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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
HealthCare Capital Corp.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Shares, without par value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
42220A103
- --------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Patrick T. Hackett
E.M. Warburg Pincus & Co., LLC
466 Lexington Avenue
New York, New York 10017
(212) 878-0600
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
Steven J. Gartner
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
(212) 821-8000
December 24, 1997
- --------------------------------------------------------------------------------
(Date of Event which Requires
Filing of this Schedule)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3)
or (4), check the following: |_|
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SCHEDULE 13D
- ------------------------------ -------------------------
CUSIP No. 42220A103
- ------------------------------ -------------------------
- ---- ---------------------------------------------------------------------------
1 NAME OF REPORT PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Warburg, Pincus Ventures, L.P. I.D. #13-3784037
- ---- ---------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ]
(b)[X]
- ---- ---------------------------------------------------------------------------
3 SEC USE ONLY
- ---- ---------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- ---- ---------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
- ---- ---------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------- --------- -------------------------------------------------------
7 SOLE VOTING POWER
0
--------- -------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 23,333,333
OWNED BY
EACH --------- -------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------- -------------------------------------------------------
10 SHARED DISPOSITIVE POWER
23,333,333
- ---- ---------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
23,333,333
- ---- ---------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
- ---- ---------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
46.1%
- ---- ---------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- ---- ---------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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SCHEDULE 13D
- ---------------------------------- ---------------------------
CUSIP No. 42220A103
- ---------------------------------- ---------------------------
- ---- ---------------------------------------------------------------------------
1 NAME OF REPORT PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Warburg, Pincus & Co. I.D. #13-6358475
- ---- ---------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- ---- ---------------------------------------------------------------------------
3 SEC USE ONLY
- ---- ---------------------------------------------------------------------------
4 SOURCE OF FUNDS*
N/A
- ---- ---------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- ---- ---------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- ----- -------- --------- -------------------------------------------------------
7 SOLE VOTING POWER
0
--------- -------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 23,333,333
OWNED BY
EACH --------- -------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER
0
--------- -------------------------------------------------------
10 SHARED DISPOSITIVE POWER
23,333,333
- ---- ---------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
23,333,333
- ---- ---------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
- ---- ---------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
46.1%
- ---- ---------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- ---- ---------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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SCHEDULE 13D
- ---------------------------------------- ---------------------------
CUSIP No. 42220A103
- ---------------------------------------- ---------------------------
- ---- ---------------------------------------------------------------------------
1 NAME OF REPORT PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
E.M. Warburg, Pincus & Co., LLC I.D. #13-3536050
- ---- ---------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- ---- ---------------------------------------------------------------------------
3 SEC USE ONLY
- ---- ---------------------------------------------------------------------------
4 SOURCE OF FUNDS*
N/A
- ---- ---------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- ---- ---------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- ---- --------- --------- -------------------------------------------------------
7 SOLE VOTING POWER
0
--------- -------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 23,333,333
OWNED BY
EACH --------- -------------------------------------------------------
REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER
0
--------- -------------------------------------------------------
10 SHARED DISPOSITIVE POWER
23,333,333
- ---- ---------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
23,333,333
- ---- ---------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
- ---- ---------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
46.1%
- ---- ---------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- ---- ---------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
4
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This Schedule 13D is being filed on behalf of Warburg, Pincus
Ventures, L.P., a Delaware limited partnership ("Ventures"), Warburg, Pincus &
Co., a New York general partnership ("WP") and E.M. Warburg, Pincus & Co., LLC,
a New York limited liability company ("EMW") relating to the common shares,
without par value (the "Common Stock"), of HealthCare Capital Corp., an Alberta,
Canada corporation (the "Company").
Of the Reporting Entities (as defined below), only Ventures has
acquired indirect ownership of the Common Stock through its ownership of Series
A Convertible Preferred Shares (the "Series A Preferred Stock") and warrants to
purchase Common Stock (the "Warrants," and, collectively with the Series A
Preferred Stock, the "Securities").
Item 1. Security and Issuer.
This statement on Schedule 13D relates to the Common Stock of the
Company and is being filed pursuant to Rule 13d-1 under the Securities Exchange
Act of 1934 (the "Exchange Act"). The principal executive offices of the Company
are located at 111 S.W. Fifth Avenue, Suite 2390, Portland, Oregon 97204.
Item 2. Identity and Background.
(a) This statement is filed by Ventures, WP, and EMW (collectively,
the "Reporting Entities"). The sole general partner of Ventures is WP. EMW
manages Ventures. The members of EMW are substantially the same as the partners
of WP. Lionel I. Pincus is the managing partner of WP and the managing member of
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EMW and may be deemed to control both WP and EMW. WP has a 15% interest in the
profits of Ventures as the general partner, and also owns approximately 1.2% of
the limited partnership interests in Ventures. The general partners of WP and
the members of EMW are described in Schedule I hereto.
(b) The address of the principal business and principal office of each
of the Reporting Entities is 466 Lexington Avenue, New York, New York 10017.
(c) The principal business of Ventures is that of a partnership
engaged in making venture capital and related investments. The principal
business of WP is acting as general partner of Ventures, Warburg, Pincus
Investors, L.P. and Warburg, Pincus Capital Company, L.P. The principal business
of EMW is acting as manager of Ventures, Warburg, Pincus Investors, L.P. and
Warburg, Pincus Capital Company, L.P.
(d) None of the Reporting Entities, nor, to the best of their
knowledge, any of the directors, executive officers, general partners or members
referred to in paragraph (a) has, during the last five years, been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) None of the Reporting Entities nor, to the best of their
knowledge, any of the directors, executive officers, general partners or members
referred to in paragraph (a) above has, during the last five years, been a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a
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result of such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
(f) Except as otherwise indicated on Schedule I hereto, each of the
individuals referred to in paragraph (a) above is a United States citizen.
Item 3. Source and Amount of Funds or Other Consideration.
The total amount of funds required by Ventures to purchase the
Securities pursuant to the Securities Purchase Agreement dated November 21, 1997
(the "Purchase Agreement") described in Item 4 was $18,000,000, and was
furnished from the working capital of Ventures.
Item 4. Purpose of Transaction.
On November 21, 1997, the Company entered into a Purchase Agreement
with Ventures pursuant to which Ventures agreed to purchase, subject to certain
conditions, 13,333,333 shares of Series A Preferred Stock and Warrants to
purchase 10,000,000 shares of Common Stock for an aggregate purchase price of
$18,000,000 (the "Purchase"). Pursuant to the Purchase Agreement, the Company
agreed to issue the Securities to Ventures in consideration of the purchase
price and certain rights under the Purchase Agreement, as described below.
On December 24, 1997, Ventures purchased 13,333,333 shares of Series A
Preferred Stock of the Company and Warrants to purchase
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10,000,000 shares of Common Stock of the Company for an aggregate purchase price
of $18,000,000. The Securities represent beneficial ownership of 23,333,333
shares of Common Stock of the Company, or approximately 46.1% of the outstanding
voting securities of the Company as determined in accordance with Rule
13d-3(d)(1)(i) of the Exchange Act.
The Series A Preferred Stock is initially convertible on a share for
share basis into Common Stock at an initial conversion price of $1.35 per share
of Common Stock, subject to antidilution provisions which provide for an
adjustment of the conversion price and the number of shares of Common Stock
obtainable upon conversion in the event the Company sells or issues Common Stock
or takes certain other actions deemed to be an issuance or sale of Common Stock.
The Series A Preferred Stock has the right to vote with the Common Stock on an
as converted basis with respect to any and all matters presented to the
shareholders of the Company for their action or consideration. The holders of
Series A Preferred Stock are entitled to receive, if, when and as declared out
of assets legally available therefor, cumulative dividends at the rate of
$0.0675 per share per annum (subject to adjustment), payable in cash or, at the
discretion of the Board of Directors of the Company (the "Board"), in shares of
Common Stock, before any dividends are set apart for or paid upon the Common
Stock or any other stock ranking on liquidation subordinate to or on a parity
with the shares of Series A Preferred Stock in any year.
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Dividends will be cumulative from the date of initial issuance of the shares of
Series A Preferred Stock.
The Warrants are exercisable for shares of Common Stock at any time at
the option of Ventures at an exercise price of $2.40 per share of Common Stock.
The Warrants are subject to antidilution provisions which provide for an
adjustment of the exercise price and the number of shares of Common Stock
obtainable upon exercise of the Warrants in the event that the Company sells or
issues Common Stock or takes certain other actions deemed to be an issuance or
sale of Common Stock. The Warrants do not have any voting rights.
Board Representation. Pursuant to the Purchase Agreement, for so long
as Ventures owns Common Stock or Series A Preferred Stock constituting at least
10% of the outstanding Common Stock of the Company (which for this purpose shall
include the Common Stock issuable upon the conversion of the Series A Preferred
Stock but not the Common Stock issuable upon the exercise of the Warrants), the
Company will nominate and use its reasonable best efforts to elect and to cause
to remain as directors on the Company's Board two individuals designated by
Ventures, such number to increase to three if and for as long as the number of
directors that constitute the entire Board shall be in excess of eight. The
Company shall use its reasonable best efforts to fix and maintain the number of
directors that shall constitute the entire Board to be not more than eleven so
long as Ventures owns
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at least 3,333,333 shares of Common Stock or Series A Preferred Stock.
Such number of directors to be designated by Ventures shall be
decreased by one if Ventures owns less than 10% of the outstanding Common Stock
(which for this purpose shall include the Common Stock issuable upon the
conversion of the Series A Preferred Stock but not the Common Stock issuable
upon the exercise of the Warrants), and decreased to none if Ventures owns less
than 3,333,333 shares of Common Stock or Series A Preferred Stock.
Any vacancy created by the death, disability, retirement or removal of
any such individual may be filled by Ventures.
Registration Rights. The shares of Series A Preferred Stock and the
Warrants will not be registered under the Securities Act of 1933, as amended
(the "Securities Act"). Pursuant to the Purchase Agreement, the Company has
granted Ventures Demand and Piggyback Registration Rights, as defined below,
with respect to the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and upon exercise of the Warrants. The Company has
agreed to use its best efforts to effect any registration requested by Ventures
(the "Demand Registration Rights") at any time subsequent to 180 days from the
date of the closing of the purchase and sale of the securities under the
Purchase Agreement (the "Closing"). The Company will only be obligated to file
one such registration statement in respect of the shares of Common
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Stock issuable upon conversion of the Series A Preferred Stock and one such
registration statement in respect of the shares of Common Stock issuable upon
exercise of the Warrants, provided that any such registration statement shall
have been declared or ordered effective and the sales of such Common Stock shall
have been closed. However, if the sales of such Common Stock have not closed,
Ventures may preserve its one Demand Registration Right in either case by paying
all of the Company's registration expenses associated with the registration of
such Common Stock; provided that such right may not be exercised until 90 days
after the effective date of such registration statement.
In addition, if at any time subsequent to 180 days from the Closing,
the Company proposes to register any of its equity securities under the
Securities Act for its own account or the account of any of its shareholders,
Ventures will have the right (the "Piggyback Registration Right") upon a timely
request to have its shares included in such registration. If shares to be
registered are to be distributed by means of an underwriting, the underwriter
may limit the number of shares to be registered if in its judgment marketing
factors require such a cutback.
All expenses of registration must be borne by the Company, but all
brokerage fees, underwriting discounts, and selling commissions must be borne by
Ventures. In connection with a registration, the Company has agreed to indemnify
Ventures and each person, if any, who controls Ventures for certain losses
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arising out of the registration including losses arising out of or based upon
any untrue statement of or omission of material fact in the registration
statement, or arising out of any violation by the Company of any rule or
regulation promulgated under the Securities Act, the Exchange Act or any other
federal or state law. Ventures has agreed to indemnify and hold harmless the
Company and any person who signs the registration statement for losses which
arise out of or are based upon any untrue statement of or omission of material
fact in the registration statement which was made in reliance upon written
statements from Ventures. The Demand and Piggyback Registration Rights may be
assigned subject to certain limitations. The Company agreed to use its best
efforts to comply with the reporting and information requirements under Rule 144
which are necessary for Ventures to sell its shares to the public without
registration.
The foregoing description of the Purchase Agreement and the terms of
the Series A Preferred Stock and the Warrants is qualified in its entirety by
reference to the Purchase Agreement, which is attached hereto as Exhibit 1 and
is incorporated herein by reference.
The purchase was effected because of the Reporting Entities' belief
that the Company represents an attractive investment. As contemplated by the
terms of the Purchase Agreement, Joel Ackerman, who is affiliated with WP and
EMW, was elected to the Board as of December 24, 1997. Mr. Ackerman disclaims
beneficial
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ownership (within the meaning of Rule 13d-3 under the Exchange Act) of the
Common Stock beneficially owned by Ventures. Pursuant to the terms of the
Purchase Agreement, another Board nominee is expected to be designated by
Ventures in the near future. The Reporting Entities presently expect to limit
their involvement in the management of the Company to representation on the
Board.
The Reporting Entities may from time to time acquire shares of Common
Stock or dispose of shares of Common Stock through open market or privately
negotiated transactions or otherwise, depending on existing market conditions
and other considerations discussed below. The Reporting Entities intend to
review their investment in the Company on a continuing basis and, depending upon
the price and availability of shares of Common Stock, subsequent developments
affecting the Company, the Company's business and prospects, other investment
and business opportunities available to the Reporting Entities, general stock
market and economic conditions, tax considerations and other factors considered
relevant, may decide at any time not to increase, or to decrease, the size of
their investment in the Company.
Except as set forth herein, none of the Reporting Entities nor, to the
best of their knowledge, any person listed in Schedule I hereto, has any plans
or proposals which relate to or would result in: (a) the acquisition by any
person of additional securities of the Company, or the disposition of securities
of the
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Company; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries;
(c) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries; (d) any change in the present Board or management of the
Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board; (e) any material
change in the present capitalization or dividend policy of the Company; (f) any
other material change in the Company's business or corporate structure; (g)
changes in the Company's charter, By-Laws or instruments corresponding thereto
or other actions which may impede the acquisition of control of the Company by
any person; (h) causing a class of securities of the Company to be delisted from
a national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
(i) a class of equity securities of the Company becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(j) any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
(a) Upon the Closing, Ventures will beneficially own 13,333,333 shares
of Series A Preferred Stock and Warrants to purchase up to an aggregate of
10,000,000 shares of Common Stock. By reason of their respective relationships
with Ventures, each of the Reporting Entities may be deemed under Rule 13d-3
under the
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Exchange Act to own beneficially all of the Securities which Ventures
beneficially owns. As of November 21, 1997, 23,333,333 shares of Common Stock
represented approximately 46.1% of the outstanding shares of Common Stock, based
on the Company's representation in the Purchase Agreement that 27,284,517 shares
of Common Stock (exclusive of the Common Stock into which the Securities may be
converted or exercised) were outstanding as of that date.
(b) The Reporting Entities together share the power to vote or to
direct the vote, and to dispose or to direct the disposition, of the Securities
held by Ventures and of the Common Stock which Ventures may acquire upon
conversion or exercise of the Securities.
(c) Except for the Purchase, none of the Reporting Entities nor, to
the best of their knowledge, any person listed in Schedule I hereto, has
effected any transactions in the Common Stock during the preceding 60 days.
(d) Except as set forth in this Item 5, no person other than each
respective record owner referred to herein of securities is known to have the
right to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, such securities.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the Issuer.
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Pursuant to Rule 13d-1(f) promulgated under the Exchange Act, the
Reporting Persons have entered into an agreement with respect to the joint
filing of this statement, and any amendment or amendments hereto, which is being
filed as Exhibit 2 to this Schedule 13D and is incorporated herein by reference.
As described in Item 4, Ventures and the Company have agreed, pursuant
to the Purchase Agreement, to certain terms with respect to registration of the
shares of Common Stock and the composition of the Company's Board. The
information set forth in Item 4 above is incorporated herein by reference.
Except as described herein and by reference to Item 4 above, there are
no contracts, arrangements, understandings or relationships among the persons
named in Item 2 or between such persons and any other person with respect to any
securities of the Company.
By virtue of the relationships among the Reporting Entities as
described in Item 2, the Reporting Entities may be deemed to be a "group" under
the Federal securities laws. Lionel I. Pincus disclaims any beneficial ownership
of the Securities and the shares of Common Stock which may be acquired upon
conversion or exercise of the Securities reported herein as being beneficially
owned by the Reporting Entities.
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Item 7. Material to be Filed as Exhibits.
1. Securities Purchase Agreement, dated as of November 21, 1997, by
and between the Company and Ventures.
2. Joint Filing Agreement, dated as of December 30, 1997, by and among
the Reporting Entities.
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SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
Dated: December 31, 1997 WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/Stephen Distler
Stephen Distler, Partner
WARBURG, PINCUS & CO.
By: /s/Stephen Distler
Stephen Distler, Partner
E.M. WARBURG, PINCUS & CO., LLC
By: /s/Stephen Distler
Stephen Distler, Member
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SCHEDULE I
Set forth below is the name, position and present principal occupation
of each of the general partners of Warburg, Pincus & Co. ("WP") and each of the
members of E.M. Warburg, Pincus & Co., LLC ("EMW"). The sole general partner of
Warburg, Pincus Ventures, L.P. ("Ventures") is WP. WP, EMW and Ventures are
hereinafter collectively referred to as the "Reporting Entities." Except as
otherwise indicated, the business address of each of such persons is 466
Lexington Avenue, New York, New York 10017, and each of such persons is a
citizen of the United States.
General Partners of WP
----------------------
Present Principal Occupation
Name in Addition to Position with WP
- ---- -------------------------------
Susan Black Managing Director and Member, EMW
Christopher W. Brody Managing Director and Member, EMW
Harold Brown Senior Managing Director and Member, EMW
Errol M. Cook Managing Director and Member, EMW
W. Bowman Cutler Managing Director and Member, EMW
Elizabeth B. Dater Managing Director and Member, EMW
Stephen Distler Managing Director, Member and Treasurer, EMW
Harold W. Ehrlich Managing Director and Member, EMW
Louis G. Elson Managing Director and Member, EMW
John L. Furth Vice Chairman of the Board and Member, EMW
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Stewart K.P. Gross Managing Director and Member, EMW
Patrick T. Hackett Managing Director and Member, EMW
Jeffrey A. Harris Managing Director and Member, EMW
Robert S. Hillas Managing Director and Member, EMW
A. Michael Hoffman Managing Director and Member, EMW
William H. Janeway Managing Director and Member, EMW
Douglas M. Karp Managing Director and Member, EMW
Charles R. Kaye Managing Director and Member, EMW
Henry Kressel Managing Director and Member, EMW
Joseph P. Landy Managing Director and Member, EMW
Sidney Lapidus Managing Director and Member, EMW
Kewsong Lee Managing Director and Member, EMW
Reuben S. Leibowitz Managing Director and Member, EMW
Brady T. Lipp Managing Director and Member, EMW
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Stephen J. Lurito Managing Director and Member, EMW
Spencer S. Marsh III Managing Director and Member, EMW
Lynn C. Martin Managing Director and Member, EMW
Edward J. McKinley Managing Director and Member, EMW
Rodman W. Moorhead III Senior Managing Director and Member, EMW
Howard H. Newman Managing Director and Member, EMW
Gary D. Nusbaum Managing Director and Member, EMW
Anthony G. Orphanos Managing Director and Member, EMW
Dalip Pathak Managing Director and Member, EMW
Daphne D. Philpson Managing Director and Member, EMW
Lionel I. Pincus Chairman of the Board, CEO, and Managing
Member, EMW; and Managing Partner,
Pincus & Co.
Eugene L. Podsiadlo Managing Director and Member, EMW
Ernest H. Pomerantz Managing Director and Member, EMW
Brian S. Posner Managing Director and Member, EMW
Arnold M. Reichman Managing Director and Member, EMW
Roger Reinlieb Managing Director and Member, EMW
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John D. Santoleri Managing Director and Member, EMW
Sheila N. Scott Managing Director and Member, EMW
Peter Stalker III Managing Director and Member, EMW
David A. Tanner Managing Director and Member, EMW
James E. Thomas Managing Director and Member, EMW
John L. Vogelstein Vice Chairman of the Board and Member, EMW
Elizabeth H. Weatherman Managing Director and Member, EMW
Joanne R. Wenig Managing Director and Member, EMW
George U. Wyper Managing Director and Member, EMW
Pincus & Co.*
NL & Co.**
* Pincus & Co. is a New York limited partnership whose primary activity is
ownership interest in WP and EMW.
** NL & Co. is a New York limited partnership whose primary activity is
ownership interest in WP.
