HEALTHCARE CAPITAL CORP.
-----------------------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
13,333,333 SERIES A CONVERTIBLE PREFERRED SHARES
WARRANTS TO PURCHASE 10,000,000 COMMON SHARES
-----------------------------
Table of Contents
-----------------
Section
-------
1. Sale and Purchase.
2. Closing; Payment of Purchase Price.
3. Representations and Warranties of the Company.
(a) Organization; Good Standing.
(b) Governmental Authority.
(c) Authorization of Agreements.
(d) Capitalization.
(e) Authorization of Convertible Shares and Warrants.
(f) Consents and Approvals.
(g) Noncontravention.
(h) Change in Ownership.
(i) Litigation.
(j) Reports and Financial Statements.
(k) Liabilities.
(l) Material Contracts.
(m) Employees.
(n) Employee Benefit Plans.
(o) Patents, Licenses, etc.
(p) Taxes.
(q) Properties.
(r) Condition of Properties.
(s) Insurance.
(t) No Adverse Change.
(u) Transactions with Related Parties.
(v) Interest in Competitors.
(w) Registration Rights.
(x) Private Offering.
(y) Brokerage.
(z) Illegal or Unauthorized Payments; Political Contributions.
(aa) Material Facts.
(bb) No Integrated Offering.
4. Covenants of the Company.
(a) [Conditions of The Alberta Stock Exchange].
(b) [No actions will contravene representations and warranties]
(c) [Right to appoint directors]
(d) Use of Proceeds.
-ii-
(e) Financial and Business Information.
(i) Monthly and Quarterly Statements
(ii) Annual Statements
(iii) Business Plan; Projections
(iv) Audit Reports
(v) Other Reports
(vi) Progress Report
(vii) Requested Information
(f) Inspection.
(g) Takeover Statute.
(h) Conduct of Business and Maintenance of Existence.
(i) Compliance with Laws.
(j) Insurance.
(k) Keeping of Books.
(l) Lost, etc. Certificates Evidencing Securities (or Common Shares);
Exchange.
(m) Limitations on Corporate Actions.
(n) Commencement and Termination of Covenants
(o) Form D Filing.
5. Representations, Warranties and Covenants of the Investor;
Additional Covenants of the Company
(a) General.
(b) Disclosure and Non-Public Information.
(c) Securities Act Matters.
(d) Limitation on Transfer.
(e) No Intention of Board to Pay Dividends.
(f) Xxxx-Xxxxx Act Compliance.
(g) Consents and Approvals.
(h) Acknowledgments Regarding the Advisors
6. Conditions to Closing.
(a) [As to the Company:]
(i) Representations and Warranties.
(ii) Compliance with Agreement.
(iii) No Legislation or Injunction.
(iv) Adverse Developments
(v) Consents and Approvals.
(vi) Officers' Certificate.
(vii) Opinions of Counsel.
(viii) Secretary's Certificate.
(ix) Approval of Proceedings.
(x) Warrant Agreement.
-iii-
(xi) Shareholders' Agreement.
(xii) Recent Financial Statements.
(xiii) Filing of Convertible Shares Certificate.
(xiv) Conditional Approval of The Alberta Stock Exchange.
(xv) Antitrust Approvals.
(xvi) Directors.
(xvii) Employment Agreements.
(b) [As to the Investor:]
(i) Consents and Approvals.
(ii) No Legislation or Injunction.
(iii) General Partner's Certificate.
(iv) Antitrust Approvals.
7. Expenses of Sale.
8. Registration Rights.
9. Indemnification.
10. Contribution.
11. Notices.
12. Parties.
13. Termination and Survival.
14. Amendment and Modification.
15. Further Assurances
16. Waiver of Breach
17. Entire Agreement.
18. Severability.
19. Limitation on Enforcement of Remedies.
20. Counterparts.
21. Law.
Schedule 3(d) Derivative Securities
Schedule 3(f) Consents and Approvals
Schedule 3(l) Key Agreements and Instruments
Schedule 3(m)(ii) Employment Agreements
Schedule 3(n) Employee Benefit Plans Under ERISA
Schedule 3(u) Related Parties
Schedule 3(y) Brokerage
Schedule 4(m) Redemption Obligations Incurred in Connection
with the Acquisition of Hearing Clinics
Exhibit A Form of Warrant Agreement
Exhibit B Form of Shareholders' Agreement
Exhibit C Form of Terms of Series A Convertible Preferred Shares
Exhibit D-1 Form of Opinion of Ballem XxxXxxxx
Exhibit D-2 Form of Opinion of Xxxxxx, Xxxxxxx & Xxxxxxx
-iv-
Note: The Schedules and Exhibits D-1 and D-2 have been omitted. Copies will be
provided to the Securities and Exchange Commission upon request.
HEALTHCARE CAPITAL CORP.
-----------------------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
13,333,333 SERIES A CONVERTIBLE PREFERRED SHARES
WARRANTS TO PURCHASE 10,000,000 COMMON SHARES
-----------------------------
This Securities Purchase Agreement is made as of November 21, 1997 by
and between HealthCare Capital Corp., an Alberta corporation (the "Company"),
and Warburg Pincus Ventures, L.P., a Delaware limited partnership (the
"Investor").
WHEREAS, the Investor wishes to purchase and the Company wishes to sell
certain securities of the Company as set forth in this Agreement.
NOW, THEREFORE, to effect such purchase and sale and in consideration of
the mutual covenants, representations, warranties and agreements hereinafter set
forth and intending to be legally bound by this Agreement, the Company and the
Investor agree as follows:
1. Sale and Purchase. The Company agrees to issue and sell to the
Investor and the Investor agrees to purchase from the Company 13,333,333 Series
A Convertible Preferred Shares (the "Convertible Shares") of the Company and
warrants (the "Warrants") to purchase 10,000,000 common shares, without par
value, of the Company (the "Common Shares"), for an aggregate purchase price of
U.S. $18,000,000 (the "Purchase Price") on the terms and conditions set forth in
this Agreement. The Warrants shall be issued pursuant to the terms of a warrant
agreement in the form of Exhibit A hereto (the "Warrant Agreement"). The
Convertible Shares and the Warrants are collectively referred to in this
Agreement as the "Securities." This Agreement and the Warrant Agreement are
collectively referred to in this Agreement as the "Transaction Documents."
2. Closing; Payment of Purchase Price. The closing of the purchase and
sale of the Securities hereunder (the "Closing") shall occur on January 16, 1998
at the offices of Xxxxxxx Xxxx & Xxxxxxxxx, 153 East 53rd Street, New York, New
York, or such other date and location as may be agreed upon by the Company and
the Investor; provided, however, the Closing shall not occur until the closing
conditions set forth in Section 6 hereto have been satisfied. At the Closing:
(a) the Investor and the Company shall execute and deliver the Warrant
Agreement; (b) the Investor and the shareholders named therein shall execute and
deliver a shareholders' agreement in the form of Exhibit B hereto (the
"Shareholders' Agreement"); and (c) the Investor shall pay to the Company U.S.
$18,000,000 in immediately available funds (to such account as the Company shall
-1-
designate, not less than three business days prior to the Closing) against
delivery to the Investor of a certificate for 13,333,333 Convertible Shares and
a certificate for Warrants to purchase 10,000,000 Common Shares. The date of the
Closing may be changed by mutual agreement of the Company and the Investor, and
the date on which the Closing actually occurs is referred to herein as the
"Closing Date."
3. Representations and Warranties of the Company. The Company represents
and warrants to the Investor as follows:
(a) Organization; Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Alberta, Canada with full power and authority, corporate and other, to
own or lease and operate its properties and to conduct its business as
currently conducted. Except as provided in Section 3(b), the Company has
made all necessary filings under all applicable corporate, securities
and any other laws to which it is subject, except where failure to file
would not have a material adverse effect on the condition (financial or
otherwise), results of operations, business, assets, or prospects of the
Company and its Subsidiaries (as defined below) taken as a whole (a
"Material Adverse Effect"). The Company is the direct or indirect
beneficial owner of all of the outstanding securities of the following
corporations (each, a "Subsidiary" and, collectively, the
"Subsidiaries"):
SONUS-Canada Ltd., a British Columbia, Canada, corporation; and
SONUS-USA, Inc., a Washington corporation.
Each Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with
full power and authority, corporate and other, to own or lease and
operate its properties and to conduct its business as currently
conducted, and is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions where such qualification is
necessary and except where failure to so qualify would not have a
Material Adverse Effect. Each Subsidiary has made all necessary filings
required under all applicable corporate, securities and any other laws
to which it is subject, except where failure to file would not have a
Material Adverse Effect. The Company has no subsidiaries other than the
Subsidiaries.
(b) Governmental Authority. Each filing, authorization, approval,
consent, order, registration, license or permit of any court or
governmental or regulatory agency or body required in connection with
the execution and delivery by the Company of the Transaction Documents
and the consummation of the transactions therein contemplated has been
made or obtained, except such as may be required under (i) the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"Xxxx-Xxxxx Act"), (ii) the Securities Act of 1933, as amended (the
"Securities Act"), the Blue Sky laws or regulations of the various
states or the securities laws of the provinces of Canada and (iii)
-2-
the by-laws or rules of the National Association of Securities Dealers,
Inc. The Company has also obtained a conditional approval of The Alberta
Stock Exchange for the transactions contemplated in the Transaction
Documents.
(c) Authorization of Agreements. The Company has full power and
authority, corporate and other, to execute, deliver and perform the
Transaction Documents and to consummate the transactions contemplated
thereby and to perform its obligations thereunder. The execution,
delivery and performance of the Transaction Documents by the Company and
the consummation by the Company of the transactions therein contemplated
have been duly authorized by all necessary corporate action on the part
of the Company. This Agreement has been, and as of the Closing Date the
Warrant Agreement will be, duly executed and delivered by the Company.
This Agreement constitutes, and as of the Closing Date the Warrant
Agreement will constitute, the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms,
except insofar as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and by the discretion of courts in
granting equitable remedies, and except that (i) enforceability of the
indemnification provisions and the contribution provisions set forth in
this Agreement may be limited by Canadian law, the federal or state
securities laws of the United States or the public policy underlying any
such laws, and (ii) the validity of Section 21 of this Agreement and
Section 15 of the Warrant Agreement may be limited by the public policy
of Canada or the State of New York, and with respect to the United
States District Court for the Southern District of New York, may be
subject to the discretion of the Court pursuant to 28 U.S.C. Section
1404(a). The execution, delivery and performance of the Transaction
Documents by the Company, the consummation by the Company of the
transactions therein contemplated, and the compliance by the Company
with the terms of the Transaction Documents do not, and will not, with
or without the giving of notice or the lapse of time, or both, (i)
result in any violation of the constating documents of the Company or
any of its Subsidiaries, (ii) result in a breach of or conflict with any
of the terms or provisions of, or constitute a default under, or result
in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, any indenture, mortgage, note, contract,
commitment or other agreement or instrument that is material to the
Company and the Subsidiaries taken as a whole, to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary or
any of its or their properties or assets are bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order
or decree of any governmental agency or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or its or their
properties or business; or (iv) have any Material Adverse Effect.
-3-
(d) Capitalization.
(i) The authorized capital of the Company consists of an
unlimited number of Common Shares without par value and an
unlimited number of preferred shares without par value issuable
in series. At the date hereof, there were issued and outstanding
27,284,517 Common Shares, all of which have been duly authorized
and validly issued and are fully-paid and non-assessable. The
terms of the Convertible Shares shall be as described in Exhibit
C.
(ii) Except as disclosed in or contemplated by the
Company SEC Reports (defined below) and in Schedule 3(d) hereto,
there are no outstanding securities convertible into Common
Shares or any options, warrants or other rights to purchase any
Common Shares or securities convertible into Common Shares.
(e) Authorization of Convertible Shares and Warrants. As of the
Closing Date, the Company will have duly authorized and created a series
of preferred shares designated as "Series A Convertible Preferred
Shares" and consisting of the Convertible Shares. The issuance and sale
of the Securities and the Common Shares issuable upon the conversion of
the Convertible Shares and the exercise of the Warrants have been duly
authorized by the Corporation and, when issued, the Convertible Shares
and each Common Share issuable upon conversion of the Convertible Shares
and upon exercise of the Warrants, will be validly issued and fully paid
and nonassessable, and the holder thereof will not be subject to
personal liability solely by reason of being such holder. None of the
Securities or such Common Shares is or will be subject to preemptive
rights of any securityholder of the Company.
(f) Consents and Approvals. Except as set forth in Section 3(b)
or on Schedule 3(f), the execution and delivery by the Company of the
Transaction Documents, the issuance of any of the Securities and the
Common Shares issuable upon the conversion of the Convertible Shares and
the exercise of the Warrants, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the Company
of the transactions contemplated hereby and thereby do not require the
Company or any of its Subsidiaries to obtain any consent, approval,
clearance or action of, or make any filing submission or registration
with, or give any notice to, any Person or judicial authority. As used
in this Agreement, "Person" shall mean an individual, partnership, joint
stock company, corporation, limited liability company, trust or
unincorporated organization, and a government, agency, regulatory
authority or political subdivision thereof.
(g) Noncontravention. Neither the Company nor either of its
Subsidiaries is in violation of, or in default under, any term or
provision of (i) its constating documents, (ii) any indenture, mortgage,
deed of trust, credit agreement, note or other evidence of
-4-
indebtedness, contract, commitment, undertaking, arrangement, or other
agreement or instrument to which it is a party or by which it or any of
its properties or business is bound or subject and which violation or
default would have a Material Adverse Effect (collectively, the "Key
Agreements and Instruments"), or (iii) except as described in Item 1 of
the Company's Annual Report on Form 10-KSB dated October 29, 1997 for
the year ended July 31, 1997 as amended by Amendment No. 1 on Form
10-KSB/A dated October 30, 1997 (such Form 10-KSB, as so amended, being
hereinafter referred to as the "1997 Form 10-KSB"), any existing
applicable law, rule, regulation, ordinance, code, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their
respective properties or businesses, which violation would have a
Material Adverse Effect. The Company and each Subsidiary owns, possesses
or has obtained all material governmental and other licenses, permits,
certifications, registrations, approvals or consents and other
authorizations necessary to own or lease, as the case may be, and to
operate its properties and to conduct its business as currently
conducted and described in the 1997 Form 10-KSB, and all such licenses,
permits, certifications, registrations, approvals, consents and other
authorizations are in good standing. There are no proceedings pending
or, to the best of the Company's knowledge, threatened, seeking to
cancel, terminate or limit any such licenses, permits, certifications,
registrations, approvals or consents or authorizations, nor is there any
basis therefor.
(h) Change in Ownership. Neither the purchase of the Securities
by the Investor nor the consummation of the transactions contemplated by
this Agreement will result in (i) a Material Adverse Effect, (ii) to the
best of the Company's knowledge, the loss of the benefits of any
material business relationship, including with any customer or supplier,
(iii) the acceleration of the vesting of any outstanding option,
warrant, call, commitment, agreement, conversion right, preemptive right
or other right to subscribe for, purchase or otherwise acquire any of
the shares of the capital stock of the Company or any of its
Subsidiaries, or debt securities of the Company or any of its
Subsidiaries (collectively "Commitments", and each individually a
"Commitment"), (iv) any obligation of the Company or its Subsidiaries to
grant, extend or enter into any Commitment, or (v) any right in favor of
any Person to terminate or cancel any Key Agreement or Instrument.
(i) Litigation. There are no claims, actions, suits, proceedings,
arbitrations, investigations or inquiries by or before any governmental
agency, court or tribunal, domestic or foreign, or before any private
arbitration tribunal, pending or, to the best of the Company's
knowledge, threatened against the Company or any Subsidiary or involving
the properties or business of the Company or any Subsidiary which, if
determined adversely, would, individually or in the aggregate, result in
a Material Adverse Effect, or which relate in any way to the validity of
the capital stock of the Company or the validity of this Agreement, or
of any action taken or to be taken by the Company pursuant to or in
connection with this Agreement. Neither the Company nor any Subsidiary
is subject to any order, writ, judgment, injunction, decree,
determination or
-5-
award of any court or of any governmental agency or instrumentality
(whether federal, state, local or foreign) which could reasonably be
expected to have a Material Adverse Effect.
