the prior consent of the Company in
each instance (which consent shall not be unreasonably withheld),
access to vendors, customers, and others having business dealings with
the Company.
(b) CONDUCT OF BUSINESS PENDING THE CLOSING. The Sellers agree
that from the date hereof until the Closing, except as otherwise
approved in writing by Purchaser:
(i) NO CHANGES. The Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) MAINTAIN ORGANIZATION. The Company will use its
best efforts to maintain, preserve, renew and keep in force
and effect the existence, rights and franchises of the Company
and to preserve the business organization of the Company
intact, to keep available to Purchaser the present officers
and employees
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of the Company, and to preserve for Purchaser its present
relationships with suppliers and customers and others having
business relationships with the Company.
(iii) NO BREACH. The Company will use its best
efforts to avoid any act, or any omission to act, which may
cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty,
covenant or agreement made by the Sellers.
(iv) NO MATERIAL CONTRACTS. No contract or commitment
will be entered into, and no purchase of assets (tangible or
intangible) will be made, by or on behalf of the Company,
except contracts, commitments, purchases or sales which are in
the ordinary course of business and consistent with past
practice.
(v) NO CORPORATE CHANGES. The Company shall not amend
its Articles of Incorporation or Bylaws or make any changes in
its authorized or issued capital stock; the Company shall not
grant any option or other right to acquire any share of its
authorized capital stock;
(vi) MAINTENANCE OF INSURANCE. The Company shall
maintain all of its insurance in effect as of the date hereof
or replace such insurance with comparable coverage and shall
procure such additional insurance as shall be reasonably
requested by Purchaser at Purchaser's expense.
(vii) MAINTENANCE OF PROPERTY. The Company shall use,
operate, maintain and repair all its assets and properties in
a normal business manner consistent with the Company's past
practices.
(viii) INTERIM FINANCIALS. The Company will provide
Purchaser with interim monthly financial statements and other
management reports as and when they are available.
(ix) NO DIVIDENDS. The Company shall not declare or
pay any dividend (whether in cash, stock or property) or make
any other distribution to the Sellers, except for the
repayment of loans made by the Sellers to the Company.
(x) COMPENSATION. The Company shall not increase the
compensation or benefits of any of its employees nor make any
other change in the terms of their employment.
5.2 COVENANTS OF PURCHASER.
(a) RELEASE OF SELLERS' PERSONAL GUARANTEES. Certain Sellers
have provided personal guarantees or have otherwise become individually
liable with respect to certain leases, line of credit agreements,
purchase agreements with manufacturers, or other
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agreements for the benefit for the Company, including, without
limitation, those described on SCHEDULE 5.2(A). Following the Closing,
Purchaser will use its best efforts to obtain the release of the
Sellers from all such personal liabilities. To the extent that any such
release cannot be obtained, Purchaser will indemnify and hold the
Sellers harmless with respect to any loss, cost, or expense the Sellers
may incur as a result of not being released. Notwithstanding any other
provision of this Agreement, Sellers may cancel as of the Closing date
any continuing guaranties with respect to future purchases by the
Company.
(b) REPAYMENT OF SELLERS' LOANS. As of the date hereof, the
Company is indebted to the Sellers as set forth on SCHEDULE 5.2(B).
Notwithstanding any other provision of this Agreement, the Sellers
shall have the option, prior to the Closing, to (i) contribute such
indebtedness to the capital of the Company or (ii) cause the Company to
repay such indebtedness to the extent the Company has funds available
for such purpose. In the event any indebtedness of the Company to the
Sellers remains unpaid as of the Closing date, Purchaser shall pay or
contribute sufficient funds to the Company to permit the Company to
repay such indebtedness in full at the Closing.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser to be performed at Closing shall
be subject to the satisfaction prior to or at the Closing (or the waiver by
Purchaser) of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by the Sellers in this Agreement, or in any
instrument, schedule, list, certificate or writing delivered by Sellers pursuant
to this Agreement, shall be true and correct when made and shall be true and
correct in all material respects at and as of the Closing as though such
representations and warranties were made as of the Closing.
6.2 COMPLIANCE WITH AGREEMENT. The Sellers shall have in all material
respects performed and complied with all of their agreements and obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing, including the delivery of the closing documents specified in
Section 2.2(a) hereof.
6.3 ABSENCE OF SUIT. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of Purchaser
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, investigation, or proceeding Purchaser will be unable to
retain substantially all the practical benefits of the transaction to which it
is entitled under this Agreement.
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6.4 APPROVALS; CONSENTS. All consents, permits, approvals, licenses or
orders from any governmental or regulatory body or other third party required to
be obtained by Sellers for the consummation of the transactions contemplated by
this Agreement shall have been obtained except where failure to obtain such
consents, permits, approvals, licenses or orders would not have a material
adverse effect (whether or not such effect is referred to or described in any
Schedule) on the business, prospects, financial conditions, assets, reserves or
operations of the Company taken as a whole.
6.5 AGREEMENTS.
(a) NONCOMPETITION AND CONFIDENTIALITY AGREEMENT. Sellers
shall have executed and delivered to Purchaser a Noncompetition and
Confidentiality Agreement substantially in the form attached hereto as
SCHEDULE 6.5(A).
(b) EMPLOYMENT AGREEMENT. Matthew W.F. Smith shall have
executed and delivered to Purchaser an Employment Agreement
substantially in the form of SCHEDULE 6.5(B) hereto;
(c) EMPLOYMENT AGREEMENT. Jeri Schilling Smith shall have
executed and delivered to Purchaser an Employment Agreement
substantially in the form of SCHEDULE 6.5(C) hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
Each and every obligation of the Sellers to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by the Sellers) of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by Purchaser in this Agreement, or in any
instrument, list, certificate or writing delivered by Purchaser pursuant to this
Agreement, shall be true and correct when made and shall be true and correct at
and as of the Closing as though such representations and warranties were made as
of the Closing.
7.2 COMPLIANCE WITH AGREEMENT. Purchaser shall have in all material
respects performed and complied with all of Purchaser's agreements and
obligations under this Agreement which are to be performed or complied with by
Purchaser prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(b) hereof.
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7.3 ABSENCE OF SUIT. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Sellers shall not be affected unless there is a reasonable likelihood that as a
result of such action, suit, proceeding or investigation, the Sellers will be
unable to retain substantially all the consideration to which they are entitled
under this Agreement.
7.4 EMPLOYMENT AGREEMENT.
(a) Purchaser shall have executed and delivered to Matthew
W.F. Smith an Employment Agreement substantially in the form of
SCHEDULE 6.5(B) hereto.
(b) Purchaser shall have executed and delivered to Jeri
Schilling Smith an Employment Agreement substantially in the form of
SCHEDULE 6.5(C) hereto.
7.5 HCC GUARANTIES. Purchaser shall have delivered to Sellers
guaranties in the form of SCHEDULE 7.5 attached hereto respecting the payment of
the Notes executed on behalf of HCC.
ARTICLE VIII
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
8.1 INDEMNIFICATION BY THE SELLERS.
(a) The Sellers hereby agree to indemnify, defend, and hold
Purchaser (and its directors, officers, shareholders, employees,
affiliates, agents and assigns) harmless from and against all Claims
(as defined below) asserted against, resulting to, imposed upon, or
incurred by Purchaser directly or indirectly by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any
representation or warranty of the Sellers contained in or made pursuant
to this Agreement or in any of the documents delivered pursuant hereto,
or (b) the non-performance or breach of any covenant, term or provision
to be performed by the Sellers contained in this Agreement or in any of
the documents delivered pursuant hereto. The indemnification obligation
of Sellers hereunder is with respect to the full amount of the Claims
(as defined below). As used in this Article VIII, the term "Claim"
shall include any and all losses, liabilities, damages, deficiencies,
assessments, judgments, awards, settlements, costs, and expenses
including without limitation penalties, court costs, and attorney fees
and expenses at trial and on appeal. Notwithstanding the foregoing:
(i) each Seller shall be responsible for indemnifying
Purchaser only for such Seller's pro rata share of any Claim;
and
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(ii) no Seller shall be responsible for indemnifying
Purchaser in the aggregate for any amount in excess of the
portion of the Purchase Price received by such Seller.
(b) Notwithstanding paragraph (a) above, Purchaser shall not
have the right to indemnification with respect to Claims arising from
the inaccuracy or breach of any representation or warranty of Sellers
to the extent that Purchaser had actual knowledge of such inaccuracy or
breach prior to Closing.
(c) Purchaser may, at its option, offset, by notice to
Sellers, any amount due from Sellers pursuant to the indemnification
provisions of this Agreement against any payment due to Sellers under
the Notes, any non-compete agreement, or otherwise. If Sellers disputes
the validity of the offset, the matter shall be resolved by arbitration
under Section 9.12. Any undisputed portion shall be paid to the
obligee.
8.2 INDEMNIFICATION BY PURCHASER. Purchaser hereby agrees to indemnify,
defend, and hold harmless the Sellers from and against all Claims asserted
against, resulting to, imposed upon, or incurred by the Sellers directly or
indirectly by reason of, arising out of, or resulting from (a) the inaccuracy or
breach of any representation or warranty of Purchaser contained in or made
pursuant to this Agreement or in any of the documents delivered pursuant hereto,
or (b) the non-performance or breach of any covenant, term or provision to be
performed by Purchaser contained in this Agreement or in any of the documents
delivered pursuant hereto. The indemnification obligation of Purchaser hereunder
is with respect to the full amount of the Claims.
8.3 NOTICE; DEFENSE OF CLAIMS. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying party's cost, risk and expense provided that the
indemnifying party and its counsel shall proceed with diligence and in good
faith with respect thereto. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom.
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8.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement for a period ending 90 days after the second fiscal year end
(July 31) of Purchaser which occurs after the Closing (except for the
representations and warranties of the Sellers set forth in Section 3.11 hereof
which shall expire 90 days after the applicable statutes of limitation shall
have run with respect to all tax returns filed by the Company for all periods
ended on or before the Closing) after which all such representations and
warranties shall expire except with respect to claims asserted in writing prior
to such date.
ARTICLE IX
MISCELLANEOUS
9.1 TERMINATION.
(a) RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to
the Closing:
(i) By mutual written agreement of the parties, or
(ii) By either Purchaser or the Sellers if the
Closing shall not have occurred on or before the 90th day
after the date hereof, provided the terminating party has not,
through breach of a representation, warranty or covenant,
prevented the Closing from occurring on or before such date.
(b) TERMINATION FOR BREACH.
(i) TERMINATION BY PURCHASER. If there has been a
material breach by the Sellers of any of their agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by Purchaser, then
Purchaser may, by written notice to Sellers at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii)
hereof.
(ii) TERMINATION BY SELLERS. If there has been a
material breach by Purchaser of any of its agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by the Sellers, then the
Sellers may, by written notice to Purchaser at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii).
(iii) EFFECT OF TERMINATION. Termination of this
Agreement pursuant to this Section 9.1 shall not in any way
terminate, limit or restrict the rights and remedies of any
party hereto against any other party which has breached or
failed
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to perform any of the representations, warranties, covenants,
or agreements of this Agreement prior to termination hereof.
9.2 WAIVER. Sellers or Purchaser may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
of the agreements of the other or satisfaction of any of the conditions to its
obligations contained herein. Any extension or waiver made pursuant to this
Section 9.2 must be by an instrument in writing signed on behalf of the party
granting the extension or waiver. A waiver by any party of any provision hereof
or breach hereof shall not operate or be construed as the waiver of any other
provision or any subsequent breach.
9.3 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable and any purported
assignment shall be null and void. Nothing contained in this Agreement shall be
deemed to confer any right or benefit upon any person other than the parties
hereto to the extent herein provided.
9.4 DOLLARS. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
9.5 BROKERS AND FINDERS. Sellers on the one hand and Purchaser on the
other, each agree to indemnify and hold the other harmless from and against any
claim made for a broker<018>s or a finder's fee or other similar compensation
(and all related costs and expenses) asserted against an indemnified party which
arises out of or results from an action taken by an indemnifying party.
9.6 HEADINGS; SEVERABILITY. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of this Agreement shall be treated as separate and distinct
and, in the event of any provision hereof being declared invalid, such invalid
provision shall be deemed to be severable and all other provisions hereof shall
remain in full force and effect.
9.7 SCHEDULES. The Schedules are a part of this Agreement as if fully
set forth herein.
9.8 DISCLOSURES AND ANNOUNCEMENTS. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either Sellers or Purchaser shall
be subject to the approval of the other in all essential respects, except that
the Sellers' approval shall not be required as to any announcements or filings
Purchaser may be required to make under applicable laws or regulations.
9.9 CONFIDENTIAL INFORMATION. Following the Closing, Sellers shall use
their best efforts to cause all of their agents, officers, directors and
employees to treat and safeguard all Confidential Information concerning the
Business and, except as required by law, agree not to
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disclose or reveal any Confidential Information to any third party or otherwise
use such Confidential Information. For purposes of this Agreement, "Confidential
Information" shall mean information of a valuable, proprietary and confidential
nature relating directly to the Business, asset lists and valuations of any
kind, customer lists, trade secrets, formulae, methods or processes, channels of
distribution, pricing policies and records. The term "Confidential Information"
does not include information that (a) is or becomes generally available to the
public other than through any disclosure by the Sellers or is a recognized
standard industry practice; or (b) becomes available subsequent to the date
hereof to Sellers on a non-confidential basis from a source other than Purchaser
or from records of the business.
9.10 EXPENSES. Sellers agree that all fees and expenses incurred by
them in connection with this Agreement shall be borne by Company including,
without limitation, all fees of counsel and accountants; and Purchaser agrees
that all fees and expenses incurred by it in connection with this Agreement
shall be borne by it, including, without limitation, all fees of counsel and
accountants.
9.11 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by private overnight courier service. The respective
addresses and telephone numbers to be used for all such notices, demands or
requests are as follows:
If to Purchaser: HealthCare Hearing Clinics, Inc.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
with a copy to: Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attn: G. Todd Norvell
Facsimile: (503) 224-0155
If to Sellers: Matthew W.F. Smith and Jeri Schilling Smith
8400 Menaul N.E., Suite F
Albuquerque, New Mexico 87112
Personal & Confidential
Facsimile: (505) 271-9505
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<PAGE>
with a copy to: William J. Darling & Associates P.A.
2716 San Pedro NE, Suite A
Albuquerque, New Mexico 87110
Attn: William J. Darling
Facsimile: (505) 883-2873
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this section.
9.12 RESOLUTION OF DISPUTES.
(a) ARBITRATION. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of
its terms shall be settled by binding arbitration held in Albuquerque,
New Mexico, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 9.12. Notwithstanding the foregoing,
Purchaser, in its discretion, may apply to a court of competent
jurisdiction for equitable relief from any violation or threatened
violation of the provisions of the Sellers under any noncompetition and
confidentiality agreements executed pursuant to this Agreement.
(b) ARBITRATORS. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand
for arbitration, to exceed Fifty Thousand Dollars ($50,000), then the
panel to be appointed shall consist of three neutral arbitrators,
otherwise one neutral arbitrator.
(c) PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the
circumstances and shall resolve the dispute as expeditiously as
practicable, and if reasonably practicable, within 120 days after the
selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set
out, and shall have thirty (30) days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days
after the decision. Thereafter, the decision of the arbitrator(s) shall
be final, binding, and nonappealable with respect to all persons,
including (without limitation) persons who have failed or refused to
participate in the arbitration process.
(d) AUTHORITY. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorney fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
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<PAGE>
(e) ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and
subject matter jurisdiction. The Sellers and Purchaser hereby submit to
the in personam jurisdiction of the federal and state courts in New
Mexico for the purpose of confirming any such award and entering
judgment thereon.
(f) CONFIDENTIALITY. All proceedings under this Section 9.12,
and all evidence given or discovered pursuant hereto, shall be
maintained in confidence by all parties.
(g) CONTINUED PERFORMANCE. The fact that the dispute
resolution procedures specified in this Section 9.12 shall have been or
may be invoked shall not excuse any party from performing its
obligations under this Agreement, and during the pendency of any such
procedure all parties shall continue to perform their respective
obligations in good faith, subject to any rights to terminate this
Agreement that may be available to any party.
9.13 GOVERNING LAW. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the state of New Mexico, excluding any choice of law rules that may direct the
application of the laws of another jurisdiction.
9.14 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
9.15 ENTIRE AGREEMENT. This Agreement (including the Schedules) and the
agreements, certificates and other documents delivered pursuant hereto contain
the entire agreement between the parties hereto. All parties collaborated in the
preparation of this Agreement and it has been reviewed by attorneys for each
party. No one party should be considered the author of any specific language for
purposes of legal presumptions.
9.16 FURTHER ASSURANCES. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents, instruments, or conveyances of any kind that
may be reasonable necessary or desirable to carry out any of the transactions
contemplated hereunder.
9.17 SELLERS ACTION. Whenever in this Agreement the Sellers are given
the discretion to take or not to take any action, the decision of the Sellers
shall be made pursuant to the vote of the Sellers holding a majority of the
Shares.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
PURCHASER:
HEALTHCARE HEARING CLINICS, INC., a
Washington corporation
By:/S/ BRANDON M. DAWSON Brandon M. Dawson
President SELLERS:
/S/ MATTHEW W.F. SMITH /S/ ROBERT J. SCHILLING
Matthew W.F. Smith Robert J. Schilling
/S/ JERI SCHILLING SMITH /S/ BETTY A. SCHILLING
Jeri Schilling Smith Betty A. Schilling
/S/ EDGAR W. SMITH /S/ JANET B. SMITH
Edgar W. Smith Janet B. Smith
/S/ CATHERINE WORTH /S/ HERBERT F. LANKFORD
Catherine Worth Herbert F. Lankford
/S/ REATHEL E. LANKFORD /S/ THOMAS E. HINKEBEIN
Reathel E. Lankford Thomas E. Hinkebein
/S/ SARAH-ELLEN S. HINKEBEIN /S/ PHILLIP F. LANKFORD
Sarah-Ellen S. Hinkebein Phillip F. Lankford
/S/ JULIE L. LANKFORD /S/ MARY J. TEDRO
Julie L. Lankford Mary J. Tedrow
/S/ JOHN R. SCHILLING /S/ MARTHA E. SCHILLING
John R. Schilling Martha E. Schilling
/S/ JO E. SCHILLING
Jo E. Schilling
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<PAGE>
SCHEDULES TO STOCK PURCHASE AND SALE AGREEMENT
Schedule 1.4(b)-A Note
Schedule 1.4(b)-B Guaranty
Schedule 2.2(a)(ii) Opinion of Sellers' Counsel
Schedule 2.2(b)(iii) Opinion of Purchaser's Counsel
Schedule III Disclosure Statement
Schedule 3.7 No Litigation
Schedule 3.8(b) Licenses and Permits
Schedule 3.12 Product Warranty
Schedule 3.14 Insurance
Schedule 3.16 Patents, Trademarks, etc.
Schedule 3.17(a)(i) Real and Personal Property Leases
Schedule 3.17(b) Purchase Commitments
Schedule 3.17(c) Sales Commitments
Schedule 3.17(f) Loan Agreements
Schedule 3.17(i) Other Material Contracts
Schedule 3.18(b) Personal Property
Schedule 3.19 Employee Benefit Plans
Schedule 3.20 Employment Compensation
Schedule 3.21 Key Employees, Bank, Etc.
Schedule 5.2(a) Sellers' Personal Guarantees
Schedule 5.2(b) Sellers' Loans
Schedule 6.5(a) Noncompetition and Confidentiality Agreement
Schedule 6.5(b) Employment Agreement - Matthew W.F. Smith
Schedule 6.5(c) Employment Agreement - Jeri Schilling Smith
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<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
(Los Angeles)
AGREEMENT dated as of January 9, 1997, by and between the individuals
named in Section 1.1 below (referred to herein individually as "Seller" and
collectively as "Sellers") and HEALTHCARE HEARING CLINICS, INC., a Washington
corporation ("Purchaser").
RECITALS
A. Hearing Care Associates-Los Angeles, Inc., a California corporation
(the "Company"), operates an audiology and hearing aid clinic in Los Angeles,
California, which performs testing and evaluation of patients' hearing,
prescribes and fits hearing aids, and provides related services and products.
B. Sellers own all shares of the issued and outstanding capital stock
of the Company (the "Shares").
C. Purchaser and Sellers desire that Purchaser acquire ownership of the
Company through a purchase of the Shares.
TERMS
In consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 OWNERSHIP OF SHARES. The Shares are owned by Sellers as follows:
SELLERS SHARES PERCENTAGE
Gregory J. Frazer 100 50
Stephen Martinez 100 50
--- ---
200 100
1.2 PURCHASE AND SALE OF SHARES. At the Closing (as defined in Section
2.1), on the terms and subject to the conditions set forth in this Agreement,
Sellers shall sell and deliver to Purchaser, and Purchaser shall purchase the
Shares from Sellers.
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<PAGE>
1.3 PURCHASE PRICE. Subject to adjustment as set forth in Section 1.4
hereof, the purchase price for the Shares (the "Purchase Price") shall be a
total of $301,000 payable to Sellers as follows:
SELLERS
Gregory J. Frazer $150,500.00
Stephen Martinez 150,500.00
$301,000.00
At the Closing, Purchaser shall pay the Purchase Price to Sellers by certified
or cashier's check.
1.4 PURCHASE PRICE ADJUSTMENTS. The Purchase Price shall be subject to
post-closing adjustment as set forth below:
(a) ACCOUNTS RECEIVABLE. On the 200th day following the
Closing, Sellers shall reimburse Purchaser on a pro rata basis in an
amount equal to the total of the accounts receivable reflected on the
Statement of Net Working Capital (as defined in subsection 1.4(c)(i)
below) net of the allocable portion of the reserve for bad debts, which
remain uncollected as of such date provided that with respect to the
accounts receivable listed on SCHEDULE 1.4(A) attached hereto, the
reimbursement date shall be the first anniversary of the Closing date.
Upon such reimbursement, the uncollected accounts shall be assigned to
Sellers. During such 200-day period (or the 365-day period with respect
to the accounts receivable listed on SCHEDULE 1.4(A), Sellers may
participate in the collection process of such accounts receivable.
(b) LIABILITIES. Sellers acknowledge that the Purchase Price
was negotiated on the assumption that Company would have no long-term
liabilities, including debt. In the event that at Closing Company has
long-term liabilities, Sellers shall pay to Purchaser, on a pro rata
basis, an amount equal to the total of any such long-term liabilities.
(c) NET WORKING CAPITAL ADJUSTMENT.
(i) For purposes of this Agreement, "Net Working
Capital" shall equal (i) cash, money market accounts, accounts
receivable (net of reasonable provisions for doubtful
accounts) and prepaid expenses, as of Closing less (ii) all
current liabilities of the Company as of Closing, including
but not limited to liabilities for inventory, office supplies,
ordinary compensation payables, employee benefits and taxes
(excluding accrued paid time off for vacation and sick leave),
bonuses (including all related payroll taxes and employee
benefits), personal and real property taxes, water, gas,
electric and other utility charges, business and other license
fees and taxes, merchants' association dues, rental payments
under any leases, any customer refunds for hearing aids
delivered prior
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to Closing, and all other operating liabilities (including
legal, accounting, and other professional fees and expenses
incurred in the ordinary course of business), vendor accounts
payable and intercompany accounts.
(ii) As promptly as practicable following the
Closing, but in no event later than 45 days thereafter,
Sellers and Purchaser shall cooperate in preparing a mutually
agreeable statement of the Net Working Capital which shall set
forth the computation and components thereof in reasonable
detail (the "Statement of Net Working Capital").
(iii) On the fifteenth day after the date on which
the Statement of Net Working Capital is completed (or such
earlier date as such statement is mutually agreed upon by
Sellers and Purchaser in writing), (i) in the event that the
Net Working Capital exceeds $76,000, then Purchaser shall pay
to Sellers pro rata an amount equal to the excess, or (ii) in
the event that Net Working Capital is less than $76,000, then
Sellers shall pay to Purchaser, pro rata, the amount of the
deficiency provided that the maximum amount of the total
adjustment payments to be made under this paragraph shall not
exceed $30,000.
1.5 PURCHASE PRICE OFFSET. The Company has made a loan to Stephen
Martinez ("Martinez") in the amount of $19,225 (the "Loan Amount"). At Closing,
Martinez shall be paid his portion of the Purchase Price less the Loan Amount
which shall be paid by Purchaser to the Company to satisfy Martinez's
indebtedness to the Company.
1.6 EXPENSE REIMBURSEMENT. Company has paid, or has agreed to pay on
behalf of Sellers, certain legal, accounting, and other expenses in the
aggregate amount of $6,710.32 (the "Reimbursement Amount") for which Sellers are
obligated to reimburse Company. At Closing, each Seller's pro rata portion of
the Reimbursement Amount (calculated based upon each Seller's proportionate
ownership of the Shares) shall be deducted from such Seller's portion of the
Purchase Price.
1.7 WITHHOLDING REIMBURSEMENT. Company has paid certain compensation to
Martinez in an amount yet to be determined from which no tax or other payroll
withholding deductions ("Deductions") were made. At Closing, Martinez shall be
paid his portion of the Purchase Price less an amount equal to Deductions
(computed by ADP, Company's payroll agent) due with respect to $49,900 of such
compensation. Following the Closing, HealthCare and Martinez shall negotiate in
good faith to determine the total amount of compensation paid by Company to
Martinez on which no Deductions were made in excess of $49,900 (the "Excess").
If HealthCare and Martinez are unable to agree on the amount of the Excess, the
issue shall be referred to a mutually agreeable single arbitrator for
resolution. When the amount of the Excess has been determined, either by
agreement of the parties or by the arbitrator, Martinez agrees to reimburse
HealthCare (within 15 business days) for any additional Deductions due with
respect to the Excess provided Martinez shall have no liability to HealthCare to
the extent the Excess is greater than $60,000.
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<PAGE>
ARTICLE II
CLOSING
2.1 CLOSING. The closing of the transaction provided for herein (the
"Closing") shall occur on such date on or before January 10, 1997, and at such
time and place as the parties shall mutually agree.
2.2 CLOSING TRANSACTIONS. The following actions shall be taken at
Closing, each of which shall be conditional on completion of all the others and
all of which shall be deemed to have taken place simultaneously:
(a) DELIVERIES BY SELLERS. Sellers shall deliver to Purchaser:
(i) Certificates representing the Shares;
(ii) An opinion of counsel to Sellers, dated as of
the Closing date, substantially in the form of SCHEDULE
2.2(A)(II) attached hereto; and
(iii) The stock and minute books of the Company;
(iv) All consents required in connection with the
transactions contemplated hereunder.
(b) DELIVERIES BY PURCHASER. Purchaser shall deliver to
Sellers:
(i) The payments provided for in Section 1.3; and
(ii) An opinion of counsel to Purchaser, dated as of
the Closing date, substantially in the form of SCHEDULE
2.2(B)(II) attached hereto.
(c) JOINT DELIVERY. Purchaser and Stephen Martinez shall
deliver to each other counterparts of the employment agreement provided
for in Subsection 6.5 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise set forth in the Disclosure Statement attached
hereto as SCHEDULE III, Sellers represent and warrant to Purchaser as set forth
below in this Article III. Subject to the limitations set forth in Section
8.1(a), the Sellers shall be jointly and severally liable for breaches of such
representations and warranties except to the extent otherwise expressly set
forth in Section 3.1(b) hereof.
