<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Amendment No. 1
Under the Securities Exchange Act of 1934
Sonus Corp.
(f/k/a HealthCare Capital Corp.)
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(Name of Issuer)
Common Shares, without par value
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(Title of Class of Securities)
835691106
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(CUSIP Number of Class of Securities)
Joel Ackerman
E.M. Warburg Pincus & Co., LLC
466 Lexington Avenue
New York, New York 10017
(212) 878-0600
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
Steven J. Gartner
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
(212) 728-8000
October 1, 1999
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(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 ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following: [ ]
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SCHEDULE 13D
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CUSIP No. 835691106
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- ----------- --------------------------------------------------------------------
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
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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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 SHARES 8 SHARED VOTING POWER
BENEFICIALLY OWNED
BY EACH REPORTING 7,166,666
PERSON WITH
--------- ------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,166,666
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
7,166,666
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
53.9%
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14 TYPE OF REPORTING PERSON*
PN
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*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
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CUSIP No. 835691106
- --------------------
- ----------- --------------------------------------------------------------------
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]
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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 SHARES 8 SHARED VOTING POWER
BENEFICIALLY OWNED
BY EACH REPORTING 7,166,666
PERSON WITH
--------- ------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,166,666
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
7,166,666
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
53.9%
- ----------- --------------------------------------------------------------------
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.
<PAGE>
SCHEDULE 13D
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CUSIP No. 835691106
- --------------------
- ----------- --------------------------------------------------------------------
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 SHARES 8 SHARED VOTING POWER
BENEFICIALLY OWNED
BY EACH REPORTING 7,166,666
PERSON WITH
--------- ------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,166,666
- ---------- ---------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
7,166,666
- ---------- ---------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- ---------- ---------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
53.9%
- ---------- ---------------------------------------------------------------------
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.
<PAGE>
This Amendment No. 1 amends the Schedule 13D filed on behalf of the
Reporting Entities on December 31, 1997 (the "Schedule 13D), and is being filed
pursuant to Rule 13d-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). This Amendment No. 1
relates to the securities of Sonus Corp., formerly known as HealthCare Capital
Corp. (the "Company"). Unless otherwise indicated, all capitalized terms used
but not defined herein shall have the same meaning as set forth in the Schedule
13D.
Of the Reporting Entities, only Ventures has acquired indirect ownership of
the Common Stock through its ownership of Series A Convertible Preferred Shares
(the "Series A Preferred Stock"), Series B Convertible Preferred Shares (the
"Series B Preferred Stock") and warrants to purchase Common Stock (the
"Warrants," and, collectively with the Series A Preferred Stock and Series B
Preferred Stock, the "Securities").
Item 3. Source and Amount of Funds or Other Consideration.
Item 3 of the Schedule 13D is hereby amended by adding the following
paragraph at the end of the discussion:
The total amount of funds required by Ventures to purchase the Series B
Preferred Stock pursuant to the Securities Purchase Agreement dated October 1,
1999 (the "Series B Purchase Agreement") described in Item 4 was $10,000,000,
and was furnished from the working capital of Ventures.
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Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended by adding the following
paragraphs at the end of the discussion:
On October 1, 1999, the Company entered into the Series B Purchase
Agreement with Ventures pursuant to which Ventures agreed to purchase, subject
to certain conditions, 2,500,000 shares of Series B Preferred Stock for an
aggregate purchase price of $10,000,000 (the "Series B Purchase"). Pursuant to
the Series B Purchase Agreement, the Company agreed to issue the Series B
Preferred Stock to Ventures in consideration of the purchase price and certain
rights under the Series B Purchase Agreement, as described below.
On October 1, 1999, pursuant to the Series B Purchase Agreement, Ventures
acquired 2,500,000 shares of Series B Preferred Stock of the Company, the
Company amended and restated the terms of the Warrant Agreement, dated December
24, 1997, between the Company and Ventures, and the Company agreed to amend and
restate the terms of the Series A Preferred Stock upon receipt of the required
shareholder approval. As of October 1, 1999, the Securities represent beneficial
ownership of 7,166,666 shares of Common Stock of the Company, or approximately
53.9% 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 B Preferred Stock is initially convertible on a share for share
basis (the "Series B Conversion Rate") into Common Stock at an initial
conversion price (the "Series B Conversion Price") of $4.00 per share of Common
Stock, subject to antidilution provisions which provide for an adjustment of the
conversion price
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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 B Preferred Stock has the
right to vote with the Common Stock on an as converted basis as a single class
with respect to any and all matters presented to the shareholders of the Company
for their action or consideration.
The holders of Series B Preferred Stock are entitled to receive
preferential cumulative dividends, payable in U.S. dollars, (i) at the rate per
annum per share of eight percent (8.0%) of the Series B Conversion Price, until
October 31, 2004; (ii) from November 1, 2004 through October 31, 2005, at the
rate per annum per share of twelve percent (12.0%) of the Series B Conversion
Price; (iii) from November 1, 2005 through October 31, 2006, at the rate per
annum per share of fifteen percent (15.0%) of the Series B Conversion Price; and
(iv) from and after October 31, 2006, at the rate per annum per share of
eighteen percent (18.0%) of the Series B Conversion Price. Such dividends shall
be fully paid before any dividends shall be set apart for or paid upon the
Common Shares or any other shares ranking as to dividends junior to the Series B
Preferred Stock (such Common Shares and other shares, collectively, the "Junior
Stock") in any year. Dividends will not be declared on the Series B Preferred
Stock until October 31, 2000, and then only if the Company has achieved certain
earnings targets for the fiscal year ended July 31, 2000.
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If such earnings targets have been met, then the dividend will be payable in
cash for the period ending on October 31, 2000, and for each quarter thereafter.
If such earnings targets have not been met for the fiscal year ended July 31,
2000, then dividends will not be payable until such time as the Company meets
specified quarterly earnings targets set forth in the terms of the Series B
Preferred Stock for four (4) consecutive fiscal quarters. From and after such
time, dividends will be payable quarterly in cash, before any dividends shall be
set apart for or paid upon any Junior Stock in any year. If the Corporation has
not met the quarterly earnings targets set forth in the terms of the Series B
Preferred Stock for four (4) consecutive fiscal quarters by the fiscal quarter
ended July 31, 2002, then dividends will not be payable on shares of the Series
B Preferred Stock.
In addition, the Series B Conversion Rate will be adjusted from time to
time if the Company does not achieve certain earnings targets.
The Series B Purchase Agreement also provides for the amendment and
restatement of the terms of the Series A Preferred Stock, subject to shareholder
approval, to provide that all dividends thereon will be payable in cash after
December 24, 2002, and to lower the earnings and share price thresholds for
mandatory conversion.
The Warrants have been amended pursuant to the Series B Purchase Agreement
to be exercisable for shares of Common Stock at any time at the option of
Ventures at an exercise price of $6.75
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per share of Common Stock, provided that if the terms of the Series A Preferred
Stock have not been amended and restated as contemplated by the Series B
Purchase Agreement on or prior to March 31, 2000, then from and after March 31,
2000, the exercise price for the Warrants will be U.S. $4.00. In addition, the
Warrants were amended to extend the expiration date to October 1, 2004, and to
remove the limitation on the number of shares that may be issued to Ventures
upon a cashless exercise thereof.
Board Representation. Pursuant to the Series B Purchase Agreement, the
Company agreed to increase by one the number of directors that may be designated
by Ventures pursuant to the original Purchase Agreement, so that for so long as
Ventures owns Common Stock, Series A Preferred Stock or Series B 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 and Series B 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 three individuals designated by Ventures, such number to
increase to four if and for as long as the number of directors that constitute
the entire Board shall be in excess of eight.
Registration Rights. The shares of Series B Preferred Stock will not be
registered under the Securities Act. Pursuant to the Series B Purchase
Agreement, the Company has granted
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Ventures Demand and Piggyback Registration Rights with respect to the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock. Such
rights are similar to those granted in respect of the Series A Preferred Stock
and may be exercised at any time subsequent to 180 days from the date of the
closing of the purchase and sale of the securities under the Series B Purchase
Agreement.
The foregoing description of the Series B Purchase Agreement and the terms
of the Series B Preferred Stock, the Warrants and the amended and restated terms
of the Series A Preferred Stock is qualified in its entirety by reference to the
Series B Purchase Agreement, which is attached hereto as Exhibit 3 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 Series B Purchase Agreement, David Wenstrup, who is affiliated with WP and
EMW, was appointed to the Board as of October 1, 1999. Mr. Wenstrup disclaims
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of the Common Stock beneficially owned by Ventures.
Item 5. Interest in Securities of the Issuer.
Item 5(a) of the Schedule 13D is hereby amended in its entirety to read as
follows:
(a) As of October 1, 1999, Ventures beneficially owns 13,333,333 shares of
Series A Preferred Stock (convertible into an aggregate 2,666,666 shares of
Common Stock), 2,500,000 shares of Series B Preferred Stock (convertible into an
aggregate 2,500,000 shares of Common Stock) and Warrants to purchase up to an
aggregate of 2,000,000 shares of Common Stock. By reason of their
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<PAGE>
respective relationships with Ventures, each of the Reporting Entities may be
deemed under Rule 13d-3 under the Exchange Act to own beneficially all of the
Securities which Ventures beneficially owns. As of October 1, 1999, 7,166,666
shares of Common Stock represented approximately 53.9% of the outstanding shares
of Common Stock, based on the Company's representation in the Series B Purchase
Agreement that 6,109,026 shares of Common Stock (exclusive of the Common Stock
into which the Securities may be converted or exercised) were outstanding as of
that date.
Item 5(c) of the Schedule 13D is hereby amended in its entirety to read as
follows:
(c) Except for the Series B Purchase, none of the Reporting Entities nor,
to the best of their knowledge, any person listed in Schedule 1 to the Schedule
13D, has effected any transactions in the Common Stock in the last 60 days.
Item 7. Material to be Filed as Exhibits.
Item 7 of the Schedule 13D is hereby amended by adding the following
listing to the end of the item:
3. Securities Purchase Agreement, dated as of October 1, 1999, by and
between the Company and Ventures.
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<PAGE>
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: October 7, 1999
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
------------------------------
Joel Ackerman, Partner
WARBURG, PINCUS & CO.
By: /s/ Joel Ackerman
------------------------------
Joel Ackerman, Partner
E.M. WARBURG, PINCUS & CO., LLC
By: /s/ Joel Ackerman
------------------------------
Joel Ackerman, Member
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<PAGE>
EXHIBIT 3
SONUS CORP.