(j) Reports and Financial Statements. Shikaze Ralston and KPMG
Peat Marwick LLP, which have rendered reports with respect to the
financial statements included in the 1997 Form 10-KSB, are "independent
public accountants" within the meaning of the Securities Act and the
regulations promulgated thereunder. The Company has furnished the
Investor with true and complete copies of the Company's Quarterly Report
on Form 10-QSB for the quarter ended April 30, 1997, the Company's
Registration Statement on Form SB-2 (Registration No. 333-23137) as
amended by Amendment Nos. 1 and 2 thereto, the 1997 Form 10-KSB, and the
Company's definitive Management Information Circular and Proxy Statement
dated October 29, 1997 (collectively, the "Company SEC Reports"). As of
their respective dates, the Company SEC Reports were duly filed and
complied in all material respects with the requirements of the
Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable, and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder
applicable to such Company SEC Reports. As of their respective dates,
the Company SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial
statements of the Company included in the Company SEC Reports comply as
to form in all material respects with applicable accounting requirements
of the Securities Act or the Exchange Act, as applicable, and with the
published rules and regulations of the Commission with respect thereto.
The financial statements included in the Company SEC Reports (i) have
been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as
may be indicated therein or in the notes thereto), (ii) present fairly,
in all material respects, the financial position of the Company and its
Subsidiaries as at the dates thereof and the results of their operations
and cash flows for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein and the fact
that certain information and notes have been condensed or omitted in
accordance with the Securities Act or the Exchange Act and the rules
promulgated thereunder, and (iii) are, in all material respects, in
accordance with the books of account and records of the Company except
as indicated therein.
(k) Liabilities. Except as and to the extent reflected or
reserved against in the consolidated financial statements of the Company
included in the 1997 Form 10-KSB, the Company as at July 31, 1997, had
no material liabilities, debts, obligations or claims asserted against
it, whether accrued, absolute, contingent or otherwise, and whether due
or to become due, and including, but not limited to, liabilities on
account of taxes,
-6-
unfunded past service liabilities under any pension, profit sharing or
similar plan, other governmental charges or lawsuits brought subsequent
to such date.
(l) Material Contracts. Schedule 3(l) sets forth a true and
complete list of each Key Agreement and Instrument other than Key
Agreements and Instruments listed as exhibits to the 1997 Form 10-KSB.
Each Key Agreement and Instrument and any other material contract listed
as an exhibit to the 1997 Form 10-KSB that is currently in effect, is
valid, binding and enforceable against the Company or such Subsidiary
and, to the Company's best knowledge, the other parties thereto, in
accordance with its terms, and in full force and effect on the date
hereof.
(m) Employees.
(i) The Company and its Subsidiaries are in full
compliance with all laws regarding employment, wages, hours,
equal opportunity, collective bargaining and payment of social
security and other taxes except to the extent that noncompliance
would not have a Material Adverse Effect. Except as would not
have a Material Adverse Effect, no complaint of any unfair labor
practice or discriminatory employment practice against the
Company or any Subsidiary has been filed or, to the best of the
Company's knowledge, threatened to be filed with or by the
National Labor Relations Board, the Equal Employment Opportunity
Commission or any other administrative agency, federal or state,
that regulates labor or employment practices, nor is any
grievance filed or, to the best of the Company's knowledge,
threatened to be filed, against the Company or any Subsidiary by
any employee pursuant to any collective bargaining or other
employment agreement to which the Company or any Subsidiary is a
party or is bound. The Company and its Subsidiaries are in
compliance with all applicable federal, state, provincial and
local laws and regulations regarding occupational safety and
health standards except to the extent that noncompliance will not
have a Material Adverse Effect, and have received no unresolved
complaints from any federal, state, provincial or local agency or
regulatory body alleging violations of any such laws or
regulations.
(ii) Except as set forth in Schedule 3(m)(ii), the
employment of all Persons employed by the Company or any of its
Subsidiaries is, subject to the provisions of applicable law,
terminable at will without any penalty or severance obligation of
any kind on the part of the employer. All sums due for employee
compensation and benefits and all vacation time owing to any
employees of the Company or any of its Subsidiaries have been
duly and adequately accrued on the accounting records of the
Company and its Subsidiaries.
(iii) The Company is not aware that any of its executive
officers is obligated under any contract (including licenses,
covenants or commitments of any
-7-
nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would interfere
with the use of such executive officer's best efforts to promote
the interests of the Company or that would conflict with the
Company's business as proposed to be conducted.
(iv) The Company is not aware that any officer or key
employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of
the foregoing.
(n) Employee Benefit Plans. Except as referred to in Schedule
3(n) or the Company SEC Reports, the Company and its Subsidiaries have
no retirement or pension plans in respect of Canadian employees and no
employee benefit plans (as defined for the purpose of employees located
in the United States in Section 3(3) of the Employee Retirement Income
Security Act of 1974) covering former and current employees of the
Company or any of its Subsidiaries, or under which the Company or any of
its Subsidiaries has any obligation or liability. Schedule 3(n) lists
all material compensation plans, including, without limitation, those
relating to bonuses, commissions, profit-sharing, savings, stock
options, insurance and deferred compensation or other similar fringe or
employee benefits arrangements covering former or current employees of
the Company or any of its Subsidiaries or under which the Company or any
of its Subsidiaries has any obligation or liability (each, a "Benefit
Arrangement") that are not referred to in the 1997 Form 10-KSB or
material incorporated therein by reference. True and complete copies of
all Benefit Arrangements have been provided or made available to the
Investor for inspection prior to the date hereof. The Benefit
Arrangements are and have been administered in substantial compliance
with their terms and with the requirements of applicable law.
(o) Patents, Licenses, etc.
(i) Except as described in the 1997 Form 10-KSB and
except with respect to the security interest granted or assumed
in connection with the Company's acquisition of the Midwest
Division of Hearing Health Services, Inc., and the security
interest granted to Royal Bank of Canada by Sonus-Canada Ltd.,
the Company or one of its Subsidiaries owns, free and clear of
all encumbrances, restrictions, liens, security interests and
charges, and has good and marketable title to, or holds adequate
licenses or otherwise possesses all such rights as are necessary
to use all patents (and applications therefor), patent
disclosures, trademarks, service marks, trade names, copyrights
(and applications therefor), integrated circuit topographies,
inventions, discoveries, processes, know-how, scientific,
technical, engineering and marketing data, formulae and
techniques used or proposed to be used, in or necessary for the
conduct of its business as now conducted or as proposed to be
conducted (collectively, "Intellectual Property").
-8-
(ii) Neither the Company nor any of its Subsidiaries has
received notice nor otherwise has reason to know of any conflict
or alleged conflict with the rights of others pertaining to the
Intellectual Property described in this Section 3(o) where the
effect of such conflict could have a Material Adverse Effect. To
the Company's best knowledge, the Company's business, as
presently conducted and as proposed to be conducted, does not
infringe upon or violate any patent rights or trade secrets of
others. To the Company's best knowledge, the Company and its
Subsidiaries have the right to use all trade secrets, processes,
customer lists and other rights incident to their respective
businesses as now conducted or as proposed to be conducted.
(iii) To the best knowledge of the Chief Executive
Officer and Chief Financial Officer of the Company, no employee
of the Company or any of its Subsidiaries has violated any
employment agreement or proprietary information agreement which
he or she had with a previous employer or any patent policy of
such employer, or is a party to or threatened by any litigation
concerning any patents, trademarks, trade secrets, service names,
trade names, copyrights, licenses and the like.
(p) Taxes. The Company and each Subsidiary has filed all tax
returns required to be filed with the appropriate taxing authorities in
Canada and the United States, including all provincial, state, municipal
and other local authorities (whether relating to income, sales, goods
and services, franchise, withholding, real or personal property or other
types of taxes) or has duly obtained extensions of time for the filing
thereof, and has paid in full all taxes which have become due pursuant
to such returns or claimed to be due by any such taxing authority or
otherwise due and owing, except for taxes which are being contested in
good faith by way of appropriate proceedings and in respect of which
appropriate reserves have been taken on the financial statements of the
Company and except where the failure to file such tax returns or to pay
such taxes would not have a Material Adverse Effect. The provisions for
taxes on the audited and unaudited balance sheets described in Section
3(j) are sufficient for the payment in all material respects of all
accrued and unpaid federal, state, county and local taxes of the Company
and its Subsidiaries whether or not assessed or disputed as of the
respective dates of such balance sheets.
(q) Properties. The Company and each Subsidiary has good and
marketable title to all properties owned by them, free and clear of all
security interests, charges, mortgages, liens, encumbrances and defects,
except such as are described in the 1997 Form 10-KSB or were granted or
assumed in connection with the Company's acquisition of the Midwest
Division of Hearing Health Services, Inc. or such as do not materially
affect the value or transferability of such property and do not
interfere with the use of such property made or proposed to be made by
the Company or such Subsidiary. The leases, licenses or other contracts
or instruments under which the Company and each
-9-
Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable with only such
exceptions as are not material and do not interfere with the use of such
property made, or proposed to be made, by the Company or such
Subsidiary, and all rentals, royalties or other payments accruing
thereunder which became due prior to the date of this Agreement have
been duly paid, and neither the Company nor any Subsidiary is in default
thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or
both, would constitute a default thereunder. Neither the Company nor any
Subsidiary has received notice of any violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or
leased properties, except where such violation would not have a Material
Adverse Effect.
(r) Condition of Properties. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used
by the Company and its Subsidiaries are reasonably fit and usable for
the purposes for which they are being used, are adequate and sufficient
for the Company's or such Subsidiary's business and conform in all
material respects with all applicable ordinances, regulations and laws.
(s) Insurance. The Company and each Subsidiary has adequately
insured its properties against loss or damage by fire or other casualty
and maintains such other insurance, including but not limited to,
liability insurance, as is usually maintained by prudent companies
engaged in the same or similar businesses.
(t) No Adverse Change. Since the date of the latest audited
financial statements in the 1997 Form 10-KSB, except as otherwise stated
in or contemplated by the 1997 Form 10-KSB and except for the
Transaction Documents, (i) the Company has not entered into any material
transactions other than in the ordinary course of business; and (ii)
there has not been, and prior to the Closing Date there will not be, any
event that constitutes a Material Adverse Effect.
(u) Transactions with Related Parties. Except as described in the
1997 Form 10-KSB or material incorporated therein by reference or in
Schedule 3(u), neither the Company nor any Subsidiary is a party to any
agreement with any of the Company's directors, officers or, to the best
of the Company's knowledge, any stockholders or any affiliate or family
member of any of the foregoing including, without limitation any
agreement under which it: (i) leases any real or personal property
(either to or from such Person), (ii) licenses technology (either to or
from such Person), (iii) is obligated to purchase any tangible or
intangible asset from or sell such asset to such Person, (iv) purchases
products or services from such Person (v) has borrowed money from or
lent money to such Person, or (vi) employs as an employee or engages as
a consultant any family member of any of the Company's directors or
officers. To the best knowledge of the Company, there exist no
agreements among stockholders of the Company to act in concert with
respect to their voting or holding of Company securities.
-10-
(v) Interest in Competitors. Neither the Company nor, to the best
of its knowledge, any of its officers or directors, has any interest,
either by way of contract or by way of investment (other than as holder
of not more than 2% of the outstanding capital stock of a publicly
traded Person) or otherwise, directly or indirectly, in any Person other
than the Company that (i) provides any services or designs, produces or
sells any product or product lines or engages in any activity similar to
or competitive with any activity currently proposed to be conducted by
the Company or any of its Subsidiaries or (ii) has any direct or
indirect interest in any asset or property, real or personal, tangible
or intangible, of the Company.
(w) Registration Rights. Except with respect to registration
rights granted in connection with (i) 100,000 options to purchase Common
Shares granted to The Equity Group, Inc.; (ii) Section 8 hereof and
(iii) 470,359 Common Shares owned by Xxxxxxx X. Xxxxxx, the Company will
not, as of the Closing Date, be under any obligation to register any of
its securities under the Securities Act.
(x) Private Offering. Neither the Company nor anyone acting on
its behalf has sold or has offered any of the Securities for sale to, or
solicited offers to buy from, or otherwise approached or negotiated with
respect thereto with, any prospective purchaser of the Securities, other
than the Investor. Neither the Company nor anyone acting on its behalf
shall offer the Securities for issue or sale to, or solicit any offer to
acquire any of the same from, anyone so as to bring the issuance and
sale of such Securities, or any part thereof, within the provisions of
Section 5 of the Securities Act. Based upon the representations of the
Investor set forth in Section 5 hereof, the offer, issuance and sale of
the Securities are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act, and have been
registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification
requirements of all applicable provincial and state securities laws.
(y) Brokerage. Except for amounts payable to Salomon Brothers
Inc. and RN Capital (collectively, the "Advisors"), as set forth on
Schedule 3(y) hereto, there are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement
made by or on behalf of the Company and the Company agrees to indemnify
and hold the Investor harmless against any costs or damages incurred as
a result of any such claim. Neither of the Advisors is an affiliate of
the Company or either of its Subsidiaries, or of any officer or director
of the Company or either of its Subsidiaries.
(z) Illegal or Unauthorized Payments; Political Contributions.
Neither the Company nor any of its Subsidiaries nor, to the best of the
Company's knowledge (after reasonable inquiry of its executive officers
and directors), any of the current officers and directors of the Company
or any of its Subsidiaries, has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property, or
services, (a) as a
-11-
kickback or bribe to any Person or (b) to any political organization, or
the holder of or any aspirant to any elective or appointive public
office except for personal political contributions not involving the use
of funds of the Company or any of its Subsidiaries.
(aa) Material Facts. This Agreement, the schedules furnished
contemporaneously herewith, and the other agreements, documents,
certificates or written statements furnished or to be furnished to the
Investor through the Closing Date by or on behalf of the Company in
connection with the transactions contemplated hereby taken as a whole,
do not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements contained therein or
herein, in light of the circumstances in which they were made, not
misleading. Except for factors affecting the economy or the health care
industry generally, there is no fact which is known to the Company and
which has not been disclosed herein or otherwise by the Company to the
Investor which is reasonably likely to have a Material Adverse Effect.
(bb) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require
registration of the Securities being offered hereby under the Securities
Act or the filing of any prospectus under any Canadian securities laws.
4. Covenants of the Company. The Company covenants and agrees that:
(a) it shall use its reasonable best efforts to satisfy the
requirements of the conditional approval letter of The Alberta Stock
Exchange as of the Closing Date or as soon as practicable thereafter;
(b) it will not, without the Investor's prior written consent,
take any action prior to the Closing Date which would result in any of
the representations or warranties contained in this Agreement not being
true at and as of the time immediately after such action, or in any of
the Company's covenants contained in this Agreement becoming incapable
of performance. The Company will promptly advise the Investor of any
action or event of which it becomes aware which has the effect of making
incorrect any of such representations or warranties or which has the
effect of rendering any of such covenants incapable of performance; and
(c) promptly after the Closing Date, and for so long as the
Investor owns beneficially (within the meaning of Rule 13d-3 under the
Exchange Act) at least 3,333,333 outstanding Common Shares or
Convertible Shares (as appropriately adjusted for any stock splits,
consolidations or the like), the Company shall use its reasonable best
efforts to fix and maintain the number of Directors that shall
constitute the entire Board of Directors of the Company (the "Board") to
be not more than eleven (11). For so long as the Investor owns
beneficially (within the meaning of Rule 13d-3 under the Exchange
-12-
Act) a number of outstanding Common Shares or Convertible Shares
constituting at least 10% of the outstanding Common Shares (which for
this purpose shall include the Common Shares issuable upon the
conversion of the Convertible Shares but not the Common Shares issuable
upon the exercise of the Warrants), the Company will nominate and use
its reasonable best efforts to cause to be elected and to cause to
remain as directors on the Board two (2) persons designated by the
Investor, who shall be reasonably satisfactory to the Company and
subject to applicable law and the approval of The Alberta Stock
Exchange, such number to increase to three (3) if and for as long as the
number of Directors that shall constitute the entire Board shall be in
excess of eight (8). For purposes of the immediately preceding sentence,
the term "reasonable best efforts" shall include adjusting the
composition of the Board to include on the Board the number of "Resident
Canadians," as such term is defined in the Business Corporations Act
(Alberta), needed to accommodate the designees of the Investor and to
comply with such Act. Such number of directors to be designated by the
Investor shall be (i) decreased by one if the Investor owns beneficially
(within the meaning of Rule 13d-3 under the Exchange Act) a number of
outstanding Common Shares or Convertible Shares constituting less than
10% of the outstanding Common Shares (which for this purpose shall
include the Common Shares issuable upon the conversion of the
Convertible Shares but not the Common Shares issuable upon the exercise
of the Warrants), and (ii) decreased to none if the Investor owns
beneficially (within the meaning of Rule 13d-3 under the Exchange Act)
less than 3,333,333 outstanding Common Shares or Convertible Shares (as
appropriately adjusted for any stock splits, consolidations or the
like). The Investor shall, during such period, have the right to
designate a person, reasonably satisfactory to the Company and subject
to applicable law and the approval of The Alberta Stock Exchange, to
fill any vacancy created by the death, disability, retirement or removal
of any such individual previously designated by the Investor. The
Company shall pay all reasonable out-of-pocket expenses incurred by the
Directors designated by the Investor in connection with attending Board
meetings or transacting other Company business.
