SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended January 31, 1999
Commission File Number 1-13851
SONUS CORP.
(Exact name of small business issuer as specified in its charter)
Yukon Territory, Canada Not Applicable
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S.W. Fifth Avenue, Suite 1620, Portland, Oregon 97204
(Address of principal executive offices)
Issuer's telephone number, including area code: 503-225-9152
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes -X-. No ---.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,116,707 Common Shares, without par
or nominal value, outstanding as of March 1, 1999.
Transitional Small Business Disclosure Format. Yes ---. No -X-.
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------
Statements in this report, to the extent they are not based on
historical events, constitute forward-looking statements. Forward-looking
statements include, without limitation, statements containing the words
"believes," "anticipates," "intends," "expects," and words of similar import.
Investors are cautioned that forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance, or achievements of Sonus Corp. (the "Company") to be
materially different from those described herein. Factors that may result in
such variance, in addition to those accompanying the forward-looking statements,
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, development of new or improved medical or surgical
treatments for hearing loss or of technological advances in hearing instruments,
changes in the application or interpretation of applicable government 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 care
clinics, the ability of the Company to attract audiology clinics as franchise
licensees under the Sonus Network, product and professional liability claims
brought against the Company that exceed its insurance coverage, and the
availability of and costs associated with potential sources of financing. 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.
2
<PAGE>
SONUS CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
January 31, July 31,
1999 1998
-------- --------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,127 $ 2,720
Short-term investments, available for sale 2,593 6,408
Accounts receivable, net of allowance for doubtful
accounts of $786 and $684, respectively 4,236 3,339
Other receivables 715 515
Inventory 752 967
Prepaid expenses 586 270
-------- --------
Total current assets 10,009 14,219
Property and equipment, net 5,349 3,607
Other assets 268 151
Goodwill and covenants not to compete, net 18,675 16,152
-------- --------
$ 34,301 $ 34,129
======== ========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans and short-term notes payable $ --- $ 46
Accounts payable 3,818 2,879
Accrued payroll 1,207 1,110
Other accrued liabilities 2,427 2,595
Convertible notes payable 921 ---
Capital lease obligation, current portion 123 120
Long-term debt, current portion 1,635 1,160
--------- ---------
Total current liabilities 10,131 7,910
Capital lease obligation, non-current portion 161 223
Long-term debt, non-current portion 2,799 1,733
Convertible notes payable --- 1,170
--------- ---------
Total liabilities 13,091 11,036
Shareholders' equity:
Series A convertible preferred stock, no par
value per share, 13,333,333 shares authorized,
issued, and outstanding 15,701 15,701
Common stock, no par value per share, unlimited
number of shares authorized, 6,118,387 and 6,079,908
shares, respectively, issued and outstanding 14,921 14,673
Notes receivable from shareholders (283) (283)
Accumulated deficit (8,884) (6,711)
Accumulated other comprehensive loss (176) (229)
Treasury stock, 8,280 and 6,960 shares, respectively at cost (69) (58)
-------- --------
Total shareholders' equity 21,210 23,093
-------- --------
$ 34,301 $ 34,129
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
SONUS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
Three months ended Six months ended
January 31, January 31,
------------------------- -------------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 8,486 $ 4,109 $ 16,187 $ 9,416
Costs and expenses:
Cost of products sold 2,885 1,366 5,486 3,119
Clinical expenses 4,050 2,279 8,415 4,523
General and administrative expenses 1,738 1,276 3,521 2,388
Depreciation and amortization 514 323 989 600
------- -------- -------- --------
Total costs and expenses 9,187 5,244 18,411 10,630
------- -------- -------- --------
Loss from operations (701) (1,135) (2,224) (1,214)
Other income (expense):
Interest income 66 79 170 88
Interest expense (56) (29) (112) (55)
Other, net (8) --- (7) ---
------- -------- -------- --------
Net loss $ (699) $ (1,085) $ (2,173) $ (1,181)
======= ======== ======== ========
Per share of common stock:
Basic $ (0.11) $ (0.24) $ (0.36) $ (0.26)
Diluted $ (0.11) $ (0.24) $ (0.36) $ (0.26)
Average shares outstanding:
Basic 6,096 4,607 6,070 4,595
Diluted 6,096 4,607 6,070 4,595
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
SONUS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
Three months ended Six months ended
January 31, January 31,
--------------------- ----------------------
1999 1998 1999 1998
--------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $ (699) $ (1,085) $ (2,173) $ (1,181)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for bad debt expense 81 33 149 61
Depreciation and amortization 514 323 989 600
Changes in non-cash working capital:
Accounts receivable (1,033) 110 (946) (118)
Other receivables (210) 1 (200) (95)
Inventory 298 (36) 246 (237)
Prepaid expenses (195) (155) (307) (386)
Accounts payable and accrued liabilities 515 1,155 748 759
------- ------- ------- -------
Net cash provided by (used in) operating activities (729) 346 (1,494) (597)
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments 1,945 (8,815) 3,815 (8,815)
Purchase of property and equipment (1,120) (195) (2,035) (519)
Additional costs related to acquisitions 90 (4) (26) (57)
Deferred acquisition costs and other, net (12) --- (102) ---
Net cash paid on business acquisitions (273) (331) (1,223) (703)
------- ------- ------- -------
Net cash provided by (used in) investing activities 630 (9,345) 429 (10,094)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft --- (275) --- ---
Proceeds from (repayments of) long term debt
and capital lease obligations (284) 138 (507) 69
Deferred financing costs, net (16) (3) (15) (3)
Advances on (repayments of) bank loans and
short-term notes payable (123) (421) (296) 30
Issuance of common stock for cash, net of costs --- 10 248 10
Issuance of preferred stock for cash, net of costs --- 15,752 --- 15,752
Acquisition of treasury stock (11) (11) (11) (25)
------- ------- ------- -------
Net cash provided by (used in) financing activities (434) 15,190 (581) 15,833
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents (533) 6,191 (1,646) 5,142
Effect on cash and cash equivalents of changes
in foreign translation rate 84 (41) 53 (91)
Cash and cash equivalents, beginning of period 1,576 --- 2,720 1,099
------- ------- ------- -------
Cash and cash equivalents, end of period $ 1,127 $ 6,150 $ 1,127 $ 6,150
======= ======= ======= =======
Supplemental disclosure of non-cash investing and financing activities:
Interest paid during the period $ 56 $ 12 $ 112 $ 38
Non-cash financing activities:
Issuance and assumption of long-term debt in acquisitions $ 750 $ 97 $ 2,640 $ 97
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
SONUS CORP.
CONSOLIDATED STATEMENTS OF COMPREHESIVE INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
Three months ended Six months ended
January 31, January 31,
------------------------ -------------------------
1999 1998 1999 1998
------ -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (699) $ (1,085) $ (2,173) $ (1,181)
Other comprehesive income, net of tax:
Foreign currency translation adjustments 84 (41) 53 (91)
------ -------- -------- --------
Comprehensive loss $ (615) $ (1,126) $ (2,120) $ (1,272)
====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SONUS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 1998.
All adjustments, consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented have been made. The results of operations for an
interim period are not necessarily indicative of the results of operations for a
full year. Certain amounts in the financial statements for the three and six
month periods ended January 31, 1998, have been reclassified in order to conform
to the presentation for the three and six month periods ended January 31, 1999.
Effective February 9, 1998, the Company effected a one-for-five reverse stock
split of the Common Shares of the Company. All share and per share information
appearing in the accompanying financial statements has been restated to give
effect to the reverse stock split. The Company has adopted Statement of
Financial Accounting Standards No.130, "Reporting Comprehensive Income," for its
fiscal year ending July 31, 1999, and therefore the interim financial statements
contain consolidated statements of comprehensive income for the three and six
month periods ended January 31, 1999 and 1998.
2. Release of Shares from Escrow
Effective with the listing of the Company's common shares on the
American Stock Exchange on February 10, 1998, 850,000 common shares owned by
certain members of the Company's management were released from escrow by The
Alberta Stock Exchange. The shares, which had previously been excluded from the
calculation of the average shares outstanding during a period, are included in
such calculation for the three and six month periods ended January 31, 1998.
3. Acquisitions
During the three months ended January 31, 1999, the Company acquired
two hearing care clinics in two separate transactions. The aggregate purchase
price for the acquisitions consisted of cash payments of $101,000, promissory
notes issued by the Company of $100,000 payable over six years, and $182,000 in
assumed liabilities. As a result of the acquisitions, the Company recorded
$38,000 in property and equipment, $2,000 in inventory, $24,000 in accounts
receivable, $3,000 in other assets, and $319,000 in goodwill, which included
costs related to the acquisitions. In connection with one of the acquisitions,
the Company recorded $3,600 for a covenant not to compete that was paid in cash.