-------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------
2,500,000 Series B Convertible Preferred Shares
-------------------------------
Dated as of October 1, 1999
<PAGE>
Table of Contents
-----------------
Section
- -------
1. Sale and Purchase...........................................................1
2. Closing; Payment of Purchase Price..........................................1
3. Representations and Warranties of the Company...............................2
(a) Organization; Good Standing.......................................2
(b) Governmental Authority............................................3
(c) Authorization of Agreements.......................................3
(d) Capitalization....................................................4
(e) Authorization of Convertible Shares and Warrants..................4
(f) Consents and Approvals............................................5
(g) Noncontravention..................................................5
(f) Consents and Approvals............................................5
(h) Change in Ownership...............................................6
(i) Litigation........................................................6
(j) Reports and Financial Statements..................................7
(k) Liabilities.......................................................7
(l) Material Contracts................................................8
(m) Employees.........................................................8
(n) Employee Benefit Plans............................................9
(o) Patents, Licenses, etc...........................................10
(p) Taxes............................................................10
(q) Properties.......................................................11
(r) Condition of Properties..........................................11
(s) Insurance........................................................12
(t) No Adverse Change................................................12
(u) Transactions with Related Parties................................12
(v) Interest in Competitors..........................................12
(w) Registration Rights..............................................13
(x) Private Offering.................................................13
(z) Illegal or Unauthorized Payments; Political Contributions........13
(aa) Material Facts..................................................13
(bb) No Integrated Offering..........................................14
(cc) Accounts Receivable.............................................14
4. Covenants of the Company...................................................14
(a) Representations and Warranties...................................14
(b) Board of Directors...............................................14
(c) Use of Proceeds..................................................16
(d) Financial and Business Information...............................16
(i) Monthly and Quarterly Statements..........................16
(ii) Annual Statements.........................................16
(iii) Business Plan; Projections................................17
(iv) Audit Reports.............................................17
(v) Other Reports.............................................17
(vi) Progress Report...........................................17
(vii) Requested Information.....................................17
(e) Audit Report.....................................................18
(f) Inspection.......................................................18
(g) Takeover Statute.................................................18
(h) Conduct of Business and Maintenance of Existence.................18
(i) Compliance with Laws.............................................19
<PAGE>
(j) Insurance........................................................19
(k) Keeping of Books.................................................19
(l) Lost, etc. Certificates Evidencing Securities (or Common.........19
Shares); Exchange
(m) Limitations on Corporate Actions.................................19
(n) Commencement and Termination of Covenants........................20
(o) Form D Filing....................................................20
(y) Brokerage........................................................20
5. Representations, Warranties and Covenants of the Investor;.................21
Additional Covenants of the Company
(a) General..........................................................21
(b) Disclosure and Non-Public Information............................22
(c) Securities Act Matters...........................................23
(d) Limitation on Transfer...........................................23
(e) No Intention of Board to Pay Dividends...........................23
(g) Consents and Approvals...........................................23
6. Conditions to Closing......................................................24
(i) Representations and Warranties...........................24
(ii) Compliance with Agreement................................24
(iii) No Legislation or Injunction.............................24
(iv) Adverse Developments.....................................24
(v) Consents and Approvals...................................24
(vi) Officers' Certificate....................................24
(vii) Opinions of Counsel......................................25
(viii) Secretary's Certificate..................................25
(ix) Approval of Proceedings..................................25
(x) Warrant Agreement........................................25
(xiii) Filing of Convertible Shares Certificate.................26
(xvi) Directors................................................26
(i) Consents and Approvals...................................26
(ii) No Legislation or Injunction.............................26
(iii) General Partner's Certificate............................26
7. Expenses of Sale...........................................................26
8. Registration Rights........................................................27
9. Indemnification............................................................33
10. Contribution..............................................................36
11. Notices...................................................................37
12. Parties...................................................................38
13. Termination and Survival..................................................38
14. Amendment and Modification................................................38
15. Further Assurances........................................................39
16. Waiver of Breach..........................................................39
17. Entire Agreement..........................................................39
18. Severability..............................................................39
19. Limitation on Enforcement of Remedies.....................................39
20. Counterparts..............................................................39
21. Law.......................................................................39
Schedule 3(d) Derivative Securities
Schedule 3(f) Consents and Approvals
Schedule 3(g) Defaults
Schedule 3(k) Liabilities
Schedule 3(l) Key Agreements and Instruments
Schedule 3(m)(ii) Employment Agreements
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Schedule 3(n) Employee Benefit Plans Under ERISA
Schedule 3(q) Properties
Schedule 3(u) Related Parties
Schedule 4(m) Redemption Obligations Incurred in Connection
with the Acquisition of Hearing Clinics
Exhibit A Form of Amended and Restated Warrant Agreement
Exhibit B Form of Amended and Restated Terms of Series A Convertible
Preferred Shares
Exhibit C Form of Terms of Series B Convertible Preferred Shares
Exhibit D-1 Form of Opinion of Ballem MacInnes
Exhibit D-2 Form of Opinion of Davis & Company
Exhibit D-3 Form of Opinion of Miller, Nash, Wiener, Hager & Carlsen, LLP
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<PAGE>
SONUS CORP.
---------------------------------
SECURITIES PURCHASE AGREEMENT
---------------------------------
2,500,000 Series B Convertible Preferred Shares
---------------------------------
---------------------------------
This Securities Purchase Agreement (this "Agreement") is made as of October
1, 1999 by and between Sonus Corp., a corporation continued and existing under
the laws of Yukon Territory, Canada (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;
WHEREAS, the Investor and the Company entered into a Securities Purchase
Agreement, dated November 21, 1997 (the "1997 Securities Purchase Agreement"),
pursuant to which the Investor received 13,333,333 Series A Convertible
Preferred Shares, no par value, of the Company (the "Series A Convertible
Shares");
WHEREAS, the Investor and the Company entered into a Warrant Agreement,
dated December 24, 1997 (the "Warrant Agreement"), pursuant to which the
Investor received warrants (the "Warrants") to purchase 2,000,000 (as adjusted
for the Company's 1-for-5 reverse stock split on February 9, 1998) common
shares, without par value, of the Company (the "Common Shares").
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 2,500,000 Series B
Convertible Preferred Shares, no par value, of the Company (the "Series B
Convertible Shares" and, collectively with the Series A Convertible Shares, the
"Convertible Shares") for an aggregate purchase price of U.S. $10,000,000 (the
"Purchase Price") on the terms and conditions set forth in this Agreement. The
Series B Convertible Shares are sometimes referred to in this Agreement as the
"Securities."
2. Closing; Payment of Purchase Price. The closing of the purchase and sale
of the Securities hereunder (the "Closing") shall occur on October 1, 1999 at
the offices of Willkie Farr &
<PAGE>
Gallagher, 787 Seventh Avenue, 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 amendment and restatement to the Warrant
Agreement, in the form of Exhibit A hereto (the "Amended and Restated Warrant
Agreement"; this Agreement and the Amended and Restated Warrant Agreement are
collectively referred to herein as the "Transaction Documents"); (b) the Company
shall file articles of amendment designating the Series B Convertible Shares,
the terms thereof to be in the form of Exhibit C hereto; and (c) in
consideration and exchange for the delivery to the Investor at the Closing of a
certificate for 2,500,000 Series B Convertible Shares, the Investor shall pay to
the Company the Purchase Price by wire transfer of immediately available funds
to an account previously designated in writing by the Company. 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
continued, validly existing and in good standing under the laws of Yukon
Territory, 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;
SONUS-USA, Inc., a Washington corporation;
Hear PO Corp., a New Mexico corporation; and
SONUS-Texas, Inc., an Oregon 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
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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 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 and
territories of Canada and (ii) the by-laws or rules of the National
Association of Securities Dealers, Inc.
(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 Amended
and Restated Warrant Agreement will be, duly executed and delivered by the
Company. This Agreement constitutes, and as of the Closing Date the Amended
and Restated 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
Sections 13 and 15 of the Amended and Restated 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
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<PAGE>
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.
(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 6,109,026 Common
Shares and 13,333,333 Series A Convertible Shares, all of which have
been duly authorized and validly issued and are fully-paid and
non-assessable. The terms of the Series B 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 B Convertible Preferred Shares" and
consisting of the Series B Convertible Shares. The issuance and sale of the
Series B Convertible Shares and the Common Shares issuable upon the
conversion of the Series A
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Convertible Shares and the Series B Convertible Shares and the exercise of
the Warrants have been duly authorized by the Company and, when issued, the
Series B Convertible Shares and each Common Share issuable upon conversion
of the Series A Convertible Shares and the Series B 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. The issuance of new warrant certificates for
the Warrants, the terms of which reflect the terms of the Amended and
Restated Warrant Agreement, has been duly authorized by the Company.
(f) Consents and Approvals. Except as set forth on Schedule 3(f), the
execution and delivery by the Company of the Transaction Documents, the
issuance of the Series B Convertible Shares and the Common Shares issuable
upon the conversion of the Series A Convertible Shares and the Series B
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. Except as set forth on Schedule 3(g), neither
the Company nor any of its Subsidiaries is in violation of, or in default
under, any term or provision of (i) its constating documents, (ii) any
indenture, mortgage, deed of trust, credit agreement, note or other
evidence of 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 for the year ended July 31, 1998 as
amended by Amendment No. 1 on Form 10-KSB/A (such Form 10-KSB, as so
amended, being hereinafter referred to as the "1998 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
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<PAGE>
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 1998 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 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.
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<PAGE>
(j) Reports and Financial Statements. KPMG Peat Marwick LLP, which
rendered a report with respect to the financial statements included in the
1998 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 Reports on Form 10-QSB for the quarters ended October
31, 1998, January 31, 1999, and April 30, 1999, the Company's Registration
Statement on Form SB-2 (Registration No. 333-23137) as amended by Amendment
Nos. 1 and 2 and Post-Effective Amendment Nos. 1, 2 and 3 thereto, the 1998
Form 10-KSB, and the Company's definitive Management Information Circular
and Proxy Statement dated November 12, 1998 (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 disclosed on Schedule 3(k), and except as
and to the extent reflected or reserved against in the consolidated
financial statements of the Company included in the Company's Quarterly
Report on Form
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10-QSB for the quarter ended April 30, 1999, the Company has 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,
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 1998 Form 10-KSB. Each Key Agreement
and Instrument and any other material contract listed as an exhibit to the
1998 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 is 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, state or
provincial, 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
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<PAGE>
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 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 1998 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.
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<PAGE>
(o) Patents, Licenses, etc.
(i) Except as described in the 1998 Form 10-KSB and except with
respect to 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").
(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
the acting Chief Financial Officer and Chief Operating 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
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<PAGE>
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 1998 Form 10-KSB, in Schedule 3(q) or
such as do not materially affect the value or transferability of such
property and do not interfere with the use of such property made or
proposed to be made by the Company or such Subsidiary. The leases, licenses
or other contracts or instruments under which the Company and each
Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable 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.
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<PAGE>
(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 financial
statements in the Company's Quarterly Report on Form 10-QSB for the quarter
ended April 30, 1999, except as otherwise stated in or contemplated by the
Company's Quarterly Report on Form 10-QSB for the quarter ended April 30,
1999 or the Company's internal management reports provided to the Investor
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 1998
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.
(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.
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(w) Registration Rights. Except with respect to registration rights
granted in connection with (i) 20,000 options to purchase Common Shares
granted to The Equity Group, Inc.; (ii) Section 8 hereof; (iii) the 1997
Securities Purchase Agreement; and (iv) 94,072 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) 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
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.
(z) 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
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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.
(aa) 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.
(bb) Accounts Receivable. All Accounts Receivable payable to or for
the benefit of the Company that will be reflected on the audited balance
sheet of the Company as of July 31, 1999 (the "1999 Audited Balance
Sheet"), were legally and validly incurred pursuant to bona fide
transactions in the ordinary course of business and have been collected or
are (or will be) current and collectible in amounts not less than the
aggregate amount thereof, net of reserves, carried (or to be carried) on
the books of the Company in accordance with GAAP, and are not subject to
any counterclaims or set-offs which are not recorded in the accounts of the
Company. Reserves established against Accounts Receivable are sufficient,
and have been calculated in accordance with GAAP and consistent with past
practices. The Company has no knowledge of any facts or circumstances
generally (other than general economic conditions) which would result in
any material increase in the uncollectibility of the Accounts Receivable as
a class in excess of the reserves therefor to be set forth on the 1999
Audited Balance Sheet. "Accounts Receivable" means all accounts, notes and
leases receivable of the Company existing as of a given time.
4. Covenants of the Company. The Company covenants and agrees that:
(a) Representations and Warranties. The Company 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
(b) Board of Directors. From and after the Closing Date, and for so
long as the Investor owns beneficially
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(within the meaning of Rule 13d-3 under the Exchange Act) at least 666,666
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 less than seven (7) nor more than eleven (11). For so
long as the Investor owns beneficially (within the meaning of Rule l3d-3
under the Exchange 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 three (3) persons designated by the
Investor, who shall be reasonably satisfactory to the Company and subject
to applicable law, such number to increase to four (4) if and for as long
as the number of Directors that shall constitute the entire Board shall be
in excess of eight (8). 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 l3d-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 l3d-3 under the Exchange Act) less than 666,666 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, 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 1,333,333 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
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further transferable and shall terminate at such time as such purchaser
shall own beneficially less than 666,666 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.