In the event that the Investor shall transfer to any one
purchaser beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of at least 6,666,667 outstanding Convertible Shares
or Common Shares issued upon conversion of Convertible Shares (all as
appropriately adjusted for any stock splits, consolidations or the
like), then the Investor in its discretion may transfer to such
purchaser its right to designate one (1) director as provided above. If
so transferred, such right shall not be further transferable and shall
terminate at such time as such purchaser shall own beneficially less
than 3,333,333 outstanding Convertible Shares or such Common Shares (as
so adjusted). Any such purchaser's designee shall be reasonably
satisfactory to the Company and subject to applicable law and the
approval of The Alberta Stock Exchange.
(d) Use of Proceeds. The proceeds received by the Company from
the issuance and sale of the Securities shall be used by the Company to
make acquisitions and for working capital purposes.
-13-
(e) Financial and Business Information. The Company shall deliver
to the Investor:
(i) Monthly and Quarterly Statements - as soon as
practicable, and in any event within 30 days after the close of
each month of each fiscal year of the Company in the case of
monthly statements and 45 days after the close of each of the
first three fiscal quarters of each fiscal year of the Company in
the case of quarterly statements, a consolidated balance sheet,
statement of income and statement of cash flows of the Company
and any subsidiaries as at the close of such month or quarter and
covering operations for such month or quarter, as the case may
be, and the portion of the Company's fiscal year ending on the
last day of such month or quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to audit and year-end
adjustments, setting forth in each case in comparative form the
figures for the comparable period of the previous fiscal year.
The Company shall also provide comparisons, on a quarterly and
year-to-date basis, of each pertinent item to the budget referred
to in subsection (iii) below; such statement shall include,
without limitation, the results of operations for all clinics
owned by the Company during the same period of both the current
and the prior fiscal year.
(ii) Annual Statements - as soon as practicable after the
end of each fiscal year of the Company, and in any event within
90 days thereafter, duplicate copies of:
(A) a consolidated balance sheet of the Company
and any subsidiaries at the end of such year; and
(B) consolidated statements of income,
stockholders' equity and cash flows of the Company and
any subsidiaries for such year, setting forth in each
case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by
an opinion thereon of independent certified public
accountants of recognized national standing selected by
the Company.
(iii) Business Plan; Projections - no later than 30 days
prior to the commencement of each fiscal year of the Company, an
annual business plan of the Company and operating results,
prepared on a monthly basis, and a three year business plan of
the Company and projections of operating results. Such business
plans and projections shall contain such substance and detail and
shall be in such form as will be reasonably acceptable to the
Investor.
(iv) Audit Reports - promptly upon receipt thereof, one
copy of each other financial report and internal control letter
submitted to the Company
-14-
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 time to time may be
reasonably requested by the Investor.
(f) Inspection. The Company shall permit the Investor, its
nominees, and representatives to visit and inspect any of the properties
of the Company and its Subsidiaries, to examine all its books of
account, records, reports and other papers not contractually required of
the Company to be kept confidential or secret, to make copies and
extracts therefrom, and to discuss its affairs, finances and accounts
with the Company's officers, directors, key employees and independent
public accountants or any of them (and by this provision the Company
authorizes said accountants to discuss with such Investor, its nominees
and representatives the finances and affairs of the Company and its
Subsidiaries), all at such reasonable times and as often as may be
reasonably requested.
(g) Takeover Statute. If any corporate takeover provision under
the laws of any provincial, state or federal "fair price", "moratorium",
"control share acquisition" or other similar antitakeover statute or
regulation shall become applicable to the transactions contemplated
hereby, the Company and the members of the Board shall, to the extent
-15-
permitted by applicable law, grant such approvals and take such actions
as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute
or regulation on the transactions contemplated hereby.
(h) Conduct of Business and Maintenance of Existence. The Company
will continue to engage in business of the same general type as now
conducted by it, and preserve, renew and keep in full force and effect
its corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal
conduct of its business.
(i) Compliance with Laws. The Company and its subsidiaries will
comply in all material respects with all applicable laws, rules,
regulations and orders except where the failure to comply would not have
a Material Adverse Effect.
(j) Insurance. The Company will maintain insurance with
responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies of
similar size and credit standing engaged in similar business and owning
similar properties, provided that such insurance is and remains
available to the Company at commercially reasonable rates.
(k) Keeping of Books. The Company will keep proper books of
record and account, in which full and correct entries shall be made of
all financial transactions and the assets and business of the Company
and its subsidiaries in accordance with GAAP.
(l) Lost, etc. Certificates Evidencing Securities (or Common
Shares); 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,
-16-
exchange or transfer all or substantially all of its assets to any
person other than an affiliate of the Company; (B) amalgamate the
Company with another corporation with the effect that the then existing
shareholders of the Company, ordinarily having the right to vote in the
election of directors, hold less than 51% of the combined voting power
of the amalgamated corporation; (C) permit either Subsidiary to merge,
amalgamate or consolidate with or into another corporation with the
effect that the Company will hold less than 51% of the combined voting
power of the surviving corporation; (D) materially change the nature of
the Company's business; (E) effect a liquidation, amalgamation or sale
of the Company or sell substantially all of its or its Subsidiaries'
assets; or (F) except as described in Schedule 4(m), redeem or pay or
permit any of its Subsidiaries to redeem or pay any dividend or
distribution on its Common Shares.
(n) Commencement and Termination of Covenants. The obligations of
the Company and the rights of the Investor set forth in Sections 4(e),
4(f), 4(h), 4(i), 4(j), 4(k) and 4(m) begin as of the Closing Date; from
and after the Closing Date, such obligations shall terminate once the
Investor no longer owns beneficially (within the meaning of Rule 13d-3
under the Exchange Act) at least 3,333,333 outstanding Common Shares or
Convertible Shares (as appropriately adjusted for any stock splits,
consolidations or the like).
(o) Form D Filing. The Company will timely file a Form D under
the Securities Act in connection with the offer and sale of the
Securities.
5. Representations, Warranties and Covenants of the Investor;
Additional Covenants of the Company.
(a) General. The Investor hereby represents and warrants
that:
(i) it has full power and authority, corporate and other,
to execute, deliver and perform the Transaction Documents and to
consummate the transactions contemplated thereby and to perform
its obligations thereunder. This Agreement has been, and as of
the Closing Date the Warrant Agreement will be, duly executed and
delivered by the Investor. This Agreement constitutes, and as of
the Closing Date the Warrant Agreement will constitute, the valid
and binding obligation of the Investor enforceable against the
Investor in accordance with their terms;
(ii) it is an "accredited investor" within the meaning of
Rule 501(a) of Regulation D under the Securities Act, and will
purchase the Securities and the Common Shares issuable on the
conversion of the Convertible Shares and the exercise of the
Warrants for its own account and not with a view to any
distribution thereof in a transaction that would violate the
Securities Act or the securities laws of any State of the United
States or any other applicable
-17-
jurisdiction, but subject, nevertheless, to any requirement of
law that the disposition of the Investor's property shall at all
times be within the Investor's control, and without prejudice to
the Investor's right at all times to sell or otherwise dispose of
all or any part of such securities under a registration statement
under the Securities Act or under an exemption from said
registration available under the Securities Act;
(iii) it understands that an investment in the Company
bears a high degree of risk and represents that it has such
knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of purchasing
the Securities and the Common Shares issuable upon exercise of
the Warrants, and is able to bear the economic risks of its
investment for an indefinite period of time; and
(iv) it has received copies of the Company SEC Reports
and has had access to such financial and other information, and
has been afforded the opportunity to ask such questions of
representatives of the Company and receive answers thereto, as it
deems necessary in connection with its purchase of the
Securities.
(b) Disclosure and Non-Public Information. As to so much of the
information and other material furnished under or in connection with
this Agreement (whether furnished before, on or after the date hereof,
including without limitation information furnished pursuant to Sections
4(e) and (f) hereof) as constitutes or contains non-public business,
financial or other information of the Company or either Subsidiary
("Non-Public Information"), the Investor covenants for itself and its
directors, officers and partners that it will use due care to prevent
its officers, directors, partners, employees, counsel, accountants and
other representatives from (i) disclosing any Non-Public Information to
Persons other than the Investors's authorized employees, counsel,
accountants, shareholders, partners, limited partners and other
authorized representatives or (ii) using Non-Public Information in any
manner that would constitute a violation of Canadian federal or
provincial or U.S. federal or state securities laws; provided, however,
that the Investor may disclose or deliver any information or other
material disclosed to or received by it should such Investor be advised
by its counsel (such writing to be delivered to the Company) that such
disclosure or delivery is required by law, regulation or judicial or
administrative order. In the event of any termination of this Agreement
prior to the Closing Date, the Investor shall return to the Company all
confidential material previously furnished to such Investor or its
officers, directors, partners, employees, counsel, accountants and other
representatives in connection with this transaction. For purposes of
this Section 5(b), "due care" means at least the same level of care that
such Investor would use to protect the confidentiality of its own
sensitive or proprietary information, and this obligation shall survive
termination of this Agreement.
-18-
(c) Securities Act Matters. The Investor acknowledges that the
Securities are being offered in a transaction not involving any public
offering within the meaning of the Securities Act and that the
Securities and the Common Shares issuable upon the conversion of the
Convertible Shares and the exercise of the Warrants have not been
registered under the Securities Act, or under the securities laws of any
province of Canada, and agrees that it will not sell or otherwise
transfer the Securities except pursuant to an effective registration
statement under the Securities Act or Canadian securities laws or in a
transaction which, in the opinion of counsel reasonably satisfactory to
the Company, qualifies as an exempt transaction under the Securities Act
and the rules and regulations promulgated thereunder. The Investor
acknowledges that certificates for the Securities and such Common Shares
will bear a legend reflecting the substance of this Section 5(c) and
that appropriate stop transfer orders may be lodged with respect
thereto.
(d) Limitation on Transfer. The Investor agrees that it shall in
no event sell or otherwise transfer (i) any of the Securities for a
period ending six months from the Closing Date or (ii) any of the Common
Shares issuable upon the conversion or exercise of the Securities for a
period of six months from the Closing Date. If such Common Shares are
issued on a date later than six months from the Closing Date, they shall
be freely transferrable, subject to applicable securities laws.
(e) No Intention of Board to Pay Dividends. The Investor
acknowledges that the Board of Directors of the Company has no
obligation to declare and has no present intention of declaring any
dividends on the Convertible Shares, but that such dividends will
nevertheless accumulate pursuant to the terms of the Convertible Shares.
(f) Xxxx-Xxxxx Act Compliance. The Company and the Investor will
promptly prepare and file, or cause to be prepared and filed, any
notification or response to any request for additional information
required to be filed under the Xxxx-Xxxxx Act and the rules and
regulations promulgated thereunder with respect to the acquisition of
the Securities and the acquisition of Common Shares, if any, by the
Investor upon conversion or exercise of any of the Securities. If any
additional filings are required under the Xxxx-Xxxxx Act in connection
with the exercise of the Warrants or the acquisition of any other
Securities, the Company shall promptly, and in any event within ten-days
following a written request from the Investor, prepare and file, or
cause to be prepared and filed, any notification or response to any
request for additional information required to be filed under the
Xxxx-Xxxxx Act and the rules and regulations promulgated thereunder in
connection with any acquisition, conversion or exercise of any of the
Securities.
(g) Consents and Approvals. The Company and the Investor will use
their respective reasonable best efforts to obtain as promptly as
practicable any consent or approval of any Person, including any
regulatory authority, required in connection with the transactions
contemplated hereby.
-19-
(h) Acknowledgments Regarding the Advisors. The Investor
acknowledges that the Advisors are acting as financial advisors to the
Company in connection with the Securities being offered hereby and will
be compensated by the Company for acting in such capacity, as set forth
in Schedule 3(y) hereto. The Investor further acknowledges that the
Advisors have acted solely as financial advisors to the Company in
connection with the offering of the Securities by the Company, that the
information and data provided to the Investor relating to the Company,
its operations and financial condition have not been subjected to
independent verification by the Advisors, and that the Advisors make no
representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure documents. The
Investor further acknowledges that in making its decision to enter into
this Agreement and purchase the Securities, it has relied on its own
examination of the Company and the terms of, and the risks and
consequences of holding, the Securities.
6. Conditions to Closing.
(a) The obligations of the Investor hereunder at the Closing
shall be subject to the performance by the Company of all its
obligations hereunder to be performed on or prior to the Closing Date
and to the satisfaction, prior thereto or concurrently therewith, of the
following conditions:
(i) Representations and Warranties. The representations
and warranties of the Company contained in this Agreement shall
be true on and as of the Closing Date as though such warranties
and representations were made at and as of such date, except as
otherwise affected by the transactions contemplated hereby.
(ii) Compliance with Agreement. The Company shall have
performed and complied with all agreements, covenants and
conditions contained in this Agreement which are required to be
performed or complied with by the Company prior to or on the
Closing Date.
(iii) No Legislation or Injunction. There shall have been
adopted no law or regulation and there shall be no effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction
prohibiting the transactions provided for in the Transaction
Documents or any of them from being consummated as herein
provided.
(iv) Adverse Developments. There shall have been no
developments in the business of the Company or any of its
Subsidiaries which in the reasonable opinion of the Investor
would have a Material Adverse Effect.
(v) Consents and Approvals. All filings, consents,
waivers, authorizations, licenses, permits, certificates and
approvals of any Person required to have
-20-
been made or obtained on or prior to the Closing Date in
connection with the execution, delivery and performance of this
Agreement, all of which are set forth on Schedule 3(f) hereto,
shall have been duly made or obtained and shall be in full force
and effect on the Closing Date.
(vi) Officers' Certificate. The Company shall have
delivered to the Investor a certificate of the Company's
President and Chief Executive Officer, dated as of the Closing
Date, certifying that the conditions specified in the foregoing
Sections 6(a)(i) through (v) hereof have been fulfilled.
(vii) Opinions of Counsel. The Investor shall have
received (a) from Ballem XxxXxxxx, counsel to the Company, a
legal opinion, dated as of the Closing Date, in substantially the
form of Exhibit D-1 hereto, and (b) from Xxxxxx, Xxxxxxx &
Xxxxxxx, special United States counsel to the Company, a legal
opinion, dated as of the Closing Date, in substantially the form
of Exhibit D-2 hereto;
(viii) Secretary's Certificate. The Investor shall have
received a certificate, dated the Closing Date, of the Secretary
of the Company attaching (i) a true and complete copy of the
constating documents of the Company, with all amendments thereto,
(ii) true and complete copies of the Company's By-Laws in effect
as of such date, (iii) certificates of good standing of the
appropriate officials of the jurisdictions of incorporation of
the Company and each Subsidiary and of each jurisdiction in which
the Company and each Subsidiary is qualified to do business as a
foreign corporation, (iv) resolutions of the Board authorizing
the execution and delivery of the Transaction Documents and the
transactions contemplated thereby, the issuance of the Securities
and the reservation for issuance of a sufficient number of Common
Shares into which the Securities may be converted or exercised,
as the case may be, and (v) proof of filing of the Articles of
Amendment to designate the Series A Convertible Preferred Shares.