The Company finalized purchase price adjustments during the three months ended
January 31, 1999, with respect to two clinics that were acquired in January and
February 1998, by issuing $160,000 of promissory notes payable over three years
and recording additional goodwill in the amount of the notes. The Company also
recorded $490,000 for expanded covenants not to compete with certain individuals
that were owners of clinics previously acquired by the Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
At January 31, 1999, the Company operated 88 hearing care centers
in nine states and two Canadian provinces, compared to 80 centers at July 31,
1998, and 89 centers at October 31, 1998. The Company has continued to focus on
profitability, as evidenced by the narrowing of the Company's net loss from
$2,494,000 for the fourth quarter of fiscal 1998 to $1,474,000 for the first
quarter of fiscal 1999 and $699,000 for the second quarter of fiscal 1999.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1999 Compared to Three Months Ended January 31,
1998
Revenues. Total revenues for the three months ended January 31, 1999,
were $8,486,000, representing a 107% increase over revenues of $4,109,000 for
the comparable period in fiscal 1998. The increase was attributable to the 36
additional clinics that were owned by the Company during the three months ended
January 31, 1999. Product revenues were $7,297,000 for the three months ended
January 31, 1999, up 121% from $3,308,000 for the same period in fiscal 1998.
Audiological service revenues increased 60% to $974,000 for the three months
ended January 31, 1999, from $610,000 for the comparable period in fiscal 1998.
Audiological service revenues represented 11% and 15% of total revenues for the
three month periods ended January 31, 1999 and 1998, respectively. The Company
is focusing on more profitable hearing instrument sales resulting in a decrease
in audiological service revenues as a percentage of total revenues. Other
revenues increased 13% to $215,000 for the three months ended January 31, 1999,
from $191,000 for the three months ended January 31, 1998.
Product Gross Profit. Product gross profit for the three months ended
January 31, 1999, was $4,412,000 or 60% of product revenues, compared to
$1,942,000 or 59% of product revenues for the comparable period in fiscal 1998.
The increase in product gross profit percentage was due to increased buying
power with hearing instrument manufacturers, less dependence on sales discounts,
better price management, and a new tiered pricing strategy based on levels of
technology.
Clinical Expenses. As a percentage of revenues, clinical expenses
decreased to 48% for the three months ended January 31, 1999, compared to 55%
for the three months ended January 31, 1998. The decrease was due to Company's
ability to cut costs, streamline its operations, and eliminate inefficient and
duplicative processes. Clinical expenses for the three months ended January 31,
1999, were $4,050,000, representing an increase of 78% over clinical expenses of
$2,279,000 for the comparable period in fiscal 1998. This increase was primarily
due to clinical expenses associated with the 36 additional clinics that were
owned by the Company during the three months ended January 31, 1999. Clinical
expenses include all personnel, marketing, occupancy, and other operating
expenses at the clinic level.
General and Administrative Expenses. As a percentage of revenues,
general and administrative expenses decreased to 20% for the three-month period
ended January 31, 1999, versus 31% for the same period in the prior fiscal year.
The decrease in general and
8
<PAGE>
administrative expenses as a percentage of revenues was due to growth in the
Company's revenue base as a result of its strategic acquisition program and
enhanced marketing efforts, as well as a recently implemented administrative
restructuring and cost-cutting program. General and administrative expenses
increased 36% from $1,276,000 for the three months ended January 31, 1998, to
$1,738,000 for the three months ended January 31, 1999, due to planned increases
in corporate staff and other corporate expenses related to the operation of a
larger organization.
Depreciation and Amortization Expense. As a percentage of revenues,
depreciation and amortization expense decreased to 6% for the three-month period
ended January 31, 1999, versus 8% for the same period in the prior fiscal year.
Depreciation and amortization expense for the three months ended January 31,
1999, was $514,000, an increase of 59% over the depreciation and amortization
expense of $323,000 for the same period in the prior fiscal year. The increase
resulted from the depreciation of fixed assets and amortization of goodwill and
covenants not to compete associated with the 36 additional clinics operated by
the Company during the three-month period ended January 31, 1999.
Interest Income and Expense. Interest income for the three months ended
January 31, 1999, decreased to $66,000 from $79,000 for the same period in the
prior fiscal year. The decrease was due to lower balances of cash and short-term
investments held by the Company as funds have been used for acquisitions.
Interest expense for the three months ended January 31, 1999, was $56,000
compared to $29,000 for the three months ended January 31, 1998, reflecting
higher balances of long-term debt incurred in connection with acquisitions.
Net Loss. The Company's net loss for the three months ended January 31,
1999, decreased 36% to $699,000 compared to a net loss of $1,085,000 for the
three months ended January 31, 1999, due to the increased revenues and decreased
expenses as a percentage of revenues discussed above. The Company's loss before
interest, depreciation, and amortization for the three months ended January 31,
1999, was $187,000 compared to a loss of $812,000 for the three months ended
January 31, 1998.
Six Months Ended January 31, 1999 Compared to Six Months Ended January 31, 1998
Revenues. Total revenues for the six months ended January 31, 1999,
were $16,187,000, representing a 72% increase over revenues of $9,416,000 for
the comparable period in fiscal 1998. The increase was attributable to the 36
additional clinics that were owned by the Company during the six months ended
January 31, 1999. Product revenues were $13,943,000 for the six months ended
January 31, 1999, up 78% from $7,827,000 for the same period in fiscal 1998.
Audiological service revenues increased 44% to $1,894,000 for the six months
ended January 31, 1999, from $1,316,000, for the comparable period in fiscal
1998. Audiological service revenues represented 12% and 14% of total revenues
for the six month periods ended January 31, 1999 and 1998, respectively. As
noted above, the Company has made an effort to focus on more profitable hearing
instrument sales, resulting in a decrease in audiological service revenues as a
percentage of total revenues. Other revenues increased 28% to $350,000 for the
six months ended January 31, 1999, compared to $273,000 for the same period in
the prior fiscal year.
Product Gross Profit. Product gross profit for the six months ended
January 31, 1999, was $8,457,000 or 61% of product revenues, compared to
$4,708,000 or 60% of product revenues for the comparable period in fiscal 1998.
The increase in product gross profit
9
<PAGE>
percentage was due to increased buying power with hearing instrument
manufacturers, less dependence on sales discounts, better price management, and
a new tiered pricing strategy based on levels of technology.
Clinical Expenses. Clinical expenses for the six months ended January
31, 1999, were $8,415,000, representing an increase of 86% over clinical
expenses of $4,523,000 for the comparable period in fiscal 1998. This increase
was primarily due to clinical expenses associated with the 36 additional clinics
that were owned by the Company during the six months ended January 31, 1999. As
a percentage of revenues, clinical expenses increased to 52% for the six months
ended January 31, 1999, compared to 48% for the six months ended January 31,
1998. The increase in clinical expenses as a percentage of revenues is
attributable to the Company's first fiscal quarter ended October 31, 1998, where
increased marketing expenses were incurred in connection with promotion of the
Company's private label Sonus Solution Hearing System line of digital hearing
instruments.
General and Administrative Expenses. As a percentage of total revenues,
general and administrative expenses decreased to 22% for the six-month period
ended January 31, 1999, versus 25% for the same period in the prior fiscal year.
The decrease in general and administrative expenses as a percentage of revenues
was due to growth in the Company's revenue base as a result of its strategic
acquisition program and enhanced marketing efforts, as well as a recently
implemented administrative restructuring and cost-cutting program. General and
administrative expenses increased 47% from $2,388,000 for the six months ended
January 31, 1998, to $3,521,000 for the six months ended January 31, 1999, due
to planned increases in corporate staff and other corporate expenses related to
the operation of a larger organization.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the six months ended January 31, 1999, was $989,000, an increase of
65% over the depreciation and amortization expense of $600,000 for the same
period in the prior fiscal year. The increase resulted from the depreciation of
fixed assets and amortization of goodwill and covenants not to compete
associated with the 36 additional clinics operated by the Company during the
six-month period ended January 31, 1999. As a percentage of revenues,
depreciation and amortization expense remained steady at 6% for the three-and
six month periods ended January 31, 1999.
Interest Income and Expense. Interest income for the six months ended
January 31, 1999, increased to $170,000 from $88,000 for the same period in the
prior fiscal year. The increase was due to higher balances of cash and
short-term investments held by the Company as a result of the sale of preferred
stock in December 1997. Interest expense for the six months ended January 31,
1999, was $112,000 compared to $55,000 for the six months ended January 31,
1998, reflecting higher balances of long-term debt incurred in connection with
acquisitions.
Net Loss. For the six months ended January 31, 1999, the Company had a
net loss of $2,173,000 compared to a net loss of $1,181,000 for the six months
ended January 31, 1998. The increased loss was primarily due to an increase in
clinical expenses in the first quarter of fiscal 1999 related to marketing of
the Sonus Solution Hearing System. The Company's loss before interest,
depreciation, and amortization for the six months ended January 31, 1999, was
$1,235,000 compared to a loss of $614,000 for the six months ended January 31,
1998.