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<PAGE>
3.1 CORPORATE.
(a) ORGANIZATION. The Company is a corporation duly organized
and existing under the laws of the state of California.
(b) CAPITALIZATION. The authorized capital stock of the
Company consists of 2,000 shares of a single class of common stock, of which 200
shares are issued and outstanding. All issued and outstanding Shares have been
validly issued and are fully paid and nonassessable. Each Seller separately
warrants that such Seller is the owner of the number of shares shown in Section
1.1 hereof (beneficially and of record) free and clear of all liens, claims, and
encumbrances whatsoever. The Shares constitute all the outstanding shares of
capital stock of the Company. Except for a Buy-Out Agreement to which the
Shareholders are parties, no person has any agreement, option or other right,
present or future, to purchase or otherwise acquire any of the shares of the HCA
Corporations. Such Buy-Out Agreement will be terminated effective as of the
Closing date.
(c) CORPORATE POWER. The Company has all requisite corporate
power and authority to own, operate and lease its properties and to
carry on its business as and where such is now being conducted.
(d) NO SUBSIDIARIES. The Company does not own an interest in
any corporation, partnership or other entity.
(e) ARTICLES OF INCORPORATION; BYLAWS. The copies of Company's
articles of incorporation (certified by the Secretary of State of
California) and bylaws (certified by Company's secretary) which have
heretofore been delivered to Purchaser are complete and correct as
amended or restated to the date hereof.
3.2 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the
Sellers pursuant hereto, nor the consummation by the Sellers of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien (as defined in Section 3.9(b)) upon any of the
assets of the Company under, any term or provision of the articles of
incorporation or bylaws of the Company or of any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which the Company is a party or by which the Company or any of the Company's
assets or properties or the shares of the Company may be bound or affected.
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3.3 FINANCIAL STATEMENTS. The Sellers have heretofore delivered to
Purchaser the following financial statements of the Company including balance
sheets and statements of income (the "Financial Statements"):
(a) Financial Statements for the Company's 1993, 1994, and
1995 fiscal years; and
(b) Financial Statements for the interim period ended November
30, 1996.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Company at the dates indicated and
results of its operations and changes in its financial position for the periods
then ended.
3.4 INVENTORY. The inventories of the Company are of a quality and
quantity usable and salable in the ordinary course of business at a price at
least equal to the value shown on the Company's books.
3.5 ABSENCE OF CERTAIN CHANGES. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
3.5(a) ADVERSE CHANGE. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the Company;
3.5(b) DAMAGE. Any material loss, damage or destruction,
whether covered by insurance or not, affecting the Company's business
or assets;
3.5(c) INCREASE IN COMPENSATION. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the Company (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee
benefit granted, made or accrued;
3.5(d) LABOR DISPUTES. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company;
3.5(e) COMMITMENTS. Any commitment or transaction by the
Company (including, without limitation, any capital expenditure) other
than in the ordinary course of business consistent with past practice;
3.5(f) DIVIDENDS. Any declaration, setting aside, or payment
of any dividend or any other distribution in respect of the Company's
capital stock; any redemption, purchase or other acquisition by the
Company of any capital stock of the Company, or any security relating
thereto; or any other payment to any Shareholder as a shareholder;
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3.5(g) DISPOSITION OF PROPERTY. Any sale, lease or other
transfer or disposition of any properties or assets of the Company
except for sales of inventory, consumption of supplies, and nonmaterial
dispositions of worn or broken parts and equipment in the ordinary
course of business;
3.5(h) INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company other than changes in
the Company's line of credit in the ordinary course of business;
3.5(i) AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by the Company of any contract, or any waiver of material
rights thereunder, other than in the ordinary course of business;
3.5(j) LOANS, ADVANCES, OR CREDIT. Any loan or advance or any
grant of credit by the Company; or
3.5(k) UNUSUAL EVENTS. Any other event or condition
specifically related to the Company not in the ordinary course of
business which would have a material adverse effect on the assets or
the business of the Company.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
specifically disclosed in the most recent balance sheet included in the
Financial Statements or this Agreement, the Company does not have any
liabilities other than commercial liabilities and obligations incurred since the
date of such balance sheet in the ordinary course of business consistent with
past practices none of which has or will have a material adverse effect on the
business, financial condition or results of operations of the Company.
3.7 NO LITIGATION. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Sellers threatened
against the Company, its directors (in such capacity), its business or any of
its assets, nor do the Sellers know of any such proceeding, investigation or
inquiry threatened against the Company. The Disclosure Schedule identifies all
actions, suits, proceedings, investigations and inquiries to which the Company
has been a party since January 1, 1993. Neither the Company nor its business or
assets are subject to any judgment, order, writ or injunction of any court,
arbitrator or federal, state, foreign, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.8 COMPLIANCE WITH LAWS.
3.8(a) COMPLIANCE. The Company (including each and all of its
operations, practices, properties and assets) is in material compliance
with all applicable federal, state, local and foreign laws, ordinances,
orders, rules and regulations (collectively, "Laws"), including,
without limitation, those applicable to discrimination in employment,
occupational safety and health, trade practices, environmental
protection, competition and pricing, product warranties, zoning,
building and sanitation, employment, retirement and
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labor relations, and product advertising except to the extent any
noncompliance would not have a material adverse effect upon the assets
or the business of the Company taken as a whole. The Company has not
received notice of any violation or alleged violation of, and is not
subject to liability for past or continuing violation of, any Laws. All
reports and returns required to be filed by the Company with any
governmental authority have been filed, and were accurate and complete
when filed except to the extent any deficiency would not have a
material adverse effect upon the assets or the business of the Company
taken as whole.
3.8(b) LICENSES AND PERMITS. The Company has obtained all
licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification
organizations required for the conduct of its businesses (as presently
conducted) except to the extent failure to do so would not have a
material adverse effect upon the assets or the business of the Company
taken as a whole. All such licenses, permits, approvals, authorizations
and consents are described in the Disclosure Schedule and are in full
force and effect. The Company (including its operations, properties and
assets) is and has been in compliance with all such permits and
licenses, approvals, authorizations and consents, except to the extent
any noncompliance would not have a material adverse effect upon the
assets or the business of the Company taken as a whole.
3.9 TITLE TO AND CONDITION OF PROPERTIES.
3.9(a) REAL PROPERTY. Except as set forth on the Disclosure
Schedule, the Company does not own any interest in any real property
other than the leases referred to in Section 3.11(a) hereof.
3.9(b) PERSONAL PROPERTY. The Company has good and marketable
title to all its assets, free and clear of all mortgages, liens
(statutory or otherwise), security interests, claims, pledges,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, exceptions,
limitations, charges or encumbrances of any nature whatsoever
(collectively, "Liens"). All the Company's tangible assets are located
at the business premises leased by the Company and all tangible assets
located at such premises are owned by the Company.
3.9(c) CONDITION. All the Company's tangible assets are, taken
as a whole, in good operating condition and repair, normal wear and
tear excepted.
3.9(d) LAND USE REGULATIONS. There are no condemnation,
environmental, zoning, land use, or other regulatory proceedings,
pending or, to the knowledge of the Sellers, planned to be instituted,
that could detrimentally affect the ownership, use, or occupancy of the
real property presently occupied by the Company or the continued
operation of the Company's business as it is presently being conducted.
3.10 INSURANCE. The Company maintain policies of fire, liability,
product liability, workers compensation, health and other forms of insurance
with such coverage limits and
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deductible amounts as are reasonable and prudent in light of the nature of its
assets and the risks of its business.
3.11 CONTRACTS AND COMMITMENTS.
3.11(a) LEASES. Set forth in SCHEDULE 3.11(A) of the
Disclosure Schedule is a list of all real and personal property leases
to which the Company is a party. Complete and correct copies of each
lease listed on the schedule, and all amendments thereto, have
heretofore been made available to Purchaser.
3.11(b) PURCHASE COMMITMENTS. Set forth in SCHEDULE 3.11(B) of
the Disclosure Schedule is a list of all agreements (written or oral)
between the Company and third parties for the purchase of goods and
supplies by the Company which individually call for the payment by the
Company after the date hereof of more than $1,000 or which obligate the
Company for a period extending beyond March 31, 1997. Complete and
correct copies of all such written agreements have heretofore been made
available to Purchaser.
3.11(c) SALES COMMITMENTS. Set forth in SCHEDULE 3.11(C) of
the Disclosure Schedule is a list and description of all presently
effective agreements (written or oral) between the Company and third
parties for the distribution and sale of its products. Complete and
correct copies of all such written contracts have heretofore been made
available to Purchaser.
3.11(d) CONTRACTS WITH SELLERS AND CERTAIN OTHERS. Except for
the employment relationships which exist between the Sellers and the
Company, the Company has no agreement, understanding, contract or
commitment (written or oral) with any Seller, or any relative of a
Seller.
3.11(e) COLLECTIVE BARGAINING AGREEMENTS. The Company is not
parties to any collective bargaining agreement with any union.
3.11(f) LOAN AGREEMENTS. Except as set forth on the Disclosure
Schedule, the Company is not obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness as
signatories, guarantors or otherwise.
3.11(g) GUARANTEES. The Company has not under any instrument
which is presently effective guaranteed the payment or performance of
any person, firm or corporation, agreed to indemnify any person or act
as a surety, or otherwise agreed to be contingently or secondarily
liable for the obligations of any person.
3.11(h) RESTRICTIVE AGREEMENTS. The Company is not a party to
nor is it bound by any agreement requiring it to assign any interest in
any trade secret or proprietary information, or prohibiting or
restricting it from competing in any business or
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geographical area or soliciting customers or otherwise restricting it
from carrying on its business anywhere in the world.
3.11(i) OTHER MATERIAL CONTRACTS. The Company is not a party
to any lease, license, contract (including without limitation contracts
with health maintenance organizations) or commitment of any nature
involving consideration or other expenditure in excess of $1,000, or
involving performance over a period of more than 90 days, or which is
otherwise individually material to the operations of the Company,
except as set forth in SCHEDULE 3.11(I) of the Disclosure Schedule.
3.11(j) NO DEFAULT. The Company is not in default under any
lease, agreement, contract or commitment, nor has any event or omission
occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration
of any of the Company's obligations or result in the creation of any
Lien on any of the assets owned, used or occupied by the Company. To
the knowledge of the Sellers, no third party is in default under any
lease, agreement, contract or commitment to which the Company is a
party, nor has any event or omission occurred which, through the
passage of time or the giving of notice, or both, would constitute a
default thereunder or give rise to an automatic termination, or the
right of discretionary termination thereof.
3.12 EMPLOYEE BENEFIT PLANS. Set forth in SCHEDULE 3.12 of the
Disclosure Schedule, is a description of all pension, profit sharing,
retirement, bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," severance agreements or
plans, vacation and sick leave plans including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all employee manuals, and
all written or binding oral statements of policies, practices or understandings
relating to employment, which are provided to, for the benefit of, or relate to,
any persons employed by the Company. The items described in the foregoing
sentence are hereinafter sometimes referred to collectively as "Employee
Plans/Agreements." True and correct copies of all written Employee
Plans/Agreements, including all amendments thereto, have heretofore been
provided to Purchaser. The Company is in compliance with and have made all
payments due under all Employee Plans/Agreements and with respect thereto the
Company is in compliance with all applicable federal and state laws and
regulations. The Company is not a contributor to any multi-employer pension plan
which has an unfunded liability with respect to benefits due its participants.
3.13 EMPLOYMENT COMPENSATION. Set forth in SCHEDULE 3.13 of the
Disclosure Schedule is a true and correct list of:
(a) All employees to whom the Company is paying compensation;
and in the case of salaried employees such list identifies the current
annual rate of compensation for each employee and in the case of hourly
or commission employees identifies certain reasonable ranges of rates
and the number of employees falling within each such range;
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(b) All amounts owed to employees of the Company (including
the Sellers) for accrued sick pay, vacation pay, and bonus pay.
3.14 PATENTS, TRADEMARKS, ETC. Set forth in SCHEDULE 3.14 of the
Disclosure Schedule attached hereto is a list of all United States and foreign
trademarks, service marks, trade names, brand names, copyrights, including
registrations and applications, patent and patent applications, and employee
covenants and agreements respecting intellectual property ("Trade Rights") in
which the Company now has any interest, specifying the basis on which such Trade
Rights are owned, controlled, used or held (under license or otherwise) by the
Company, and also indicating which of such Trade Rights are registered. All
Trade Rights shown as registered in SCHEDULE 3.14 of the Disclosure Schedule
have been properly registered, all pending registrations and applications have
been properly made and filed and all annuity, maintenance, renewal and other
fees relating to registrations or applications are current. In order to conduct
the business of the Company, as such is currently being conducted, the Company
does not require any Trade Rights that it does not already have. The Company is
not infringing and has not infringed on any Trade Rights of another in the
operation of its business, nor to the knowledge of the Sellers is any other
person infringing on the Trade Rights of the Company. The Company has not
granted any license or made any assignment of any Trade Right and no other
person has any right to use any Trade Right owned or held by the Company. The
Company does not pay any royalties or other consideration for the right to use
any Trade Rights of others. Except as set forth in SCHEDULE 3.14 of the
Disclosure Schedule, to the knowledge of Sellers, there are no inquiries,
investigations or claims or litigation challenging or threatening to challenge
the Company's right, title and interest with respect to its continued use and
right to preclude others from using any Trade Rights of the Company. To the
knowledge of Sellers, all Trade Rights of the Company are valid, enforceable and
in good standing, and there are no equitable defenses to enforcement based on
any act or omission of the Company.
3.15 PRODUCT WARRANTY AND PRODUCT LIABILITY. Set forth in SCHEDULE 3.15
of the Disclosure Schedule is a true, correct and complete copy of the Company's
standard warranty or warranties for sales of its products.
3.16 TAX MATTERS. The Company has properly completed and filed in
correct form all federal, state, and other tax returns (including Forms 1099 and
other informational returns) of every nature required to be filed by it and has
paid all taxes (whether or not requiring the filing of returns) including all
deficiencies, assessments, additions to tax, penalties and interest of which
notice has been received to the extent such amounts have become due. The Company
has obtained all required Forms W-9. Complete and correct copies of the
Company's federal and California income tax returns for 1993, 1994, and 1995
have been delivered by the Sellers to Purchaser. All tax liabilities have been
fully and properly reflected in the Financial Statements. The income tax returns
of the Company have not been examined by the Internal Revenue Service. There are
no outstanding agreements or waivers extending the statutory period of
limitation for any federal or state tax return of the Company for any period.
The Company has made all required deductions and payments and has properly
prepared and delivered all required documents in connection with the withholding
of taxes from the wages and other compensation of its employees. The Company has
filed all sales/use tax returns and have paid all such taxes
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for all states in which they have responsibility to do so. The Company has
obtained and maintains, to the extent required by law, a current sales and use
tax exemption certificate for each customer to which it makes tax-exempt sales.
3.17 KEY EMPLOYEES; BANK; ETC. Set forth in SCHEDULE 3.17 of the
Disclosure Schedule is a list showing:
(a) The names of all the Company's officers and directors;
(b) The name of each bank at which the Company has (i) an
account and the numbers of all accounts, (ii) a line of credit, or
(iii) a safe deposit box and the name of each person authorized to draw
thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the Company and a summary of the terms thereof.
3.18 RECORDS. The books of account of the Company fairly reflect the
items of income and expense and the assets, liabilities, and accruals of its
business and operations. The minute books and stock transfer records of the
Company contain records which are complete and accurate in all material respects
of all minutes, consents of shareholders and directors, all corporate actions,
and all stock transfers of the Company.
3.19 ADVERSE CONDITIONS. There are no conditions known to Sellers with
respect to the markets, products, facilities, or personnel of the Company which
might materially adversely affect its business or prospects other than such
conditions as may affect the industry in which the Company participates as a
whole.
3.20 DISCLOSURE. No representation or warranty by the Sellers in this
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of the Sellers pursuant to this Agreement,
nor any document or certificate delivered to Purchaser pursuant to this
Agreement or in connection with transactions contemplated hereby, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Sellers as follows:
4.1 CORPORATE.
(a) ORGANIZATION. Purchaser is a corporation duly organized
and validly existing under the laws of the state of Washington.
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(b) CORPORATE POWER. Purchaser has all requisite corporate
power and authority to own, operate and lease its properties, to carry
on its business as and where such is now being conducted, to enter into
this Agreement and the other documents and instruments to be executed
and delivered by Purchaser pursuant hereto and to carry out the
transactions contemplated hereby and thereby.
(c) AUTHORITY. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been
duly authorized by the board of directors of HealthCare. This Agreement
constitutes the valid and binding agreement of Purchaser, enforceable
against Purchaser in accordance with its terms.
(d) QUALIFICATION. Purchaser is duly licensed or qualified to
do business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by
it, or the nature of its business, makes such licensing or
qualification necessary.
4.2 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by Purchaser
pursuant hereto, nor the consummation by Purchaser of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body, or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien upon any of the assets of Purchaser under, any
term or provision of the Articles of Incorporation or By-laws of Purchaser or of
any material contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Purchaser is a party or by which
Purchaser or any of its assets or properties may be bound or affected.
4.3 DISCLOSURE. No representation or warranty by Purchaser in this
Agreement nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Purchaser pursuant to this Agreement, nor
any document or certificate delivered to Purchaser pursuant to this Agreement or
in connection with transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
ARTICLE V
COVENANTS
5.1 COVENANTS OF SELLERS.
(a) ACCESS TO INFORMATION AND RECORDS. The Sellers agree that
during the period after the date hereof and prior to the Closing,
Purchaser, its counsel, accountants
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and other representatives shall be provided (i) reasonable access
during normal business hours to all of the properties, books, records,
contracts and documents of the Company for the purpose of such
inspection, investigation and testing as Purchaser deems appropriate
(and Sellers shall furnish or cause to be furnished to Purchaser and
its representatives all information with respect to the business and
affairs of the Company as Purchaser may reasonably request); (ii)
reasonable access to employees and agents of the Company for such
meetings and communications as Purchaser reasonably desires; and (iii)
with the prior consent of the Company in each instance (which consent
shall not be unreasonably withheld), access to vendors, customers, and
others having business dealings with the Company.
(b) CONDUCT OF BUSINESS PENDING THE CLOSING. The Sellers agree
that from the date hereof until the Closing, except as otherwise
approved in writing by Purchaser:
(i) NO CHANGES. The Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) MAINTAIN ORGANIZATION. The Company will use its
best efforts to maintain, preserve, renew and keep in force
and effect the existence, rights and franchises of the Company
and to preserve the business organization of the Company
intact, to keep available to Purchaser the present officers
and employees of the Company, and to preserve for Purchaser
its present relationships with suppliers and customers and
others having business relationships with the Company.
(iii) NO BREACH. The Company will use its best
efforts to avoid any act, or any omission to act, which may
cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty,
covenant or agreement made by the Sellers.
(iv) NO MATERIAL CONTRACTS. No contract or commitment
will be entered into, and no purchase of assets (tangible or
intangible) will be made, by or on behalf of the Company,
except contracts, commitments, purchases or sales which are in
the ordinary course of business and consistent with past
practice.
(v) NO CORPORATE CHANGES. The Company shall not amend
its Articles of Incorporation or Bylaws or make any changes in
its authorized or issued capital stock; the Company shall not
grant any option or other right to acquire any share of its
authorized capital stock;
(vi) MAINTENANCE OF INSURANCE. The Company shall
maintain all of its insurance in effect as of the date hereof
or replace such insurance with comparable coverage and shall
procure such additional insurance as shall be reasonably
requested by Purchaser at Purchaser's expense.
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(vii) MAINTENANCE OF PROPERTY. The Company shall use,
operate, maintain and repair all its assets and properties in
a normal business manner consistent with the Company's past
practices.
(viii) INTERIM FINANCIALS. The Company will provide
Purchaser with interim monthly financial statements and other
management reports as and when they are available.
(ix) NO DIVIDENDS. The Company shall not declare or
pay any dividend (whether in cash, stock or property) or make
any other distribution to the Sellers, except for the
repayment of loans made by the Sellers to the Company.
(x) COMPENSATION. The Company shall not increase the
compensation or benefits of any of its employees nor make any
other change in the terms of their employment.
(c) REPAYMENT OF SELLERS' LOANS. As of the date hereof, the
Company is indebted to the Sellers as set forth on SCHEDULE 5.1(C).
Notwithstanding any other provision of this Agreement, on or prior to
the Closing date, the Sellers shall either (i) contribute such
indebtedness to the capital of the Company or (ii) cause the Company to
repay such indebtedness to the extent the Company has funds available
for such purpose.
(d) REIMBURSEMENT OF SICK AND VACATION PAY. In preparing the
Statement of Net Working Capital it has been agreed that no accrual
shall be made for sick and vacation pay entitlements for employees of
Company. In consideration of this exclusion, Sellers agree to reimburse
Purchaser for any sick or vacation pay payments Purchaser is required
to make to former employees of Company who become employees of
Purchaser and whose employment terminates for any reason within the
first six months following the Closing date to the extent such payments
relate to accruals of sick or vacation pay prior to the Closing date.
5.2 COVENANTS OF PURCHASER.
(a) RELEASE OF SELLERS' PERSONAL GUARANTEES. Certain Sellers
have provided personal guarantees or have otherwise become individually
liable with respect to certain leases, line of credit agreements,
purchase agreements with manufacturers, or other agreements for the
benefit for the Company, including, without limitation, those described
on SCHEDULE 5.2(A). Following the Closing, Purchaser will use its best
efforts to obtain the release of the Sellers from all such personal
liabilities. To the extent that any such release cannot be obtained,
Purchaser will indemnify and hold the Sellers harmless with respect to
any loss, cost, or expense the Sellers may incur as a result of not
being released.
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(b) MOST FAVORED TREATMENT. Purchaser is presently negotiating
the purchase of all the outstanding shares of the following
corporations:
Hearing Care Associates-Arcadia, Inc.
Hearing Care Associates-Lancaster
Hearing Care Associates-North Hollywood
Hearing Care Associates-Santa Monica
Auditory Vestibular Center, Inc.
In the event the representations and warranties set forth in the
acquisition agreements for such transactions contain provisions more
favorable to the Sellers than the representations and warranties of
Sellers set forth in Article III of this Agreement, Sellers shall be
entitled to the benefit of such more favorable provisions.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser to be performed at Closing shall
be subject to the satisfaction prior to or at the Closing (or the waiver by
Purchaser) of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by the Sellers in this Agreement, or in any
instrument, schedule, list, certificate or writing delivered by Sellers pursuant
to this Agreement, shall be true and correct when made and shall be true and
correct in all material respects at and as of the Closing as though such
representations and warranties were made as of the Closing.
6.2 COMPLIANCE WITH AGREEMENT. The Sellers shall have in all material
respects performed and complied with all of their agreements and obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing, including the delivery of the closing documents specified in
Section 2.2(a) hereof.
6.3 ABSENCE OF SUIT. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of Purchaser
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, investigation, or proceeding Purchaser will be unable to
retain substantially all the practical benefits of the transaction to which it
is entitled under this Agreement.
6.4 APPROVALS; CONSENTS. All consents, permits, approvals, licenses or
orders from any governmental or regulatory body or other third party required to
be obtained by Sellers for the consummation of the transactions contemplated by
this Agreement shall have been obtained
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except where failure to obtain such consents, permits, approvals, licenses or
orders would not have a material adverse effect (whether or not such effect is
referred to or described in any Schedule) on the business, prospects, financial
conditions, assets, reserves or operations of the Company taken as a whole.
6.5 AGREEMENTS.
(a) NONCOMPETITION AND CONFIDENTIALITY AGREEMENT. Sellers
shall have executed and delivered to Purchaser a Noncompetition and
Confidentiality Agreement substantially in the form attached hereto as
SCHEDULE 6.5(A).
(b) EMPLOYMENT AGREEMENT. Stephen Martinez shall have executed
and delivered to Purchaser an Employment Agreement substantially in the
form of SCHEDULE 6.5(B) hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
Each and every obligation of the Sellers to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by the Sellers) of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties made by Purchaser in this Agreement, or in any
instrument, list, certificate or writing delivered by Purchaser pursuant to this
Agreement, shall be true and correct when made and shall be true and correct at
and as of the Closing as though such representations and warranties were made as
of the Closing.
7.2 COMPLIANCE WITH AGREEMENT. Purchaser shall have in all material
respects performed and complied with all of Purchaser's agreements and
obligations under this Agreement which are to be performed or complied with by
Purchaser prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(b) hereof.
7.3 ABSENCE OF SUIT. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Sellers shall not be affected unless there is a reasonable likelihood that as a
result of such action, suit, proceeding or investigation, the Sellers will be
unable to retain substantially all the consideration to which they are entitled
under this Agreement.
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7.4 EMPLOYMENT AGREEMENT.
(a) Purchaser shall have executed and delivered to each Seller
a noncompetition and confidentiality agreement substantially in the
form attached hereto as SCHEDULE 6.5(A).
(b) Purchaser shall have executed and delivered to Stephen
Martinez an Employment Agreement substantially in the form of SCHEDULE
6.5(B) hereto.
ARTICLE VIII
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
8.1 INDEMNIFICATION BY THE SELLERS.
(a) The Sellers hereby agree to indemnify, defend, and hold
Purchaser (and its directors, officers, shareholders, employees,
affiliates, agents and assigns) harmless from and against all Claims
(as defined below) asserted against, resulting to, imposed upon, or
incurred by Purchaser directly or indirectly by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any
representation or warranty of the Sellers contained in or made pursuant
to this Agreement or in any of the documents delivered pursuant hereto,
or (b) the non-performance or breach of any covenant, term or provision
to be performed by the Sellers contained in this Agreement or in any of
the documents delivered pursuant hereto. The indemnification obligation
of Sellers hereunder is with respect to the full amount of the Claims
(as defined below). As used in this Article VIII, the term "Claim"
shall include any and all losses, liabilities, damages, deficiencies,
assessments, judgments, awards, settlements, costs, and expenses
including without limitation penalties, court costs, and attorney fees
and expenses at trial and on appeal. Notwithstanding the foregoing,
Sellers' indemnity obligations shall be subject to the following
limitations:
(i) Sellers shall be responsible for indemnifying
Purchaser only to the extent Claims in the aggregate exceed
the sum of $2,500.
(ii) Each Seller shall be solely responsible for
indemnification with respect to such Seller's warranty of
title regarding Seller's Shares and such Seller's warranty
regarding the absence of liens and encumbrances applicable to
such Shares;
(iii) Each Seller's liability with respect to a Claim
shall be limited to a percentage of such Claim equal to such
Seller's percentage ownership of the Shares as set forth in
Section 1.1; and
(iii) Each Seller's maximum liability to Purchaser
for indemnification shall not exceed an amount equal the
portion of the Purchase Price being paid to such Seller as set
forth in Section 1.3 hereof.
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(b) Purchaser's right to indemnification as provided in this
Section 8.1 shall not be eliminated, reduced or modified in any way as
a result of the fact that (i) Purchaser had notice of a breach or
inaccuracy of any representation, warranty or covenant contained
herein, (ii) Purchaser had been provided with access, as requested by
Purchaser, to officers and employees of the Company and such of
Company's books, documents, contracts and records as has been provided
to Purchaser in response to Purchaser's requests.