(ix) Approval of Proceedings. All proceedings to be taken
in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to the Investor and
its special counsel, Xxxxxxx Xxxx & Xxxxxxxxx; and the Investor
shall have received copies of all documents or other evidence
which it and Xxxxxxx Xxxx & Xxxxxxxxx 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 Xxxxxxx Xxxx &
Xxxxxxxxx.
(x) Warrant Agreement. The Warrant Agreement shall have
been executed and delivered.
-21-
(xi) Shareholders' Agreement. The Shareholders' Agreement
shall have been executed and delivered.
(xii) Recent Financial Statements. The Company shall have
provided the Investor with its most recent Quarterly Report on
Form 10-QSB filed with the Commission subsequent to the date of
this Agreement.
(xiii) Filing of Convertible Shares Certificate. The
Company shall have filed or caused to be filed with the Registrar
of Corporations of the Province of Alberta (the "Registrar")
Articles of Amendment to amend the Company's Articles of
Incorporation to designate the Series A Convertible Preferred
Shares, such series to have the terms set forth in Exhibit C, and
such Articles of Amendment shall have been accepted for filing by
the Registrar.
(xiv) Conditional Approval of The Alberta Stock Exchange.
The conditional approval of The Alberta Stock Exchange received
by the Company with respect to the transactions contemplated
hereby on November 20, 1997, shall remain in effect and unamended
other than with respect to confirmation as to the acceptability
of the anti-dilution provisions set forth in the Warrant
Agreement and the terms of the Convertible Shares attached hereto
as Exhibit C. Such conditional approval shall specify the
following as to the transactions contemplated hereby: (A) the
limitations on transfer applicable to the Securities and the
Common Shares issuable upon conversion or exercise of the
Securities as contemplated in Section 5(d) hereof; (B) an expiry
date for the Warrants of not less than three (3) years from the
date of their issuance; (C) confirmation of the acceptability of
the anti-dilution provisions set forth in the Warrant Agreement
and the terms of the Convertible Shares set forth in Exhibit C
(which may be included in a side letter); and (D) such other
terms as are customary in similar transactions.
(xv) Antitrust Approvals. The waiting period under the
Xxxx-Xxxxx Act and other applicable antitrust regulations of any
applicable jurisdictions shall have expired or been terminated.
(xvi) Directors. As of the Closing Date, the person or
persons designated by the Investor in accordance with Section
4(c) hereof shall have been appointed to the Board.
(xvii) Employment Agreements. Employment agreements by
and between the Company and each of Xxxxxxx X. Xxxxxx, Xxxxx X.
Kawasaki and Xxxxxxx X. Xxxxxxxxxx, in forms to be mutually
agreed upon in good faith by the Investor, the Company and such
persons, shall have been executed and delivered.
-22-
(b) The obligations of the Company at the Closing shall be
subject to the performance by the Investor of all of its obligations
hereunder to be performed on or prior to the Closing Date and to the
satisfaction, prior thereto or concurrently therewith, of the following
conditions:
(i) Consents and Approvals. All filings, consents,
waivers, authorizations, licenses, permits, certificates and
approvals of any Person required to have been made or obtained on
or prior to the Closing Date in connection with the execution,
delivery and performance of this Agreement, all of which are set
forth on Schedule 3(f) hereto, shall have been duly made or
obtained and shall be in full force and effect on the Closing
Date.
(ii) No Legislation or Injunction. There shall have been
adopted no law or regulation and there shall be no effective
injunction, writ, preliminary restraining order or any order of
any nature issued by a court of competent jurisdiction
prohibiting the transactions provided for in the Transaction
Documents or any of them from being consummated as herein
provided.
(iii) General Partner's Certificate. The Investor shall
have delivered to the Company a certificate of the General
Partner of the Investor, dated as of the Closing Date, affirming
the continuing accuracy as of the Closing Date, of the
representations and warranties and the performance of all
agreements made by the Investor in this Agreement.
(iv) Antitrust Approvals. The waiting period under the
Xxxx-Xxxxx Act and other applicable antitrust regulations of any
applicable jurisdictions shall have expired or been terminated.
7. Expenses of Sale. In the absence of a default by the Investor in the
performance of its obligations hereunder, the Company shall pay, or reimburse
the Investor for all reasonable out-of-pocket expenses incurred by the Investor
in connection with this transaction, including without limitation, the
reasonable fees and disbursements of its counsel in connection herewith. The
Company shall pay all finders' or brokers' fees or similar payments incurred by
it in connection with the transactions contemplated hereby, including any fees
and payments payable to the Advisors. The Investor represents and warrants that
it has not incurred any liability for, and is unaware of any claim for, any
finders' or brokers' fees or similar payments in connection with the
transactions contemplated hereby.
-23-
8. Registration Rights.
(a) For the purpose of this Section 8, the term "Registerable
Shares" shall mean (i) the Common Shares issuable upon (a) the
conversion of the Convertible Shares, and (b) the exercise of the
Warrants; and (ii) any share capital of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in
replacement of, the Common Shares referred to in clause (i).
(b) At any time subsequent to 180 days from the date of the
Closing, the Investor may request, in writing, that the Company register
all or part of the Registerable Shares issued, or issuable, upon
conversion of the Convertible Shares for resale under the Securities
Act. The Company will, as soon as practicable after receipt of such
request, prepare and file with the Commission, at the Company's own
expense, a registration statement under the Securities Act sufficient to
permit the public offering of all or such portion of such Common Shares
as are specified in such request. The Company will use its reasonable
best efforts to cause such registration statement to become effective
under the Securities Act (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws
and appropriate compliance with applicable regulations issued under the
Securities Act) as promptly as practicable. The Company shall only be
obligated to file one such registration statement under this Section
8(b) provided that such registration statement pursuant to this Section
8(b) shall have been declared or ordered effective and the sales of such
Common Shares shall have been closed. However, if the sales of such
Common Shares have not closed, the Investor may preserve its one demand
registration right under this Section 8(b) by paying all the Company's
Registration Expenses (as defined below) associated with the
registration of such Common Shares; provided that such right may not be
exercised until 90 days after the effective date of such registration
statement.
(c) At any time subsequent to 180 days from the date of the
Closing, the Investor may request, in writing, that the Company register
all or a part of the Common Shares issued, or issuable, upon exercise of
the Warrants for resale under the Securities Act. The Company will, as
soon as practicable after receipt of such request, prepare and file with
the Commission, at the Company's own expense, a registration statement
under the Securities Act sufficient to permit the public offering of all
or such portion of such Common Shares as are specified in such request.
The Company will use its reasonable best efforts to cause such
registration statement to become effective under the Securities Act
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act) as promptly as
practicable. The Company shall only be obligated to file one such
registration statement under this Section 8(c) provided that such
registration statement
-24-
pursuant to this Section 8(c) shall have been declared or ordered
effective and the sales of such Common Shares shall have closed.
However, if the sales of such Common Shares have not closed, the
Investor may preserve its one demand registration right under this
Section 8(c) by paying all the Company's Registration Expenses (as
defined below) associated with the registration of such Common Shares;
provided that such right may not be exercised until 90 days after the
effective date of such registration statement.
(d) If the Investor intends to distribute the Registerable Shares
covered by its request pursuant to Section 8(b) or 8(c) by means of an
underwriting, it shall so advise the Company as a part of its request
made pursuant to Section 8(b) or 8(c).
If holders of securities of the Company other than Registerable
Shares who are entitled, by contract with the Company or otherwise, to
have securities included in such a registration (the "Other
Stockholders") request such inclusion, the Investor shall offer to
include the securities of such Other Stockholders in the underwriting
and may condition such offer on their acceptance of the further
applicable provisions of this Section 8. The Investor and the Company
shall (together with all Other Stockholders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter
or underwriters selected for such underwriting by the Investor and
reasonably acceptable to the Company. Notwithstanding any other
provision of this Section 8, if the representative advises the Investor
in writing that marketing factors require a limitation on the number of
shares to be underwritten, the securities of the Company held by Other
Stockholders shall be excluded from such registration to the extent so
required by such limitation. If, after the exclusion of such shares,
further reductions are still required, the number of shares included in
the registration by the Investor shall be reduced by such minimum number
of shares as is necessary to comply with such request. No Registerable
Shares or any other securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. If the Investor or any Other Stockholder who has requested
inclusion in such registration statement as provided above disapproves
of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the
Investor, and the securities so withdrawn shall also be withdrawn from
registration. If the person electing such withdrawal is the Investor,
then the demand right exercised under Section 8(b) or 8(c) shall be
preserved and may be exercised a second time if (A) the registration
statement covering such underwriting is not declared or ordered
effective, or (B) the registration statement covering such underwriting
is declared effective and (i) the sale of at least 500,000 Common Shares
by Other Stockholders pursuant to such underwriting shall close, or (ii)
the Investor pays all the Company's Registration Expenses (as defined
below) associated with the registration of such Common Shares and 90
days shall elapse after the effective date of such registration
statement. If the underwriter has not limited the number of Registerable
Shares to be underwritten, the Company may include its securities for
its own account in such registration if the representative so agrees and
if the number of
-25-
Registerable Shares which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(e) If at any time subsequent to 180 days from the date of the
Closing, the Company proposes to register any of its equity securities
under the Securities Act either for its own account or for the account
of a security holder or holders exercising their respective demand
registration rights, (on a form other than Form S-4 or S-8 or their
equivalents), the Company will (i) promptly notify the Investor in
writing (which written notice shall include, to the extent known, a list
of the jurisdictions in which the Company intends to attempt to qualify
such securities under the applicable blue sky or other state securities
laws) that such registration statement will be filed and that the
Registerable Shares which are then held by the Investor will be included
in such registration statement at its request and (ii) subject to the
last sentence of this subsection (e), cause such registration statement
to cover all Registerable Shares which it has been so requested to
include by the Investor, provided such request is delivered to the
Company not later than 20 days after such notice is given to the
Investor and specifies the number of Registerable Shares to be included
in the proposed registration statement. Notwithstanding the foregoing
provisions, if such registration statement relates to an underwritten
offering of Common Shares and the managing underwriter shall inform the
Company and the Investor in writing that the managing underwriter
believes that the number of Common Shares requested to be included in
such registration statement would materially adversely affect its
ability to effect such offering, then the Company will include in such
registration statement the number of Common Shares which the Company is
so advised can be sold in (or during the time of) such offering as
follows: first, all shares proposed by the Company to be sold for its
own account, and, second, such Registerable Shares requested to be
included in such registration statement, pro rata by the Investor and
other security holders exercising registration rights on the basis of
the number of Registerable Shares and other Common Shares so proposed to
be sold by the Investor and by such other security holders and so
requested to be included.
(f) In connection with any registration statement filed pursuant
to this Section 8 (a "Registration Statement"), the Company shall take
such action as may be necessary to register or qualify the Registerable
Shares registered thereunder under the securities or Blue Sky laws of
such states of the United States as shall reasonably be requested by the
Investor, and shall do any and all other acts which may be necessary or
advisable to permit the proposed sale or other disposition of such
Registerable Shares in any such state; provided that in no event shall
the Company be obligated in connection therewith to qualify as a foreign
corporation in any jurisdiction where it is not already so qualified, or
to execute a general consent for service of process in suits other than
those arising out of the offer and sale of the Registerable Shares, or
to take any action which would subject it to taxation in any
jurisdiction where it is not then so subject.
-26-
(g) The Company's obligations under this Section 8 to register
and qualify Registerable Shares shall be conditioned in each instance
upon the timely receipt by the Company in writing of (i) information
from the Investor as to the proposed plan of distribution of the
Registerable Shares to be included in the Registration Statement, and
(ii) such other information as the Company may reasonably require from
the Investor for inclusion in the Registration Statement.
(h) All Registration Expenses (as defined below) in connection
with each Registration Statement (or seeking or obtaining the opinion of
counsel to the Company under Section 8(i) and, if in the sole discretion
of the Company deemed desirable, any no-action position of the
Commission with respect to sales pursuant to Rule 144 under the
Securities Act), in complying with applicable state securities laws, and
with any other qualification or compliance pursuant to this Section 8,
shall be borne by the Company. All Selling Expenses (as defined below)
shall be borne by the holders of the securities so registered pro rata
on the basis of the number of their shares so registered. The Company at
its expense will furnish the Investor with copies of such Registration
Statement and the prospectus included therein and in such quantities as
may be reasonably requested by the Investor. In connection with each
Registration Statement, the Company shall furnish the Investor with such
opinions of counsel, comfort letters of accountants, certificates and
such other documents that are customary in connection with underwritten
public offerings and that are reasonably requested by the Investor.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Sections 8(b) through (f) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, fees and expenses of one
counsel for all the holders of Registerable Shares in an amount not to
exceed $15,000, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company). "Selling Expenses" shall
mean all brokerage fees, underwriting discounts and selling commissions
applicable to the sale of Registerable Shares.
(i) The Company shall not be required by this Section 8 to file
any Registration Statement relating to the Registerable Shares of the
Investor if the Company shall furnish the Investor with a written
opinion of counsel reasonably satisfactory to the Investor to the effect
that the proposed public offering or other transfer of Registerable
Shares as to which registration is requested is exempt from the
registration or qualification requirements of all applicable federal and
state securities laws and would result in all purchasers or transferees
thereof obtaining securities which are not "restricted securities" as
defined in Rule 144 under the Securities Act.
(j) If, after the date hereof, the Company grants to any person
registration rights which are more favorable to such person than those
afforded to the Investor under
-27-
this Section 8, the Investor shall without further action be entitled to
the benefits of such more favorable rights.
(k) Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 8, the Company will
keep the Investor, as applicable, advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(i) keep such registration effective for a period of one
hundred eighty (180) days or until the Investor has completed the
distribution described in the registration statement relating
thereto, whichever first occurs; provided, however, that in the
case of any registration of Registerable Shares on Form S-3 which
are intended to be offered on a continuous or delayed basis, such
180-day period shall be extended until all such Registerable
Shares are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under
the Securities Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a
post-effective amendment which (y) includes any prospectus
required by Section 10(a) of the Securities Act or (z) reflects
facts or events representing a material or fundamental change in
the information set forth in the registration statement, the
incorporation by reference of information required to be included
in (y) and (z) above to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(ii) furnish such number of prospectuses and other
documents incident thereto as the Investor from time to time may
reasonably request;
(iii) notify the Investor at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing; and
(iv) furnish, on the date that such Registerable Shares
are delivered to the underwriters for sale, if such securities
are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (1) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to
the Investor addressed to the Investor and (2) a letter, dated as
of such date, from the independent certified public accountants
of the Company, in form and substance
-28-
as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
and reasonably satisfactory to the Investor addressed to the
underwriters, if any, and if permitted by applicable accounting
standards, to the Investor.
(l) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may
permit the sale of restricted securities to the public without
registration, the Company agrees to:
(i) make and keep public information available as those
terms are understood and defined in Rule 144, at all times from
and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company
for an offering by it of its securities to the general public;
(ii) use its reasonable best efforts to file with the
Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange
Act at any time after it has become subject to such reporting
requirements; and
(iii) so long as the Investor owns any Registerable
Shares, furnish to the Investor upon request, a written statement
by the Company as to its compliance with the current public
information requirements of Rule 144(c)(1), a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents so filed as the Investor may reasonably
request in availing itself of any rule or regulation of the
Commission allowing the Investor to sell any such Securities
without registration.
(m) The Company shall not be required to effect a registration
pursuant to Section 8(b) or 8(c) if at the time of any request to
register Registerable Shares, the Company has filed or will file within
60 days of the time of the request a registration statement under the
Securities Act with respect to a public offering as to which the
Investor may include Registerable Shares pursuant to Section 8(e). The
Company may, at its option, direct that such request be delayed for a
period not in excess of three months from the effective date of such
offering, such right to delay a request to be exercised by the Company
not more than once in any one-year period.
(n) Transfer of Registration Rights. The rights granted to the
Investor to cause the Company to register securities under Section 8(b)
or 8(c) may be assigned to a transferee or assignee in connection with
the sale or other transfer of at least 500,000 Registerable Shares (as
appropriately adjusted for any stock splits, consolidations, or the
like), provided that (i) such transfer may otherwise be effected in
accordance with applicable securities laws, (ii) the Company is given
reasonably prompt written notice of such assignment, and (iii) the
rights provided in each of Section 8(b) and Section 8(c)
-29-
may be exercised only once, except as otherwise provided in this Section
8, by either the Investor or a transferee.