(c) 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.
(d) 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
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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 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
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time to time may be reasonably requested by the Investor.
(e) Audit Report. The Company agrees to cause an audit to be performed
by KPMG Peat Marwick LLP no later than October 31, 1999, of its
consolidated balance sheet as of July 31, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows
for the fiscal year ended July 31, 1999 (collectively, the "1999 Financial
Statements"). The 1999 Financial Statements will 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 1999 Financial
Statements (i) will be prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes
thereto), (ii) will 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,
and (iii) will be, in all material respects, in accordance with the books
of account and records of the Company except as indicated therein.
(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 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
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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);
Exchange. 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, exchange or transfer all or substantially all of its
assets to any person other than an affiliate of the Company; (B)
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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. From and after the
Closing Date, the obligations of the Company and the rights of the Investor
set forth in Sections 4(d), 4(f), 4(h), 4(i), 4(j), 4(k) and 4(m) shall
terminate once the Investor no longer owns beneficially (within the meaning
of Rule l3d-3 under the Exchange Act) at least 666,666 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.
(p) Brokerage. The Company agrees to indemnify and hold the Investor
harmless against any costs or damages incurred as a result of any 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.
(q) Shareholder Approval of the Series A Amendment. At its annual
meeting of shareholders scheduled for December 15, 1999, the Company will
submit for approval by a special resolution of its shareholders the
articles of amendment (the "Series A Amendment") amending the terms of the
Series A Convertible Shares in the form of Exhibit B hereto. The Company
will, through its Board of Directors, recommend to its shareholders
approval of the Series A Amendment, such recommendation not to be
withdrawn, modified or amended. The Company shall use all best efforts to
obtain the required shareholder approval of the Series A Amendment at such
meeting and, if approval is not obtained at such meeting, as soon as
possible thereafter.
(r) Series A Amendment. Promptly after receipt of the required
shareholder approval, the Company shall file the
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Series A Amendment with the Registrar of Corporations of Yukon Territory,
Canada (the "Registrar").
(s) Shareholder Election of Investor Designee. At its annual meeting
of shareholders scheduled for December 15, 1999, the Company will submit
for election to the Board of Directors by its shareholders David Wenstrup
or, in his place, any other designee of the Investor. The Company will,
through its Board of Directors, recommend to its shareholders election of
Mr. Wenstrup or such other designee, such recommendation not to be
withdrawn, modified or amended. The Company shall use all best efforts to
obtain the required shareholder vote necessary for the election of Mr.
Wenstrup or such other designee at the annual meeting, and, if the required
vote is not obtained at the annual meeting, as soon as possible thereafter.
(t) Listing. The Company shall use all best efforts to have the
American Stock Exchange ("Amex") approve for listing, as soon as
practicable following the Closing Date, the Common Shares issuable upon the
conversion of the Series B Convertible Shares. Prior to the Closing Date,
the Company shall file with Amex the listing application and all other
documents required by Amex to list the Common Shares issuable upon the
conversion of the Series B Convertible Shares.
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 Amended and Restated Warrant Agreement will be, duly executed
and delivered by the Investor. This Agreement constitutes, and as of
the Closing Date the Amended and Restated 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
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the United States or any other applicable 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(d) and (f)
hereof) as constitutes or contains non-public business, financial or other
information of the Company or its Subsidiaries ("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 Investor'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
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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.
(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
transferable, 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) 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.
(g) Vote by Investor. The Investor hereby agrees to vote all of the
Series A Convertible Shares and all of the Series B Convertible Shares
owned by it in favor of the Series A Amendment at the meeting of
shareholders scheduled for December 15, 1999 or at any meeting of
shareholders of
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the Company at which the Series A Amendment is submitted for shareholder
approval.
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 on 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. Except for shareholder approval of
the Series A Amendment, 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.
(vi) Officers' Certificate. The Company shall have delivered to
the Investor a certificate of the Company's Chairman and Chief
Executive Officer, dated as of the Closing Date, certifying that the
conditions
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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, (b) from Davis & Company, counsel to the Company, a legal
opinion, dated as of the Closing Date, in substantially the form of
Exhibit D-2 hereto, and (c) from Miller, Nash, Wiener, Hager &
Carlsen, LLP, United States counsel to the Company, a legal opinion,
dated as of the Closing Date, in substantially the form of Exhibit D-3
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, and the
amendment amending the terms of the Series A Convertible Shares as set
forth in Exhibit B hereto and (v) proof of filing of the Articles of
Amendment to designate the Series B Convertible Shares as set forth in
Exhibit C hereto.
(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 Amended and Restated Warrant Agreement
shall have been executed and delivered.
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(xi) Filing of Articles of Amendment. The Company shall have
filed or caused to be filed with the Registrar Articles of Amendment
to amend the Company's Articles of Continuance to designate the Series
B Convertible 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.
(xii) Directors. As of the Closing Date, David Wenstrup shall
have been appointed to the Board.
(xiii) The Company shall have filed with Amex the listing
application and all other documents required by Amex to list the
Common Shares issuable upon the conversion of the Series B Convertible
Shares.
(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. Except for shareholder approval of
the Series A Amendment, 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.
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
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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. 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.
8. Registration Rights.
(a) For the purpose of this Section 8, the term "Registerable Shares"
shall mean (i) the Common Shares issuable upon the conversion of the Series
B Convertible Shares, 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 after 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
Series B 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) If the Investor intends to distribute the Registerable Shares
covered by its request pursuant to Section 8(b) by means of an
underwriting, it shall so advise
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the Company as a part of its request made pursuant to Section 8(b).
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) 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 100,000
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 Registerable Shares which would otherwise have been included in
such registration and underwriting will not thereby be limited.
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(d) If at any time subsequent to 180 days after 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.
(e) 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
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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.
(f) 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.
(g) 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(h) 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 (e)
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 Expense" shall mean all
brokerage fees, underwriting discounts and selling commissions applicable
to the sale of Registerable Shares.
(h) 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
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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.
(i) 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 this Section 8, the Investor shall without
further action be entitled to the benefits of such more favorable rights.
(j) 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
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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 as is customary
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.
(k) 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 the
Closing Date;
(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.
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(l) The Company shall not be required to effect a registration
pursuant to Section 8(b) 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(d). 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.
(m) Transfer of Registration Rights. The rights granted to the
Investor to cause the Company to register securities under Section 8(b) may
be assigned to a transferee or assignee in connection with the sale or
other transfer of at least 100,000 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 Section 8(b) 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
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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 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
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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 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
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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, who controls the Investor within the
meaning of Section
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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
787 Seventh Avenue
New York, New York 10019-6099
Facsimile: 212-728-8111
Attention: Steven J. Gartner, Esq.
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If to the Company:
Sonus Corp.
111 SW Fifth Avenue, Suite 1620
Portland, Oregon 97204
Facsimile: 503-225-9309
Attention: Mr. Brandon M. Dawson
with a copy to:
Sonus Corp.
111 SW Fifth Avenue, Suite 1620
Portland, Oregon 97204
Facsimile: 503-225-9309
Attention: Brian S. Thompson, 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(b) and Section 8(m) 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 November 30, 1999 (unless
such date is extended by mutual written consent). 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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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, whether written or oral, 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
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now or hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the jurisdiction of the Supreme Court of the State of
New York, County of New York, and the United States District Court for the
Southern District of New York in any such suit, action or proceeding. The
Company further agrees to accept and acknowledge service of any and all process
which may be served in any such suit, action or proceeding in such courts and
agrees that service of process upon the Company mailed by certified mail to the
Company's address will be deemed in every respect effective service of process
upon the Company, in any such suit, action or proceeding.
[This space intentionally left blank.]
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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.
SONUS CORP.
By: /s/ Brandon M. Dawson
------------------------------
Name: Brandon M. Dawson
Title: Chairman and
Chief Executive Officer
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
------------------------------
Name: Joel Ackerman
Title: Partner
<PAGE>
EXHIBIT A
SONUS CORP.
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
WARRANT AGREEMENT
- --------------------------------------------------------------------------------
Warrants to Purchase 2,000,000 Common Shares
- --------------------------------------------------------------------------------
THIS AMENDED AND RESTATED WARRANT AGREEMENT (this "Agreement") dated as of
October 1, 1999 is made and entered into by and between Sonus Corp., a
corporation continued and existing under the laws of Yukon Territory, Canada
(the "Company"), and Warburg, Pincus Ventures, L.P., a Delaware limited
partnership (the "Warrantholder").
Subject to the terms and conditions hereof, pursuant to a Securities
Purchase Agreement dated as of October 1, 1999, by and between the Company and
the Warrantholder (the "Securities Purchase Agreement"), the Company agrees to
(a) amend and restate, as hereinafter described, the terms of the warrants
described in and issued pursuant to that certain Warrant Agreement dated as of
December 24, 1997, by and between the Company and the Warrantholder, as
represented by Warrant Certificate No. W-1 of the Company dated December 24,
1997 (the "Old Warrant Certificate"); (b) cancel the Old Warrant Certificate;
and (c) issue to the Warrantholder, Amended and Restated Warrant Certificate No.
W-1 of the Company, the form of which is attached hereto as Exhibit 1,
representing warrants (the "Warrants") to purchase up to an aggregate of
2,000,000 common shares without par value of the Company (the "Common Shares"),
at the Warrant Price (as hereinafter defined), 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; (iii) the
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term "Warrant Price" shall mean the price per Share at which Shares shall at any
time be purchasable upon exercise of the Warrants, such price to equal U.S.
$6.75, subject to adjustment pursuant to Section 6 hereof, provided that if the
Series A Amendment Filing Date has not occurred on or prior to March 31, 2000,
then from and after March 31, 2000, such price shall equal U.S. $4.00, subject
to adjustment pursuant to Section 6 hereof; and (iv) the term "Series A
Amendment Filing Date" shall mean the date upon which the amendment and
restatement of the terms of the Series A Convertible Shares, in the form
attached to the Securities Purchase Agreement as Exhibit B, shall have occurred,
as preceded by the passing of resolutions by a majority of not less than
two-thirds of the votes cast by the holders of the Common Shares, the Series A
Convertible Shares and Series B Convertible Shares of the Company, each voting
separately as a class, as evidenced by (1) a duly executed report of an
inspector of election, (2) a copy of the articles of amendment amending the
terms of the Series A Convertible Shares, certified by the registrar of
Corporations of the Yukon Territory and (3) an opinion of counsel to the
Company, addressed to the Investor, in the form attached hereto as Exhibit 4,
and such other documentation as the Investor may reasonably request; provided
that no Series A Amendment Filing Date shall occur after March 31, 2000. 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:
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 Yukon Territory 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
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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."
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 MARCH 30, 2000 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
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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 October 1, 1999, (the "Commencement Date") and
ending at 5:00 p.m., Pacific Time, on October 1, 2004 (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.
(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.
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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 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 (y) 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.
(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.
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$8.00 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 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
Company's Series A Convertible Preferred Shares and Series B Convertible
Preferred Shares (collectively, the "Convertible Shares") and amortization
of goodwill and covenants not to compete for such quarterly periods, shall
have averaged at least U.S. $0.35 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
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surrendered Warrants are received by the Company at its principal offices.
(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
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<PAGE>
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 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:
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 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.
$6.75 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
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<PAGE>
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 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
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<PAGE>
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. $6.75 (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 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. $6.75 (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.
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<PAGE>
(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 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
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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.
(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
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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 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
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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.
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
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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.
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
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<PAGE>
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
(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
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<PAGE>
(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
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<PAGE>
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 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
787 Seventh Avenue
New York, New York 10019
Facsimile: 212-728-8111
Attention: Steven J. Gartner, Esq.
If to the Company:
Sonus Corp.