10
<PAGE>
LIQUIDITY AND CASH RESERVES
For the six months ended January 31, 1999, net cash used in operating
activities was $1,494,000 compared to $597,000 for the six months ended January
31, 1998. The increase was primarily due to an increase in accounts and other
receivables and a larger operating loss, reflecting the growth of the Company
over the last year. Net cash provided by investing activities was $429,000 in
the first six months of fiscal 1999 compared to net cash used in investing
activities of $10,094,000 in the first six months of fiscal 1998 as a result of
purchases of short-term investments following the sale of preferred stock in the
second quarter of fiscal 1998 and the sale of short-term investments of
$3,815,000 during the six months ended January 31, 1999. In addition, the
Company invested cash of $1,223,000 in business acquisitions and $2,035,000 in
property and equipment for the six months ended January 31, 1999, compared to
$703,000 and $519,000 for the six months ended January 31, 1998. Net cash
provided by financing activities was $15,833,000 in the first six months of
fiscal 1998 compared to net cash used in financing activities of $581,000 in the
first six months of fiscal 1999. The change was primarily the result of funds
from the sale of preferred stock being included in the first six months of
fiscal 1998. The Company repaid long-term debt of $507,000 during the six months
ended January 31, 1999, compared to receiving proceeds from the issuance of
long-term debt of $69,000 during the comparable period in the prior fiscal year.
The Company also repaid bank loans and short-term notes payable totaling
$296,000 during the six months ended January 31, 1999, compared to receiving
advances on bank loans and short-term notes payable of $30,000 for the six
months ended January 31, 1998.
At January 31, 1999, the Company had cash and short-term investments
available for sale totaling $3,720,000 and a working capital deficit of
$122,000. The Company believes that its cash and short-term investments, along
with cash generated from operations, will provide it with sufficient capital to
fund its operations until the end of the Company's current fiscal year. The
Company's capital expenditures during fiscal 1999 are expected to be
approximately $3,000,000, with approximately $2,035,000 expended as of January
31, 1999. Additional funding will be needed to finance operations and planned
capital expenditure beyond July 31, 1999, and to fund the Company's strategy to
acquire additional hearing care clinics. 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.
Any such issuance of equity may be dilutive to current shareholders and debt
financing may impose significant restrictive covenants on the Company. 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.
YEAR 2000
The "Year 2000 problem" refers to the possibility that computer and
other systems could fail or not work properly as a result of these systems using
only the last two digits of a year to refer to that year and therefore being
unable to properly recognize a year that begins with "20" instead of "19". The
Company has undertaken a review of the potential effects of the Year 2000
problem on its business on a system by system basis.
With respect to its information technology ("IT") systems, the Company
believes that the computer hardware and system software of its IBM AS/400
computer, on which its patient management system and accounting system operate,
are Year 2000 compliant. Unrelated to
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<PAGE>
Year 2000 issues, the Company is continuing its development of a new patient
management system. Initially, the Company's hearing care centers and Hear PO
will use the software.
However, in the future the Company may license the software to its Sonus Network
franchise licensees and others. The development contractor for the software has
represented that it will meet Year 2000 standards. Development of the software,
including related hardware upgrades, is expected to cost approximately
$1,200,000, of which $815,000 had been incurred as of January 31, 1999.
Implementation of the new software is expected to begin in June 1999. The
Company plans to install a new release of its accounting and financial reporting
software in March 1999, which the vendor represents is Year 2000 compliant. The
cost for installing the new release is expected to be less than $15,000. The
Company is currently surveying all of its servers, personal computers, and
network hardware to determine compliance with Year 2000 standards and expects
that this survey will be completed by August 1999. All equipment found to be
deficient will be replaced. The Company estimates that the cost of replacement
equipment will be less than $50,000.
The Company has reviewed its non-IT systems (primarily voice
communications) for Year 2000 compliance and will replace those systems that
were found to be non-compliant. The Company estimates that its cost to replace
the non-IT systems that are non-compliant with Year 2000 standards will not
exceed $50,000.
The Company also faces the risk that vendors from which the Company
purchases goods and services, such as hearing instrument manufacturers, utility
providers, the banks that maintain the Company's depository accounts and process
its credit card transactions, and the Company's payroll processor, may have
systems that are not Year 2000 compliant. Significant disruptions in the
operations of its vendors may have a material adverse effect on the Company. The
Company plans to monitor the progress of its major vendors in achieving Year
2000 compliance. However, the Company presently does not anticipate the
occurrence of major interruptions in its business due to Year 2000 issues.
The Company has not established a contingency plan to address potential
Year 2000 noncompliance with respect to the Company's systems or those of its
major vendors and is currently considering the extent to which such a plan is
necessary. Due to the Company's dependence on systems outside its control, such
as telecommunications, transportation, and power supplies, there can be no
assurance that the Company will not face unexpected problems associated with the
Year 2000 issue that may affect its operations, business, and financial
condition.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual and special general meeting of the Company's shareholders
was held on December 15, 1998 (the "Annual Meeting"). At the Annual Meeting, the
number of directors of the Company was fixed at six (until such time as the
directors of the Company determine by resolution to appoint one or more
additional directors in accordance with the Company's Articles) by the following
vote: 6,675,130 for; 81,530 against or withheld; 2,030 abstentions and broker
non-votes.
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The following directors were elected at the Annual Meeting to serve
until the next annual general meeting:
<TABLE>
Abstentions
and Broker
For Withheld Non-votes
--- -------- ---------
<S> <C> <C> <C>
Joel Ackerman 6,748,160 10,530 0
Haywood D. Cochrane, Jr. 6,748,160 10,530 0
Brandon M. Dawson 6,748,160 10,530 0
William DeJong 6,748,160 10,530 0
Gregory J. Frazer 6,748,160 10,530 0
Hugh T. Hornibrook 6,748,160 10,530 0
</TABLE>
At the Annual Meeting, KPMG Peat Marwick LLP was approved as
independent auditors of the Company and the board of directors was authorized to
fix the auditors' remuneration by the following vote: 6,756,400 for; 1,420
against or withheld; and 360 abstentions and broker non-votes. In addition, a
resolution approving the continuance of the Company to the jurisdiction of Yukon
Territory, Canada, was approved by the following vote: 3,766,663 for; 7,177
against or withheld; 2,984,850 abstentions and broker non-votes. An amendment to
the Company's Second Amended and Restated Stock Award Plan to increase the
number of Common Shares issuable thereunder by 500,000 shares was also approved
by the following vote: 3,728,063 for; 125,880 against or withheld; 2,904,747
abstentions and broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits filed as part of this report or incorporated by
reference herein are listed in the accompanying exhibit index.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fiscal quarter ended January 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SONUS CORP.
By: /s/ Edwin J. Kawasaki
Edwin J. Kawasaki
Vice President-Finance
(Principal Financial Officer)
DATED: March 11, 1999
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
27 Financial Data Schedule.
14
YUKON
Justice
BUSINESS CORPORATIONS ACT
(Section 190)
Form 3-01
ARTICLES OF CONTINUANCE
1. Name of Corporation:
SONUS CORP.
2. The classes and any maximum number of shares that the corporation is
authorized to issue:
SEE ATTACHED SCHEDULE "A"
3. Restrictions if any on share transfers:
NONE
4. Number (or minimum or maximum number) of Directors:
Minimum 3 - Maximum 11
5. Restrictions if any on businesses the corporation may carry on:
NONE
6. If change of name effected, previous name:
NOT APPLICABLE
7. Details of incorporation:
SEE ATTACHED SCHEDULE "B"
8. Other provisions if any:
SEE ATTACHED SCHEDULE "C"
<TABLE>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C>
9. Date Signature Title
December 15, 1998 "Signed by: William DeJong" Director/Asst. Secretary
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
YG(3040Q)F1 REV. 11/87
<PAGE>
SCHEDULE "A"
The Corporation is authorized to issue an unlimited number of Common Shares
without nominal or par value and an unlimited number of Preferred Shares without
nominal or par value, which Common Shares and Preferred Shares shall have
attached thereto the rights, privileges, restrictions and conditions hereinafter
set forth:
PROVISIONS ATTACHING TO THE COMMON SHARES
Voting Rights
i) 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
ii) 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; and
iii) in the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of its assets among the shareholders,
the holders of the Common Shares shall be entitled to receive the
remaining property of the Corporation.