9. Indemnification.
(a) In the event of the filing of any Registration Statement
pursuant to Section 8 hereof, the Company agrees to indemnify and hold
harmless the Investor and each person, if any, who controls the Investor
within the meaning of the Securities Act, against any and all losses,
claims, damages or liabilities, joint or several (including the costs of
any reasonable investigation and legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claim asserted) to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in such Registration
Statement, or any related preliminary prospectus, final prospectus, or
amendment thereof or supplement thereto, or arise out of or are based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company shall not be liable
under this Section 9(a) in any such case to the extent that any such
losses, claims, damages or liabilities arise solely out of or are based
upon an untrue statement of a material fact contained in or any omission
of a material fact from such Registration Statement, preliminary
prospectus, final prospectus or amendment thereof or supplement thereto
in reliance upon, and in conformity with, information furnished in
writing to the Company by the Investor specifically for use therein.
This indemnity will be in addition to any liability which the Company
may otherwise have.
(b) The Investor agrees to indemnify and hold harmless the
Company, each other person referred to in subparts (1), (2) and (3) of
Section 11(a) of the Securities Act in respect of such Registration
Statement, and each person, if any, who controls the Company or any such
person within the meaning of Section 15 of the Securities Act, against
any and all losses, claims, damages or liabilities (including the costs
of any reasonable investigation and legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claim asserted) to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other
federal, provincial or state law or regulation, at common law, or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
such Registration Statement, or any related preliminary prospectus,
final prospectus or amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
-30-
which they were made, not misleading, in each case to the extent, but
only to the extent, that such untrue statement or omission was made in
such Registration Statement, preliminary prospectus, final prospectus or
amendment thereof or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by the
Investor specifically for use therein; provided, however, that the
obligations of the Investor hereunder shall be limited to an amount
equal to the net proceeds to it from sales of securities sold as
contemplated herein; and provided further, that this indemnity, as to
any preliminary prospectus, shall not inure to the benefit of the
Investor (or any person controlling the Investor) on account of any
loss, claim, damage, liability or litigation arising from the sale of
Registerable Shares to any person by the Investor if it failed to send
or give a copy of any subsequent prospectus or prospectus supplement to
such person within the time required by the Securities Act, and the
untrue statement or alleged untrue statement or omission or alleged
omission of a material fact in such preliminary prospectus was corrected
in the subsequent prospectus or prospectus supplement. This indemnity
agreement will be in addition to any liability which the Investor may
otherwise have.
(c) Any party that proposes to assert the right to be indemnified
under this Section 9 shall, promptly after receipt of notice of the
commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section 9, notify each such indemnifying party of the
commencement thereof, enclosing a copy of all papers served. No
indemnification provided for in Section 9(a) or 9(b) shall be available
to any party who shall fail to give notice as provided in this Section
9(c), provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its
obligations under this Section 9 unless the indemnifying party was
unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice and
provided that the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party other than under this Section
9 or Section 10 below. In case any such action, suit or proceeding is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, such indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval
by the indemnified party of such counsel (which shall not be
unreasonably withheld), the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, suit or proceeding but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party has
-31-
been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be
differing or additional defenses available to it and not to one or more
of the indemnifying parties in such action, suit or proceeding so that
it would be inappropriate for counsel to represent both the indemnified
party and the indemnifying party in view of actual or potential
conflicts of interest (in which case if such indemnified party notifies
the indemnifying party in writing that it elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such indemnified party); or (iii) the
indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
the indemnified party's counsel shall be at the expense of the
indemnifying parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action,
suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys
for the Investor and its controlling persons. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding
or claim effected without its written consent.
10. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 9 is due in accordance with its terms but for any reason is held to be
unavailable or insufficient to hold harmless an indemnified party, the Company
on the one hand and the Investor on the other hand shall, in lieu of
indemnifying such indemnified party, contribute to the aggregate losses, claims,
damages or liabilities referred to in Section 9 (including costs of any
investigation and legal and other expenses reasonably incurred in connection
therewith, and any amount paid in settlement of, any action, suit or proceeding
or any claims asserted), in such proportions as is appropriate to reflect the
relative fault of the Company and the Investor in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company and the Investor shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission related to information supplied by the Company (including for this
purpose information supplied by any officer, director, employee or agent of the
Company) or to written information furnished to the Company by or on behalf of
the Investor specifically for use in the preparation of the Registration
Statement or any amendment thereof or supplement thereto, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the provisions of this
Section 10 in no case shall the Investor be liable or responsible for any amount
in excess of the proceeds received by the Investor from the sale of the
Registerable Shares included in the Registration Statement, provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 10, each person, if any,
-32-
who controls the Investor within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as the Investor, and each person, if any, who controls the Company within the
meaning of the Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each director of the Company and each officer of the Company who shall have
signed the Registration Statement shall have the same rights to contribution as
the Company, subject to the immediately preceding sentence of this Section 10.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 10, notify such party or parties from whom contribution may
be sought, and the omission so to notify such party or parties from whom
contribution may be sought shall relieve the party or parties from whom
contribution may be sought (if such party was unaware of such action, suit, or
proceeding and was materially prejudiced by such omission) from any liability
under this Section 10, but not from any other obligation it or they may have
hereunder or other than under this Section 10. No party shall be liable for
contribution with respect to the settlement of any action, suit, proceeding or
claim effected without its written consent. The obligations of the Investor to
contribute pursuant to this Section 10 are several in proportion to its
respective number of Registerable Shares included in the Registration Statement
and not joint. Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering contemplated by
this Agreement are in conflict with the foregoing provisions, the provisions in
such underwriting agreement shall be controlling.
11. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or seven
business days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, to the appropriate party at the following
addresses:
If to the Investor:
Warburg Pincus Ventures, L.P.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile: 000-000-0000
Attention: Xx. Xxxx Xxxxxxxx
with a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx
000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
-33-
If to the Company:
HealthCare Capital Corp.
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Facsimile: 000-000-0000
Attention: Xx. Xxxxxxx X. Xxxxxx
with a copy to:
Xxxxxx, Xxxxxxx & Xxxxxxx
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Attention: Xxxx X. Xxxxxx, Esq.
12. Parties. This Agreement will inure to the benefit of and be binding
upon the Investor, the Company and their respective successors and assigns. This
Agreement is intended to be, and is for the sole and exclusive benefit of the
parties hereto and the other indemnified parties described in Sections 9 and 10
hereof and their respective successors and assigns, and for the benefit of no
other person, and no other person will have any legal or equitable right, remedy
or claim under, or in respect of this Agreement. Except as provided in Section
4(c) and Section 8(n) hereof, no purchaser of any of the Securities will be
construed as a successor or assign of the Investor entitled to any benefits of
this Agreement, merely by reason of such purchase.
13. Termination and Survival. Unless the Closing has occurred prior
thereto or simultaneously herewith, this Agreement and, except as herein
provided, all the rights of the parties hereto, shall terminate on January 16,
1998 (unless such date is extended by mutual written consent); provided,
however, that this date may be extended unilaterally by the Company or the
Investor to March 31, 1998 if all required regulatory approvals have not been
obtained by January 16, 1998. Notwithstanding the foregoing, Section 7 hereof
shall survive the termination of this Agreement. All warranties,
representations, and covenants made by the Investor and the Company herein or in
any certificate or other instrument delivered by the Investor or the Company
under this Agreement shall be considered to have been relied upon by the Company
or the Investor, as the case may be, and shall survive all deliveries to the
Investor of the Securities, or payment to the Company for such Securities,
regardless of any investigation made by the Company or the Investor, as the case
may be, or on the Company's or the Investor's behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Company or the Investor, as the case may be, hereunder.
14. Amendment and Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated in any manner other than by an instrument in writing signed by each
of the parties hereto.
-34-
15. Further Assurances. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intent and purposes of this
Agreement and to carry out its provisions. Each such party shall use its
reasonable efforts to fulfill or obtain the fulfillment of the respective
conditions to the Closing as promptly as practicable.
16. Waiver of Breach. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred in any one or more instances,
will not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, and the same will be and remain
in full force and effect.
17. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understandings relating thereto, including without limitation,
that certain Term Sheet dated October 22, 1997 and accepted October 31, 1997,
between the Company and the Investor, are superseded hereby. There are no
conditions precedent to the effectiveness of this Agreement other than as stated
herein, and there are no related collateral agreements existing between the
parties that are not referred to herein.
18. Severability. In the event that any part or parts of this Agreement
shall be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not affect the remaining
provisions of this Agreement which shall remain in full force and effect.
19. Limitation on Enforcement of Remedies. Without in any way limiting
its rights against the Investor or its general partner, the Company hereby
agrees that it will not assert against the limited partners of the Investor any
claim it may have under this Agreement by reason of any failure or alleged
failure by the Investor to meet its obligations hereunder.
20. Counterparts. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
21. Law. This Agreement will be deemed to have been made and delivered
in New York City and will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (a) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement may be instituted in the Supreme
Court of the State of New York, County of New York, or in the United States
District Court for the Southern District of New York, (b) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the jurisdiction of the
Supreme Court of the State of New York, County of Xxx
-00-
Xxxx, xxx xxx Xxxxxx Xxxxxx 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.]
-36-
IN WITNESS WHEREOF, the Company and the Investor have each caused this
Agreement to be executed by its duly authorized officer, each as of the date
first above written.
HEALTHCARE CAPITAL CORP.
By: /s/ Xxxxxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx
Title: President and Chief Executive Officer
WARBURG PINCUS VENTURES, L.P.
By: Warburg, Xxxxxx & Co.,
General Partner
By: /s/ Xxxxxxx X. Xxxxxxx
Print Name: Xxxxxxx X. Xxxxxxx
Title: Managing Director
-37-
EXHIBIT A
HEALTHCARE CAPITAL CORP.
-----------------------------
WARRANT AGREEMENT
-----------------------------
WARRANTS TO PURCHASE 10,000,000 COMMON SHARES
-----------------------------
THIS WARRANT AGREEMENT (this "Agreement") dated as of January --, 1998
is made and entered into by and between HealthCare Capital Corp., a corporation
organized under the laws of Alberta, Canada (the "Company"), and Warburg Pincus
Ventures, L.P., a Delaware limited partnership (the "Warrantholder").
Subject to the terms and conditions hereof, the Company agrees to issue
to the Warrantholder, pursuant to a Securities Purchase Agreement dated as of
November 21, 1997, by and between the Company and the Warrantholder (the
"Securities Purchase Agreement"), warrants, as hereinafter described and the
form of which is attached hereto as Exhibit 1 (the "Warrants"), to purchase up
to an aggregate of 10,000,000 common shares without par value of the Company
(the "Common Shares"), at a Warrant Price of U.S. $2.40 per Common Share,
subject to adjustment pursuant to Section 6 hereof. As used herein (i) the term
"Shares" shall mean, unless the context otherwise requires, collectively the
Common Shares issuable upon exercise of the Warrants together with any other
securities or other property issuable upon such exercise as provided in Section
6 of this Agreement; (ii) the term "Warrants" shall include any and all warrants
outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange or substitution
pursuant to this Agreement; and (iii) the term "Warrant Price" shall mean the
price per Share at which Shares shall at any time be purchasable upon exercise
of the Warrants. Terms which are capitalized but not defined herein shall have
the same meanings as in the Securities Purchase Agreement. Any amounts herein
referencing share prices or numbers of shares shall be subject to appropriate
adjustments in the event of any stock splits, consolidations or the like.
For the purpose of defining the terms and provisions of the Warrants and
the respective rights and obligations thereunder, the Company and the
Warrantholder, for value received, hereby agree as follows:
A-1
Section 1. Restrictions on Transfer and Form of Warrants.
1.1. Registration. Certificates evidencing the Warrants shall be
numbered and shall be registered on the books of the Company when issued, in
accordance with Alberta corporate practice.
1.2. Restriction on Transfer of the Warrants. The Warrants shall not be
transferable and may not be sold, assigned, hypothecated or otherwise
transferred by the Warrantholder without the express written consent of the
Company, such consent not to be unreasonably withheld. Any transferee permitted
under this Section 1.2 shall acquire title to such transferred Warrants and to
all rights represented thereby.
1.3. Form of Warrants. The form of certificate evidencing the Warrants
shall be substantially as set forth in Exhibit 1 hereto. Certificates evidencing
the Warrants shall be executed on behalf of the Company by its President or by
any Vice President, shall be attested to by its Secretary or any Assistant
Secretary, and shall be dated as of the date of execution thereof.
1.4. Legends on Warrants and Common Shares. The Warrants, and the Shares
issuable upon the exercise thereof, have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"). Each certificate for
the Warrants shall bear the following legend:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY PROVINCE
OF CANADA. SUCH WARRANTS MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, EXCHANGED, PLEDGED OR HYPOTHECATED OR OTHERWISE
TRANSFERRED, IN ANY MANNER, AND SUCH COMMON SHARES MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED OR HYPOTHECATED OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE. THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRADED IN CANADA EXCEPT AS PERMITTED BY
RELEVANT CANADIAN SECURITIES LAWS."
A-2
Each certificate for the Shares shall bear the following legend:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY PROVINCE
OF CANADA AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED OR OTHERWISE
TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE THIS CERTIFICATE
MAY NOT CONSTITUTE `GOOD DELIVERY' IN SATISFACTION OF A TRADE
MADE ON A STOCK EXCHANGE IN CANADA. THIS CERTIFICATE IS NOT
TRANSFERABLE IN CANADA UNTIL [THE DATE SIX MONTHS FROM THE
CLOSING DATE] EXCEPT PURSUANT TO AN EXEMPTION FROM THE PROSPECTUS
REQUIREMENTS CONTAINED IN THE APPLICABLE SECURITIES LEGISLATION."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the Common Shares represented thereby) shall also bear a like
legend unless, in the opinion of counsel reasonably satisfactory to the Company,
the securities represented thereby need no longer be subject to such
restrictions.
Section 2. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, the Warrantholder shall have
the right, at any time and from time to time during the period commencing at
9:00 a.m., Pacific Time, on January --, 1998, (the "Commencement Date") and
ending at 5:00 p.m., Pacific Time, on the third anniversary of the Commencement
Date (the "Termination Date") to purchase from the Company up to the number of
fully paid and nonassessable Shares which the Warrantholder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the Company
at its principal office of the certificates evidencing the Warrants to be
exercised, with the purchase form, in the form attached hereto as Exhibit 2,
duly completed and signed, and upon payment to the Company of an amount (the
"Exercise Payment") equal to the Warrant Price multiplied by the number of
Shares being purchased pursuant to such exercise, payable in cash, by certified
or official bank check, or by wire transfer. The Company shall use its
reasonable best efforts prior to the Termination Date to obtain any applicable
regulatory approvals of those regulatory agencies having jurisdiction over the
Company in order to extend the Termination Date
A-3
for a further period of two years, in which event the Company's right of
purchase under this Section 2(a) shall end at 5:00 p.m., Pacific Time, on the
fifth anniversary of the Commencement Date.
(b) At any time subsequent to the first anniversary of the Commencement
Date, in lieu of exercising the Warrants as provided in Section 2(a) above, and
subject to all applicable law and all applicable regulatory approvals,
limitations and restrictions, the Warrantholder may elect to receive, without
any cash payment, a number of Shares equal to the value (as determined below) of
any or all of the Warrants held of record by the Warrantholder, upon surrender
to the Company at its principal office of the certificates evidencing such
Warrants, with the attached cashless exercise form attached hereto as Exhibit 3
duly completed and signed, in which event the Company shall issue to the
Warrantholder a number of Shares computed using the following formula:
X = Y(A-B)
------
A
where
X = the number of Common Shares to be issued pursuant to
this Section 2(b).
Y = the number of Common Shares issuable upon exercise of
the surrendered Warrants.
A = the average of the Market Prices of the Common Shares
for the sixty (60) calendar days immediately preceding
the date upon which the certificates evidencing the
surrendered Warrants are received by the Company at its
principal office.
B = the Warrant Price on such date.