111 SW Fifth Avenue, Suite 1620
Portland, Oregon 97204
Facsimile: 503-225-9309
Attention: Mr. Brandon M. Dawson
with copy to:
Sonus Corp.
111 SW Fifth Avenue, Suite 1620
Portland, Oregon 97204
Facsimile: 503-225-9309
Attention: Brian Thompson, 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.
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
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<PAGE>
the terms of this Warrant are not and will not be adequate, and that the same
may be specifically enforced.
Section 14. Subdivisions 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.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
SONUS CORP.
By:
------------------------------
Name:
Title:
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By:
------------------------------
Name:
Title:
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<PAGE>
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.
Amended and Restated
Warrant Certificate No. W-1
SONUS CORP.
(ORGANIZED UNDER THE LAWS
OF YUKON TERRITORY)
October 1, 1999
WARRANTS TO PURCHASE COMMON SHARES
This certifies that, for value received, Warburg, Pincus Ventures, L.P.
(the "Warrantholder") is the registered owner of 2,000,000 warrants (the
"Warrants") each to purchase from Sonus Corp. (the "Company"), at any time prior
to 5:00 p.m., Pacific Time, on October 1, 2004, one common share of the Company,
without par value (a "Common Share") at a purchase price per Common Share (the
"Warrant Price"), equal to U.S. $6.75, provided that if the Series A Amendment
Filing Date has not occurred on or prior to March 31, 2000, then from and after
March 31, 2000, the Warrant Price shall equal U.S. $4.00. The Warrants are
subject to, and the Warrantholder, by acceptance of this certificate, consents
to, all the terms and provisions of, the Amended and Restated Warrant Agreement
dated as of October 1, 1999, between the Warrantholder and the Company (the
"Warrant Agreement"). Any
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<PAGE>
capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Warrant Agreement.
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.
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<PAGE>
SONUS CORP.
By:
------------------------------
Title:________________________
ATTEST:
- ------------------------------
Title:________________________
Dated: _________, 1999
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<PAGE>
EXHIBIT 2
PURCHASE FORM
Sonus Corp.
111 SW Fifth Avenue, Suite 1620
Portland, Oregon 97204
Pursuant to Section 2(a) of the Warrant Agreement, as amended, 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:
------------------------------
Name:
Title:
<PAGE>
EXHIBIT 3
CASHLESS EXERCISE FORM
Sonus Corp.
111 SW Fifth Avenue, Suite 1620
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:
<PAGE>
EXHIBIT B
SONUS CORP.
AMENDED AND RESTATED
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
(Without Par Value)
"1. Number and Designation. The number of shares to constitute this series
shall be 2,666,666 and the designation of such shares shall be the "Series A
Convertible Preferred Shares" (hereinafter called "this Series"). The number of
shares constituting this Series may be decreased from time to time by action of
the Board, but not below the number of shares of this Series then outstanding.
All shares of this Series shall be identical with each other in all respects.
The shares of this Series shall rank senior to the common shares (the "Common
Shares") of the Corporation and equal to the Series B Convertible Preferred
Shares ("Series B Convertible Shares") as to cash dividends and upon
liquidation, as described below. Any amounts herein referencing share prices or
numbers of shares shall be subject to appropriate adjustments in the event of
any stock splits, consolidations or the like.
"2. Dividend Rights.
"(a) Subject to the provisions of this Section 2, the holders of shares of
this Series shall be entitled to receive when, as and if declared by the Board,
out of assets legally available therefor, cumulative dividends ("Dividends") at
the applicable rate per annum specified in Section 2(b) hereof from the date of
issuance and payable in accordance with Section 2(c) hereof. Dividends shall be
cumulative from the date of initial issuance of the shares of this Series (the
"Initial Issuance Date"), whether or not earned or declared and whether or not
in any fiscal year there shall be assets, net profits or surplus legally
available for the payment of such Dividends. In the event that the Board shall
declare a Dividend prior to December 24, 2002, subject to applicable regulatory
approvals, such Dividend may, at the discretion of the Board, be payable in
Common Shares. The number of Common Shares to be issued to the holders of shares
of this Series upon the payment of a Dividend in Common Shares shall be the
amount of the
<PAGE>
Dividends payable to such holder pursuant to this Section 2 divided by either
(i) (if the Common Shares are not traded on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market) U.S. $6.75 or (ii) (if
the Common Shares are traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) the average Market Price of the Common
Shares as such term is defined below for the ten (10) trading days immediately
preceding the Record Date as such term is defined in Section 2(c) hereof.
Notwithstanding the foregoing, after December 24, 2002, any and all Dividends
declared must be paid in cash.
For all purposes hereof, the term "Market Price of the Common Shares" as of
any specified date shall mean: (i) if the Common Shares are listed or admitted
for trading on one or more United States national securities exchanges, the
daily closing price for the Common Shares on the principal exchange in the
United States on which the Common Shares are listed; (ii) if the Common Shares
are not listed or admitted for trading on any United States national securities
exchange, the daily closing price for the Common Shares on the Nasdaq National
or Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common Shares are not listed
or admitted for trading on a United States national securities exchange or 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. $6.75 per share of this Series
(the "Base Amount"). The Dividend rate per annum shall be subject to increase in
the event that all of the following conditions (the "Triggering Conditions")
have not been satisfied by the dates specified below: (i) the Common Shares are
listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market; (ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at a Market
Price greater than U.S. $8.00 per Common Share on each of the 10 consecutive
trading days preceding such date; and (iii) the Corporation's net income
(excluding profit or loss on disposal of a significant part of the Company's
assets or separate segment thereof, gains on restructuring payables, gains or
losses on the extinguishment of debt, expropriations of property, gains or
losses that are the direct result of a major casualty, or one-time losses
resulting from prohibition under a newly-enacted law or regulation) before
income taxes, Dividends on the shares of this Series and on the Series B
Convertible Shares and amortization of goodwill and covenants not to compete for
the three consecutive fiscal quarters preceding such date, as reported in or
derived from the Corporation's quarterly or annual reports filed with the
Securities and Exchange Commission, shall have averaged at least U.S. $0.22 per
fully diluted Common Share per fiscal quarter, provided, however, in making such
calculation, the Common Shares issuable upon exercise of the warrants issued to
Warburg, Pincus Ventures, L.P. ("Warburg"), pursuant to that certain Amended and
Restated Warrant Agreement between the Corporation and Warburg relating to
warrants to purchase 2,000,000 Common Shares (the "Amended and Restated Warrant
Agreement"), shall be excluded but Common Shares issuable upon the conversion of
the shares of this Series and the Series B Convertible Shares shall not. All
references to per share amounts or prices with respect to the Triggering
Conditions shall be appropriately adjusted for any subdivision, consolidation,
or reclassification of the Common Shares. Until the Triggering Conditions have
been satisfied, the Dividend rate per annum shall be (A) 15% of the Base Amount
per share of this Series from and after January 1, 2003 and payable in
accordance with Section 2(c) hereof commencing January 1, 2004; (B) 18% of the
Base Amount per share of this Series from and after January 1, 2004 and payable
in accordance with Section 2(c) hereof commencing January 1, 2005; and (C)
thereafter, 21% of the Base Amount per share of this Series from and after
January 1, 2005 and payable in accordance with Section 2(c) hereof commencing
January 1, 2006. Upon the satisfaction of all the Triggering Conditions, the
Dividend per share of this Series shall be computed based upon a rate per annum
of 5% of the Base Amount. Accruals of Dividends shall not bear
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<PAGE>
interest. All Dividends declared upon the shares of this Series shall be
declared pro rata per share.
"(c) The record date for the determination of the holders of shares of this
Series who shall be entitled to receive Dividends (the "Record Date") shall be
the first business day of each calendar year, and only the holders of shares of
this Series of record on the Record Date shall be entitled to receive such
Dividends. All Dividends payable to such holders of record shall be paid on the
tenth business day following the Record Date on each issued and outstanding
share of this Series.
"(d) Dividends payable on shares of this Series for any period other than a
full dividend period shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Any Dividend payment made on shares of this Series
shall first be credited against the earliest accumulated but unpaid Dividends
due with respect to the shares of this Series.
"(e) No dividends shall be declared or paid or set aside for payment on any
share capital of the Corporation ranking, as to dividends, on a parity with or
subordinate to the shares of this Series for any period unless full accumulated
Dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set aside for such payment on the shares
of this Series for all Dividend periods terminating on or prior to the date of
payment of such dividends. When Dividends are not paid in full on the shares of
this Series and any other preferred shares of the Corporation ranking with
respect to payment of dividends on a parity with the shares of this Series, all
dividends declared or paid upon shares of this Series and such other preferred
shares shall be declared and paid pro rata so that the amount of dividends
declared and paid on the shares of this Series and such other preferred shares
shall in all cases bear to each other the same ratio that accumulated dividends
per share (which in the case of noncumulative preferred shares shall not include
any accumulation in respect of unpaid dividends for prior dividend periods) on
shares of this Series and such other preferred shares bear to each other. Except
as provided in the preceding sentence, unless full accumulated Dividends have
been paid or declared and a sum sufficient for the payment thereof set aside for
payment, no dividends (other than dividends or distributions paid in Common
Shares, or options, warrants or rights to subscribe for or purchase Common
Shares, or, in each case, any other series of shares of the Corporation ranking
subordinate to the shares of this Series as to dividends and upon liquidation)
shall be declared and paid or a sum sufficient for the payment thereof set aside
for payment or any other distribution declared or made upon the Common Shares,
Series
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<PAGE>
B Convertible Shares or any other class of shares of the Corporation ranking
subordinate to or on a parity with the shares of this Series as to dividends or
upon liquidation. No Common Shares, Series B Convertible Shares or shares of any
other class of shares of the Corporation ranking subordinate to or on a parity
with the shares of this Series as to dividends or upon liquidation shall be
redeemed, purchased, retired or otherwise acquired for any consideration (and no
funds shall be paid to or made available for a sinking fund for the redemption
of any such share capital) by the Corporation (except by conversion into or
exchange for shares of the Corporation ranking subordinate to the shares of this
Series as to dividends and upon liquidation or except with respect to Common
Shares that the Corporation has become obligated to redeem prior to the issuance
of any shares of this Series upon the occurrence of specified circumstances)
unless, in each case, the full accumulated Dividends shall have been paid or
declared and a sum sufficient for the payment thereof set aside for payment.
Holders of shares of this Series shall not be entitled to any dividend, whether
payable in cash, property or stock, in excess of the full Dividends on such
shares.
"(f) Upon conversion of any shares of this Series by any holder thereof
pursuant to Section 7 hereof, any Dividends accrued and payable to such holder
shall be forfeited and the Corporation shall have no further obligation to such
holder of shares of this Series for such accumulated Dividends.
"3. Liquidation Rights. (a) In the event of any voluntary or involuntary
dissolution, liquidation, or winding up of the affairs of the Corporation, after
payment or provision for payment of the debts and other liabilities of the
Corporation and any preferential amounts payable with respect to securities of
the Corporation ranking prior to the shares of this Series ("Senior Preferred
Shares"), the holders of shares of this Series shall be entitled to receive out
of the assets of the Corporation available for distribution to shareholders,
before any distribution of assets is made to holders of the Common Shares or any
other share capital of the Corporation ranking subordinate to the shares of this
Series, a liquidating distribution in an amount equal to the greater of (i) U.S.
$6.75 per share of this Series plus an amount equal to any accrued and unpaid
Dividends (including accumulated Dividends, whether or not declared) to and
including the date of distribution or (ii) the amount distributable to the
holders of shares of this Series as if such holders had converted their shares
of this Series into Common Shares pursuant to Section 7 hereof immediately prior
to such dissolution, liquidation or winding up of the affairs of the Corporation
(plus accumulated Dividends, whether or not declared). Amounts
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payable pursuant to clause (i) or (ii) of this Section 3(a) shall be distributed
ratably among the holders of shares of this Series in proportion to the number
of shares of this Series held. After payment to the holders of shares of this
Series of the full amount to which such holders are entitled as set forth above,
the holders of shares of this Series shall have no right or claim to any of the
remaining assets of the Corporation.