8.2 INDEMNIFICATION BY PURCHASER. Purchaser hereby agrees to indemnify,
defend, and hold harmless the Sellers from and against all Claims asserted
against, resulting to, imposed upon, or incurred by the Sellers directly or
indirectly by reason of, arising out of, or resulting from (a) the inaccuracy or
breach of any representation or warranty of Purchaser contained in or made
pursuant to this Agreement or in any of the documents delivered pursuant hereto,
or (b) the non-performance or breach of any covenant, term or provision to be
performed by Purchaser contained in this Agreement or in any of the documents
delivered pursuant hereto. The indemnification obligation of Purchaser hereunder
is with respect to the full amount of the Claims.
8.3 NOTICE; DEFENSE OF CLAIMS. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying party's cost, risk and expense provided that the
indemnifying party and its counsel shall proceed with diligence and in good
faith with respect thereto. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom.
8.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement for a period ending 90 days after the second fiscal year end
(July 31) of Purchaser which occurs after the Closing (except for the
representations and warranties of the Sellers set forth in Section 3.11 hereof
which shall expire 90 days after the applicable statutes of limitation shall
have run with respect to all tax returns filed by the Company for all periods
ended on or before the Closing) after which all such
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representations and warranties shall expire except with respect to claims
asserted in writing prior to such date.
ARTICLE IX
MISCELLANEOUS
9.1 TERMINATION.
(a) RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to
the Closing:
(i) By mutual written agreement of the parties, or
(ii) By either Purchaser or the Sellers if the
Closing shall not have occurred on or before the 90th day
after the date hereof, provided the terminating party has not,
through breach of a representation, warranty or covenant,
prevented the Closing from occurring on or before such date.
(b) TERMINATION FOR BREACH.
(i) TERMINATION BY PURCHASER. If there has been a
material breach by the Sellers of any of their agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by Purchaser, then
Purchaser may, by written notice to Sellers at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii)
hereof.
(ii) TERMINATION BY SELLERS. If there has been a
material breach by Purchaser of any of its agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by the Sellers, then the
Sellers may, by written notice to Purchaser at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii).
(iii) EFFECT OF TERMINATION. Termination of this
Agreement pursuant to this Section 9.1 shall not in any way
terminate, limit or restrict the rights and remedies of any
party hereto against any other party which has breached or
failed to perform any of the representations, warranties,
covenants, or agreements of this Agreement prior to
termination hereof.
9.2 WAIVER. Sellers or Purchaser may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered pursuant hereto and (c) waive compliance with any
of the agreements of the other or satisfaction of any of the conditions to its
obligations contained herein. Any extension or waiver made pursuant to this
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Section 9.2 must be by an instrument in writing signed on behalf of the party
granting the extension or waiver. A waiver by any party of any provision hereof
or breach hereof shall not operate or be construed as the waiver of any other
provision or any subsequent breach.
9.3 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable and any purported
assignment shall be null and void. Nothing contained in this Agreement shall be
deemed to confer any right or benefit upon any person other than the parties
hereto to the extent herein provided.
9.4 DOLLARS. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
9.5 BROKERS AND FINDERS. Sellers on the one hand and Purchaser on the
other, each agree to indemnify and hold the other harmless from and against any
claim made for a broker's or a finder's fee or other similar compensation (and
all related costs and expenses) asserted against an indemnified party which
arises out of or results from an action taken by an indemnifying party.
9.6 HEADINGS; SEVERABILITY. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of this Agreement shall be treated as separate and distinct
and, in the event of any provision hereof being declared invalid, such invalid
provision shall be deemed to be severable and all other provisions hereof shall
remain in full force and effect.
9.7 SCHEDULES. The Schedules are a part of this Agreement as if fully
set forth herein.
9.8 DISCLOSURES AND ANNOUNCEMENTS. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either Sellers or Purchaser shall
be subject to the approval of the other in all essential respects, except that
the Sellers' approval shall not be required as to any announcements or filings
Purchaser may be required to make under applicable laws or regulations.
9.9 EXPENSES. Sellers agree that all fees and expenses incurred by them
in connection with this Agreement shall be borne by Sellers including, without
limitation, all fees of counsel and accountants; and Purchaser agrees that all
fees and expenses incurred by it in connection with this Agreement shall be
borne by it, including, without limitation, all fees of counsel and accountants.
9.10 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the
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parties at their respective addresses indicated herein by private overnight
courier service. The respective addresses and telephone numbers to be used for
all such notices, demands or requests are as follows:
If to Purchaser: HealthCare Hearing Clinics, Inc.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
with a copy to: Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attn: G. Todd Norvell
Facsimile: (503) 224-0155
If to Sellers: Stephen Martinez
861 West Avenue 37th
Los Angeles, California 90065
Facsimile: (213) 481-3950
with a copy to: Stephen E. Scherer
Scherer, Bradford & Lyster
1901 Avenue of the Stars, 11th Floor
Los Angeles, California 90067
Facsimile: (310) 556-8945
Gregory J. Frazer
1477 Dwight Drive
Glendale, California 91207
Facsimile (818) 244-8889
with a copy to: Ms. Nancy Borders
Gardner, Carton & Douglas
321 N. Clark Street, Ste. 3400
Chicago, Illinois 60610
Facsimile: (312) 644-3381
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this section.
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9.11 RESOLUTION OF DISPUTES.
(a) ARBITRATION. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of
its terms shall be settled by binding arbitration held in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 9.11. Notwithstanding the foregoing,
HealthCare, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened
violation of the covenants of the Shareholders under Section 5.1(b) of
this Agreement.
(b) ARBITRATORS. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand
for arbitration, to exceed $50,000, then the panel to be appointed
shall consist of three neutral arbitrators; otherwise, one neutral
arbitrator.
(c) PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the
circumstances and shall resolve the dispute as expeditiously as
practicable, and if reasonably practicable, within 120 days after the
selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set
out, and shall have thirty (30) days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days
after the decision. Thereafter, the decision of the arbitrator(s) shall
be final, binding, and nonappealable with respect to all persons,
including (without limitation) persons who have failed or refused to
participate in the arbitration process.
(d) AUTHORITY. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorney fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and
subject matter jurisdiction. The Shareholders and HealthCare hereby
submit to the in personam jurisdiction of the federal and state courts
in California for the purpose of confirming any such award and entering
judgment thereon.
(f) CONFIDENTIALITY. All proceedings under this Section 9.11,
and all evidence given or discovered pursuant hereto, shall be
maintained in confidence by all parties.
(g) CONTINUED PERFORMANCE. The fact that the dispute
resolution procedures specified in this Section 13 shall have been or
may be invoked shall not excuse any party from performing its
obligations under this Agreement, and during the pendency of any such
procedure all parties shall continue to perform their respective
obligations in good
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faith, subject to any rights to terminate this Agreement that may be
available to any party.
9.12 GOVERNING LAW. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the state of California, excluding any choice of law rules that may direct the
application of the laws of another jurisdiction.
9.13 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
9.14 ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
9.15 FURTHER ASSURANCES. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents, instruments, or conveyances of any kind that
may be reasonable necessary or desirable to carry out any of the transactions
contemplated hereunder.
9.16 SELLERS ACTION. Whenever in this Agreement the Sellers are given
the discretion to take or not to take any action, the decision of the Sellers
shall be made pursuant to the vote of the Sellers holding a majority of the
Shares.
9.17 TERMINATION OF RESTRICTIONS. Upon the consummation of the
transactions provided for herein, any restrictions on the transfer of the Shares
shall be waived by Sellers and shall become void and of no further effect.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
SELLERS: PURCHASER:
HEALTHCARE HEARING CLINICS, INC., a
Washington corporation
/S/ STEPHEN MARTINEZ By: /S/ EDWIN J. KAWASAKI
Stephen Martinez Edwin J. Kawasaki
Executive Vice President
/S/ GREGORY J. FRAZER
Gregory J. Frazer
The undersigned, being the spouse of a Seller named in the foregoing Stock
Purchase and Sale Agreement, hereby relinquishes all right, title, and interest,
including, without limitation, any community property rights under California
law to the Seller's Shares and hereby consents and agrees to the transfer of
such Shares pursuant to such Agreement.
/S/ CARISSA BENNETT
Carissa Bennett
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SCHEDULES TO STOCK PURCHASE AND SALE AGREEMENT
Schedule 1.4(a) 365-Day Accounts Receivable
Schedule 2.2(a)(ii) Opinion of Sellers' Counsel
Schedule 2.2(b)(ii) Opinion of Purchaser's Counsel
Schedule III Disclosure Statement
Schedule 3.11(a) Leases
Schedule 3.11(b) Purchase Commitments
Schedule 3.11(c) Sales Commitments
Schedule 3.11(i) Other Material Contracts
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Employee Compensation
Schedule 3.14 Patents, Trademarks
Schedule 3.15 Product Warranty
Schedule 3.17 Key Employees; Banks
Schedule 5.1(c) Sellers' Loans
Schedule 5.2(a) Sellers' Personal Guarantees
Schedule 6.5(a) Noncompetition and Confidentiality Agreement
Schedule 6.5(b) Employment Agreement - Stephen Martinez
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<PAGE>
SUBORDINATED NOTE
December ___, 1996
1. HealthCare Hearing Clinics, Inc., a corporation duly organized and
existing under the laws of the State of Washington ("HHC"), for value received
hereby promises to pay to the order of __________________ ("Holder") the
principal sum of $___________ for the amount of the note payable as follows:
(a) Interest on the unpaid balance hereof at the rate of 6.5
percent per annum shall be payable on a calendar quarterly
basis on or before the tenth day following the end of each
quarter, and
(b) The principal amount hereof shall be payable in three equal
installments due on the first three anniversaries of the date
hereof.
This note has been delivered pursuant to Section 1.4 of that certain Stock
Purchase and Sale Agreement dated December 13, 1996, to which HHC and the Holder
hereof are parties (the "Agreement"). The amount owed Holder hereunder is
expressly subject to setoff as provided in Sections 1.5 and 1.6 of the
Agreement.
2. HHC, for itself and its successors and assigns, covenants and agrees,
and by acceptance hereof Holder likewise covenants and agrees, that the payment
of the principal of this note is hereby expressly subordinated, to the extent
and in the manner hereinafter set forth, in right of payment to the prior
payment in full of all Senior Indebtedness. As used herein "Senior Indebtedness"
means the principal of (and premium, if any) and unpaid interest on indebtedness
for borrowed money of HHC (including guarantees by HHC of indebtedness for
borrowed money of others), whether outstanding on the date hereof or hereafter
created, incurred, assumed, or guaranteed.
3. Upon any distribution of assets by HHC upon any dissolution, winding
up, liquidation, or reorganization of HHC, whether in bankruptcy, insolvency,
reorganization, or receivership proceedings or upon an assignment for the
benefit of creditors or any other marshalling of the assets and liabilities of
HHC or any other winding up of HHC (subject to the power of a court of competent
jurisdiction to make other equitable provision reflecting the rights conferred
hereby upon the Senior Indebtedness and the holders thereof with respect to this
note and Holder by a lawful plan of reorganization under applicable bankruptcy
law):
(a) the holders of all Senior Indebtedness shall first be entitled
to receive payment in full of the principal thereof (and
premium, if any) and the
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interest due thereon before Holder is entitled to receive any
payment upon the indebtedness evidenced by this note;
(b) any payment or distribution of assets of HHC of any kind or
character, whether in cash, property, or securities, to which
Holder would be entitled except for the provisions of this
Section 3 shall be paid by the liquidating trustee or agent or
other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holders of Senior Indebtedness or
their representative or representatives or to the trustee or
trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been
issued, ratably accordingly to the aggregate amounts remaining
unpaid on account of the principal of (and premium, if any)
and interest on the Senior Indebtedness held or represented by
each, to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such
Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of HHC of any kind or character,
whether in cash, property, or securities, shall be received by
Holder before all Senior Indebtedness is paid in full, such
payment or distribution shall be paid over to the holders of
such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably as
aforesaid, for application to the payment of all Senior
Indebtedness remaining unpaid until all such Senior
Indebtedness shall have been paid in full, after giving effect
to any concurrent payment or distribution to the holders of
such Senior Indebtedness; provided, however, that any such
payment or distribution -------- ------- received by Holder
shall not be required to be paid over to a holder of such
Senior Indebtedness as aforesaid if upon notice from Holder to
such holder of Senior Indebtedness, which notice shall state
that such payment or distribution has been received by Holder
and request that such holder notify Holder of the amounts then
due and owing to such holder on such Senior Indebtedness, such
holder of such Senior Indebtedness shall fail to so notify
Holder of such amounts then due and owing. The provisions of
this paragraph (c) shall not apply to any payment or
distribution of assets received by Holder prior to the date of
any distribution, assignment, marshalling, or other winding up
referred to in the first sentence of this Section 3.
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<PAGE>
Subject to the payment in full of all Senior Indebtedness, Holder shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property, or securities of HHC, as the case
may be, applicable to the Senior Indebtedness until the principal of this note
shall be paid in full and no such payments or distributions to Holder of cash,
property, or securities otherwise distributable to the Senior Indebtedness
shall, as between HHC, its creditors, other than the holders of Senior
Indebtedness, and Holder, be deemed to be a payment by HHC to or on account of
this note. It is understood that the provisions of Sections 2 and 3 are solely
for the purpose of defining the relative rights of Holder, on the one hand, and
the holders of the Senior Indebtedness on the other hand, against HHC and their
properties. Nothing contained in Sections 2 and 3 or elsewhere in this note is
intended to or shall impair, as between HHC and Holder, the obligation of HHC,
which is unconditional and absolute, to pay to Holder the principal of this note
as and when the same shall become due and payable in accordance with its terms
or to affect the relative rights of Holder and creditors of HHC other than the
holders of Senior Indebtedness, nor shall anything herein or in this note
prevent Holder from exercising all remedies otherwise permitted by applicable
law upon default, subject to the rights, if any, under Sections 2 and 3 of the
holders of Senior Indebtedness in respect to cash, property, or securities of
HHC received upon the exercise of any such remedy.
4. In the event and during the continuation of any default of which Holder
shall have received written notice in the payment of principal of (or premium,
if any) or interest on any Senior Indebtedness beyond any applicable period of
grace, or in the event that any event of default with respect to any Senior
Indebtedness of which Holder shall have received written notice shall have
occurred and be continuing, or would occur as a result of the payment referred
to hereinafter, permitting the holders of such Senior Indebtedness (or a trustee
or other representative on behalf of the holders thereof) to accelerate the
maturity thereof, then, unless and until such default or event of default shall
have been cured or waived or shall have ceased to exist, no payment of principal
of this note shall be made by HHC; provided, however that such prohibition on
the payment of principal of this note shall not apply if all holders of Senior
Indebtedness, upon receiving written notice from HHC requesting permission to
make a payment of principal on this note, fail to notify HHC in writing within
30 days after the date the notice requesting such permission is received that
such permission is denied.
5. Nothing contained in Sections 2, 3, or 4 shall prevent HHC at any time
except during the pendency of any of the conditions described in Sections 3 and
4, from making the scheduled principal payment provided for in Section 1.
6. No recourse shall be had for the payment of the principal on this note,
or for any claim based hereon, or otherwise in respect hereof, against any
incorporator, stockholder, officer, or director, as such, past, present, or
future, of HHC or of any successor corporation, whether by virtue of any
constitution, statute, or rule of law,
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<PAGE>
or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
7. The occurrence of any one or more of the following events shall
constitute an Event of Default under this note:
(a) HHC shall fail to observe or perform any obligation to be
observed or performed by it under this note, under the Stock
Purchase and Sale Agreement dated as of December ___, 1996,
between HHC and Holder, within thirty (30) days after written
notice from Holder to perform or observe the obligation or to
substantially commence to observe or perform and thereafter
diligently complete observance or performance if complete
observance or performance of the obligation is not possible
within thirty (30) days;
(b) HHC shall be in default under or fail to make any payment of
principal of or interest on any indebtedness for borrowed
money in a principal amount of at least Fifty Thousand Dollars
($50,000) and such default or failure shall continue beyond
any applicable grace period;
(c) HHC shall admit its inability to pay its debts as they mature
or shall make an assignment for the benefit of any of its
creditors;
(d) Proceedings in bankruptcy, or for reorganization of HHC, or
for the readjustment of any of HHC's debts, under any
bankruptcy code or under any other laws, whether state or
federal, for the relief of debtors, now or hereafter existing,
shall be commenced against or by HHC, and such receiver or
trustee shall not be discharged within sixty (60) days of his
appointment, or such proceedings shall not be dismissed or
discharged within sixty (60) days of their commencement;
(e) A receiver or trustee shall be appointed for HHC or for any
substantial part of HHC's assets, or any proceedings shall be
instituted for the dissolution or the full or partial
liquidation of HHC, and such receiver or trustee shall not be
discharged within sixty (60) days of his appointment, or such
proceedings shall not be dismissed or discharged within sixty
(60) days of their commencement, or HHC shall discontinue
business or materially change the nature of its businesses;
(f) HHC shall suffer final judgments for payment of money
aggregating in excess of Fifty Thousand Dollars ($50,000) and
shall not discharge the same within a period of sixty (60)
days unless, pending further
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proceedings, execution has not been commenced or, if
commenced, has been effectively stayed.
8. Upon the occurrence of an Event of Default, Holder shall have the right
to accelerate this note and to declare the entire unpaid balance hereof
immediately due and payable.
9. This note has not been registered under the Securities Act of 1933.
This note has been acquired for investment purposes only and not with a view
toward distribution or resale, and may not be mortgaged, pledged, hypothecated,
or otherwise transferred without an effective registration statement for this
note under the Securities Act of 1933 or an opinion of counsel reasonably
acceptable to counsel for HHC that registration is not required under the
Securities Act of 1933. This note is also subject to restrictions imposed by
applicable state securities laws.
10. This note is exempt from qualification under the Trust Indenture Act
of 1939. Therefore, Holder is aware that certain protections which might be
available under a note issued pursuant to a trust indenture qualified under the
Trust Indenture Act of 1939 will not be available.
11. No sinking fund will be established by HHC to assist HHC in retiring
this note upon maturity.
12. HHC agrees to pay all costs of collection of any amounts due hereunder
when incurred, including, without limitation, attorney fees and expenses,
including on any appeal.
13. HHC hereby waives presentment, demand, notice, and protest and any
defense by reason of extension of time for payment or other indulgences. Failure
of Holder to assert any right herein shall not be deemed to be a waiver thereof.
14. This note shall be governed by, and construed in accordance with, the
laws of the state of Oregon, including matters of construction, validity, and
performance.
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15. The payment of this note is guaranteed by HealthCare Capital Corp., a
corporation organized under the laws of the Province of Alberta, Canada, which
is the owner of all the issued and outstanding shares of HHC.
HEALTHCARE HEARING CLINICS, INC., a
Washington corporation
By
Brandon M. Dawson, President
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STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the plan is to provide certain directors, officers, and
key employees of, and certain other persons who provide services to, the
Corporation and its Affiliates with an opportunity to purchase Common Shares and
to benefit from any appreciation in the value thereof. This will provide an
increased incentive for these individuals to contribute to the future success
and prosperity of the Corporation, thus enhancing the value of the Common Shares
for the benefit of all the shareholders and increasing the ability of the
Corporation and its Affiliates to attract and retain skilled and motivated
individuals in the service of the Corporation.
2. DEFINED TERMS
Where used herein, the following terms shall have the following
meanings, respectively:
2.1 "Affiliate" means any corporation that is an affiliate of the
Corporation, as such term is defined under subsection 1(1) of the
BUSINESS CORPORATIONS ACT, (Alberta), as such provision is from time to
time amended, varied or reenacted.
2.2 "Board" means the board of directors of the Corporation;
2.3 "Common Shares" means the common shares of the Corporation or, in the
event of an adjustment contemplated by Article 6 hereof, such other
Common Shares to which a Participant may be entitled upon the exercise
of an Option as a result of such adjustment;
2.4 "Corporation" means Adventure Capital Corporation, and includes any
successor corporation thereof;
2.5 "Exchange" means The Alberta Stock Exchange or, if the Common Shares
are not then listed and posted for trading on The Alberta Stock
Exchange, on such stock exchange in Canada on which such shares are
listed and posted for trading as may be selected for such purpose by
the Board;
2.6 "Market Price" per Common Share at any date shall be the closing price
of the Common Shares on the Exchange (or, if the Common Shares are not
then listed and posted for trading on the Exchange), on such stock
exchange in Canada on which such shares are listed and posted for
trading as may be selected for such purpose by the Board) on the
trading day immediately preceding the date on which the Option is
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granted. In the event that the Common Shares are not listed and posted
for trading on any stock exchange in Canada, the Market Price shall be
determined by the Board in its sole discretion;
2.7 "Option" means an option to purchase Common Shares granted by the Board
to Participant, subject to the provisions contained herein;
2.8 "Option Price" means the price per share at which Common Shares may be
purchased under the Option, as the same may be adjusted in accordance
with Articles 4 and 6 hereof;
2.9 "Participants" means certain directors, officers, and key employees of,
and certain other persons who provide services to, the Corporation and
its Affiliates to whom Options are granted and which Options or a
portion thereof remain unexercised;
2.10 "Plan" means the Stock Option Plan Two of the Corporation, as the same
may be amended or varied from time to time; and
3. ADMINISTRATION OF THE PLAN
3.1 The Plan shall be administered by the Board. The Corporation shall
effect the grant of Options under the Plan, in accordance with
determinations made by the Board, pursuant to the provisions of the
Plan, as to those individuals eligible to be Participants and the
number of Common Shares which shall be the subject of each Option, by
the execution and delivery of a stock option agreement in such form
which is consistent with the provisions of the Plan as may be approved
by the Board.
3.2 The Board may, from time to time, adopt such rules and regulations for
administering the Plan as it may deem proper and in the best interests
of the Corporation and may, subject to applicable law, delegate its
power hereunder to administer the plan to a committee of the Board.
4. GRANTING OF OPTION
4.1 The Board from time to time may grant Options to certain individuals
eligible to be Participants. The grant of Options will be subject to
the conditions contained herein and may be subject to additional
conditions determined by the Board from time to time.
4.2 The aggregate number of Common Shares reserved for issuance under the
Plan must not exceed 10% of the outstanding Common Shares (on a
nondiluted basis). The aggregate number of Common Shares reserved for
issuance to any one person under the Plan must not exceed 5% of the
outstanding Common Shares (on a nondiluted basis). The Common Shares in
respect of which options are not exercised shall be
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available for subsequent options. No fractional shares may be purchased
or issued hereunder.
4.3 The Option Price shall be filed by the Board but under no circumstances
shall any Option Price at the time of the grant be lower than the
Market Price per Common Share less the maximum discount permitted under
the bylaws and policies of the Exchange.
4.4 At the discretion of the Board, the Option Price may increase
throughout the period or for any part for the period that the Option or
a portion thereof remains unexercised, by an amount per annum fixed by
the Board at the time the Option is granted.
4.5 An Option must be exercised within a period of five years from the date
of the granting of the Option. The limitation period or periods within
this five-year period during which an Option or a portion thereof may
be exercised by a Participant shall be determined by the Board.
5. EXERCISE OF OPTION
Subject to the provisions of the Plan and the terms of the granting of
the Option, an Option or a portion thereof may be exercised from time to time by
delivery to the Corporation at its registered office of notice in writing signed
by the Participant or the Participant's legal personal representative and
addressed to the Corporation. This notice shall state the intention of the
Participant or the Participant's legal personal representative to exercise the
said Option or a portion thereof, the number of Common Shares in respect of
which the Option is then being exercised and must be accompanied by payment in
full of the Option Price for the Common Shares which are the subject of the
exercise.
6. ADJUSTMENTS IN SHARES
6.1 Appropriate adjustments in the number of Common Shares subject to the Plan
and, as regards Options granted or to be granted, in the number of Common Shares
optioned and in the Option Price, shall be made by the Board to give effect to
adjustments in the number of Common Shares resulting from subdivisions,
consolidations, or reclassification of the Common Shares or other relevant
changes in the authorized or issued capital of the Corporation.
6.2 Options granted to Participants hereunder are nonassignable and, except in
the case of the death of a Participant (which is provided for in section 8), are
exercisable only by the Participant to whom the Options have been granted;
provided that subject to the prior approval of the Board and the Exchange an
Option may be assigned to a corporation controlled by the Participant and 100%
beneficially owned by the Participant and his spouse or children, which control
and ownership shall continue for as long as any part of the Option remains
unexercised.
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7. DECISIONS OF THE BOARD
All decisions and interpretations of the Board respecting the Plan or
Options granted thereunder shall be conclusive and binding on the Corporation
and the Participants and their respective legal personal representatives and on
all directors, officers, and employees eligible under the provisions of the Plan
to participate therein.
8. TERMINATION OF EMPLOYMENT/DEATH
8.1 An Option, and all rights to purchase Common Shares pursuant thereto, shall
expire and terminate immediately upon: the termination of the employment of the
Participant by the Corporation or Affiliate of the Corporation, the Participant
ceasing to be an officer or a director of the Corporation or any Affiliate, or
the Participant ceasing to provide services to the Corporation other than in the
circumstances referred to below.
8.2 If, before the expiry of an Option in accordance with the terms
thereof;
(i) in the case of a Participant who is an employee of
the Corporation or any Affiliate, the employment of
the Participant by the Corporation or by any of its
Affiliates shall terminate for any reason whatsoever
other than termination by the Corporation or the
Affiliate for cause; or
(ii) in the case of a Participant who is an officer or a
director of the Corporation or any Affiliate and not
an employee, such officer or director shall cease to
be an officer or a director of the Corporation or any
Affiliate for any reason; or
(iii) in the case of a Participant who provides services to
the Corporation or any Affiliate, such Participant
shall for any reason whatsoever other than
termination by the Corporation or the Affiliate of
its agreement with the Participant to provide
services because the Participant has been negligent
or has shown misconduct in providing the services;
such option may, subject to the terms thereof and any other terms of the Plan,
be exercised, if the Participant is deceased, by the legal personal
representatives of the Participant's estate or, if the Participant is alive, by
the Participant, at any time within that period (not to exceed one year)
following the date of the termination of employment or, the date a Participant
ceases to be an officer or director to the date the Participant ceases to
provide services, as applicable, as the Board may determine.
8.3 The Plan does not confer upon a Participant any right with respect to
continuation of employment by the Corporation or any Affiliate, nor does it
interfere in any way with the right of the Participant or the Corporation to
terminate the Participant's employment at any time.
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8.4 Options shall not be affected by any change of employment of the Participant
where the Participant continues to be employed by the Corporation or any of its
Affiliates.
9. AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may amend or discontinue the Plan at any time without the
consent of the Participants provided that such amendment shall not alter or
impair any Option previously granted under the Plan except as permitted by the
provisions of Article 6 hereof. Any amendment of the Plan will require the prior
approval of the Exchange and may require the approval of the Corporation's
shareholders.
10. GOVERNMENT REGULATION
The Corporation's obligation to issue and deliver Common Shares under
any Option is subject to:
(a) the satisfaction of all requirements under applicable
securities laws in respect thereof and obtaining all
regulatory approvals as the Corporation shall determine to be
necessary or advisable in connection with the authorization,
issuance, or sale thereof;
(b) the admission of such Common Shares to listing on any stock
exchange on which such Common Shares may then be listed; and
(c) the receipt from the Participant of such representations,
agreements, and undertakings as to future dealings in such
Common Shares as the Corporation determines to be necessary or
advisable in order to safeguard against the violation of the
securities laws of any jurisdiction.
In this connection, the Corporation shall take all reasonable steps to obtain
such approvals and registrations as may be necessary for the issuance of such
Common Shares in compliance with applicable securities laws and for the listing
of such Common Shares on any stock exchange on which such Common Shares are then
listed.