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Members of EMW
--------------
Present Principal Occupation in
Name Addition to Position with EMW
- ---- --------------------------------
Susan Black Partner, WP
Christopher W. Brody Partner, WP
Harold Brown Partner, WP
Dale C. Christensen (1)
Errol M. Cook Partner, WP
W. Bowman Cutter Partner, WP
Elizabeth B. Dater Partner, WP
Stephen Distler Partner, WP
P. Nicholas Edwards(2)
Harold W. Ehrlich Partner, WP
Louis G. Elson Partner, WP
John L. Furth Partner, WP
Stewart K.P. Gross Partner, WP
Patrick T. Hackett Partner, WP
Jeffrey A. Harris Partner, WP
Robert S. Hillas Partner, WP
A. Michael Hoffman Partner, WP
William H. Janeway Partner, WP
Douglas M. Karp Partner, WP
- -------------------
(1) Citizen of Canada
(2) Citizen of United Kingdom
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Charles R. Kaye Partner, WP
Richard H. King (2)
Henry Kressel Partner, WP
Joseph P. Landy Partner, WP
Sidney Lapidus Partner, WP
Kewsong Lee Partner, WP
Reuben S. Leibowitz Partner, WP
Brady T. Lipp Partner, WP
Stephen J. Lurito Partner, WP
Spencer S. Marsh III Partner, WP
Lynn C. Martin Partner, WP
Edward J. McKinley Partner, WP
Rodman W. Moorhead III Partner, WP
Howard H. Newman Partner, WP
Gary D. Nusbaum Partner, WP
Anthony G. Orphanos Partner, WP
Dalip Pathak Partner, WP
Philip C. Percival (2)
Daphne D. Philipson Partner, WP
Lionel I. Pincus Managing Partner, WP; and Managing
Partner, Pincus & Co.
Eugene L. Podsiadlo Partner, WP
Ernest H. Pomerantz Partner, WP
Brian S. Posner Partner, WP
Arnold M. Reichman Partner, WP
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Roger Reinlieb Partner, WP
John D. Santoleri Partner, WP
Sheila N. Scott Partner, WP
Dominic H. Shorthouse (2)
Peter Stalker III Partner, WP
Chang Q. Sun (3)
David A. Tanner Partner, WP
James E. Thomas Partner, WP
John L. Vogelstein Partner, WP
Elizabeth H. Weathermen Partner, WP
Joanne R. Wenig Partner, WP
George U. Wyper Partner, WP
Pincus & Co.*
* Pincus & Co. is a New York limited partnership whose primary activity is
ownership interest in WP and EMW.
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(3) Citizen of People's Republic of China
26
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EXECUTION COPY
HEALTHCARE CAPITAL CORP.
SECURITIES PURCHASE AGREEMENT
13,333,333 Series A Convertible Preferred Shares
Warrants to Purchase 10,000,000 Common Shares
<PAGE>
Table of Contents
Section
1. Sale and Purchase.
2. Closing; Payment of Purchase Price.
3. Representations and Warranties of the Company.
(a) Organization; Good Standing.
(b) Governmental Authority.
(c) Authorization of Agreements.
(d) Capitalization.
(e) Authorization of Convertible Shares and Warrants.
(f) Consents and Approvals.
(g) Noncontravention.
(h) Change in Ownership.
(i) Litigation.
(j) Reports and Financial Statements.
(k) Liabilities.
(l) Material Contracts.
(m) Employees.
(n) Employee Benefit Plans.
(o) Patents, Licenses, etc.
(p) Taxes.
(q) Properties.
(r) Condition of Properties.
(s) Insurance.
(t) No Adverse Change.
(u) Transactions with Related Parties.
(v) Interest in Competitors.
(w) Registration Rights.
(x) Private Offering.
(y) Brokerage.
(z) Illegal or Unauthorized Payments; Political Contributions.
(aa) Material Facts.
(bb) No Integrated Offering.
4. Covenants of the Company.
(a) [Conditions of The Alberta Stock Exchange].
(b) [No actions will contravene representations and warranties]
(c) [Right to appoint directors]
(d) Use of Proceeds.
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(e) Financial and Business Information.
(i) Monthly and Quarterly Statements
(ii) Annual Statements
(iii) Business Plan; Projections
(iv) Audit Reports
(v) Other Reports
(vi) Progress Report
(vii) Requested Information
(f) Inspection.
(g) Takeover Statute.
(h) Conduct of Business and Maintenance of Existence.
(i) Compliance with Laws.
(j) Insurance.
(k) Keeping of Books.
(l) Lost, etc. Certificates Evidencing Securities
(or Common Shares);
Exchange.
(m) Limitations on Corporate Actions.
(n) Commencement and Termination of Covenants
(o) Form D Filing.
5. Representations, Warranties and Covenants of the Investor;
Additional Covenants of the Company
(a) General.
(b) Disclosure and Non-Public Information.
(c) Securities Act Matters.
(d) Limitation on Transfer.
(e) No Intention of Board to Pay Dividends.
(f) Hart-Scott Act Compliance.
(g) Consents and Approvals.
(h) Acknowledgments Regarding the Advisors
6. Conditions to Closing.
(a) [As to the Company:]
(i) Representations and Warranties.
(ii) Compliance with Agreement.
(iii) No Legislation or Injunction.
(iv) Adverse Developments
(v) Consents and Approvals.
(vi) Officers' Certificate.
(vii) Opinions of Counsel.
(viii) Secretary's Certificate.
(ix) Approval of Proceedings.
(x) Warrant Agreement.
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(xi) Shareholders' Agreement.
(xii) Recent Financial Statements.
(xiii) Filing of Convertible Shares Certificate.
(xiv) Conditional Approval of The Alberta Stock Exchange.
(xv) Antitrust Approvals.
(xvi) Directors.
(xvii) Employment Agreements.
(b) [As to the Investor:]
(i) Consents and Approvals.
(ii) No Legislation or Injunction.
(iii) General Partner's Certificate.
(iv) Antitrust Approvals.
7. Expenses of Sale.
8. Registration Rights.
9. Indemnification.
10. Contribution.
11. Notices.
12. Parties.
13. Termination and Survival.
14. Amendment and Modification.
15. Further Assurances
16. Waiver of Breach
17. Entire Agreement.
18. Severability.
19. Limitation on Enforcement of Remedies.
20. Counterparts.
21. Law.
Schedule 3(d) Derivative Securities
Schedule 3(f) Consents and Approvals
Schedule 3(l) Key Agreements and Instruments
Schedule 3(m)(ii) Employment Agreements
Schedule 3(n) Employee Benefit Plans Under ERISA
Schedule 3(u) Related Parties
Schedule 3(y) Brokerage
Schedule 4(m) Redemption Obligations Incurred in Connection
with the Acquisition of Hearing Clinics
Exhibit A Form of Warrant Agreement
Exhibit B Form of Shareholders' Agreement
Exhibit C Form of Terms of Series A Convertible Preferred Shares
Exhibit D-1 Form of Opinion of Ballem MacInnes
Exhibit D-2 Form of Opinion of Carter, Ledyard & Milburn
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HEALTHCARE CAPITAL CORP.
SECURITIES PURCHASE AGREEMENT
13,333,333 Series A Convertible Preferred Shares
Warrants to Purchase 10,000,000 Common Shares
This Securities Purchase Agreement is made as of November 21, 1997 by
and between HealthCare Capital Corp., an Alberta corporation (the "Company"),
and Warburg Pincus Ventures, L.P., a Delaware limited partnership (the
"Investor").
WHEREAS, the Investor wishes to purchase and the Company wishes to sell
certain securities of the Company as set forth in this Agreement.
NOW, THEREFORE, to effect such purchase and sale and in consideration
of the mutual covenants, representations, warranties and agreements hereinafter
set forth and intending to be legally bound by this Agreement, the Company and
the Investor agree as follows:
1. Sale and Purchase. The Company agrees to issue and sell to the
Investor and the Investor agrees to purchase from the Company 13,333,333 Series
A Convertible Preferred Shares (the "Convertible Shares") of the Company and
warrants (the "Warrants") to purchase 10,000,000 common shares, without par
value, of the Company (the "Common Shares"), for an aggregate purchase price of
U.S. $18,000,000 (the "Purchase Price") on the terms and conditions set forth in
this Agreement. The Warrants shall be issued pursuant to the terms of a warrant
agreement in the form of Exhibit A hereto (the "Warrant Agreement"). The
Convertible Shares and the Warrants are collectively referred to in this
Agreement as the "Securities." This Agreement and the Warrant Agreement are
collectively referred to in this Agreement as the "Transaction Documents."
2. Closing; Payment of Purchase Price. The closing of the purchase and
sale of the Securities hereunder (the "Closing") shall occur on January 16, 1998
at the offices of Willkie Farr & Gallagher, 153 East 53rd Street, New York, New
York, or such other date and location as may be agreed upon by the Company and
the Investor; provided, however, the Closing shall not occur until the closing
conditions set forth in Section 6 hereto have been satisfied. At the Closing:
(a) the Investor and the Company shall execute and deliver the Warrant
Agreement; (b) the Investor and the shareholders named therein shall execute and
deliver a shareholders' agreement in the form of Exhibit B hereto (the
"Shareholders' Agreement"); and (c) the Investor shall pay to the Company U.S.
$18,000,000 in immediately available funds (to such account as the Company shall
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designate, not less than three business days prior to the Closing) against
delivery to the Investor of a certificate for 13,333,333 Convertible Shares and
a certificate for Warrants to purchase 10,000,000 Common Shares. The date of the
Closing may be changed by mutual agreement of the Company and the Investor, and
the date on which the Closing actually occurs is referred to herein as the
"Closing Date."
3. Representations and Warranties of the Company. The Company
represents and warrants to the Investor as follows:
(a) Organization; Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Alberta, Canada with full power and authority, corporate and other, to
own or lease and operate its properties and to conduct its business as
currently conducted. Except as provided in Section 3(b), the Company
has made all necessary filings under all applicable corporate,
securities and any other laws to which it is subject, except where
failure to file would not have a material adverse effect on the
condition (financial or otherwise), results of operations, business,
assets, or prospects of the Company and its Subsidiaries (as defined
below) taken as a whole (a "Material Adverse Effect"). The Company is
the direct or indirect beneficial owner of all of the outstanding
securities of the following corporations (each, a "Subsidiary" and,
collectively, the "Subsidiaries"):
SONUS-Canada Ltd., a British Columbia, Canada,
corporation; and
SONUS-USA, Inc., a Washington corporation.
Each Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation,
with full power and authority, corporate and other, to own or lease and
operate its properties and to conduct its business as currently
conducted, and is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where such
qualification is necessary and except where failure to so qualify would
not have a Material Adverse Effect. Each Subsidiary has made all
necessary filings required under all applicable corporate, securities
and any other laws to which it is subject, except where failure to file
would not have a Material Adverse Effect. The Company has no
subsidiaries other than the Subsidiaries.
(b) Governmental Authority. Each filing, authorization,
approval, consent, order, registration, license or permit of any court
or governmental or regulatory agency or body required in connection
with the execution and delivery by the Company of the Transaction
Documents and the consummation of the transactions therein contemplated
has been made or obtained, except such as may be required under (i) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott Act"), (ii) the Securities Act of 1933, as amended (the
"Securities Act"), the Blue Sky laws or regulations of the various
states or the securities laws of the provinces of Canada and (iii)
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the by-laws or rules of the National Association of Securities Dealers,
Inc. The Company has also obtained a conditional approval of The
Alberta Stock Exchange for the transactions contemplated in the
Transaction Documents.
(c) Authorization of Agreements. The Company has full power
and authority, corporate and other, to execute, deliver and perform the
Transaction Documents and to consummate the transactions contemplated
thereby and to perform its obligations thereunder. The execution,
delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions therein
contemplated have been duly authorized by all necessary corporate
action on the part of the Company. This Agreement has been, and as of
the Closing Date the Warrant Agreement will be, duly executed and
delivered by the Company. This Agreement constitutes, and as of the
Closing Date the Warrant Agreement will constitute, the valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms, except insofar as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally
and by the discretion of courts in granting equitable remedies, and
except that (i) enforceability of the indemnification provisions and
the contribution provisions set forth in this Agreement may be limited
by Canadian law, the federal or state securities laws of the United
States or the public policy underlying any such laws, and (ii) the
validity of Section 21 of this Agreement and Section 15 of the Warrant
Agreement may be limited by the public policy of Canada or the State of
New York, and with respect to the United States District Court for the
Southern District of New York, may be subject to the discretion of the
Court pursuant to 28 U.S.C. Section 1404(a). The execution, delivery
and performance of the Transaction Documents by the Company, the
consummation by the Company of the transactions therein contemplated,
and the compliance by the Company with the terms of the Transaction
Documents do not, and will not, with or without the giving of notice or
the lapse of time, or both, (i) result in any violation of the
constating documents of the Company or any of its Subsidiaries, (ii)
result in a breach of or conflict with any of the terms or provisions
of, or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of the Company or any of its Subsidiaries pursuant to, any
indenture, mortgage, note, contract, commitment or other agreement or
instrument that is material to the Company and the Subsidiaries taken
as a whole, to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of its or their properties
or assets are bound or affected; (iii) violate any existing applicable
law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or its or their properties or business; or
(iv) have any Material Adverse Effect.
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<PAGE>
(d) Capitalization.
(i) The authorized capital of the Company consists of
an unlimited number of Common Shares without par value and an
unlimited number of preferred shares without par value
issuable in series. At the date hereof, there were issued and
outstanding 27,284,517 Common Shares, all of which have been
duly authorized and validly issued and are fully-paid and
non-assessable. The terms of the Convertible Shares shall be
as described in Exhibit C.
(ii) Except as disclosed in or contemplated by the
Company SEC Reports (defined below) and in Schedule 3(d)
hereto, there are no outstanding securities convertible into
Common Shares or any options, warrants or other rights to
purchase any Common Shares or securities convertible into
Common Shares.
(e) Authorization of Convertible Shares and Warrants. As of
the Closing Date, the Company will have duly authorized and created a
series of preferred shares designated as "Series A Convertible
Preferred Shares" and consisting of the Convertible Shares. The
issuance and sale of the Securities and the Common Shares issuable upon
the conversion of the Convertible Shares and the exercise of the
Warrants have been duly authorized by the Corporation and, when issued,
the Convertible Shares and each Common Share issuable upon conversion
of the Convertible Shares and upon exercise of the Warrants, will be
validly issued and fully paid and nonassessable, and the holder thereof
will not be subject to personal liability solely by reason of being
such holder. None of the Securities or such Common Shares is or will be
subject to preemptive rights of any securityholder of the Company.
(f) Consents and Approvals. Except as set forth in Section
3(b) or on Schedule 3(f), the execution and delivery by the Company of
the Transaction Documents, the issuance of any of the Securities and
the Common Shares issuable upon the conversion of the Convertible
Shares and the exercise of the Warrants, the performance by the Company
of its obligations hereunder and thereunder and the consummation by the
Company of the transactions contemplated hereby and thereby do not
require the Company or any of its Subsidiaries to obtain any consent,
approval, clearance or action of, or make any filing submission or
registration with, or give any notice to, any Person or judicial
authority. As used in this Agreement, "Person" shall mean an
individual, partnership, joint stock company, corporation, limited
liability company, trust or unincorporated organization, and a
government, agency, regulatory authority or political subdivision
thereof.
(g) Noncontravention. Neither the Company nor either of its
Subsidiaries is in violation of, or in default under, any term or
provision of (i) its constating documents, (ii) any indenture,
mortgage, deed of trust, credit agreement, note or other evidence of
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indebtedness, contract, commitment, undertaking, arrangement, or other
agreement or instrument to which it is a party or by which it or any of
its properties or business is bound or subject and which violation or
default would have a Material Adverse Effect (collectively, the "Key
Agreements and Instruments"), or (iii) except as described in Item 1 of
the Company's Annual Report on Form 10-KSB dated October 29, 1997 for
the year ended July 31, 1997 as amended by Amendment No. 1 on Form
10-KSB/A dated October 30, 1997 (such Form 10-KSB, as so amended, being
hereinafter referred to as the "1997 Form 10-KSB"), any existing
applicable law, rule, regulation, ordinance, code, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their
respective properties or businesses, which violation would have a
Material Adverse Effect. The Company and each Subsidiary owns,
possesses or has obtained all material governmental and other licenses,
permits, certifications, registrations, approvals or consents and other
authorizations necessary to own or lease, as the case may be, and to
operate its properties and to conduct its business as currently
conducted and described in the 1997 Form 10-KSB, and all such licenses,
permits, certifications, registrations, approvals, consents and other
authorizations are in good standing. There are no proceedings pending
or, to the best of the Company's knowledge, threatened, seeking to
cancel, terminate or limit any such licenses, permits, certifications,
registrations, approvals or consents or authorizations, nor is there
any basis therefor.
(h) Change in Ownership. Neither the purchase of the
Securities by the Investor nor the consummation of the transactions
contemplated by this Agreement will result in (i) a Material Adverse
Effect, (ii) to the best of the Company's knowledge, the loss of the
benefits of any material business relationship, including with any
customer or supplier, (iii) the acceleration of the vesting of any
outstanding option, warrant, call, commitment, agreement, conversion
right, preemptive right or other right to subscribe for, purchase or
otherwise acquire any of the shares of the capital stock of the Company
or any of its Subsidiaries, or debt securities of the Company or any of
its Subsidiaries (collectively "Commitments", and each individually a
"Commitment"), (iv) any obligation of the Company or its Subsidiaries
to grant, extend or enter into any Commitment, or (v) any right in
favor of any Person to terminate or cancel any Key Agreement or
Instrument.
(i) Litigation. There are no claims, actions, suits,
proceedings, arbitrations, investigations or inquiries by or before any
governmental agency, court or tribunal, domestic or foreign, or before
any private arbitration tribunal, pending or, to the best of the
Company's knowledge, threatened against the Company or any Subsidiary
or involving the properties or business of the Company or any
Subsidiary which, if determined adversely, would, individually or in
the aggregate, result in a Material Adverse Effect, or which relate in
any way to the validity of the capital stock of the Company or the
validity of this Agreement, or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement. Neither
the Company nor any Subsidiary is subject to any order, writ, judgment,
injunction, decree, determination or
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award of any court or of any governmental agency or instrumentality
(whether federal, state, local or foreign) which could reasonably be
expected to have a Material Adverse Effect.
(j) Reports and Financial Statements. Shikaze Ralston and KPMG
Peat Marwick LLP, which have rendered reports with respect to the
financial statements included in the 1997 Form 10-KSB, are "independent
public accountants" within the meaning of the Securities Act and the
regulations promulgated thereunder. The Company has furnished the
Investor with true and complete copies of the Company's Quarterly
Report on Form 10-QSB for the quarter ended April 30, 1997, the
Company's Registration Statement on Form SB-2 (Registration No.
333-23137) as amended by Amendment Nos. 1 and 2 thereto, the 1997 Form
10-KSB, and the Company's definitive Management Information Circular
and Proxy Statement dated October 29, 1997 (collectively, the "Company
SEC Reports"). As of their respective dates, the Company SEC Reports
were duly filed and complied in all material respects with the
requirements of the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable, and the rules and
regulations of the Securities and Exchange Commission (the
"Commission") thereunder applicable to such Company SEC Reports. As of
their respective dates, the Company SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC
Reports comply as to form in all material respects with applicable
accounting requirements of the Securities Act or the Exchange Act, as
applicable, and with the published rules and regulations of the
Commission with respect thereto. The financial statements included in
the Company SEC Reports (i) have been prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied
on a consistent basis (except as may be indicated therein or in the
notes thereto), (ii) present fairly, in all material respects, the
financial position of the Company and its Subsidiaries as at the dates
thereof and the results of their operations and cash flows for the
periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and any
other adjustments described therein and the fact that certain
information and notes have been condensed or omitted in accordance with
the Securities Act or the Exchange Act and the rules promulgated
thereunder, and (iii) are, in all material respects, in accordance with
the books of account and records of the Company except as indicated
therein.
(k) Liabilities. Except as and to the extent reflected or
reserved against in the consolidated financial statements of the
Company included in the 1997 Form 10-KSB, the Company as at July 31,
1997, had no material liabilities, debts, obligations or claims
asserted against it, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, and including, but not
limited to, liabilities on account of taxes,
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<PAGE>
unfunded past service liabilities under any pension, profit sharing or
similar plan, other governmental charges or lawsuits brought subsequent
to such date.
(l) Material Contracts. Schedule 3(l) sets forth a true and
complete list of each Key Agreement and Instrument other than Key
Agreements and Instruments listed as exhibits to the 1997 Form 10-KSB.
Each Key Agreement and Instrument and any other material contract
listed as an exhibit to the 1997 Form 10-KSB that is currently in
effect, is valid, binding and enforceable against the Company or such
Subsidiary and, to the Company's best knowledge, the other parties
thereto, in accordance with its terms, and in full force and effect on
the date hereof.
(m) Employees.