"(b) If upon any such dissolution, liquidation or winding up of the affairs
of the Corporation, the assets of the Corporation distributable among the
holders of shares of this Series and the holders of all other classes or series
of shares of the Corporation ranking on a parity with the shares of this Series
shall be insufficient to permit the payment to them of the full preferential
amounts to which they are entitled, then the entire assets of the Corporation so
to be distributed shall be distributed ratably among the holders of shares of
this Series and such other classes or series of shares of the Corporation in
proportion to the sum of the accumulated dividends and the liquidation
preferences per share.
"(c) The sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 3.
"4. Optional Redemption. (a) The shares of this Series may not be redeemed
before the fifth anniversary of the Initial Issuance Date. Thereafter, the
shares of this Series shall be redeemable (subject to subsection 4(d) below) at
the option of the Corporation, in whole or in part, at the redemption price,
which shall be an amount equal to the greater of (i) U.S. $6.75 per share of
this Series plus the amount of any accrued and unpaid Dividends per share of
this Series (including accumulated Dividends, whether or not declared) or (ii)
the Fair Market Value of a share of this Series (as defined below). For purposes
hereof, the Fair Market Value shall be determined by a nationally recognized
independent investment banking firm mutually agreed to by the Corporation and
the holder of a majority of the shares of this Series then outstanding, whose
determination shall be conclusive.
"(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
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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 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
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immediately issue, at its expense, a new certificate or certificates
representing the shares of this Series not redeemed.
"(d) Except as provided in paragraph (a) above, the Corporation shall have
no right to redeem the shares of this Series. Any shares of this Series so
redeemed shall be permanently retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the Corporation may from time
to time take such appropriate corporate action as may be necessary to reduce the
authorized shares of this Series accordingly. Nothing herein contained shall
prevent or restrict the purchase by the Corporation, from time to time either at
public or private sale, of the whole or any part of the shares of this Series at
such price or prices as the Corporation may determine, subject to the provisions
of applicable law.
"5. No Mandatory Redemption. The shares of this Series shall not be subject
to mandatory redemption by the Corporation.
"6. Voting Rights. (a) Each issued and outstanding share of this Series
shall be entitled to the number of votes equal to the number of Common Shares of
the Corporation into which each such share of this Series is convertible (as
adjusted from time to time pursuant to Section 7(a) hereof), at each meeting of
shareholders of the Corporation with respect to any and all matters presented to
the shareholders of the Corporation for their action or consideration. Except as
provided by law, by the provisions of paragraph (b) below or by the provisions
establishing any other series of preferred stock of the Corporation, holders of
the shares of this Series and of any other outstanding preferred stock shall
vote together with the holders of Common Shares as a single class.
(b) In addition to any other rights provided by law, the Corporation shall
not amend, alter or repeal the preferences, special rights or other powers of
the shares of this Series or any other provision of the Corporation's constating
documents that would adversely affect the rights of the holders of the shares of
this Series, including, without limitation, any increase in the number of shares
of this Series, without the written consent or affirmative vote of the holders
of at least 66-2/3% of the then outstanding aggregate number of such adversely
affected shares of this Series, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, the authorization or issuance of any series of preferred stock of the
Corporation with preference or priority over, or being on a parity with the
shares of this Series as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or
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winding up of the Corporation shall be deemed to adversely affect the shares of
this Series.
"7. Conversion. (a) Each share of this Series may be converted at any time,
at the option of the holder thereof, in the manner hereinafter provided, into
fully-paid and nonassessable Common Shares, provided, however, that on any
redemption of any shares of this Series or any liquidation of the Corporation,
the right of conversion shall terminate at the close of business on the full
business day next preceding the date fixed for such redemption or for the
payment of any amounts distributable on liquidation to the holders of the shares
of this Series. The initial conversion rate for shares of this Series shall be
one Common Share for each one share of this Series surrendered for conversion,
representing an initial conversion price (for purposes of Section 7(g)) of U.S.
$6.75 per share of the Corporation's Common Shares (hereinafter, the "Conversion
Price"). The applicable conversion rate and Conversion Price from time to time
in effect are subject to adjustment as hereinafter provided.
"(b) Whenever the Conversion Price shall be adjusted as provided in Section
7(g) hereof, the Corporation shall forthwith file at each office designated for
the conversion of the shares of this Series, a statement, signed by any of the
Chairman of the Board, the President, any Vice President 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
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shares of this Series in the manner provided in Section 7(c) and the payment in
cash of any amount required by the provisions of Section 7(k), the Corporation
will deliver or cause to be delivered at the Conversion Office to or upon the
written order of the holder of such shares, a certificate or certificates
representing the number of full Common Shares issuable upon such conversion,
issued in such name or names as such holder may direct, subject to any
applicable contractual restrictions and any restrictions imposed by applicable
securities laws. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of certificates
representing shares of this Series in proper order for conversion, and all
rights of the holder of such shares as a holder of such shares shall cease at
such time, and the person or persons in whose name or names the certificates for
such Common Shares are to be issued shall be treated for all purposes as having
become the record holder or holders thereof at such time; provided, however,
that any such surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or persons in whose name
or names the certificates for such Common Shares are to be issued as the record
holder or holders thereof for all purposes immediately prior to the close of
business on the next succeeding day on which such stock transfer books are
opened.
"(e) Upon conversion in the manner provided in this Section 7 of only a
portion of the number of shares of this Series represented by a certificate so
surrendered for conversion, the Corporation shall issue and deliver or cause to
be delivered at the Conversion Office to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate or certificates representing the number of shares
of this Series representing the unconverted portion of the certificate so
surrendered, issued in such name or names as such holder may direct, subject to
any applicable contractual restrictions and any restrictions imposed by
applicable securities laws.
"(f) All shares of this Series which shall have been surrendered for
conversion as herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the rights, if any, to receive
notices and to vote, shall forthwith cease and terminate except only the right
of the holder thereof to receive Common Shares in exchange therefor. Any shares
of this Series so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized shares of this Series accordingly.
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<PAGE>
"(g) Anti-Dilution Provisions.
(i) In order to prevent dilution of the right granted hereunder, the
Conversion Price shall be subject to adjustment from time to time in accordance
with this paragraph 7(g)(i). At any given time the Conversion Price shall be
that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one Common Share of the Corporation upon
conversion of shares of this Series. Upon each adjustment of the Conversion
Price pursuant to this Section 7(g), the registered holder of shares of this
Series shall thereafter be entitled to acquire upon exercise, at the Conversion
Price resulting from such adjustment, the number of Common Shares of the
Corporation obtainable by multiplying the Conversion Price in effect immediately
prior to such adjustment by the number of shares of Common Shares of the
Corporation acquirable immediately prior to such adjustment and dividing the
product thereof by the Conversion Price resulting from such a adjustment. For
purposes of this Section 7(g), the term "Number of Common Shares Deemed
Outstanding" at any given time shall mean the sum of (x) the number of shares of
the Corporation's Common Shares outstanding at such time, (y) the number of
Common Shares of the Corporation issuable assuming conversion at such time of
all outstanding shares of the Corporation's other series of convertible
preferred stock, if any, and (z) the number of Common Shares of the Corporation
deemed to be outstanding at such time under subparagraphs 7(g)(ii)(1) to (8),
inclusive.
(ii) Except as provided in paragraph 7(g)(iii) or 7(g)(vi) below, if and
whenever on or after the Initial Issuance Date, the Corporation shall issue or
sell, or shall in accordance with subparagraphs 7(g)(ii)(1) to (8), inclusive,
be deemed to have issued or sold (such issuance or sale, whether actual or
deemed, the "Triggering Transaction") any Common Shares for a consideration per
share less than,
(I) (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) the
Conversion Price in effect immediately prior to the time of such issuance
or sale, then forthwith upon such issuance or sale the Conversion Price
shall, subject to subparagraphs (1) to (8) of this Section 7(g)(ii), be
reduced to the Conversion Price (calculated to the nearest tenth of a cent)
determined by dividing: (i) an amount equal to the sum of (x) the product
derived by multiplying the Number of Common Shares Deemed Outstanding
immediately prior to such Triggering Transaction by the Conversion Price
then in effect, plus (y) the consideration, if any, received by the Company
upon consummation of such Triggering Transaction, by (H) an amount equal to
the sum of (x) the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction plus (y) the number of Common Shares
issued (or deemed to be issued
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<PAGE>
in accordance with subparagraphs 7(g)(ii)(l) to (8)) in connection with the
Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market) the average
Market Price for the ten trading days immediately preceding such issuance
or sale, then forthwith upon such Triggering Transaction, the Conversion
Price shall, subject to subparagraphs (1) to (8) of this Section 7(g)(ii),
be reduced to the Conversion Price (calculated to the nearest tenth of a
cent) determined by multiplying the Conversion Price in effect immediately
prior to the time of such Triggering Transaction by a fraction, the
numerator of which shall be the sum of (x) the Number of Common Shares
Deemed Outstanding immediately prior to such Triggering Transaction and (y)
the number of Common Shares which the aggregate consideration received by
the Company upon such Triggering Transaction would purchase at the average
Market Price for the ten trading days immediately preceding such Triggering
Transaction, and the denominator of which shall be the Number of Common
Shares Deemed Outstanding immediately after such Triggering Transaction.
For purposes of determining the adjusted Conversion Price under this
paragraph 7(g)(ii), the following subsections (1) to (8), inclusive, shall be
applicable:
(1) In case the Corporation at any time shall in any manner grant
(whether directly or by assumption in an amalgamation or otherwise) any
rights to subscribe for or to purchase, or any options for the purchase of,
Common Shares or any stock or other securities convertible into or
exchangeable for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), whether or not such Options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which the Common
Shares are issuable upon exercise, conversion or exchange (determined by
dividing (x) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (y) the total
maximum number of Common Shares issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities) shall be less
than the average Market Price in effect
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for the ten trading days immediately prior to the time of the granting of
such Option (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) or the
Conversion Price in effect immediately prior to the time of such issuance
or sale (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market), then
the total maximum amount of Common Shares issuable upon the exercise of
such Options or, in the case of Options for Convertible Securities, upon
the conversion or exchange of such Convertible Securities, shall (as of the
date of granting of such Options) be deemed to be outstanding and to have
been issued and sold by the Corporation for such price per share. No
adjustment of the Conversion Price shall be made upon the actual issuance
of such Common Shares or such Convertible Securities upon the exercise of
such Options, except as otherwise provided in subparagraph (3) below.
(2) In case the Corporation at any time shall in any manner issue
(whether directly or by assumption in an amalgamation or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Shares are issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by (y)
the total maximum number of Common Shares issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the average
Market Price in effect for the ten-day trading period immediately prior to
the time of such issue or sale (if the Common Shares are traded on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market) or the Conversion Price in effect immediately prior to 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.
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(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Shares shall change at any time (other than under or by reason
of provisions designed to protect against dilution of the type set forth in
paragraphs 7(g)(ii) or 7(g)(iv)), the Conversion Price in effect at the
time of such change shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or rate, as the case may be, at the time
initially granted, issued or sold. If the purchase price provided for in
any Option referred to in subparagraph (1) or the additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraphs (1) or (2), or the rate at which
any Convertible Securities referred to in subparagraphs (1) or (2) are
convertible into or exchangeable for Common Shares, shall be reduced at any
time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Shares
upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as to
such Common Shares and had adjustments been made upon the issuance of the
Common Shares delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Conversion Price then
in effect hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such
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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
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which would have been issued with respect to such Common Shares by reason of
stock splits, stock dividends, amalgamations or reorganizations, or for any
other reason). For the purposes of this paragraph 7(g)(iii), a dividend other
than in cash shall be considered payable out of earnings or earned surplus only
to the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend as determined in good faith by the Board.