PURSUANT TO THE SPECIAL MEETING OF SHAREHOLDERS OF THE CORPORATION HELD ON
FEBRUARY 9, 1998, ITEM NO. 2 OF THE ARTICLES OF THE CORPORATION WERE AMENDED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 167(1)(F) OF THE BUSINESS CORPORATIONS
ACT (ALBERTA) ON FEBRUARY 9, 1998 BY THE ADDITION OF THE FOLLOWING PROVISIONS:
Simultaneously with the effective date of this amendment (the
"Effective Date"), each of the Corporation's Common Shares, without
nominal or par value, issued and outstanding immediately prior to the
Effective Date (the "Old Common Shares") shall automatically and
without any action on the part of the holder thereof be reclassified as
and changed into one-fifth (1/5) of a Common Share, without nominal or
par value (the "New Common Shares"), subject to the treatment of
fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented outstanding Old Common Shares (the "Old Certificates,"
whether one or more) shall be entitled to receive upon surrender of
such Old Certificates to the Corporation's Transfer Agent for
cancellation, a certificate or certificates (the "New Certificates,"
whether one or more) representing the number of whole New Common Shares
into which and for which the Old Common Shares formerly represented by
such Old Certificates so surrendered, are reclassified under the terms
hereof. From and after the Effective Date, Old Certificates shall
represent only the right to receive New Certificates (and, where
applicable, cash in lieu of fractional shares, as provided below)
pursuant to the provisions hereof. No certificates or scrip
representing fractional share interests in New Common
<PAGE>
-3-
Shares will be issued, and no such fractional share interest will
entitle the holder thereof to vote, or to any rights of a shareholder
of the Corporation. A holder of Old Certificates shall receive, in lieu
of any fraction of a New Common Share to which the holder would
otherwise be entitled, a cash payment therefor on the basis of the
closing price of the Old Common Shares on The Alberta Stock Exchange on
the Effective Date (or in the event the Common Shares are not so traded
on the Effective Date, such closing price on the next preceding day on
which such shares were traded on The Alberta Stock Exchange). If more
than one Old Certificate shall be surrendered at one time for the
account of the same shareholder, the number of whole New Common Shares
for which New Certificates shall be issued shall be computed on the
basis of the aggregate number of Old Common Shares represented by the
Old Certificates so surrendered. In the event that the Corporation's
Transfer Agent determines that a holder of Old Certificates has not
tendered all his certificates for exchange, the Transfer Agent shall
carry forward any fractional share until all certificates of that
holder have been presented for exchange such that payment for
fractional shares to any one person shall not exceed the value of four
Old Common Shares. If any New Certificate is to be issued in a name
other than that in which the Old Certificates surrendered for exchange
are issued, the Old Certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and the person or
persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Old Certificates surrendered, or provide
funds for their purchase, or establish to the satisfaction of the
Corporation's Transfer Agent that such taxes are not payable. From and
after the Effective Date the amount of capital represented by the New
Common Shares into which and for which the Old Common Shares are
reclassified under the terms hereof shall be the same as the amount of
capital represented by the Old Common Shares so reclassified, until
thereafter reduced or increased in accordance with applicable law.
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;
<PAGE>
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
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 (Yukon), be entitled to receive notice of or
vote at any meeting of the shareholders.
FIRST SERIES OF PREFERRED SHARES
--------------------------------
Pursuant to the Resolutions of the Directors of the Corporation, duly passed,
and in accordance with subsection 27(5) of the Business Corporation Act
(Alberta), the Articles of the Corporation were amended December 16, 1997 such
that the first series of Preferred Shares of the Corporation are designated as
"Series A Convertible Preferred Shares" with such rights, privileges,
restrictions and conditions attaching to the shares of such series as are set
forth as follows:
SERIES A CONVERTIBLE PREFERRED SHARES
"1. Number and Designation. The number of shares to
constitute this series shall be 13,333,333 and the designation of such
shares shall be the "Series A Convertible Preferred Shares"
(hereinafter called "this Series"). The number of shares constituting
this Series may be decreased from time to time by action of the Board,
but not below the number of shares of this Series then outstanding. All
shares of this Series shall be identical with each other in all
respects. The shares of this Series shall rank senior to the common
shares (the "Common Shares") of the Corporation as to cash dividends
and upon liquidation, as described below. Any amounts herein
referencing share prices or numbers of shares shall be subject to
appropriate adjustments in the event of any stock splits,
consolidations or the like.
<PAGE>
-5-
"2. Dividend Rights.
(a) Subject to the provisions of this Section 2, the holders
of shares of this Series shall be entitled to receive when, as and if
declared by the Board, out of assets legally available therefor,
cumulative dividends ("Dividends") at the applicable rate per annum
specified in Section 2(b) hereof from the date of issuance and payable
in accordance with Section 2(c) hereof. Dividends shall be cumulative
from the date of initial issuance of the shares of this Series (the
"Initial Issuance Date"), whether or not there shall be assets legally
available for the payment of such Dividends. In the event that the
Board shall declare a Dividend, subject to applicable regulatory
approvals, such Dividend may, at the discretion of the Board, be
payable in Common Shares. The number of Common Shares to be issued to
the holders of shares of this Series upon the payment of a Dividend in
Common Shares shall be the amount of the Dividends payable to such
holder pursuant to this Section 2 divided by either (i) (if the Common
Shares are not traded on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market) U.S. $1.35 or (ii) (if
the Common Shares are traded on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market) the average
Market Price of the Common Shares as such term is defined below for the
ten (10) trading days immediately preceding the Record Date as such
term is defined in Section 2(c) hereof.
For all purposes hereof, the term "Market Price of
the Common Shares" as of any specified date shall mean: (i) if the
Common Shares are listed or admitted for trading on one or more United
States national securities exchanges, the daily closing price for the
Common Shares on the principal exchange in the United States on which
the Common Shares are listed; (ii) if the Common Shares are not listed
or admitted for trading on any United States national securities
exchange, the daily closing price for the Common Shares on the Nasdaq
National or Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common
Shares are not listed or admitted for trading on a United States
national securities exchange or on Nasdaq, the daily closing price of
the Common Shares on the principal stock exchange in Canada on which
the Common Shares are listed (expressed in United States dollars based
upon the noon buying rate in New York City for cable transfers in
Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York); (iv) if the Common Shares are not listed or
admitted to trading on any United States national or Canadian national
securities exchange or on Nasdaq, the average of the reported bid and
asked prices on the trading day preceding such date in the
over-the-counter market as furnished by the National Quotation Bureau,
Inc., or, if such firm is not then engaged in the business of reporting
such prices, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company; or (v) if the Common
Shares are not publicly traded, the Market Price for such day shall be
the fair market value thereof determined jointly by the Company and the
holder of a majority of the shares of this Series then outstanding;
provided, however, that if such parties are unable to reach agreement
within a reasonable period of time, the Market Price shall be
determined in good faith by the independent investment banking firm
selected jointly by the Company and the holder of a majority of the
shares of this Series then outstanding or, if that selection cannot be
made within an additional 15 days, by an independent investment banking
firm selected by the American Arbitration Association in accordance
with its rules.
<PAGE>
-6-
"(b) The Dividend per share of this Series shall be computed
based upon a rate per annum of 5% on a base amount of U.S. $1.35 per
share of this Series (the "Base Amount"). The Dividend rate per annum
shall be subject to increase in the event that all of the following
conditions (the "Triggering Conditions") have not been satisfied by the
dates specified below: (i) the Common Shares are listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; (ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at
a Market Price greater than U.S. $2.40 per Common Share on each of the
10 consecutive trading days preceding such date; and (iii) the
Corporation's net income (excluding profit or loss on disposal of a
significant part of the Company's assets or separate segment thereof,
gains on restructuring payables, gains or losses on the extinguishment
of debt, expropriations of property, gains or losses that are the
direct result of a major casualty, or one-time losses resulting from
prohibition under a newly-enacted law or regulation) before income
taxes, Dividends on the shares of this Series and amortization of
goodwill and covenants not to compete for the three consecutive fiscal
quarters preceding such date, as reported in or derived from the
Corporation's quarterly or annual reports filed with the Securities and
Exchange Commission, shall have averaged at least U.S. $0.07 per fully
diluted Common Share per fiscal quarter, provided, however, in making
such calculation, the Common Shares issuable upon exercise of the
warrants issued to Warburg Pincus Ventures, L.P. ("Warburg"), pursuant
to that certain Warrant Agreement between the Corporation and Warburg
relating to warrants to purchase 10,000,000 Common Shares (the "Warrant
Agreement"), shall be excluded but Common Shares issuable upon the
conversion of the shares of this Series shall not. All references to
per share amounts or prices with respect to the Triggering Conditions
shall be appropriately adjusted for any subdivision, consolidation, or
reclassification of the Common Shares. Until the Triggering Conditions
have been satisfied, the Dividend rate per annum shall be (A)15% of the
Base Amount per share of this Series from and after January 1, 2003 and
payable in accordance with Section 2(c) hereof commencing January 1,
2004; (B) 18% of the Base Amount per share of this Series from and
after January 1, 2004 and payable in accordance with Section 2(c)
hereof commencing January 1, 2005; and (C) thereafter, 21% of the Base
Amount per share of this Series from and after January 1, 2005 and
payable in accordance with Section 2(c) hereof commencing January 1,
2006. Upon the satisfaction of all the Triggering Conditions, the
Dividend per share of this Series shall be computed based upon a rate
per annum of 5% of the Base Amount. Accruals of Dividends shall not
bear interest. All Dividends declared upon the shares of this Series
shall be declared pro rata per share.
"(c) The record date for the determination of the holders of
shares of this Series who shall be entitled to receive Dividends (the
"Record Date") shall be the first business day of each calendar year,
and only the holders of shares of this Series of record on the Record
Date shall be entitled to receive such Dividends. All Dividends payable
to such holders of record shall be paid on the tenth business day
following the Record Date on each issued and outstanding share of this
Series.
"(d) Dividends payable on shares of this Series for any
period other than a full dividend period shall be computed on the basis
of a 360-day year consisting of twelve 30-day months. Any Dividend
payment made on shares of this Series shall first be credited against
the earliest accumulated but unpaid Dividends due with respect to the
shares of this Series.