(i) The Company and its Subsidiaries are in full
compliance with all laws regarding employment, wages, hours,
equal opportunity, collective bargaining and payment of social
security and other taxes except to the extent that
noncompliance would not have a Material Adverse Effect. Except
as would not have a Material Adverse Effect, no complaint of
any unfair labor practice or discriminatory employment
practice against the Company or any Subsidiary has been filed
or, to the best of the Company's knowledge, threatened to be
filed with or by the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other administrative
agency, federal or state, that regulates labor or employment
practices, nor is any grievance filed or, to the best of the
Company's knowledge, threatened to be filed, against the
Company or any Subsidiary by any employee pursuant to any
collective bargaining or other employment agreement to which
the Company or any Subsidiary is a party or is bound. The
Company and its Subsidiaries are in compliance with all
applicable federal, state, provincial and local laws and
regulations regarding occupational safety and health standards
except to the extent that noncompliance will not have a
Material Adverse Effect, and have received no unresolved
complaints from any federal, state, provincial or local agency
or regulatory body alleging violations of any such laws or
regulations.
(ii) Except as set forth in Schedule 3(m)(ii), the
employment of all Persons employed by the Company or any of
its Subsidiaries is, subject to the provisions of applicable
law, terminable at will without any penalty or severance
obligation of any kind on the part of the employer. All sums
due for employee compensation and benefits and all vacation
time owing to any employees of the Company or any of its
Subsidiaries have been duly and adequately accrued on the
accounting records of the Company and its Subsidiaries.
(iii) The Company is not aware that any of its
executive officers is obligated under any contract (including
licenses, covenants or commitments of any
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nature) or other agreement, or subject to any judgment, decree
or order of any court or administrative agency, that would
interfere with the use of such executive officer's best
efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be
conducted.
(iv) The Company is not aware that any officer or key
employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment
of any of the foregoing.
(n) Employee Benefit Plans. Except as referred to in Schedule
3(n) or the Company SEC Reports, the Company and its Subsidiaries have
no retirement or pension plans in respect of Canadian employees and no
employee benefit plans (as defined for the purpose of employees located
in the United States in Section 3(3) of the Employee Retirement Income
Security Act of 1974) covering former and current employees of the
Company or any of its Subsidiaries, or under which the Company or any
of its Subsidiaries has any obligation or liability. Schedule 3(n)
lists all material compensation plans, including, without limitation,
those relating to bonuses, commissions, profit-sharing, savings, stock
options, insurance and deferred compensation or other similar fringe or
employee benefits arrangements covering former or current employees of
the Company or any of its Subsidiaries or under which the Company or
any of its Subsidiaries has any obligation or liability (each, a
"Benefit Arrangement") that are not referred to in the 1997 Form 10-KSB
or material incorporated therein by reference. True and complete copies
of all Benefit Arrangements have been provided or made available to the
Investor for inspection prior to the date hereof. The Benefit
Arrangements are and have been administered in substantial compliance
with their terms and with the requirements of applicable law.
(o) Patents, Licenses, etc.
(i) Except as described in the 1997 Form 10-KSB and
except with respect to the security interest granted or
assumed in connection with the Company's acquisition of the
Midwest Division of Hearing Health Services, Inc., and the
security interest granted to Royal Bank of Canada by
Sonus-Canada Ltd., the Company or one of its Subsidiaries
owns, free and clear of all encumbrances, restrictions, liens,
security interests and charges, and has good and marketable
title to, or holds adequate licenses or otherwise possesses
all such rights as are necessary to use all patents (and
applications therefor), patent disclosures, trademarks,
service marks, trade names, copyrights (and applications
therefor), integrated circuit topographies, inventions,
discoveries, processes, know-how, scientific, technical,
engineering and marketing data, formulae and techniques used
or proposed to be used, in or necessary for the conduct of its
business as now conducted or as proposed to be conducted
(collectively, "Intellectual Property").
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(ii) Neither the Company nor any of its Subsidiaries
has received notice nor otherwise has reason to know of any
conflict or alleged conflict with the rights of others
pertaining to the Intellectual Property described in this
Section 3(o) where the effect of such conflict could have a
Material Adverse Effect. To the Company's best knowledge, the
Company's business, as presently conducted and as proposed to
be conducted, does not infringe upon or violate any patent
rights or trade secrets of others. To the Company's best
knowledge, the Company and its Subsidiaries have the right to
use all trade secrets, processes, customer lists and other
rights incident to their respective businesses as now
conducted or as proposed to be conducted.
(iii) To the best knowledge of the Chief Executive
Officer and Chief Financial Officer of the Company, no
employee of the Company or any of its Subsidiaries has
violated any employment agreement or proprietary information
agreement which he or she had with a previous employer or any
patent policy of such employer, or is a party to or threatened
by any litigation concerning any patents, trademarks, trade
secrets, service names, trade names, copyrights, licenses and
the like.
(p) Taxes. The Company and each Subsidiary has filed all tax
returns required to be filed with the appropriate taxing authorities in
Canada and the United States, including all provincial, state,
municipal and other local authorities (whether relating to income,
sales, goods and services, franchise, withholding, real or personal
property or other types of taxes) or has duly obtained extensions of
time for the filing thereof, and has paid in full all taxes which have
become due pursuant to such returns or claimed to be due by any such
taxing authority or otherwise due and owing, except for taxes which are
being contested in good faith by way of appropriate proceedings and in
respect of which appropriate reserves have been taken on the financial
statements of the Company and except where the failure to file such tax
returns or to pay such taxes would not have a Material Adverse Effect.
The provisions for taxes on the audited and unaudited balance sheets
described in Section 3(j) are sufficient for the payment in all
material respects of all accrued and unpaid federal, state, county and
local taxes of the Company and its Subsidiaries whether or not assessed
or disputed as of the respective dates of such balance sheets.
(q) Properties. The Company and each Subsidiary has good and
marketable title to all properties owned by them, free and clear of all
security interests, charges, mortgages, liens, encumbrances and
defects, except such as are described in the 1997 Form 10-KSB or were
granted or assumed in connection with the Company's acquisition of the
Midwest Division of Hearing Health Services, Inc. or such as do not
materially affect the value or transferability of such property and do
not interfere with the use of such property made or proposed to be made
by the Company or such Subsidiary. The leases, licenses or other
contracts or instruments under which the Company and each
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Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable with only such
exceptions as are not material and do not interfere with the use of
such property made, or proposed to be made, by the Company or such
Subsidiary, and all rentals, royalties or other payments accruing
thereunder which became due prior to the date of this Agreement have
been duly paid, and neither the Company nor any Subsidiary is in
default thereunder and, to the best of the Company's knowledge, no
event has occurred which, with the passage of time or the giving of
notice, or both, would constitute a default thereunder. Neither the
Company nor any Subsidiary has received notice of any violation of any
applicable law, ordinance, regulation, order or requirement relating to
its owned or leased properties, except where such violation would not
have a Material Adverse Effect.
(r) Condition of Properties. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or
used by the Company and its Subsidiaries are reasonably fit and usable
for the purposes for which they are being used, are adequate and
sufficient for the Company's or such Subsidiary's business and conform
in all material respects with all applicable ordinances, regulations
and laws.
(s) Insurance. The Company and each Subsidiary has adequately
insured its properties against loss or damage by fire or other casualty
and maintains such other insurance, including but not limited to,
liability insurance, as is usually maintained by prudent companies
engaged in the same or similar businesses.
(t) No Adverse Change. Since the date of the latest audited
financial statements in the 1997 Form 10-KSB, except as otherwise
stated in or contemplated by the 1997 Form 10-KSB and except for the
Transaction Documents, (i) the Company has not entered into any
material transactions other than in the ordinary course of business;
and (ii) there has not been, and prior to the Closing Date there will
not be, any event that constitutes a Material Adverse Effect.
(u) Transactions with Related Parties. Except as described in
the 1997 Form 10-KSB or material incorporated therein by reference or
in Schedule 3(u), neither the Company nor any Subsidiary is a party to
any agreement with any of the Company's directors, officers or, to the
best of the Company's knowledge, any stockholders or any affiliate or
family member of any of the foregoing including, without limitation any
agreement under which it: (i) leases any real or personal property
(either to or from such Person), (ii) licenses technology (either to or
from such Person), (iii) is obligated to purchase any tangible or
intangible asset from or sell such asset to such Person, (iv) purchases
products or services from such Person (v) has borrowed money from or
lent money to such Person, or (vi) employs as an employee or engages as
a consultant any family member of any of the Company's directors or
officers. To the best knowledge of the Company, there exist no
agreements among stockholders of the Company to act in concert with
respect to their voting or holding of Company securities.
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(v) Interest in Competitors. Neither the Company nor, to the
best of its knowledge, any of its officers or directors, has any
interest, either by way of contract or by way of investment (other than
as holder of not more than 2% of the outstanding capital stock of a
publicly traded Person) or otherwise, directly or indirectly, in any
Person other than the Company that (i) provides any services or
designs, produces or sells any product or product lines or engages in
any activity similar to or competitive with any activity currently
proposed to be conducted by the Company or any of its Subsidiaries or
(ii) has any direct or indirect interest in any asset or property, real
or personal, tangible or intangible, of the Company.
(w) Registration Rights. Except with respect to registration
rights granted in connection with (i) 100,000 options to purchase
Common Shares granted to The Equity Group, Inc.; (ii) Section 8 hereof
and (iii) 470,359 Common Shares owned by Gregory J. Frazer, the Company
will not, as of the Closing Date, be under any obligation to register
any of its securities under the Securities Act.
(x) Private Offering. Neither the Company nor anyone acting on
its behalf has sold or has offered any of the Securities for sale to,
or solicited offers to buy from, or otherwise approached or negotiated
with respect thereto with, any prospective purchaser of the Securities,
other than the Investor. Neither the Company nor anyone acting on its
behalf shall offer the Securities for issue or sale to, or solicit any
offer to acquire any of the same from, anyone so as to bring the
issuance and sale of such Securities, or any part thereof, within the
provisions of Section 5 of the Securities Act. Based upon the
representations of the Investor set forth in Section 5 hereof, the
offer, issuance and sale of the Securities are and will be exempt from
the registration and prospectus delivery requirements of the Securities
Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or
qualification requirements of all applicable provincial and state
securities laws.
(y) Brokerage. Except for amounts payable to Salomon Brothers
Inc. and RN Capital (collectively, the "Advisors"), as set forth on
Schedule 3(y) hereto, there are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement
made by or on behalf of the Company and the Company agrees to indemnify
and hold the Investor harmless against any costs or damages incurred as
a result of any such claim. Neither of the Advisors is an affiliate of
the Company or either of its Subsidiaries, or of any officer or
director of the Company or either of its Subsidiaries.
(z) Illegal or Unauthorized Payments; Political Contributions.
Neither the Company nor any of its Subsidiaries nor, to the best of the
Company's knowledge (after reasonable inquiry of its executive officers
and directors), any of the current officers and directors of the
Company or any of its Subsidiaries, has, directly or indirectly, made
or authorized any payment, contribution or gift of money, property, or
services, (a) as a
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kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or appointive public
office except for personal political contributions not involving the
use of funds of the Company or any of its Subsidiaries.
(aa) Material Facts. This Agreement, the schedules furnished
contemporaneously herewith, and the other agreements, documents,
certificates or written statements furnished or to be furnished to the
Investor through the Closing Date by or on behalf of the Company in
connection with the transactions contemplated hereby taken as a whole,
do not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements contained therein or
herein, in light of the circumstances in which they were made, not
misleading. Except for factors affecting the economy or the health care
industry generally, there is no fact which is known to the Company and
which has not been disclosed herein or otherwise by the Company to the
Investor which is reasonably likely to have a Material Adverse Effect.
(bb) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require
registration of the Securities being offered hereby under the
Securities Act or the filing of any prospectus under any Canadian
securities laws.
4. Covenants of the Company. The Company covenants and agrees that:
(a) it shall use its reasonable best efforts to satisfy the
requirements of the conditional approval letter of The Alberta Stock
Exchange as of the Closing Date or as soon as practicable thereafter;
(b) it will not, without the Investor's prior written consent,
take any action prior to the Closing Date which would result in any of
the representations or warranties contained in this Agreement not being
true at and as of the time immediately after such action, or in any of
the Company's covenants contained in this Agreement becoming incapable
of performance. The Company will promptly advise the Investor of any
action or event of which it becomes aware which has the effect of
making incorrect any of such representations or warranties or which has
the effect of rendering any of such covenants incapable of performance;
and
(c) promptly after the Closing Date, and for so long as the
Investor owns beneficially (within the meaning of Rule 13d-3 under the
Exchange Act) at least 3,333,333 outstanding Common Shares or
Convertible Shares (as appropriately adjusted for any stock splits,
consolidations or the like), the Company shall use its reasonable best
efforts to fix and maintain the number of Directors that shall
constitute the entire Board of Directors of the Company (the "Board")
to be not more than eleven (11). For so long as the Investor owns
beneficially (within the meaning of Rule 13d-3 under the Exchange
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Act) a number of outstanding Common Shares or Convertible Shares
constituting at least 10% of the outstanding Common Shares (which for
this purpose shall include the Common Shares issuable upon the
conversion of the Convertible Shares but not the Common Shares issuable
upon the exercise of the Warrants), the Company will nominate and use
its reasonable best efforts to cause to be elected and to cause to
remain as directors on the Board two (2) persons designated by the
Investor, who shall be reasonably satisfactory to the Company and
subject to applicable law and the approval of The Alberta Stock
Exchange, such number to increase to three (3) if and for as long as
the number of Directors that shall constitute the entire Board shall be
in excess of eight (8). For purposes of the immediately preceding
sentence, the term "reasonable best efforts" shall include adjusting
the composition of the Board to include on the Board the number of
"Resident Canadians," as such term is defined in the Business
Corporations Act (Alberta), needed to accommodate the designees of the
Investor and to comply with such Act. Such number of directors to be
designated by the Investor shall be (i) decreased by one if the
Investor owns beneficially (within the meaning of Rule 13d-3 under the
Exchange Act) a number of outstanding Common Shares or Convertible
Shares constituting less than 10% of the outstanding Common Shares
(which for this purpose shall include the Common Shares issuable upon
the conversion of the Convertible Shares but not the Common Shares
issuable upon the exercise of the Warrants), and (ii) decreased to none
if the Investor owns beneficially (within the meaning of Rule 13d-3
under the Exchange Act) less than 3,333,333 outstanding Common Shares
or Convertible Shares (as appropriately adjusted for any stock splits,
consolidations or the like). The Investor shall, during such period,
have the right to designate a person, reasonably satisfactory to the
Company and subject to applicable law and the approval of The Alberta
Stock Exchange, to fill any vacancy created by the death, disability,
retirement or removal of any such individual previously designated by
the Investor. The Company shall pay all reasonable out-of-pocket
expenses incurred by the Directors designated by the Investor in
connection with attending Board meetings or transacting other Company
business.
In the event that the Investor shall transfer to any one
purchaser beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of at least 6,666,667 outstanding Convertible Shares
or Common Shares issued upon conversion of Convertible Shares (all as
appropriately adjusted for any stock splits, consolidations or the
like), then the Investor in its discretion may transfer to such
purchaser its right to designate one (1) director as provided above. If
so transferred, such right shall not be further transferable and shall
terminate at such time as such purchaser shall own beneficially less
than 3,333,333 outstanding Convertible Shares or such Common Shares (as
so adjusted). Any such purchaser's designee shall be reasonably
satisfactory to the Company and subject to applicable law and the
approval of The Alberta Stock Exchange.
(d) Use of Proceeds. The proceeds received by the Company from
the issuance and sale of the Securities shall be used by the Company to
make acquisitions and for working capital purposes.
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<PAGE>
(e) Financial and Business Information. The Company shall
deliver to the Investor:
(i) Monthly and Quarterly Statements - as soon as
practicable, and in any event within 30 days after the close
of each month of each fiscal year of the Company in the case
of monthly statements and 45 days after the close of each of
the first three fiscal quarters of each fiscal year of the
Company in the case of quarterly statements, a consolidated
balance sheet, statement of income and statement of cash flows
of the Company and any subsidiaries as at the close of such
month or quarter and covering operations for such month or
quarter, as the case may be, and the portion of the Company's
fiscal year ending on the last day of such month or quarter,
all in reasonable detail and prepared in accordance with GAAP,
subject to audit and year-end adjustments, setting forth in
each case in comparative form the figures for the comparable
period of the previous fiscal year. The Company shall also
provide comparisons, on a quarterly and year-to-date basis, of
each pertinent item to the budget referred to in subsection
(iii) below; such statement shall include, without limitation,
the results of operations for all clinics owned by the Company
during the same period of both the current and the prior
fiscal year.
(ii) Annual Statements - as soon as practicable after
the end of each fiscal year of the Company, and in any event
within 90 days thereafter, duplicate copies of:
(A) a consolidated balance sheet of the
Company and any subsidiaries at the end of such year;
and
(B) consolidated statements of income,
stockholders' equity and cash flows of the Company
and any subsidiaries for such year, setting forth in
each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and
accompanied by an opinion thereon of independent
certified public accountants of recognized national
standing selected by the Company.
(iii) Business Plan; Projections - no later than 30
days prior to the commencement of each fiscal year of the
Company, an annual business plan of the Company and operating
results, prepared on a monthly basis, and a three year
business plan of the Company and projections of operating
results. Such business plans and projections shall contain
such substance and detail and shall be in such form as will be
reasonably acceptable to the Investor.
(iv) Audit Reports - promptly upon receipt thereof,
one copy of each other financial report and internal control
letter submitted to the Company by
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independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company.
(v) Other Reports - promptly upon their becoming
available, one copy of: each financial statement, report,
notice or proxy statement sent by the Company to stockholders
generally; each financial statement, report, notice or
definitive proxy statement sent by the Company or any of its
subsidiaries to the Commission or any successor agency or any
Canadian securities regulatory authority, if applicable; each
regular or periodic report and any registration statement,
prospectus or written communication (other than transmittal
letters) in respect thereof filed by the Company or any
subsidiary with, or received by such Person in connection
therewith from, any domestic or foreign securities exchange,
the Commission or any successor agency or any foreign
regulatory authority performing functions similar to the
Commission; any press release issued by the Company or any
subsidiary; and any material communications of any nature
whatsoever prepared by the Commission or any successor agency
thereto or any Canadian securities regulatory authority or any
state blue sky or securities law commission which relates to
or affects in any way the Company or any subsidiary.
(vi) Progress Report - prior to each regularly
scheduled meeting of the Board of Directors of the Company, a
narrative report of the Company's activities since the date of
the last such report, including a description of business
development, operating results and marketing efforts.
(vii) Requested Information - with reasonable
promptness, such other data and information as from time to
time may be reasonably requested by the Investor.
(f) Inspection. The Company shall permit the Investor, its
nominees, and representatives to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine all its
books of account, records, reports and other papers not contractually
required of the Company to be kept confidential or secret, to make
copies and extracts therefrom, and to discuss its affairs, finances and
accounts with the Company's officers, directors, key employees and
independent public accountants or any of them (and by this provision
the Company authorizes said accountants to discuss with such Investor,
its nominees and representatives the finances and affairs of the
Company and its Subsidiaries), all at such reasonable times and as
often as may be reasonably requested.
(g) Takeover Statute. If any corporate takeover provision
under the laws of any provincial, state or federal "fair price",
"moratorium", "control share acquisition" or other similar antitakeover
statute or regulation shall become applicable to the transactions
contemplated hereby, the Company and the members of the Board shall, to
the extent
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<PAGE>
permitted by applicable law, grant such approvals and take such actions
as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute
or regulation on the transactions contemplated hereby.
(h) Conduct of Business and Maintenance of Existence. The
Company will continue to engage in business of the same general type as
now conducted by it, and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to
maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business.
(i) Compliance with Laws. The Company and its subsidiaries
will comply in all material respects with all applicable laws, rules,
regulations and orders except where the failure to comply would not
have a Material Adverse Effect.
(j) Insurance. The Company will maintain insurance with
responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies of
similar size and credit standing engaged in similar business and owning
similar properties, provided that such insurance is and remains
available to the Company at commercially reasonable rates.
(k) Keeping of Books. The Company will keep proper books of
record and account, in which full and correct entries shall be made of
all financial transactions and the assets and business of the Company
and its subsidiaries in accordance with GAAP.
(l) Lost, etc. Certificates Evidencing Securities (or Common
Shares); Ex change. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
certificate evidencing any Securities or Common Shares owned by the
Investor, and (in the case of loss, theft or destruction) of an
unsecured indemnity satisfactory to it, and upon reimbursement to the
Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of such certificate, if mutilated, the
Company will make and deliver in lieu of such certificate a new
certificate of like tenor and for the number of securities evidenced by
such certificate which remain outstanding. The Investor's agreement of
indemnity shall constitute indemnity satisfactory to the Company for
purposes of this Section 4(l). Upon surrender of any certificate
representing any securities of the Company for exchange at the office
of the Company, the Company at its expense will cause to be issued in
exchange therefor new certificates in such denomination or
denominations as may be requested for the same aggregate number of
securities represented by the certificate so surrendered and registered
in the name of the Investor.
