SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of
[ ] Definitive Proxy Statement the Commission Only (as
[ ] Definitive Additional Materials permitted by
[ ] Soliciting Material Pursuant to Rule 14a-6(e)(2))
Section 240.14a-11(c)
or Section 240.14a-12
Sonus Corp.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY
SONUS CORP.
111 S.W. FIFTH AVENUE, SUITE 1620
PORTLAND, OREGON 97204
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NOTICE OF ANNUAL AND SPECIAL
GENERAL MEETING OF SHAREHOLDERS
DECEMBER 15, 1999
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NOTICE IS HEREBY GIVEN that the Annual and Special General Meeting of
the holders of Common Shares (the "Common Shares"), Series A Convertible
Preferred Shares (the "Series A Shares"), and Series B Convertible Preferred
Shares (the "Series B Shares" and, together with the Series A Shares, the
"Preferred Shares") of Sonus Corp. (the "Corporation") will be held at
Atwater's, 30th Floor, 111 S.W. Fifth Avenue, Portland, Oregon, on Wednesday,
December 15, 1999, at 10 a.m. Pacific Time, for the following purposes:
1. To fix the number of directors of the Corporation at eight;
2. To elect directors;
3. To appoint auditors for the ensuing year and to authorize the Board of
Directors to fix the remuneration to be paid to the auditors;
4. To consider and approve an amendment to the Corporation's Articles
amending and restating the terms of the Corporation's Series A Shares,
including consolidating and changing the 13,333,333 Series A Shares
outstanding into 2,666,666 issued Series A Shares;
5. To receive and consider the annual report containing financial
statements for the fiscal year ended July 31, 1999, together with the
report of the auditors thereon; and
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only holders of record of Common Shares or Preferred Shares at the close
of business on October 29, 1999, are entitled to receive notice of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
November 5, 1999 Brian S. Thompson
Portland, Oregon Secretary
We ask that you promptly sign, date and return the enclosed proxy in the
enclosed return envelope, whether or not you plan to attend the meeting in
person. If you do attend the meeting, you may withdraw your proxy and vote in
person. All instruments appointing proxies to be used at the meeting must be
deposited at the offices of CIBC Mellon Trust Company, Suite 600, 333-7th Avenue
SW, Calgary, Alberta, Canada, T2P 2Z1 (P.O. Box 2517, Calgary, Alberta, Canada,
T2P 4P4), prior to 10 a.m. (Calgary time) on December 14, 1999, or delivered to
the chairman of the meeting prior to the commencement of the meeting. A person
appointed as a proxy need not be a shareholder of the Corporation.
<PAGE>
SONUS CORP.
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ANNUAL AND SPECIAL GENERAL MEETING
OF SHAREHOLDERS TO BE HELD ON DECEMBER 15, 1999
MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
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SOLICITATION OF PROXIES
THIS MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT (THIS
"CIRCULAR") IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT
OF SONUS CORP. (THE "CORPORATION") OF PROXIES TO BE USED AT THE ANNUAL AND
SPECIAL GENERAL MEETING OF THE SHAREHOLDERS OF THE CORPORATION TO BE HELD AT
ATWATER'S, 30TH FLOOR, 111 S.W. FIFTH AVENUE, PORTLAND, OREGON, ON WEDNESDAY,
DECEMBER 15, 1999, AT 10 A.M. PACIFIC TIME, AND ANY ADJOURNMENTS THEREOF, FOR
THE PURPOSES SET FORTH IN THE ACCOMPANYING NOTICE OF MEETING.
The solicitation of proxies will be made primarily by mail, but proxies
may also be solicited personally and by telegram or telephone by directors and
officers of the Corporation without additional compensation for such services.
Brokers and other persons holding shares in their names, or in the names of
nominees, will be reimbursed for their reasonable expenses in forwarding
soliciting materials to their principals and in obtaining authorization for the
execution of proxies. All costs of solicitation of proxies by the Corporation
will be borne by the Corporation. This Circular and accompanying form of proxy
will be mailed to shareholders beginning approximately November 5, 1999.
All dollar amounts included in this Circular are expressed in United
States dollars. Amounts originally expressed in Canadian dollars have been
converted using the applicable spot exchange rate (as quoted by the Federal
Reserve Bank of New York for the New York Interbank Market) as of November --,
1999, or, where appropriate, the applicable date of the specific transaction or
payment described. THE EXCHANGE RATE FOR CONVERTING CANADIAN DOLLARS INTO U.S.
DOLLARS AT NOVEMBER --, 1999, WAS ------.
APPOINTMENT AND REVOCATION OF PROXIES
The persons designated in the enclosed form of proxy are directors of
the Corporation. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OTHER THAN THE
PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY TO REPRESENT HIM OR HER AT
THE MEETING. THE PERSON NEED NOT BE A SHAREHOLDER. This right may be exercised
either by inserting in the blank space provided the name of the other person a
shareholder wishes to appoint or by completing another proper form of proxy.
Shareholders who wish to be represented at the meeting by proxy must deposit
their form of proxy prior to 10 a.m. (Calgary time) on December 14, 1999, at the
offices of CIBC Mellon Trust Company, Suite 600, 333-7th Avenue SW, Calgary,
Alberta, Canada, T2P 2Z1 (P.O. Box 2517, Calgary, Alberta, Canada, T2P 4P4), or
deliver it to the chairman of the meeting prior to the commencement of the
meeting.
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A shareholder who has given a proxy has the right to revoke it at any
time by an instrument in writing executed by the shareholder or his attorney
authorized in writing or, if the shareholder is a corporation, by an officer or
attorney thereof duly authorized, and deposited at the offices of CIBC Mellon
Trust Company, Suite 600, 333-7th Avenue SW, Calgary, Alberta, Canada, T2P 2Z1
(P.O. Box 2517, Calgary, Alberta, Canada, T2P 4P4), addressed to the Secretary
of the Corporation, at any time up to and including the last business day
preceding the day of the meeting, or any adjournment thereof, at which the proxy
is to be used, or with the chairman of the meeting on the day of the meeting, or
any adjournment thereof.
OUTSTANDING VOTING SECURITIES
The Corporation has three classes of securities outstanding with voting
rights, Common Shares (the "Common Shares"), Series A Convertible Preferred
Shares (the "Series A Shares"), and Series B Convertible Preferred Shares (the
"Series B Shares"). The Series A Shares, the Series B Shares, and the Common
Shares together are referred to as the "Shares," and the Series A Shares and
Series B Shares are sometimes collectively referred to as the "Preferred
Shares." On October 29, 1999, the Corporation had outstanding 6,109,026 Common
Shares, 13,333,333 Series A Shares and 2,500,000 Series B Shares. Each Common
Share carries the right to one vote, each Series A Share is entitled to
one-fifth of a vote, and each Series B Share is entitled to one vote at the
meeting. The holders of the Common Shares and the holders of the Preferred
Shares will vote together as a single class on all matters presented for action
at the meeting, except the proposed amendment to the Articles amending and
restating the terms of the Series A Shares, as to which the Common Shares, the
Series A Shares and the Series B Shares will each vote as a separate class.
The Corporation has also reserved for issuance: (i) 2,000,000 Common
Shares upon the exercise of share purchase warrants presently outstanding; (ii)
143,206 Common Shares upon the conversion of convertible subordinated notes;
(iii) 2,666,666 Common Shares upon the conversion of the Series A Shares; (iv)
2,500,000 Common Shares upon the conversion of the Series B Shares; and (v)
2,369,000 Common Shares upon the exercise of stock options presently outstanding
held by employees, directors, and officers of, and consultants to, the
Corporation.
Only shareholders of record at the close of business on October 29,
1999, will be entitled to vote at the meeting, except to the extent that a
shareholder has transferred ownership of any of his or her Common Shares or
Preferred Shares after the record date and the transferee of those shares has
produced properly endorsed share certificates or has otherwise established that
he or she owns the shares and, in either case, has requested, not later than
December 5, 1999, that the transferee's name be included in the list of
shareholders entitled to vote at the meeting, in which case such transferee
shall be entitled to vote such shares at the meeting.
VOTING OF PROXIES
When a proxy in the accompanying form is properly executed and returned,
the Common Shares or Preferred Shares represented thereby will be voted at the
meeting in accordance with the instructions specified in the spaces provided in
the proxy. IF NO INSTRUCTIONS ARE SPECIFIED, THE SHARES WILL BE VOTED IN FAVOR
OF THE MATTERS LISTED IN THE ACCOMPANYING NOTICE OF MEETING.
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A quorum of shareholders will be established at the meeting if not less
than 33-1/3% of the combined total of Common Shares and Preferred Shares issued
and entitled to vote at the meeting are present in person or represented by
proxy.