11. PARTICIPANT'S RIGHTS
A Participant shall not have any rights as a shareholder of the
Corporation until the issuance of a certificate of Common Shares upon the
exercise of an Option or a portion thereof, and then only with respect to the
Common Shares represented by such certificate or certificates.
12. APPROVALS
12.1 The Plan shall be subject to acceptance by the Exchange and compliance with
all conditions imposed by the Exchange.
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12.2 Any Options granted prior to such acceptance shall be conditional upon such
acceptance being given and any conditions complied with and no such Options may
be exercised unless such acceptance is given and such conditions are complied
with.
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HEALTHCARE CAPITAL CORP.
AMENDED AND RESTATED
STOCK AWARD PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT; AMENDMENT AND RESTATEMENT HealthCare
Capital Corp. ("Corporation"), established the HealthCare Capital Corp. Stock
Award Plan (the "Plan"), effective as of December 10, 1996, subject to
shareholder approval as provided in Article 11 of the Plan. The Plan was amended
and restated as set forth herein effective as of February 5, 1997.
1.2 PURPOSE. The purpose of the Plan is to promote and advance
the interests of Corporation and its shareholders by enabling Corporation to
attract, retain, and reward key employees of Corporation and its subsidiaries.
It is also intended to strengthen the mutuality of interests between such
employees and Corporation's shareholders. The Plan is designed to meet this
intent by offering stock options and other equity-based incentive awards,
thereby providing a proprietary interest in pursuing the long-term growth,
profitability, and financial success of Corporation.
ARTICLE 2
DEFINITIONS
2.1 DEFINED TERMS. For purposes of the Plan, the following
terms shall have the meanings set forth below:
"AWARD" means an award or grant made to a Participant of
Options pursuant to the Plan.
"AWARD AGREEMENT" means an agreement as described in Section
6.4 evidencing an Award granted under the Plan.
"BOARD" means the Board of Directors of Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, or any successor thereto, together with rules,
regulations, and interpretations promulgated thereunder. Where the context so
requires, any reference to a particular Code section shall be construed to refer
to the successor provision to such Code section.
"COMMON STOCK" means the Common Stock of Corporation or any
security of Corporation issued in substitution, exchange, or in lieu of such
stock.
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"CONTINUING RESTRICTION" means a Restriction contained in
Sections 6.5(e), 10.4, 10.5, and 10.7 of the Plan and any other Restrictions
expressly designated by the Board in an Award Agreement as a Continuing
Restriction.
"CORPORATION" means HealthCare Capital Corp., an Alberta,
Canada, corporation, or any successor corporation.
"DISABILITY" means the condition of being "disabled" within
the meaning of Section 422(c)(7) of the Code. However, the Board may change the
foregoing definition of "Disability" or may adopt a different definition for
purposes of specific Awards.
"DOLLARS" OR "$" means United States dollars.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute. Where the
context so requires, any reference to a particular section of the Exchange Act,
or to any rule promulgated under the Exchange Act, shall be construed to refer
to successor provisions to such section or rule.
"FAIR MARKET VALUE" of a Share on a particular day means,
without regard to any restrictions (other than a restriction which, by its
terms, will never lapse), the mean between the reported high and low sale
prices, or, if there is no sale on such day, the mean between the reported bid
and asked prices, for that day, of Shares of the applicable class on the
principal securities exchange or automated securities interdealer quotation
system on which such Shares shall have been traded.
"INCENTIVE STOCK OPTION" or "ISO" means any Option granted
pursuant to the Plan that is intended to be and is specifically designated in
its Award Agreement as an "incentive stock option" within the meaning of Section
422 of the Code.
"NONQUALIFIED OPTION" or "NQO" means any Option granted
pursuant to the Plan that is not an Incentive Stock Option.
"OPTION" means an ISO or an NQO.
"PARTICIPANT" means a full-time employee of Corporation or a
Subsidiary who is granted an Award under the Plan.
"PLAN" means this HealthCare Capital Corp. Stock Award Plan,
as it may be amended from time to time.
"REPORTING PERSON" means a Participant who is subject to the
reporting requirements of Section 16(a) of the Exchange Act.
"RESTRICTION" means a provision in the Plan or in an Award
Agreement which limits the exercisability or transferability, or which governs
the forfeiture, of an Award or the Shares, cash, or other property payable
pursuant to an Award.
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"RETIREMENT" means retirement from active employment with
Corporation and its Subsidiaries at or after age 65, or such earlier retirement
date as approved by the Board for purposes of the Plan. However, the Board may
change the foregoing definition of "Retirement" or may adopt a different
definition for purposes of specific Awards.
"SHARE" means a share of Common Stock.
"SUBSIDIARY" means a "subsidiary corporation" of Corporation
within the meaning of Section 425 of the Code, namely any corporation in which
Corporation directly or indirectly controls 50 percent or more of the total
combined voting power of all classes of stock having voting power.
"VEST" or "VESTED" means:
(a) In the case of an Award that requires exercise, to be or
to become immediately and fully exercisable and free of all
Restrictions (other than Continuing Restrictions);
(b) In the case of an Award that is subject to forfeiture, to
be or to become nonforfeitable, freely transferable, and free of all
Restrictions (other than Continuing Restrictions);
(c) In the case of an Award that is required to be earned by
attaining specified Performance Goals, to be or to become earned and
nonforfeitable, freely transferable, and free of all Restrictions
(other than Continuing Restrictions); or
(d) In the case of any other Award as to which payment is not
dependent solely upon the exercise of a right, election, or option; to
be or to become immediately payable and free of all Restrictions
(except Continuing Restrictions).
2.2 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine or feminine terminology used in the Plan shall also
include the opposite gender; and the definition of any term in Section in the
singular shall also include the plural, and vice versa.
ARTICLE 3
ADMINISTRATION
3.1 GENERAL. Except as provided in Section 3.2, the Plan shall
be administered by the Board.
3.2 COMMITTEE. The Board may delegate administration of the
Plan to a committee of two or more members of the Board who are not employees of
Corporation or its subsidiaries. In the event the Board delegates administration
to such a committee, the committee will have all the authority of the Board with
respect to administration of the Plan.
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3.3 AUTHORITY OF THE BOARD. The Board shall have full power
and authority to administer the Plan in its sole discretion, including the
authority to:
(a) Construe and interpret the Plan and any Award Agreement;
(b) Promulgate, amend, and rescind rules and procedures
relating to the implementation of the Plan;
(c) With respect to Participants:
(i) Select the employees who will be granted Awards;
(ii) Determine the number and types of Awards to be
granted to each Participant;
(iii) Determine the number of Shares to be subject to
each Award;
(iv) Determine the option price or similar feature
for any Award; and
(v) Determine all the terms and conditions of all
Award Agreements, consistent with the requirements of the
Plan.
Decisions of the Board, or any delegate as permitted by the Plan, will be final,
conclusive, and binding on all Participants.
3.4 DELEGATION. Notwithstanding the foregoing, the Board may
delegate to one or more officers of Corporation the authority to determine the
recipients, types, amounts, and terms of Awards granted to Participants who are
not Reporting Persons.
3.5 LIABILITY OF BOARD MEMBERS. No member of the Board will be
liable for any action or determination made in good faith with respect to the
Plan, any Award, or any Participant.
3.6 COSTS OF PLAN. The costs and expenses of administering the
Plan will be borne by Corporation.
ARTICLE 4
DURATION OF THE PLAN AND SHARES SUBJECT TO THE PLAN
4.1 DURATION OF THE PLAN. The Plan is effective December 10,
1996, subject to approval by Corporation's shareholders as provided in Article
11 of the Plan. The Plan will remain in effect until Awards have been granted
covering all the available Shares or the Plan is otherwise terminated by the
Board. Termination of the Plan will not affect outstanding Awards.
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4.2 SHARES SUBJECT TO THE PLAN.
4.2.1 GENERAL. The shares which may be made subject to Awards
under the Plan are Shares of Common Stock, which may be either authorized and
unissued Shares or reacquired Shares. No fractional Shares may be issued under
the Plan. If an Award under the Plan is canceled or expires for any reason prior
to having been fully Vested or exercised by a Participant or is settled in cash
in lieu of Shares or is exchanged for other Awards, all Shares covered by such
Awards will be made available for future Awards under the Plan.
4.2.2 MAXIMUM NUMBER OF SHARES. The maximum number of Shares
for which Awards may be granted under the Plan is 1,500,000 Shares, subject to
adjustment pursuant to Article 8 of the Plan.
4.2.3 AVAILABILITY OF SHARES FOR FUTURE AWARDS. If an Award
under the Plan is canceled or expires for any reason prior to having been fully
Vested or exercised by a Participant or is settled in cash in lieu of Shares or
is exchanged for other Awards, all Shares covered by such Awards will be made
available for future Awards under the Plan.
ARTICLE 5
ELIGIBILITY
Officers and other key employees of Corporation and its
Subsidiaries (who may also be directors of Corporation or a Subsidiary) who are
full-time employees and who, in the Board's judgment, are or will be
contributors to the long-term success of Corporation shall be eligible to
receive Awards under the Plan.
ARTICLE 6
AWARDS
6.1 TYPES OF AWARDS. The types of Awards that may be granted
under the Plan are Options governed by Article of the Plan.
6.2 GENERAL. Subject to the limitations of the Plan, the Board
may cause Corporation to grant Awards to such Participants, at such times, of
such types, in such amounts, for such periods, with such option prices, and
subject to such terms, conditions, limitations, and restrictions as the Board,
in its discretion, deems appropriate. Awards may be granted as additional
compensation to a Participant or in lieu of other compensation to such
Participant. A Participant may receive more than one Award and more than one
type of Award under the Plan.
6.3 NONUNIFORM DETERMINATIONS. The Board's determinations
under the Plan or under one or more Award Agreements, including without
limitation, the selection of Participants to receive Awards, the type, form,
amount, and timing of Awards, the terms of specific Award Agreements, and
elections and determinations made by the Board with respect to exercise or
payments of Awards, need not be uniform and may be made by the
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Board selectively among Participants and Awards, whether or not Participants are
similarly situated.
6.4 AWARD AGREEMENTS. Each Award will be evidenced by a
written Award Agreement between Corporation and the Participant. Award
Agreements must be approved by, or at the discretion of, the Board and may,
subject to the provisions of the Plan, contain any provision approved by the
Board.
6.5 PROVISIONS GOVERNING ALL AWARDS. All Awards will be
subject to the following provisions:
(a) RIGHTS AS SHAREHOLDERS. No Participant will have any
rights of a shareholder with respect to Shares subject to an Award
until such Shares are issued in the name of the Participant.
(b) EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor
the granting of any Award will confer on any person the right to
continued employment with Corporation or any Subsidiary and will not
interfere in any way with the right of Corporation or a Subsidiary to
terminate such person's employment at any time for any reason or for no
reason, with or without cause.
(c) TERMINATION OF EMPLOYMENT. The terms and conditions under
which an Award may be exercised, if at all, after a Participant's
termination of employment will be determined by the Board and specified
in the applicable Award Agreement.
(d) CHANGE IN CONTROL. The Board, in its discretion, may
provide in any Award Agreement that in the event of a change in control
of Corporation (as the Board may define such term in the Award
Agreement), as of the date of such change in control:
(i) All, or a specified portion of, Awards requiring
exercise will become fully and immediately exercisable,
notwithstanding any other limitations on exercise;
(ii) All, or a specified portion of, Awards subject
to Restrictions will become fully Vested; and
(iii) All, or a specified portion of, Awards subject
to Performance Goals will be deemed to have been fully earned.
The Board, in its discretion, may include change in control provisions
in some Award Agreements and not in others, may include different
change in control provisions in different Award Agreements, and may
include change in control provisions for some Awards or some
Participants and not for others.
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(e) REPORTING PERSONS. With respect to all Awards granted to
Reporting Persons, the Award Agreement will provide that:
(i) Awards requiring exercise will not be exercisable
until at least six months after the date the Award was
granted, except in the case of the death or Disability of the
Participant; and
(ii) Shares issued pursuant to any other Award may
not be sold by the Participant for at least six months after
acquisition, except in the case of the death or Disability of
the Participant;
provided, however, that (unless an Award Agreement provides otherwise)
the limitation of this Section (e) will apply only if or to the extent
required by Rule 16b-3 under the Exchange Act or any applicable
successor provision. Award Agreements for Awards to Reporting Persons
will also comply with any future restrictions imposed by such Rule
16b-3.
(f) SERVICE PERIODS. At the time of granting Awards, the Board
may specify, by resolution or in the Award Agreement, the period or
periods of service performed or to be performed by the Participant in
connection with the grant of the Award.
ARTICLE 7
OPTIONS
7.1 TYPES OF OPTIONS. Options granted under the Plan may be in
the form of Incentive Stock Options or Nonqualified Options. The grant of each
Option and the Award Agreement governing each Option will identify the Option as
an ISO or an NQO. In the event the Code is amended to provide for tax-favored
forms of stock options other than or in addition to Incentive Stock Options, the
Board may grant Options under the Plan meeting the requirements of such forms of
options.
7.2 GENERAL. Options will be subject to the terms and
conditions set forth in Article of the Plan and this Article and may contain
such additional terms and conditions, not inconsistent with the express
provisions of the Plan, as the Board deems desirable.
7.3 OPTION PRICE. Each Award Agreement for Options will state
the option exercise price per Share of Common Stock purchasable under the
Option, which will not be less than 100 percent of the Fair Market Value of a
Share on the date of grant.
7.4 OPTION TERM. The Award Agreement for each Option will
specify the term of each Option not to exceed five years during which the Option
may be exercised, as determined by the Board.
7.5 TIME OF EXERCISE. The Award Agreement for each Option will
specify, as determined by the Board:
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(a) The time or times when the Option will become exercisable
and whether the Option will become exercisable in full or in graduated
amounts over a period specified in the Award Agreement;
(b) Such other terms, conditions, and restrictions as to when
the Option may be exercised as are determined by the Board; and
(c) The extent, if any, to which the Option will remain
exercisable after the Participant ceases to be an employee of
Corporation or a Subsidiary.
An Award Agreement for an Option may, in the discretion of the Board, provide
whether, and to what extent, the Option will become immediately and fully
exercisable (i) in the event of the death, Disability, or Retirement of the
Participant, or (ii) upon the occurrence of a change in control of Corporation.
7.6 METHOD OF EXERCISE. The Award Agreement for each Option
will specify the method or methods of payment acceptable upon exercise of an
Option. An Award Agreement may provide that the option price is payable in full
in cash or, at the discretion of the Board, in installments on such terms and
over such period as the Board determines or in any other form approved by the
Board.
7.7 SPECIAL RULES FOR INCENTIVE STOCK OPTIONS. In the case of
an Option designated as an Incentive Stock Option, the terms of the Option and
the Award Agreement will be in conformance with the statutory and regulatory
requirements specified in Section 422 of the Code, as in effect on the date such
ISO is granted. ISOs may not be granted under the Plan after December 10, 2006,
unless the ten-year limitation of Section 422(b)(2) of the Code is removed or
extended.
ARTICLE 8
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
8.1 PLAN DOES NOT RESTRICT CORPORATION. The existence of the
Plan and the Awards granted under the Plan will not affect or restrict in any
way the right or power of the Board or the shareholders of Corporation to make
or authorize any adjustment, recapitalization, reorganization, or other change
in Corporation's capital structure or its business, any merger or consolidation
of the Corporation, any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting Corporation's capital stock or the
rights thereof, the dissolution or liquidation of Corporation or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding.
8.2 ADJUSTMENTS BY THE BOARD. In the event of any change in
capitalization affecting the Common Stock of Corporation, such as a stock
dividend, stock split, recapitalization, merger, consolidation, split-up,
combination or exchange of shares or other form of reorganization, or any other
change affecting the Common Stock, such proportionate adjustments, if any, as
the Board, in its sole discretion, may deem appropriate to reflect such change,
will be made with respect to the aggregate number of Shares for which Awards in
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respect thereof may be granted under the Plan, the maximum number of Shares
which may be sold or awarded to any Participant, the number of Shares covered by
each outstanding Award, and the price per Share in respect of outstanding
Awards. The Board may also make such adjustments in the number of Shares covered
by, and price or other value of any outstanding Awards in the event of a
spin-off or other distribution (other than normal cash dividends), of
Corporation assets to shareholders.
ARTICLE 9
AMENDMENT AND TERMINATION
Without further approval of Corporation's shareholders, the
Board may at any time terminate the Plan, or may amend it from time to time in
such respects as the Board may deem advisable, except that the Board may not,
without approval of the shareholders, make any amendment that would materially
increase the aggregate number of shares of Common Stock that may be issued under
the Plan (except for adjustments pursuant to Article 8 of the Plan). Without
further shareholder approval, the Board may amend the Plan to take into account
changes in applicable securities, federal income tax laws, and other applicable
laws. Further, should the provisions of Rule 16b-3, or any successor rule under
the Exchange Act be amended, the Board, without further shareholder approval,
may amend the Plan as necessary to comply with any modifications to such rule.
ARTICLE 10
MISCELLANEOUS
10.1 TAX WITHHOLDING.
10.1.1 GENERAL. Corporation will have the right to deduct from
any settlement of any Award under the Plan, including the delivery of Shares,
any federal, state, or local taxes of any kind required by law to be withheld
with respect to such payments or to take such other action as may be necessary
in the opinion of Corporation to satisfy all obligations for the payment of such
taxes. The recipient of any payment or distribution under the Plan may be
required to make arrangements satisfactory to Corporation for the satisfaction
of any such withholding tax obligations, whether or not such recipient is an
employee of Corporation or a Subsidiary on the date of such settlement.
Corporation will not be required to make any such payment or distribution under
the Plan until such obligations are satisfied.
10.2 UNFUNDED PLAN. The Plan will be unfunded and Corporation
will not be required to segregate any assets that may at any time be represented
by Awards under the Plan. Any liability of Corporation to any person with
respect to any Award under the Plan will be based solely upon any contractual
obligations that may be effected pursuant to the Plan. No such obligation of
Corporation will be deemed to be secured by any pledge of, or other encumbrance
on, any property of Corporation.
10.3 PAYMENTS TO TRUST. The Board is authorized to cause to be
established a trust agreement or several trust agreements whereunder the Board
may make payments of
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amounts due or to become due to Participants in the Plan. However, the Board has
no obligation to establish such a trust or fund.
10.4 ANNULMENT OF AWARDS. Any Award Agreement may provide that
the grant of an Award payable in cash is provisional until cash is paid in
settlement of such Award or that the grant of an Award payable in Shares is
provisional until the Participant becomes entitled to the stock certificate in
settlement of such Award. In the event the employment of a Participant is
terminated for cause (as defined below), any Award that is provisional will be
annulled as of the date of such termination for cause. For the purpose of this
Section 10.4, the term "for cause" will have the meaning set forth in the
Participant's employment agreement, if any, or otherwise means any discharge for
material or flagrant violation of the policies and procedures of Corporation or
for other job performance or conduct that is materially detrimental to the best
interests of Corporation, as determined by the Board.
10.5 ENGAGING IN COMPETITION WITH CORPORATION. Any Award
Agreement may provide that, if a Participant terminates employment with
Corporation or a Subsidiary for any reason whatsoever, and within 18 months
after the date of such termination accepts employment with any competitor of (or
otherwise engages in competition with) Corporation, the Board, in its sole
discretion, may require such Participant to return to Corporation the economic
value of any Award that is realized or obtained (measured at the date of
exercise, Vesting, or payment) by such Participant at any time during the period
beginning on the date that is six months prior to the date of such Participant's
termination of employment with Corporation.
10.6 OTHER CORPORATION BENEFIT AND COMPENSATION PROGRAMS.
Payments and other benefits received by a Participant under an Award made
pursuant to the Plan will not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination indemnity or severance
pay law of any state or country and will not be included in, or have any effect
on, the determination of benefits under any other employee benefit plan or
similar arrangement provided by Corporation or a Subsidiary unless expressly so
provided by such other plan or arrangements, or except where the Board expressly
determines that an Award or portion of an Award should be included to accurately
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of cash compensation. Awards under the Plan may
be made in combination with or in tandem with, or as alternatives to, grants,
awards, or payments under any other Corporation or Subsidiary plans,
arrangements, or programs. The Plan notwithstanding, Corporation or any
Subsidiary may adopt such other compensation programs and additional
compensation arrangements as it deems necessary to attract, retain, and reward
employees and directors for their service with Corporation and its Subsidiaries.
10.7 SECURITIES LAW RESTRICTIONS. No Shares will be issued
under the Plan unless counsel for Corporation is satisfied that such issuance
will be in compliance with applicable federal and state securities laws.
Certificates for Shares delivered under the Plan may be subject to such
stop-transfer orders and other restrictions as the Board deems advisable under
the rules, regulations, and other requirements of the Securities and Exchange
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Commission, any stock exchange upon which the Common Stock is then listed, and
any applicable federal or state securities law. The Board may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
10.8 GOVERNING LAW. Except with respect to references to the
Code or federal securities laws, the Plan and all actions taken thereunder will
be governed by and construed in accordance with the laws of Oregon.
ARTICLE 11
SHAREHOLDER APPROVAL
The adoption of the Plan and any grant of Awards under the
Plan is expressly subject to the approval of the Plan by the shareholders at the
1997 annual meeting of Corporation's shareholders.
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EMPLOYMENT AGREEMENT
(Vice President)
AGREEMENT dated October 1, 1996, by and between HEALTHCARE
HEARING CLINICS, INC., a Washington corporation ("HealthCare"), and GREGORY J.
FRAZER ("Employee").
RECITALS:
A. HealthCare operates audiology and hearing aid clinics in
the United States which provide services directly to members of the public and
through referrals from the medical community.
B. Employee is a principal shareholder in a number of
California corporations operated in conjunction with each other under the name
"Hearing Care Associates". Such corporations operate audiology and hearing aid
clinics in the Los Angeles, California, metropolitan area. Pursuant to a Merger
Agreement dated October 1, 1996 (the "Merger Agreement"), three of such
corporations Hearing Care Associates - Glendale, Inc., Hearing Care Associates -
Glendora, Inc., and Hearing Care Associates - Northridge, Inc. (such
corporations are hereinafter referred to as "HCA"), are being acquired by
HealthCare by means of a merger of HCA into HealthCare.
C. Employee has heretofore been an officer of HCA and
as a result possesses an intimate knowledge of the business
operations, policies, methods, and personnel of HCA.
D. Because of, among other matters, Employee's intimate
knowledge of HCA and his reputation and relationships with, among others,
clients, customers, suppliers, distributors, and employees of HCA, HealthCare
recognizes and Employee acknowledges the detrimental effect on the business
HealthCare is acquiring from HCA and the decreased value of such business which
would result if Employee were to enter into competition with HealthCare.
E. It is a material condition to HealthCare's obligation to
consummate the transaction provided for in the Merger Agreement and the other
transactions contemplated thereby that Employee enter into this Agreement.
TERMS:
In consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
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1. EMPLOYMENT RELATIONSHIP.
1.1 EMPLOYMENT. On the terms and conditions set forth herein,
HealthCare hereby employs Employee and Employee hereby accepts such employment
with HealthCare as Vice President-Business Development. The Employee shall be
responsible for developing relationships with existing managed care and group
benefit plans, and initiating and implementing managed care and group benefit
plans, for and on behalf of the entire HealthCare operation. During the period
of employment, the Employee shall perform such additional services not
inconsistent with his position as shall be designated by the President or the
Board of Directors of HealthCare, use his best efforts to promote the interests
of HealthCare, and serve as a director of HealthCare. During the term of
employment neither Employee's title nor responsibilities shall be diminished and
he shall continue to enjoy all the benefits, responsibilities, authority,
perquisites and participation in the management and affairs of HealthCare as may
be afforded comparable senior executive employees of HealthCare. For so long as
Employee serves as a director of HealthCare, HealthCare shall fully indemnify
Employee for the performance of his duties as a director and shall maintain
directors and officers liability insurance in such amounts and with such
carriers as are reasonable in HealthCare's industry. The failure of Employee to
be elected at any time as a director or the cessation of his services as such
through no fault of his own shall not affect nor reduce any of HealthCare's
obligations hereunder and shall not be considered a breach hereof. Employee
shall not be required to perform services at or relocate his practice to a
clinic other than the HCA clinic at which he currently or at any time performs
services hereunder without his prior consent. Employee understands that the
performance of his duties hereunder may require reasonable travel, but Employee
shall in no event be required to travel on weekends or holidays without his
consent.
1.2 EXCLUSIVE EMPLOYMENT. During the term of this Agreement,
Employee will devote his full working time, energy, attention, and skill to his
duties hereunder and to the promotion of HealthCare's business. During the term
of this Agreement, Employee shall not engage in any other business activity for
gain provided that this restriction shall not be construed to prohibit Employee
from making personal investments in such form and manner as will neither require
any material amount of time or services or violate any of the terms of this
Agreement.
2. TERM.
This Agreement is being entered into in contemplation of the
acquisition by HealthCare of the interests in HCA owned by Employee. This
Agreement shall become effective as of the date of closing of the merger
provided for in the Merger Agreement (the "Closing Date"). The initial term of
this Agreement shall commence as of the Closing Date and shall end on the fifth
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anniversary of such date. unless sooner terminated pursuant to the terms hereof.
Provided this Agreement has not been earlier terminated, upon the expiration of
the initial term hereof, it shall be renewed and continue for successive
additional 12-month periods until terminated. Either party hereto may terminate
this Agreement as of the end of the initial term or any renewal term by written
notice to the other party given at least 90 days prior to the end of the initial
or a renewal term.
3. COMPENSATION.
3.1 SALARY. For his services under this Agreement, Employee
shall receive a base salary of $110,000 per year which shall be paid (subject to
applicable payroll withholding deductions) in accordance with HealthCare's
payroll policy as in effect from time to time. For any partial month worked,
such salary shall be pro rated on a daily basis. If Employee's salary and other
remuneration is increased at any time during the term of this Agreement, it
shall not thereafter be decreased or diminished below the level of the most
recent increase.
3.2 BONUSES. For each of the first three fiscal years of
HealthCare which end after the date hereof, Employee shall be paid a bonus equal
to 9.04 percent of the aggregate net income of the clinics HCA is operating at
the date hereof in excess of a total of $486,390 ("Base Net Income"). It is
presently contemplated that HealthCare will acquire Employee's interest in
additional corporations operating under the name Hearing Care Associates. As
such additional corporations are acquired, Base Net Income shall be increased to
reflect such acquisitions in accordance with SCHEDULE 3.2 attached hereto.
Clinic net income shall be calculated in accordance with generally accepted
accounting principles applied on a consistent basis. In calculating such net
income, clinics shall be subject to a corporate overhead expense charge equal to
6 percent of gross revenues. Calculation of Employee's bonus shall be made in
accordance with the following example:
Revenue $ 4,000,000
Net Income $ 1,000,000
6% Overhead charge 240,000
-----------
Net Income after Overhead 760,000
Base Net Income 486,390
-----------
Excess 273,610
Bonus Percentage 9.04%
-----------
Bonus $ 24,734
===========
Bonus payments shall be made within 90 days following the end of each fiscal
year. In the event this Agreement and Employee's employment hereunder terminates
prior to the end of a fiscal year, Employee's bonus for such year shall be
computed based upon net income calculated through the date of termination.