(m) Limitations on Corporate Actions. The Company shall not,
without the consent of the Investor, such consent not to be
unreasonably withheld, (A) sell, lease,
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exchange or transfer all or substantially all of its assets to any
person other than an affiliate of the Company; (B) amalgamate the
Company with another corporation with the effect that the then existing
shareholders of the Company, ordinarily having the right to vote in the
election of directors, hold less than 51% of the combined voting power
of the amalgamated corporation; (C) permit either Subsidiary to merge,
amalgamate or consolidate with or into another corporation with the
effect that the Company will hold less than 51% of the combined voting
power of the surviving corporation; (D) materially change the nature of
the Company's business; (E) effect a liquidation, amalgamation or sale
of the Company or sell substantially all of its or its Subsidiaries'
assets; or (F) except as described in Schedule 4(m), redeem or pay or
permit any of its Subsidiaries to redeem or pay any dividend or
distribution on its Common Shares.
(n) Commencement and Termination of Covenants. The obligations
of the Company and the rights of the Investor set forth in Sections
4(e), 4(f), 4(h), 4(i), 4(j), 4(k) and 4(m) begin as of the Closing
Date; from and after the Closing Date, such obligations shall terminate
once the Investor no longer owns beneficially (within the meaning of
Rule 13d-3 under the Exchange Act) at least 3,333,333 outstanding
Common Shares or Convertible Shares (as appropriately adjusted for any
stock splits, consolidations or the like).
(o) Form D Filing. The Company will timely file a Form D under
the Securities Act in connection with the offer and sale of the
Securities.
5. Representations, Warranties and Covenants of the Investor;
Additional Covenants of the Company.
(a) General. The Investor hereby represents and warrants that:
(i) it has full power and authority, corporate and
other, to execute, deliver and perform the Transaction
Documents and to consummate the transactions contemplated
thereby and to perform its obligations thereunder. This
Agreement has been, and as of the Closing Date the Warrant
Agreement will be, duly executed and delivered by the
Investor. This Agreement constitutes, and as of the Closing
Date the Warrant Agreement will constitute, the valid and
binding obligation of the Investor enforceable against the
Investor in accordance with their terms;
(ii) it is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities
Act, and will purchase the Securities and the Common Shares
issuable on the conversion of the Convertible Shares and the
exercise of the Warrants for its own account and not with a
view to any distribution thereof in a transaction that would
violate the Securities Act or the securities laws of any State
of the United States or any other applicable
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jurisdiction, but subject, nevertheless, to any requirement of
law that the disposition of the Investor's property shall at
all times be within the Investor's control, and without
prejudice to the Investor's right at all times to sell or
otherwise dispose of all or any part of such securities under
a registration statement under the Securities Act or under an
exemption from said registration available under the
Securities Act;
(iii) it understands that an investment in the
Company bears a high degree of risk and represents that it has
such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks
of purchasing the Securities and the Common Shares issuable
upon exercise of the Warrants, and is able to bear the
economic risks of its investment for an indefinite period of
time; and
(iv) it has received copies of the Company SEC
Reports and has had access to such financial and other
information, and has been afforded the opportunity to ask such
questions of representatives of the Company and receive
answers thereto, as it deems necessary in connection with its
purchase of the Securities.
(b) Disclosure and Non-Public Information. As to so much of
the information and other material furnished under or in connection
with this Agreement (whether furnished before, on or after the date
hereof, including without limitation information furnished pursuant to
Sections 4(e) and (f) hereof) as constitutes or contains non-public
business, financial or other information of the Company or either
Subsidiary ("Non-Public Information"), the Investor covenants for
itself and its directors, officers and partners that it will use due
care to prevent its officers, directors, partners, employees, counsel,
accountants and other representatives from (i) disclosing any
Non-Public Information to Persons other than the Investors's authorized
employees, counsel, accountants, shareholders, partners, limited
partners and other authorized representatives or (ii) using Non-Public
Information in any manner that would constitute a violation of Canadian
federal or provincial or U.S. federal or state securities laws;
provided, however, that the Investor may disclose or deliver any
information or other material disclosed to or received by it should
such Investor be advised by its counsel (such writing to be delivered
to the Company) that such disclosure or delivery is required by law,
regulation or judicial or administrative order. In the event of any
termination of this Agreement prior to the Closing Date, the Investor
shall return to the Company all confidential material previously
furnished to such Investor or its officers, directors, partners,
employees, counsel, accountants and other representatives in connection
with this transaction. For purposes of this Section 5(b), "due care"
means at least the same level of care that such Investor would use to
protect the confidentiality of its own sensitive or proprietary
information, and this obligation shall survive termination of this
Agreement.
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<PAGE>
(c) Securities Act Matters. The Investor acknowledges that the
Securities are being offered in a transaction not involving any public
offering within the meaning of the Securities Act and that the
Securities and the Common Shares issuable upon the conversion of the
Convertible Shares and the exercise of the Warrants have not been
registered under the Securities Act, or under the securities laws of
any province of Canada, and agrees that it will not sell or otherwise
transfer the Securities except pursuant to an effective registration
statement under the Securities Act or Canadian securities laws or in a
transaction which, in the opinion of counsel reasonably satisfactory to
the Company, qualifies as an exempt transaction under the Securities
Act and the rules and regulations promulgated thereunder. The Investor
acknowledges that certificates for the Securities and such Common
Shares will bear a legend reflecting the substance of this Section 5(c)
and that appropriate stop transfer orders may be lodged with respect
thereto.
(d) Limitation on Transfer. The Investor agrees that it shall
in no event sell or otherwise transfer (i) any of the Securities for a
period ending six months from the Closing Date or (ii) any of the
Common Shares issuable upon the conversion or exercise of the
Securities for a period of six months from the Closing Date. If such
Common Shares are issued on a date later than six months from the
Closing Date, they shall be freely transferrable, subject to applicable
securities laws.
(e) No Intention of Board to Pay Dividends. The Investor
acknowledges that the Board of Directors of the Company has no
obligation to declare and has no present intention of declaring any
dividends on the Convertible Shares, but that such dividends will
nevertheless accumulate pursuant to the terms of the Convertible
Shares.
(f) Hart-Scott Act Compliance. The Company and the Investor
will promptly prepare and file, or cause to be prepared and filed, any
notification or response to any request for additional information
required to be filed under the Hart-Scott Act and the rules and
regulations promulgated thereunder with respect to the acquisition of
the Securities and the acquisition of Common Shares, if any, by the
Investor upon conversion or exercise of any of the Securities. If any
additional filings are required under the Hart-Scott Act in connection
with the exercise of the Warrants or the acquisition of any other
Securities, the Company shall promptly, and in any event within
ten-days following a written request from the Investor, prepare and
file, or cause to be prepared and filed, any notification or response
to any request for additional information required to be filed under
the Hart-Scott Act and the rules and regulations promulgated thereunder
in connection with any acquisition, conversion or exercise of any of
the Securities.
(g) Consents and Approvals. The Company and the Investor will
use their respective reasonable best efforts to obtain as promptly as
practicable any consent or approval of any Person, including any
regulatory authority, required in connection with the transactions
contemplated hereby.
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(h) Acknowledgments Regarding the Advisors. The Investor
acknowledges that the Advisors are acting as financial advisors to the
Company in connection with the Securities being offered hereby and will
be compensated by the Company for acting in such capacity, as set forth
in Schedule 3(y) hereto. The Investor further acknowledges that the
Advisors have acted solely as financial advisors to the Company in
connection with the offering of the Securities by the Company, that the
information and data provided to the Investor relating to the Company,
its operations and financial condition have not been subjected to
independent verification by the Advisors, and that the Advisors make no
representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure documents. The
Investor further acknowledges that in making its decision to enter into
this Agreement and purchase the Securities, it has relied on its own
examination of the Company and the terms of, and the risks and
consequences of holding, the Securities.
6. Conditions to Closing.
(a) The obligations of the Investor hereunder at the Closing
shall be subject to the performance by the Company of all its
obligations hereunder to be performed on or prior to the Closing Date
and to the satisfaction, prior thereto or concurrently therewith, of
the following conditions:
(i) Representations and Warranties. The
representations and warranties of the Company contained in
this Agreement shall be true on and as of the Closing Date as
though such warranties and representations were made at and as
of such date, except as otherwise affected by the transactions
contemplated hereby.
(ii) Compliance with Agreement. The Company shall
have performed and complied with all agreements, covenants and
conditions contained in this Agreement which are required to
be performed or complied with by the Company prior to or on
the Closing Date.
(iii) No Legislation or Injunction. There shall have
been adopted no law or regulation and there shall be no
effective injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent
jurisdiction prohibiting the transactions provided for in the
Transaction Documents or any of them from being consummated as
herein provided.
(iv) Adverse Developments. There shall have been no
developments in the business of the Company or any of its
Subsidiaries which in the reasonable opinion of the Investor
would have a Material Adverse Effect.
(v) Consents and Approvals. All filings, consents,
waivers, authorizations, licenses, permits, certificates and
approvals of any Person required to have
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been made or obtained on or prior to the Closing Date in
connection with the execution, delivery and performance of
this Agreement, all of which are set forth on Schedule 3(f)
hereto, shall have been duly made or obtained and shall be in
full force and effect on the Closing Date.
(vi) Officers' Certificate. The Company shall have
delivered to the Investor a certificate of the Company's
President and Chief Executive Officer, dated as of the Closing
Date, certifying that the conditions specified in the
foregoing Sections 6(a)(i) through (v) hereof have been
fulfilled.
(vii) Opinions of Counsel. The Investor shall have
received (a) from Ballem MacInnes, counsel to the Company, a
legal opinion, dated as of the Closing Date, in substantially
the form of Exhibit D-1 hereto, and (b) from Carter, Ledyard &
Milburn, special United States counsel to the Company, a legal
opinion, dated as of the Closing Date, in substantially the
form of Exhibit D-2 hereto;
(viii) Secretary's Certificate. The Investor shall
have received a certificate, dated the Closing Date, of the
Secretary of the Company attaching (i) a true and complete
copy of the constating documents of the Company, with all
amendments thereto, (ii) true and complete copies of the
Company's By-Laws in effect as of such date, (iii)
certificates of good standing of the appropriate officials of
the jurisdictions of incorporation of the Company and each
Subsidiary and of each jurisdiction in which the Company and
each Subsidiary is qualified to do business as a foreign
corporation, (iv) resolutions of the Board authorizing the
execution and delivery of the Transaction Documents and the
transactions contemplated thereby, the issuance of the
Securities and the reservation for issuance of a sufficient
number of Common Shares into which the Securities may be
converted or exercised, as the case may be, and (v) proof of
filing of the Articles of Amendment to designate the Series A
Convertible Preferred Shares.
(ix) Approval of Proceedings. All proceedings to be
taken in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to the Investor
and its special counsel, Willkie Farr & Gallagher; and the
Investor shall have received copies of all documents or other
evidence which it and Willkie Farr & Gallagher may reasonably
request in connection with such transactions and of all
records of corporate proceedings in connection therewith in
form and substance reasonably satisfactory to the Investor and
Willkie Farr & Gallagher.
(x) Warrant Agreement. The Warrant Agreement shall
have been executed and delivered.
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(xi) Shareholders' Agreement. The Shareholders'
Agreement shall have been executed and delivered.
(xii) Recent Financial Statements. The Company shall
have provided the Investor with its most recent Quarterly
Report on Form 10-QSB filed with the Commission subsequent to
the date of this Agreement.
(xiii) Filing of Convertible Shares Certificate. The
Company shall have filed or caused to be filed with the
Registrar of Corporations of the Province of Alberta (the
"Registrar") Articles of Amendment to amend the Company's
Articles of Incorporation to designate the Series A
Convertible Preferred Shares, such series to have the terms
set forth in Exhibit C, and such Articles of Amendment shall
have been accepted for filing by the Registrar.
(xiv) Conditional Approval of The Alberta Stock
Exchange. The conditional approval of The Alberta Stock
Exchange received by the Company with respect to the
transactions contemplated hereby on November 20, 1997, shall
remain in effect and unamended other than with respect to
confirmation as to the acceptability of the anti-dilution
provisions set forth in the Warrant Agreement and the terms of
the Convertible Shares attached hereto as Exhibit C. Such
conditional approval shall specify the following as to the
transactions contemplated hereby: (A) the limitations on
transfer applicable to the Securities and the Common Shares
issuable upon conversion or exercise of the Securities as
contemplated in Section 5(d) hereof; (B) an expiry date for
the Warrants of not less than three (3) years from the date of
their issuance; (C) confirmation of the acceptability of the
anti-dilution provisions set forth in the Warrant Agreement
and the terms of the Convertible Shares set forth in Exhibit C
(which may be included in a side letter); and (D) such other
terms as are customary in similar transactions.
(xv) Antitrust Approvals. The waiting period under
the Hart-Scott Act and other applicable antitrust regulations
of any applicable jurisdictions shall have expired or been
terminated.
(xvi) Directors. As of the Closing Date, the person
or persons designated by the Investor in accordance with
Section 4(c) hereof shall have been appointed to the Board.
(xvii) Employment Agreements. Employment agreements
by and between the Company and each of Brandon M. Dawson,
Edwin J. Kawasaki and Randall E. Drullinger, in forms to be
mutually agreed upon in good faith by the Investor, the
Company and such persons, shall have been executed and
delivered.
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(b) The obligations of the Company at the Closing shall be
subject to the performance by the Investor of all of its obligations
hereunder to be performed on or prior to the Closing Date and to the
satisfaction, prior thereto or concurrently therewith, of the following
conditions:
(i) Consents and Approvals. All filings, consents,
waivers, authorizations, licenses, permits, certificates and
approvals of any Person required to have been made or obtained
on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement, all of
which are set forth on Schedule 3(f) hereto, shall have been
duly made or obtained and shall be in full force and effect on
the Closing Date.
(ii) No Legislation or Injunction. There shall have
been adopted no law or regulation and there shall be no
effective injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent
jurisdiction prohibiting the transactions provided for in the
Transaction Documents or any of them from being consummated as
herein provided.
(iii) General Partner's Certificate. The Investor
shall have delivered to the Company a certificate of the
General Partner of the Investor, dated as of the Closing Date,
affirming the continuing accuracy as of the Closing Date, of
the representations and warranties and the performance of all
agreements made by the Investor in this Agreement.
(iv) Antitrust Approvals. The waiting period under
the Hart-Scott Act and other applicable antitrust regulations
of any applicable jurisdictions shall have expired or been
terminated.
7. Expenses of Sale. In the absence of a default by the Investor in the
performance of its obligations hereunder, the Company shall pay, or reimburse
the Investor for all reasonable out-of-pocket expenses incurred by the Investor
in connection with this transaction, including without limitation, the
reasonable fees and disbursements of its counsel in connection herewith. The
Company shall pay all finders' or brokers' fees or similar payments incurred by
it in connection with the transactions contemplated hereby, including any fees
and payments payable to the Advisors. The Investor represents and warrants that
it has not incurred any liability for, and is unaware of any claim for, any
finders' or brokers' fees or similar payments in connection with the
transactions contemplated hereby.
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8. Registration Rights.
(a) For the purpose of this Section 8, the term "Registerable
Shares" shall mean (i) the Common Shares issuable upon (a) the
conversion of the Convertible Shares, and (b) the exercise of the
Warrants; and (ii) any share capital of the Company issued as a
dividend or other distribution with respect to, or in exchange for or
in replacement of, the Common Shares referred to in clause (i).
(b) At any time subsequent to 180 days from the date of the
Closing, the Investor may request, in writing, that the Company
register all or part of the Registerable Shares issued, or issuable,
upon conversion of the Convertible Shares for resale under the
Securities Act. The Company will, as soon as practicable after receipt
of such request, prepare and file with the Commission, at the Company's
own expense, a registration statement under the Securities Act
sufficient to permit the public offering of all or such portion of such
Common Shares as are specified in such request. The Company will use
its reasonable best efforts to cause such registration statement to
become effective under the Securities Act (including, without
limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as promptly as
practicable. The Company shall only be obligated to file one such
registration statement under this Section 8(b) provided that such
registration statement pursuant to this Section 8(b) shall have been
declared or ordered effective and the sales of such Common Shares shall
have been closed. However, if the sales of such Common Shares have not
closed, the Investor may preserve its one demand registration right
under this Section 8(b) by paying all the Company's Registration
Expenses (as defined below) associated with the registration of such
Common Shares; provided that such right may not be exercised until 90
days after the effective date of such registration statement.
(c) At any time subsequent to 180 days from the date of the
Closing, the Investor may request, in writing, that the Company
register all or a part of the Common Shares issued, or issuable, upon
exercise of the Warrants for resale under the Securities Act. The
Company will, as soon as practicable after receipt of such request,
prepare and file with the Commission, at the Company's own expense, a
registration statement under the Securities Act sufficient to permit
the public offering of all or such portion of such Common Shares as are
specified in such request. The Company will use its reasonable best
efforts to cause such registration statement to become effective under
the Securities Act (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws
and appropriate compliance with applicable regulations issued under the
Securities Act) as promptly as practicable. The Company shall only be
obligated to file one such registration statement under this Section
8(c) provided that such registration statement
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pursuant to this Section 8(c) shall have been declared or ordered
effective and the sales of such Common Shares shall have closed.
However, if the sales of such Common Shares have not closed, the
Investor may preserve its one demand registration right under this
Section 8(c) by paying all the Company's Registration Expenses (as
defined below) associated with the registration of such Common Shares;
provided that such right may not be exercised until 90 days after the
effective date of such registration statement.
(d) If the Investor intends to distribute the Registerable
Shares covered by its request pursuant to Section 8(b) or 8(c) by means
of an underwriting, it shall so advise the Company as a part of its
request made pursuant to Section 8(b) or 8(c).
If holders of securities of the Company other than
Registerable Shares who are entitled, by contract with the Company or
otherwise, to have securities included in such a registration (the
"Other Stockholders") request such inclusion, the Investor shall offer
to include the securities of such Other Stockholders in the
underwriting and may condition such offer on their acceptance of the
further applicable provisions of this Section 8. The Investor and the
Company shall (together with all Other Stockholders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the
Investor and reasonably acceptable to the Company. Notwithstanding any
other provision of this Section 8, if the representative advises the
Investor in writing that marketing factors require a limitation on the
number of shares to be underwritten, the securities of the Company held
by Other Stockholders shall be excluded from such registration to the
extent so required by such limitation. If, after the exclusion of such
shares, further reductions are still required, the number of shares
included in the registration by the Investor shall be reduced by such
minimum number of shares as is necessary to comply with such request.
No Registerable Shares or any other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. If the Investor or any Other
Stockholder who has requested inclusion in such registration statement
as provided above disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the
Company, the underwriter and the Investor, and the securities so
withdrawn shall also be withdrawn from registration. If the person
electing such withdrawal is the Investor, then the demand right
exercised under Section 8(b) or 8(c) shall be preserved and may be
exercised a second time if (A) the registration statement covering such
underwriting is not declared or ordered effective, or (B) the
registration statement covering such underwriting is declared effective
and (i) the sale of at least 500,000 Common Shares by Other
Stockholders pursuant to such underwriting shall close, or (ii) the
Investor pays all the Company's Registration Expenses (as defined
below) associated with the registration of such Common Shares and 90
days shall elapse after the effective date of such registration
statement. If the underwriter has not limited the number of
Registerable Shares to be underwritten, the Company may include its
securities for its own account in such registration if the
representative so agrees and if the number of
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Registerable Shares which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(e) If at any time subsequent to 180 days from the date of the
Closing, the Company proposes to register any of its equity securities
under the Securities Act either for its own account or for the account
of a security holder or holders exercising their respective demand
registration rights, (on a form other than Form S-4 or S-8 or their
equivalents), the Company will (i) promptly notify the Investor in
writing (which written notice shall include, to the extent known, a
list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state
securities laws) that such registration statement will be filed and
that the Registerable Shares which are then held by the Investor will
be included in such registration statement at its request and (ii)
subject to the last sentence of this subsection (e), cause such
registration statement to cover all Registerable Shares which it has
been so requested to include by the Investor, provided such request is
delivered to the Company not later than 20 days after such notice is
given to the Investor and specifies the number of Registerable Shares
to be included in the proposed registration statement. Notwithstanding
the foregoing provisions, if such registration statement relates to an
underwritten offering of Common Shares and the managing underwriter
shall inform the Company and the Investor in writing that the managing
underwriter believes that the number of Common Shares requested to be
included in such registration statement would materially adversely
affect its ability to effect such offering, then the Company will
include in such registration statement the number of Common Shares
which the Company is so advised can be sold in (or during the time of)
such offering as follows: first, all shares proposed by the Company to
be sold for its own account, and, second, such Registerable Shares
requested to be included in such registration statement, pro rata by
the Investor and other security holders exercising registration rights
on the basis of the number of Registerable Shares and other Common
Shares so proposed to be sold by the Investor and by such other
security holders and so requested to be included.