A DIRECTION TO ABSTAIN WITH RESPECT TO PROPOSALS 1 AND 4 SET FORTH IN
THE ACCOMPANYING NOTICE OF MEETING WILL BE DEEMED TO HAVE THE SAME EFFECT AS A
VOTE AGAINST THE PROPOSAL. Brokers holding Shares of record for customers may
not be entitled to vote unless they receive voting instructions from their
customers. "Broker non-votes," which refer to Shares as to which a broker or
other nominee has indicated on a duly executed and returned proxy or otherwise
advised the Corporation that it lacks voting authority as to any matter, will
have no effect on the required vote on the matter.
The enclosed form of proxy confers discretionary authority upon the
persons named therein with respect to any amendments to matters identified in
the accompanying Notice of Meeting and other matters that may properly come
before the meeting. Management is not aware of any amendments to matters
identified in the Notice of Meeting or of any other matters that are to be
presented for action at the meeting.
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
BENEFICIAL OWNERSHIP TABLE
The following table gives information regarding the beneficial ownership
of Common Shares as of October 29, 1999, by each of the Corporation's directors
and nominees for director, by certain of the Corporation's executive officers,
and by the Corporation's present directors and executive officers as a group. In
addition, it gives information, including addresses, regarding each person or
group known to the Corporation to own beneficially more than 5% of the
outstanding Common Shares, Series A Shares or Series B Shares. Information as to
beneficial stock ownership is based on data furnished by the persons concerning
whom such information is given. Unless otherwise indicated, all shares listed as
beneficially owned are held with sole voting and investment power. The numbers
in the table include Common Shares as to which a person has the right to acquire
beneficial ownership through the exercise or conversion of options, purchase
warrants or convertible securities within 60 days after October 29, 1999.
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<TABLE>
Class or Amount and Nature
Name and Address Series of of "Beneficial % of Common % of Series of
of Beneficial Owner Shares Ownership"(1)(2) Shares(1)(2) Preferred Shares
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<S> <C> <C> <C> <C>
Joel Ackerman (3) --- --- --- ---
Haywood D. Cochrane, Jr. --- --- --- ---
Brandon M. Dawson Common 1,114,548 17.5% ---
111 S.W. Fifth Ave., Ste. 1620
Portland, Oregon 97204
William DeJong Common 56,440 * ---
Gregory J. Frazer, Ph.D. Common 385,671(5) 5.9% ---
18531 Roscoe Blvd., Ste. 201
Northridge, California 91324
Hugh T. Hornibrook Common 65,000 * ---
Scott E. Klein Common 110,715 1.8% ---
Estate of Larry J. Myers (6) Common 141,000 2.3% ---
RS Investment Management Co. (4) Common 809,800(4) 11.7% ---
388 Market Street, Ste. 200
San Francisco, California 94111
Warburg, Pincus & Co. (3) Common 7,166,666(3) 54.0% ---
466 Lexington Avenue Series A 13,333,333(3) --- 100%
New York, New York 10017 Series B 2,500,000(3) --- 100%
David J. Wenstrup Common --- --- ---
All present directors and executive Common 1,722,374(5) 22.0% ---
officers as a group (8 persons)
</TABLE>
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* Less than 1% of the outstanding Common Shares.
(1) "Beneficial ownership" is calculated in accordance with Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934, pursuant to which Common
Shares as to which a person has the right to acquire beneficial
ownership through the exercise or conversion of options, purchase
warrants or convertible securities within 60 days after October 29,
1999, have been included in shares deemed to be outstanding for purposes
of computing percentage ownership by such person.
(2) "Beneficial ownership" includes Common Shares that the person has the
right to acquire through the exercise or conversion of options, purchase
warrants or convertible securities within 60 days after October 29,
1999, as follows: Brandon M. Dawson, 249,548 shares; William DeJong,
40,000 shares; Gregory J. Frazer, Ph.D., 80,000 shares; Hugh T.
Hornibrook, 65,000 shares; Scott E. Klein, 110,715 shares, Larry J.
Myers, 140,000
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<PAGE>
shares, Warburg, Pincus & Co., 7,166,666 shares; and all directors and
executive officers as a group, 545,263 shares.
(3) Warburg, Pincus & Co. is the general partner of Warburg, Pincus
Ventures, L.P. ("Warburg"), the record owner of 13,333,333 Series A
Shares, 2,500,000 Series B Shares and warrants to purchase 2,000,000
Common Shares. Joel Ackerman, a general partner of Warburg, Pincus &
Co., and David J. Wenstrup, a vice president of Warburg, Pincus
Ventures, LLC, each disclaim beneficial ownership of the Shares
beneficially owned by Warburg except to the extent of an indirect
pecuniary interest in an indeterminate number of such Shares. Each
Series A Share is entitled to one-fifth of a vote, while each Series B
Share is entitled to one vote. The Preferred Shares vote together with
the Common Shares as a single class unless otherwise required by law or
if the Board of Directors otherwise determines. The Preferred Shares
held by Warburg represent approximately 46% of the combined voting power
of outstanding voting securities. Of the 7,166,666 Common Shares shown
as beneficially owned by Warburg, 2,666,666 shares represent the Common
Shares issuable upon conversion of 13,333,333 Series A Shares and
2,500,000 shares represent the Common Shares issuable upon conversion of
2,500,000 Series B Shares.
(4) Included in reliance on information contained in Schedule 13G dated July
20, 1999, jointly filed by RS Investment Management Co. LLC, RS
Investment Management, L.P., RS Value Group LLC, and The RS Orphan Fund,
L.P. RS Investment Management Co. LLC is the general partner of RS
Investment Management, L.P. and RS Value Group LLC is the general
partner of The RS Orphan Fund, L.P. RS Investment Management Co. LLC and
RS Investment Management, L.P. reported shared voting and dispositive
power as to the indicated number of shares, while RS Value Group LLC
reported shared voting and dispositive power as to 802,300 shares, or
13.1% of the outstanding Common Shares, and The RS Orphan Fund, L.P.
reported shared voting and dispositive power as to 630,300 shares, or
10.3% of the outstanding Common Shares.
(5) Includes 44,018 Common Shares and options to acquire 20,000 Common
Shares exercisable within 60 days after October 29, 1999, held by
Carissa Bennett, Gregory J. Frazer's wife.
(6) Mr. Myers died on August 27, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)")
requires that reports of beneficial ownership of Common Shares and changes in
such ownership be filed with the Securities and Exchange Commission ("SEC") by
"reporting persons," including directors, executive officers, and certain
holders of more than 10% of the outstanding Common Shares. To the Corporation's
knowledge, all Section 16(a) reporting requirements applicable to known
reporting persons were complied with for transactions and stock holdings during
the fiscal year ended July 31, 1999.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the years indicated the compensation
awarded or paid to, or earned by, the Corporation's chief executive officer and
the Corporation's other executive officers whose salary level and bonus for the
fiscal year ended July 31, 1999, exceeded $100,000.
<TABLE>
Long-Term
Compensation
Awards
Annual Compensation ------
------------------- Number of Shares All Other
Name and Principal Position Year(1) Salary Bonus Underlying Options Compensation
- --------------------------- ------- ------ ----- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Brandon M. Dawson 1999 $195,000 --- --- $23,529 (2)
Chairman and Chief 1998 167,917 --- 530,000 ---
Executive Officer 1997 130,000 --- --- ---
Scott E. Klein 1999 127,885 $65,625 375,000 ---
President and Chief
Operating Officer
Larry J. Myers 1999 115,500 30,000 100,000 ---
Executive Vice President- 1998 78,211 --- 34,000 ---
Business Development 1997 10,774 --- 6,000 ---
</TABLE>
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(1) Mr. Klein joined the Corporation in November 1998 and Mr. Myers in May
1997.
(2) Represents the premiums paid by the Corporation in fiscal 1999 for a
split-dollar life insurance policy. See "Employment and Consulting
Agreements."
In addition, two other executive officers of the Corporation were paid
an aggregate of $173,446 in cash compensation during the 1999 fiscal year.
OPTION GRANTS
During the fiscal year ended July 31, 1999, the Corporation granted
stock options to employees and directors under its Second Amended and Restated
Stock Award Plan (the "Stock Award Plan"). Options are granted at the discretion
of the Board of Directors. The options are not transferable or assignable.