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3.3 BENEFITS. During the term of this Agreement, HealthCare
shall provide to or for the benefit of Employee all benefits he currently enjoys
in connection with his position with HCA (excluding life and disability
insurance in excess of that provided to HealthCare's comparable senior managers
generally) at such levels of coverage he currently enjoys. Subject to the
foregoing, HealthCare shall provide to or for the benefit of Employee:
(a) Such insurance and other fringe benefits as HealthCare
shall establish from time to time for senior executive employees of
HealthCare including, without limitation, dependent medical and dental
insurance;
(b) During each calendar year of the term hereof, Employee
shall be entitled to 25 days vacation plus one Friday each month, nine
holidays, six days of sick leave, and three days of bereavement leave
(with such paid time off being prorated for partial years on a daily
basis); vacation time shall be scheduled by mutual agreement of
HealthCare and Employee; Employee shall also be entitled to five (or
such greater number as HealthCare shall approve) days each year
(prorated as specified above) to attend professional conferences or
seminars or to participate in other professional educational
activities, subject to prior approval by HealthCare;
(c) Professional liability insurance coverage in such amounts
as HealthCare shall from time to time deem appropriate but in no event
less than $1,000,000 per occurrence and $3,000,000 aggregate or such
greater amounts as may be appropriate and customary in the applicable
profession, with a highest-rated carrier;
(d) Reimbursement for all professional audiology
license fees and hearing aid dispensing license fees;
(e) HealthCare shall provide Employee reimbursement for the
cost of leasing an automobile up to a maximum of $600 per month and
shall reimburse Employee for all reasonable operating costs of the
leased automobile including insurance, gasoline, maintenance and
repairs;
(f) Employee shall be reimbursed for the cost of a cellular
telephone, two telephone lines at his residence, a facsimile machine at
his residence, a home computer at his residence, and answering and
paging services, and all costs, fees, charges, taxes and expenses
related to the use and operation of all of the foregoing.
(g) An allowance in an amount approved in advance by
HealthCare but not less than $1,000 per year during the term hereof
(prorated for partial years) for books, journals, professional and
other organization dues or membership fees
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and educational expenses related to the field of clinical audiology;
allowance payments shall be made when receipts are presented for
reimbursement; and
(h) Reimbursement of other reasonable business expenses to the
extent approved in advance by HealthCare or otherwise consistent with
HealthCare's policies applicable to its senior executive employees.
Employee shall also become entitled to participate in such bonus and profit
sharing plans as HealthCare may provide for the benefit of its senior executive
employees generally.
3.4 STOCK OPTIONS. HealthCare shall, effective as of the
Closing Date (as defined in Section 2 hereof), grant to Employee options to
purchase 200,000 shares of the common stock of HealthCare. The option exercise
price shall equal the closing price of a share of HealthCare common stock on the
Alberta Stock Exchange as of the close of business on the Closing Date less the
maximum discount permitted under the rules of the Alberta Stock Exchange. The
option shall become exercisable with respect to 50 percent of the shares it
covers after the first anniversary of the Closing Date and shall become
exercisable in full after the second anniversary of the Closing Date. Promptly
after the Closing Date, Employee will be elected to HealthCare's Board of
Directors. Upon being elected, Employee shall be granted options to purchase an
additional 200,000 shares of the common stock of HealthCare. The option exercise
price and the option exercise date shall be as provided above except that the
date of Employee's election to HealthCare's Board shall be substituted for the
Closing Date. It shall be a condition to the grant and exercise of such options
that Employee must make suitable arrangements for the payment of payroll
withholding taxes which HealthCare may be required to withhold upon such grant
or exercise.
4. NONDISCLOSURE; NONCOMPETITION.
4.1 PROPRIETARY INFORMATION. Employee acknowledges that as a
result of his prior relationship with HCA and in the course of his employment
with HealthCare, he has acquired and will learn trade secrets and confidential
information of HCA (which has been acquired by HealthCare under the Merger
Agreement) and HealthCare which if known to competitors could damage
HealthCare's business. Such confidential information will include, but not be
limited to, some or all of the following categories of information ("Proprietary
Information"):
(a) Financial Information including, but not limited to
information relating to revenues, assets, expenses, prices, pricing
structures, volume of purchases or sales or other financial data
whether related to HealthCare generally, or to particular products,
services, geographic areas, or time periods;
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(b) Supply and service information including, but not limited
to information relating to suppliers' names and addresses, terms of
supply and service contracts or of particular transactions, and related
information about potential suppliers to the extent that such
information is not generally known to the public, and to the extent
that the combination of suppliers or use of a particular supplier,
though generally known or available, yields advantages to HealthCare
the details of which are not generally known;
(c) Marketing information including, but not limited to
information relating to details of ongoing or proposed marketing
programs or agreements by or on behalf of HealthCare, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel information including, but not limited to
information relating to personal or medical histories, compensation or
other terms of employment, actual or proposed promotions, hirings,
resignations, disciplinary actions, terminations or reasons therefore,
training methods, performance, or other information concerning
employees of HealthCare; and
(e) Client information including, but not limited to
information relating to past, existing or prospective client's names,
addresses or backgrounds, records of treatment, terms of sales or
agreements between clients and HealthCare, status of clients' accounts
or credit, or related information about actual or prospective clients
as well as client lists.
Employee agrees to keep all Proprietary Information
confidential. Except as may be necessary in the performance of his duties on
behalf of HealthCare, Employee will make no use of and will not communicate or
divulge to any party whatsoever any Proprietary Information. Employee will not
at any time after his employment with HealthCare terminates use any Proprietary
Information for his own benefit or on behalf of any person, firm, partnership,
association, corporation, or other party whatsoever. This covenant shall not
apply to any information that by means other than Employee's deliberate or
inadvertent disclosure becomes well known to the public or to disclosure
compelled by judicial or administrative proceedings after Employee diligently
(at HealthCare's expense) tries to avoid each disclosure and affords HealthCare
the opportunity to obtain assurance that compelled disclosures will receive
confidential treatment.
4.2 OWNERSHIP AND RETURN OF DOCUMENTS. Employee agrees that
all records or materials (written or in computer format), notes, memoranda or
other documents and all copies thereof relating to Proprietary Information, some
of which may be
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prepared by Employee, and all objects associated therewith in any way shall be
HealthCare's property. Employee shall not, except as may be necessary for use in
HealthCare's business operations, copy or duplicate any of the aforementioned
documents or objects, nor remove them from HealthCare's facilities nor use any
information concerning them except for HealthCare's benefit, either during his
employment or thereafter. Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his possession to HealthCare
on termination of his employment, or at any other time on HealthCare's request,
together with his written certification of compliance with the provisions of
this Section 4.2.
4.3 NONSOLICITATION AND NONCOMPETITION. Employee agrees that
during the term of this Agreement and for a period of 36 full calendar months
following the termination of Employee's employment hereunder, Employee will not,
directly or indirectly, for himself or on behalf of any other party:
(a) Be engaged directly or indirectly (as an individual or
stockholder, officer, director, partner, agent, employee, direct or
indirect owner or representative of any person, firm, corporation or
association) in any business competitive with the business being
carried on by HealthCare at such time of termination within Los Angeles
County and Orange County, California;
(b) Participate in, assist, engage in, advise or consult for,
lend money to, guarantee the debts or obligations of, permit his name
to be used by or in any way be connected with any business similar in
nature to all or any part of HealthCare's business or which competes in
any way with HealthCare's business;
(c) Call upon or endeavor to transact business in competition
with HealthCare with any party who was a client or customer of
HealthCare while Employee was employed hereunder (such period being
hereinafter referred to as the "Employment Period"); or
(d) Disturb, hire, entice away or in any other manner persuade
any employee, client, or customer of HealthCare who was an employee,
client, or customer of HealthCare during the Employment Period, to
alter, modify or terminate his, her, or its relationship with
HealthCare as an employee, client, or customer as the case may be.
Notwithstanding the foregoing, Employee may be a passive investor in up to 10
percent of the stock of any publicly traded company.
4.4 REMEDIES FOR BREACH. Employee acknowledges that
in the event of his breach of this Section 4, damages will be
difficult or impossible to ascertain, and it is therefore agreed
that HealthCare, in addition to, and without limiting any other
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<PAGE>
remedy or right it may have, shall have the right to an injunction enjoining
said breach issued by a court of competent jurisdiction. In the event any
litigation or controversy between the parties hereto arises out of or in
connection with this Agreement, the prevailing party in such litigation or
controversy shall be entitled to recover from the other party all reasonable
attorney fees, expenses and costs, including those associated with any appellate
proceedings or post-judgment collection proceedings.
5. DEVELOPMENTS.
There shall become the exclusive property of HealthCare every
invention and improvement conceived, invented or developed by Employee during
the term hereof and for a period of one year thereafter relating to or usable in
(i) in any business then being carried on or actively contemplated by HealthCare
or (ii) the production of any product then being manufactured, sold, used or in
the process of development by HealthCare or which may be sold or used in
competition with any such product. With respect to all such inventive ideas
originated or developed by Employee while in the employ of HealthCare, or
developed by Employee within the period of one year thereafter, which relate to
the business or related products, designs, ideas or techniques sold, used or in
the process of development by HealthCare during the term, or as to which
Employee has acquired information as a result of such employment, and all
patents, trademarks and/or copyrights obtained on such inventive ideas:
(a) Employee agrees to disclose and assign, without charge but
at HealthCare's cost, all such inventive ideas and any patents,
trademarks and/or copyrights obtained thereon to HealthCare;
(b) Employee agrees that all such inventive ideas and any
patents, trademarks and/or copyrights thereof shall be the exclusive
property of HealthCare; and
(c) Employee will at HealthCare's cost, at any and all times,
furnish such information and assistance, and execute such applications
and other documents as may be requested by HealthCare to obtain both
domestic and foreign patents, trademarks and/or copyrights, title to
which is to be vested in HealthCare, and Employee gives HealthCare full
and exclusive power to prosecute all such applications and all
proceedings in connection therewith.
6. TERMINATION.
6.1 EXPIRATION OF TERM. If not otherwise terminated under this
Section 6, Employee's employment hereunder shall terminate upon expiration of
the term pursuant to Section 2 hereof.
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6.2 DEATH. The term and Employee's employment
hereunder shall terminate upon Employee's death.
6.3 DISABILITY. In the event Employee becomes physically or
mentally disabled so as to become unable, for a period of more than 90
consecutive working days or for more than 180 working days in the aggregate
during any 365-day period, to perform his duties hereunder on substantially a
full-time basis, HealthCare may at its option terminate the term and Employee's
employment hereunder upon not less than 30 days' written notice.
6.4 TERMINATION FOR GOOD CAUSE BY HEALTHCARE. HealthCare may
immediately terminate the term and Employee's employment hereunder for "Good
Cause." For the purposes of this Section 6.4, "Good Cause" shall mean
(a) Unlawful use or theft of property or monies of
HealthCare;
(b) Continued willful insubordination as to some
material matter after reasonable warning or reprimand;
(c) Conviction of a felony or serious misdemeanor
requiring intent or moral turpitude;
(d) Actively and intentionally pursuing interests of a
competitor to the detriment of the financial interests of
HealthCare;
(e) Failure to maintain a reasonable level of job performance
reasonably satisfactory to HealthCare (including failure to comply with
the provisions of this Agreement); or
(f) Any material breach by Employee of, or material
misrepresentation in, any representation, warranty or covenant of
Employee in the Merger Agreement.
The determination of whether Good Cause exists shall be made by HealthCare's
Board of Directors prior to any termination of Employee's employment, acting in
good faith after a hearing in which Employee, being represented by counsel if he
so desires, has the opportunity to present and defend his case.
6.5 TERMINATION WITHOUT GOOD CAUSE. This Agreement may be
terminated by HealthCare at any time without Good Cause. In the event this
Agreement is terminated without Good Cause by HealthCare, HealthCare shall pay
to Employee on the effective date of such termination a lump sum equal to the
salary due Employee for the balance of the term hereof. In addition, pursuant to
Section 3.2 hereof, Employee is entitled to receive specified bonus payments
during the term of this Agreement ("Bonuses"). In the event Employee's
employment by Hearing Care is terminated without cause:
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(i) Prior to the end of the first 12-month period of the term
hereof, Employee shall be entitled to receive a bonus for such period
computed as set forth in Section 3.2 and shall be entitled to receive
Bonuses during each of the second and third 12-month periods equal to
the greater of (x) the Bonus paid with respect to the first 12-month
period or (y) or the Bonuses for such periods computed as provided in
Section 3.2 hereof;
(ii) After the first anniversary of the date hereof but prior
to the second anniversary, Employee shall be entitled to receive
Bonuses during each of the second and third 12-month periods of the
term hereof equal to the greater of (x) the Bonus paid with respect to
the first 12-month period or (y) the Bonuses for such periods computed
as provided in Section 3.2 hereof; or
(iii) After the second anniversary of the date hereof but
prior to the third anniversary, Employee shall be entitled to a Bonus
for the third 12-month period of the term hereof equal to the greater
of (x) the average of the Bonuses received by Employee with respect to
first and second 12-month periods of the term hereof or (y) the Bonus
for such period computed as provided in Section 3.2.
Termination without Good Cause shall occur upon written notice to Employee,
which notice shall specify the effective date of termination to be no less than
60 days from the date of Employee's receipt of the notice. Employee agrees to
continue to render his normal and usual services consistent with this Agreement
and his normal practice during the entire 60-day notice period, unless the
period of rendition of such services is reduced or excused entirely by
HealthCare. Employee shall not be required to seek other employment in order to
mitigate damages suffered by Employee as a result of his termination without
Good Cause. Employee shall suffer no reduction or set-off in payment made under
this Section 6.5 due to other employment or compensation.
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6.6 TERMINATION FOR GOOD CAUSE BY EMPLOYEE. Employee may
terminate this Agreement and his employment hereunder for Good Cause. For
purposes of this Section 6.6, "Good Cause" shall mean (i) the continued material
violation by HealthCare of any of the provisions of this Agreement after
HealthCare has been provided with written notice of such violation and
HealthCare fails to cure such violation within 30 days after receipt of such
written notice or (ii) there has been a "change of control" affecting
HealthCare. For purposes of this Section 6.6 a "change of control" shall mean
that an individual who is not as of the date hereof a shareholder of HealthCare
acquires 40 percent or more of HealthCare's issued and outstanding common stock.
In the event of a termination for Good Cause by Employee, Employee shall be
entitled to receive severance pay as provided in Section 6.5 hereof. Employee
may terminate this Agreement at any time on 60 days notice without Good Cause
but shall, in such case, not be entitled to the benefits of this Section 6.6.
6.7 EFFECT OF TERMINATION. Upon the termination of this
Agreement, the obligations of the parties hereunder will cease except for (i)
HealthCare's obligation to pay Employee all amounts due Employee hereunder for
services or otherwise accruing prior to the date of termination, (ii)
HealthCare's obligation, if any, to pay severance to Employee pursuant to
Sections 6.5 and 6.6 hereof, (iii) Employee's obligations under Sections 4 and 5
hereof, and (iv) the parties' obligations under Sections 7 and 9 hereof.
7. ARBITRATION.
Except as provided in Section 4 hereof, any controversy or
disagreement between Employee and HealthCare shall be resolved exclusively by
arbitration in Los Angeles, California, in accordance with the rules of the
American Arbitration Association and judgment on any award or determination so
made may be entered for enforcement in any court having jurisdiction. If the
matter in controversy (exclusive of attorney fees and expenses) shall appear, as
at the time of the demand for arbitration, to exceed $50,000, then the panel to
be appointed shall consist of three neutral arbitrators; otherwise, one neutral
arbitrator. The arbitrator(s) shall allow such discovery as the arbitrator(s)
determine appropriate under the circumstances and shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within 120 days
after the selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set out, and
shall have 30 days thereafter to reconsider and modify such decision if any
party so requests within ten days after the decision. Thereafter, the decision
of the arbitrator(s) shall be final, binding, and nonappealable with respect to
all persons, including (without limitation) persons who have failed or refused
to participate in the arbitration process.
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<PAGE>
8. ASSIGNMENT.
Each party acknowledges that this is a personal service
contract and that no assignment of this Agreement or any interest therein may be
made by either party without the express written consent of the other. This
Agreement shall be assignable and transferable by HealthCare to any
successor-in-interest, parent, subsidiary, or affiliate of HealthCare.
9. GENERAL.
9.1 GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of California, excluding any choice of law
rules that may direct the application of the laws of another jurisdiction.
9.2 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of HealthCare and Employee and their respective heirs,
legal representatives, executors, administrators, successors, and permitted
assigns.
9.3 INTEGRATION; AMENDMENT; WAIVER. This Agreement sets forth
all of the understandings between the parties with respect to its subject matter
and supersedes any and all other agreements, either oral or in writing, between
the parties with respect to the subject hereof. No change or modification of
this Agreement shall be valid unless in writing and signed by the party against
which it is to be enforced. No waiver of any provision of this Agreement shall
be valid unless written and signed by the person or party to be charged.
9.4 SEVERABILITY. If any provision of this Agreement shall be
determined to be unenforceable because the terms are excessive or unreasonable
then such provision shall be reduced to the maximum reasonable limit and
enforced as reduced. In the event that any one or more of the provisions
contained in this Agreement shall be determined to be invalid, illegal, or
unenforceable in any respect, the enforceability of such provisions in every
other respect and of the remaining provisions of this Agreement shall not in any
way be impaired.
9.5 NOTICES. All notices or other communications hereunder
shall be given in writing and shall be personally delivered or sent by private,
overnight courier service addressed as follows:
If to HealthCare: HealthCare Hearing Clinics,
Inc.
c/o HealthCare Capital Corp.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
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With a copy to: G. Todd Norvell
Miller, Nash, Wiener, Hager &
Carlsen
111 S.W. Fifth Avenue
Portland, Oregon 97204
If to Employee: Gregory Frazer
1477 Dwight Drive
Glendale, California 91207
With a copy to: Alex W. Zabrosky
Gardner, Carton & Douglas
321 N. Clark Street, Ste. 3400
Chicago, Illinois 60610
If personally delivered a notice shall be deemed given upon receipt. If sent by
courier, a notice shall be deemed given on the next business day after it is
delivered to the courier addressed as provided above with charges prepaid. Any
party to this Agreement may change its address for notices by giving notice in
accordance with this section.
9.6 HEADINGS. The headings of this Agreement are
inserted for convenience only and are not to be considered in the
construction of the provisions hereof.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above-written.
EMPLOYEE: HEALTHCARE:
HEALTHCARE HEARING CLINICS,
INC.
/S/ GREGORY J. FRAZER By /S/ BRANDON M. DAWSON
Gregory J. Frazer President
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<PAGE>
EMPLOYMENT AGREEMENT
(Vice President)
AGREEMENT dated as of November 1, 1996, by and among
HEALTHCARE CAPITAL CORP., a corporation organized under the laws of the province
of Alberta, Canada ("HCC"), HEALTHCARE HEARING CLINICS, INC., a Washington
corporation ("HealthCare"), and KATHY FOLTNER ("Employee").
RECITALS:
A. HealthCare operates audiology and hearing aid clinics in
the United States which provide services directly to members of the public and
through referrals from the medical community.
B. Employee is a shareholder and an employee of Hearing Health
Services, Inc., a Delaware corporation ("HSI").
C. Pursuant to an Asset Purchase Agreement dated as of October
31, 1996 (the "Purchase Agreement"), Healthcare is acquiring substantially all
the assets of HSI as a going business.
D. Upon the consummation of the purchase of HSI's assets by
HealthCare, HealthCare wishes to employ Employee and Employee wishes to serve in
the employ of HealthCare on the terms and conditions set forth herein.
E. Because of, among other matters, Employee's detailed
knowledge of HSI and her reputation and relationships with, among others,
clients, customers, suppliers, distributors, and employees of HSI, HealthCare
recognizes and Employee acknowledges the detrimental effect on the business
HealthCare is acquiring from HSI and the decreased value of such business which
would result if Employee were to enter into competition with HealthCare.
F. It is a material condition to HealthCare's obligation to
consummate the transaction provided for in the Purchase Agreement and the other
transactions contemplated thereby that Employee enter into this Agreement.
TERMS:
In consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
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<PAGE>
1. EMPLOYMENT RELATIONSHIP.
1.1 EMPLOYMENT. On the terms and conditions set forth herein,
HealthCare hereby agrees to employ Employee and Employee hereby accepts such
employment with HealthCare as Vice President-Operations. During the period of
employment, Employee shall manage the operations of HealthCare's audiology
clinics throughout North America and perform such additional services not
inconsistent with her position as shall be designated by the President or the
Board of Directors of HealthCare and use her best efforts to promote the
interests of HealthCare. Employee understands that the position of Vice
President-Operations is a Portland, Oregon, based position and that HealthCare
may request employee to relocate her principal residence to Portland. Employee
further understands that the performance of her duties hereunder will require
extensive travel throughout the United States. In light of the travel
requirements of her position, Company will not initially request that Employee
relocate to Portland. Should HealthCare subsequently request that Employee move
to Portland and Employee declines the request, Employee agrees to either accept
a different position with HealthCare at a level of compensation commensurate
with such position or to voluntarily resign her employment with HealthCare. Such
resignation by Employee shall not affect HealthCare's and HCC's
obligation to make the Cash Earn-Out Payments (shall have the meaning set forth
in the Assumption Agreement dated as of October 31, 1996 by and among HCC,
HealthCare, Employee and HSI) to Employee or HealthCare's obligation on the
Promissory Note dated October 31, 1996 payable to Employee.
1.2 EXCLUSIVE EMPLOYMENT. During the term of this Agreement,
Employee will devote her full working time, energy, attention, and skill to her
duties hereunder and to the promotion of HealthCare's business. During the term
of this Agreement, Employee shall not engage in any other business activity,
except as mutually agreed upon by Employee and HealthCare, for gain provided
that this restriction shall not be construed to prohibit Employee from making
personal investments in such form and manner as will neither require any
material amount of time or services or violate any of the terms of this
Agreement.
2. TERM.
This Agreement is being entered into in contemplation of the
acquisition by HealthCare of the assets of HSI. Employee's employment hereunder
shall commence as of the date of closing provided for in the Purchase Agreement
(the "Closing Date") and shall end on the third anniversary of such date unless
sooner terminated pursuant to the terms hereof. Provided Employee's employment
hereunder has not been earlier terminated, upon the expiration of the initial
term hereof, it shall be renewed and continue for successive additional 12-month
periods until terminated. Either party hereto may terminate this Agreement as of
the end of the initial term or any renewal term
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by written notice to the other party given at least 90 days prior to the end of
the initial or a renewal term.
3. COMPENSATION.
3.1 SALARY. For her services under this Agreement, Employee
shall receive a salary of $85,000 per year which shall be paid (subject to
applicable payroll withholding deductions) in accordance with HealthCare's
payroll policy as in effect from time to time. For any partial month worked,
such salary shall be pro rated on a daily basis.
3.2 BENEFITS. During the term of this Agreement, HealthCare
shall provide to or for the benefit of Employee all benefits she currently
receives in connection with her employment by HSI provided that at such time as
HealthCare establishes a benefit program for its senior management employees,
Employee shall thereafter receive only the benefits provided under such program.
In addition to the foregoing, HealthCare shall provide to Employee a car
allowance of $500 per month. Employee shall also become entitled to participate
in any bonus and profit sharing plans HealthCare may establish for the benefit
of its senior management employees.
3.3 STOCK OPTIONS. HCC shall, effective as of the Closing
Date, grant to Employee options to purchase 125,000 shares of the common stock
of HCC ("HCC Shares"). The option exercise price shall be US$1.50 per share.
Provided Employee remains employed by HealthCare as of such dates, the option
shall become exercisable with respect to 50 percent of the shares it covers
after the first anniversary of the Closing Date and shall become exercisable in
full after the second anniversary of the Closing Date. It shall be a condition
to the exercise of such options that Employee must make arrangements
satisfactory to HealthCare for the payment of payroll taxes which HealthCare may
be required to withhold upon such exercise. Such option must be exercised within
a period of five (5) years from the date of the granting of the option, after
which the option shall expire.
3.4 LEGENDS ON CERTIFICATES. Certificates representing the HCC
Shares shall be endorsed with legends substantially in the form set forth in
Exhibit A hereto.
3.5 REGISTRATION OF OPTIONS. HCC shall include the HCC Shares
in any applicable registration statement filed by HCC covering shares issuable
upon the exercise of options owned by any other employee of HCC.
4. NONDISCLOSURE; NONCOMPETITION.
4.1 PROPRIETARY INFORMATION. Employee acknowledges
that as a result of her prior relationship with HSI and in the
course of her employment with HealthCare, she has acquired and
will learn trade secrets and confidential information of HSI
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<PAGE>
(which has been acquired by HealthCare under the Purchase Agreement) and
HealthCare which if known to competitors could damage HealthCare's business.
Such confidential information will include, but not be limited to, some or all
of the following categories of information ("Proprietary Information"):
(a) Financial Information including, but not limited to
information relating to revenues, assets, expenses, prices, pricing
structures, volume of purchases or sales or other financial data
whether related to HealthCare generally, or to particular products,
services, geographic areas, or time periods;
(b) Supply and service information including, but not limited
to information relating to suppliers' names and addresses, terms of
supply and service contracts or of particular transactions, and related
information about potential suppliers to the extent that such
information is not generally known to the public, and to the extent
that the combination of suppliers or use of a particular supplier,
though generally known or available, yields advantages to HealthCare
the details of which are not generally known;
(c) Marketing information including, but not limited to
information relating to details of ongoing or proposed marketing
programs or agreements by or on behalf of HealthCare, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel information including, but not limited to
information relating to personal or medical histories, compensation or
other terms of employment, actual or proposed promotions, hirings,
resignations, disciplinary actions, terminations or reasons therefore,
training methods, performance, or other information concerning
employees of HealthCare; and
(e) Client information including, but not limited to
information relating to past, existing or prospective client's names,
addresses or backgrounds, records of treatment, terms of sales or
agreements between clients and HealthCare, status of clients' accounts
or credit, or related information about actual or prospective clients
as well as client lists.
Employee agrees to keep all Proprietary Information
confidential. Except as may be necessary in the performance of her duties on
behalf of HealthCare, Employee will make no use of and will not communicate or
divulge to any party whatsoever any Proprietary Information. Employee will not
at any time after her employment with HealthCare terminates use any Proprietary
Information for her own benefit or on behalf of any person, firm,
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<PAGE>
partnership, association, corporation, or other party whatsoever. This covenant
shall not apply to any information that by means other than Employee's
deliberate or inadvertent disclosure becomes well known to the public or to
disclosure compelled by judicial or administrative proceedings after Employee
diligently (at HealthCare's expense) tries to avoid each disclosure and affords
HealthCare the opportunity to obtain assurance that compelled disclosures will
receive confidential treatment.
4.2 OWNERSHIP AND RETURN OF DOCUMENTS. Employee agrees that
all records or materials (written or in computer format), notes, memoranda or
other documents and all copies thereof relating to Proprietary Information, some
of which may be prepared by Employee, and all objects associated therewith in
any way shall be HealthCare's property. Employee shall not, except as may be
necessary for use in HealthCare's business operations, copy or duplicate any of
the aforementioned documents or objects, nor remove them from HealthCare's
facilities nor use any information concerning them except for HealthCare's
benefit, either during her employment or thereafter. Employee agrees that she
will deliver all of the aforementioned documents and objects that may be in her
possession to HealthCare on termination of her employment, or at any other time
on HealthCare's request, together with her written certification of compliance
with the provisions of this Section 4.2.