For all purposes of this Agreement, the term "Market Price" as of any
specified date shall mean: (i) if the Common Shares are listed or admitted for
trading on one or more United States national securities exchanges, the daily
closing price for the Common Shares on the principal exchange in the United
States on which the Common Shares are listed; (ii) if the Common Shares are not
listed or admitted for trading on any United States national securities
exchange, the daily closing price for the Common Shares on the Nasdaq National
or Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common Shares are not listed
or admitted for trading on a United States national securities exchange or on
Nasdaq, the daily closing price of the Common Shares on the principal stock
exchange in Canada on which the Common Shares are listed (expressed in United
States dollars based upon the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York); (iv) if the
A-4
Common Shares are not listed or admitted to trading on any United States
national or Canadian national securities exchange or on Nasdaq, the average of
the reported bid and asked prices on the trading day preceding such date in the
over-the-counter market as furnished by the National Quotation Bureau, Inc., or,
if such firm is not then engaged in the business of reporting such prices, as
furnished by any member of the National Association of Securities Dealers, Inc.
selected by the Company; or (v) if the Common Shares are not publicly traded,
the Market Price for such day shall be the fair market value thereof determined
jointly by the Company and the Warrantholder; provided, however, that if such
parties are unable to reach agreement within a reasonable period of time, the
Market Price shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and the Warrantholder or, if that
selection cannot be made within an additional 15 days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules.
If the Warrantholder elects to exercise the Warrants pursuant to this
Section 2(b), the Warrantholder shall simultaneously convert all Series A
Convertible Preferred Shares of the Company (the "Convertible Shares") then
owned by the Warrantholder into Common Shares.
In the event that the Warrantholder elects to exercise the Warrants
pursuant to this Section 2(b), and the average Market Price of the Common
Shares, as defined above, for the 60 calendar days immediately preceding the
date on which the certificates evidencing the surrendered Warrants are received
by the Company at its principal office, is greater than U.S. $3.20, then the
right to a cashless exercise of Warrants shall be limited to such number of
Warrants as would result in the issuance of 2,500,000 Shares and any remaining
Warrants to be exercised by the Warrantholder shall be exercised, at such time
or times elected by the Warrantholder, in accordance with the provisions of
Section 2(a). Such per share amount of U.S. $3.20 shall be appropriately
adjusted for any stock splits, consolidations or the like.
(c) The Company may, at any time, elect to force the exercise of
the Warrants by the Warrantholder subject to the terms of this Agreement
provided that the Company shall have satisfied all of the following conditions
prior to the date of such election by the Company:
(i) the Common Shares are listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market;
(ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at a
Market Price greater than U.S. $2.40 per share for the 10 consecutive
trading days immediately preceding the date of such election; and
(iii) The Company's net income (excluding profit or loss
on disposal of a significant part of the Company's assets or separate
segment thereof, gains on restructuring payables, gains or losses on the
extinguishment of debt, expropriations of property, gains or losses that
are the direct result of a major casualty, or one-time losses
A-5
resulting from prohibitions under a newly-enacted law or regulation) for
the three consecutive fiscal quarters ended immediately prior to the
date of such election, as reported in or derived from its quarterly or
annual reports filed with the Securities and Exchange Commission, before
income taxes, dividends on the Convertible Shares and amortization of
goodwill and covenants not to compete for such quarterly periods, shall
have averaged at least U.S. $0.07 per fully diluted Common Share per
fiscal quarter, provided, however, that in making such calculation, the
Common Shares issuable upon exercise of the Warrants shall be excluded
but Common Shares issuable upon the conversion of the Convertible Shares
shall not.
The foregoing conditions (i), (ii) and (iii) shall hereinafter be collectively
referred to as the "Triggering Conditions." All references to per share amounts
or prices with respect to the Triggering Conditions shall be appropriately
adjusted for any stock splits, consolidations or the like.
The Company shall give the Warrantholder written notice that the
Triggering Conditions have been satisfied and that the Company intends to force
the exercise of the Warrants. In this event, the Termination Date shall be the
date ten (10) business days after such notice shall be effectively delivered to
the Warrantholder as provided in Section 10 of this Agreement.
In the event of a forced exercise of Warrants pursuant to this Section
2(c), in lieu of exercising the Warrants as provided in Section 2(a) above, and
subject to all applicable law and all applicable regulatory approvals,
limitations and restrictions, the Warrantholder may elect to receive, without
any cash payment, a number of Shares equal to the value (as determined below) of
any or all of the Warrants held of record by the Warrantholder, upon surrender
to the Company at its principal office of the certificates evidencing such
Warrants, with the attached cashless exercise form thereof duly completed and
signed, in which event the Company shall issue to the holder a number of Shares
computed using the formula set forth in Section 2(b) except the term "A" in such
formula, the Market Price of the Common Shares, shall be calculated based on the
ten (10) trading days immediately preceding the date on which the certificates
evidencing the surrendered Warrants are received by the Company at its principal
offices.
In the event that the Warrantholder elects to exercise the Warrants
without any cash payment following a forced exercise pursuant to this Section
2(c), and the average Market Price of the Common Shares, as defined above, for
the 60 calendar days immediately preceding the date on which the certificates
evidencing the surrendered Warrants are received by the Company at its principal
office, is greater than U.S. $3.20, then the right to a cashless exercise of
Warrants shall be limited to such number of Warrants as would result in the
issuance of 2,500,000 Shares and any remaining Warrants to be exercised by the
Warrantholder shall be exercised, at such time or times elected by the
Warrantholder, in accordance with the provisions of Section 2(a). Such per share
amount of U.S. $3.20 shall be appropriately adjusted for any stock splits,
consolidations or the like.
A-6
(d) Upon the surrender of Warrant certificates and payment of the
Exercise Payment (in cash, except in the event of a cashless exercise), the
Company, at its expense, shall issue and cause to be delivered with all
reasonable dispatch, and in any event within ten (10) days thereafter, to the
Warrantholder a certificate or certificates for the number of full Shares so
acquired upon the exercise of the Warrant, together with cash in respect of any
fractional Shares otherwise issuable upon such surrender, determined in
accordance with Section 7 hereof. Such certificate or certificates shall be
deemed to have been issued, and the Warrantholder shall be deemed to have become
a holder of record of such Shares, as of the date of surrender of the Warrants
being exercised and (in the case of exercise pursuant to Section 2(a)) payment
of the Exercise Payment notwithstanding that the certificate or certificates
representing such securities shall not actually have been delivered or that the
stock transfer books of the Company shall then be closed. The Warrants shall be
exercisable at the election of the Warrantholder either in full or from time to
time in part and, in the event that a certificate evidencing Warrants is
exercised in respect of fewer than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrants shall be issued by the Company.
Section 3. Payment of Taxes. The Company will pay all transfer and stamp
taxes and fees, if any, attributable to the initial issuance of the Warrants or
the issuance of Shares upon exercise of the Warrants.
Section 4. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing any Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the affected Warrantholder,
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated certificate or certificates, or in lieu of and substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of such Warrant and, if requested, at the
cost and expense of the Warrantholder (in the case of loss, theft or
destruction), an unsecured bond of indemnity in form and amount reasonably
satisfactory to the Company. Such substitute Warrant certificate shall also
comply with such other reasonable regulations as the Company may prescribe.
Section 5. Reservation of Common Shares. There has been reserved, and
the Company shall at all times keep reserved and available so long as any
Warrants remain outstanding, out of its authorized share capital, such number of
Shares as shall be subject to purchase under all outstanding Warrants. Every
transfer agent for the Common Shares and other securities of the Company
issuable upon the exercise of Warrants will be irrevocably authorized and
directed at all times to reserve such number of authorized Common Shares and
other securities as shall be requisite for such purposes. The Company will keep
a copy of this Agreement on file with every transfer agent for the Common
Shares. The Company will supply every such transfer agent with duly executed
stock and other certificates, as appropriate, for such
A-7
purpose and will provide or otherwise make available any cash which may be
payable as provided in Section 7 hereof.
Section 6. Adjustment of Number and Kind of Securities. The number and
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
Section 6.1. Anti-Dilution Provisions And Other Adjustments. In order to
prevent dilution of the rights granted hereunder, the Warrant Price shall be
subject to adjustment from time to time in accordance with this Section 6. Upon
each adjustment of the Warrant Price pursuant to this Section 6, the
Warrantholder shall thereafter be entitled to acquire upon exercise, at the
Warrant Price resulting from such adjustment, the number of Shares obtainable by
multiplying the Warrant Price in effect immediately prior to such adjustment by
the number of Shares acquirable immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
(a) Adjustment for Issue or Sale of Common Shares at Less than
Specified Prices. Except as provided in Sections 6.3 or 6.5 below, if and
whenever on or after the date of issuance hereof the Company shall issue or
sell, or shall in accordance with subparagraphs 6.1(a)(1) to (8), inclusive, be
deemed to have issued or sold (such issuance or sale, whether actual or deemed,
a "Triggering Transaction") any Common Shares for a consideration per share less
than
(I) (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market)
U.S. $1.35 then forthwith upon such issue or sale the Warrant Price
shall, subject to subparagraphs (1) to (8) of this Section 6.1(a), be
reduced to the Warrant Price (calculated to the nearest tenth of a cent)
determined by dividing: (i) an amount equal to the sum of (x) the
product derived by multiplying the Number of Common Shares Deemed
Outstanding immediately prior to such Triggering Transaction by the
Warrant Price then in effect, plus (y) the consideration, if any,
received by the Company upon consummation of such Triggering
Transaction, by (ii) an amount equal to the sum of (x) the Number of
Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (y) the number of shares of Common Stock issued (or
deemed to be issued in accordance with subparagraphs 6.1(a)(1) to (8))
in connection with the Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) the
average Market Price for the ten trading days immediately preceding such
issuance or sale, then forthwith upon such Triggering Transaction, the
Warrant Price shall, subject to subparagraphs (1) to (8) of this Section
6.1(a), be reduced to the Warrant Price (calculated to the nearest tenth
of a cent) determined by multiplying the Warrant Price in effect
immediately prior to the time of such Triggering Transaction by a
fraction, the numerator of which shall be the
A-8
sum of (x) the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction and (y) the number of Common Shares
which the aggregate consideration received by the Company upon such
Triggering Transaction would purchase at the average Market Price for
the ten trading days immediately preceding such Triggering Transaction,
and the denominator of which shall be the Number of Common Shares Deemed
Outstanding immediately after such Triggering Transaction.
For purposes of this Section 6, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number of
Common Shares outstanding at such time, and (ii) the number of Common Shares
deemed to be outstanding under subparagraphs 6.1(a)(1) to (8), inclusive, at
such time.
For purposes of determining the adjusted Warrant Price under this
Section 6.1(a), the following subsections (1) to (8), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner
grant (whether directly or by assumption in an amalgamation or
otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Shares or any stock or other
securities convertible into or exchangeable for Common Shares
(such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein
called "Convertible Securities"), whether or not such Options or
the right to convert or exchange any such Convertible Securities
are immediately exercisable, and the price per share for which
the Common Shares are issuable upon exercise, conversion or
exchange (determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise
of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of Common
Shares issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall be
less than the average Market Price in effect for the ten trading
days immediately prior to the time of the granting of such Option
(if the Common Shares are traded on The New York Stock Exchange,
The American Stock Exchange or The National Nasdaq Market) or
U.S. $1.35 (if the Common Shares are not traded on The New York
Stock Exchange, The American Stock Exchange, or the Nasdaq
National Market) then the total maximum amount of Common Shares
issuable upon the exercise of such Options, or, in the case of
Options for Convertible Securities, upon the conversion or
exchange of such Convertible Securities, shall (as of the date of
granting of such Options) be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. No
adjustment of the Warrant Price shall be
A-9
made upon the actual issue of such Common Shares or such
Convertible Securities upon the exercise of such Options, except
as otherwise provided in subparagraph (3) below.
(2) In case the Company at any time shall in any manner
issue (whether directly or by assumption in an amalgamation or
otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Shares are
issuable upon such conversion or exchange (determined by dividing
(x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (y) the total maximum number of Common
Shares issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the average Market
Price in effect for the ten trading days immediately prior to the
time of such issue or sale (if the Common Shares are traded on
The New York Stock Exchange, The American Stock Exchange, or The
Nasdaq National Market) or U.S. $1.35 (if the Common Shares are
not traded on The New York Stock Exchange, The American Stock
Exchange, or The Nasdaq National Market), then the total maximum
number of Common Shares issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued and sold by the Company for
such price per share. No adjustment of the Warrant Price shall be
made upon the actual issue of such Common Shares upon exercise of
the rights to exchange or convert under such Convertible
Securities, except as otherwise provided in subparagraph (3)
below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraphs (1) or (2), or the rate
at which any Convertible Securities referred to in subparagraph
(1) or (2) are convertible into or exchangeable for Common Shares
shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set
forth in Section 6.1(a) or (b)), the Warrant Price in effect at
the time of such change shall forthwith be readjusted to the
Warrant Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in
any Option referred to in subparagraph (1) or the rate at which
any Convertible Securities referred to in subparagraphs (1) or
(2) are convertible into or exchangeable for Common Shares, shall
be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in
case of the delivery of Common
A-10
Shares upon the exercise of any such Option or upon conversion or
exchange of any such Convertible Security, the Warrant Price then
in effect hereunder shall forthwith be adjusted to such
respective amount as would have been obtained had such Option or
Convertible Security never been issued as to such Common Shares
and had adjustments been made upon the issuance of the Common
Shares delivered as aforesaid, but only if as a result of such
adjustment the Warrant Price then in effect hereunder is hereby
reduced.
(4) On the expiration of any Option or the termination of
any right to convert or exchange any Convertible Securities, the
Warrant Price then in effect hereunder shall forthwith be
increased to the Warrant Price which would have been in effect at
the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Company,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(6) In case any Common Shares, Options or Convertible
Securities shall be issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Company therefor. In case
any Common Shares, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company shall
be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company. In case any
Common Shares, Options or Convertible Securities shall be issued
in connection with any amalgamation in which the Company is an
amalgamating corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net
assets and business of the other corporation which is a party to
the amalgamation as shall be attributed by the Board of Directors
of the Company in good faith to such Common Shares, Options or
Convertible Securities, as the case may be.
(7) In case the Company shall declare a dividend or make
any other distribution upon the stock of the Company payable in
Options or Convertible Securities, then in such case any Options
or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
A-11
(8) For purposes of this Section 6.1(a), in case the
Company shall take a record of the holders of its Common Shares
for the purpose of entitling them (x) to receive a dividend or
other distribution payable in Common Shares, Options or in
Convertible Securities, or (y) to subscribe for or purchase
Common Shares, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale
of the Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right or
subscription or purchase, as the case may be.
(b) In case the Company shall (i) pay a dividend in Common Shares
or make a distribution in Common Shares or (ii) subdivide its
outstanding Common Shares, the Warrant Price in effect immediately prior
to such subdivision or dividend shall be proportionately reduced by the
same ratio as the dividend or subdivision. In case the Company shall at
any time combine its outstanding Common Shares, the Warrant Price in
effect immediately prior to such combination shall be proportionately
increased by the same ratio as the combination. Any adjustment made
pursuant to this subsection 6.1(b) shall become effective immediately on
the effective date of such event retroactive to the record date, if any,
for such event.
(c) Whenever the number of Common Shares purchasable upon the
exercise of Warrants is adjusted as herein provided, the Company shall
cause to be promptly delivered to the Warrantholder notice of such
adjustment and a certificate of the chief financial officer of the
Company setting forth the number of Common Shares purchasable upon the
exercise of the Warrants after such adjustment, the Warrant Price that
will be effective after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment
was made. If such notice relates to an adjustment resulting from an
event referred to in Section 8, such notice shall be included as part of
the notice required to be delivered and published under the provisions
of Section 8 hereof.
6.2. No Adjustment for Dividends. Except as provided in this Section 6,
no adjustment to the Warrants or any provision or condition thereof in respect
of any dividends or distributions out of earnings shall be made during the term
of the Warrants or upon the exercise of Warrants.
6.3. Dividends Not Paid Out of Earnings or Earned Surplus. In the event
the Company shall declare a dividend upon the Common Shares (other than a
dividend payable in Common Shares) payable otherwise than out of earnings or
earned surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as "Liquidating
Dividends"), then, as soon as possible after the exercise of this Warrant, the
Company shall pay to the person exercising such Warrant an amount equal to the
aggregate value at the time of such exercise of all Liquidating Dividends
(including but not limited to the Common Shares which would have
A-12
been issued at the time of such earlier exercise and all other securities which
would have been issued with respect to such Common Shares by reason of stock
splits, stock dividends, amalgamations or reorganizations, or for any other
reason). For the purposes of this subsection 6.3, a dividend other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Company.