(f) In connection with any registration statement filed
pursuant to this Section 8 (a "Registration Statement"), the Company
shall take such action as may be necessary to register or qualify the
Registerable Shares registered thereunder under the securities or Blue
Sky laws of such states of the United States as shall reasonably be
requested by the Investor, and shall do any and all other acts which
may be necessary or advisable to permit the proposed sale or other
disposition of such Registerable Shares in any such state; provided
that in no event shall the Company be obligated in connection therewith
to qualify as a foreign corporation in any jurisdiction where it is not
already so qualified, or to execute a general consent for service of
process in suits other than those arising out of the offer and sale of
the Registerable Shares, or to take any action which would subject it
to taxation in any jurisdiction where it is not then so subject.
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(g) The Company's obligations under this Section 8 to register
and qualify Registerable Shares shall be conditioned in each instance
upon the timely receipt by the Company in writing of (i) information
from the Investor as to the proposed plan of distribution of the
Registerable Shares to be included in the Registration Statement, and
(ii) such other information as the Company may reasonably require from
the Investor for inclusion in the Registration Statement.
(h) All Registration Expenses (as defined below) in connection
with each Registration Statement (or seeking or obtaining the opinion
of counsel to the Company under Section 8(i) and, if in the sole
discretion of the Company deemed desirable, any no-action position of
the Commission with respect to sales pursuant to Rule 144 under the
Securities Act), in complying with applicable state securities laws,
and with any other qualification or compliance pursuant to this Section
8, shall be borne by the Company. All Selling Expenses (as defined
below) shall be borne by the holders of the securities so registered
pro rata on the basis of the number of their shares so registered. The
Company at its expense will furnish the Investor with copies of such
Registration Statement and the prospectus included therein and in such
quantities as may be reasonably requested by the Investor. In
connection with each Registration Statement, the Company shall furnish
the Investor with such opinions of counsel, comfort letters of
accountants, certificates and such other documents that are customary
in connection with underwritten public offerings and that are
reasonably requested by the Investor. "Registration Expenses" shall
mean all expenses incurred by the Company in compliance with Sections
8(b) through (f) hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements
of counsel for the Company, fees and expenses of one counsel for all
the holders of Registerable Shares in an amount not to exceed $15,000,
blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid
in any event by the Company). "Selling Expenses" shall mean all
brokerage fees, underwriting discounts and selling commissions
applicable to the sale of Registerable Shares.
(i) The Company shall not be required by this Section 8 to
file any Registration Statement relating to the Registerable Shares of
the Investor if the Company shall furnish the Investor with a written
opinion of counsel reasonably satisfactory to the Investor to the
effect that the proposed public offering or other transfer of
Registerable Shares as to which registration is requested is exempt
from the registration or qualification requirements of all applicable
federal and state securities laws and would result in all purchasers or
transferees thereof obtaining securities which are not "restricted
securities" as defined in Rule 144 under the Securities Act.
(j) If, after the date hereof, the Company grants to any
person registration rights which are more favorable to such person than
those afforded to the Investor under
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this Section 8, the Investor shall without further action be entitled
to the benefits of such more favorable rights.
(k) Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 8, the Company will
keep the Investor, as applicable, advised in writing as to the
initiation of each registration and as to the completion thereof.
At its expense, the Company will:
(i) keep such registration effective for a period of
one hundred eighty (180) days or until the Investor has
completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided,
however, that in the case of any registration of Registerable
Shares on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 180-day period shall be
extended until all such Registerable Shares are sold, provided
that Rule 415, or any successor rule under the Securities Act,
permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment
which (y) includes any prospectus required by Section 10(a) of
the Securities Act or (z) reflects facts or events
representing a material or fundamental change in the
information set forth in the registration statement, the
incorporation by reference of information required to be
included in (y) and (z) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange
Act in the registration statement;
(ii) furnish such number of prospectuses and other
documents incident thereto as the Investor from time to time
may reasonably request;
(iii) notify the Investor at any time when a
prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result
of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then
existing; and
(iv) furnish, on the date that such Registerable
Shares are delivered to the underwriters for sale, if such
securities are being sold through underwriters or, if such
securities are not being sold through underwriters, on the
date that the registration statement with respect to such
securities becomes effective, (1) an opinion, dated as of such
date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and
reasonably satisfactory to the Investor addressed to the
Investor and (2) a letter, dated as of such date, from the
independent certified public accountants of the Company, in
form and substance
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as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
and reasonably satisfactory to the Investor addressed to the
underwriters, if any, and if permitted by applicable
accounting standards, to the Investor.
(l) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may
permit the sale of restricted securities to the public without
registration, the Company agrees to:
(i) make and keep public information available as
those terms are understood and defined in Rule 144, at all
times from and after ninety (90) days following the effective
date of the first registration under the Securities Act filed
by the Company for an offering by it of its securities to the
general public;
(ii) use its reasonable best efforts to file with the
Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such
reporting requirements; and
(iii) so long as the Investor owns any Registerable
Shares, furnish to the Investor upon request, a written
statement by the Company as to its compliance with the current
public information requirements of Rule 144(c)(1), a copy of
the most recent annual or quarterly report of the Company, and
such other reports and documents so filed as the Investor may
reasonably request in availing itself of any rule or
regulation of the Commission allowing the Investor to sell any
such Securities without registration.
(m) The Company shall not be required to effect a registration
pursuant to Section 8(b) or 8(c) if at the time of any request to
register Registerable Shares, the Company has filed or will file within
60 days of the time of the request a registration statement under the
Securities Act with respect to a public offering as to which the
Investor may include Registerable Shares pursuant to Section 8(e). The
Company may, at its option, direct that such request be delayed for a
period not in excess of three months from the effective date of such
offering, such right to delay a request to be exercised by the Company
not more than once in any one-year period.
(n) Transfer of Registration Rights. The rights granted to the
Investor to cause the Company to register securities under Section 8(b)
or 8(c) may be assigned to a transferee or assignee in connection with
the sale or other transfer of at least 500,000 Registerable Shares (as
appropriately adjusted for any stock splits, consolidations, or the
like), provided that (i) such transfer may otherwise be effected in
accordance with applicable securities laws, (ii) the Company is given
reasonably prompt written notice of such assignment, and (iii) the
rights provided in each of Section 8(b) and Section 8(c)
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may be exercised only once, except as otherwise provided in this
Section 8, by either the Investor or a transferee.
9. Indemnification.
(a) In the event of the filing of any Registration Statement
pursuant to Section 8 hereof, the Company agrees to indemnify and hold
harmless the Investor and each person, if any, who controls the
Investor within the meaning of the Securities Act, against any and all
losses, claims, damages or liabilities, joint or several (including the
costs of any reasonable investigation and legal and other expenses
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted) to which they, or any
of them, may become subject under the Securities Act, the Exchange Act
or other federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
such Registration Statement, or any related preliminary prospectus,
final prospectus, or amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the Company
shall not be liable under this Section 9(a) in any such case to the
extent that any such losses, claims, damages or liabilities arise
solely out of or are based upon an untrue statement of a material fact
contained in or any omission of a material fact from such Registration
Statement, preliminary prospectus, final prospectus or amendment
thereof or supplement thereto in reliance upon, and in conformity with,
information furnished in writing to the Company by the Investor
specifically for use therein. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Investor agrees to indemnify and hold harmless the
Company, each other person referred to in subparts (1), (2) and (3) of
Section 11(a) of the Securities Act in respect of such Registration
Statement, and each person, if any, who controls the Company or any
such person within the meaning of Section 15 of the Securities Act,
against any and all losses, claims, damages or liabilities (including
the costs of any reasonable investigation and legal and other expenses
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted) to which they, or any
of them, may become subject under the Securities Act, the Exchange Act
or other federal, provincial or state law or regulation, at common law,
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, or any related preliminary
prospectus, final prospectus or amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under
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which they were made, not misleading, in each case to the extent, but
only to the extent, that such untrue statement or omission was made in
such Registration Statement, preliminary prospectus, final prospectus
or amendment thereof or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by the
Investor specifically for use therein; provided, however, that the
obligations of the Investor hereunder shall be limited to an amount
equal to the net proceeds to it from sales of securities sold as
contemplated herein; and provided further, that this indemnity, as to
any preliminary prospectus, shall not inure to the benefit of the
Investor (or any person controlling the Investor) on account of any
loss, claim, damage, liability or litigation arising from the sale of
Registerable Shares to any person by the Investor if it failed to send
or give a copy of any subsequent prospectus or prospectus supplement to
such person within the time required by the Securities Act, and the
untrue statement or alleged untrue statement or omission or alleged
omission of a material fact in such preliminary prospectus was
corrected in the subsequent prospectus or prospectus supplement. This
indemnity agreement will be in addition to any liability which the
Investor may otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 9 shall, promptly after receipt of
notice of the commencement of any action, suit or proceeding against
such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 9, notify each such
indemnifying party of the commencement thereof, enclosing a copy of all
papers served. No indemnification provided for in Section 9(a) or 9(b)
shall be available to any party who shall fail to give notice as
provided in this Section 9(c), provided that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 9 unless
the indemnifying party was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure
to give such notice and provided that the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not
relieve it from any liability that it may have to any indemnified party
other than under this Section 9 or Section 10 below. In case any such
action, suit or proceeding is brought against any indemnified party and
it notifies the indemnifying party of the commencement thereof, such
indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and the approval by the indemnified
party of such counsel (which shall not be unreasonably withheld), the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses, except as provided below and except for
the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its counsel in any
such action, suit or proceeding but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the employment of counsel by such indemnified party has
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been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be
differing or additional defenses available to it and not to one or more
of the indemnifying parties in such action, suit or proceeding so that
it would be inappropriate for counsel to represent both the indemnified
party and the indemnifying party in view of actual or potential
conflicts of interest (in which case if such indemnified party notifies
the indemnifying party in writing that it elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action,
suit or proceeding on behalf of such indemnified party); or (iii) the
indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
the indemnified party's counsel shall be at the expense of the
indemnifying parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action,
suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of
attorneys for the Investor and its controlling persons. An indemnifying
party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
10. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 9 is due in accordance with its terms but for any reason is held to be
unavailable or insufficient to hold harmless an indemnified party, the Company
on the one hand and the Investor on the other hand shall, in lieu of
indemnifying such indemnified party, contribute to the aggregate losses, claims,
damages or liabilities referred to in Section 9 (including costs of any
investigation and legal and other expenses reasonably incurred in connection
therewith, and any amount paid in settlement of, any action, suit or proceeding
or any claims asserted), in such proportions as is appropriate to reflect the
relative fault of the Company and the Investor in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company and the Investor shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission related to information supplied by the Company (including for this
purpose information supplied by any officer, director, employee or agent of the
Company) or to written information furnished to the Company by or on behalf of
the Investor specifically for use in the preparation of the Registration
Statement or any amendment thereof or supplement thereto, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the provisions of this
Section 10 in no case shall the Investor be liable or responsible for any amount
in excess of the proceeds received by the Investor from the sale of the
Registerable Shares included in the Registration Statement, provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 10, each person, if any,
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who controls the Investor within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as the Investor, and each person, if any, who controls the Company within the
meaning of the Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each director of the Company and each officer of the Company who shall have
signed the Registration Statement shall have the same rights to contribution as
the Company, subject to the immediately preceding sentence of this Section 10.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 10, notify such party or parties from whom contribution may
be sought, and the omission so to notify such party or parties from whom
contribution may be sought shall relieve the party or parties from whom
contribution may be sought (if such party was unaware of such action, suit, or
proceeding and was materially prejudiced by such omission) from any liability
under this Section 10, but not from any other obligation it or they may have
hereunder or other than under this Section 10. No party shall be liable for
contribution with respect to the settlement of any action, suit, proceeding or
claim effected without its written consent. The obligations of the Investor to
contribute pursuant to this Section 10 are several in proportion to its
respective number of Registerable Shares included in the Registration Statement
and not joint. Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering contemplated by
this Agreement are in conflict with the foregoing provisions, the provisions in
such underwriting agreement shall be controlling.
11. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or seven
business days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, to the appropriate party at the following
addresses:
If to the Investor:
Warburg Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017-3147
Facsimile: 212-878-9351
Attention: Mr. Joel Ackerman
with a copy to:
Willkie Farr & Gallagher
153 E. 53rd Street
New York, New York 10022
Facsimile: 212-821-8111
Attention: Steven J. Gartner, Esq.
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<PAGE>
If to the Company:
HealthCare Capital Corp.
111 SW Fifth Avenue, Suite 2390
Portland, Oregon 97204
Facsimile: 503-225-9309
Attention: Mr. Brandon M. Dawson
with a copy to:
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Facsimile: 212-732-3232
Attention: John K. Whelan, Esq.
12. Parties. This Agreement will inure to the benefit of and be binding
upon the Investor, the Company and their respective successors and assigns. This
Agreement is intended to be, and is for the sole and exclusive benefit of the
parties hereto and the other indemnified parties described in Sections 9 and 10
hereof and their respective successors and assigns, and for the benefit of no
other person, and no other person will have any legal or equitable right, remedy
or claim under, or in respect of this Agreement. Except as provided in Section
4(c) and Section 8(n) hereof, no purchaser of any of the Securities will be
construed as a successor or assign of the Investor entitled to any benefits of
this Agreement, merely by reason of such purchase.
13. Termination and Survival. Unless the Closing has occurred prior
thereto or simultaneously herewith, this Agreement and, except as herein
provided, all the rights of the parties hereto, shall terminate on January 16,
1998 (unless such date is extended by mutual written consent); provided,
however, that this date may be extended unilaterally by the Company or the
Investor to March 31, 1998 if all required regulatory approvals have not been
obtained by January 16, 1998. Notwithstanding the foregoing, Section 7 hereof
shall survive the termination of this Agreement. All warranties,
representations, and covenants made by the Investor and the Company herein or in
any certificate or other instrument delivered by the Investor or the Company
under this Agreement shall be considered to have been relied upon by the Company
or the Investor, as the case may be, and shall survive all deliveries to the
Investor of the Securities, or payment to the Company for such Securities,
regardless of any investigation made by the Company or the Investor, as the case
may be, or on the Company's or the Investor's behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Company or the Investor, as the case may be, hereunder.
14. Amendment and Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated in any manner other than by an instrument in writing signed by each
of the parties hereto.
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<PAGE>
15. Further Assurances. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intent and purposes of this
Agreement and to carry out its provisions. Each such party shall use its
reasonable efforts to fulfill or obtain the fulfillment of the respective
conditions to the Closing as promptly as practicable.
16. Waiver of Breach. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
17. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understandings relating thereto, including without limitation,
that certain Term Sheet dated October 22, 1997 and accepted October 31, 1997,
between the Company and the Investor, are superseded hereby. There are no
conditions precedent to the effectiveness of this Agreement other than as stated
herein, and there are no related collateral agreements existing between the
parties that are not referred to herein.
18. Severability. In the event that any part or parts of this Agreement
shall be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not affect the remaining
provisions of this Agreement which shall remain in full force and effect.
19. Limitation on Enforcement of Remedies. Without in any way limiting
its rights against the Investor or its general partner, the Company hereby
agrees that it will not assert against the limited partners of the Investor any
claim it may have under this Agreement by reason of any failure or alleged
failure by the Investor to meet its obligations hereunder.
20. Counterparts. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
21. Law. This Agreement will be deemed to have been made and delivered
in New York City and will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (a) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement may be instituted in the Supreme
Court of the State of New York, County of New York, or in the United States
District Court for the Southern District of New York, (b) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the jurisdiction of the
Supreme Court of the State of New York, County of New
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<PAGE>
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. The Company further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in such courts and agrees that service of process upon the
Company mailed by certified mail to the Company's address will be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding.
[This space intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Company and the Investor have each caused this
Agreement to be executed by its duly authorized officer, each as of the date
first above written.
HEALTHCARE CAPITAL CORP.
By: /s/ Brandon M. Dawson
Name: Brandon M. Dawson
Title: President and Chief
Executive Officer
WARBURG PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Patrick T. Hackett
Name: Patrick T. Hackett
Title: Managing Director
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<PAGE>
EXHIBIT A
HEALTHCARE CAPITAL CORP.
WARRANT AGREEMENT
Warrants to Purchase 10,000,000 Common Shares
THIS WARRANT AGREEMENT (this "Agreement") dated as of January __, 1998
is made and entered into by and between HealthCare Capital Corp., a corporation
organized under the laws of Alberta, Canada (the "Company"), and Warburg Pincus
Ventures, L.P., a Delaware limited partnership (the "Warrantholder").
Subject to the terms and conditions hereof, the Company agrees to issue
to the Warrantholder, pursuant to a Securities Purchase Agreement dated as of
November 21, 1997, by and between the Company and the Warrantholder (the
"Securities Purchase Agreement"), warrants, as hereinafter described and the
form of which is attached hereto as Exhibit 1 (the "Warrants"), to purchase up
to an aggregate of 10,000,000 common shares without par value of the Company
(the "Common Shares"), at a Warrant Price of U.S. $2.40 per Common Share,
subject to adjustment pursuant to Section 6 hereof. As used herein (i) the term
"Shares" shall mean, unless the context otherwise requires, collectively the
Common Shares issuable upon exercise of the Warrants together with any other
securities or other property issuable upon such exercise as provided in Section
6 of this Agreement; (ii) the term "Warrants" shall include any and all warrants
outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange or substitution
pursuant to this Agreement; and (iii) the term "Warrant Price" shall mean the
price per Share at which Shares shall at any time be purchasable upon exercise
of the Warrants. Terms which are capitalized but not defined herein shall have
the same meanings as in the Securities Purchase Agreement. Any amounts herein
referencing share prices or numbers of shares shall be subject to appropriate
adjustments in the event of any stock splits, consolidations or the like.
For the purpose of defining the terms and provisions of the Warrants
and the respective rights and obligations thereunder, the Company and the
Warrantholder, for value received, hereby agree as follows:
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Section 1. Restrictions on Transfer and Form of Warrants.
1.1. Registration. Certificates evidencing the Warrants shall be
numbered and shall be registered on the books of the Company when issued, in
accordance with Alberta corporate practice.
1.2. Restriction on Transfer of the Warrants. The Warrants shall not be
transferable and may not be sold, assigned, hypothecated or otherwise
transferred by the Warrantholder without the express written consent of the
Company, such consent not to be unreasonably withheld. Any transferee permitted
under this Section 1.2 shall acquire title to such transferred Warrants and to
all rights represented thereby.
1.3. Form of Warrants. The form of certificate evidencing the Warrants
shall be substantially as set forth in Exhibit 1 hereto. Certificates evidencing
the Warrants shall be executed on behalf of the Company by its President or by
any Vice President, shall be attested to by its Secretary or any Assistant
Secretary, and shall be dated as of the date of execution thereof.
1.4. Legends on Warrants and Common Shares. The Warrants, and the
Shares issuable upon the exercise thereof, have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"). Each certificate for
the Warrants shall bear the following legend:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
PROVINCE OF CANADA. SUCH WARRANTS MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, EXCHANGED, PLEDGED OR HYPOTHECATED OR
OTHERWISE TRANSFERRED, IN ANY MANNER, AND SUCH COMMON SHARES
MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR HYPOTHECATED OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE WARRANTS
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRADED IN CANADA
EXCEPT AS PERMITTED BY RELEVANT CANADIAN SECURITIES LAWS."
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Each certificate for the Shares shall bear the following legend:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY PROVINCE OF CANADA AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY, THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE THIS CERTIFICATE MAY NOT CONSTITUTE 'GOOD DELIVERY'
IN SATISFACTION OF A TRADE MADE ON A STOCK EXCHANGE IN CANADA.
THIS CERTIFICATE IS NOT TRANSFERABLE IN CANADA UNTIL [THE DATE
SIX MONTHS FROM THE CLOSING DATE] EXCEPT PURSUANT TO AN
EXEMPTION FROM THE PROSPECTUS REQUIREMENTS CONTAINED IN THE
APPLICABLE SECURITIES LEGISLATION."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the Common Shares represented thereby) shall also bear a like
legend unless, in the opinion of counsel reasonably satisfactory to the Company,
the securities represented thereby need no longer be subject to such
restrictions.