<PAGE>
"(e) No dividends shall be declared or paid or set aside for
payment on any share capital of the Corporation ranking, as to
dividends, on a parity with or subordinate to the shares of this Series
for any period unless full accumulated Dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set aside for such payment on the
shares of this Series for all Dividend periods terminating on or prior
to the date of payment of such dividends. When Dividends are not paid
in full on the shares of this Series and any other preferred shares of
the Corporation ranking with respect to payment of dividends on a
parity with the shares of this Series, all dividends declared or paid
upon shares of this Series and such other preferred shares shall be
declared and paid pro rata so that the amount of dividends declared and
paid on the shares of this Series and such other preferred shares shall
in all cases bear to each other the same ratio that accumulated
dividends per share (which in the case of noncumulative preferred
shares shall not include any accumulation in respect of unpaid
dividends for prior dividend periods) on shares of this Series and such
other preferred shares bear to each other. Except as provided in the
preceding sentence, unless full accumulated Dividends have been paid or
declared and a sum sufficient for the payment thereof set aside for
payment, no dividends (other than dividends or distributions paid in
Common Shares, or options, warrants or rights to subscribe for or
purchase Common Shares, or, in each case, any other series of shares of
the Corporation ranking subordinate to the shares of this Series as to
dividends and upon liquidation) shall be declared and paid or a sum
sufficient for the payment thereof set aside for payment or any other
distribution declared or made upon the Common Shares or any other class
of shares of the Corporation ranking subordinate to or on a parity with
the shares of this Series as to dividends or upon liquidation. No
Common Shares or shares of any other class of shares of the Corporation
ranking subordinate to or on a parity with the shares of this Series as
to dividends or upon liquidation shall be redeemed, purchased or
otherwise acquired for any consideration (and no funds shall be paid to
or made available for a sinking fund for the redemption of any such
share capital) by the Corporation (except by conversion into or
exchange for shares of the Corporation ranking subordinate to the
shares of this Series as to dividends and upon liquidation or except
with respect to Common Shares that the Corporation has become obligated
to redeem prior to the issuance of any shares of this Series upon the
occurrence of specified circumstances) unless, in each case, the full
accumulated Dividends shall have been paid or declared and a sum
sufficient for the payment thereof set aside for payment. Holders of
shares of this Series shall not be entitled to any dividend, whether
payable in cash, property or stock, in excess of the full Dividends on
such shares.
"(f) Upon conversion of any shares of this Series by any
holder thereof pursuant to Section 7 hereof, any Dividends accrued and
payable to such holder shall be forfeited and the Corporation shall
have no further obligation to such holder of shares of this Series for
such accumulated Dividends.
"3. Liquidation Rights. (a) In the event of any voluntary or
involuntary dissolution, liquidation, or winding up of the affairs of
the Corporation, after payment or provision for payment of the debts
and other liabilities of the Corporation and any preferential amounts
payable with respect to securities of the Corporation ranking prior to
the shares of this Series ("Senior Preferred Shares"), the holders of
shares of this Series shall be entitled to receive out of the assets of
the Corporation available for distribution to shareholders, before any
distribution of assets is made to
<PAGE>
-8-
holders of the Common Shares or any other share capital of the
Corporation ranking subordinate to the shares of this Series, a
liquidating distribution in an amount equal to the greater of (i) U.S.
$1.35 per share of this Series plus an amount equal to any accrued and
unpaid Dividends (including accumulated Dividends, whether or not
declared) to and including the date of distribution or (ii) the amount
distributable to the holders of shares of this Series as if such
holders had converted their shares of this Series into Common Shares
pursuant to Section 7 hereof immediately prior to such dissolution,
liquidation or winding up of the affairs of the Corporation (plus
accumulated Dividends, whether or not declared). Amounts payable
pursuant to clause (i) or (ii) of this Section 3(a) shall be
distributed ratably among the holders of shares of this Series in
proportion to the number of shares of this Series held. After payment
to the holders of shares of this Series of the full amount to which
such holders are entitled as set forth above, the holders of shares of
this Series shall have no right or claim to any of the remaining assets
of the Corporation.
"(b) If upon any such dissolution, liquidation or winding up
of the affairs of the Corporation, the assets of the Corporation
distributable among the holders of shares of this Series and the
holders of all other classes or series of shares of the Corporation
ranking on a parity with the shares of this Series shall be
insufficient to permit the payment to them of the full preferential
amounts to which they are entitled, then the entire assets of the
Corporation so to be distributed shall be distributed ratably among the
holders of shares of this Series and such other classes or series of
shares of the Corporation in proportion to the sum of the accumulated
dividends and the liquidation preferences per share.
"(c) The sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes
of this Section 3.
"4. Optional Redemption. (a) The shares of this Series may not
be redeemed before the fifth anniversary of the Initial Issuance Date.
Thereafter, the shares of this Series shall be redeemable (subject to
subsection 4(d) below) at the option of the Corporation, in whole or in
part, at the redemption price, which shall be an amount equal to the
greater of (i) U.S. $1.35 per share of this Series plus the amount of
any accrued and unpaid Dividends per share of this Series (including
accumulated Dividends, whether or not declared) or (ii) the Fair Market
Value of a share of this Series (as defined below). For purposes
hereof, the Fair Market Value shall be determined by a nationally
recognized independent investment banking firm mutually agreed to by
the Corporation and the holder of a majority of the shares of this
Series then outstanding, whose determination shall be conclusive.
"(b) (i) In case the Corporation shall desire to exercise its
right to redeem any shares of this Series, it shall give notice of such
redemption to holders of the shares of this Series to be redeemed as
hereinafter provided in this Section 4(b).
"(ii) Notice of redemption shall be given to the
holders of shares of this Series to be redeemed by mailing
such notice by first-class mail to their last addresses as
they shall appear upon the register for the shares of this
Series not less than 120 calendar days prior to the date fixed
for redemption.
<PAGE>
-9-
"(iii) Each such notice of redemption (A) shall
specify the date fixed for redemption and the redemption price
at which shares of this Series are to be redeemed, (B) shall
state that payment of the redemption price for the shares of
this Series to be redeemed will be made at the principal
executive offices of the Corporation, upon presentation and
surrender of certificates representing such shares of this
Series, and (C) if less than all the shares of this Series are
to be redeemed, shall specify the number of shares of this
Series held by each holder to be redeemed. In case any
certificate representing shares of this Series is to be
redeemed in part only, the notice of redemption which relates
to such certificate shall state the number of shares of this
Series represented by such certificate to be redeemed and
shall state that on and after the redemption date, upon
surrender of such certificate, a new certificate or
certificates for a number of shares of this Series equal to
the unredeemed portion thereof will be issued.
"(iv) If less than all the shares of this Series are
to be redeemed, the Corporation shall effect such redemption
pro rata among the holders thereof (based on the number of
shares of this Series held on the date of notice of
redemption).
"(c) (i) If the giving of notice of redemption shall have been
completed as provided above, the shares of this Series specified in
such notice shall become redeemable, and shall be redeemed by the
Corporation upon presentation and surrender of the certificate
representing such shares, on the date and at the place stated in such
notice at the redemption price, and on and after such date fixed for
redemption, notwithstanding that any certificate for shares of this
Series so called for redemption shall not have been surrendered for
cancellation, unless there shall have been a default in payment of the
redemption price, all shares of this Series called for redemption shall
no longer be deemed to be outstanding, and all rights with respect to
such shares of this Series shall forthwith cease and terminate except
only the right of the holders thereof to receive from the Corporation
the redemption price, without interest, of the shares to be redeemed,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
"(ii) Upon presentation of any certificate
representing shares of this Series only a portion of which are
to be redeemed, the Corporation shall immediately issue, at
its expense, a new certificate or certificates representing
the shares of this Series not redeemed.
"(d) Except as provided in paragraph (a) above, the
Corporation shall have no right to redeem the shares of this Series.
Any shares of this Series so redeemed shall be permanently retired,
shall no longer be deemed outstanding and shall not under any
circumstances be reissued, and the Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce
the authorized shares of this Series accordingly. Nothing herein
contained shall prevent or restrict the purchase by the Corporation,
from time to time either at public or private sale, of the whole or any
part of the shares of this Series at such price or prices as the
Corporation may determine, subject to the provisions of applicable law.
"5. No Mandatory Redemption. The shares of this Series shall
not be subject to mandatory redemption by the Corporation.
<PAGE>
"6. Voting Rights. (a) Each issued and outstanding share of
this Series shall be entitled to the number of votes equal to the
number of Common Shares of the Corporation into which each such share
of this Series is convertible (as adjusted from time to time pursuant
to Section 7(a) hereof), at each meeting of shareholders of the
Corporation with respect to any and all matters presented to the
shareholders of the Corporation for their action or consideration.
Except as provided by law, by the provisions of paragraph (b) below or
by the provisions establishing any other series of preferred stock of
the Corporation, holders of the shares of this Series and of any other
outstanding preferred stock shall vote together with the holders of
Common Shares as a single class.
(b) In addition to any other rights provided by law, the
Corporation shall not amend, alter or repeal the preferences, special
rights or other powers of the shares of this Series or any other
provision of the Corporation's constating documents that would
adversely affect the rights of the holders of the shares of this
Series, including, without limitation, any increase in the number of
shares of this Series, without the written consent or affirmative vote
of the holders of at least 66-2/3% of the then outstanding aggregate
number of such adversely affected shares of this Series, given in
writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class. For this purpose, the authorization or
issuance of any series of preferred stock of the Corporation with
preference or priority over, or being on a parity with the shares of
this Series as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to adversely affect the shares of this
Series.