The following table sets forth certain information concerning grants of
options to purchase Common Shares to individuals who were directors or executive
officers of the Corporation during the fiscal year ended July 31, 1999:
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
Percentage of Total
Number of Shares Options Granted to Price
Underlying Employees in Fiscal Exercise Price Range of Expiration
Name Options Granted Year ($/share) Shares (6) Date
---- --------------- ---- --------- ------ ----
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<S> <C> <C> <C> <C> <C>
Joel Ackerman -- -- -- -- --
Haywood D. Cochrane, Jr. 50,000(1) 7% $4.22 $4.19-4.88 06/09/09
Brandon M. Dawson -- -- -- -- --
William DeJong -- -- -- -- --
Gregory J. Frazer, Ph.D. -- -- -- -- --
Douglas F. Good 15,000(2) 2% 6.75 4.63-6.75 10/19/08
Hugh T. Hornibrook -- -- -- -- --
Scott E. Klein 300,000(3) 45% 5.88 4.50-6.19 11/01/08
75,000(4) 11% 4.22 4.19-4.88 06/14/09
Edwin J. Kawasaki -- -- -- -- --
Larry J. Myers 100,000(5) 15% 5.88 4.63-5.19 08/27/02
</TABLE>
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(1) Vests in three equal annual installments beginning one year following
the date of grant.
(2) Exercisable in full.
(3) Exercisable as to 50,000 Common Shares immediately following grant and
an additional 16,667 Common Shares as of the first day of each calendar
quarter beginning April 1, 1999. The options will become exercisable in
full in the event that, following a change in control of the
Corporation, Mr. Klein's employment is terminated by the Corporation
without cause, or he experiences a material demotion in status or
position or a material change in his duties that is inconsistent with
his position at the Corporation, his base salary is reduced, or his
participation in the Corporation's compensation plans is not continued
on a level comparable with other key executives. A change in control of
the Corporation will be deemed to occur if (i) a person acquires
beneficial ownership of 50% or more of the combined voting power of the
Corporation, with certain exceptions, (ii) the incumbent directors (or
nominees approved by a majority of the incumbent directors, including
subsequently approved directors) cease to constitute at least a majority
of the directors of the Corporation, or (iii) a reorganization, merger,
or consolidation or sale of all or substantially all the assets of the
Corporation, with certain exceptions, is consummated.
(4) Vests over 3-1/2 years in equal quarterly installments beginning July 1,
1999.
(5) Due to the death of Mr. Myers on August 27, 1999, the options are
exercisable in full until August 27, 2002.
(6) Represents the high and low per share sale prices of the Common Shares
on the American Stock Exchange ("AMEX") during the 30-day period
preceding the date of the option grant.
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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information regarding option
exercises during the fiscal year ended July 31, 1999, and the fiscal year-end
value of unexercised options held by individuals who were directors or executive
officers of the Corporation during the 1999 fiscal year:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options at
on Value Options at July 31, 1999 July 31, 1999(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel Ackerman --- --- --- --- --- ---
Haywood D. Cochrane, Jr. --- --- --- 50,000 --- $1,500
Brandon M. Dawson --- --- 173,750 341,250 $177,000 ---
William DeJong --- --- 40,000 --- 12,600 ---
Gregory J. Frazer, Ph.D. --- --- 80,000 --- --- ---
Douglas F. Good --- --- 40,000 --- --- ---
Hugh T. Hornibrook --- --- 65,000 --- --- ---
Scott E. Klein --- --- 88,691 286,309 161 2,089
Edwin J. Kawasaki --- --- 87,500 142,500 --- ---
Larry J. Myers --- --- 75,000 65,000 --- ---
</TABLE>
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(1) The value shown was calculated based on the excess of the closing sale
price of the Common Shares reported on AMEX on July 30, 1999, over the
per share exercise price of the unexercised in-the-money options.
EMPLOYMENT AND CONSULTING AGREEMENTS
In late 1997, the Company entered into an employment agreement with
Brandon M. Dawson, its Chairman and Chief Executive Officer. The term of the
agreement expires on December 24, 2001, subject to automatic one-year extensions
annually unless either party gives six months' prior written notice of
non-extension. The agreement establishes an annual base salary of $195,000,
subject to such increases (but not decreases) as are determined from time to
time by the Board or a compensation committee designated by the Board. The
agreement provides for an annual incentive bonus in an amount to be determined
by the Board up to 100% of Mr. Dawson's base salary. Under the agreement, Mr.
Dawson is entitled to participate in all of the Company's compensation plans
covering key executive and managerial employees, as well as reimbursement for
the lease of an automobile up to $12,000 per year. The Company has also provided
Mr. Dawson with an equity split-dollar life insurance policy with a face amount
of $2,000,000, provided that the premiums paid by the Company per year will not
exceed $20,000, to be recovered from the death benefits, surrender value or loan
proceeds payable on the policy.
The employment agreement includes an agreement on the part of Mr. Dawson
not to compete with the Company for a period of three years after his employment
with the Company is terminated. If Mr. Dawson's employment is terminated by
reason of death, the Company will pay to his personal representative his base
salary through the date of death, together with any accrued benefits (including
death benefits) to which he is entitled under the terms of the
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Company's compensation plans. In the event of Mr. Dawson's termination due to
disability, he will be entitled to receive his base salary reduced by any
benefits paid under the Company's group long-term disability insurance plan for
the remaining term of the agreement and the portion of his annual bonus relating
to the period before his disability. If Mr. Dawson's employment is terminated by
the Company for "cause" or he terminates his employment voluntarily without
"good reason," the Company will pay his base salary through the effective date
of termination, together with any accrued benefits to which he is entitled under
the terms of the Company's compensation plans. Cause includes a material act of
fraud, dishonesty or moral turpitude, gross negligence or intentional
misconduct. Good reason includes a material demotion in Mr. Dawson's status or
position, a material change in his duties that is inconsistent with his
position, a reduction in his base salary, or a failure to continue his
participation in the Company's compensation plans on terms comparable to other
key executives. If Mr. Dawson's employment is terminated by the Company without
cause or by Mr. Dawson with good reason, the Company will pay his base salary
through the termination date, plus an amount of severance pay equal to two times
the sum of his base salary and his average annual bonus for the prior two fiscal
years payable in 24 monthly installments. In addition, upon such termination
without cause or with good reason, the Company will afford continued
participation in the Company's compensation plans (or, if not permitted under
the general provisions of any such plan, will provide a substantially equivalent
benefit) for two additional years.
Effective November 1, 1998, the Company entered into a four-year
employment agreement with Scott E. Klein, its President and Chief Operating
Officer. The agreement establishes an annual base salary of $175,000, subject to
such increases (but not decreases) as are determined from time to time by the
Board or a compensation committee designated by the Board. The agreement
provides for an initial bonus of $87,500 for services performed in the fiscal
year ended July 31, 1999, and an annual incentive bonus thereafter in an amount
to be determined by the Board up to 50% of Mr. Klein's base salary. Under the
agreement, Mr. Klein is entitled to participate in all of the Company's
compensation plans covering key executive and managerial employees.
The employment agreement includes an agreement on the part of Mr. Klein
not to compete with the Company for a period of one year after his employment
with the Company is terminated. If Mr. Klein's employment is terminated by
reason of death, the Company will pay to his personal representative his base
salary through the date of death, together with any accrued benefits (including
death benefits) to which he is entitled under the terms of the Company's
compensation plans. In the event of Mr. Klein's termination due to disability,
he will be entitled to receive his base salary reduced by any benefits paid
under the Company's group long-term disability insurance plan for the remaining
term of the agreement. If Mr. Klein's employment is terminated by the Company
for cause or he terminates his employment voluntarily without good reason, the
Company will pay his base salary through the effective date of termination,
together with any accrued benefits to which he is entitled under the terms of
the Company's compensation plans. Cause includes a material act of fraud,
dishonesty or moral turpitude, gross negligence or intentional misconduct. Good
reason includes a material demotion in Mr. Klein's status or position, a
material change in his duties that is inconsistent with his position, a
reduction in his base salary, or a failure to continue his participation in the
Company's compensation plans on terms comparable to other key executives. If Mr.
Klein's employment is terminated by the
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Company without cause or by Mr. Klein with good reason, the Company will pay his
base salary through the termination date, plus an amount of severance pay equal
to his base salary.
Effective January 1, 1997, the Company entered into a five-year
consulting agreement with Hugh T. Hornibrook, a director of the Company, under
which the Company pays Mr. Hornibrook a retainer of [CDN$100] per month and
[CDN$125] per hour for consulting services on an as-needed basis. The total
amount paid to Mr. Hornibrook in fiscal 1999 was [CDN $1,200].
COMPENSATION OF DIRECTORS
The non-employee directors of the Corporation receive a fee of $1,000
for each board or committee meeting attended and are reimbursed for
out-of-pocket and travel expenses incurred in attending board and committee
meetings. The Corporation has no other standard arrangement pursuant to which
directors are compensated by the Corporation for their services in their
capacity as directors. The Corporation may from time to time, as it has in the
past, grant stock options to directors in accordance with the policies of AMEX,
the Securities and Exchange Commission, and the securities laws and regulations
of the jurisdictions where the directors reside. Options granted during the 1999
fiscal year are included in the table under "Option Grants" above.