6.4. Reclassification, Amalgamation, etc. If any capital reorganization
or reclassification of the share capital of the Company, or amalgamation of the
Company with another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that holders of
Common Shares shall be entitled to receive stock, securities, cash or other
property with respect to or in exchange for Common Shares, then, as a condition
of such reorganization, reclassification, amalgamation or sale, lawful and
adequate provision shall be made whereby the Warrantholder shall have the right
to acquire and receive upon exercise of this Warrant such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, amalgamation or sale) with respect to or in
exchange for such number of outstanding Shares as would have been received upon
exercise of this Warrant at the Warrant Price then in effect. The Company will
not effect any such amalgamation or sale, unless prior to the consummation
thereof the amalgamated corporation or the corporation purchasing such assets
shall assume by written instrument mailed or delivered to the Warrantholder the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding Common Shares of the Company, the
Company shall not effect any amalgamation or sale with the person having made
such offer or with any Affiliate of such person, unless prior to the
consummation of such amalgamation or sale the Warrantholder shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant either the stock, securities or assets then issuable with respect
to the Common Shares of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Shares in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person. In the event of a merger described in Section
368(a)(2)(E) of the Internal Revenue Code of 1986 (or any successor provision),
in which the Company is the surviving corporation, the right to purchase Shares
upon exercise of the Warrants shall terminate on the date of such merger and
thereupon the Warrants shall become null and void, but only if the controlling
corporation (after such event) shall agree to substitute for the Warrants its
warrants entitling the Warrantholder to purchase the kind and amount of shares
and other securities and property which it would have been entitled to receive
had the Warrants been exercised immediately prior to such merger. Any such
agreements referred to in this subsection 6.3 shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6, and shall contain substantially the same terms,
conditions and provisions as are contained herein immediately prior to such
event. The provisions of this subsection 6.4 shall similarly apply to successive
amalgamations, sales or conveyances.
A-13
6.5. No Adjustment for Exercise of Certain Options, Warrants, Etc. The
provisions of this Section 6 shall not apply to any Common Shares issued,
issuable or deemed outstanding under subparagraphs 6.1(a)(1) to (8) inclusive:
(i) to any person pursuant to any stock option, stock purchase or similar plan
or arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries in effect on the date hereof or hereafter adopted by
the Board of Directors of the Company, or (ii) pursuant to options, warrants and
conversion rights in existence on the date hereof, including the Convertible
Shares.
6.6. Grant, Issue or Sale of Options, Convertible Securities, or Rights.
If at any time or from time to time on or after the date of this Agreement, the
Company shall grant, issue or sell any Options, Convertible Securities or rights
to purchase property (the "Purchase Rights") pro rata to the record holders of
any class of share capital of the Company and such grants, issuances or sales do
not result in an adjustment of the Warrant Price under Section 6.1(a) hereof,
then the Warrantholder shall be entitled to acquire (within thirty (30) days
after the later to occur of the initial exercise date of such Purchase Rights or
receipt by the Warrantholder of the notice concerning Purchase Rights to which
the Warrantholder shall be entitled under Section 8) and upon the terms
applicable to such Purchase Rights either:
(a) the aggregate Purchase Rights which the Warrantholder could
have acquired if it had held the number of Shares acquirable upon
exercise of this Warrant immediately before the grant, issuance or sale
of such Purchase Rights; provided that if any Purchase Rights were
distributed to the Warrantholder of Common Shares without the payment of
additional consideration by such holders, corresponding Purchase Rights
shall be distributed to the Warrantholder as soon as possible after
exercise of this Warrant and it shall not be necessary for the
Warrantholder specifically to request delivery of such rights; or
(b) in the event that any such Purchase Rights shall have expired
or shall expire prior to the end of said thirty (30) day period, the
number of Shares or the amount of property which the Warrantholder could
have acquired upon such exercise at the time or times at which the
Company granted, issued or sold such expired Purchase Rights.
6.7. Nominal Value of Common Shares. Before taking any action which
would cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each Share below the then nominal value per Share issuable upon
exercise of the Warrants, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Shares upon exercise of
the Warrants.
6.8. Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing in the United
States (which may be any such firm regularly employed by the Company) to make
any computation required under this Section.
A-14
6.9. Statement on Warrant Certificates. Irrespective of any adjustments
in the number of securities issuable upon exercise of Warrants, Warrant
certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its reasonable discretion, make any change in the form of Warrant certificate
that it may deem appropriate and that does not affect the substance thereof; and
any Warrant certificate hereafter issued, whether upon registration of transfer
of, or in exchange or substitution for, an outstanding Warrant certificate, may
be in the form so changed.
6.10. Adjustment by Board of Directors. If any event occurs as to which,
in the opinion of the Board of Directors of the Company, the provisions of this
Section 6 are not strictly applicable or if strictly applicable would not fairly
protect the rights of the Warrantholder in accordance with the essential intent
and principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid, but
in no event shall any adjustment have the effect of increasing the Warrant Price
as otherwise determined pursuant to any of the provisions of this Section 6
except in the case of a combination of shares of a type contemplated in Section
6.1(a) and then in no event to an amount larger than the Warrant Price as
adjusted pursuant to Section 6.1(a).
Section 7. Fractional Interests. The Company shall not issue fractional
Common Shares upon any exercise of any Warrants. If any fraction of a Common
Share would, except for the provisions of this Section 7, be issuable on the
exercise of any Warrants, the Company shall pay an amount in cash equal to the
Market Price (as defined in Section 2(b) hereof, except if the Common Shares are
not publicly traded, as determined in good faith by the Board of Directors of
the Company) multiplied by such fraction, provided, however, that no amount
shall be paid by the Company of less than U.S. $5.00.
Section 8. No Rights as Shareholder; Notices to Warrantholder. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder any rights as a shareholder of the Company, including
(without limitation) the right to vote, receive dividends, consent or receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter, except as provided
herein. If, however, at any time prior to the expiration of the Warrants and
prior to their exercise in full, any one or more of the following events shall
occur:
(a) any action which would require an adjustment pursuant to
Section 6.1 or 6.3; or
(b) the Company shall declare any cash dividend upon its Common
Shares; or
A-15
(c) the Company shall declare any dividend upon its Common Shares
payable in stock or make any special dividend or other distribution to
the holders of its Common Shares; or
(d) the Company shall offer Purchase Rights to the holders of its
Common Shares; or
(e) there shall be any capital reorganization or reclassification
of the share capital of the Company, including any subdivision or
combination of its outstanding Common Shares, or amalgamation of the
Company with, or sale of all or substantially all of its assets to,
another corporation; or
(f) there shall be a dissolution, liquidation or winding up of
the Company (other than in connection with an amalgamation or sale of
its property, assets and business as an entirety or substantially as an
entirety);
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 10 hereof, at least 20 days prior to (i)
the date fixed as a record date or the date of closing the transfer books for
the determination of the shareholders entitled to any relevant dividend,
distribution, Purchase Rights or other rights or for the determination of
shareholders entitled to vote on such proposed reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding up and (ii) the date
when any such reorganization, reclassification, amalgamation, sale, dissolution,
liquidation or winding up shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or Purchase Rights, the date on which the holders of Common Shares
shall be entitled thereto, and such notice in accordance with the foregoing
clause (ii) shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such reorganization, reclassification, amalgamation,
sale, dissolution, liquidation or winding up, as the case may be.
Section 9. No Dilution or Impairment. The Company will not, by amendment
of its charter or through reorganization, amalgamation, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Warrantholder against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares receivable upon the exercise of this Warrant above the amount payable
therefor upon such exercise, and at all times will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares upon the exercise of this Warrant.
Section 10. Notices. Any notice hereunder shall be in writing and shall
be effective when delivered in person or by facsimile transmission, or seven
business days after being mailed
A-16
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.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile: 000-000-0000
Attention: Xx. Xxxx Xxxxxxxx
with a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
If to the Company:
HealthCare Capital Corp.
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Facsimile: 000-000-0000
Attention: Xx. Xxxxxxx X. Xxxxxx
with copy to:
Xxxxxx, Xxxxxxx & Xxxxxxx
0 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Attention: Xxxx X. Xxxxxx, 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.
A-17
Section 13. Remedies. The Company stipulates that the remedies at law of
the Warrantholder in the event of any default by the Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate, and that the same may be specifically enforced.
Section 14. Subdivision of Rights. The Warrants (as well as any new
warrants issued pursuant to the provisions of this Section) are exchangeable,
upon the surrender hereof by the Warrantholder at the principal office of the
Company for any number of new warrants of like tenor and date representing in
the aggregate the right to subscribe for and purchase the number of Shares which
may be subscribed for and purchased hereunder.
Section 15. Applicable Law; Submission to Jurisdiction. This Agreement
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the internal laws of
said State (without reference to its rules as to conflicts of laws). The Company
hereby agrees to the non-exclusive jurisdiction of the courts of the State of
New York or the federal courts sitting in the City of New York in connection
with any action arising out of this Agreement.
Section 16. Benefits of this Agreement. Except as provided in Section
1.2 and Section 11, nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Agreement. Except as provided in
Section 1.2 and Section 11, this Agreement shall be for the sole and exclusive
benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
HEALTHCARE CAPITAL CORP.
By: --------------------------------------
Name:
Title:
WARBURG PINCUS VENTURES, L.P.
By: Warburg, Xxxxxx & Co.,
General Partner
By:
-----------------------------
Print Name:
Title:
X-00
XXXXXXX 0
[XXXX XX XXXXXXX CERTIFICATE]
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE, AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANTS, HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY PROVINCE
OF CANADA. SUCH WARRANTS MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, EXCHANGED, PLEDGED OR HYPOTHECATED OR OTHERWISE
TRANSFERRED, IN ANY MANNER, AND SUCH COMMON SHARES MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED OR HYPOTHECATED OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE." THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRADED IN CANADA EXCEPT AS PERMITTED BY
RELEVANT CANADIAN SECURITIES LAWS.
WARRANT CERTIFICATE NO. -----
HEALTHCARE CAPITAL CORP.
(ORGANIZED UNDER THE LAWS
OF ALBERTA)
JANUARY --, 1998
WARRANTS TO PURCHASE COMMON SHARES
This certifies that, for value received, Warburg Pincus Ventures, L.P.
(the "Warrantholder") is the registered owner of --- warrants (the "Warrants")
each to purchase from HealthCare Capital Corp. (the "Company"), at any time
prior to 5:00 p.m., Pacific Time, on January --, 2001, one common share of the
Company, without par value (a "Common Share") at a purchase price per Common
Share of U.S. $2.40 (the "Warrant Price"). The Warrants are subject to, and the
Warrantholder, by acceptance of this certificate, consents to, all the terms and
provisions of, the Warrant Agreement dated as of January 16, 1998, between the
Warrantholder and the Company, pursuant to which the Warrants were issued (the
"Warrant Agreement"). Any capitalized terms used herein and not defined herein
shall have the meanings assigned to such terms in the Warrant Agreement. The
Termination Date may be extended for a further period of two years, as provided
in Section 2(a) of the Warrant Agreement.
A-19
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form herein duly
executed (with a signature guarantee as provided therein), and simultaneous
payment of the Warrant Price for each Warrant exercised, at the principal office
of the Company. Payment of such price shall be made at the option of the
Warrantholder in cash by certified or official bank check or by wire transfer.
Subject to the terms and conditions set forth in Section 2 of the Warrant
Agreement, the Warrantholder may also receive Common Shares without any cash
payment by presentation of this Warrant Certificate with the Cashless Exercise
Form herein duly executed (with a signature guarantee as provided therein) at
the principal office of the Company.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the Common Shares as to which the Warrants evidenced hereby shall not have
been exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Common Shares as here evidenced by the
Warrant or Warrants exchanged. No fractional Common Shares will be issued upon
the exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction otherwise issuable upon the exercise of one or more
Warrants, as provided in the Warrant Agreement.
The Warrants evidenced hereby are transferable only in accordance with
the terms and conditions set forth in Section 1.2 of the Warrant Agreement.
This Warrant Certificate does not entitle the Warrantholder to any of
the rights of a shareholder of the Company.
HEALTHCARE CAPITAL CORP.
By: -----------------------------
Title: -------------------------
ATTEST:
------------------------------
Title:------------------------
Dated: -----------------, 1998
X-00
XXXXXXX 0
XXXXXXXX XXXX
HealthCare Capital Corp.
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Pursuant to Section 2(a) of the Warrant Agreement, the undersigned
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant Certificate for, and to purchase thereunder, ---------- common shares of
the Company (the "Common Shares"), and requests that certificates for such
Common Shares be issued in the name of:
Warburg Pincus Ventures, L.P.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
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.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
By: Warburg, Xxxxxx & Co.
General Partner
By:--------------------------------
Print Name:
Title:
A-21
EXHIBIT 3
CASHLESS EXERCISE FORM
HealthCare Capital Corp.
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
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.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
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.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
By: Warburg, Xxxxxx & Co.
General Partner
By:--------------------------------
Print Name:
Title:
A-22
EXHIBIT B
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement is made as of January --, 1998 by and among
Warburg Pincus Ventures, L.P. (the "Investor") and the undersigned shareholders
(collectively, the "Shareholders" and each individually, a "Shareholder") of
HealthCare Capital Corp. (the "Company").
WHEREAS, the authorized share capital of the Company consists of common
shares without par value (the "Common Shares"), of which 27,284,517 Common
Shares are presently issued and outstanding.
WHEREAS, the Company and the Investor have entered into a Securities
Purchase Agreement dated as of November 21, 1997 (the "Securities Purchase
Agreement") pursuant to which the Company shall issue certain securities to the
Investor (the "Securities").
WHEREAS, it is desirable that each Shareholder provide to the Investor
at least three (3) business days notice of Transfers (as defined below) of more
than 500,000 Common Shares in a single transaction.
NOW, THEREFORE, in order to induce the Investor to purchase the
Securities and in consideration of the mutual benefits to be derived, the
conditions and promises herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
1. Requirement of Notice for Transfers in Excess of 500,000 Common
Shares. Each Shareholder hereby agrees that as long as such Shareholder owns
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), five percent (5%) or more of the
outstanding Common Shares, such Shareholder will, from the date hereof, and for
so long as the Investor owns beneficially at least 3,333,333 outstanding Common
Shares or Series A Convertible Preferred Shares of the Company (the "Convertible
Shares") as appropriately adjusted for any stock splits, consolidations or the
like, but only until termination of the registration rights granted to the
Investor pursuant to Section 8 of the Securities Purchase Agreement, give the
Investor not less than three (3) business days notice in writing in accordance
with Section 2 hereof prior to any Transfer of more than 500,000 Common Shares
in a single transaction.
For purposes hereof, "Transfer" shall mean, with respect to the
Common Shares, the making of any sale, exchange, conveyance, assignment, gift,
security interest, pledge or other encumbrance, option or right of purchase, or
any contract therefor, or any voting trust or other agreement or arrangement
with respect to the transfer of voting rights or any other beneficial interest
in any of the Common Shares, the execution of any other claim thereto or any
other transfer or disposition (including, without limitation, any disposition
which would constitute a sale within the meaning of the United States Securities
Act of 1933, as amended) whatsoever, whether
B-1
voluntary or involuntary, affecting the right, title, interest or possession in
or to such Common Shares.
2. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or seven
business days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, to the appropriate party or parties, at the
following respective addresses:
If to the Investor:
Warburg Pincus Ventures, L.P.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile: 000-000-0000
Attention: Xxxx Xxxxxxxx
with a copy to:
Xxxxxxx Xxxx & Xxxxxxxxx
000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx
If to the Shareholders:
Xxxxxxx X. Xxxxxx
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Facsimile: 000-000-0000
Xxxxxxx X. Good
000 Xxx Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Facsimile: 000-000-0000
Xxxxxxx Xxxxxxxx
000 Xxx Xxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Facsimile: 000-000-0000
Xxxxxxx X. Xxxxxx, Ph.D.