"7. Conversion. (a) Each share of this Series may be converted
at any time, at the option of the holder thereof, in the manner
hereinafter provided, into fully-paid and nonassessable Common Shares,
provided, however, that on any redemption of any shares of this Series
or any liquidation of the Corporation, the right of conversion shall
terminate at the close of business on the full business day next
preceding the date fixed for such redemption or for the payment of any
amounts distributable on liquidation to the holders of the shares of
this Series. The initial conversion rate for shares of this Series
shall be one Common Share for each one share of this Series surrendered
for conversion, representing an initial conversion price (for purposes
of Section 7(g)) of U.S. $1.35 per share of the Corporation's Common
Shares (hereinafter, the "Conversion Price"). The applicable conversion
rate and Conversion Price from time to time in effect are subject to
adjustment as hereinafter provided.
"(b) Whenever the Conversion Price shall be adjusted as
provided in Section 7(g) hereof, the Corporation shall forthwith file
at each office designated for the conversion of the shares of this
Series, a statement, signed by any of the Chairman of the Board, the
President, any Vice President or the Treasurer of the Corporation,
showing in reasonable detail the facts requiring such adjustment. The
Corporation shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to each
record holder of shares of this Series at his or its address appearing
on the stock register. If such notice relates to an adjustment
resulting from an event referred to in paragraph 7(g)(vii), such notice
shall be included as part of the notice required to be mailed and
published under the provisions of paragraph 7(g)(vii) hereof.
<PAGE>
-11-
"(c) The right of conversion shall be exercised by the holder
by the surrender of the certificates representing shares of this Series
to be converted to the Corporation at any time during normal business
hours at the office or agency then maintained by it for the conversion
of shares of this Series (the "Conversion Office"), accompanied by
written notice to the Corporation of such holder's election to convert
and, if so required by the Corporation or any conversion agent, by an
instrument of transfer, in form satisfactory to the Corporation and to
any conversion agent, duly executed by the registered holder or by such
holder's duly authorized attorney, and transfer tax stamps or funds
therefor, if required pursuant to Section 7(k).
"(d) As promptly as practicable after the surrender for
conversion of one or more certificates representing any shares of this
Series in the manner provided in Section 7(c) and the payment in cash
of any amount required by the provisions of Section 7(k), the
Corporation will deliver or cause to be delivered at the Conversion
Office to or upon the written order of the holder of such shares, a
certificate or certificates representing the number of full Common
Shares issuable upon such conversion, issued in such name or names as
such holder may direct, subject to any applicable contractual
restrictions and any restrictions imposed by applicable securities
laws. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of
certificates representing shares of this Series in proper order for
conversion, and all rights of the holder of such shares as a holder of
such shares shall cease at such time, and the person or persons in
whose name or names the certificates for such Common Shares are to be
issued shall be treated for all purposes as having become the record
holder or holders thereof at such time; provided, however, that any
such surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such Common Shares are to be
issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day
on which such stock transfer books are opened.
"(e) "Upon conversion in the manner provided in this Section 7
of only a portion of the number of shares of this Series represented by
a certificate so surrendered for conversion, the Corporation shall
issue and deliver or cause to be delivered at the Conversion Office to
or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new
certificate or certificates representing the number of shares of this
Series representing the unconverted portion of the certificate so
surrendered, issued in such name or names as such holder may direct,
subject to any applicable contractual restrictions and any restrictions
imposed by applicable securities laws.
"(f) All shares of this Series which shall have been
surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall forthwith
cease and terminate except only the right of the holder thereof to
receive Common Shares in exchange therefor. Any shares of this Series
so converted shall be retired and canceled and shall not be reissued,
and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized shares of this Series
accordingly.
<PAGE>
-12-
(g) Anti-Dilution Provisions.
(i) In order to prevent dilution of the right granted
hereunder, the Conversion Price shall be subject to adjustment from time to time
in accordance with this paragraph 7(g)(i). At any given time the Conversion
Price shall be that dollar (or part of a dollar) amount the payment of which
shall be sufficient at the given time to acquire one Common Share of the
Corporation upon conversion of shares of this Series. Upon each adjustment of
the Conversion Price pursuant to this Section 7(g), the registered holder of
shares of this Series shall thereafter be entitled to acquire upon exercise, at
the Conversion Price resulting from such adjustment, the number of Common Shares
of the Corporation obtainable by multiplying the Conversion Price in effect
immediately prior to such adjustment by the number of shares of Common Shares of
the Corporation acquirable immediately prior to such adjustment and dividing the
product thereof by the Conversion Price resulting from such adjustment. For
purposes of this Section 7(g), the term "Number of Common Shares Deemed
Outstanding" at any given time shall mean the sum of (x) the number of shares of
the Corporation's Common Shares outstanding at such time, (y) the number of
Common Shares of the Corporation issuable assuming conversion at such time of
all outstanding shares of the Corporation's other series of convertible
preferred stock, if any, and (z) the number of Common Shares of the Corporation
deemed to be outstanding at such time under subparagraphs 7(g)(ii)(1) to (8),
inclusive.
(ii) Except as provided in paragraph 7(g)(iii) or 7(g)(vi)
below, if and whenever on or after the Initial Issuance Date, the Corporation
shall issue or sell, or shall in accordance with subparagraphs 7(g)(ii)(1) to
(8), inclusive, be deemed to have issued or sold (such issuance or sale, whether
actual or deemed, the "Triggering Transaction") any Common Shares for a
consideration per share less than
(I) (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
the Conversion Price in effect immediately prior to the time of such
issuance or sale, then forthwith upon such issuance or sale the
Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by dividing: (i) an amount equal to
the sum of (x) the product derived by multiplying the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction by the Conversion Price then in effect, plus (y) the
consideration, if any, received by the Company upon consummation of
such Triggering Transaction, by (ii) an amount equal to the sum of (x)
the Number of Common Shares Deemed Outstanding immediately prior to
such Triggering Transaction plus (y) the number of Common Shares issued
(or deemed to be issued in accordance with subparagraphs 7(g)(ii)(1) to
(8)) in connection with the Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
the average Market Price for the ten trading days immediately preceding
such issuance or sale, then forthwith upon such Triggering Transaction,
the Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by multiplying the Conversion Price
in effect immediately prior to the time of such Triggering Transaction
by a fraction, the numerator of which shall be the sum of (x) the
Number of Common Shares Deemed Outstanding immediately prior to such
Triggering Transaction and (y) the number of Common Shares which the
aggregate consideration received by the Company upon such Triggering
Transaction would purchase at the average Market Price for the ten
trading days immediately
<PAGE>
-13-
preceding such Triggering Transaction, and the denominator of which
shall be the Number of Common Shares Deemed Outstanding immediately
after such Triggering Transaction.
For purposes of determining the adjusted Conversion Price
under this paragraph 7(g)(ii), the following subsections (1) to (8), inclusive,
shall be applicable:
(1) In case the Corporation at any time shall in any
manner grant (whether directly or by assumption in an
amalgamation or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Shares or
any stock or other securities convertible into or exchangeable
for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"),
whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately
exercisable, and the price per share for which the Common
Shares are issuable upon exercise, conversion or exchange
(determined by dividing (x) the total amount, if any, received
or receivable by the Corporation as consideration for the
granting of such Options, plus the aggregate amount of
additional consideration payable to the Corporation upon the
exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the aggregate
amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (y) the total maximum
number of Common Shares issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities) shall be less than the average Market Price in
effect for the ten trading days immediately prior to the time
of the granting of such Option (if the Common Shares are
traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) or the Conversion
Price in effect immediately prior to the time of such issuance
or sale (if the Common Shares are not traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market), then the total maximum amount of Common
Shares issuable upon the exercise of such Options or, in the
case of Options for Convertible Securities, upon the
conversion or exchange of such Convertible Securities, shall
(as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the
Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issuance of
such Common Shares or such Convertible Securities upon the
exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Corporation at any time shall in any
manner issue (whether directly or by assumption in an
amalgamation or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which
Common Shares are issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or
receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the aggregate
amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (y)
the total maximum number of Common Shares issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the average Market Price in effect for the
ten-day trading period immediately prior to the time of such
issue or sale (if the Common Shares are traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market) or the Conversion Price in effect immediately
prior to
<PAGE>
-14-
the time of such issuance or sale (if the Common Shares are
not traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market), then the total
maximum number of Common Shares issuable upon conversion or
exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued and sold by
the Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issuance of
such Common Shares upon exercise of the rights to exchange or
convert under such Convertible Securities, except as otherwise
provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration,
if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraphs (1) or
(2), or the rate at which any Convertible Securities referred
to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Shares shall change at any time (other
than under or by reason of provisions designed to protect
against dilution of the type set forth in paragraphs 7(g)(ii)
or 7(g)(iv)), the Conversion Price in effect at the time of
such change shall forthwith be readjusted to the Conversion
Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or
rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any
Option referred to in subparagraph (1) or the rate at which
any Convertible Securities referred to in subparagraphs (1) or
(2) are convertible into or exchangeable for Common Shares,
shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution,
then in case of the delivery of Common Shares upon the
exercise of any such Option or upon conversion or exchange of
any such Convertible Security, the Conversion Price then in
effect hereunder shall forthwith be adjusted to such
respective amount as would have been obtained had such Option
or Convertible Security never been issued as to such Common
Shares and had adjustments been made upon the issuance of the
Common Shares delivered as aforesaid, but only if as a result
of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any
Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Corporation,
together comprising one integral transaction in which no
specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been
issued without consideration.