(iv) In case the Corporation shall at any time subdivide (other than by
means of a dividend payable in Common Shares covered by paragraph 7(g)(ii)(7))
its outstanding Common Shares into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and, conversely, in case the outstanding Common Shares of the
Corporation shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
(v) If any capital reorganization or reclassification of the share capital
of the Corporation, or amalgamation of the Corporation with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Shares shall be entitled
to receive stock, securities, cash or other property with respect to or in
exchange for Common Shares, then, as a condition of such reorganization,
reclassification, amalgamation or sale, lawful and adequate provision shall be
made whereby the holders of shares of this Series shall have the right to
acquire and receive upon conversion of the shares of this Series, which right
shall be prior to the rights of the holders of stock 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
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shall have been given a reasonable opportunity to then elect to receive upon the
conversion of the shares of this Series either the stock, securities or assets
then issuable with respect to the Common Shares of the Corporation or the stock,
securities or assets, or the equivalent, issued to previous holders of the
Common Shares in accordance with such offer. For purposes hereof, the term
"Affiliate" with respect to any given person shall mean any person controlling,
controlled by or under common control with the given person.
(vi) The provisions of this Section 7(g) shall not apply to any Common
Shares issued, issuable or deemed outstanding under subparagraphs 7(g)(ii)(1) to
(8) inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees of the Corporation or
its subsidiaries in effect on the Initial Issuance Date or thereafter adopted by
the Board of Directors of the Corporation, (ii) pursuant to options, warrants
and conversion rights in existence on the Initial Issuance Date, (iii) upon
exercise of the warrants of the Corporation issued to Warburg pursuant to the
Amended and Restated Warrant Agreement or (iv) on conversion of the shares of
this Series or the sale of any additional shares of this Series.
(vii) In the event that:
(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
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dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization,
reclassification, amalgamation, sale, dissolution, liquidation or
winding up; and
(B) in the case of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the
same shall take place.
Such notice in accordance with the foregoing clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, amalgamation, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of the shares of this Series at the
address of each such holder as shown on the books of the Corporation.
(viii) If at any time or from time to time on or after the Initial Issuance
Date, the Corporation shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of the Common Shares of the Corporation and such grants,
issuances or sales do not result in an adjustment of the Conversion Price under
paragraph 7(g)(ii) hereof, then each holder of shares of this Series shall be
entitled to acquire (within thirty (30) days after the later to occur of the
initial exercise date of such Purchase Rights or receipt by such holder of the
notice concerning Purchase Rights to which such holder shall be entitled under
paragraph 7(g)(vii)) and upon the terms applicable to such Purchase Rights
either:
(A) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of Common Shares acquirable
upon conversion of shares of this Series immediately before the
grant, issuance or sale of such Purchase Rights; provided that if
any Purchase Rights were distributed to holders of Common Shares
without the payment of additional consideration by such holders,
corresponding Purchase Rights shall be distributed to the
exercising holders of the shares of this Series as 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
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<PAGE>
(B) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the
number of Common Shares or the amount of property which such
holder could have acquired upon such exercise at the time or
times at which the Corporation granted, issued or sold such
expired Purchase Rights.
(ix) If any event occurs as to which, in the opinion of the Board, the
provisions of this Section 7(g) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders of the shares of
this Series in accordance with the essential intent and principles of such
provisions, then the Board shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the Conversion Price as otherwise determined pursuant to
any of the provisions of this Section 7(g) except in the case of a combination
of shares of a type contemplated in paragraph 7(g)(iv) and then in no event to
an amount larger than the Conversion Price as adjusted pursuant to paragraph
7(g)(iv).
"(h) No fractional Common Shares shall be issued upon the conversion
of any share or shares of this Series. If any fractional interest in a
Common Share would, except for the provisions of this Section 7(h), be
deliverable upon the conversion of any share or shares of this Series, the
Corporation shall in lieu of delivering the fractional Common Share
therefor satisfy such fractional interest by payment to the holder of such
surrendered share or shares of this Series of an amount in cash equal
(computed to the nearest cent) to the current market value of such
fractional interest, computed on the basis of the Market Price of the
Common Shares on the date of such conversion, provided, however, that no
amount shall be paid by the Corporation to such holder of less than U.S.
$5.00.
"(i) The Corporation shall be entitled to effect the mandatory
conversion, in whole or in part, of the shares of this Series in accordance
with this Section 7 if all of the following conditions (the "Mandatory
Conversion Conditions") have been satisfied as of the date of the notice
described below: (i) the Common Shares are listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; (ii)
the Common Shares are traded on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market at a Market Price greater than
U.S. $8.00 per Common Share on each of the 10 consecutive trading days
preceding such date; and (iii) the Corporation's net income (excluding
profit or loss on disposal of a significant part of the Company's assets or
separate segment thereof, gains on restructuring payables, gains or losses
on the extinguishment of debt, expropriations of property,
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gains or losses that are the direct result of a major casualty, or one-time
losses resulting from prohibition under a newly-enacted law or regulation)
before income taxes, Dividends on the shares of this Series and the Series
B Convertible Shares and amortization of goodwill and covenants not to
compete for the three consecutive fiscal quarters preceding such date, as
reported in or derived from the Corporation's quarterly or annual reports
filed with the Securities and Exchange Commission, shall have averaged at
least U.S. $0.22 per fully diluted Common Share per fiscal quarter,
provided, however, in making such calculation, the Common Shares issuable
upon exercise of the warrants issued to Warburg pursuant to the Amended and
Restated Warrant Agreement, shall be excluded but Common Shares issuable
upon the conversion of the shares of this Series and the Series B
Convertible Shares shall not. All references to per share amounts or prices
with respect to the Mandatory Conversion Conditions shall be appropriately
adjusted for any subdivision, consolidation, or reclassification of the
Common Shares.
Upon such mandatory conversion, each share of this Series subject to such
conversion shall be converted into Common Shares at the then effective
Conversion Price for such shares. In case the Corporation shall desire to
exercise the right to convert all or, as the case may be, any shares of this
Series in accordance with the right to do so, it shall provide notice to the
holders of the shares of this Series to be converted as hereinafter provided in
this Section 7(i).
"(i) A notice of conversion shall be given to the holders of
shares of this Series to be converted by mailing by first-class mail
to their last addresses as they shall appear upon the register for
shares of this Series not less than 120 calendar days prior to the
date fixed for conversion.
"(ii) Each such notice of conversion (A) shall specify the date
fixed for conversion and the number of Common Shares issuable to the
holder of a share of this Series upon such conversion, (B) shall state
the offices or agencies to be maintained by the Corporation for the
purpose of such conversion, upon presentation and surrender of such
shares of this Series and (C) if less than all the shares of this
Series are to be converted, shall specify the number of shares of this
Series held by each holder, and the serial numbers of the certificates
thereof, to be converted. In case any certificate representing shares
of this Series is to be converted in part only, the notice of
conversion which relates to such certificate shall state the number of
shares of this Series represented by such certificate to be converted
and shall state that on and after the conversion date, upon surrender
of such certificate, a
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<PAGE>
new certificate or certificates for a number of shares of this Series
equal to the unconverted portion thereof will be issued.
"(j) The Corporation will at all times reserve and keep available,
solely for the purposes of the issuance of Common Shares upon conversion of
the shares of this Series, the full number of Common Shares as shall be
issuable upon the conversion of all such outstanding shares of this Series.
The Corporation will endeavor to comply with all securities laws
regulating the offer and delivery of Common Shares upon conversion of the
shares of this Series and, that if any Common Shares required to be
reserved for purposes of conversion of the shares hereunder require
registration with or approval of any governmental authority under any U.S.
(federal or state) or Canadian law before such Common Shares may be validly
issued or delivered upon conversion, the Corporation will, in good faith
and as expeditiously as possible, endeavor to secure such registration or
approval, as the case may be.
"All Common Shares which shall be issued upon conversion of the shares
of this Series will upon issuance be fully paid and nonassessable and not
subject to preemptive rights.
"(k) The issuance of certificates for Common Shares upon conversion of
shares of this Series shall be made without charge for any stamp or other
similar tax in respect of such issuance. However, if any such certificate
is to be issued in a name other than that of the holder of record of the
share or shares of this Series so converted, the holder thereof shall pay
to the Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not
payable.
"(l) In case (A) the Corporation shall take any action which would
require an adjustment in the number of Common Shares issuable to holders of
shares of this Series upon conversion thereof pursuant to Section 7(g)
above; or (B) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation; then the
Corporation shall cause to be given to the holders of the shares of this
Series at least ten days prior to the applicable record date hereinafter
specified, a notice of (X) the date on which a record is to be taken for
the purpose of any dividend, distribution or grant to holders of Common
Shares which would require such an adjustment, or, if a record is not to be
taken, the date as of which the holders of Common Shares of record to be
entitled to such dividend, distribution, or grant are to be determined or
(Y) the date on which such reorganization, reclassification,
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amalgamation, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their
Common Shares for securities or other property or other assets deliverable
upon such reorganization, reclassification, amalgamation, sale, transfer,
dissolution, liquidation, or winding up. Failure to give such notice or any
defect therein shall not affect the legality or validity of any proceedings
described in subparagraphs (A) or (B) of this Section 7(l).
"8. Miscellaneous.
"(a) For the purposes hereof:
"(i) the term "outstanding", when used in reference to
shares of this Series, shall mean issued shares of this Series,
excluding shares of this Series called for redemption; and
"(ii) any shares of a series or class of shares of the
Corporation shall be deemed to rank:
"(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
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<PAGE>
shares of this Series, if the rights of the holders of such
shares of a series or class of shares shall be subordinate
to the rights of the holders of shares of this Series in
respect of the receipt from the Corporation of dividends and
of amounts distributable upon liquidation, dissolution or
winding up, including, without limitation, the Common Shares
of the Corporation.
"(b) So long as any shares of this Series are outstanding, in the
event of any conflict between the provisions hereof and any corporate
document of the Corporation (both as presently existing or hereafter
amended and supplemented) the provisions hereof, as the same may be amended
or supplemented, shall be and remain controlling.
"(c) The holders of the shares of this Series shall have no preemptive
rights.
<PAGE>
EXHIBIT C
SONUS CORP.
TERMS OF SERIES B CONVERTIBLE PREFERRED SHARES
(Without Par Value)
"1. Number and Designation. The number of shares to constitute this series
shall be 2,500,000 and the designation of such shares shall be the "Series B
Convertible Preferred Shares" (hereinafter called "this Series"). The number of
shares constituting this Series may be decreased from time to time by action of
the Board, but not below the number of shares of this Series then outstanding.
All shares of this Series shall be identical with each other in all respects.
The shares of this Series shall rank senior to the common shares (the "Common
Shares") of the Corporation and equal to the Series A Convertible Preferred
Shares ("Series A Convertible Shares") as to 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 and as declared by the Board, out
of any funds legally available therefor, preferential cumulative dividends
("Dividends") (i) at a rate per annum per share equal to eight percent (8.0%) of
the Conversion Price (as hereinafter defined), payable as provided in Section
2(b) hereof, through October 31, 2004; (ii) from November 1, 2004 through
October 31, 2005; at a rate per annum per share equal to twelve percent (12.0%)
of the Conversion Price, payable in U.S. dollars; (iii) from November 1, 2005
through October 31, 2006, at a rate per annum per share equal to fifteen percent
(15.0%) of the Conversion Price, payable in U.S. dollars; and (iv) from and
after November 1, 2006, at a rate per annum per share equal to eighteen percent
(18.0%) of the Conversion Price, payable in U.S. dollars. Full cumulative
Dividends shall be paid before any dividends shall be set apart for or paid in
any year upon the Common Shares or any other shares ranking as to dividends
junior to this Series (such Common Shares and other shares being referred to
hereinafter collectively as "Junior Stock"). Accruals of Dividends under Section
2(b)(i) shall not bear interest. All Dividends declared upon the shares of this
Series shall be declared pro rata per share.