DIRECTORS AND OFFICERS LIABILITY INSURANCE COVERAGE
The Corporation maintains insurance for the protection of its directors
and officers against liabilities incurred in such capacity with a coverage limit
of $2,000,000, subject to a deductible of $50,000 per claim. The premium paid by
the Corporation for the annual policy period ended October 31, 1999, was $39,000
for the directors and officers as a group.
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
Gregory J. Frazer, Ph.D., Vice President-Business Development and a
director of the Corporation, and his wife, Carissa Bennett, have the right,
until September 30, 2001, to require the Corporation to redeem an aggregate of
1,680 of their Common Shares as of the last day of each calendar quarter at a
price of $8.35 per share. The redemption rights are noncumulative and expire if
not exercised as of the end of any calendar quarter as to such quarter. Pursuant
to such redemption rights, the Corporation redeemed during the fiscal years
ended July 31, 1999 and 1998, a total of 6,720 and 1,680 Common Shares,
respectively, from Ms. Bennett and Mr. Frazer for consideration of $56,292 and
$14,028, respectively.
During 1998, the Corporation acquired three hearing care centers in
California in which Mr. Frazer and Ms. Bennett were part-owners. Mr. Frazer and
Ms. Bennett received $242,179 of the total purchase price of $542,268. They also
received $80,520 in payment for covenants not to compete. In January 1999, the
Corporation issued a three-year promissory note to Mr. Frazer in the principal
amount of $102,000 and payable in equal quarterly installments in connection
with purchase price adjustments for hearing care centers that were previously
acquired from Mr. Frazer. The Corporation also entered into expanded non-compete
agreements with Mr. Frazer and Ms. Bennett that pay Mr. Frazer and Ms. Bennett
$6,303 and $4,455 per month, respectively, until September 2001.
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<PAGE>
William DeJong, a director of the Corporation, is a partner in the
Calgary, Alberta law firm of Ballem MacInnes. During the fiscal years ended July
31, 1999 and 1998, total fees, disbursements and government sales tax paid to
Ballem MacInnes by the Corporation for legal services were approximately
[CDN$18,076] and $196,000, respectively.
Under a settlement agreement between the Corporation and Roger W.
Larose, formerly the Corporation's chief operating officer, the Corporation
agreed to pay the exercise price of 40,000 options to purchase Common Shares
held by Mr. Larose. On April 1, 1996, Mr. Larose exercised options for 20,000
Common Shares at $1.40 per share and Douglas F. Good, as an advance to and on
behalf of the Corporation, paid the exercise price of $28,048 to the
Corporation. On September 30, 1996, Mr. Larose exercised options for an
additional 20,000 Common Shares at $1.40 per share and Mr. Good, as an advance
to and on behalf of the Corporation, paid the exercise price of $27,900 to the
Corporation.
Brandon M. Dawson subsequently executed promissory notes in favor of Mr.
Good equal to the amounts advanced by Mr. Good in connection with the options
exercised by Mr. Larose, and Mr. Dawson was substituted for Mr. Good as the
obligee with respect to such advances. Interest on the advances accrued at the
rate of 9% per annum. The advances were repaid to Mr. Good by the Corporation on
December 26, 1997, along with interest in the amount of $7,147, thereby
satisfying Mr. Dawson's obligations to Mr. Good.
On October 5, 1997, the Corporation loaned Mr. Dawson $85,000 in
connection with the purchase of his residence. The loan was repaid on April 10,
1998, along with interest at 10% per annum in the amount of $4,308.
On December 26, 1997, the Corporation loaned Mr. Dawson $30,639 in order
to allow Mr. Dawson to repay an advance from Mr. Good in connection with the
exercise by Mr. Dawson of options to purchase 20,000 Common Shares on April 1,
1996. Mr. Dawson repaid the loan on March 30, 1999, along with interest at 7.75%
per annum in the amount of $4,287. On March 19, 1998, the Corporation loaned Mr.
Dawson $34,298 in order to pay taxes incurred as a result of Mr. Dawson's April
1996 option exercise. The loan bears interest at 7.75% per annum and is due on
December 31, 2000.
On May 8, 1997, Mr. Dawson exercised options for 50,000 Common Shares at
$1.35 per share in order to allow options for Common Shares to be granted to
other employees. In connection with such exercise, the Corporation loaned Mr.
Dawson $67,500 to pay the aggregate exercise price of the options. The loan was
repaid on July 6, 1999, along with interest at 10% per annum in the amount of
$7,730. On April 24, 1998, the Corporation loaned Mr. Dawson an additional
$91,000 in order to pay taxes incurred as a result of Mr. Dawson's May 1997
option exercise. The loan was repaid on July 6, 1999, along with interest at
7.75% in the amount of $8,347.
From January 1, 1997, until September 30, 1998, the Company retained
NeuroDynamic Systems, Inc., at the rate of $6,000 per month, to provide
consulting services in connection with the Company's Canadian operations and the
development of a training program for audiologists. Gene K. Balzer, Ph.D., a
director of the Company until December 1997, is president and sole shareholder
of NeuroDynamic Systems, Inc.
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<PAGE>
On December 8, 1998, the Corporation loaned Scott E. Klein, President
and Chief Operating Officer of the Corporation, $100,000 in connection with the
purchase of his primary residence in Portland, Oregon. The loan, which was due
on the earlier of the sale of Mr. Klein's residence in Minnesota or October 31,
1999, was repaid on June 7, 1999, along with interest at 8% in the amount of
$4,000.
On July 21, 1999, Cindy Dawson-Austin, mother of Mr. Dawson, loaned the
Corporation $500,000 for working capital. The loan was due and payable on
October 18, 1999, and bears interest at 12%.
On October 1, 1999, the Corporation consummated the sale of 2,500,000
Series B Shares to Warburg for $10,000,000 in cash. Under the terms of the
purchase agreement for the Series B Shares, Warburg is entitled to designate
three nominees for election as directors. See "Item 2. Election of Directors."
Cash dividends will accrue on the Series B Shares at an annual rate of 8 percent
of the conversion price then in effect until November 1, 2004, increasing in
steps thereafter to 18 percent beginning November 1, 2006, provided that the
Corporation has met specified quarterly earnings targets. If the Corporation has
not met the earnings targets by July 31, 2002, dividends will not accrue or be
payable on the Series B Shares. Upon conversion of the Series B Shares, any
accumulated dividends will be forfeited.
The Series B Shares are initially convertible on a one-for-one basis
into 2,500,000 Common Shares at a conversion price of $4.00 per share. The
conversion rate is subject to increase to the extent that the Corporation's
receivables as of July 31, 1999, that are collected by July 31, 2000, total less
than $4,736,000, as well as to adjustments for stock dividends, stock splits,
recapitalizations, and other similar events. In addition, until the Corporation
attains specified quarterly earnings targets, the conversion rate will increase
beginning October 31, 2000, such that approximately 200,000 additional Common
Shares would be issuable upon conversion at that date with respect to the four
fiscal quarters then ended. Additional adjustments will be made each quarter
thereafter as long as the earnings targets have not been met. The amount of such
quarterly adjustments will be based on a factor of 2 percent of the original
purchase price plus the sum of all prior adjustments until November 1, 2004,
increasing in steps thereafter to 4.5 percent beginning November 1, 2006. Once
the Corporation has met the specified earnings targets for four consecutive
fiscal quarters, no further adjustments in the conversion rate will be made. The
Series B Shares are subject to mandatory conversion at the option of the
Corporation if certain share price and earnings targets are met.
In connection with the sale, the Corporation agreed to reduce the
exercise price of outstanding warrants entitling Warburg to purchase 2,000,000
Common Shares from $12.00 to $6.75 per share, to extend the exercise period to
October 1, 2004, and to remove the limitation on the number of shares that may
be issued upon a cashless exercise. The Corporation also agreed to submit
certain amendments to the terms of the outstanding Series A Shares owned by
Warburg for consideration and approval by the Corporation's shareholders at the
1999 annual meeting of shareholders. See "Item 4. Approval of Amendment to
Articles Amending and Restating Terms of Series A Convertible Preferred Shares."
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<PAGE>
1999 ANNUAL REPORT
The Corporation's annual report to shareholders for the fiscal year
ended July 31, 1999, including financial statements and other information with
respect to the Corporation, has been mailed to shareholders with this Circular.