4.3 NONSOLICITATION AND NONCOMPETITION. Employee agrees that
during the term of this Agreement and for a period of 36 full calendar months
following the termination of Employee's employment hereunder, whereby HealthCare
terminates for Good Cause (as defined in Section 6.4) or Employee terminates
without Good Cause, Employee will not, directly or indirectly, for herself or on
behalf of any other party:
(a) Be engaged directly or indirectly (as an individual or
stockholder, officer, director, partner, agent, employee, direct or
indirect owner or representative of any person, firm, corporation or
association) in any audiology and hearing aid multi-clinic business of
national scope competitive with the business being carried on by
HealthCare at such time of termination;
(b) Participate in, assist, engage in, advise or consult for,
lend money to, guarantee the debts or obligations of, permit her name
to be used by or in any way be connected with any audiology and hearing
aid multi-clinic business of national scope similar in nature to all or
any part of HealthCare's business or which competes in multiple regions
with HealthCare's business;
(c) Call upon or endeavor to transact business in competition
with HealthCare with any audiology and hearing aid multi-clinic party
of national scope who was a client or customer of HealthCare while
Employee was employed hereunder
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<PAGE>
(such period being hereinafter referred to as the "Employment Period");
or
(d) Disturb, hire, entice away or in any other manner persuade
any employee, client, or customer of HealthCare who was an employee,
client, or customer of HealthCare during the Employment Period, to
alter, modify or terminate his, her, or its relationship with
HealthCare as an employee, client, or customer as the case may be.
Notwithstanding the foregoing, Employee may be a passive investor in up to 5
percent of the stock of any publicly traded company.
4.4 REMEDIES FOR BREACH. Employee acknowledges that in the
event of her breach of this Section 4, damages will be difficult or impossible
to ascertain, and it is therefore agreed that HealthCare, in addition to, and
without limiting any other remedy or right it may have, shall have the right to
an injunction enjoining said breach issued by a court of competent jurisdiction.
In the event any litigation or controversy between the parties hereto arises out
of or in connection with this Agreement, the prevailing party in such litigation
or controversy shall be entitled to recover from the other party all reasonable
attorney fees, expenses and costs, including those associated with any appellate
proceedings or post-judgment collection proceedings.
5. DEVELOPMENTS.
There shall become the exclusive property of HealthCare every
invention and improvement conceived, invented or developed by Employee during
the term hereof and for a period of one year thereafter relating to or usable in
(i) any business then being carried on or actively contemplated by HealthCare or
(ii) the production of any product then being manufactured, sold, used or in the
process of development by HealthCare or which may be sold or used in competition
with any such product. With respect to all such inventive ideas originated or
developed by Employee while in the employ of HealthCare, or developed by
Employee within the period of one year thereafter, which relate to the business
or related products, designs, ideas or techniques sold, used or in the process
of development by HealthCare during the term, or as to which Employee has
acquired information as a result of such employment, and all patents, trademarks
and/or copyrights obtained on such inventive ideas:
(a) Employee agrees to disclose and assign, without charge but
at HealthCare's cost, all such inventive ideas and any patents,
trademarks and/or copyrights obtained thereon to HealthCare;
(b) Employee agrees that all such inventive ideas and any
patents, trademarks and/or copyrights thereof shall be the exclusive
property of HealthCare; and
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<PAGE>
(c) Employee will at HealthCare's cost, at any and all times,
furnish such information and assistance, and execute such applications
and other documents as may be requested by HealthCare to obtain both
domestic and foreign patents, trademarks and/or copyrights, title to
which is to be vested in HealthCare, and Employee gives HealthCare full
and exclusive power to prosecute all such applications and all
proceedings in connection therewith.
6. TERMINATION.
6.1 EXPIRATION OF TERM. If not otherwise terminated under this
Section 6, Employee's employment hereunder shall terminate upon expiration of
the term pursuant to Section 2 hereof.
6.2 DEATH. The term and Employee's employment hereunder shall
terminate upon Employee's death. Such death shall not affect HealthCare's
and HCC's obligation to make the Cash Earn-Out Payments to Employee or
HealthCare's obligation on the Promissory Note dated October 31, 1996
payable to Employee.
6.3 DISABILITY. In the event Employee becomes physically or
mentally disabled so as to become unable, for a period of more than 90
consecutive working days or for more than 180 working days in the aggregate
during any 365-day period, to perform her duties hereunder on substantially a
full-time basis, HealthCare may at its option terminate the term and Employee's
employment hereunder upon not less than 90 days' written notice.
6.4 TERMINATION FOR GOOD CAUSE BY HEALTHCARE. HealthCare may
immediately terminate the term and Employee's employment hereunder for "Good
Cause." For the purposes of this Section 6.4, "Good Cause" shall mean
(a) Unlawful use or theft of property or monies of HealthCare;
(b) Continued willful insubordination as to some material
matter after reasonable warning or reprimand;
(c) Conviction of a felony or serious misdemeanor requiring
intent or moral turpitude;
(d) Actively and intentionally pursuing interests of a
competitor to the detriment of the financial interests of HealthCare;
(e) Failure, after 90 days notice or in the event such failure
is of such a nature that it cannot be completely remedied within the 90
day period, such failure shall not constitute Good Cause if Employee
begins correcting the claimed failure within the 90 day period, and
thereafter proceeds with reasonable diligence and in good faith to
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<PAGE>
effect a remedy as soon as practicable to maintain a reasonable level
of job performance reasonably satisfactory to HealthCare (including
failure to comply with the provisions of this Agreement); or
(f) Any material breach by Employee of, or material
misrepresentation in, any representation, warranty or covenant of
Employee in the Purchase Agreement.
The determination of whether Good Cause exists shall be made by HealthCare's
Board of Directors acting in good faith after a hearing in which Employee, being
represented by counsel if she so desires, has the opportunity to present and
defend her case.
Such termination shall not affect HealthCare's and HCC's obligation to
make the Cash Earn-Out Payments to Employee or HealthCare's obligation on
the Promissory Note dated October 31, 1996 payable to Employee.
6.5 TERMINATION WITHOUT GOOD CAUSE. This Agreement may be
terminated by HealthCare at any time without Good Cause. In the event this
Agreement is terminated without Good Cause by HealthCare, HealthCare shall pay
to Employee on the effective date of such termination a lump sum equal to the
salary due Employee for the balance of the term hereof.
Termination without Good Cause shall occur upon written notice to Employee,
which notice shall specify the effective date of termination to be no less than
60 days from the date of Employee's receipt of the notice. Employee agrees to
continue to render her normal and usual services consistent with this Agreement
and her normal practice during the entire 60-day notice period, unless the
period of rendition of such services is reduced or excused entirely by
HealthCare. Employee shall not be required to seek other employment in order to
mitigate damages suffered by Employee as a result of her termination without
Good Cause; Employee shall suffer no reduction or set-off in payment made under
this Section 6.5 due to other employment or compensation.
Such termination shall not affect HealthCare's and HCC's obligation to
make the Cash Earn-Out Payments to Employee or HealthCare's obligation on
the Promissory Note dated October 31, 1996 payable to Employee.
6.6 TERMINATION FOR GOOD CAUSE BY EMPLOYEE. Employee may
terminate this Agreement and her employment hereunder for Good Cause. For
purposes of this Section 6.6, "Good Cause" shall mean (i) the continued material
violation by HealthCare of any of the provisions of this Agreement after
HealthCare has been provided with written notice of such violation and
HealthCare fails to cure such violation within 30 days after receipt of such
written notice or (ii) there has been a "change of control" affecting
HealthCare. For purposes of this Section 6.6 a "change
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<PAGE>
of control" shall mean that an individual who is not as of the date hereof a
shareholder of HealthCare acquires 40 percent or more of HealthCare's issued and
outstanding common stock. In the event of a termination for Good Cause by
Employee, Employee shall be entitled to receive severance pay as provided in
Section 6.5 hereof. Employee may terminate this Agreement at any time on 60 days
notice without Good Cause but shall, in such case, not be entitled to the
benefits of this Section 6.6. Such termination shall not affect HealthCare's
and HCC's obligation to make the Cash Earn-Out Payments to Employee or
HealthCare's obligation on the Promissory Note dated October 31, 1996
payable to Employee.
6.7 EFFECT OF TERMINATION. Upon the termination of this
Agreement, the obligations of the parties hereunder will cease except for (i)
HealthCare's obligation to pay Employee all amounts due Employee hereunder for
services or otherwise accruing prior to the date of termination, (ii)
HealthCare's obligation, if any, to pay severance to Employee pursuant to
Sections 6.5 and 6.6 hereof, (iii) Employee's obligations under Sections 4 and 5
hereof, and (iv) the parties' obligations under Sections 7 and 9 hereof.
Such termination shall not affect HealthCare's and HCC's obligation to
make the Cash Earn-Out Payments to Employee or HealthCare's obligation on
the Promissory Note dated October 31, 1996 payable to Employee.
7. ARBITRATION.
Except as provided in Section 4 hereof, any controversy or
disagreement between Employee and HealthCare shall be resolved exclusively by
arbitration in Portland, Oregon, in accordance with the rules of the American
Arbitration Association and judgment on any award or determination so made may
be entered for enforcement in any court having jurisdiction. If the matter in
controversy (exclusive of attorney fees and expenses) shall appear, as at the
time of the demand for arbitration, to exceed $50,000, then the panel to be
appointed shall consist of three neutral arbitrators; otherwise, one neutral
arbitrator. The arbitrator(s) shall allow such discovery as the arbitrator(s)
determine appropriate under the circumstances and shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within 120 days
after the selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set out, and
shall have 30 days thereafter to reconsider and modify such decision if any
party so requests within ten days after the decision. Thereafter, the decision
of the arbitrator(s) shall be final, binding, and nonappealable with respect to
all persons, including (without limitation) persons who have failed or refused
to participate in the arbitration process.
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8. ASSIGNMENT.
Each party acknowledges that this is a personal service
contract and that no assignment of this Agreement or any interest therein may be
made by either party without the express written consent of the other. This
Agreement shall be assignable and transferable by HealthCare to any
successor-in-interest, parent, subsidiary, or affiliate of HealthCare.
9. GENERAL.
9.1 GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Oregon, excluding any choice of law rules
that may direct the application of the laws of another jurisdiction.
9.2 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of HealthCare and Employee and their respective heirs,
legal representatives, executors, administrators, successors, and permitted
assigns.
9.3 INTEGRATION; AMENDMENT; WAIVER. This Agreement sets forth
all of the understandings between the parties with respect to its subject matter
and supersedes any and all other agreements, including but not limited to the
employment agreement by and between Employee and HSI dated December 23, 1994,
either oral or in writing, between the parties with respect to the subject
hereof. No change or modification of this Agreement shall be valid unless in
writing and signed by the party against which it is to be enforced. No waiver of
any provision of this Agreement shall be valid unless written and signed by the
person or party to be charged.
9.4 SEVERABILITY. If any provision of this Agreement shall be
determined to be unenforceable because the terms are excessive or unreasonable
then such provision shall be reduced to the maximum reasonable limit and
enforced as reduced. In the event that any one or more of the provisions
contained in this Agreement shall be determined to be invalid, illegal, or
unenforceable in any respect, the enforceability of such provisions in every
other respect and of the remaining provisions of this Agreement shall not in any
way be impaired.
9.5 NOTICES. All notices or other communications hereunder
shall be given in writing and shall be personally delivered or sent by private,
overnight courier service addressed as follows:
If to HealthCare: HealthCare Hearing Clinics,
Inc.
c/o HealthCare Capital Corp.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
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With a copy to: Miller, Nash, Wiener, Hager &
Carlsen
111 S.W. Fifth Avenue
Portland, Oregon 97204
Attention: G. Todd Norvell
If to Employee: Kathy Foltner
2040 Tamarach Road
Okemos, MI 48864
With a copy to: Foster, Swift, Collins & Smith P.C.
313 South Washington Square
Lansing, MI 48933-2193
Attention: James B. Jensen, Jr.
If personally delivered a notice shall be deemed given upon receipt. If sent by
courier, a notice shall be deemed given on the next business day after it is
delivered to the courier addressed as provided above with charges prepaid. Any
party to this Agreement may change its address for notices by giving notice in
accordance with this section.
9.6 HEADINGS. The headings of this Agreement are
inserted for convenience only and are not to be considered in the
construction of the provisions hereof.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above-written.
EMPLOYEE: HEALTHCARE:
HEALTHCARE HEARING CLINICS,
INC.
/S/ KATHY FOLTNER By /S/ BRANDON M. DAWSON
Kathy Foltner Brandon M. Dawson
President
HCC:
HEALTHCARE CAPITAL CORP.
By: /S/ BRANDON M. DAWSON
Brandon M. Dawson
President
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<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER
THE 1933 ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS, (D) UPON RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED, OR (E) IN
COMPLIANCE WITH CERTAIN OTHER PROCEDURES SATISFACTORY TO THE ISSUER.
* * *
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON THE ALBERTA STOCK EXCHANGE. A NEW CERTIFICATE, BEARING NO
LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD DELIVERY," MAY BE OBTAINED FROM
THE TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO THE TRANSFER AGENT AND THE CORPORATION,
TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE
IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.
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HealthCare Capital Corp.
MEMO
TO: Mr. Ed Kawasaki
FROM: Brandon Dawson
CC: Doug Good
DATE: August 8, 1996
RE: Contract Terms/V.P. Finance
Per our conversation the other day, here are the terms of the contract we are
offering to you for the position of V.P. of Finance:
o Base Salary of $68,000
o Minimum increase of 10% at the end of the first 6 months of employment,
with another increase of at last 10% after 18 months.
o Salary escalates to level of other V.P.'s upon receiving the title of
Chief Financial Officer.
o 18 month severance package for any termination except for cause.
o Dismissal only for cause.
o Immediate eligibility for benefits. Reimbursement will be made for any
medical & dental premiums, until our group health plan is implemented.
o Options issued concurrent with contract at market strike price under
qualified plan.
-400,000 options @ current market value, to be vested over 4 years, at
the rate of 100,000 annually, exercisable at the anniversary of your
start date with HealthCare.
-These options will break out as follows:
o 200,000 from company (first 2 years)
o 100,000 from Brandon & Roger (3rd year)
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o 100,000 from Brandon & Roger (4th year)
-An additional 100,000 options will be offered at such time as Doug
Good transfers all CFO responsibilities for the company over.
o Home office including computer, fax, phone line.
o Parking pass for bldg parking garage.
o Cellular phone and pager
o 3 weeks paid vacation, annually, as well as all holidays observed by
company and sick days.
o Indemnification
I think this covers most everything. If you have any questions, please feel free
to call me at the office or at home.
- 2 -
<PAGE>
REVOLVING DEMAND LOAN AGREEMENT
(CANADIAN DOLLARS)
To: FRASERVIEW HEARING AND SPEECH CLINICS LTD. Date: AUGUST 21, 1995
--------------------------------------------
(Name of customer)
#350-6091 GILBERT ROAD
RICHMOND, B.C. V7C-5L9
(Address)
Dear Sirs:
In consideration of ROYAL BANK OF CANADA (the "Bank") providing you with a
revolving demand loan facility (the "Loan Facility") in the principal amount of
up to $50,000 (figures) Fifty Thousand and 00/100------------
- -----------------------Dollars, at our unit of account located at 1025 West
Georgia Street, Vancouver, B.C. (unit address), the Customer agrees (and each of
them, if more than one, jointly and severally agrees) with the Bank as follows:
1. The Customer promises to pay to the Bank on demand all amounts
outstanding under this Loan Facility including principal, interest, and
any charges, together with interest thereon calculated at a rate equal
to the Bank's Prime Interest Rate per annum in effect from time to
time plus 1% per annum, interest shall be calculated monthly in
arrears, both before and after maturity, default and judgment, on the
daily balance outstanding at the aforementioned rate based on the
actual number of days elapsed divided by 365, with interest on overdue
interest at the same rate as on the principal, and shall be payable on
the 20 day of each month. On the date hereof such Prime Interest Rate
is 8 1/4% per annum.
The Prime Interest Rate is the annual rate of interest announced from
time to time by the Bank as a reference rate then in effect for
determining interest rates on Canadian dollar commercial loans in
Canada.
2. The Customer authorizes the Bank, but the Bank is not obliged, from
time to time to debit Account #1316322 (transit 10) with the amount of
interest accrued and unpaid by the Customer. The Customer acknowledges
the Bank may withdraw any undrawn portion of the Loan Facility at any
time without notice.
3. Provided that the Bank has not demanded payment of any amount
outstanding under this Loan Facility, or has not terminated this
agreement, the Customer may borrow, repay and reborrow up to the amount
remaining available under this Loan Facility at any time and from time
to time in the following manner:
b. The Customer authorizes the Bank, daily or otherwise as and
when determined by the Bank from time to time to ascertain the
position or net position (as the case may be) between the
Customer and the Bank in respect to the deposit account, or if
more than one, the deposit accounts maintained by the Customer
with the Bank (the "Account") and that
(1) if such position or net position is a credit in
favour of the Customer, the Bank will apply the
amount of such credit or any part thereof, rounded to
the nearest $5,000 as a repayment of the Loan
Facility, and the Bank will debit the Account with
the amount of such repayment, and
- 1 -
<PAGE>
(2) if such position or net position is a debit in favour
of the Bank, the Bank will make an advance under the
Loan Facility of such amount, rounded to the nearest
$5,000 as is required to place the Account in such
credit or net credit position as has been agreed
between the Customer and the Bank from time to time,
provided that at no time shall the balance owing exceed the amount of
the Loan Facility.
The Customer authorizes the Bank to debit account #1316322
(transit 10) with a specified fee per month as may be agreed
between the Bank and the client from time to time. This fee
may be packaged with fees for other products/services as
negotiated with the customer.
The foregoing fees and revolvement amount will be reviewed
annually by the Bank. Following such review, the Bank may
renegotiate the fees and revolvement amount with the Customer,
and may revise the fees and revolvement amount upon giving the
Customer 30 days' prior written notice mailed to the
Customer at the most recent address known to the Bank.
4. The Customer agrees to maintain an average monthly minimum credit
balance in the Account, which may include compensating balances to
cover non-lending services fees, reserves and debit float. Such balance
shall be:
a. $-0-, OR
5. The Bank shall maintain on the books of its unit of account, accounts
and records evidencing the outstanding principal amount of the loan of
the Bank to the Customer under this Loan Facility together with any
interest in respect thereof. The Bank shall maintain a record of the
amount of the balance, each advance, and each payment of principal and
interest on account of the loan. The Bank's accounts and records
constitute in the absence of manifest error prima facie evidence of the
indebtedness of the Customer to the Bank under this Loan Facility.
6. The Customer acknowledges that the outstanding principal balance owing
to the Bank under existing revolving demand loan agreement, or as the
case may be, existing operating loans, is $-0- (figures) Zero Dollars
(words) as at the close of business on August (month) 18 (day), 1995
(year). The initial outstanding principal balance under this loan
facility will be adjusted to reflect transactions under the above
credit facilities occurring between August 18 (month/day), 1995 (year),
and the date of acceptance of this agreement. Interest on amounts
outstanding under the above credit facilities from the date of
acceptance hereof will be at the rate set forth in paragraph 1 of this
agreement. The Customer acknowledges that the security interests
previously granted to the Bank continue to enure to the Bank.
7. a. The Customer acknowledges that the terms of this agreement are in
addition to and not in substitution for any terms and conditions of any
other agreements between the Customer and the Bank.
Please acknowledge acceptance of the terms and conditions of this
agreement by signing a copy on or before September 15 (month/day), 1995
(year), and returning it to the undersigned.
- 2 -
<PAGE>
The Customer has expressly requested that this document be drawn up and executed
in the English language. Le client a expressement demande que ce document soit
redige et signe en langue anglaise.
Yours very truly,
/S/ SIGNATURE
Manager
ACCEPTED AUGUST 21 1995
--------------- ---------- --------
(month) (day) (year)
FRASERVIEW HEARING AND SPEECH CLINICS LTD.
(Name of Customer)
/S/ MARILYN E. MARSHALL
(Authorized Signature)
(Authorized Signature)
March 18, 1994 $50,000
ON DEMAND AFTER DATE, FOR VALUE RECEIVED, I PROMISE TO PAY TO
ROYAL BANK OF CANADA OR ORDER AT THE ROYAL BANK OF CANADA VANCOUVER, B.C. THE
SUM OF FIFTY THOUSAND AND 00/100--------------------DOLLARS WITH INTEREST
THEREON CALCULATED AND PAYABLE MONTHLY AT A RATE EQUAL TO THE ROYAL BANK OF
CANADA'S PRIME INTEREST RATE PER ANNUM IN EFFECT FROM TIME TO TIME PLUS 2%
PER ANNUM AS WELL AFTER AS BEFORE MATURITY, DEFAULT AND JUDGMENT, WITH INTEREST
ON OVERDUE INTEREST AT THE SAME RATE AS THE PRINCIPAL. AT THE DATE OF THIS NOTE
SUCH PRIME INTEREST RATE IS 5 1/2% PER ANNUM. THE UNDERSIGNED HEREBY WAIVE(S)
PRESENTMENT FOR PAYMENT OF THIS PROMISSORY NOTE.
PRIME INTEREST RATE IS THE ANNUAL RATE OF INTEREST ANNOUNCED FROM TIME TO TIME
BY THE ROYAL BANK OF CANADA AS A REFERENCE RATE THEN IN EFFECT FOR DETERMINING
INTEREST RATES ON CANADIAN DOLLAR COMMERCIAL LOANS IN CANADA.
FRASERVIEW HEARING AND SPEECH CLINICS LTD.
/S/ MARILYN E. MARSHALL
- 3 -
<PAGE>
EXHIBIT 10.32
ROYAL BANK OF CANADA
REVOLVING DEMAND LOAN AGREEMENT
(CANADIAN DOLLARS)
To: HC HEALTHCARE HEARING CLINICS LTD. FEBRUARY 12, 1997
(Name of customer)
SUITE 1120-595 HOWE STREET
VANCOUVER, B.C. V6C-2TJ
(Address)
Dear Sirs:
In consideration of ROYAL BANK OF CANADA (the "Bank") providing you with a
revolving demand loan facility (the "Loan Facility") in the principal amount of
up to $200,000 (figures) Two Hundred
Thousand---------------------------------Dollars (words), at our unit of account
located at 1025 West Georgia, Vancouver, B.C. (unit address), the Customer
agrees (and each of them, if more than one, jointly and severally agrees) with
the Bank as follows:
1. The Customer promises to pay to the Bank on demand all amounts
outstanding under this Loan Facility including principal, interest, and
any charges, together with interest thereon calculated at a rate equal
to the Bank's Prime Interest Rate per annum in effect from time to time
plus 1 1/2% per annum, interest shall be calculated monthly in arrears,
both before and after maturity, default and judgment, on the daily
balance outstanding at the aforementioned rate based on the actual
number of days elapsed divided by 365, with interest on overdue
interest at the same rate as on the principal, and shall be payable on
the 21st day of each month. On the date hereof such Prime Interest Rate
is 5 1/2% per annum.
The Prime Interest Rate is the annual rate of interest announced from
time to time by the Bank as a reference rate then in effect for
determining interest rates on Canadian dollar commercial loans in
Canada.
2. The Customer authorizes the Bank, but the Bank is not obliged, from
time to time to debit Account #1316322 transit 00010 with the amount of
interest accrued and unpaid by the Customer. The Customer acknowledges
the Bank may withdraw any undrawn portion of the Loan Facility at any
time without notice.
3. Provided that the Bank has not demanded payment of any amount
outstanding under this Loan Facility, or has not terminated this
agreement, the Customer may borrow, repay and reborrow up to the amount
remaining available under this Loan Facility at any time and from time
to time in the following manner:
b. The Customer authorizes the Bank, daily or otherwise as and
when determined by the Bank from time to time to ascertain the
position or net position (as the case may be) between the
Customer and the Bank in respect to the deposit account, or if
more than one, the deposit accounts maintained by the Customer
with the Bank (the "Account") and that
- 1 -
<PAGE>
(1) if such position or net position is a credit in
favour of the Customer, the Bank will apply the
amount of such credit or any part thereof, rounded to
the nearest $5,000 as a repayment of the Loan
Facility, and the Bank will debit the Account with
the amount of such repayment, and
(2) if such position or net position is a debit in favour
of the Bank, the Bank will make an advance under the
Loan Facility of such amount, rounded to the nearest
$5,000 as is required to place the Account in such
credit or net credit position as has been agreed
between the Customer and the Bank from time to time,
provided that at no time shall the balance owing exceed the amount of
the Loan Facility.
c. The Customer authorizes the Bank to debit account #1316322
(transit 00010) with $100 per month as the fee for the service
selected under option (a) or (b) above.
The Customer authorizes the Bank to debit account #1316322
(transit 00010) with a specified fee per month as may be
agreed between the Bank and the client from time to time. This
fee may be packaged with fees for other products/services as
negotiated with the customer.
The foregoing fees and revolvement amount will be reviewed
annually by the Bank. Following such review, the Bank may
renegotiate the fees and revolvement amount with the Customer,
and may revise the fees and revolvement amount upon giving the
Customer 30 days<018> prior written notice mailed to the
Customer at the most recent address known to the Bank.
4. The Customer agrees to maintain an average monthly minimum credit
balance in the Account, which may include compensating balances to
cover non-lending services fees, reserves and debit float. Such balance
shall be:
b. the amount agreed to in writing between the Customer and the
Bank from time to time.
5. The Bank shall maintain on the books of its unit of account, accounts
and records evidencing the outstanding principal amount of the loan of
the Bank to the Customer under this Loan Facility together with any
interest in respect thereof. The Bank shall maintain a record of the
amount of the balance, each advance, and each payment of principal and
interest on account of the loan. The Bank<018>s accounts and records
constitute in the absence of manifest error prima facie evidence of the
indebtedness of the Customer to the Bank under this Loan Facility.
6. The Customer acknowledges that the outstanding principal balance owing
to the Bank under existing revolving demand loan agreement, or as the
case may be, existing operating loans, is $155,000 (figures) One
Hundred Fifty Five--------------------------Dollars (words) as at the
close of business on February (month) 11 (day), 1997 (year). The
initial outstanding principal balance under this loan facility will be
adjusted to reflect transactions under the above credit facilities
occurring between March 17 (month/day), 1994 (year) and the date of
acceptance of this agreement. Interest on amounts outstanding under the
above credit facilities from the date of acceptance hereof will be at
the rate set forth in paragraph 1 of this agreement. The Customer
acknowledges that the security interests previously granted to the Bank
continue to enure to the Bank.
7.
b. The Loan Facility extended under the Revolving Demand Loan
Agreement in the amount of $150,000 and dated March 18
(month/day), 1994 (year) is being replaced without novation by
the present agreement.
- 2 -
<PAGE>
Please acknowledge acceptance of the terms and conditions of this
agreement by signing a copy on or before February 26 (month/day), 1997
(year) and returning it to the undersigned.
The Customer has expressly requested that this document be drawn up and executed
in the English language. Le client a expressement demande que ce document soit
redige et signe en langue anglaise.
Yours very truly,
/S/ SIGNATURE
Manager
ACCEPTED
(month) (day) (year)
HC HEALTHCARE HEARING CLINICS LTD.
(Name of Customer)
(Authorized Signature)
(Authorized Signature)
- 3 -
<PAGE>
CONSULTING AGREEMENT
THIS Consulting Agreement ("Agreement") is executed this ____ day of
February 1997, though effective for all purposes in all respects as of the 1st
day of January 1997, by and between HealthCare Capital Corp. an Alberta
corporation ("Corporation"), and Hugh T.