<PAGE>
"(b) (i) No Dividends on this Series will be declared until October 31,
2000. At such time, if the Corporation's EBTA, as reported in or derived from
the Corporation's annual report filed with the Securities and Exchange
Commission, for the fiscal year ended July 31, 2000, is equal to or greater than
U.S. $0.20 (excluding CFO Costs) per fully diluted Common Share, as measured to
include Common Shares issuable upon the conversion of the shares of this Series
and the Series A Convertible Shares but to exclude the Common Shares issuable
upon the exercise of the Warburg Warrants (the "Fully Diluted Common Shares"),
then the holders of shares of this Series shall be entitled to receive when and
as declared by the Board out of assets legally available therefor a Dividend in
respect of the period beginning on the Initial Issuance Date (as defined below)
and ending on October 31, 2000, and each quarter thereafter, in each case
payable in U.S. dollars, before any dividends shall be set apart for or paid
upon any Junior Stock in any year. "EBTA" means net income (excluding profit or
loss on disposal of a significant part of the Corporation's assets or separate
segment thereof, gains on restructuring payables, gains or losses on the
extinguishment of debt, expropriations of property, gains or losses that are the
direct result of a major casualty, or one-time losses resulting from prohibition
under a newly-enacted law or regulation) before income taxes, Dividends on the
shares of this Series and the Corporation's Series A Convertible Shares, and
amortization of goodwill and covenants not to compete. "CFO Costs" means the
costs, if such person is hired by the Corporation on or before January 31, 2000,
of (i) retaining an executive search firm to hire a chief financial officer for
the Corporation and (ii) relocating such person. "Warburg Warrants" means the
warrants to purchase 2,000,000 Common Shares issued to Warburg, Pincus Ventures,
L.P. ("Warburg") pursuant to that certain amended and restated warrant agreement
between the Corporation and Warburg dated as of the Initial Issuance Date.
(ii) If EBTA per Fully Diluted Common Share for the fiscal year ended July
31, 2000 is less than U.S. $0.20 (excluding CFO Costs), then Dividends will not
be payable until such time as the Corporation meets the quarterly EBTA targets
set forth below for four (4) consecutive fiscal quarters. From and after such
time, Dividends will be payable quarterly in cash in U.S. dollars, before any
dividends shall be set apart for or paid upon any Junior Stock in any year. If
the Corporation has not met the quarterly EBTA targets set forth below for four
(4) consecutive fiscal quarters by the fiscal quarter ended July 31, 2002, then
Dividends will not be payable on shares of this Series.
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<PAGE>
Target EBTA per Fully Diluted
Period Common Share
- ------ ------------------------------
Fiscal quarter ending 10/31/99 U.S. $0.02
Fiscal quarter ending 1/31/00 0.03
Fiscal quarter ending 4/30/00 0.07
Fiscal quarter ending 7/31/00 0.08
Fiscal quarter ending 10/31/00 0.07
Fiscal quarter ending 1/31/01 0.10
Fiscal quarter ending 4/30/01 0.15
Fiscal quarter ending 7/31/01 0.17
Fiscal quarter ending 10/31/01 0.16
Fiscal quarter ending 1/31/02 0.20
Fiscal quarter ending 4/30/02 0.26
Fiscal quarter ending 7/31/02 0.30
"(c) To the extent payable pursuant to Section 2(b) hereof, Dividends on
this Series shall accrue quarterly on October 31, January 31, April 30 and July
31 of each year, beginning October 31, 1999, and shall be cumulative from the
date of initial issuance of the shares of this Series (the "Initial Issuance
Date"), whether or not earned or declared and whether or not in any fiscal year
there shall be assets, net profits or surplus legally available for the payment
of such Dividends in respect of such fiscal year, so that if in any fiscal year
or years, Dividends are not paid upon shares of this Series in the full amounts
specified in Section 2(a) hereof, unpaid Dividends which are payable under
Section 2(b) hereof shall accumulate as against the holders of the Junior Stock
and any sums in any later years shall be paid to the holders of this Series with
respect to any prior year or years when Dividends were not paid.
"(d) 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
thirty (30) days prior to any payment date, and only the holders of shares of
this Series of record on the Record Date shall be entitled to receive such
Dividends.
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<PAGE>
"(e) 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.
"(f) 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 or in respect of the
Common Shares, Series A Convertible Shares or any other class of shares of the
Corporation ranking subordinate to or on a parity with the shares of this Series
as to dividends or upon liquidation. No Common Shares, Series A Convertible
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, retired or otherwise acquired for
any consideration (and no funds shall be paid to or made available for a sinking
fund for the redemption of any such share capital) by the Corporation (except by
conversion into or exchange for shares of the Corporation ranking subordinate to
the shares of this Series as to dividends and
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<PAGE>
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 in respect of this Series 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.
"(g) 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 each share 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 Junior Stock, a
liquidating distribution in an amount equal to the Conversion Rate multiplied by
the greater of (i) the Conversion Price per share of this Series plus an amount
equal to any accrued and unpaid Dividends, whether or not declared (including
accumulated Dividends), to and including the date of distribution or (ii) the
per share 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
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<PAGE>
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, each
share of this Series shall be redeemable (subject to subsection 4(d) below) at
the option of the Corporation, in whole or in part, at the redemption price,
which shall be an amount equal to the Conversion Rate multiplied by the greater
of (i) the Conversion Price 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
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<PAGE>
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 the
number of shares of this Series equal to the unredeemed portion thereof
will be issued.
"(iv) If less than all the shares of this Series are to be redeemed,
the Corporation shall effect such redemption pro rata among the holders
thereof (based on the number of shares of this Series held on the date of
notice of redemption).
"(c) (i) If the giving of notice of redemption shall have been completed as
provided above, the shares of this Series specified in such notice shall become
redeemable, and shall be redeemed by the Corporation upon presentation and
surrender of the certificate representing such shares, on the date and at the
place stated in such notice at the redemption price, and on and after such date
fixed for redemption, notwithstanding that any certificate for shares of this
Series so called for redemption shall not have been surrendered for
cancellation, unless there shall have been a default in payment of the
redemption price, all shares of this Series called for redemption shall no
longer be deemed to be outstanding, and all rights with respect to such shares
of this Series shall forthwith cease and terminate except only the right of the
holders thereof to receive from the Corporation the redemption price, without
interest, of the shares to be redeemed, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever.
"(ii) Upon presentation of any certificate representing shares of this
Series only a portion of which are to be redeemed, the Corporation shall
immediately issue, at its expense, a new certificate or certificates
representing the shares of this Series not redeemed.
"(d) Except as provided in paragraph (a) above, the Corporation shall have
no right to redeem the shares of this Series. Any shares of this Series so
redeemed shall be permanently retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the Corporation may from time
to time take such appropriate corporate action as may be necessary to reduce the
authorized shares of this Series accordingly. Nothing herein contained shall
prevent or restrict the purchase by
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<PAGE>
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 Conversion Rate (as
adjusted from time to time pursuant to Section 7(a) hereof), at each meeting of
shareholders of the Corporation with respect to any and all matters presented to
the shareholders of the Corporation for their action or consideration. Except as
provided by law, by the provisions of paragraph (b) below or by the provisions
establishing the terms of any other class of preferred stock of the Corporation,
holders of the shares of this Series and of any other outstanding preferred
stock, including without limitation the Series A Convertible Shares, shall vote
together with the holders of Common Shares as a single class.
(b) In addition to any other rights provided by law, the Corporation shall
not amend, alter or repeal the preferences, special rights or other powers of
the shares of this Series or any other provision of the Corporation's constating
documents that would adversely affect the rights of the holders of the shares of
this Series, including, without limitation, any increase in the number of shares
of this Series, without the written consent or affirmative vote of the holders
of at least 66-2/3% of the then outstanding aggregate number of such adversely
affected shares of this Series, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, the authorization or issuance of any series of preferred stock of the
Corporation with preference or priority over, or being on a parity with the
shares of this Series as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to adversely affect the shares of this Series.
"7. Conversion. (a) (i) 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.
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<PAGE>
The number of Common Shares of the Corporation into which each share of this
Series is convertible (the "Conversion Rate") shall equal, for each one share of
this Series, such number of Common Shares equal to (I)(A) the sum of (1) U.S.
$10,000,000 plus (2) the sum of any Adjustment Amounts for any fiscal periods
preceding the last completed fiscal period (the sum of the amounts in (A)(1) and
(A)(2), the "Base Factor") plus (B) the Adjustment Amount, if any, for the last
completed fiscal period, divided by (II) the conversion price for shares of this
Series (the "Conversion Price"), divided by (III) 2,500,000. The initial
Conversion Rate 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. $4.00 per share of the Corporation's Common
Shares. The applicable Conversion Rate and Conversion Price from time to time in
effect are subject to adjustment as hereinafter provided.
(ii) For purposes hereof, the term "Adjustment Amount" shall mean (a)
$800,000 as of October 31, 2000, (b) two percent (2.0%) of the Base Factor in
effect at such time, for any adjustment occurring from November 1, 2000 through
October 31, 2004; (c) three percent (3.0%) of the Base Factor in effect at such
time, for any adjustment occurring from November 1, 2004 through October 31,
2005; (d) three and three-quarters percent (3.75%) of the Base Factor in effect
at such time, for any adjustment occurring from November 1, 2005 through October
31, 2006; and (e) four and one-half percent (4.5%) of the Base Factor in effect
at such time, for any adjustment occurring from and after November 1, 2006;
provided, however, that in the event that EBTA per Fully Diluted Common Share
for the fiscal year ended July 31, 2000 is greater than or equal to U.S. $0.20
(excluding CFO Costs), then the Adjustment Amount for all purposes shall be
zero; and provided, further, that in the event the EBTA per Fully Diluted Common
Share for the fiscal year ended July 31, 2000 is less than U.S. $0.20 (excluding
CFO Costs) and the Corporation meets the quarterly EBTA targets set forth below
for four (4) consecutive fiscal quarters thereafter, the Adjustment Amount shall
be zero in respect of any fiscal quarter ended on or after the last day of such
fourth consecutive fiscal quarter. For purposes of paragraph (i) above and
clauses (b)-(e) of this paragraph (ii), the Adjustment Amount shall be
determined and the Conversion Rate shall be adjusted as of the end of each
fiscal quarter. Any conversion of shares of this Series shall be made at the
Conversion Rate in effect as of the end of the fiscal quarter ended immediately
prior to the date of such conversion.
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<PAGE>
Target EBTA per Fully Diluted
Period Common Share
- ------ ------------------------------
Fiscal quarter ending 10/31/99 U.S. $0.02
Fiscal quarter ending 1/31/00 0.03
Fiscal quarter ending 4/30/00 0.07
Fiscal quarter ending 7/31/00 0.08
Fiscal quarter ending 10/31/00 0.07
Fiscal quarter ending 1/31/01 0.10
Fiscal quarter ending 4/30/01 0.15
Fiscal quarter ending 7/31/01 0.17
Fiscal quarter ending 10/31/01 0.16
Fiscal quarter ending 1/31/02 0.20
Fiscal quarter ending 4/30/02 0.26
Fiscal quarter ending 7/31/02 0.30
(iii) As of October 31, 2000, the Conversion Price will be reduced by the
Per Share Valuation Adjustment, if any. "Per Share Valuation Adjustment" means
the Valuation Adjustment divided by the sum of (i) the total number of issued
and outstanding Common Shares as of September 30, 1999 plus (ii) the total
number of Shares into which the outstanding Series A Convertible Preferred
Shares are convertible plus (iii) the total number of Shares into which the
outstanding convertible notes of the Corporation are convertible as of September
30, 1999 plus (iv) the total number of Shares into which the outstanding shares
of this Series are convertible as of October 31, 2000. "Valuation Adjustment"
means the Reserve Deficiency multiplied by a factor of 7. "Reserve Deficiency"
means the amount, if any, by which $4,736,000 exceeds the amounts collected by
the Corporation on or before July 31, 2000 for services performed on or before
July 31, 1999. No later than October 31, 2000, the Chief Financial Officer of
the Corporation shall certify as to the Reserve Deficiency to each record holder
of shares of this Series. At the request of any record holder of the shares of
this Series, the Corporation shall cause the Reserve Deficiency to be verified
by an audit performed by an internationally-recognized independent public
accounting firm.