Additional copies of the annual report may be obtained by writing to the
Corporation.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Corporation are KPMG LLP, 1211 S.W. Fifth Avenue,
Suite 2000, Portland, Oregon 97204. The co-registrars and co-transfer agents for
the Common Shares are CIBC Mellon Trust Company, Suite 600, 333-7th Avenue SW,
Calgary, Alberta, Canada T2P 2Z1, and ChaseMellon Shareholder Services L.L.C.,
520 Pike Street, Suite 1220, Seattle, Washington 98101.
PARTICULARS OF MATTERS TO BE ACTED UPON
To the knowledge of the Board of Directors, the only matters to be acted
upon at the annual meeting are those set forth in the accompanying Notice of
Meeting relating to fixing the number of directors to be elected, the election
of directors, the appointment of auditors, an amendment to the Articles amending
and restating the terms of the Series A Shares, and the receipt of the financial
statements for fiscal 1999.
1. FIXING NUMBER OF DIRECTORS
Under the Articles of Continuance of the Corporation (the "Articles"),
the Board of Directors may consist of a minimum of three and a maximum of 11
directors. The Board of Directors may, between annual general meetings, appoint
one or more additional directors to serve until the next annual general meeting,
provided that the number of additional directors may not exceed one-third of the
number of directors elected at the most recent annual general meeting and the
total number of directors may not exceed 11.
At present, the Board of Directors consists of seven directors. As
discussed below, the Board of Directors has nominated eight persons for election
as directors at the meeting. Accordingly, the shareholders will be asked to
consider and, if thought fit, to pass the following resolution:
"BE IT RESOLVED THAT the number of directors of the Corporation
be and the same is hereby fixed at eight directors until such time as
the directors determine by resolution to appoint one or more additional
directors in accordance with the Corporation's Articles."
The foregoing resolution will be adopted if approved by a majority of
the votes cast on this motion by the shareholders at the meeting. THE PERSONS
DESIGNATED IN THE ENCLOSED FORM OF PROXY, UNLESS OTHERWISE INSTRUCTED, INTEND TO
VOTE FOR THE RESOLUTION FIXING THE NUMBER OF DIRECTORS.
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<PAGE>
2. ELECTION OF DIRECTORS
The Board of Directors has nominated eight persons for election as
directors to serve until the next annual general meeting and until their
successors are elected and qualified. Seven of the nominees for election as
directors are members of the present Board. Scott E. Klein, the Corporation's
President and Chief Operating Officer, has been nominated for election at the
1999 meeting.
Joel Ackerman was appointed to the Board in December 1997, Haywood D.
Cochrane, Jr., was nominated for election at the 1998 annual general meeting,
and David J. Wenstrup was appointed to the Board in October 1999, in each case
at the request of Warburg. See "Interests of Insiders in Material Transactions."
A nominee will be elected if the nominee receives a plurality of the
votes cast by the Common Shares entitled to vote in the election, provided that
a quorum is present at the meeting. UNLESS AUTHORITY TO VOTE FOR A DIRECTOR OR
DIRECTORS IS WITHHELD, THE ACCOMPANYING PROXY WILL BE VOTED FOR THE ELECTION OF
THE NOMINEES NAMED BELOW. If for some unforeseen reason a nominee becomes
unavailable to serve as a director, the Board of Directors may designate a
substitute nominee. In that case, the persons named as proxies will vote for the
substitute nominee designated by the Board unless otherwise instructed.
The following table sets forth information with respect to each person
nominated for election as a director of the Corporation, including their names,
municipality of residence, ages as of October 29, 1999, business experience
during the past five years, and year of appointment as a director. There are no
family relationships among the Corporation's directors, nominees for director,
or officers. The Corporation has three executive officers, Brandon M. Dawson,
Gregory J. Frazer, Ph.D., and Scott E. Klein, each of whom is also a nominee for
election as a director.
<TABLE>
Name and Director
Municipality of Residence Age Principal Occupation(*) Since
- ------------------------- --- ----------------------- -----
<S> <C> <C> <C>
Joel Ackerman 35 Managing Director of E. M. Warburg, 1997
New York, New York Pincus & Co., L.L.C., a specialized
financial services organization.
Haywood D. Cochrane, Jr. 51 President and Chief Executive Officer 1998
Nashville, Tennessee and a director of Meridian Corporate
Healthcare, Inc., a specialized
medical management company.
Brandon M. Dawson 31 Chairman and Chief Executive Officer 1995
Gresham, Oregon of the Corporation.
Gregory J. Frazer, Ph.D. 47 Vice President-Business Development 1996
Northridge, California of the Corporation
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<PAGE>
William DeJong 41 Partner in the law firm of 1994
Calgary, Alberta Ballem MacInnes.
Hugh T. Hornibrook 50 Acquisition consultant. 1996
Vancouver, British Columbia
Scott E. Klein 41 President and Chief Operating Officer ---
Clackamas, Oregon of the Corporation.
David J. Wenstrup 35 Vice President of E. M. Warburg, 1999
New York, New York Pincus & Co., L.L.C., a specialized
financial services organization.
</TABLE>
(*) During the past five years, the principal occupation and employment of
each director has been in the capacity set forth above except as
follows:
(a) Mr. Ackerman has been employed by E. M. Warburg, Pincus & Co.,
L.L.C., since 1993. From 1990 to 1993, Mr. Ackerman served as an
associate at Mercer Consulting, a strategic management consulting
company. Mr. Ackerman is a director of Phycor, Inc.
(b) Mr. Cochrane has held his present position since February 1997.
He was Executive Vice President, Chief Financial Officer and
Treasurer of Laboratory Corporation of America Holdings, Inc.
("LabCorp"), from April 1995 to November 1996 and a consultant to
LabCorp from November 1996 until February 1997. Mr. Cochrane
served from June 1994 to April 1995 as Vice Chairman of National
Health Laboratories, Inc. ("NHL"), following NHL's acquisition of
Allied Clinical Laboratories, Inc. ("Allied"). Mr. Cochrane was
President and Chief Executive Officer of Allied from its
formation in 1989 until its acquisition by NHL in June 1994. NHL
was acquired by LabCorp in April 1995. Mr. Cochrane is a director
of JDN Realty Corporation and Unilab Corporation.
(c) Mr. Dawson has served as President and Chief Executive Officer of
the Corporation since December 1995. From May 1992 to December
1995, he was director of U.S. sales for Starkey Laboratories,
Inc., a multi-national manufacturer, distributor and marketer of
custom "in-the-ear" hearing instruments and related hearing and
diagnostic equipment.
(d) Mr. DeJong joined the law firm of Ballem MacInnes in 1987.
(e) Mr. Frazer has served as Vice President-Business Development of
the Corporation since October 1996, when the Corporation acquired
11 audiology based hearing clinics which were among 22 clinics in
Southern California of which Mr. Frazer was part owner and
operator. The Corporation has since acquired nine of the
remaining 11 clinics. Mr. Frazer has spent his entire career as a
hearing care professional since receiving his doctoral degree
from Wayne State School of Medicine in 1981.
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<PAGE>
(f) Mr. Hornibrook served as Vice President-Corporate Development of
the Corporation from April 1996 until January 1997. From July
1994 to April 1996, and since January 1997, he has been an
independent business consultant. Prior to July 1994, Mr.
Hornibrook served as director of corporate development for The
Loewen Group Inc., a consolidator and operator of funeral homes
and cemeteries throughout North America.
(g) Mr. Klein has served as President and Chief Operating Officer of
the Corporation since June 1999 and was Executive Vice President
and Chief Operating Officer from November 1998 to June 1999. Mr.
Klein was Senior Vice President of Operations (Eastern Zone) of
Hollywood Entertainment Corporation from April 1997 to October
1998. He previously held various senior management positions,
including Senior Vice President of the Retail Division, at
NordicTrack, Inc., from August 1993 until April 1997.
(h) Mr. Wenstrup has been employed by E. M. Warburg, Pincus & Co.,
L.L.C., since 1997. From August 1991 to May 1997, Mr. Wenstrup
served as an associate at The Boston Consulting Group, Inc., a
strategic management consulting company.
DIRECTORS' MEETINGS AND BOARD COMMITTEES
During the fiscal year ended July 31, 1999, the Board of Directors held
four meetings. Each director attended more than 75% of the aggregate of the
total number of meetings of the Board of Directors and of any committee of the
Board on which the director served held during fiscal 1999.
The Audit Committee reviews services provided by the Corporation's
independent auditors, makes recommendations concerning their engagement or
discharge, and reviews with management and the independent auditors the annual
financial statements of the Corporation, the results of the audit, the adequacy
of internal accounting controls, and the quality of financial reporting. The
Audit Committee met once during fiscal 1999. The members of the Audit Committee
are Messrs. Ackerman, DeJong, and Hornibrook.
The Corporation presently does not have a standing compensation
committee or nominating committee. The Board of Directors will consider
suggestions submitted by shareholders regarding potential nominees for director.