Section 2. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, the Warrantholder shall
have the right, at any time and from time to time during the period commencing
at 9:00 a.m., Pacific Time, on January __, 1998, (the "Commencement Date") and
ending at 5:00 p.m., Pacific Time, on the third anniversary of the Commencement
Date (the "Termination Date") to purchase from the Company up to the number of
fully paid and nonassessable Shares which the Warrantholder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the Company
at its principal office of the certificates evidencing the Warrants to be
exercised, with the purchase form, in the form attached hereto as Exhibit 2,
duly completed and signed, and upon payment to the Company of an amount (the
"Exercise Payment") equal to the Warrant Price multiplied by the number of
Shares being purchased pursuant to such exercise, payable in cash, by certified
or official bank check, or by wire transfer. The Company shall use its
reasonable best efforts prior to the Termination Date to obtain any applicable
regulatory approvals of those regulatory agencies having jurisdiction over the
Company in order to extend the Termination Date
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for a further period of two years, in which event the Company's right of
purchase under this Section 2(a) shall end at 5:00 p.m., Pacific Time, on the
fifth anniversary of the Commencement Date.
(b) At any time subsequent to the first anniversary of the Commencement
Date, in lieu of exercising the Warrants as provided in Section 2(a) above, and
subject to all applicable law and all applicable regulatory approvals,
limitations and restrictions, the Warrantholder may elect to receive, without
any cash payment, a number of Shares equal to the value (as determined below) of
any or all of the Warrants held of record by the Warrantholder, upon surrender
to the Company at its principal office of the certificates evidencing such
Warrants, with the attached cashless exercise form attached hereto as Exhibit 3
duly completed and signed, in which event the Company shall issue to the
Warrantholder a number of Shares computed using the following formula:
X = Y(A-B)/A
where
X = the number of Common Shares to be issued pursuant to
this Section 2(b).
Y = the number of Common Shares issuable upon exercise of
the surrendered Warrants.
A = the average of the Market Prices of the Common Shares
for the sixty (60) calendar days immediately
preceding the date upon which the certificates
evidencing the surrendered Warrants are received by
the Company at its principal office.
B = the Warrant Price on such date.
For all purposes of this Agreement, the term "Market Price" as of any
specified date shall mean: (i) if the Common Shares are listed or admitted for
trading on one or more United States national securities exchanges, the daily
closing price for the Common Shares on the principal exchange in the United
States on which the Common Shares are listed; (ii) if the Common Shares are not
listed or admitted for trading on any United States national securities
exchange, the daily closing price for the Common Shares on the Nasdaq National
or Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common Shares are not listed
or admitted for trading on a United States national securities exchange or on
Nasdaq, the daily closing price of the Common Shares on the principal stock
exchange in Canada on which the Common Shares are listed (expressed in United
States dollars based upon the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York); (iv) if the
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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 Warrantholder; 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 an independent investment
banking firm selected jointly by the Company and the Warrantholder 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.
If the Warrantholder elects to exercise the Warrants pursuant to this
Section 2(b), the Warrantholder shall simultaneously convert all Series A
Convertible Preferred Shares of the Company (the "Convertible Shares") then
owned by the Warrantholder into Common Shares.
In the event that the Warrantholder elects to exercise the Warrants
pursuant to this Section 2(b), and the average Market Price of the Common
Shares, as defined above, for the 60 calendar days immediately preceding the
date on which the certificates evidencing the surrendered Warrants are received
by the Company at its principal office, is greater than U.S. $3.20, then the
right to a cashless exercise of Warrants shall be limited to such number of
Warrants as would result in the issuance of 2,500,000 Shares and any remaining
Warrants to be exercised by the Warrantholder shall be exercised, at such time
or times elected by the Warrantholder, in accordance with the provisions of
Section 2(a). Such per share amount of U.S. $3.20 shall be appropriately
adjusted for any stock splits, consolidations or the like.
(c) The Company may, at any time, elect to force the exercise
of the Warrants by the Warrantholder subject to the terms of this Agreement
provided that the Company shall have satisfied all of the following conditions
prior to the date of such election by the Company:
(i) the Common Shares are listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market;
(ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at
a Market Price greater than U.S. $2.40 per share for the 10 consecutive
trading days immediately preceding the date of such election; and
(iii) The Company'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
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resulting from prohibitions under a newly-enacted law or regulation)
for the three consecutive fiscal quarters ended immediately prior to
the date of such election, as reported in or derived from its quarterly
or annual reports filed with the Securities and Exchange Commission,
before income taxes, dividends on the Convertible Shares and
amortization of goodwill and covenants not to compete for such
quarterly periods, shall have averaged at least U.S. $0.07 per fully
diluted Common Share per fiscal quarter, provided, however, that in
making such calculation, the Common Shares issuable upon exercise of
the Warrants shall be excluded but Common Shares issuable upon the
conversion of the Convertible Shares shall not.
The foregoing conditions (i), (ii) and (iii) shall hereinafter be collectively
referred to as the "Triggering Conditions." All references to per share amounts
or prices with respect to the Triggering Conditions shall be appropriately
adjusted for any stock splits, consolidations or the like.
The Company shall give the Warrantholder written notice that the
Triggering Conditions have been satisfied and that the Company intends to force
the exercise of the Warrants. In this event, the Termination Date shall be the
date ten (10) business days after such notice shall be effectively delivered to
the Warrantholder as provided in Section 10 of this Agreement.
In the event of a forced exercise of Warrants pursuant to this Section
2(c), in lieu of exercising the Warrants as provided in Section 2(a) above, and
subject to all applicable law and all applicable regulatory approvals,
limitations and restrictions, the Warrantholder may elect to receive, without
any cash payment, a number of Shares equal to the value (as determined below) of
any or all of the Warrants held of record by the Warrantholder, upon surrender
to the Company at its principal office of the certificates evidencing such
Warrants, with the attached cashless exercise form thereof duly completed and
signed, in which event the Company shall issue to the holder a number of Shares
computed using the formula set forth in Section 2(b) except the term "A" in such
formula, the Market Price of the Common Shares, shall be calculated based on the
ten (10) trading days immediately preceding the date on which the certificates
evidencing the surrendered Warrants are received by the Company at its principal
offices.
In the event that the Warrantholder elects to exercise the Warrants
without any cash payment following a forced exercise pursuant to this Section
2(c), and the average Market Price of the Common Shares, as defined above, for
the 60 calendar days immediately preceding the date on which the certificates
evidencing the surrendered Warrants are received by the Company at its principal
office, is greater than U.S. $3.20, then the right to a cashless exercise of
Warrants shall be limited to such number of Warrants as would result in the
issuance of 2,500,000 Shares and any remaining Warrants to be exercised by the
Warrantholder shall be exercised, at such time or times elected by the
Warrantholder, in accordance with the provisions of Section 2(a). Such per share
amount of U.S. $3.20 shall be appropriately adjusted for any stock splits,
consolidations or the like.
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(d) Upon the surrender of Warrant certificates and payment of the
Exercise Payment (in cash, except in the event of a cashless exercise), the
Company, at its expense, shall issue and cause to be delivered with all
reasonable dispatch, and in any event within ten (10) days thereafter, to the
Warrantholder a certificate or certificates for the number of full Shares so
acquired upon the exercise of the Warrant, together with cash in respect of any
fractional Shares otherwise issuable upon such surrender, determined in
accordance with Section 7 hereof. Such certificate or certificates shall be
deemed to have been issued, and the Warrantholder shall be deemed to have become
a holder of record of such Shares, as of the date of surrender of the Warrants
being exercised and (in the case of exercise pursuant to Section 2(a)) payment
of the Exercise Payment notwithstanding that the certificate or certificates
representing such securities shall not actually have been delivered or that the
stock transfer books of the Company shall then be closed. The Warrants shall be
exercisable at the election of the Warrantholder either in full or from time to
time in part and, in the event that a certificate evidencing Warrants is
exercised in respect of fewer than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrants shall be issued by the Company.
Section 3. Payment of Taxes. The Company will pay all transfer and
stamp taxes and fees, if any, attributable to the initial issuance of the
Warrants or the issuance of Shares upon exercise of the Warrants.
Section 4. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing any Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the affected Warrantholder,
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated certificate or certificates, or in lieu of and substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of such Warrant and, if requested, at the
cost and expense of the Warrantholder (in the case of loss, theft or
destruction), an unsecured bond of indemnity in form and amount reasonably
satisfactory to the Company. Such substitute Warrant certificate shall also
comply with such other reasonable regulations as the Company may prescribe.
Section 5. Reservation of Common Shares. There has been reserved, and
the Company shall at all times keep reserved and available so long as any
Warrants remain outstanding, out of its authorized share capital, such number of
Shares as shall be subject to purchase under all outstanding Warrants. Every
transfer agent for the Common Shares and other securities of the Company
issuable upon the exercise of Warrants will be irrevocably authorized and
directed at all times to reserve such number of authorized Common Shares and
other securities as shall be requisite for such purposes. The Company will keep
a copy of this Agreement on file with every transfer agent for the Common
Shares. The Company will supply every such transfer agent with duly executed
stock and other certificates, as appropriate, for such
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purpose and will provide or otherwise make available any cash which may be
payable as provided in Section 7 hereof.
Section 6. Adjustment of Number and Kind of Securities. The number and
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
Section 6.1. Anti-Dilution Provisions And Other Adjustments. In order
to prevent dilution of the rights granted hereunder, the Warrant Price shall be
subject to adjustment from time to time in accordance with this Section 6. Upon
each adjustment of the Warrant Price pursuant to this Section 6, the
Warrantholder shall thereafter be entitled to acquire upon exercise, at the
Warrant Price resulting from such adjustment, the number of Shares obtainable by
multiplying the Warrant Price in effect immediately prior to such adjustment by
the number of Shares acquirable immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
(a) Adjustment for Issue or Sale of Common Shares at Less than
Specified Prices. Except as provided in Sections 6.3 or 6.5 below, if and
whenever on or after the date of issuance hereof the Company shall issue or
sell, or shall in accordance with subparagraphs 6.1(a)(1) to (8), inclusive, be
deemed to have issued or sold (such issuance or sale, whether actual or deemed,
a "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)
U.S. $1.35 then forthwith upon such issue or sale the Warrant Price
shall, subject to subparagraphs (1) to (8) of this Section 6.1(a), be
reduced to the Warrant 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
Warrant Price then in effect, plus (y) the consideration, if any,
received by the Company upon consummation of such Triggering
Transaction, by (ii) an amount equal to the sum of (x) the Number of
Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (y) the number of shares of Common Stock issued (or
deemed to be issued in accordance with subparagraphs 6.1(a)(1) to (8))
in connection with the Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
the average Market Price for the ten trading days immediately preceding
such issuance or sale, then forthwith upon such Triggering Transaction,
the Warrant Price shall, subject to subparagraphs (1) to (8) of this
Section 6.1(a), be reduced to the Warrant Price (calculated to the
nearest tenth of a cent) determined by multiplying the Warrant Price in
effect immediately prior to the time of such Triggering Transaction by
a fraction, the numerator of which shall be the
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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 this Section 6, the term "Number of Common
Shares Deemed Outstanding" at any given time shall mean the sum of (i) the
number of Common Shares outstanding at such time, and (ii) the number of Common
Shares deemed to be outstanding under subparagraphs 6.1(a)(1) to (8), inclusive,
at such time.
For purposes of determining the adjusted Warrant Price under
this Section 6.1(a), the following subsections (1) to (8), inclusive, shall be
applicable:
(1) In case the Company 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 Company as consideration for the granting
of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum
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 National Nasdaq Market) or U.S. $1.35 (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 Company for such price per share. No
adjustment of the Warrant Price shall be
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made upon the actual issue 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 Company 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 Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable
to the Company 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 trading days 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 U.S. $1.35 (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 Company
for such price per share. No adjustment of the Warrant Price
shall be made upon the actual issue of such Common Shares upon
exercise of the rights to exchange or convert under such
Convertible Securities, except as otherwise provided in
subparagraph (3) below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration,
if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraphs (1) or
(2), or the rate at which any Convertible Securities referred
to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Shares shall change at any time (other
than under or by reason of provisions designed to protect
against dilution of the type set forth in Section 6.1(a) or
(b)), the Warrant Price in effect at the time of such change
shall forthwith be readjusted to the Warrant 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 conversion
rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any
Option referred to in subparagraph (1) or the rate at which
any Convertible Securities referred to in subparagraphs (1) or
(2) are convertible into or exchangeable for Common Shares,
shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution,
then in case of the delivery of Common
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Shares upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Security, the Warrant
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 Warrant 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 Warrant Price then in effect
hereunder shall forthwith be increased to the Warrant Price
which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Company,
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 Company
therefor. 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 Company shall be the fair value of such
consideration as determined in good faith by the Board of
Directors of the Company. In case any Common Shares, Options
or Convertible Securities shall be issued in connection with
any amalgamation in which the Company is an amalgamating
corporation, the amount of consideration therefor shall be
deemed to be the fair value of such portion of the net assets
and business of the other corporation which is a party to the
amalgamation as shall be attributed by the Board of Directors
of the Company in good faith to such Common Shares, Options or
Convertible Securities, as the case may be.
(7) In case the Company shall declare a dividend or
make any other distribution upon the stock of the Company
payable in Options or Convertible Securities, then in such
case any 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.
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(8) For purposes of this Section 6.1(a), in case the
Company shall take a record of the holders of its Common
Shares for the purpose of entitling them (x) to receive a
dividend or other distribution payable in Common Shares,
Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Shares, Options or Convertible Securities,
then such record date shall be deemed to be the date of the
issue or sale of the Common Shares deemed to have been issued
or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such
right or subscription or purchase, as the case may be.
(b) In case the Company shall (i) pay a dividend in Common
Shares or make a distribution in Common Shares or (ii) subdivide its
outstanding Common Shares, the Warrant Price in effect immediately
prior to such subdivision or dividend shall be proportionately reduced
by the same ratio as the dividend or subdivision. In case the Company
shall at any time combine its outstanding Common Shares, the Warrant
Price in effect immediately prior to such combination shall be
proportionately increased by the same ratio as the combination. Any
adjustment made pursuant to this subsection 6.1(b) shall become
effective immediately on the effective date of such event retroactive
to the record date, if any, for such event.
(c) Whenever the number of Common Shares purchasable upon the
exercise of Warrants is adjusted as herein provided, the Company shall
cause to be promptly delivered to the Warrantholder notice of such
adjustment and a certificate of the chief financial officer of the
Company setting forth the number of Common Shares purchasable upon the
exercise of the Warrants after such adjustment, the Warrant Price that
will be effective after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment
was made. If such notice relates to an adjustment resulting from an
event referred to in Section 8, such notice shall be included as part
of the notice required to be delivered and published under the
provisions of Section 8 hereof.
6.2. No Adjustment for Dividends. Except as provided in this Section 6,
no adjustment to the Warrants or any provision or condition thereof in respect
of any dividends or distributions out of earnings shall be made during the term
of the Warrants or upon the exercise of Warrants.
6.3. Dividends Not Paid Out of Earnings or Earned Surplus. In the event
the Company shall declare a dividend upon the Common Shares (other than a
dividend payable in Common Shares) 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 exercise of this Warrant, the
Company shall pay to the person exercising such Warrant 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
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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 subsection 6.3, 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 of Directors of
the Company.
6.4. Reclassification, Amalgamation, etc. If any capital reorganization
or reclassification of the share capital of the Company, or amalgamation of the
Company 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 Warrantholder shall have the right
to acquire and receive upon exercise of this Warrant 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 Shares as would have been received upon
exercise of this Warrant at the Warrant Price then in effect. The Company 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 Warrantholder the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase. 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 Company, the
Company shall not effect any amalgamation or sale with the person having made
such offer or with any Affiliate of such person, unless prior to the
consummation of such amalgamation or sale the Warrantholder shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant either the stock, securities or assets then issuable with respect
to the Common Shares of the Company 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. In the event of a merger described in Section
368(a)(2)(E) of the Internal Revenue Code of 1986 (or any successor provision),
in which the Company is the surviving corporation, the right to purchase Shares
upon exercise of the Warrants shall terminate on the date of such merger and
thereupon the Warrants shall become null and void, but only if the controlling
corporation (after such event) shall agree to substitute for the Warrants its
warrants entitling the Warrantholder to purchase the kind and amount of shares
and other securities and property which it would have been entitled to receive
had the Warrants been exercised immediately prior to such merger. Any such
agreements referred to in this subsection 6.3 shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6, and shall contain substantially the same terms,
conditions and provisions as are contained herein immediately prior to such
event. The provisions of this subsection 6.4 shall similarly apply to successive
amalgamations, sales or conveyances.
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6.5. No Adjustment for Exercise of Certain Options, Warrants, Etc. The
provisions of this Section 6 shall not apply to any Common Shares issued,
issuable or deemed outstanding under subparagraphs 6.1(a)(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, consultants or directors of the
Company or its subsidiaries in effect on the date hereof or hereafter adopted by
the Board of Directors of the Company, or (ii) pursuant to options, warrants and
conversion rights in existence on the date hereof, including the Convertible
Shares.
6.6. Grant, Issue or Sale of Options, Convertible Securities, or
Rights. If at any time or from time to time on or after the date of this
Agreement, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of share capital of the Company and such grants,
issuances or sales do not result in an adjustment of the Warrant Price under
Section 6.1(a) hereof, then the Warrantholder 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 the Warrantholder of the notice concerning
Purchase Rights to which the Warrantholder shall be entitled under Section 8)
and upon the terms applicable to such Purchase Rights either:
(a) the aggregate Purchase Rights which the Warrantholder
could have acquired if it had held the number of Shares acquirable upon
exercise of this Warrant immediately before the grant, issuance or sale
of such Purchase Rights; provided that if any Purchase Rights were
distributed to the Warrantholder of Common Shares without the payment
of additional consideration by such holders, corresponding Purchase
Rights shall be distributed to the Warrantholder as soon as possible
after exercise of this Warrant and it shall not be necessary for the
Warrantholder 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 Shares or the amount of property which the
Warrantholder could have acquired upon such exercise at the time or
times at which the Company granted, issued or sold such expired
Purchase Rights.
6.7. Nominal Value of Common Shares. Before taking any action which
would cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each Share below the then nominal value per Share issuable upon
exercise of the Warrants, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Shares upon exercise of
the Warrants.
6.8. Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing in the United
States (which may be any such firm regularly employed by the Company) to make
any computation required under this Section.
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6.9. Statement on Warrant Certificates. Irrespective of any adjustments
in the number of securities issuable upon exercise of Warrants, Warrant
certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its reasonable discretion, make any change in the form of Warrant certificate
that it may deem appropriate and that does not affect the substance thereof; and
any Warrant certificate hereafter issued, whether upon registration of transfer
of, or in exchange or substitution for, an outstanding Warrant certificate, may
be in the form so changed.
6.10. Adjustment by Board of Directors. If any event occurs as to
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 6 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the Warrantholder in accordance with the
essential intent and principles of such provisions, then the Board of Directors
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 Warrant Price as otherwise determined pursuant to any of the provisions of
this Section 6 except in the case of a combination of shares of a type
contemplated in Section 6.1(a) and then in no event to an amount larger than the
Warrant Price as adjusted pursuant to Section 6.1(a).
Section 7. Fractional Interests. The Company shall not issue fractional
Common Shares upon any exercise of any Warrants. If any fraction of a Common
Share would, except for the provisions of this Section 7, be issuable on the
exercise of any Warrants, the Company shall pay an amount in cash equal to the
Market Price (as defined in Section 2(b) hereof, except if the Common Shares are
not publicly traded, as determined in good faith by the Board of Directors of
the Company) multiplied by such fraction, provided, however, that no amount
shall be paid by the Company of less than U.S. $5.00.
Section 8. No Rights as Shareholder; Notices to Warrantholder. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder any rights as a shareholder of the Company, including
(without limitation) the right to vote, receive dividends, consent or receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter, except as provided
herein. If, however, at any time prior to the expiration of the Warrants and
prior to their exercise in full, any one or more of the following events shall
occur:
(a) any action which would require an adjustment pursuant to
Section 6.1 or 6.3; or
(b) the Company shall declare any cash dividend upon its
Common Shares; or
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(c) the Company 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
(d) the Company shall offer Purchase Rights to the holders of
its Common Shares; or
(e) there shall be any capital reorganization or
reclassification of the share capital of the Company, including any
subdivision or combination of its outstanding Common Shares, or
amalgamation of the Company with, or sale of all or substantially all
of its assets to, another corporation; or
(f) there shall be a dissolution, liquidation or winding up of
the Company (other than in connection with an amalgamation or sale of
its property, assets and business as an entirety or substantially as an
entirety);
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 10 hereof, at least 20 days prior to (i)
the date fixed as a record date or the date of closing the transfer books for
the determination of the shareholders entitled to any relevant dividend,
distribution, Purchase Rights or other rights or for the determination of
shareholders entitled to vote on such proposed reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding up and (ii) the date
when any such reorganization, reclassification, amalgamation, sale, dissolution,
liquidation or winding up shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or Purchase Rights, the date on which the holders of Common Shares
shall be entitled thereto, and such notice in accordance with the foregoing
clause (ii) shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such reorganization, reclassification, amalgamation,
sale, dissolution, liquidation or winding up, as the case may be.