<PAGE>
(6) In case any Common Shares, Options or Convertible
Securities shall be issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor (before deduction for expenses or underwriters'
discounts or commissions related to such issue or sale). In
case any Common Shares, Options or Convertible Securities
shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by
the Corporation shall be the fair value of such consideration
as determined in good faith by the Board of Directors of the
Corporation.
(7) In case the Corporation shall declare a dividend
or make any other distribution upon the share capital of the
Corporation payable in Common Shares, Options, or Convertible
Securities, then in such case any Common Shares, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(8) For purposes of this paragraph 7(g)(ii), in case
the Corporation shall take a record of the holders of its
Common Shares for the purpose of entitling them (x) to receive
a dividend or other distribution payable in Common Shares,
Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Shares, Options or Convertible Securities,
then such record date shall be deemed to be the date of the
issue or sale of the Common Shares deemed to have been issued
or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such
right or subscription or purchase, as the case may be.
(iii) In the event the Corporation shall declare a dividend
upon the Common Shares (other than a dividend payable in Common Shares covered
by subparagraph 7(g)(ii)(7)) payable otherwise than out of earnings or earned
surplus, determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries (herein referred to as "Liquidating Dividends"), then, as soon
as possible after the conversion of any shares of this Series, the Corporation
shall, subject to applicable law, pay to the person converting such shares of
this Series an amount equal to the aggregate value at the time of such exercise
of all Liquidating Dividends (including but not limited to the Common Shares
which would have been issued at the time of such earlier exercise and all other
securities which would have been issued with respect to such Common Shares by
reason of stock splits, stock dividends, amalgamations or reorganizations, or
for any other reason). For the purposes of this paragraph 7(g)(iii), a dividend
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as determined in good faith by the
Board.
(iv) In case the Corporation shall at any time subdivide
(other than by means of a dividend payable in Common Shares covered by paragraph
7(g)(ii)(7)) its outstanding Common Shares into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding Common Shares
of the Corporation shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
<PAGE>
-16-
(v) If any capital reorganization or reclassification of the
share capital of the Corporation, or amalgamation of the Corporation with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common
Shares shall be entitled to receive stock, securities, cash or other property
with respect to or in exchange for Common Shares, then, as a condition of such
reorganization, reclassification, amalgamation or sale, lawful and adequate
provision shall be made whereby the holders of shares of this Series shall have
the right to acquire and receive upon conversion of the shares of this Series,
which right shall be prior to the rights of the holders of stock ranking on
liquidation junior to this Series (but after and subject to the rights of
holders of Senior Preferred Shares, if any), such shares of stock, securities,
cash or other property issuable or payable (as part of the reorganization,
reclassification, amalgamation or sale) with respect to or in exchange for such
number of outstanding Common Shares of the Corporation as would have been
received upon conversion of the shares of this Series at the Conversion Price
then in effect. The Corporation will not effect any such amalgamation or sale,
unless prior to the consummation thereof the amalgamated corporation or the
corporation purchasing such assets shall assume by written instrument mailed or
delivered to the holders of the shares of this Series at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding Common Shares of the Corporation,
the Corporation shall not effect any amalgamation or sale with the person having
made such offer or with any Affiliate (as defined below) of such person, unless
prior to the consummation of such amalgamation or sale the holders of the shares
of this Series shall have been given a reasonable opportunity to then elect to
receive upon the conversion of the shares of this Series either the stock,
securities or assets then issuable with respect to the Common Shares of the
Corporation or the stock, securities or assets, or the equivalent, issued to
previous holders of the Common Shares in accordance with such offer. For
purposes hereof, the term "Affiliate" with respect to any given person shall
mean any person controlling, controlled by or under common control with the
given person.
(vi) The provisions of this Section 7(g) shall not apply to
any Common Shares issued, issuable or deemed outstanding under subparagraphs
7(g)(ii)(1) to (8) inclusive: (i) to any person pursuant to any stock option,
stock purchase or similar plan or arrangement for the benefit of employees of
the Corporation or its subsidiaries in effect on the Initial Issuance Date or
thereafter adopted by the Board of Directors of the Corporation, (ii) pursuant
to options, warrants and conversion rights in existence on the Initial Issuance
Date, (iii) upon exercise of the warrants of the Corporation issued to Warburg
pursuant to the Warrant Agreement or (iv) on conversion of the shares of this
Series or the sale of any additional shares of this Series.
(vii) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Shares, or
(2) the Corporation shall declare any dividend upon its Common
Shares payable in stock or make any special dividend or other
distribution to the holders of its Common Shares, or
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Shares any additional shares of stock of any
class or other rights, or
<PAGE>
-17-
(4) there shall be any capital reorganization or
reclassification of the share capital of the Corporation, including any
subdivision or combination of its outstanding Common Shares, or
amalgamation of the Corporation with, or sale of all or substantially
all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the shares of this Series:
(A) at least twenty (20) days' prior written notice of
the date on which the books of the Corporation shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, amalgamation, sale,
dissolution, liquidation or winding up; and
(B) in the case of any such reorganization,
reclassification, amalgamation, sale, dissolution,
liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall
take place.
Such notice in accordance with the foregoing clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, amalgamation, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of the shares of this Series at the
address of each such holder as shown on the books of the Corporation.
(viii) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities or rights to purchase property (the "Purchase Rights")
pro rata to the record holders of the Common Shares of the Corporation and such
grants, issuances or sales do not result in an adjustment of the Conversion
Price under paragraph 7(g)(ii) hereof, then each holder of shares of this Series
shall be entitled to acquire (within thirty (30) days after the later to occur
of the initial exercise date of such Purchase Rights or receipt by such holder
of the notice concerning Purchase Rights to which such holder shall be entitled
under paragraph 7(g)(vii)) and upon the terms applicable to such Purchase Rights
either:
(A) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of Common
Shares acquirable upon conversion of shares of this
Series immediately before the grant, issuance or sale
of such Purchase Rights; provided that if any
Purchase Rights were distributed to holders of Common
Shares without the payment of additional
consideration by such holders, corresponding Purchase
Rights shall be distributed to the exercising holders
of the shares of this Series as
<PAGE>
-18-
soon as possible after such exercise and it shall not
be necessary for the exercising holder of the shares
of this Series specifically to request delivery of
such rights; or
(B) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said
thirty (30) day period, the number of Common Shares
or the amount of property which such holder could
have acquired upon such exercise at the time or times
at which the Corporation granted, issued or sold such
expired Purchase Rights.
(ix) If any event occurs as to which, in the opinion of the
Board, the provisions of this Section 7(g) are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holders of the
shares of this Series in accordance with the essential intent and principles of
such provisions, then the Board shall make an adjustment in the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such rights as aforesaid, but in no event shall any adjustment have
the effect of increasing the Conversion Price as otherwise determined pursuant
to any of the provisions of this Section 7(g) except in the case of a
combination of shares of a type contemplated in paragraph 7(g)(iv) and then in
no event to an amount larger than the Conversion Price as adjusted pursuant to
paragraph 7(g)(iv).
"(h) No fractional Common Shares shall be issued upon the
conversion of any share or shares of this Series. If any fractional
interest in a Common Share would, except for the provisions of this
Section 7(h), be deliverable upon the conversion of any share or shares
of this Series, the Corporation shall in lieu of delivering the
fractional Common Share therefor satisfy such fractional interest by
payment to the holder of such surrendered share or shares of this
Series of an amount in cash equal (computed to the nearest cent) to the
current market value of such fractional interest, computed on the basis
of the Market Price of the Common Shares on the date of such
conversion, provided, however, that no amount shall be paid by the
Corporation to such holder of less than U.S. $5.00.
"(i) The Corporation shall be entitled to effect the mandatory
conversion, in whole or in part, of the shares of this Series in
accordance with this Section 7 if all of the Triggering Conditions (set
forth in Section 2(b) hereof) shall have been satisfied as of the date
of the notice described below. Upon such mandatory conversion, each
share of this Series subject to such conversion shall be converted into
Common Shares at the then effective Conversion Price for such shares.
In case the Corporation shall desire to exercise the right to convert
all or, as the case may be, any shares of this Series in accordance
with the right to do so, it shall provide notice to the holders of the
shares of this Series to be converted as hereinafter provided in this
Section 7(i).
"(i) A notice of conversion shall be given to the
holders of shares of this Series to be converted by mailing by
first-class mail to their last addresses as they shall appear upon the
register for shares of this Series not less than 120 calendar days
prior to the date fixed for conversion.