Any recommendations as to nominees for election at the 2000 annual general
meeting of shareholders should be submitted in writing by July 8, 2000, to the
Secretary of the Corporation at its principal executive offices and should
include the name, address and qualifications of each proposed nominee.
3. APPOINTMENT OF AUDITORS
The firm of KPMG LLP, independent public accountants, has audited the
accounts of the Company since December 1996. UNLESS OTHERWISE INSTRUCTED, THE
PERSONS NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE FOR THE APPOINTMENT
OF KPMG LLP AS AUDITORS OF THE CORPORATION TO HOLD OFFICE UNTIL THE NEXT ANNUAL
GENERAL MEETING OF SHAREHOLDERS OR UNTIL THEIR SUCCESSORS ARE APPOINTED AND TO
AUTHORIZE THE BOARD OF DIRECTORS TO FIX THE AUDITORS' REMUNERATION. The
Corporation expects representatives of KPMG LLP to be present
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<PAGE>
at the meeting and to be available to respond to appropriate questions. The
auditors will have the opportunity to make a statement at the meeting if they
desire to do so.
4. APPROVAL OF AMENDMENT TO ARTICLES AMENDING AND RESTATING TERMS OF SERIES
A CONVERTIBLE PREFERRED SHARES
For the reasons discussed below, the management of the Corporation
believes it is in the best interests of the Corporation to amend the
Corporation's Articles to amend and restate the terms of the Series A Shares as
set forth in Schedule A to this Circular. All of the 13,333,333 Series A Shares
outstanding are held by Warburg. The Corporation agreed to submit the proposed
amendments to the terms of the Series A Shares for approval by the Corporation's
shareholders in connection with its sale of the Series B Shares to Warburg,
which was completed on October 1, 1999. If the Corporation fails to obtain
approval of the proposed amendments by March 31, 2000, the exercise price for
warrants to purchase 2,000,000 Common Shares held by Warburg will drop from
$6.75 to $4.00 per share. Warburg has agreed to vote the Series A Shares and the
Series B Shares in favor of the proposed amendments.
If the amendment to the Articles is approved, the Series A Shares will
be converted immediately from 13,333,333 shares into 2,666,666 shares, and the
initial conversion price and liquidation preference of the Series A Shares will
be changed from $1.35 to $6.75, and other similar changes will be made, to
correspond to the one-for-five reverse split (consolidation) of the Common
Shares effected in February 1998.
In addition, the terms of the Series A Shares will be amended to reduce
the per share market price and net income targets that must be met in order to
avoid specified increases in the dividend rate on the Series A Shares beginning
January 1, 2003, and as a condition to mandatory conversion of the Series A
Shares into Common Shares at the option of the Corporation. As amended, the
dividend rate increases will not take effect and the Corporation will be
entitled to effect the mandatory conversion, in whole or in part, of the Series
A Shares if the Common Shares are traded on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market at a Market Price (as
therein defined) greater than $8.00 (down from $12.00) per Common Share on each
of 10 consecutive trading days, and the Corporation achieves average net income
before income taxes, dividends and amortization of goodwill of $0.22 (down from
$0.35) per fully diluted Common Share (excluding shares issuable upon exercise
of Warburg's warrants) for the preceding three consecutive fiscal quarters. The
proposed amendments also provide that dividends payable on the Series A Shares
may be paid in Common Shares, at the option of the Corporation, until December
24, 2002, and thereafter only in cash.
Other minor revisions to the terms of the Series A Shares make
conforming changes reflecting the issuance of the Series B Shares. The proposed
form of the amended terms of the Series A Shares, marked to show the proposed
amendments, is attached as Schedule A to this Circular.
Dividends presently accrue on the Series A Shares at the rate of 5
percent per annum. The Corporation has not declared or paid any dividends on the
Series A Shares since their issuance on December 24, 1997. Accumulated dividends
through October 31, 1999, totaled
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<PAGE>
$1.7 million. In the purchase agreement for the Series A Shares, Warburg
acknowledged that the Board of Directors does not intend to declare dividends on
the Series A Shares. In the event of redemption or liquidation of the Series A
Shares, the accumulated dividends would be added to the redemption price or
liquidation preference. All accrued dividends would be forfeited upon conversion
of the Series A Shares into Common Shares.
If the amendment to the Articles is approved by the shareholders at the
meeting, the amendment and restatement will be effected by means of filing of
Articles of Amendment with the registrar under the laws of the Yukon Territory.
At the meeting, the shareholders will be asked to consider and approve
the following special resolution:
"RESOLVED AS A SPECIAL RESOLUTION OF THE CORPORATION THAT the
Articles of the Corporation be amended to amend and restate the terms of
the Series A Convertible Preferred Shares of the Corporation as set
forth in Schedule A to the Corporation's Management Information Circular
and Proxy Statement for the Meeting, including consolidating and
changing the 13,333,333 Series A Convertible Preferred Shares
outstanding into 2,666,666 issued Series A Convertible Preferred Shares,
and that any one director or officer of the Corporation be authorized to
sign the Articles of Amendment reflecting such amendment and restatement
and to file such Articles of Amendment with the appropriate governmental
authorities, and to sign any other documents and take such other actions
deemed necessary or proper to give effect to this resolution."
THIS SPECIAL RESOLUTION WILL NOT TAKE EFFECT UNLESS IT IS APPROVED BY AT
LEAST TWO-THIRDS OF THE VOTES CAST ON THE MOTION AT THE MEETING BY HOLDERS OF
THE COMMON SHARES, THE SERIES A SHARES, AND THE SERIES B SHARES, EACH VOTING AS
A SEPARATE CLASS, AND CONFIRMED BY THE ENDORSEMENT BY THE REGISTRAR OF
CORPORATIONS (THE "REGISTRAR") UNDER THE BUSINESS CORPORATIONS ACT (YUKON
TERRITORY) OF A CERTIFICATE OF AMENDMENT OF THE ARTICLES OF THE CORPORATION. THE
PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY, UNLESS OTHERWISE INSTRUCTED,
INTEND TO VOTE FOR THIS SPECIAL RESOLUTION APPROVING THE AMENDMENT OF THE
ARTICLES.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSED
AMENDMENT TO THE CORPORATION'S ARTICLES TO EFFECT
THE AMENDMENTS TO THE SERIES A SHARES DESCRIBED ABOVE.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals submitted for inclusion in the 2000 proxy
materials and consideration at the 2000 annual general meeting of shareholders
must be received by the
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<PAGE>
Corporation by July 8, 2000. Any such proposal should comply with the SEC's
rules governing shareholder proposals submitted for inclusion in proxy
materials.
For any proposal that is not submitted for inclusion in nest year's
proxy materials but instead is sought to be presented directly at the 2000
annual general meeting of shareholders, the persons named as proxies will be
able to vote in their discretion if the Corporation: (1) receives notice of the
proposal before the close of business on September 21, 2000, and advises
shareholders in the 2000 proxy materials about the nature of the matter and how
management intends to vote on such matter; or (2) has not received notice of the
proposal by the close of business on September 21, 2000.
* * * * *
The contents and the sending of this Circular have been approved by the
Board of Directors of the Corporation.
Portland, Oregon BY ORDER OF THE BOARD OF DIRECTORS
November 5, 1999
Brian S. Thompson
Secretary
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<PAGE>
SCHEDULE A
SONUS CORP.
AMENDED AND RESTATED*
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
(Without Par Value)
1. Number and Designation. The number of shares to constitute this series
shall be 2,666,666 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 and equal to the Series B Convertible Preferred
-------------------------------------------------
Shares ("Series B Convertible Shares") as to cash dividends and upon
- -------------------------------------------
liquidation, as described below. Any amounts herein referencing share prices or
numbers of shares
- ----------
* Language as proposed to be amended is underscored.
-1-
<PAGE>
shall be subject to appropriate adjustments in the event of any stock splits,
consolidations or the like.
2. Dividend Rights.
(a) Subject to the provisions of this Section 2, the holders of shares of
this Series shall be entitled to receive when, as and if declared by the Board,
out of assets legally available therefor, cumulative dividends ("Dividends") at
the 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 earned or declared and whether or not
-------------------------------------
in any fiscal year there shall be assets, net profits or surplus legally
- --------------------
available for the payment of such Dividends. In the event that the Board shall
declare a Dividend prior to December 24, 2002, 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. $6.75
-----
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. Notwithstanding the foregoing, after December 24, 2002, any and all
-----------------------------------------------------------------------
Dividends declared must be paid in cash.
- ----------------------------------------
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
-2-
<PAGE>
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.
(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. $6.75 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. $8.00 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
-3-
<PAGE>
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 on the Series B Convertible Shares 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. $0.22 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 Amended and Restated Warrant Agreement between the
---------------------
Corporation and Warburg relating to warrants to purchase 2,000,000 Common Shares
---------
(the "Amended and Restated Warrant Agreement"), shall be excluded but Common
---------------------
Shares issuable upon the conversion of the shares of this Series and the Series
--------------
B Convertible Shares 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
-4-
<PAGE>
business day following the Record Date on each issued and outstanding share of
this Series.