Section 9. No Dilution or Impairment. The Company will not, by
amendment of its charter or through reorganization, amalgamation, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Warrantholder against dilution or other impairment. Without
limiting the generality of the foregoing, the Company will not increase the par
value of any shares receivable upon the exercise of this Warrant above the
amount payable therefor upon such exercise, and at all times will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable shares upon the exercise of this
Warrant.
Section 10. Notices. Any notice hereunder shall be in writing and shall
be effective when delivered in person or by facsimile transmission, or seven
business days after being mailed
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by certified or registered mail, postage prepaid, return receipt requested, to
the appropriate party at the following addresses:
If to the Warrantholder:
Warburg Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017-3147
Facsimile: 212-878-9351
Attention: Mr. Joel Ackerman
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Facsimile: 212-821-8111
Attention: Steven J. Gartner, Esq.
If to the Company:
HealthCare Capital Corp.
111 SW Fifth Avenue, Suite 2390
Portland, Oregon 97204
Facsimile: 503-225-9309
Attention: Mr. Brandon M. Dawson
with copy to:
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Facsimile: 212-732-3232
Attention: John K. Whelan, Esq.
or, in each case, to such other address as the parties may hereinafter designate
by like notice.
Section 11. Successors. All the covenants and provisions of this
Agreement for the benefit of the Warrantholder or the Company shall bind and
inure to the benefit of their successors and, in the case of the Warrantholder,
permitted assigns. This Agreement shall not be assignable by the Company.
Section 12. Amalgamation of the Company. The Company shall not
amalgamate with any other corporation or sell all or substantially all of its
property to another corporation, unless the provisions of Section 6.4 are
complied with.
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Section 13. Remedies. The Company stipulates that the remedies at law
of the Warrantholder in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
Section 14. Subdivision of Rights. The Warrants (as well as any new
warrants issued pursuant to the provisions of this Section) are exchangeable,
upon the surrender hereof by the Warrantholder at the principal office of the
Company for any number of new warrants of like tenor and date representing in
the aggregate the right to subscribe for and purchase the number of Shares which
may be subscribed for and purchased hereunder.
Section 15. Applicable Law; Submission to Jurisdiction. This Agreement
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the internal laws of
said State (without reference to its rules as to conflicts of laws). The Company
hereby agrees to the non-exclusive jurisdiction of the courts of the State of
New York or the federal courts sitting in the City of New York in connection
with any action arising out of this Agreement.
Section 16. Benefits of this Agreement. Except as provided in Section
1.2 and Section 11, nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Agreement. Except as provided in
Section 1.2 and Section 11, this Agreement shall be for the sole and exclusive
benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
HEALTHCARE CAPITAL CORP.
By: ___________________________________
Name:
Title:
WARBURG PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: _________________________________
Print Name:
Title:
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EXHIBIT 1
[FORM OF WARRANT CERTIFICATE]
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
PROVINCE OF CANADA. SUCH WARRANTS MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, EXCHANGED, PLEDGED OR HYPOTHECATED OR
OTHERWISE TRANSFERRED, IN ANY MANNER, AND SUCH COMMON SHARES
MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR HYPOTHECATED OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE." THE WARRANTS
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRADED IN CANADA
EXCEPT AS PERMITTED BY RELEVANT CANADIAN SECURITIES LAWS.
Warrant Certificate No. _____
HEALTHCARE CAPITAL CORP.
(ORGANIZED UNDER THE LAWS
OF ALBERTA)
January __, 1998
WARRANTS TO PURCHASE COMMON SHARES
This certifies that, for value received, Warburg Pincus Ventures, L.P.
(the "Warrantholder") is the registered owner of ___ warrants (the "Warrants")
each to purchase from HealthCare Capital Corp. (the "Company"), at any time
prior to 5:00 p.m., Pacific Time, on January __, 2001, one common share of the
Company, without par value (a "Common Share") at a purchase price per Common
Share of U.S. $2.40 (the "Warrant Price"). The Warrants are subject to, and the
Warrantholder, by acceptance of this certificate, consents to, all the terms and
provisions of, the Warrant Agreement dated as of January 16, 1998, between the
Warrantholder and the Company, pursuant to which the Warrants were issued (the
"Warrant Agreement"). Any capitalized terms used herein and not defined herein
shall have the meanings assigned to such terms in the Warrant Agreement. The
Termination Date may be extended for a further period of two years, as provided
in Section 2(a) of the Warrant Agreement.
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The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form herein duly
executed (with a signature guarantee as provided therein), and simultaneous
payment of the Warrant Price for each Warrant exercised, at the principal office
of the Company. Payment of such price shall be made at the option of the
Warrantholder in cash by certified or official bank check or by wire transfer.
Subject to the terms and conditions set forth in Section 2 of the Warrant
Agreement, the Warrantholder may also receive Common Shares without any cash
payment by presentation of this Warrant Certificate with the Cashless Exercise
Form herein duly executed (with a signature guarantee as provided therein) at
the principal office of the Company.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the Common Shares as to which the Warrants evidenced hereby shall not have
been exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Common Shares as here evidenced by the
Warrant or Warrants exchanged. No fractional Common Shares will be issued upon
the exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction otherwise issuable upon the exercise of one or more
Warrants, as provided in the Warrant Agreement.
The Warrants evidenced hereby are transferable only in accordance with
the terms and conditions set forth in Section 1.2 of the Warrant Agreement.
This Warrant Certificate does not entitle the Warrantholder to any of
the rights of a shareholder of the Company.
HEALTHCARE CAPITAL CORP.
By: _____________________________
Title: _________________________
ATTEST:
- ------------------------------
Title:_________________________
Dated: , 1998
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EXHIBIT 2
PURCHASE FORM
HealthCare Capital Corp.
111 SW Fifth Avenue, Suite 2390
Portland, Oregon 97204
Pursuant to Section 2(a) of the Warrant Agreement, the undersigned
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant Certificate for, and to purchase thereunder, __________ common shares of
the Company (the "Common Shares"), and requests that certificates for such
Common Shares be issued in the name of:
Warburg Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017-3147
Taxpayer Identification Number: ________________
If this Warrant Certificate is hereby being exercised with respect to fewer than
all the Common Shares specified herein, please issue a new Warrant Certificate
for the unexercised balance of the Warrants, registered in the name of the
undersigned Warrantholder as below indicated and delivered to the address stated
below.
Dated: _______________________
Name of Warrantholder:
Warburg Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017-3147
By: Warburg, Pincus & Co.
General Partner
By:________________________________
Print Name:
Title:
A-21
<PAGE>
EXHIBIT 3
CASHLESS EXERCISE FORM
HealthCare Capital Corp.
111 SW Fifth Avenue, Suite 2390
Portland, Oregon 97204
Pursuant to Section 2(b) of the Warrant Agreement, the undersigned
hereby irrevocably elects to exercise the right represented by this Warrant
Certificate for, and to receive thereunder without any cash payment, __________
common shares of the Company (the "Common Shares") as provided for therein, and
requests that certificates for such Common Shares be issued in the name of:
Warburg Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017-3147
Taxpayer Identification Number:
If this Warrant Certificate is hereby being exercised with respect to fewer than
all the Common Shares specified herein, please issue a new Warrant Certificate
for the unexercised balance of the Warrants, registered in the name of the
undersigned Warrantholder as below indicated and delivered to the address stated
below.
Dated: _______________________
Name of Warrantholder:
Warburg Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017-3147
By: Warburg, Pincus & Co.
General Partner
By:________________________________
Print Name:
Title:
A-22
<PAGE>
EXHIBIT C
HEALTHCARE CAPITAL CORP.
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
(Without Par Value)
We, the undersigned, Brandon M. Dawson and William DeJong, being,
respectively, the President and the Secretary of HealthCare Capital Corp., a
corporation organized and existing under the laws of Alberta (hereinafter called
the "Corporation"), DO HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent dated November 20, 1997, has duly adopted the following
resolutions providing for the issuance of a series of preferred shares of the
Corporation:
"RESOLVED that the Board of Directors of the Corporation (the
"Board") hereby authorizes the issuance of a series of preferred shares
of the Corporation and hereby fixes the designation, powers and
preferences, and the relative, participating, optional and other
special rights and qualifications, limitations and restrictions
thereof, in addition to those set forth in the Corporation's Articles,
as amended, as follows:
"1. Number and Designation. The number of shares to constitute
this series shall be 13,333,333 and the designation of such shares
shall be the "Series A Convertible Preferred Shares" (hereinafter
called "this Series"). The number of shares constituting this Series
may be decreased from time to time by action of the Board, but not
below the number of shares of this Series then outstanding. All shares
of this Series shall be identical with each other in all respects. The
shares of this Series shall rank senior to the common shares (the
"Common Shares") of the Corporation as to cash dividends and upon
liquidation, as described below. Any amounts herein referencing share
prices or numbers of shares shall be subject to appropriate adjustments
in the event of any stock splits, consolidations or the like.
"2. Dividend Rights.
(a) Subject to the provisions of this Section 2, the holders
of shares of this Series shall be entitled to receive when, as and if
declared by the Board, out of assets legally available therefor,
cumulative dividends ("Dividends") at the applicable rate per annum
specified in Section 2(b) hereof from the date of issuance and payable
in
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accordance with Section 2(c) hereof. Dividends shall be cumulative from
the date of initial issuance of the shares of this Series (the "Initial
Issuance Date"), whether or not there shall be assets legally available
for the payment of such Dividends. In the event that the Board shall
declare a Dividend, subject to applicable regulatory approvals, such
Dividend may, at the discretion of the Board, be payable in Common
Shares. The number of Common Shares to be issued to the holders of
shares of this Series upon the payment of a Dividend in Common Shares
shall be the amount of the Dividends payable to such holder pursuant to
this Section 2 divided by either (i) (if the Common Shares are not
traded on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market) U.S. $1.35 or (ii) (if the Common Shares
are traded on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market) the average Market Price of the Common
Shares as such term is defined below for the ten (10) trading days
immediately preceding the Record Date as such term is defined in
Section 2(c) hereof.
For all purposes hereof, the term "Market Price of
the Common Shares" as of any specified date shall mean: (i) if the
Common Shares are listed or admitted for trading on one or more United
States national securities exchanges, the daily closing price for the
Common Shares on the principal exchange in the United States on which
the Common Shares are listed; (ii) if the Common Shares are not listed
or admitted for trading on any United States national securities
exchange, the daily closing price for the Common Shares on the Nasdaq
National or Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common
Shares are not listed or admitted for trading on a United States
national securities exchange or on Nasdaq, the daily closing price of
the Common Shares on the principal stock exchange in Canada on which
the Common Shares are listed (expressed in United States dollars based
upon the noon buying rate in New York City for cable transfers in
Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York); (iv) if the Common Shares are not listed or
admitted to trading on any United States national or Canadian national
securities exchange or on Nasdaq, the average of the reported bid and
asked prices on the trading day preceding such date in the
over-the-counter market as furnished by the National Quotation Bureau,
Inc., or, if such firm is not then engaged in the business of reporting
such prices, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company; or (v) if the Common
Shares are not publicly traded, the Market Price for such day shall be
the fair market value thereof determined jointly by the Company and the
holder of a majority of the shares of this Series then outstanding;
provided, however, that if such parties are unable to reach agreement
within a reasonable period of time, the Market Price shall be
determined in good faith by the independent investment banking firm
selected jointly by the Company and the holder of a majority of the
shares of this Series then outstanding or, if that selection cannot be
made within an additional 15 days, by an independent investment banking
firm selected by the American Arbitration Association in accordance
with its rules.
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<PAGE>
"(b) The Dividend per share of this Series shall be computed
based upon a rate per annum of 5% on a base amount of U.S. $1.35 per
share of this Series (the "Base Amount"). The Dividend rate per annum
shall be subject to increase in the event that all of the following
conditions (the "Triggering Conditions") have not been satisfied by the
dates specified below: (i) the Common Shares are listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; (ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at
a Market Price greater than U.S. $2.40 per Common Share on each of the
10 consecutive trading days preceding such date; and (iii) the
Corporation's net income (excluding profit or loss on disposal of a
significant part of the Company's assets or separate segment thereof,
gains on restructuring payables, gains or losses on the extinguishment
of debt, expropriations of property, gains or losses that are the
direct result of a major casualty, or one-time losses resulting from
prohibition under a newly-enacted law or regulation) before income
taxes, Dividends on the shares of this Series and amortization of
goodwill and covenants not to compete for the three consecutive fiscal
quarters preceding such date, as reported in or derived from the
Corporation's quarterly or annual reports filed with the Securities and
Exchange Commission, shall have averaged at least U.S. $0.07 per fully
diluted Common Share per fiscal quarter, provided, however, in making
such calculation, the Common Shares issuable upon exercise of the
warrants issued to Warburg Pincus Ventures, L.P. ("Warburg"), pursuant
to that certain Warrant Agreement between the Corporation and Warburg
relating to warrants to purchase 10,000,000 Common Shares (the "Warrant
Agreement"), shall be excluded but Common Shares issuable upon the
conversion of the shares of this Series shall not. All references to
per share amounts or prices with respect to the Triggering Conditions
shall be appropriately adjusted for any subdivision, consolidation, or
reclassification of the Common Shares. Until the Triggering Conditions
have been satisfied, the Dividend rate per annum shall be (A)15% of the
Base Amount per share of this Series from and after January 1, 2003 and
payable in accordance with Section 2(c) hereof commencing January 1,
2004; (B) 18% of the Base Amount per share of this Series from and
after January 1, 2004 and payable in accordance with Section 2(c)
hereof commencing January 1, 2005; and (C) thereafter, 21% of the Base
Amount per share of this Series from and after January 1, 2005 and
payable in accordance with Section 2(c) hereof commencing January 1,
2006. Upon the satisfaction of all the Triggering Conditions, the
Dividend per share of this Series shall be computed based upon a rate
per annum of 5% of the Base Amount. Accruals of Dividends shall not
bear interest. All Dividends declared upon the shares of this Series
shall be declared pro rata per share.
"(c) The record date for the determination of the holders of
shares of this Series who shall be entitled to receive Dividends (the
"Record Date") shall be the first business day of each calendar year,
and only the holders of shares of this Series of record on the Record
Date shall be entitled to receive such Dividends. All Dividends payable
to such holders of record shall be paid on the tenth business day
following the Record Date on each issued and outstanding share of this
Series.
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<PAGE>
"(d) Dividends payable on shares of this Series for any period
other than a full dividend period shall be computed on the basis of a
360-day year consisting of twelve 30- day months. Any Dividend payment
made on shares of this Series shall first be credited against the
earliest accumulated but unpaid Dividends due with respect to the
shares of this Series.
"(e) No dividends shall be declared or paid or set aside for
payment on any share capital of the Corporation ranking, as to
dividends, on a parity with or subordinate to the shares of this Series
for any period unless full accumulated Dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set aside for such payment on the
shares of this Series for all Dividend periods terminating on or prior
to the date of payment of such dividends. When Dividends are not paid
in full on the shares of this Series and any other preferred shares of
the Corporation ranking with respect to payment of dividends on a
parity with the shares of this Series, all dividends declared or paid
upon shares of this Series and such other preferred shares shall be
declared and paid pro rata so that the amount of dividends declared and
paid on the shares of this Series and such other preferred shares shall
in all cases bear to each other the same ratio that accumulated
dividends per share (which in the case of noncumulative preferred
shares shall not include any accumulation in respect of unpaid
dividends for prior dividend periods) on shares of this Series and such
other preferred shares bear to each other. Except as provided in the
preceding sentence, unless full accumulated Dividends have been paid or
declared and a sum sufficient for the payment thereof set aside for
payment, no dividends (other than dividends or distributions paid in
Common Shares, or options, warrants or rights to subscribe for or
purchase Common Shares, or, in each case, any other series of shares of
the Corporation ranking subordinate to the shares of this Series as to
dividends and upon liquidation) shall be declared and paid or a sum
sufficient for the payment thereof set aside for payment or any other
distribution declared or made upon the Common Shares or any other class
of shares of the Corporation ranking subordinate to or on a parity with
the shares of this Series as to dividends or upon liquidation. No
Common Shares or shares of any other class of shares of the Corporation
ranking subordinate to or on a parity with the shares of this Series as
to dividends or upon liquidation shall be redeemed, purchased or
otherwise acquired for any consideration (and no funds shall be paid to
or made available for a sinking fund for the redemption of any such
share capital) by the Corporation (except by conversion into or
exchange for shares of the Corporation ranking subordinate to the
shares of this Series as to dividends and upon liquidation or except
with respect to Common Shares that the Corporation has become obligated
to redeem prior to the issuance of any shares of this Series upon the
occurrence of specified circumstances) unless, in each case, the full
accumulated Dividends shall 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.
C-4
<PAGE>
"(f) Upon conversion of any shares of this Series by any
holder thereof pursuant to Section 7 hereof, any Dividends accrued and
payable to such holder shall be forfeited and the Corporation shall
have no further obligation to such holder of shares of this Series for
such accumulated Dividends.
"3. Liquidation Rights. (a) In the event of any voluntary or
involuntary dissolution, liquidation, or winding up of the affairs of
the Corporation, after payment or provision for payment of the debts
and other liabilities of the Corporation and any preferential amounts
payable with respect to securities of the Corporation ranking prior to
the shares of this Series ("Senior Preferred Shares"), the holders of
shares of this Series shall be entitled to receive out of the assets of
the Corporation available for distribution to shareholders, before any
distribution of assets is made to holders of the Common Shares or any
other share capital of the Corporation ranking subordinate to the
shares of this Series, a liquidating distribution in an amount equal to
the greater of (i) U.S. $1.35 per share of this Series plus an amount
equal to any accrued and unpaid Dividends (including accumulated
Dividends, whether or not declared) to and including the date of
distribution or (ii) the amount distributable to the holders of shares
of this Series as if such holders had converted their shares of this
Series into Common Shares pursuant to Section 7 hereof immediately
prior to such dissolution, liquidation or winding up of the affairs of
the Corporation (plus accumulated Dividends, whether or not declared).
Amounts payable pursuant to clause (i) or (ii) of this Section 3(a)
shall be distributed ratably among the holders of shares of this Series
in proportion to the number of shares of this Series held. After
payment to the holders of shares of this Series of the full amount to
which such holders are entitled as set forth above, the holders of
shares of this Series shall have no right or claim to any of the
remaining assets of the Corporation.
"(b) If upon any such dissolution, liquidation or winding up
of the affairs of the Corporation, the assets of the Corporation
distributable among the holders of shares of this Series and the
holders of all other classes or series of shares of the Corporation
ranking on a parity with the shares of this Series shall be
insufficient to permit the payment to them of the full preferential
amounts to which they are entitled, then the entire assets of the
Corporation so to be distributed shall be distributed ratably among the
holders of shares of this Series and such other classes or series of
shares of the Corporation in proportion to the sum of the accumulated
dividends and the liquidation preferences per share.
"(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
C-5
<PAGE>
to the greater of (i) U.S. $1.35 per share of this Series plus the
amount of any accrued and unpaid Dividends per share of this Series
(including accumulated Dividends, whether or not declared) or (ii) the
Fair Market Value of a share of this Series (as defined below). For
purposes hereof, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm mutually
agreed to by the Corporation and the holder of a majority of the shares
of this Series then outstanding, whose determination shall be
conclusive.
"(b) (i) In case the Corporation shall desire to exercise its
right to redeem any shares of this Series, it shall give notice of such
redemption to holders of the shares of this Series to be redeemed as
hereinafter provided in this Section 4(b).
"(ii) Notice of redemption shall be given to the
holders of shares of this Series to be redeemed by mailing
such notice by first-class mail to their last addresses as
they shall appear upon the register for the shares of this
Series not less than 120 calendar days prior to the date fixed
for redemption.
"(iii) Each such notice of redemption (A) shall
specify the date fixed for redemption and the redemption price
at which shares of this Series are to be redeemed, (B) shall
state that payment of the redemption price for the shares of
this Series to be redeemed will be made at the principal
executive offices of the Corporation, upon presentation and
surrender of certificates representing such shares of this
Series, and (C) if less than all the shares of this Series are
to be redeemed, shall specify the number of shares of this
Series held by each holder to be redeemed. In case any
certificate representing shares of this Series is to be
redeemed in part only, the notice of redemption which relates
to such certificate shall state the number of shares of this
Series represented by such certificate to be redeemed and
shall state that on and after the redemption date, upon
surrender of such certificate, a new certificate or
certificates for a number of shares of this Series equal to
the unredeemed portion thereof will be issued.
"(iv) If less than all the shares of this Series are
to be redeemed, the Corporation shall effect such redemption
pro rata among the holders thereof (based on the number of
shares of this Series held on the date of notice of
redemption).