Hornibrook ("Consultant").
WHEREAS Consultant has considerable knowledge and experience relating
to the business of Corporation as a result of his prior affiliation with
Corporation as an officer and employee and as a result of his current
affiliation with Corporation as a director;
WHEREAS Consultant desires to aid and assist Corporation as a
consultant by providing certain limited advisory services to Corporation on a
standby basis in addition to his duties as director;
WHEREAS Corporation desires to recognize the valuable and meritorious
services performed by Consultant on behalf of Corporation as an officer and
employee, and further desires to engage Consultant to render certain limited
advisory services to Corporation on a standby basis; and
WHEREAS Corporation and Consultant desire to set forth herein their
understandings and agreements:
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein set forth, and other good and valuable consideration, the parties hereto
agree as follows:
1. Engagement of Consultant
a. Corporation hereby appoints and engages Consultant as its
consultant and advisor with respect to the matters specified
in Section 2 hereof for the compensation hereinafter set
forth.
b. Consultant hereby accepts his appointment and engagement by
Corporation as a consultant and advisor to Corporation with
respect to the matters specified in Section 2 hereof for the
compensation hereinafter set forth.
2. Activities of Consultant. During the term of this Agreement specified in
Section 4 hereof ("Term"), Consultant shall undertake for and on behalf of, and
to the extent specifically requested in writing by, Corporation, subject to the
availability of Consultant and the other limitations set forth herein, to advise
Corporation, by telephone or in person at Consultant's sole discretion, with
respect to its business. Consultant shall not be required to render any written
reports to Corporation with respect to the foregoing service, unless, in his
sole discretion, Consultant deems written reports to be necessary. For purposes
of conducting these activities during the Term of this Agreement, Consultant
shall be allowed the use of the Corporation's office equipment including
computer, fax and printer at the rental rate of Cdn$100.00 per month.
- 1 -
<PAGE>
3. Compensation of Consultant. Corporation hereby covenants and agrees to pay
Consultant a retainer of Cdn$100.00 per month and upon receipt of Consultant's
invoice, the sum of Cdn$125 per hour for services rendered pursuant to this
Agreement. This Agreement does not cover any board-related activities undertaken
in his capacity as a director of Corporation. Compensation for board-related
activities shall be dealt with at an upcoming Board of Directors meeting.
4. Term. The Term shall commence as of the date hereof and shall terminate on
December 31, 2001. The Agreement cannot be terminated for any reason without the
written consent of Consultant.
5. Out-of-Pocket Expenses. During the Term, Corporation shall pay or promptly
reimburse Consultant for all pre-approved traveling, entertainment, telephone,
and other expenses paid or incurred by Consultant in connection with the
performance of his activities, responsibilities, and services under this
Agreement, upon presentation of expense statements, vouchers, or other evidence
of expense.
6. Representations, warranties, and covenants of Corporation.
a. Corporation hereby represents and warrants that it has full
power and legal right and authority to execute, deliver, and
perform under this Agreement, and that the officers executing
this Agreement on behalf of Corporation have full power and
authority to do so.
b. Corporation hereby covenants and agrees that it shall promptly
forward to Consultant any mail, telephone, messages,
telegrams, notices, or other papers or documents of a personal
nature that are delivered to, or received by, Corporation.
7. Independent Contractor. Consultant shall at all times be an independent
contractor, rather than a coventurer, agent, employee, or representative of
Corporation. Corporation hereby acknowledges and agrees that Consultant may
engage directly or indirectly in other businesses and ventures and shall not be
required to perform any services under this Agreement when, or for such periods
in which, the rendering of services shall unduly interfere with Consultant's
other businesses and ventures.
8. Binding effect; assignment. This Agreement shall be binding upon, and shall
inure to the benefit of, Consultant and Corporation and their respective heirs,
executors or administrators, personal and legal representatives, estate,
legatees, and successors. The obligations under this Agreement may not be
assigned by Corporation or Consultant without the prior written consent of the
other party hereto.
9. Notices. All notices and other communications hereunder or in connection
herewith shall be deemed to have been duly given if they are in writing and
delivered personally or sent by registered or certified mail, return receipt
requested and first-class postage prepaid. They shall be addressed as follows:
- 2 -
<PAGE>
a. If to Corporation: HealthCare Capital Corp., Attention: Edwin
J. Kawasaki, 111 S.W. Fifth Ave., Suite 2390, Portland, OR,
97204.
b. If to Consultant: Hugh T. Hornibrook, 2631 West 13th Ave.,
Vancouver, B.C. V6K2T3, unless notice of a change of address
is given to either party by the other pursuant to the
provisions of this Section 9.
10. Governing law. This Agreement shall be governed by and construed under the
laws of the state of Oregon.
11. Miscellaneous.
a. This Agreement shall constitute the only agreement between
Corporation and Consultant relating to the subject matter
hereof, and no representations, promises, understandings, or
agreements, oral or otherwise, not herein contained shall be
of any force or effect.
b. No modification or waiver of any provision of this Agreement
shall be valid unless it is in writing and signed by the party
against whom it is sought to be enforced. No waiver at any
time of any provision of this Agreement shall be deemed a
waiver of any other provision of this Agreement at that time
or a waiver of that or any other provision at any other time.
c. The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this
Agreement.
- 3 -
<PAGE>
IN WITNESS WHEREOF, Corporation has caused this Agreement to be
executed by its duly authorized and Consultant has executed this Agreement, all
effective as of January 1st, 1997.
Corporation:
HealthCare Capital Corp., an Alberta
corporation
By: /s/ EDWIN J. KAWASAKI
Edwin J. Kawasaki, Vice President
of Finance
Consultant:
By:
Hugh T. Hornibrook
- 4 -
STOCK PURCHASE AND SALE AGREEMENT
(ARCADIA)
AGREEMENT dated as of February __, 1997, by and between the individuals
named in Section 1.1 below (referred to herein individually as "Seller" and
collectively as "Sellers") and HEALTHCARE HEARING CLINICS, INC., a Washington
corporation ("Purchaser").
RECITALS
A. Hearing Care Associates-Arcadia, Inc., a California corporation (the
"Company"), operates an audiology and hearing aid clinic in Arcadia, California,
which performs testing and evaluation of patients' hearing, prescribes and fits
hearing aids, and provides related services and products.
B. Sellers own all shares of the issued and outstanding capital stock
of the Company (the "Shares").
C. Purchaser and Sellers desire that Purchaser acquire ownership of the
Company through a purchase of the Shares.
TERMS
In consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Ownership of Shares. The Shares are owned by Sellers as follows:
Sellers Shares Percentage
------- ------ ----------
Gregory J. Frazer 50 50
Laurie Van Duivenbode 50 50
--- ---
100 100
1.2 Purchase and Sale of Shares. At the Closing (as defined in Section
2.1), on the terms and subject to the conditions set forth in this Agreement,
Sellers shall sell and deliver to Purchaser, and Purchaser shall purchase the
Shares from Sellers.
1.3 Purchase Price. Subject to adjustment as set forth in Section 1.4
hereof, the purchase price for the Shares (the "Purchase Price") shall be a
total of $410,338 payable to Sellers as follows:
- 1 -
<PAGE>
Sellers
-------
Gregory J. Frazer $205,169
Laurie Van Duivenbode 205,169
$410,338
At the Closing, Purchaser shall pay the Purchase Price to Sellers by certified
or cashier's check.
1.4 Purchase Price Adjustments. The Purchase Price shall be subject to
post- closing adjustment as set forth below:
(a) Accounts Receivable. On the 200th day following the
Closing, Sellers shall reimburse Purchaser on a pro rata basis in an
amount equal to the total of the accounts receivable reflected on the
Statement of Net Working Capital (as defined in subsection 1.4(c)(i)
below) net of the allocable portion of the reserve for bad debts, which
remain uncollected as of such date provided that with respect to the
accounts receivable listed on Schedule 1.4(a) attached hereto, the
reimbursement date shall be the first anniversary of the Closing date.
Upon such reimbursement, the uncollected accounts shall be assigned to
Sellers. During such 200-day period (or the 365-day period with respect
to the accounts receivable listed on Schedule 1.4(a), Sellers may
participate in the collection process of such accounts receivable. In
the event the total amount collected with respect to accounts
receivable reflected on the Statement of Net Working Capital exceeds
the amount of such accounts receivable net of the applicable reserve
for bad debts, Purchaser shall pay the excess to Sellers pro rata on
the 200th day following Closing.
(b) Liabilities. Sellers acknowledge that the Purchase Price
was negotiated on the assumption that Company would have no long-term
liabilities, including debt. In the event that at Closing Company has
long-term liabilities, Sellers shall pay to Purchaser, on a pro rata
basis, an amount equal to the total of any such long-term liabilities.
(c) Net Working Capital Adjustment.
(i) For purposes of this Agreement, "Net Working
Capital" shall equal (i) cash, money market accounts, accounts
receivable (net of reasonable provisions for doubtful
accounts), cash surrender value of life insurance policies,
and prepaid expenses including rental payments if paid in
advance, as of Closing less (ii) all current liabilities of
the Company as of Closing, including but not limited to
liabilities for inventory, office supplies, ordinary
compensation payables, employee benefits and taxes (excluding
accrued paid time off for vacation and sick leave), bonuses
(including all related payroll taxes and employee benefits),
personal and real property taxes, water, gas, electric and
other utility charges, business and other license fees and
taxes (excluding fees for audiology and hearing aid dispensing
licenses), merchants'
- 2 -
<PAGE>
association dues, rental payments under any leases, any
customer refunds for hearing aids delivered prior to Closing,
and all other operating liabilities (including legal,
accounting, and other professional fees and expenses incurred
in the ordinary course of business), vendor accounts payable
and intercompany accounts. In computing Net Working Capital,
(i) all hearing aids ordered but not fitted to the patient as
of the Closing date will not be included in accounts
receivable and (ii) all payments made by Company with respect
to such hearing aid orders shall be treated as prepaid items.
(ii) As promptly as practicable following the
Closing, but in no event later than 45 days thereafter,
Sellers and Purchaser shall cooperate in preparing a mutually
agreeable statement of the Net Working Capital which shall set
forth the computation and components thereof in reasonable
detail (the "Statement of Net Working Capital").
(iii) On the fifteenth day after the date on which
the Statement of Net Working Capital is completed (or such
earlier date as such statement is mutually agreed upon by
Sellers and Purchaser in writing), (i) in the event that the
Net Working Capital exceeds $150,000, then Purchaser shall pay
to Sellers pro rata an amount equal to the excess, or (ii) in
the event that Net Working Capital is less than $150,000, then
Sellers shall pay to Purchaser, pro rata, the amount of the
deficiency.
ARTICLE II
CLOSING
2.1 Closing. The closing of the transaction provided for herein (the
"Closing") shall occur on such date on or before February 28, 1997, and at such
time and place as the parties shall mutually agree.
2.2 Closing Transactions. The following actions shall be taken at
Closing, each of which shall be conditional on completion of all the others and
all of which shall be deemed to have taken place simultaneously:
(a) Deliveries by Sellers. Sellers shall deliver to Purchaser:
(i) Certificates representing the Shares;
(ii) An opinion of counsel to Sellers, dated as of
the Closing date, substantially in the form of Schedule
2.2(a)(ii) attached hereto; and
(iii) The stock and minute books of the Company;
(iv) All consents required in connection with the
transactions contemplated hereunder.
- 3 -
<PAGE>
(b) Deliveries by Purchaser. Purchaser shall deliver to
Sellers:
(i) The payments provided for in Section 1.3; and
(ii) An opinion of counsel to Purchaser, dated as of
the Closing date, substantially in the form of Schedule
2.2(b)(ii) attached hereto.
(c) Joint Delivery.
(i) Purchaser and Sellers shall execute and deliver
counterparts of the Noncompetition Agreements provided for in
Section 6.5(a) hereof; and
(ii) Purchaser and Laurie Van Duivenbode shall
execute and deliver to each other counterparts of the
Employment Agreement provided for in Subsection 6.5(b) hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise set forth in the Disclosure Statement attached
hereto as Schedule III, Sellers represent and warrant to Purchaser as set forth
below in this Article III. Subject to the limitations set forth in Section
8.1(a), the Sellers shall be jointly and severally liable for breaches of such
representations and warranties except to the extent otherwise expressly set
forth in Section 3.1(b) hereof.
3.1 Corporate.
(a) Organization. The Company is a corporation duly organized
and existing under the laws of the state of California.
(b) Capitalization. The authorized capital stock of the
Company consists of 2,000 shares of a single class of common stock, of
which 100 shares are issued and outstanding. All issued and outstanding
Shares have been validly issued and are fully paid and nonassessable.
Each Seller separately warrants that such Seller is the owner of the
number of shares shown in Section 1.1 hereof (beneficially and of
record) free and clear of all liens, claims, and encumbrances
whatsoever. The Shares constitute all the outstanding shares of capital
stock of the Company. Except for a Buy-Out Agreement to which the
Sellers are parties, no person has any agreement, option or other
right, present or future, to purchase or otherwise acquire any of the
shares of Company. Such Buy-Out Agreement will be terminated effective
as of the Closing date.
(c) Corporate Power. The Company has all requisite corporate
power and authority to own, operate and lease its properties and to
carry on its business as and where such is now being conducted.
- 4 -
<PAGE>
(d) No Subsidiaries. The Company does not own an interest in
any corporation, partnership or other entity.
(e) Articles of Incorporation; Bylaws. The copies of Company's
articles of incorporation (certified by the Secretary of State of
California) and bylaws (certified by Company's secretary) which have
heretofore been delivered to Purchaser are complete and correct as
amended or restated to the date hereof.
3.2 No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by the
Sellers pursuant hereto, nor the consummation by the Sellers of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien (as defined in Section 3.8(b)) upon any of the
assets of the Company under, any term or provision of the articles of
incorporation or bylaws of the Company or of any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which the Company is a party or by which the Company or any of the Company's
assets or properties or the shares of the Company may be bound or affected.
3.3 Financial Statements. The Sellers have heretofore delivered to
Purchaser the following financial statements of the Company including balance
sheets and statements of income (the "Financial Statements"):
(a) Financial Statements for the Company's 1993, 1994, and
1995 fiscal years; and
(b) Financial Statements for the interim period ended November
30, 1996.
The Financial Statements are correct and complete in all material respects and
fairly present the financial condition of the Company at the dates indicated and
results of its operations and changes in its financial position for the periods
then ended.
3.4 Absence of Certain Changes. Since the date of the most recent
balance sheet included in the Financial Statements, there has not been:
3.4(a) Adverse Change. Any material adverse change in the
financial condition, assets, liabilities, business, prospects or
operations of the Company;
3.4(b) Damage. Any material loss, damage or destruction,
whether covered by insurance or not, affecting the Company's business
or assets;
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3.4(c) Increase in Compensation. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of the Company (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee
benefit granted, made or accrued;
3.4(d) Labor Disputes. Any labor dispute or disturbance, other
than routine individual grievances which are not material to the
business, financial condition or results of operations of the Company;
3.4(e) Commitments. Any commitment or transaction by the
Company (including, without limitation, any capital expenditure) other
than in the ordinary course of business consistent with past practice;
3.4(f) Dividends. Any declaration, setting aside, or payment
of any dividend or any other distribution in respect of the Company's
capital stock; any redemption, purchase or other acquisition by the
Company of any capital stock of the Company, or any security relating
thereto; or any other payment to any Shareholder as a shareholder;
3.4(g) Disposition of Property. Any sale, lease or other
transfer or disposition of any properties or assets of the Company
except for sales of inventory, consumption of supplies, and nonmaterial
dispositions of worn or broken parts and equipment in the ordinary
course of business;
3.4(h) Indebtedness. Any indebtedness for borrowed money
incurred, assumed or guaranteed by the Company other than changes in
the Company's line of credit in the ordinary course of business;
3.4(i) Amendment of Contracts. Any entering into, amendment or
termination by the Company of any contract, or any waiver of material
rights thereunder, other than in the ordinary course of business;
3.4(j) Loans, Advances, or Credit. Any loan or advance or any
grant of credit by the Company; or
3.4(k) Unusual Events. Any other event or condition
specifically related to the Company not in the ordinary course of
business which would have a material adverse effect on the assets or
the business of the Company.
3.5 Absence of Undisclosed Liabilities. Except as and to the extent
specifically disclosed in the most recent balance sheet included in the
Financial Statements or this Agreement, the Company does not have any
liabilities other than commercial liabilities and obligations incurred since the
date of such balance sheet in the ordinary course of business consistent with
past practices none of which has or will have a material adverse effect on the
business, financial condition or results of operations of the Company.
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3.6 No Litigation. There is no action, suit, arbitration, proceeding,
investigation or inquiry pending or to the knowledge of the Sellers threatened
against the Company, its directors (in such capacity), its business or any of
its assets, nor do the Sellers know of any such proceeding, investigation or
inquiry threatened against the Company. The Disclosure Schedule identifies all
actions, suits, proceedings, investigations and inquiries to which the Company
has been a party since January 1, 1993. Neither the Company nor its business or
assets are subject to any judgment, order, writ or injunction of any court,
arbitrator or federal, state, foreign, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.7 Compliance With Laws.
3.7(a) Compliance. The Company (including each and all of its
operations, practices, properties and assets) is in material compliance
with all applicable federal, state, local and foreign laws, ordinances,
orders, rules and regulations (collectively, "Laws"), including,
without limitation, those applicable to discrimination in employment,
occupational safety and health, trade practices, environmental
protection, competition and pricing, product warranties, zoning,
building and sanitation, employment, retirement and labor relations,
and product advertising except to the extent any noncompliance would
not have a material adverse effect upon the assets or the business of
the Company taken as a whole. The Company has not received notice of
any violation or alleged violation of, and is not subject to liability
for past or continuing violation of, any Laws. All reports and returns
required to be filed by the Company with any governmental authority
have been filed, and were accurate and complete when filed except to
the extent any deficiency would not have a material adverse effect upon
the assets or the business of the Company taken as whole.
3.7(b) Licenses and Permits. The Company has obtained all
licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification
organizations required for the conduct of its businesses (as presently
conducted) except to the extent failure to do so would not have a
material adverse effect upon the assets or the business of the Company
taken as a whole. All such licenses, permits, approvals, authorizations
and consents are described in the Disclosure Schedule and are in full
force and effect. The Company (including its operations, properties and
assets) is and has been in compliance with all such permits and
licenses, approvals, authorizations and consents, except to the extent
any noncompliance would not have a material adverse effect upon the
assets or the business of the Company taken as a whole.
3.8 Title to and Condition of Properties.
3.8(a) Real Property. Except as set forth on the Disclosure
Schedule, the Company does not own any interest in any real property
other than the leases referred to in Section 3.10(a) hereof.
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3.8(b) Personal Property. The Company has good and marketable
title to all its assets, free and clear of all mortgages, liens
(statutory or otherwise), security interests, claims, pledges,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, exceptions,
limitations, charges or encumbrances of any nature whatsoever
(collectively, "Liens"). All the Company's tangible assets are located
at the business premises leased by the Company. No personal property
owned by Sellers is located at Company's business premises.
3.8(c) Condition. All the Company's tangible assets are, taken
as a whole, in good operating condition and repair, normal wear and
tear excepted.
3.8(d) Land Use Regulations. There are no condemnation,
environmental, zoning, land use, or other regulatory proceedings,
pending or, to the knowledge of the Sellers, planned to be instituted,
that could detrimentally affect the ownership, use, or occupancy of the
real property presently occupied by the Company or the continued
operation of the Company's business as it is presently being conducted.
3.9 Insurance. The Company maintain policies of fire, liability,
product liability, workers compensation, health and other forms of insurance
with such coverage limits and deductible amounts as are reasonable and prudent
in light of the nature of its assets and the risks of its business.
3.10 Contracts and Commitments.
3.10(a) Leases. Set forth in Schedule 3.10(a) of the
Disclosure Schedule is a list of all real and personal property leases
to which the Company is a party. Complete and correct copies of each
lease listed on the schedule, and all amendments thereto, have
heretofore been made available to Purchaser.
3.10(b) Purchase Commitments. Set forth in Schedule 3.10(b) of
the Disclosure Schedule is a list of all agreements (written or oral)
between the Company and third parties for the purchase of goods and
supplies by the Company which individually call for the payment by the
Company after the date hereof of more than $1,000 or which obligate the
Company for a period of more than 90 days from the date hereof.
Complete and correct copies of all such written agreements have
heretofore been made available to Purchaser.
3.10(c) Sales Commitments. Set forth in Schedule 3.10(c) of
the Disclosure Schedule is a list and description of all presently
effective agreements (written or oral) between the Company and third
parties for the distribution and sale of its products. Complete and
correct copies of all such written contracts have heretofore been made
available to Purchaser.
3.10(d) Contracts With Sellers and Certain Others. Except for
the employment relationships which exist between the Sellers and the
Company, the
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Company has no agreement, understanding, contract or commitment
(written or oral) with any Seller, or any relative of a Seller.
3.10(e) Collective Bargaining Agreements. The Company is not a
party to any collective bargaining agreement with any union.
3.10(f) Loan Agreements. Except as set forth on the Disclosure
Schedule, the Company is not obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness as
signatories, guarantors or otherwise.
3.10(g) Guarantees. The Company has not under any instrument
which is presently effective guaranteed the payment or performance of
any person, firm or corporation, agreed to indemnify any person or act
as a surety, or otherwise agreed to be contingently or secondarily
liable for the obligations of any person.
3.10(h) Restrictive Agreements. The Company is not a party to
nor is it bound by any agreement requiring it to assign any interest in
any trade secret or proprietary information, or prohibiting or
restricting it from competing in any business or geographical area or
soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
3.10(i) Other Material Contracts. The Company is not a party
to any lease, license, contract (including without limitation contracts
with health maintenance organizations) or commitment of any nature
involving consideration or other expenditure in excess of $1,000, or
involving performance over a period of more than 90 days from the date
hereof, or which is otherwise individually material to the operations
of the Company, except as set forth in Schedule 3.10(i) of the
Disclosure Schedule.
3.10(j) No Default. The Company is not in default under any
lease, agreement, contract or commitment, nor has any event or omission
occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration
of any of the Company's obligations or result in the creation of any
Lien on any of the assets owned, used or occupied by the Company. To
the knowledge of the Sellers, no third party is in default under any
lease, agreement, contract or commitment to which the Company is a
party, nor has any event or omission occurred which, through the
passage of time or the giving of notice, or both, would constitute a
default thereunder or give rise to an automatic termination, or the
right of discretionary termination thereof.
3.11 Employee Benefit Plans. Set forth in Schedule 3.11 of the
Disclosure Schedule, is a description of all pension, profit sharing,
retirement, bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," severance agreements or
plans, vacation and sick leave plans including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA")), all employee
manuals, and all written or binding oral statements of policies, practices or
understandings relating to employment, which are provided to, for the benefit
of, or relate to, any persons employed by the Company. The items described in
the foregoing sentence are hereinafter sometimes referred to collectively as
"Employee Plans/Agreements." True and correct copies of all written Employee
Plans/Agreements, including all amendments thereto, have heretofore been
provided to Purchaser. The Company is in compliance with and have made all
payments due under all Employee Plans/Agreements and with respect thereto the
Company is in compliance with all applicable federal and state laws and
regulations. The Company is not a contributor to any multi-employer pension plan
which has an unfunded liability with respect to benefits due its participants.
3.12 Employment Compensation. Set forth in Schedule 3.12 of the
Disclosure Schedule is a true and correct list of:
(a) All employees to whom the Company is paying compensation;
and in the case of salaried employees such list identifies the current
annual rate of compensation for each employee and in the case of hourly
or commission employees identifies certain reasonable ranges of rates
and the number of employees falling within each such range;
(b) All amounts owed to employees of the Company (including
the Sellers) for accrued sick pay, vacation pay, and bonus pay.
3.13 Patents, Trademarks, etc. Set forth in Schedule 3.13 of the
Disclosure Schedule attached hereto is a list of all United States and foreign
trademarks, service marks, trade names, brand names, copyrights, including
registrations and applications, patent and patent applications, and employee
covenants and agreements respecting intellectual property ("Trade Rights") in
which the Company now has any interest, specifying the basis on which such Trade
Rights are owned, controlled, used or held (under license or otherwise) by the
Company, and also indicating which of such Trade Rights are registered. All
Trade Rights shown as registered in Schedule 3.13 of the Disclosure Schedule
have been properly registered, all pending registrations and applications have
been properly made and filed and all annuity, maintenance, renewal and other
fees relating to registrations or applications are current. In order to conduct
the business of the Company, as such is currently being conducted, the Company
does not require any Trade Rights that it does not already have. The Company is
not infringing and has not infringed on any Trade Rights of another in the
operation of its business, nor to the knowledge of the Sellers is any other
person infringing on the Trade Rights of the Company. The Company has not
granted any license or made any assignment of any Trade Right and no other
person has any right to use any Trade Right owned or held by the Company. The
Company does not pay any royalties or other consideration for the right to use
any Trade Rights of others. Except as set forth in Schedule 3.13 of the
Disclosure Schedule, to the knowledge of Sellers, there are no inquiries,
investigations or claims or litigation challenging or threatening to challenge
the Company's right, title and interest with respect to its continued use and
right to preclude others from using any Trade Rights of the Company. To the
knowledge of Sellers, all Trade
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Rights of the Company are valid, enforceable and in good standing, and there are
no equitable defenses to enforcement based on any act or omission of the
Company.
3.14 Product Warranty and Product Liability. Set forth in Schedule 3.14
of the Disclosure Schedule is a true, correct and complete copy of the Company's
standard warranty or warranties for sales of its products.
3.15 Tax Matters. The Company has properly completed and filed in
correct form all federal, state, and other tax returns (including Forms 1099 and
other informational returns) of every nature required to be filed by it and has
paid all taxes (whether or not requiring the filing of returns) including all
deficiencies, assessments, additions to tax, penalties and interest of which
notice has been received to the extent such amounts have become due. The Company
has obtained all required Forms W-9. Complete and correct copies of the
Company's federal and California income tax returns for 1993, 1994, and 1995
have been delivered by the Sellers to Purchaser. All tax liabilities have been
fully and properly reflected in the Financial Statements. The income tax returns
of the Company have not been examined by the Internal Revenue Service. There are
no outstanding agreements or waivers extending the statutory period of
limitation for any federal or state tax return of the Company for any period.
The Company has made all required deductions and payments and has properly
prepared and delivered all required documents in connection with the withholding
of taxes from the wages and other compensation of its employees. The Company has
filed all sales/use tax returns and have paid all such taxes for all states in
which they have responsibility to do so. The Company has obtained and maintains,
to the extent required by law, a current sales and use tax exemption certificate
for each customer to which it makes tax-exempt sales.
3.16 Key Employees; Bank; Etc. Set forth in Schedule 3.16 of the
Disclosure Schedule is a list showing:
(a) The names of all the Company's officers and directors;
(b) The name of each bank at which the Company has (i) an
account and the numbers of all accounts, (ii) a line of credit, or
(iii) a safe deposit box and the name of each person authorized to draw
thereon or have access thereto; and
(c) The name of each person holding a power of attorney from
the Company and a summary of the terms thereof.
3.17 Records. The books of account of the Company fairly reflect the
items of income and expense and the assets, liabilities, and accruals of its
business and operations.