(d) Dividends payable on shares of this Series for any period other than a
full dividend period shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Any Dividend payment made on shares of this Series
shall first be credited against the earliest accumulated but unpaid Dividends
due with respect to the shares of this Series.
(e) No dividends shall be declared or paid or set aside for payment on any
share capital of the Corporation ranking, as to dividends, on a parity with or
subordinate to the shares of this Series for any period unless full accumulated
Dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set aside for such payment on the shares
of this Series for all Dividend periods terminating on or prior to the date of
payment of such dividends. When Dividends are not paid in full on the shares of
this Series and any other preferred shares of the Corporation ranking with
respect to payment of dividends on a parity with the shares of this Series, all
dividends declared or paid upon shares of this Series and such other preferred
shares shall be declared and paid pro rata so that the amount of dividends
declared and paid on the shares of this Series and such other preferred shares
shall in all cases bear to each other the same ratio that accumulated dividends
per share (which in the case of noncumulative preferred shares shall not include
any accumulation in respect of unpaid dividends for prior dividend periods) on
shares of this Series and such other preferred shares bear to each other. Except
as provided in the preceding sentence, unless full accumulated Dividends have
been paid or declared and a sum sufficient for the payment thereof set aside for
payment, no dividends (other than dividends or distributions paid in Common
Shares, or options, warrants or rights to subscribe for or purchase Common
Shares, or, in each case, any other series of shares of the Corporation ranking
subordinate to the shares of this Series as to dividends and upon liquidation)
shall be declared and paid or a sum sufficient for the payment thereof set aside
for payment or any other distribution declared or made upon the Common Shares,
-
Series B Convertible 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, Series B Convertible Shares or
-----------------------------
shares of
-5-
<PAGE>
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, retired 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 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.
$6.75 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
-6-
<PAGE>
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. $6.75 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.
-7-
<PAGE>
(b) (i) In case the Corporation shall desire to exercise its right to
redeem any shares of this Series, it shall give notice of such redemption to
holders of the shares of this Series to be redeemed as hereinafter provided in
this Section 4(b).
(ii) Notice of redemption shall be given to the holders of shares of
this Series to be redeemed by mailing such notice by first-class mail to
their last addresses as they shall appear upon the register for the shares
of this Series not less than 120 calendar days prior to the date fixed for
redemption.
(iii) Each such notice of redemption (A) shall specify the date fixed
for redemption and the redemption price at which shares of this Series are
to be redeemed, (B) shall state that payment of the redemption price for
the shares of this Series to be redeemed will be made at the principal
executive offices of the Corporation, upon presentation and surrender of
certificates representing such shares of this Series, and (C) if less than
all the shares of this Series are to be redeemed, shall specify the number
of shares of this Series held by each holder to be redeemed. In case any
certificate representing shares of this Series is to be redeemed in part
only, the notice of redemption which relates to such certificate shall
state the number of shares of this Series represented by such certificate
to be redeemed and shall state that on and after the redemption date, upon
surrender of such certificate, a new certificate or certificates for a
number of shares of this Series equal to the unredeemed portion thereof
will be issued.
(iv) If less than all the shares of this Series are to be redeemed,
the Corporation shall effect such redemption pro rata among the holders
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
-8-
<PAGE>
of this Series so called for redemption shall not have been surrendered for
cancellation, unless there shall have been a default in payment of the
redemption price, all shares of this Series called for redemption shall no
longer be deemed to be outstanding, and all rights with respect to such shares
of this Series shall forthwith cease and terminate except only the right of the
holders thereof to receive from the Corporation the redemption price, without
interest, of the shares to be redeemed, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever.
(ii) Upon presentation of any certificate representing shares of this
Series only a portion of which are to be redeemed, the Corporation shall
immediately issue, at its expense, a new certificate or certificates
representing the shares of this Series not redeemed.
(d) Except as provided in paragraph (a) above, the Corporation shall have
no right to redeem the shares of this Series. Any shares of this Series so
redeemed shall be permanently retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the Corporation may from time
to time take such appropriate corporate action as may be necessary to reduce the
authorized shares of this Series accordingly. Nothing herein contained shall
prevent or restrict the purchase by the Corporation, from time to time either at
public or private sale, of the whole or any part of the shares of this Series at
such price or prices as the Corporation may determine, subject to the provisions
of applicable law.
5. No Mandatory Redemption. The shares of this Series shall not be subject
to mandatory redemption by the Corporation.
6. Voting Rights. (a) Each issued and outstanding share of this Series
shall be entitled to the number of votes equal to the number of Common Shares of
the Corporation into which each such share of this Series is convertible (as
adjusted from time to time pursuant to Section 7(a) hereof), at each meeting of
shareholders of the Corporation with respect to any and all matters presented to
the shareholders of the Corporation for their action or consideration. Except as
provided by law, by the provisions of paragraph (b) below or by the provisions
establishing any other series of preferred stock of the Corporation, holders
-9-
<PAGE>
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.
$6.75 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
-10-
<PAGE>
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.
(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
-11-
<PAGE>
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.
(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
-12-
<PAGE>
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 a 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 (H) 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)(l)
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
-13-
<PAGE>
(calculated to the nearest tenth of a cent) determined by multiplying the
Conversion Price in effect immediately prior to the time of such Triggering
Transaction by a fraction, the numerator of which shall be the sum of (x)
the Number of Common Shares Deemed Outstanding immediately prior to such
Triggering Transaction and (y) the number of Common Shares which the
aggregate consideration received by the Company upon such Triggering
Transaction would purchase at the average Market Price for the ten trading
days immediately preceding such Triggering Transaction, and the denominator
of which shall be the Number of Common Shares Deemed Outstanding
immediately after such Triggering Transaction.
For purposes of determining the adjusted Conversion Price under this
paragraph 7(g)(ii), the following subsections (1) to (8), inclusive, shall be
applicable:
(1) In case the Corporation at any time shall in any manner grant
(whether directly or by assumption in an amalgamation or otherwise) any
rights to subscribe for or to purchase, or any options for the purchase of,
Common Shares or any stock or other securities convertible into or
exchangeable for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), whether or not such Options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which the Common
Shares are issuable upon exercise, conversion or exchange (determined by
dividing (x) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (y) the total
maximum number of Common Shares issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities) shall be less
than the average Market Price in effect for the ten trading days
immediately prior to the time of the granting of such Option (if the Common
Shares are traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) or the
-14-
<PAGE>
Conversion Price in effect immediately prior to the time of such issuance
or sale (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market), then
the total maximum amount of Common Shares issuable upon the exercise of
such Options or, in the case of Options for Convertible Securities, upon
the conversion or exchange of such Convertible Securities, shall (as of the
date of granting of such Options) be deemed to be outstanding and to have
been issued and sold by the Corporation for such price per share. No
adjustment of the Conversion Price shall be made upon the actual issuance
of such Common Shares or such Convertible Securities upon the exercise of
such Options, except as otherwise provided in subparagraph (3) below.
(2) In case the Corporation at any time shall in any manner issue
(whether directly or by assumption in an amalgamation or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Shares are issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by (y)
the total maximum number of Common Shares issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the average
Market Price in effect for the ten-day trading period immediately prior to
the time of such issue or sale (if the Common Shares are traded on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market) or the Conversion Price in effect immediately prior to the time of
such issuance or sale (if the Common Shares are not traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market),
then the total maximum number of Common Shares issuable upon conversion or
exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued and sold by the Corporation for such price per
share. No adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Shares
-15-
<PAGE>
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 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 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
-16-
<PAGE>
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any Common Shares, Options or Convertible Securities shall
be issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor (before deduction for expenses or underwriters'
discounts or commissions related to such issue or sale). In case any Common
Shares, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such
consideration as determined in good faith by the Board of Directors of the
Corporation.
(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
-17-
<PAGE>
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.
(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
-18-
<PAGE>
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
Amended and Restated 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:
-19-
<PAGE>
(1) the Corporation shall declare any cash dividend upon its Common
Shares, or
(2) the Corporation shall declare any dividend upon its Common Shares
payable in stock or make any special dividend or other distribution to the
holders of its Common Shares, or
(3) the Corporation shall offer for subscription pro rata to the
holders of its Common Shares any additional shares of stock of any class or
other rights, or
(4) there shall be any capital reorganization or reclassification of
the share capital of the Corporation, including any subdivision or
combination of its outstanding Common Shares, or amalgamation of the
Corporation with, or sale of all or substantially all of its assets to,
another corporation, or
(5) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the shares of this Series:
(A) at least twenty (20) days' prior written notice of the date on
which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any
such reorganization, reclassification, amalgamation, sale,
dissolution, liquidation or winding up; and
(B) in the case of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when
the same shall take place.