"(b) Whenever the Conversion Price or the Conversion Rate shall be adjusted
as provided in Section 7(a)(i) or Section 7(g) hereof, the Corporation shall
forthwith file at
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<PAGE>
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 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
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<PAGE>
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 by the Conversion Price resulting from such a adjustment. For
purposes of this Section 7(g), the term "Number of Common Shares Deemed
Outstanding" at any given time shall mean the sum of (x) the number of
shares of the Corporation's Common Shares outstanding at such time, (y) the
number of Common Shares of the Corporation issuable assuming conversion at
such time of all outstanding shares of the Corporation's other series of
convertible preferred
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<PAGE>
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. For all purposes hereof, the term "Market Price," as to 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 Corporation; 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 Corporation 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 Corporation 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.
(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 Triggering Transaction the
Conversion
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<PAGE>
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 Corporation upon consummation
of such Triggering Transaction, by (H) an amount equal to the sum of
(x) the Number of Common Shares Deemed Outstanding immediately prior
to such Triggering Transaction plus (y) the number of Common Shares
issued (or deemed to be issued in accordance with subparagraphs
7(g)(ii)(l) to (8)) in connection with the Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
the average Market Price for the ten trading days immediately
preceding such issuance or sale, then forthwith upon such Triggering
Transaction, the Conversion Price shall, subject to subparagraphs (1)
to (8) of this Section 7(g)(ii), be reduced to the Conversion Price
(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
Corporation upon such Triggering Transaction would purchase at the
average Market Price for the ten trading days immediately preceding
such Triggering Transaction, and the denominator of which shall be the
Number of Common Shares Deemed Outstanding immediately after such
Triggering Transaction.
For purposes of determining the adjusted Conversion Price under this
paragraph 7(g)(ii), the following subsections (1) to (8), inclusive, shall be
applicable:
(1) In case the Corporation at any time shall in any manner grant
(whether directly or by assumption in an amalgamation or otherwise) any
rights to subscribe for or to purchase, or any options for the purchase of,
Common Shares or any stock or other securities convertible into or
exchangeable for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), whether or not such Options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which the Common
Shares are issuable upon exercise,
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<PAGE>
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 Options (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 the granting of such Options (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 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 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
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<PAGE>
National Market) or the Conversion Price in effect immediately prior to the
time of such issue 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 additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraphs (1) or (2), or the rate at which
any Convertible Securities referred to in subparagraphs (1) or (2) are
convertible into or exchangeable for Common Shares, shall be reduced at any
time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Shares
upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have been
obtained had such Option or Convertible Security never been issued as to
such Common Shares and had adjustments been made upon the issuance of the
Common Shares delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is hereby reduced.
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<PAGE>
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Conversion Price then
in effect hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any Common Shares, Options or Convertible Securities shall
be issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor (before deduction for expenses or underwriters'
discounts or commissions related to such issue or sale). In case any Common
Shares, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such
consideration as determined in good faith by the Board of Directors of the
Corporation.
(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.
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<PAGE>
(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 U.S. generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries (herein referred to as "Liquidating Dividends"), then, as soon
as possible after the conversion of any shares of this Series, the Corporation
shall, subject to applicable law, pay to the person converting such shares of
this Series an amount equal to the aggregate value at the time of such exercise
of all Liquidating Dividends (including but not limited to the Common Shares
which would have been issued at the time of such earlier exercise and all other
securities which would have been issued with respect to such Common Shares by
reason of stock splits, stock dividends, amalgamations or reorganizations, or
for any other reason). For the purposes of this paragraph 7(g)(iii), a dividend
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as determined in good faith by the
Board.
(iv) In case the Corporation shall at any time subdivide (other than by
means of a dividend payable in Common Shares covered by paragraph 7(g)(ii)(7))
its outstanding Common Shares into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and, conversely, in case the outstanding Common Shares of the
Corporation shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
(v) If any capital reorganization or reclassification of the share capital
of the Corporation, or amalgamation of the Corporation with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Shares shall be entitled
to receive stock, securities, cash or other property with respect to or in
exchange for Common Shares, then, as a condition of such reorganization,
reclassification, amalgamation or sale, lawful and adequate provision shall be
made whereby the holders of shares of this Series shall have the right to
acquire and receive upon conversion of the shares of this Series, which right
shall be prior to the rights of the holders of Junior Stock (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
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the amalgamated corporation or the corporation purchasing such assets shall
assume by written instrument mailed or delivered to the holders of the shares of
this Series at the last address of each such holder appearing on the books of
the Corporation, the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive. If a purchase, tender or exchange offer
is made to and accepted by the holders of more than 50% of the outstanding
Common Shares of the Corporation, the Corporation shall not effect any
amalgamation or sale with the person having made such offer or with any
Affiliate (as defined below) of such person, unless prior to the consummation of
such amalgamation or sale the holders of the shares of this Series shall have
been given a reasonable opportunity to then elect to receive upon the conversion
of the shares of this Series either the stock, securities or assets then
issuable with respect to the Common Shares of the Corporation or the stock,
securities or assets, or the equivalent, issued to previous holders of the
Common Shares in accordance with such offer. For purposes hereof, the term
"Affiliate" with respect to any given person shall mean any person controlling,
controlled by or under common control with the given person.
(vi) The provisions of this Section 7(g) shall not apply to any Common
Shares issued, issuable or deemed outstanding under subparagraphs 7(g)(ii)(1) to
(8) inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees of the Corporation or
its subsidiaries in effect on the Initial Issuance Date or thereafter adopted by
the Board of Directors of the Corporation, (ii) pursuant to options, warrants
and conversion rights in existence on the Initial Issuance Date, (iii) upon
exercise of the Warburg Warrants 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
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Common Shares, or amalgamation of the Corporation with, or sale of all or
substantially all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the shares of this Series:
(A) at least twenty (20) days' prior written notice of the date on
which the books of the Corporation shall close or a record shall
be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such
reorganization, reclassification, amalgamation, sale,
dissolution, liquidation or winding up; and
(B) in the case of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the
same shall take place.
Such notice in accordance with the foregoing clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, amalgamation, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of the shares of this Series at the
last address of each such holder appearing 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:
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(A) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of Common Shares acquirable
upon conversion of shares of this Series immediately before the
grant, issuance or sale of such Purchase Rights; provided that if
any Purchase Rights were distributed to holders of Common Shares
without the payment of additional consideration by such holders,
corresponding Purchase Rights shall be distributed to the
exercising holders of the shares of this Series as soon as
possible after such exercise and it shall not be necessary for
the exercising holder of the shares of this Series specifically
to request delivery of such rights; or
(B) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the
number of Common Shares or the amount of property which such
holder could have acquired upon such exercise at the time or
times at which the Corporation granted, issued or sold such
expired Purchase Rights.
(ix) If any event occurs as to which, in the opinion of the Board, the
provisions of this Section 7(g) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders of the shares of
this Series in accordance with the essential intent and principles of such
provisions, then the Board shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the Conversion Price as otherwise determined pursuant to
any of the provisions of this Section 7(g) except in the case of a combination
of shares of a type contemplated in paragraph 7(g)(iv) and then in no event to
an amount larger than the Conversion Price as adjusted pursuant to paragraph
7(g)(iv).
"(h) No fractional Common Shares shall be issued upon the conversion of any
share or shares of this Series. If any fractional interest in a Common Share
would, except for the provisions of this Section 7(h), be deliverable upon the
conversion of any share or shares of this Series, the Corporation shall in lieu
of delivering the fractional Common Share therefor satisfy such fractional
interest by 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.
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"(i) The Corporation shall be entitled to effect the mandatory conversion,
in whole or in part, of the shares of this Series in accordance with this
Section 7 if all of the following conditions ("Mandatory Conversion Conditions")
have been satisfied as of the date of the notice described below:
(a) the Common Shares are traded on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market at a Market Price greater
than U.S. $8.00 per Common Share on each of the 10 consecutive trading days
preceding such date; and (b) the Corporation's EBTA 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. $0.35 per Fully Diluted Common
Share per fiscal quarter. All references to per share amounts or prices with
respect to the above conditions shall be appropriately adjusted for any
subdivision, consolidation, or reclassification of the Common Shares.
Upon such mandatory conversion, each share of this Series subject to such
conversion shall be converted into Common Shares at the then effective
Conversion Price for such shares. In case the Corporation shall desire to
exercise the right to convert all or, as the case may be, any shares of this
Series in accordance with the right to do so, it shall provide notice to the
holders of the shares of this Series to be converted as hereinafter provided in
this Section 7(i)."
"(i) A notice of conversion shall be given to the holders of shares of this
Series to be converted by mailing by first-class mail to their last addresses as
they shall appear upon the register for shares of this Series not less than 120
calendar days prior to the date fixed for conversion.
"(ii) Each such notice of conversion (A) shall specify the date fixed for
conversion and the number of Common Shares issuable to the holder of a share of
this Series upon such conversion, (B) shall state the offices or agencies to be
maintained by the Corporation for the purpose of such conversion, upon
presentation and surrender of such shares of this Series and (C) if less than
all the shares of this Series are to be converted, shall specify the number of
shares of this Series held by each holder, and the serial numbers of the
certificates thereof, to be converted. In case any certificate representing
shares of this Series is to be converted in part only, the notice of conversion
which relates to such certificate shall state the number of shares of this
Series represented by such certificate to be converted and shall state that on
and after the conversion date, upon surrender of such certificate, a new
certificate
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or certificates for a number of shares of this Series equal to the unconverted
portion thereof will be issued.
"(j) The Corporation will at all times reserve and keep available, solely
for the purposes of the issuance of Common Shares upon conversion of the shares
of this Series, the full number of Common Shares as shall be issuable upon the
conversion of all such outstanding shares of this Series.
The Corporation will endeavor to comply with all securities laws regulating
the offer and delivery of Common Shares upon conversion of the shares of this
Series and, that if any Common Shares required to be reserved for purposes of
conversion of the shares hereunder require registration with or approval of any
governmental authority under any U.S. (federal or state) or Canadian law or the
laws of any province or territory of Canada 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,
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amalgamation, sale, transfer, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Shares of record shall be entitled to exchange their Common Shares for
securities or other property or other assets deliverable upon such
reorganization, reclassification, amalgamation, sale, transfer, dissolution,
liquidation, or winding up. Failure to give such notice or any defect therein
shall not affect the legality or validity of any proceedings described in
subparagraphs (A) or (B) of this Section 7(l).
"8. Miscellaneous.
"(a) For the purposes hereof:
"(i) the term "outstanding", when used in reference to shares of this
Series, shall mean issued shares of this Series, excluding shares of this
Series called for redemption; and
"(ii) any shares of a series or class of shares of the Corporation
shall be deemed to rank:
"(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
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shares of this Series, if the rights of the holders of such shares of
a series or class of shares shall be subordinate to the rights of the
holders of shares of this Series in respect of the receipt from the
Corporation of dividends and of amounts distributable upon
liquidation, dissolution or winding up, including, without limitation,
the Common Shares of the Corporation.
"(b) So long as any shares of this Series are outstanding, in the event of
any conflict between the provisions hereof and any corporate document of the
Corporation (both as presently existing or hereafter amended and supplemented)
the provisions hereof, as the same may be amended or supplemented, shall be and
remain controlling.
"(c) The holders of the shares of this Series shall have no preemptive
rights.