"(c) (i) If the giving of notice of redemption shall have been
completed as provided above, the shares of this Series specified in
such notice shall become redeemable, and shall be redeemed by the
Corporation upon presentation and surrender of the certificate
representing such shares, on the date and at the place stated in such
notice at the redemption price, and on and after such date fixed for
redemption, notwithstanding that any certificate for shares of this
Series so called for redemption shall not have been surrendered for
cancellation, unless there shall have been a default in payment of the
redemption price, all shares of this Series called for redemption shall
no longer be deemed to be outstanding, and all rights with respect to
such shares of this
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<PAGE>
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 pro visions of paragraph (b) below or
by the provisions establishing any other series of preferred stock of
the Corporation, holders of the shares of this Series and of any other
outstanding preferred stock shall vote together with the holders of
Common Shares as a single class.
(b) In addition to any other rights provided by law, the
Corporation shall not amend, alter or repeal the preferences, special
rights or other powers of the shares of this Series or any other
provision of the Corporation's constating documents that would
adversely affect the rights of the holders of the shares of this
Series, including, without limitation, any increase in the number of
shares of this Series, without the written consent or affirmative vote
of the holders of at least 66-2/3% of the then outstanding aggregate
number of such adversely affected shares of this Series, given in
writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class. For this purpose, the authorization or
issuance of any series of preferred stock of the Corporation with
preference or priority over, or being on a parity with the shares of
this Series as to the
C-7
<PAGE>
right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be
deemed to adversely affect the shares of this Series.
"7. Conversion. (a) Each share of this Series may be converted
at any time, at the option of the holder thereof, in the manner
hereinafter provided, into fully-paid and nonassessable Common Shares,
provided, however, that on any redemption of any shares of this Series
or any liquidation of the Corporation, the right of conversion shall
terminate at the close of business on the full business day next
preceding the date fixed for such redemption or for the payment of any
amounts distributable on liquidation to the holders of the shares of
this Series. The initial conversion rate for shares of this Series
shall be one Common Share for each one share of this Series surrendered
for conversion, representing an initial conversion price (for purposes
of Section 7(g)) of U.S. $1.35 per share of the Corporation's Common
Shares (hereinafter, the "Conversion Price"). The applicable conversion
rate and Conversion Price from time to time in effect are subject to
adjustment as hereinafter provided.
"(b) Whenever the Conversion Price shall be adjusted as
provided in Section 7(g) hereof, the Corporation shall forthwith file
at each office designated for the conversion of the shares of this
Series, a statement, signed by any of the Chairman of the Board, the
President, any Vice President or the Treasurer of the Corporation,
showing in reasonable detail the facts requiring such adjustment. The
Corporation shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to each
record holder of shares of this Series at his or its address appearing
on the stock register. If such notice relates to an adjustment
resulting from an event referred to in paragraph 7(g)(vii), such notice
shall be included as part of the notice required to be mailed and
published under the provisions of paragraph 7(g)(vii) hereof.
"(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
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<PAGE>
names as such holder may direct, subject to any applicable contractual
restrictions and any restrictions imposed by applicable securities
laws. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of
certificates representing shares of this Series in proper order for
conversion, and all rights of the holder of such shares as a holder of
such shares shall cease at such time, and the person or persons in
whose name or names the certificates for such Common Shares are to be
issued shall be treated for all purposes as having become the record
holder or holders thereof at such time; provided, however, that any
such surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such Common Shares are to be
issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day
on which such stock transfer books are opened.
"(e) "Upon conversion in the manner provided in this Section 7
of only a portion of the number of shares of this Series represented by
a certificate so surrendered for conversion, the Corporation shall
issue and deliver or cause to be delivered at the Conversion Office to
or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new
certificate or certificates representing the number of shares of this
Series representing the unconverted portion of the certificate so
surrendered, issued in such name or names as such holder may direct,
subject to any applicable contractual restrictions and any restrictions
imposed by applicable securities laws.
"(f) All shares of this Series which shall have been
surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall forthwith
cease and terminate except only the right of the holder thereof to
receive Common Shares in exchange therefor. Any shares of this Series
so converted shall be retired and canceled and shall not be reissued,
and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized shares of this Series
accordingly.
(g) Anti-Dilution Provisions.
(i) In order to prevent dilution of the right granted
hereunder, the Conversion Price shall be subject to adjustment from time to time
in accordance with this paragraph 7(g)(i). At any given time the Conversion
Price shall be that dollar (or part of a dollar) amount the payment of which
shall be sufficient at the given time to acquire one Common Share of the
Corporation upon conversion of shares of this Series. Upon each adjustment of
the Conversion Price pursuant to this Section 7(g), the registered holder of
shares of this Series shall thereafter be entitled to acquire upon exercise, at
the Conversion Price resulting from such adjustment, the number of Common Shares
of the Corporation obtainable by multiplying the Conversion Price in effect
immediately prior to such adjustment by the number of shares of Common Shares of
the Corporation acquirable immediately prior to such adjustment and dividing the
product thereof
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by the Conversion Price resulting from such adjustment. For purposes of this
Section 7(g), the term "Number of Common Shares Deemed Outstanding" at any given
time shall mean the sum of (x) the number of shares of the Corporation's Common
Shares outstanding at such time, (y) the number of Common Shares of the
Corporation issuable assuming conversion at such time of all outstanding shares
of the Corporation's other series of convertible preferred stock, if any, and
(z) the number of Common Shares of the Corporation deemed to be outstanding at
such time under subparagraphs 7(g)(ii)(1) to (8), inclusive.
(ii) Except as provided in paragraph 7(g)(iii) or 7(g)(vi)
below, if and whenever on or after the Initial Issuance Date, the Corporation
shall issue or sell, or shall in accordance with subparagraphs 7(g)(ii)(1) to
(8), inclusive, be deemed to have issued or sold (such issuance or sale, whether
actual or deemed, the "Triggering Transaction") any Common Shares for a
consideration per share less than
(I) (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
the Conversion Price in effect immediately prior to the time of such
issuance or sale, then forthwith upon such issuance or sale the
Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by dividing: (i) an amount equal to
the sum of (x) the product derived by multiplying the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction by the Conversion Price then in effect, plus (y) the
consideration, if any, received by the Company upon consummation of
such Triggering Transaction, by (ii) an amount equal to the sum of (x)
the Number of Common Shares Deemed Outstanding immediately prior to
such Triggering Transaction plus (y) the number of Common Shares issued
(or deemed to be issued in accordance with subparagraphs 7(g)(ii)(1) to
(8)) in connection with the Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
the average Market Price for the ten trading days immediately preceding
such issuance or sale, then forthwith upon such Triggering Transaction,
the Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by multiplying the Conversion Price
in effect immediately prior to the time of such Triggering Transaction
by a fraction, the numerator of which shall be the sum of (x) the
Number of Common Shares Deemed Outstanding immediately prior to such
Triggering Transaction and (y) the number of Common Shares which the
aggregate consideration received by the Company upon such Triggering
Transaction would purchase at the average Market Price for the ten
trading days immediately 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:
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<PAGE>
(1) In case the Corporation at any time shall in any
manner grant (whether directly or by assumption in an
amalgamation or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Shares or
any stock or other securities convertible into or exchangeable
for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"),
whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately
exercisable, and the price per share for which the Common
Shares are issuable upon exercise, conversion or exchange
(determined by dividing (x) the total amount, if any, received
or receivable by the Corporation as consideration for the
granting of such Options, plus the aggregate amount of
additional consideration payable to the Corporation upon the
exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the aggregate
amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (y) the total maximum
number of Common Shares issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities) shall be less than the average Market Price in
effect for the ten trading days immediately prior to the time
of the granting of such Option (if the Common Shares are
traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) or the Conversion
Price in effect immediately prior to the time of such issuance
or sale (if the Common Shares are not traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market), then the total maximum amount of Common
Shares issuable upon the exercise of such Options or, in the
case of Options for Convertible Securities, upon the
conversion or exchange of such Convertible Securities, shall
(as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the
Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issuance of
such Common Shares or such Convertible Securities upon the
exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Corporation at any time shall in any
manner issue (whether directly or by assumption in an
amalgamation or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which
Common Shares are issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or
receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the aggregate
amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (y)
the total maximum number of Common Shares issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the average Market Price in effect for the
ten-day trading period immediately prior to the time of such
issue or sale (if the Common Shares are
C-11
<PAGE>
traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) or the Conversion
Price in effect immediately prior to the time of such issuance
or sale (if the Common Shares are not traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq
National Market), then the total maximum number of Common
Shares issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or
sale of such Convertible Securities) be deemed to be
outstanding and to have been issued and sold by the
Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issuance of
such Common Shares upon exercise of the rights to exchange or
convert under such Convertible Securities, except as otherwise
provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration,
if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraphs (1) or
(2), or the rate at which any Convertible Securities referred
to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Shares shall change at any time (other
than under or by reason of provisions designed to protect
against dilution of the type set forth in paragraphs 7(g)(ii)
or 7(g)(iv)), the Conversion Price in effect at the time of
such change shall forthwith be readjusted to the Conversion
Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or
rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any
Option referred to in subparagraph (1) or the rate at which
any Convertible Securities referred to in subparagraphs (1) or
(2) are convertible into or exchangeable for Common Shares,
shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution,
then in case of the delivery of Common Shares upon the
exercise of any such Option or upon conversion or exchange of
any such Convertible Security, the Conversion Price then in
effect hereunder shall forthwith be adjusted to such
respective amount as would have been obtained had such Option
or Convertible Security never been issued as to such Common
Shares and had adjustments been made upon the issuance of the
Common Shares delivered as aforesaid, but only if as a result
of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any
Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued.
C-12
<PAGE>
(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 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).
C-13
<PAGE>
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 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.
C-14
<PAGE>
(vi) The provisions of this Section 7(g) shall not apply to
any Common Shares issued, issuable or deemed outstanding under subparagraphs
7(g)(ii)(1) to (8) inclusive: (i) to any person pursuant to any stock option,
stock purchase or similar plan or arrangement for the benefit of employees of
the Corporation or its subsidiaries in effect on the Initial Issuance Date or
thereafter adopted by the Board of Directors of the Corporation, (ii) pursuant
to options, warrants and conversion rights in existence on the Initial Issuance
Date, (iii) upon exercise of the warrants of the Corporation issued to Warburg
pursuant to the Warrant Agreement or (iv) on conversion of the shares of this
Series or the sale of any additional shares of this Series.
(vii) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Shares, or
(2) the Corporation shall declare any dividend upon its Common
Shares payable in stock or make any special dividend or other
distribution to the holders of its Common Shares, or
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Shares any additional shares of stock of any
class or other rights, or
(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
C-15
<PAGE>
Shares shall be entitled thereto, and such notice in accordance with the
foregoing clause (B) shall also specify the date on which the holders of Common
Shares shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such reorganization, reclassification, amalgamation,
sale, dissolution, liquidation or winding up, as the case may be. Each such
written notice shall be given by first class mail, postage prepaid, addressed to
the holders of the shares of this Series at the address of each such holder as
shown on the books of the Corporation.
(viii) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities or rights to purchase property (the "Purchase Rights")
pro rata to the record holders of the Common Shares of the Corporation and such
grants, issuances or sales do not result in an adjustment of the Conversion
Price under paragraph 7(g)(ii) hereof, then each holder of shares of this Series
shall be entitled to acquire (within thirty (30) days after the later to occur
of the initial exercise date of such Purchase Rights or receipt by such holder
of the notice concerning Purchase Rights to which such holder shall be entitled
under paragraph 7(g)(vii)) and upon the terms applicable to such Purchase Rights
either:
(A) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of Common Shares acquirable
upon conversion of shares of this Series immediately before the
grant, issuance or sale of such Purchase Rights; provided that if
any Purchase Rights were distributed to holders of Common Shares
without the payment of additional consideration by such holders,
corresponding Purchase Rights shall be distributed to the
exercising holders of the shares of this Series as soon as
possible after such exercise and it shall not be necessary for
the exercising holder of the shares of this Series specifically
to request delivery of such rights; or
(B) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the
number of Common Shares or the amount of property which such
holder could have acquired upon such exercise at the time or
times at which the Corporation granted, issued or sold such
expired Purchase Rights.
(ix) If any event occurs as to which, in the opinion of the
Board, the provisions of this Section 7(g) are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holders of the
shares of this Series in accordance with the essential intent and principles of
such provisions, then the Board shall make an adjustment in the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such rights as aforesaid, but in no event shall any adjustment have
the effect of increasing the Conversion Price as otherwise determined pursuant
to any of the provisions of this Section 7(g) except in the case of a
combination of shares of a type contemplated in paragraph 7(g)(iv) and then in
no event to an amount larger than the Conversion Price as adjusted pursuant to
paragraph 7(g)(iv).
C-16
<PAGE>
"(h) No fractional Common Shares shall be issued upon the
conversion of any share or shares of this Series. If any fractional
interest in a Common Share would, except for the provisions of this
Section 7(h), be deliverable upon the conversion of any share or shares
of this Series, the Corporation shall in lieu of delivering the
fractional Common Share therefor satisfy such fractional interest by
payment to the holder of such surrendered share or shares of this
Series of an amount in cash equal (computed to the nearest cent) to the
current market value of such fractional interest, computed on the basis
of the Market Price of the Common Shares on the date of such
conversion, provided, however, that no amount shall be paid by the
Corporation to such holder of less than U.S. $5.00.
"(i) The Corporation shall be entitled to effect the mandatory
conversion, in whole or in part, of the shares of this Series in
accordance with this Section 7 if all of the Triggering Conditions (set
forth in Section 2(b) hereof) shall have been satisfied as of the date
of the notice described below. Upon such mandatory conversion, each
share of this Series subject to such conversion shall be converted into
Common Shares at the then effective Conversion Price for such shares.
In case the Corporation shall desire to exercise the right to convert
all or, as the case may be, any shares of this Series in accordance
with the right to do so, it shall provide notice to the holders of the
shares of this Series to be converted as hereinafter provided in this
Section 7(i).
"(i) A notice of conversion shall be given to the
holders of shares of this Series to be converted by mailing by
first-class mail to their last addresses as they shall appear upon the
register for shares of this Series not less than 120 calendar days
prior to the date fixed for conversion.
"(ii) Each such notice of conversion (A) shall
specify the date fixed for conversion and the number of Common Shares
issuable to the holder of a share of this Series upon such conversion,
(B) shall state the offices or agencies to be maintained by the
Corporation for the purpose of such conversion, upon presentation and
surrender of such shares of this Series and (C) if less than all the
shares of this Series are to be converted, shall specify the number of
shares of this Series held by each holder, and the serial numbers of
the certificates thereof, to be converted. In case any certificate
representing shares of this Series is to be converted in part only, the
notice of conversion which relates to such certificate shall state the
number of shares of this Series represented by such certificate to be
converted and shall state that on and after the conversion date, upon
surrender of such certificate, a new certificate or certificates for a
number of shares of this Series equal to the unconverted portion
thereof will be issued.
"(j) The Corporation will at all times reserve and keep
available, solely for the purposes of the issuance of Common Shares
upon conversion of the shares of this Series, the full number of Common
Shares as shall be issuable upon the conversion of all such outstanding
shares of this Series.
C-17
<PAGE>
"The Corporation will endeavor to comply with all securities
laws regulating the offer and delivery of Common Shares upon conversion
of the shares of this Series and, that if any Common Shares required to
be reserved for purposes of conversion of the shares hereunder require
registration with or approval of any governmental authority under any
U.S. (federal or state) or Canadian law before such Common Shares may
be validly issued or delivered upon conversion, the Corporation will,
in good faith and as expeditiously as possible, endeavor to secure such
registration or approval, as the case may be.
"All Common Shares which shall be issued upon conversion of
the shares of this Series will upon issuance be fully paid and
nonassessable and not subject to preemptive rights.
"(k) The issuance of certificates for Common Shares upon
conversion of shares of this Series shall be made without charge for
any stamp or other similar tax in respect of such issuance. However, if
any such certificate is to be issued in a name other than that of the
holder of record of the share or shares of this Series so converted,
the holder thereof shall pay to the Corporation the amount of any tax
which may be payable in respect of any transfer involved in such
issuance or shall establish to the satisfaction of the Corporation that
such tax has been paid or is not payable.
"(l) In case (A) the Corporation shall take any action which
would require an adjustment in the number of Common Shares issuable to
holders of shares of this Series upon conversion thereof pursuant to
Section 7(g) above; or (B) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Corporation;
then the Corporation shall cause to be given to the holders of the
shares of this Series at least ten days prior to the applicable record
date hereinafter specified, a notice of (X) the date on which a record
is to be taken for the purpose of any dividend, distribution or grant
to holders of Common Shares which would require such an adjustment, or,
if a record is not to be taken, the date as of which the holders of
Common Shares of record to be entitled to such dividend, distribution,
or grant are to be determined or (Y) the date on which such
reorganization, reclassification, amalgamation, sale, transfer,
dissolution, liquidation or winding up is expected to become effective,
and the date as of which it is expected that holders of Common Shares
of record shall be entitled to exchange their Common Shares for
securities or other property or other assets deliverable upon such
reorganization, reclassification, amalgamation, sale, transfer,
dissolution, liquidation, or winding up. Failure to give such notice or
any defect therein shall not affect the legality or validity of any
proceedings described in subparagraphs (A) or (B) of this Section 7(l).
"8. Hold Period. A holder of shares of this Series shall in no
event sell or otherwise transfer any of the shares of this Series, or
any Common Shares issued upon the due conversion of any shares of this
Series, for a period of six months from the Initial Issuance Date. The
Corporation shall issue or cause to be issued certificates representing
shares of this Series,
C-18
<PAGE>
and of Common Shares issued upon due conversion of any shares of this Series,
which contain such legends as the Corporation in its discretion deems adequate
to reflect the hold period described in this Section 8.
"9. Miscellaneous.
"(a) For the purposes hereof:
"(i) the term "outstanding", when used in reference
to shares of this Series, shall mean issued shares of this
Series, excluding shares of this Series called for redemption;
and
"(ii) the term "subsidiary" shall mean any company a
majority of whose outstanding voting capital stock (other than
directors' qualifying shares), at the time as of which any
determination is being made, shall be owned by the parent of
such company either directly or through other subsidiaries;
and
"(iii) any shares of a series or class of shares of
the Corporation shall be deemed to rank:
"(A) prior to shares of this Series, whether
or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of shares of this Series, if the
holders of such shares of a series or class of shares
shall be entitled to receipt from the Corporation of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, in preference
or priority to the holders of shares of this Series,
as the case may be;
"(B) on a parity with or equal to shares of
this Series, whether or not the dividend rates,
dividend payment dates or redemption or liquidation
prices per share thereof be different from those of
shares of this Series, if the holders of such shares
of a series or class of shares shall be entitled to
the receipt from the Corporation of dividends or of
amounts distributable upon liquidation to their
respective dividend rates or liquidation prices,
without preference or priority one over the other as
between the holders of such shares of a series or
class of shares and the holders of shares of this
Series; and
"(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
C-19
<PAGE>
distributable upon liquidation, dissolution or
winding up, including, without limitation, the Common
Shares of the Corporation.
"(b) So long as any shares of this Series are outstanding, in
the event of any conflict between the provisions hereof and any
corporate document of the Corporation (both as presently existing or
hereafter amended and supplemented) the provisions hereof, as the same
may be amended or supplemented, shall be and remain controlling.
"(c) The holders of the shares of this Series shall have no
preemptive rights.
SECOND: That such determination of the designation, powers, preferences
and the relative participating, optional and other special rights and
qualifications, limitations and restrictions thereof relating to such Series A
Convertible Preferred Shares was duly made by the Board of Directors of the
Corporation in accordance with the provisions of Section 27 of the Business
Corporations Act (Alberta).
C-20
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed by the President
and the Secretary of HealthCare Capital Corp, and the Corporation has caused its
corporate seal to be hereunto affixed, all as of the ____ day of January, 1998.
HEALTHCARE CAPITAL CORP.
By:________________________________
Brandon M. Dawson
Title: President
[Corporate Seal]
Attest:
- ----------------------------------
William DeJong
Secretary
C-21
<PAGE>
JOINT FILING AGREEMENT
The undersigned hereby agree that this statement on Schedule 13D is,
and any amendment thereto signed by each of the undersigned shall be, filed on
behalf of each undersigned pursuant to and in accordance with the provisions of
Rule 13d-1(f)(1) under the Securities Exchange Act of 1934.
Dated: December 31, 1997
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/Stephen Distler
Stephen Distler, Partner
WARBURG, PINCUS & CO.
By: /s/Stephen Distler
Stephen Distler, Partner
E.M. WARBURG, PINCUS & CO., LLC
By: /s/Stephen Distler
Stephen Distler, Member