Such notice in accordance with the foregoing clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, amalgamation, sale,
-20-
<PAGE>
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 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
-21-
<PAGE>
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 following conditions (the "Mandatory
---------------------------------------
Conversion Conditions") have been satisfied as of the date of the notice
------------------------
described 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. $8.00 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 the Series B
---------------------------------------------------------------------------
Convertible Shares and
----------------------
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<PAGE>
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. $0.22
---------------------------------------------------------------------------
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 pursuant to the Amended and Restated Warrant
---------------------------------------------------------------------------
Agreement, shall be excluded but Common Shares issuable upon the conversion
---------------------------------------------------------------------------
of the shares of this Series and the Series B Convertible Shares shall not.
---------------------------------------------------------------------------
All references to per share amounts or prices with respect to the Mandatory
---------------------------------------------------------------------------
Conversion Conditions shall be appropriately adjusted for any subdivision,
---------------------------------------------------------------------------
consolidation, or reclassification of the Common Shares.
--------------------------------------------------------
Upon such mandatory conversion, each share of this Series subject to such
conversion shall be converted into Common Shares at the then effective
Conversion Price for such shares. In case the Corporation shall desire to
exercise the right to convert all or, as the case may be, any shares of this
Series in accordance with the right to do so, it shall provide notice to the
holders of the shares of this Series to be converted as hereinafter provided in
this Section 7(i).
(i) A notice of conversion shall be given to the holders of shares of
----
this Series to be converted by mailing by first-class mail to their last
addresses as they shall appear upon the register for shares of this Series
not less than 120 calendar days prior to the date fixed for conversion.
(ii) Each such notice of conversion (A) shall specify the date fixed
----
for conversion and the number of Common Shares issuable to the holder of a
share of this Series upon such conversion, (B) shall state the offices or
agencies to be maintained by the Corporation for the purpose of such
conversion, upon presentation and surrender of such shares of this Series
and (C) if less than all the shares of this Series are to be converted,
shall specify the number of shares of this Series held by each holder, and
the serial numbers of the certificates thereof, to be converted. In case
any certificate representing shares of this Series is to be converted in
part only, the notice of conversion which relates to such certificate shall
state the number of shares of this Series represented by such certificate
-23-
<PAGE>
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
-24-
<PAGE>
applicable record date hereinafter specified, a notice of (X) the date on
which a record is to be taken for the purpose of any dividend, distribution
or grant to holders of Common Shares which would require such an
adjustment, or, if a record is not to be taken, the date as of which the
holders of Common Shares of record to be entitled to such dividend,
distribution, or grant are to be determined or (Y) the date on which such
reorganization, reclassification, amalgamation, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and
the date as of which it is expected that holders of Common Shares of record
shall be entitled to exchange their Common Shares for securities or other
property or other assets deliverable upon such reorganization,
reclassification, amalgamation, sale, transfer, dissolution, liquidation,
or winding up. Failure to give such notice or any defect therein shall not
affect the legality or validity of any proceedings described in
subparagraphs (A) or (B) of this Section 7(l).
8. 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) any shares of a series or class of shares of the
Corporation shall be deemed to rank:
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<PAGE>
(A) prior to shares of this Series, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of
shares of this Series, if the holders of such shares of a series
or class of shares shall be entitled to receipt from the
Corporation of dividends or of amounts distributable upon
liquidation, dissolution or winding up, in preference or priority
to the holders of shares of this Series, as the case may be;
(B) on a parity with or equal to shares of this Series,
whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different
from those of shares of this Series, if the holders of such
shares of a series or class of shares shall be entitled to the
receipt from the Corporation of dividends or of amounts
distributable upon liquidation to their respective dividend rates
or liquidation prices, without preference or priority one over
the other as between the holders of such shares of a series or
class of shares and the holders of shares of this Series; and
(C) subordinate to shares of this Series, whether or not
the dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of
shares of this Series, if the rights of the holders of such
shares of a series or class of shares shall be subordinate to the
rights of the holders of 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.
-26-
<PAGE>
(c) The holders of the shares of this Series shall have no preemptive
rights.
-27-
<PAGE>
SONUS CORP.
------------
PROXY
------------
FOR USE AT THE ANNUAL AND SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 15, 1999
The undersigned shareholder of SONUS CORP. (the "Corporation") hereby appoints
Brandon M. Dawson, William DeJong or Gregory J. Frazer, Ph.D., each a director
of the Corporation, or instead of any of the foregoing,
- -------------------------, as proxy for the undersigned to attend and act for
and on behalf of the undersigned at the Annual and Special General Meeting of
the Shareholders of the Corporation (the "Meeting") to be held on the 15th day
of December, 1999, and at any adjournment or adjournments thereof, to the same
extent and with the same power as if the undersigned were personally present at
the said meeting or such adjournment or adjournments thereof and, without
limiting the generality of the power hereby conferred, the designee named above
is specifically directed to vote (or withhold or abstain from voting) the Common
Shares and Preferred Shares of the Corporation registered in the name of the
undersigned as indicated below.
1. RESOLUTION FIXING THE NUMBER OF DIRECTORS AT EIGHT.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF DIRECTORS.
FOR [ ] WITHHOLD VOTE [ ]
all nominees listed (except as to all nominees
as marked to the contrary below) listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW)
Joel Ackerman, Haywood D. Cochrane, Jr., Brandon M. Dawson, William
DeJong, Gregory J. Frazer, Ph.D., Hugh T. Hornibrook, Scott E. Klein,
David J. Wenstrup.
3. RESOLUTION APPROVING THE APPOINTMENT OF KPMG LLP as the auditors of the
Corporation and authorizing the directors to fix their remuneration.
FOR [ ] WITHHOLD VOTE [ ]
4. RESOLUTION APPROVING THE AMENDMENT OF THE CORPORATION'S ARTICLES AMENDING
AND RESTATING THE TERMS OF THE CORPORATION'S SERIES A CONVERTIBLE
PREFERRED SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(PLEASE SIGN AND DATE ON REVERSE)
-1-
<PAGE>
5. To vote at the discretion of the proxy designee on any amendments or
variations to the foregoing and on any other matters (other than matters
which are to come before the Meeting and which are the subject of another
proxy executed by the undersigned) which may properly come before the
Meeting or any adjournment or adjournments thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF THE CORPORATION AT THE
DIRECTION OF THE BOARD OF DIRECTORS. SHAREHOLDERS HAVE THE RIGHT TO APPOINT A
PERSON TO ATTEND AND ACT ON THEIR BEHALF AT THE MEETING OTHER THAN ONE OF THE
PERSONS LISTED ABOVE AND MAY EXERCISE SUCH RIGHT BY INSERTING THE NAME OF SUCH
PERSON (WHO NEED NOT BE A SHAREHOLDER) IN THE BLANK SPACE PROVIDED ABOVE FOR
THAT PURPOSE. THE UNDERSIGNED REVOKES ANY INSTRUMENT OF PROXY PREVIOUSLY GIVEN
FOR THE PURPOSE OF THE MEETING IN RESPECT OF COMMON SHARES AND PREFERRED SHARES
HELD BY THE UNDERSIGNED.
DATED --------------, 1999.
- ------------------------------------------------
Signature of Shareholder(s)
NOTES:
1. Please sign exactly as your name appears
below. If the shares are jointly held, each
joint owner named should sign. When signing
as attorney, personal representative,
administrator, or other fiduciary, please
give full title. If a corporation or
partnership, please sign in full corporate
or partnership name by authorized officer or
person. If the proxy form is not dated in
the space provided, it is deemed to bear the
date on which it is mailed by the management
of the Corporation.
2. IN THE EVENT THAT NO SPECIFICATION HAS BEEN
MADE WITH RESPECT TO THE VOTING ON ONE OR
MORE OF THE RESOLUTIONS REFERRED TO IN ITEMS
1 THROUGH 4 ABOVE, THE PROXY DESIGNEE IS
INSTRUCTED TO VOTE THE SHARES REPRESENTED BY
THIS PROXY ON EACH SUCH MATTER AND FOR SUCH
RESOLUTION. MARKING THE "ABSTAIN" BOX ON
ITEMS 1 AND 4 WILL BE DEEMED TO HAVE THE
SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
3. To be effective, proxies must be received
before 10 a.m. (Calgary time) on December
14, 1999, by CIBC Mellon Trust Company,
Suite 600, 333-7th Avenue S.W., Calgary,
Alberta, Canada T2P 2Z1 or be presented at
the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