3.18 Disclosure. No representation or warranty by the Sellers in this
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of the Sellers pursuant to this Agreement,
nor any document or certificate delivered to Purchaser pursuant to this
Agreement or in connection with transactions contemplated
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hereby, contains or shall contain any untrue statement of material fact or omits
or shall omit a material fact necessary to make the statements contained therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Sellers as follows:
4.1 Corporate.
(a) Organization. Purchaser is a corporation duly organized
and validly existing under the laws of the state of Washington.
(b) Corporate Power. Purchaser has all requisite corporate
power and authority to own, operate and lease its properties, to carry
on its business as and where such is now being conducted, to enter into
this Agreement and the other documents and instruments to be executed
and delivered by Purchaser pursuant hereto and to carry out the
transactions contemplated hereby and thereby.
(c) Authority. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been
duly authorized by the board of directors of HealthCare. This Agreement
constitutes the valid and binding agreement of Purchaser, enforceable
against Purchaser in accordance with its terms.
(d) Qualification. Purchaser is duly licensed or qualified to
do business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by
it, or the nature of its business, makes such licensing or
qualification necessary.
4.2 No Violation. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by Purchaser
pursuant hereto, nor the consummation by Purchaser of the transactions
contemplated hereby and thereby (a) will violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require any authorization, consent, approval, exemption or
other action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body, or (c) will violate or
conflict with, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or will result in the
termination of, or accelerate the performance required by, or result in the
creation of any material Lien upon any of the assets of Purchaser under, any
term or provision of the Articles of Incorporation or By-laws of Purchaser or of
any material contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Purchaser is a party or by which
Purchaser or any of its assets or properties may be bound or affected.
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4.3 Disclosure. No representation or warranty by Purchaser in this
Agreement nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Purchaser pursuant to this Agreement, nor
any document or certificate delivered to Purchaser pursuant to this Agreement or
in connection with transactions contemplated hereby, contains or shall contain
any untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
ARTICLE V
COVENANTS
5.1 Covenants of Sellers.
(a) Access to Information and Records. The Sellers agree that
during the period after the date hereof and prior to the Closing,
Purchaser, its counsel, accountants and other representatives shall be
provided (i) reasonable access during normal business hours to all of
the properties, books, records, contracts and documents of the Company
for the purpose of such inspection, investigation and testing as
Purchaser deems appropriate (and Sellers shall furnish or cause to be
furnished to Purchaser and its representatives all information with
respect to the business and affairs of the Company as Purchaser may
reasonably request); (ii) reasonable access to employees and agents of
the Company for such meetings and communications as Purchaser
reasonably desires; and (iii) with the prior consent of the Company in
each instance (which consent shall not be unreasonably withheld),
access to vendors, customers, and others having business dealings with
the Company.
(b) Conduct of Business Pending the Closing. The Sellers agree
that from the date hereof until the Closing, except as otherwise
approved in writing by Purchaser:
(i) No Changes. The Company will carry on its
business diligently and in the same manner as heretofore and
will not make or institute any changes in its methods of
purchase, sale, management, accounting or operation.
(ii) Maintain Organization. The Company will use its
best efforts to maintain, preserve, renew and keep in force
and effect the existence, rights and franchises of the Company
and to preserve the business organization of the Company
intact, to keep available to Purchaser the present officers
and employees of the Company, and to preserve for Purchaser
its present relationships with suppliers and customers and
others having business relationships with the Company.
(iii) No Breach. The Company will use its best
efforts to avoid any act, or any omission to act, which may
cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty,
covenant or agreement made by the Sellers.
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(iv) No Material Contracts. No contract or commitment
will be entered into, and no purchase of assets (tangible or
intangible) will be made, by or on behalf of the Company,
except contracts, commitments, purchases or sales which are in
the ordinary course of business and consistent with past
practice.
(v) No Corporate Changes. The Company shall not amend
its Articles of Incorporation or Bylaws or make any changes in
its authorized or issued capital stock; the Company shall not
grant any option or other right to acquire any share of its
authorized capital stock;
(vi) Maintenance of Insurance. The Company shall
maintain all of its insurance in effect as of the date hereof
or replace such insurance with comparable coverage and shall
procure such additional insurance as shall be reasonably
requested by Purchaser at Purchaser's expense.
(vii) Maintenance of Property. The Company shall use,
operate, maintain and repair all its assets and properties in
a normal business manner consistent with the Company's past
practices.
(viii) Interim Financials. The Company will provide
Purchaser with interim monthly financial statements and other
management reports as and when they are available.
(ix) No Dividends. The Company shall not declare or
pay any dividend (whether in cash, stock or property) or make
any other distribution to the Sellers, except for the
repayment of loans made by the Sellers to the Company.
(x) Compensation. The Company shall not increase the
compensation or benefits of any of its employees nor make any
other change in the terms of their employment.
(c) Repayment of Sellers' Loans. As of the date hereof, the
Company is indebted to the Sellers as set forth on Schedule 5.1(c). For
purposes of Section 1.4(b) hereof, such debts shall not be deemed to be
long-term liabilities. Notwithstanding any other provision of this
Agreement, on or prior to the Closing date, Sellers shall have the
right to cause the Company to repay such indebtedness to the extent the
Company has funds available for such purposes. To the extent any such
debts are not paid prior to Closing, (i) such debts shall be taken into
account in computing the Net Working Capital adjustment provided for in
Section 1.4(c), and (ii) Purchaser shall cause the Company to pay all
such debts at the time the Net Working Capital adjustment is made
pursuant to Section 1.4(c)(iii). To the extent necessary, Purchaser
shall advance funds to the Company for such debt repayment.
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(d) Reimbursement of Sick and Vacation Pay. In preparing the
Statement of Net Working Capital it has been agreed that no accrual
shall be made for sick and vacation pay entitlements for employees of
Company. In consideration of this exclusion, Sellers agree to reimburse
Purchaser for any sick or vacation pay payments Purchaser is required
to make to former employees of Company who become employees of
Purchaser and whose employment terminates for any reason within the
first six months following the Closing date to the extent such payments
relate to accruals of sick or vacation pay prior to the Closing date.
5.2 Release of Sellers' Personal Guarantees. Certain Sellers have
provided personal guarantees or have otherwise become individually liable with
respect to certain leases, line of credit agreements, purchase agreements with
manufacturers, or other agreements for the benefit for the Company, including,
without limitation, those described on Schedule 5.2. Following the Closing,
Purchaser will use its best efforts to obtain the release of the Sellers from
all such personal liabilities. To the extent that any such release cannot be
obtained, Purchaser will indemnify and hold the Sellers harmless with respect to
any loss, cost, or expense the Sellers may incur as a result of not being
released.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser to be performed at Closing shall
be subject to the satisfaction prior to or at the Closing (or the waiver by
Purchaser) of each of the following conditions:
6.1 Representations and Warranties True at Closing. Each of the
representations and warranties made by the Sellers in this Agreement, or in any
instrument, schedule, list, certificate or writing delivered by Sellers pursuant
to this Agreement, shall be true and correct when made and shall be true and
correct in all material respects at and as of the Closing as though such
representations and warranties were made as of the Closing.
6.2 Compliance With Agreement. The Sellers shall have in all material
respects performed and complied with all of their agreements and obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing, including the delivery of the closing documents specified in
Section 2.2(a) hereof.
6.3 Absence of Suit. No action, suit, investigation or proceeding
before any court or any governmental authority shall have been commenced or
threatened, against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of Purchaser
shall not be affected unless there is a reasonable likelihood that as a result
of such action, suit, investigation, or proceeding Purchaser will be unable to
retain substantially all the practical benefits of the transaction to which it
is entitled under this Agreement.
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6.4 Approvals; Consents. All consents, permits, approvals, licenses or
orders from any governmental or regulatory body or other third party required to
be obtained by Sellers for the consummation of the transactions contemplated by
this Agreement shall have been obtained except where failure to obtain such
consents, permits, approvals, licenses or orders would not have a material
adverse effect (whether or not such effect is referred to or described in any
Schedule) on the business, prospects, financial conditions, assets, reserves or
operations of the Company taken as a whole.
6.5 Agreements.
(a) Noncompetition Agreements. Each Seller shall have executed
and delivered to Purchaser a Noncompetition Agreement substantially in
the form attached hereto as Schedule 6.5(a).
(b) Employment Agreement. Laurie Van Duivenbode shall have
executed and delivered to Purchaser an Employment Agreement
substantially in the form of Schedule 6.5(b) hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
Each and every obligation of the Sellers to be performed at Closing
shall be subject to the satisfaction prior to or at the Closing (or the waiver
by the Sellers) of the following conditions:
7.1 Representations and Warranties True at Closing. Each of the
representations and warranties made by Purchaser in this Agreement, or in any
instrument, list, certificate or writing delivered by Purchaser pursuant to this
Agreement, shall be true and correct when made and shall be true and correct at
and as of the Closing as though such representations and warranties were made as
of the Closing.
7.2 Compliance With Agreement. Purchaser shall have in all material
respects performed and complied with all of Purchaser's agreements and
obligations under this Agreement which are to be performed or complied with by
Purchaser prior to or on the Closing, including the delivery of the closing
documents specified in Section 2.2(b) hereof.
7.3 Absence of Suit. No action, suit, investigation, or proceeding
before any court or any governmental authority shall have been commenced or
threatened against Purchaser, the Company or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions; provided that the obligations of the
Sellers shall not be affected unless there is a reasonable likelihood that as a
result of such action, suit, proceeding or investigation, the Sellers will be
unable to retain substantially all the consideration to which they are entitled
under this Agreement.
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7.4 Agreements.
(a) Noncompetition Agreements. Purchaser shall have executed
and delivered to each Seller a Noncompetition Agreement substantially
in the form attached hereto as Schedule 6.5(a).
(b) Employment Agreement. Purchaser shall have executed and
delivered to Laurie Van Duivenbode an Employment Agreement
substantially in the form attached hereto as Schedule 6.5(b).
ARTICLE VIII
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
8.1 Indemnification by the Sellers.
(a) The Sellers hereby agree to indemnify, defend, and hold
Purchaser (and its directors, officers, shareholders, employees,
affiliates, agents and assigns) harmless from and against all Claims
(as defined below) asserted against, resulting to, imposed upon, or
incurred by Purchaser directly or indirectly by reason of, arising out
of, or resulting from (a) the inaccuracy or breach of any
representation or warranty of the Sellers contained in or made pursuant
to this Agreement or (b) the non-performance or breach of any covenant,
term or provision to be performed by the Sellers contained in this
Agreement. The indemnification obligation of Sellers hereunder is with
respect to the full amount of the Claims (as defined below). As used in
this Article VIII, the term "Claim" shall include any and all losses,
liabilities, damages, deficiencies, assessments, judgments, awards,
settlements, costs, and expenses including without limitation
penalties, court costs, and attorney fees and expenses at trial and on
appeal. Notwithstanding the foregoing, Sellers' indemnity obligations
shall be subject to the following limitations:
(i) Sellers shall be responsible for indemnifying
Purchaser only to the extent Claims in the aggregate exceed
the sum of $8,000.
(ii) Each Seller shall be solely responsible for
indemnification with respect to such Seller's warranty of
title regarding Seller's Shares and such Seller's warranty
regarding the absence of liens and encumbrances applicable to
such Shares;
(iii) Each Seller's liability with respect to a Claim
shall be limited to a percentage of such Claim equal to such
Seller's percentage ownership of the Shares as set forth in
Section 1.1; and
(iv) Each Seller's maximum liability to Purchaser for
indemnification shall not exceed an amount equal the portion
of the Purchase Price being paid to such Seller as set forth
in Section 1.3 hereof.
- 17 -
<PAGE>
(v) Any Claims shall be asserted by Purchaser jointly
against Sellers on a uniform basis and any waiver, compromise
or settlement of a Claim offered by Purchaser shall be offered
on the same terms to all Sellers.
(b) Purchaser's right to indemnification as provided in this
Section 8.1 shall not be eliminated, reduced or modified in any way as
a result of the fact that (i) Purchaser had notice of a breach or
inaccuracy of any representation, warranty or covenant contained herein
(except as set forth in the Disclosure Schedule), (ii) Purchaser had
been provided with access, as requested by Purchaser, to officers and
employees of the Company and such of Company's books, documents,
contracts and records as has been provided to Purchaser in response to
Purchaser's requests.
8.2 Indemnification by Purchaser. Purchaser hereby agrees to indemnify,
defend, and hold harmless the Sellers from and against all Claims asserted
against, resulting to, imposed upon, or incurred by the Sellers directly or
indirectly by reason of, arising out of, or resulting from (a) the inaccuracy or
breach of any representation or warranty of Purchaser contained in or made
pursuant to this Agreement or in any of the documents delivered pursuant hereto,
or (b) the non-performance or breach of any covenant, term or provision to be
performed by Purchaser contained in this Agreement or in any of the documents
delivered pursuant hereto. The indemnification obligation of Purchaser hereunder
is with respect to the full amount of the Claims.
8.3 Notice; Defense of Claims. If a claim is to be made by a party
entitled to indemnification hereunder, the party entitled to such
indemnification shall give written notice to the indemnifying party immediately
after the party entitled to indemnification becomes aware of any fact, condition
or event which may give rise to a matter for which indemnification may be
sought; provided that the failure of any indemnified party to give timely notice
shall not affect the rights to indemnification hereunder except to the extent
that the indemnifying party demonstrates actual damage caused by such failure.
If any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, and if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit, action or claim, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of such lawsuit or
action and to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying party's cost, risk and expense provided that the
indemnifying party and its counsel shall proceed with diligence and in good
faith with respect thereto. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom.
8.4 Survival of Representations. All representations and warranties
made by the parties in this Agreement are made only as of the date of this
Agreement but will survive the consummation of the transactions contemplated by
this Agreement until October 31, 1998
- 18 -
<PAGE>
(except for the representations and warranties of the Sellers set forth in
Section 3.10 hereof which shall expire 90 days after the applicable statutes of
limitation shall have run with respect to all tax returns filed by the Company
for all periods ended on or before the Closing), after which all such
representations and warranties shall expire except with respect to claims
asserted in writing prior to such date.
ARTICLE IX
MISCELLANEOUS
9.1 Termination.
(a) Right of Termination Without Breach. This Agreement may be
terminated without further liability of any party at any time prior to
the Closing:
(i) By mutual written agreement of the parties, or
(ii) By either Purchaser or the Sellers if the
Closing shall not have occurred on or before the 90th day
after the date hereof, provided the terminating party has not,
through breach of a representation, warranty or covenant,
prevented the Closing from occurring on or before such date.
(b) Termination for Breach.
(i) Termination by Purchaser. If there has been a
material breach by the Sellers of any of their agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by Purchaser, then
Purchaser may, by written notice to Sellers at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii)
hereof.
(ii) Termination by Sellers. If there has been a
material breach by Purchaser of any of its agreements,
representations or warranties contained in this Agreement
which has not been waived in writing by the Sellers, then the
Sellers may, by written notice to Purchaser at any time prior
to the Closing that such breach is continuing, terminate this
Agreement with the effect set forth in Section 9.1(b)(iii).
(iii) Effect of Termination. Termination of this
Agreement pursuant to this Section 9.1 shall not in any way
terminate, limit or restrict the rights and remedies of any
party hereto against any other party which has breached or
failed to perform any of the representations, warranties,
covenants, or agreements of this Agreement prior to
termination hereof.
9.2 Waiver. Sellers or Purchaser may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained herein
or in any document delivered
- 19 -
<PAGE>
pursuant hereto and (c) waive compliance with any of the agreements of the other
or satisfaction of any of the conditions to its obligations contained herein.
Any extension or waiver made pursuant to this Section 9.2 must be by an
instrument in writing signed on behalf of the party granting the extension or
waiver. A waiver by any party of any provision hereof or breach hereof shall not
operate or be construed as the waiver of any other provision or any subsequent
breach.
9.3 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable and any purported
assignment shall be null and void. Nothing contained in this Agreement shall be
deemed to confer any right or benefit upon any person other than the parties
hereto to the extent herein provided.
9.4 Dollars. "Dollars" and "$" mean lawful money of the United States
of America, which shall be legal tender on the date of payment for all public
and private debts.
9.5 Brokers and Finders. Sellers on the one hand and Purchaser on the
other, each agree to indemnify and hold the other harmless from and against any
claim made for a broker's or a finder's fee or other similar compensation (and
all related costs and expenses) asserted against an indemnified party which
arises out of or results from an action taken by an indemnifying party.
9.6 Headings; Severability. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. Each
and every provision of this Agreement shall be treated as separate and distinct
and, in the event of any provision hereof being declared invalid, such invalid
provision shall be deemed to be severable and all other provisions hereof shall
remain in full force and effect.
9.7 Schedules. The Schedules are a part of this Agreement as if fully
set forth herein.
9.8 Disclosures and Announcements. Both the timing and the content of
all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either Sellers or Purchaser shall
be subject to the approval of the other in all essential respects, except that
the Sellers' approval shall not be required as to any announcements or filings
Purchaser may be required to make under applicable laws or regulations.
9.9 Expenses. Sellers agree that all fees and expenses incurred by them
in connection with this Agreement shall be borne by Sellers including, without
limitation, all fees of counsel and accountants; and Purchaser agrees that all
fees and expenses incurred by it in connection with this Agreement shall be
borne by it, including, without limitation, all fees of counsel and accountants.
9.10 Notice. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier,
- 20 -
<PAGE>
facsimile transmission or other electronic means of transmitting written
documents; or (c) sent to the parties at their respective addresses indicated
herein by private overnight courier service. The respective addresses and
telephone numbers to be used for all such notices, demands or requests are as
follows:
If to Purchaser: HealthCare Hearing Clinics, Inc.
111 S.W. Fifth Avenue, Suite 2390
Portland, Oregon 97204
Attn: President
Personal & Confidential
Facsimile: (503) 225-9309
with a copy to: Miller, Nash, Wiener, Hager & Carlsen
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attn: G. Todd Norvell
Facsimile: (503) 224-0155
If to Sellers: Laurie Van Duivenbode
3242 Rowena Drive
Los Alamitos, California 90720
Facsimile: (562) 493-2932
with a copy to: Richard P. Manson
Graham & James
801 S. Figueroa St., 14 Fl.
Los Angeles, California 90017
Facsimile: (213) 623-4581
and to: Gregory J. Frazer
1477 Dwight Drive
Glendale, California 91207
Facsimile (818) 244-8889
with a copy to: Ms. Nancy Borders
Gardner, Carton & Douglas
321 N. Clark Street, Ste. 3400
Chicago, Illinois 60610
Facsimile: (312) 644-3381
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if electronically transmitted, such communication shall be
deemed delivered the next business day after transmission (and the sender shall
bear the burden of proof of delivery); if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed
- 21 -
<PAGE>
delivered upon receipt. Any party to this Agreement may change its address for
the purposes of this Agreement by giving notice thereof in accordance with this
section.
9.11 Resolution of Disputes.
(a) Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement or the performance by the parties of
its terms shall be settled by binding arbitration held in Los Angeles,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Section 9.11. Notwithstanding the foregoing,
HealthCare, in its discretion, apply to a court of competent
jurisdiction for equitable relief from any violation or threatened
violation of the covenants of the Shareholders under Section 5.1(b) of
this Agreement.
(b) Arbitrators. If the matter in controversy (exclusive of
attorney fees and expenses) shall appear, as at the time of the demand
for arbitration, to exceed $50,000, then the panel to be appointed
shall consist of three neutral arbitrators; otherwise, one neutral
arbitrator.
(c) Procedures; No Appeal. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the
circumstances and shall resolve the dispute as expeditiously as
practicable, and if reasonably practicable, within 120 days after the
selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set
out, and shall have thirty (30) days thereafter to reconsider and
modify such decision if any party so requests within ten (10) days
after the decision. Thereafter, the decision of the arbitrator(s) shall
be final, binding, and nonappealable with respect to all persons,
including (without limitation) persons who have failed or refused to
participate in the arbitration process.
(d) Authority. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief, and to allocate responsibility for the costs of the
arbitration and to award recovery of attorney fees and expenses in such
manner as is determined to be appropriate by the arbitrator(s).
(e) Entry of Judgment. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and
subject matter jurisdiction. The Shareholders and HealthCare hereby
submit to the in personam jurisdiction of the federal and state courts
in California for the purpose of confirming any such award and entering
judgment thereon.
(f) Confidentiality. All proceedings under this Section 9.11,
and all evidence given or discovered pursuant hereto, shall be
maintained in confidence by all parties.
(g) Continued Performance. The fact that the dispute
resolution procedures specified in this Section 13 shall have been or
may be invoked shall not excuse any
- 22 -
<PAGE>
party from performing its obligations under this Agreement, and during
the pendency of any such procedure all parties shall continue to
perform their respective obligations in good faith, subject to any
rights to terminate this Agreement that may be available to any party.
9.12 Governing Law. This Agreement may not be modified or terminated
orally, and shall be construed and interpreted according to the internal law of
the state of California, excluding any choice of law rules that may direct the
application of the laws of another jurisdiction.
9.13 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
9.14 Entire Agreement. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
9.15 Further Assurances. Both before and after the Closing, each party
will cooperate in good faith with the others and will take all appropriate
action and execute any documents, instruments, or conveyances of any kind that
may be reasonable necessary or desirable to carry out any of the transactions
contemplated hereunder.
9.16 Sellers Action. Whenever in this Agreement the Sellers are given
the discretion to take or not to take any action, the decision of the Sellers
shall be made pursuant to the vote of the Sellers holding a majority of the
Shares.
9.17 Termination of Restrictions. Upon the consummation of the
transactions provided for herein, any restrictions on the transfer of the Shares
shall be waived by Sellers and shall become void and of no further effect.
9.18 Automobile Purchase. Prior to the Closing, Company shall sell to
Laurie Van Duivenbode, and she shall purchase from Company, the 1987 Acura
Legend automobile she has heretofore utilized as her company car, for a total
price of $5,100.
- 23 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
SELLERS: PURCHASER:
HEALTHCARE HEARING CLINICS, INC., a
Washington corporation
____________________________ By:
Laurie Van Duivenbode Edwin J. Kawasaki
Vice President
- ----------------------------
Gregory J. Frazer
The undersigned, being the spouses of the Sellers named in the foregoing Stock
Purchase and Sale Agreement, hereby relinquish all right, title, and interest,
including, without limitation, any community property rights under California
law to the Shares (as defined in such Agreement) and hereby consent and agree to
the transfer of such Shares pursuant to such Agreement.
- ---------------------------- ----------------------------
Carissa Bennett Roy Van Duivenbode
- 24 -
<PAGE>
SCHEDULES
Schedule 1.4(a) 365-Day Accounts Receivable
Schedule 2.2(a)(ii) Opinion of Sellers' Counsel
Schedule 2.2(b)(ii) Opinion of Purchaser's Counsel
Schedule III Disclosure Statement
Schedule 3.10(a) Leases
Schedule 3.10(b) Purchase Commitments
Schedule 3.10(c) Sales Commitments
Schedule 3.10(i) Other Material Contracts
Schedule 3.11 Employee Benefit Plans
Schedule 3.12 Employee Compensation
Schedule 3.13 Patents, Trademarks
Schedule 3.14 Product Warranty
Schedule 3.16 Key Employees; Banks
Schedule 5.1(c) Sellers' Loans
Schedule 5.2 Sellers' Personal Guarantees
Schedule 6.5(a) Noncompetition Agreement
Schedule 6.5(b) Employment Agreement
- 25 -
March 7, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Ladies and Gentlemen:
We were previously principal accountants for HealthCare
Capital Corp. and, pursuant to our Auditors' Report dated October 8, 1996,
reported on the consolidated financial statements of HealthCare Capital Corp.
(and subsidiaries) as of and for the years ended July 31, 1996 and 1995.
Effective December 20, 1996, our appointment as principal accountants was
terminated. We have read the statements regarding such termination included
under the caption "Experts" pursuant to Item 303(a) of Regulation S-B contained
in the Registration Statement on Form SB-2 of HealthCare Capital Corp. dated
March 7, 1997, and we agree with such statements.
Yours very truly,
/s/ Shikaze Ralston
Shikaze Ralston
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
HC HealthCare Hearing Clinics, Ltd.
HealthCare Hearing Clinics, Inc.
Pacific Hearing Clinic Inc.
Oakridge Hearing Clinic Inc.
Hearing Care Associates - Arcadia, Inc.
Hearing Care Associates - Sherman Oaks, Inc.
Pacific Audiology Associates, Inc.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
March 7, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
The Board of Directors
HealthCare Capital Corp.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts".
Very truly yours,
/s/ Shikaze Ralston
Shikaze Ralston
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
HealthCare Capital Corporation:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/S/ KPMG PEAT MARWICK LLP
Portland, Oregon
March 7, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints Brandon M. Dawson and Edwin J.
Kawasaki, and each of them, such person's true and lawful attorneys-in-fact
and agents, with full power of substitution and re-substitution, for such person
and in his or her name, place and stead, in any and all such person's
capacities with HealthCare Capital Corp., an Alberta, Canada corporation (the
"Company"), to sign a registration statement on Form SB-2 relating to the
registration of the Companys common shares, and any and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or each of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this power of attorney has been executed
by each of the undersigned as of this 7th day of February, 1997.
SIGNATURE TITLE
/S/ BRANDON M. DAWSON President and Director
Brandon M. Dawson (Principal Executive Officer)
/S/ EDWIN J. KAWASAKI Vice President, Finance
Edwin J. Kawasaki (Principal Financial and Accounting Officer)
/S/ GREGORY FRAZER Vice President, Business Development
Gregory Frazer, Ph.D. and Director
/S/ WILLIAM DEJONG Secretary and Director
William DeJong
/s/ GENE K. BALZER, PH.D. Director
Gene K. Balzer, Ph.D.
/S/ DOUGLAS F. GOOD Chairman of the Board and Director
Douglas F. Good
/S/ HUGH T. HORNIBROOK Director
Hugh T. Hornibrook
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the financial
statements for HealthCare Capital Corp.
and is qualified in its entirety by
reference to such financial statements.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1996 JUL-31-1996
<PERIOD-END> JUL-31-1996 OCT-31-1996
<CASH> 11,196 472,444
<SECURITIES> 0 0
<RECEIVABLES> 407,591 1,639,288
<ALLOWANCES> (4,755) (62,066)
<INVENTORY> 143,597 302,089
<CURRENT-ASSETS> 607,349 2,458,183
<PP&E> 895,853 1,561,397
<DEPRECIATION> (302,661) (344,216)
<TOTAL-ASSETS> 2,322,114 9,876,178
<CURRENT-LIABILITIES> 588,677 1,926,535
<BONDS> 221,467 3,146,784
0 0
0 0
<COMMON> 1,925,318 5,513,279
<OTHER-SE> (413,348) (710,420)
<TOTAL-LIABILITY-AND-EQUITY> 2,322,114 9,876,178
<SALES> 2,389,453 1,281,060
<TOTAL-REVENUES> 2,389,453 1,281,060
<CGS> 1,017,414 492,649
<TOTAL-COSTS> 2,978,803 1,851,362
<OTHER-EXPENSES> (7,684) 26,368
<LOSS-PROVISION> 19,839 10,265
<INTEREST-EXPENSE> 15,177 745
<INCOME-PRETAX> (581,666) (300,908)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (581,666) (300,908)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (581,666) (300,908)
<EPS-PRIMARY> (0.04) (0.02)
<EPS-DILUTED> (0.04) (0.02)
</TABLE>