"(ii) Each such notice of conversion (A) shall
specify the date fixed for conversion and the number of Common Shares
issuable to the holder of a share of this Series upon
<PAGE>
such conversion, (B) shall state the offices or agencies to be
maintained by the Corporation for the purpose of such conversion, upon
presentation and surrender of such shares of this Series and (C) if
less than all the shares of this Series are to be converted, shall
specify the number of shares of this Series held by each holder, and
the serial numbers of the certificates thereof, to be converted. In
case any certificate representing shares of this Series is to be
converted in part only, the notice of conversion which relates to such
certificate shall state the number of shares of this Series represented
by such certificate to be converted and shall state that on and after
the conversion date, upon surrender of such certificate, a new
certificate or certificates for a number of shares of this Series equal
to the unconverted portion thereof will be issued.
"(j) The Corporation will at all times reserve and keep
available, solely for the purposes of the issuance of Common Shares
upon conversion of the shares of this Series, the full number of Common
Shares as shall be issuable upon the conversion of all such outstanding
shares of this Series.
"The Corporation will endeavor to comply with all securities
laws regulating the offer and delivery of Common Shares upon conversion
of the shares of this Series and, that if any Common Shares required to
be reserved for purposes of conversion of the shares hereunder require
registration with or approval of any governmental authority under any
U.S. (federal or state) or Canadian law before such Common Shares may
be validly issued or delivered upon conversion, the Corporation will,
in good faith and as expeditiously as possible, endeavor to secure such
registration or approval, as the case may be.
"All Common Shares which shall be issued upon conversion of
the shares of this Series will upon issuance be fully paid and
nonassessable and not subject to preemptive rights.
"(k) The issuance of certificates for Common Shares upon
conversion of shares of this Series shall be made without charge for
any stamp or other similar tax in respect of such issuance. However, if
any such certificate is to be issued in a name other than that of the
holder of record of the share or shares of this Series so converted,
the holder thereof shall pay to the Corporation the amount of any tax
which may be payable in respect of any transfer involved in such
issuance or shall establish to the satisfaction of the Corporation that
such tax has been paid or is not payable.
"(l) In case (A) the Corporation shall take any action which
would require an adjustment in the number of Common Shares issuable to
holders of shares of this Series upon conversion thereof pursuant to
Section 7(g) above; or (B) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Corporation;
then the Corporation shall cause to be given to the holders of the
shares of this Series at least ten days prior to the applicable record
date hereinafter specified, a notice of (X) the date on which a record
is to be taken for the purpose of any dividend, distribution or grant
to holders of Common Shares which would require such an adjustment, or,
if a record is not to be taken, the date as of which the holders of
Common Shares of record to be entitled to such dividend, distribution,
or grant are to be determined or (Y) the date on which such
reorganization, reclassification, amalgamation, sale, transfer,
dissolution, liquidation or winding up is expected to become effective,
and the date
<PAGE>
-20-
as of which it is expected that holders of Common Shares of record
shall be entitled to exchange their Common Shares for securities or
other property or other assets deliverable upon such reorganization,
reclassification, amalgamation, sale, transfer, dissolution,
liquidation, or winding up. Failure to give such notice or any defect
therein shall not affect the legality or validity of any proceedings
described in subparagraphs (A) or (B) of this Section 7(l).
"8. Hold Period. A holder of shares of this Series shall in no
event sell or otherwise transfer any of the shares of this Series, or any Common
Shares issued upon the due conversion of any shares of this Series, for a period
of six months from the Initial Issuance Date. The Corporation shall issue or
cause to be issued certificates representing shares of this Series, and of
Common Shares issued upon due conversion of any shares of this Series, which
contain such legends as the Corporation in its discretion deems adequate to
reflect the hold period described in this Section 8.
"9. Miscellaneous.
"(a) For the purposes hereof:
"(i) the term "outstanding", when used in reference
to shares of this Series, shall mean issued shares of this
Series, excluding shares of this Series called for redemption;
and
"(ii) the term "subsidiary" shall mean any company a
majority of whose outstanding voting capital stock (other than
directors' qualifying shares), at the time as of which any
determination is being made, shall be owned by the parent of
such company either directly or through other subsidiaries;
and
"(iii) any shares of a series or class of shares of
the Corporation shall be deemed to rank:
"(A) prior to shares of this Series, whether
or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of shares of this Series, if the
holders of such shares of a series or class of shares
shall be entitled to receipt from the Corporation of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, in preference
or priority to the holders of shares of this Series,
as the case may be;
"(B) on a parity with or equal to shares of
this Series, whether or not the dividend rates,
dividend payment dates or redemption or liquidation
prices per share thereof be different from those of
shares of this Series, if the holders of such shares
of a series or class of shares shall be entitled to
the receipt from the Corporation of dividends or of
amounts distributable upon liquidation to their
respective dividend rates or liquidation prices,
without preference or priority one over the other as
between the holders of such shares of a series or
class of shares and the holders of shares of this
Series; and
<PAGE>
-21-
"(C) subordinate to shares of this Series,
whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share
thereof be different from those of shares of this
Series, if the rights of the holders of such shares
of a series or class of shares shall be subordinate
to the rights of the holders of shares of this Series
in respect of the receipt from the Corporation of
dividends and of amounts distributable upon
liquidation, dissolution or winding up, including,
without limitation, the Common Shares of the
Corporation.
"(b) So long as any shares of this Series are outstanding, in
the event of any conflict between the provisions hereof and any
corporate document of the Corporation (both as presently existing or
hereafter amended and supplemented) the provisions hereof, as the same
may be amended or supplemented, shall be and remain controlling.
"(c) The holders of the shares of this Series shall have no
preemptive rights.
<PAGE>
SCHEDULE "B"
On July 27, 1993, the Corporation was incorporated pursuant to the provisions of
the Business Corporations Act (Alberta) (the "ABCA") under the name "575035
Alberta Ltd.".
On November 18, 1993, the Corporation filed Articles of Amendment pursuant to
the ABCA changing its name to "Adventure Capital Corporation" and removing its
private company restrictions.
On January 26, 1994, the Corporation filed Articles of Amendment pursuant to the
ABCA reorganizing its share capital, deleting the authorized Redeemable
Preferred Shares of the Corporation and altering the rights, privileges,
restrictions and conditions attached to the authorized Common Shares of the
Corporation.
On October 12, 1994, the Corporation filed Articles of Amendment pursuant to the
ABCA changing its name to "HealthCare Capital Corp.".
On January 31, 1997, the Corporation filed Articles of Amendment pursuant to the
ABCA authorizing the creation of an unlimited number of Preferred Shares,
issuable in series.
On December 16, 1997, the Corporation filed Articles of Amendment pursuant to
the ABCA creating its first series of preferred shares designated as "Series A
Convertible Preferred Shares".
On February 9, 1998, the Corporation filed Articles of Amendment pursuant to the
ABCA changing its corporate name to "Sonus Corp." and changing each one (1)
Common Share of the Corporation into one-fifth (1/5) of a Common Share.
Concurrently, the Corporation was required re-state its Articles, a requirement
of the Registrar of Corporations to accommodate the implementation of the online
electronic filing system in Alberta, administered by Alberta Registries (CORES).
<PAGE>
SCHEDULE "C"
i) Meetings of shareholders of the Corporation may be held in the Yukon,
in Vancouver, British Columbia or in Portland, Oregon, U.S.A. as the
directors may designate in the notice relating to such meeting.
ii) Subject to the provisions of the Business Corporations Act (Yukon
Territories), the directors may, between annual general meetings,
appoint one or more additional directors of the Corporation to serve
until the next annual general meeting, but the number of additional
directors shall not at any time exceed one third of the number of
directors who held office at the expiration of the last annual meeting
of the Corporation.
Exhibit 3.2
BY-LAW NO. 1C
A BY-LAW RELATING GENERALLY TO THE CONDUCT OF THE BUSINESS AND
AFFAIRS OF SONUS CORP. (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 (Yukon), 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;
<PAGE>
2
"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;
(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.
<PAGE>
3
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 offices 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.
<PAGE>
4
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.
<PAGE>
5
(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 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;
<PAGE>
6
(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 the Yukon, or at any place
outside of the Yukon 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
<PAGE>
7
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
<PAGE>
8
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.
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 the Yukon,
a Meeting of Shareholders shall be held at the place in the Yukon 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
<PAGE>
9
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 not less than 33_% of the issued shares entitled to vote at the
Meeting are represented in person or by proxy.
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
<PAGE>
10
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.
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
<PAGE>
11
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 acknowledgement of his right to obtain a share
certificate, stating the name of the person to whom the certificate or
acknowledgement was issued, and the number and class or series of shares held by
him as 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
<PAGE>
12
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
<PAGE>
13
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 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 an
agent to maintain the central securities register or registers, and an agent or
agents to maintain a branch securities register or 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.
<PAGE>
14
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.
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 judgement 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
<PAGE>
15
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statement for Sonus Corp. and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,127
<SECURITIES> 2,593
<RECEIVABLES> 5,022
<ALLOWANCES> (786)
<INVENTORY> 752
<CURRENT-ASSETS> 10,009
<PP&E> 5,349
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,301
<CURRENT-LIABILITIES> 10,131
<BONDS> 13,091
0
15,701
<COMMON> 14,921
<OTHER-SE> (9,412)
<TOTAL-LIABILITY-AND-EQUITY> 34,301
<SALES> 16,187
<TOTAL-REVENUES> 16,187
<CGS> 5,486
<TOTAL-COSTS> 18,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 149
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> (2,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,173)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