0000 Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Facsimile: 818-244-8889
B-2
Xxxxxxx Xxxxxxx
0000 Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Facsimile: 818-244-8889
Xxxx Xxxxxxxx
00000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: 000-000-0000
Baron and Xxxxxxx Xxxx "Family Foundation"
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
Attention: X. Xxxxx Cass III
X. Xxxxx Xxxx III "Children's Trust"
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
Attention: X. Xxxxx Cass III
X. Xxxxx Xxxx III
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
Aspen Limited Partnership
0000 Xxxxx Xxxxxx, Xxxxx 0X
Xxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
Attention: Xxxx X. Still
Xxxx X. Still XXX
0000 Xxxxx Xxxxxx, Xxxxx 0X
Xxxxxx, Xxxxx 00000
Facsimile: 000-000-0000
or, in each case, to such other address as the parties may hereinafter designate
by like notice.
3. Applicable Law. 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).
B-3
4. Further Assurances. Each of the parties hereby covenants separately
with each of the others that, insofar as it is within his or its power, he will
take and do all necessary steps and actions or otherwise act or omit to act to
ensure that the provisions of this Agreement are given, and remain, in full
force and effect.
5. Entire Agreement; Amendment and Modification. This Agreement
represents the entire agreement among the parties hereto with respect to the
subject matter hereof, and may be amended, modified or supplemented only by a
written instrument executed by all of the parties hereto.
6. Waivers of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Investor only by a
written instrument signed by the Investor, but any such waiver or the failure to
insist upon strict compliance with any obligation, covenant, agreement or
condition herein shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure or breach.
7. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties to this Agreement and their respective successors,
heirs, executors and legal representatives.
8. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, and all such counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
WARBURG PINCUS VENTURES, L.P.
By: Warburg, Xxxxxx & Co.,
General Partner
By: Warburg, Xxxxxx & Co.
General Partner
By:--------------------------------
Print Name:
Title:
-------------------------------
Xxxxxxx X. Xxxxxx
B-4
-------------------------------
Xxxxxxx X. Good
-------------------------------
Xxxxxxx Xxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, Ph.D.
-------------------------------
Xxxxxxx Xxxxxxx
-------------------------------
Xxxx Xxxxxxxx
-------------------------------
X. Xxxxx Xxxx III
BARON AND XXXXXXX XXXX
"FAMILY FOUNDATIONS"
By: -------------------------------
X. Xxxxx Cass III
Title:
X. XXXXX XXXX III
"CHILDRENS TRUST"
By: -------------------------------
X. Xxxxx Cass III
Title:
B-5
ASPEN LIMITED PARTNERSHIP
By: -------------------------------
Xxxx X. Still
Title:
By: ---------------------------
Xxxx X. Still
B-6
EXHIBIT C
HEALTHCARE CAPITAL CORP.
TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
(Without Par Value)
We, the undersigned, Xxxxxxx X. Xxxxxx and Xxxxxxx XxXxxx, being,
respectively, the President and the Secretary of HealthCare Capital Corp., a
corporation organized and existing under the laws of Alberta (hereinafter called
the "Corporation"), DO HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by
unanimous written consent dated November 20, 1997, has duly adopted the
following resolutions providing for the issuance of a series of preferred shares
of the Corporation:
"RESOLVED that the Board of Directors of the Corporation (the
"Board") hereby authorizes the issuance of a series of preferred shares
of the Corporation and hereby fixes the designation, powers and
preferences, and the relative, participating, optional and other special
rights and qualifications, limitations and restrictions thereof, in
addition to those set forth in the Corporation's Articles, as amended,
as follows:
"1. Number and Designation. The number of shares to constitute
this series shall be 13,333,333 and the designation of such shares shall
be the "Series A Convertible Preferred Shares" (hereinafter called "this
Series"). The number of shares constituting this Series may be decreased
from time to time by action of the Board, but not below the number of
shares of this Series then outstanding. All shares of this Series shall
be identical with each other in all respects. The shares of this Series
shall rank senior to the common shares (the "Common Shares") of the
Corporation as to cash dividends and upon liquidation, as described
below. Any amounts herein referencing share prices or numbers of shares
shall be subject to appropriate adjustments in the event of any stock
splits, consolidations or the like.
"2. Dividend Rights.
(a) Subject to the provisions of this Section 2, the holders of
shares of this Series shall be entitled to receive when, as and if
declared by the Board, out of assets legally available therefor,
cumulative dividends ("Dividends") at the applicable rate per
C-1
annum specified in Section 2(b) hereof from the date of issuance and
payable in accordance with Section 2(c) hereof. Dividends shall be
cumulative from the date of initial issuance of the shares of this
Series (the "Initial Issuance Date"), whether or not there shall be
assets legally available for the payment of such Dividends. In the event
that the Board shall declare a Dividend, subject to applicable
regulatory approvals, such Dividend may, at the discretion of the Board,
be payable in Common Shares. The number of Common Shares to be issued to
the holders of shares of this Series upon the payment of a Dividend in
Common Shares shall be the amount of the Dividends payable to such
holder pursuant to this Section 2 divided by either (i) (if the Common
Shares are not traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market) U.S. $1.35 or (ii) (if the
Common Shares are traded on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market) the average Market Price
of the Common Shares as such term is defined below for the ten (10)
trading days immediately preceding the Record Date as such term is
defined in Section 2(c) hereof.
For all purposes hereof, the term "Market Price of the
Common Shares" as of any specified date shall mean: (i) if the Common
Shares are listed or admitted for trading on one or more United States
national securities exchanges, the daily closing price for the Common
Shares on the principal exchange in the United States on which the
Common Shares are listed; (ii) if the Common Shares are not listed or
admitted for trading on any United States national securities exchange,
the daily closing price for the Common Shares on the Nasdaq National or
Nasdaq Small-Cap Market ("Nasdaq"); (iii) if the Common Shares are not
listed or admitted for trading on a United States national securities
exchange or on Nasdaq, the daily closing price of the Common Shares on
the principal stock exchange in Canada on which the Common Shares are
listed (expressed in United States dollars based upon the noon buying
rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York);
(iv) if the Common Shares are not listed or admitted to trading on any
United States national or Canadian national securities exchange or on
Nasdaq, the average of the reported bid and asked prices on the trading
day preceding such date in the over-the-counter market as furnished by
the National Quotation Bureau, Inc., or, if such firm is not then
engaged in the business of reporting such prices, as furnished by any
member of the National Association of Securities Dealers, Inc. selected
by the Company; or (v) if the Common Shares are not publicly traded, the
Market Price for such day shall be the fair market value thereof
determined jointly by the Company and the holder of a majority of the
shares of this Series then outstanding; provided, however, that if such
parties are unable to reach agreement within a reasonable period of
time, the Market Price shall be determined in good faith by the
independent investment banking firm selected jointly by the Company and
the holder of a majority of the shares of this Series then outstanding
or, if that selection cannot be made within an additional 15 days, by an
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules.
C-2
"(b) The Dividend per share of this Series shall be computed
based upon a rate per annum of 5% on a base amount of U.S. $1.35 per
share of this Series (the "Base Amount"). The Dividend rate per annum
shall be subject to increase in the event that all of the following
conditions (the "Triggering Conditions") have not been satisfied by the
dates specified below: (i) the Common Shares are listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; (ii) the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market at a
Market Price greater than U.S. $2.40 per Common Share on each of the 10
consecutive trading days preceding such date; and (iii) the
Corporation's net income (excluding profit or loss on disposal of a
significant part of the Company's assets or separate segment thereof,
gains on restructuring payables, gains or losses on the extinguishment
of debt, expropriations of property, gains or losses that are the direct
result of a major casualty, or one-time losses resulting from
prohibition under a newly-enacted law or regulation) before income
taxes, Dividends on the shares of this Series and amortization of
goodwill and covenants not to compete for the three consecutive fiscal
quarters preceding such date, as reported in or derived from the
Corporation's quarterly or annual reports filed with the Securities and
Exchange Commission, shall have averaged at least U.S. $0.07 per fully
diluted Common Share per fiscal quarter, provided, however, in making
such calculation, the Common Shares issuable upon exercise of the
warrants issued to Warburg Pincus Ventures, L.P. ("Warburg"), pursuant
to that certain Warrant Agreement between the Corporation and Warburg
relating to warrants to purchase 10,000,000 Common Shares (the "Warrant
Agreement"), shall be excluded but Common Shares issuable upon the
conversion of the shares of this Series shall not. All references to per
share amounts or prices with respect to the Triggering Conditions shall
be appropriately adjusted for any subdivision, consolidation, or
reclassification of the Common Shares. Until the Triggering Conditions
have been satisfied, the Dividend rate per annum shall be (A)15% of the
Base Amount per share of this Series from and after January 1, 2003 and
payable in accordance with Section 2(c) hereof commencing January 1,
2004; (B) 18% of the Base Amount per share of this Series from and after
January 1, 2004 and payable in accordance with Section 2(c) hereof
commencing January 1, 2005; and (C) thereafter, 21% of the Base Amount
per share of this Series from and after January 1, 2005 and payable in
accordance with Section 2(c) hereof commencing January 1, 2006. Upon the
satisfaction of all the Triggering Conditions, the Dividend per share of
this Series shall be computed based upon a rate per annum of 5% of the
Base Amount. Accruals of Dividends shall not bear interest. All
Dividends declared upon the shares of this Series shall be declared pro
rata per share.
"(c) The record date for the determination of the holders of
shares of this Series who shall be entitled to receive Dividends (the
"Record Date") shall be the first business day of each calendar year,
and only the holders of shares of this Series of record on the Record
Date shall be entitled to receive such Dividends. All Dividends payable
to such
C-3
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 or any other class of shares of the Corporation ranking
subordinate to or on a parity with the shares of this Series as to
dividends or upon liquidation. No Common Shares or shares of any other
class of shares of the Corporation ranking subordinate to or on a parity
with the shares of this Series as to dividends or upon liquidation shall
be redeemed, purchased or otherwise acquired for any consideration (and
no funds shall be paid to or made available for a sinking fund for the
redemption of any such share capital) by the Corporation (except by
conversion into or exchange for shares of the Corporation ranking
subordinate to the shares of this Series as to dividends and upon
liquidation or except with respect to Common Shares that the Corporation
has become obligated to redeem prior to the issuance of any shares of
this Series upon the occurrence of specified circumstances) unless, in
each case, the full accumulated Dividends shall have been paid or
declared and a sum sufficient for the payment thereof set aside for
payment. Holders of shares of this
C-4
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. $1.35 per share of this Series plus an amount equal
to any accrued and unpaid Dividends (including accumulated Dividends,
whether or not declared) to and including the date of distribution or
(ii) the amount distributable to the holders of shares of this Series as
if such holders had converted their shares of this Series into Common
Shares pursuant to Section 7 hereof immediately prior to such
dissolution, liquidation or winding up of the affairs of the Corporation
(plus accumulated Dividends, whether or not declared). Amounts payable
pursuant to clause (i) or (ii) of this Section 3(a) shall be distributed
ratably among the holders of shares of this Series in proportion to the
number of shares of this Series held. After payment to the holders of
shares of this Series of the full amount to which such holders are
entitled as set forth above, the holders of shares of this Series shall
have no right or claim to any of the remaining assets of the
Corporation.
"(b) If upon any such dissolution, liquidation or winding up of
the affairs of the Corporation, the assets of the Corporation
distributable among the holders of shares of this Series and the holders
of all other classes or series of shares of the Corporation ranking on a
parity with the shares of this Series shall be insufficient to permit
the payment to them of the full preferential amounts to which they are
entitled, then the entire assets of the Corporation so to be distributed
shall be distributed ratably among the holders of shares of this Series
and such other classes or series of shares of the Corporation in
proportion to the sum of the accumulated dividends and the liquidation
preferences per share.
"(c) The sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes
of this Section 3.
C-5
"4. Optional Redemption. (a) The shares of this Series may not be
redeemed before the fifth anniversary of the Initial Issuance Date.
Thereafter, the shares of this Series shall be redeemable (subject to
subsection 4(d) below) at the option of the Corporation, in whole or in
part, at the redemption price, which shall be an amount equal to the
greater of (i) U.S. $1.35 per share of this Series plus the amount of
any accrued and unpaid Dividends per share of this Series (including
accumulated Dividends, whether or not declared) or (ii) the Fair Market
Value of a share of this Series (as defined below). For purposes hereof,
the Fair Market Value shall be determined by a nationally recognized
independent investment banking firm mutually agreed to by the
Corporation and the holder of a majority of the shares of this Series
then outstanding, whose determination shall be conclusive.
"(b) (i) In case the Corporation shall desire to exercise its
right to redeem any shares of this Series, it shall give notice of such
redemption to holders of the shares of this Series to be redeemed as
hereinafter provided in this Section 4(b).
"(ii) Notice of redemption shall be given to the holders
of shares of this Series to be redeemed by mailing such notice by
first-class mail to their last addresses as they shall appear
upon the register for the shares of this Series not less than 120
calendar days prior to the date fixed for redemption.
"(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
C-6
notice at the redemption price, and on and after such date fixed for
redemption, notwithstanding that any certificate for shares of this
Series so called for redemption shall not have been surrendered for
cancellation, unless there shall have been a default in payment of the
redemption price, all shares of this Series called for redemption shall
no longer be deemed to be outstanding, and all rights with respect to
such shares of this Series shall forthwith cease and terminate except
only the right of the holders thereof to receive from the Corporation
the redemption price, without interest, of the shares to be redeemed,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
"(ii) Upon presentation of any certificate representing
shares of this Series only a portion of which are to be redeemed,
the Corporation shall immediately issue, at its expense, a new
certificate or certificates representing the shares of this
Series not redeemed.
"(d) Except as provided in paragraph (a) above, the Corporation
shall have no right to redeem the shares of this Series. Any shares of
this Series so redeemed shall be permanently retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized shares of
this Series accordingly. Nothing herein contained shall prevent or
restrict the purchase by the Corporation, from time to time either at
public or private sale, of the whole or any part of the shares of this
Series at such price or prices as the Corporation may determine, subject
to the provisions of applicable law.
"5. No Mandatory Redemption. The shares of this Series shall not
be subject to mandatory redemption by the Corporation.
"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
C-7
limitation, any increase in the number of shares of this Series, without
the written consent or affirmative vote of the holders of at least
66-2/3% of the then outstanding aggregate number of such adversely
affected shares of this Series, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a
class. For this purpose, the authorization or issuance of any series of
preferred stock of the Corporation with preference or priority over, or
being on a parity with the shares of this Series as to the right to
receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall be deemed to
adversely affect the shares of this Series.
"7. Conversion. (a) Each share of this Series may be converted at
any time, at the option of the holder thereof, in the manner hereinafter
provided, into fully-paid and nonassessable Common Shares, provided,
however, that on any redemption of any shares of this Series or any
liquidation of the Corporation, the right of conversion shall terminate
at the close of business on the full business day next preceding the
date fixed for such redemption or for the payment of any amounts
distributable on liquidation to the holders of the shares of this
Series. The initial conversion rate for shares of this Series shall be
one Common Share for each one share of this Series surrendered for
conversion, representing an initial conversion price (for purposes of
Section 7(g)) of U.S. $1.35 per share of the Corporation's Common Shares
(hereinafter, the "Conversion Price"). The applicable conversion rate
and Conversion Price from time to time in effect are subject to
adjustment as hereinafter provided.
"(b) Whenever the Conversion Price shall be adjusted as provided
in Section 7(g) hereof, the Corporation shall forthwith file at each
office designated for the conversion of the shares of this Series, a
statement, signed by any of the Chairman of the Board, the President,
any Vice President or the Treasurer of the Corporation, showing in
reasonable detail the facts requiring such adjustment. The Corporation
shall also cause a notice setting forth any such adjustments to be sent
by mail, first class, postage prepaid, to each record holder of shares
of this Series at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to
in paragraph 7(g)(vii), such notice shall be included as part of the
notice required to be mailed and published under the provisions of
paragraph 7(g)(vii) hereof.
"(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).
C-8
"(d) As promptly as practicable after the surrender for
conversion of one or more certificates representing any shares of this
Series in the manner provided in Section 7(c) and the payment in cash of
any amount required by the provisions of Section 7(k), the Corporation
will deliver or cause to be delivered at the Conversion Office to or
upon the written order of the holder of such shares, a certificate or
certificates representing the number of full Common Shares issuable upon
such conversion, issued in such name or names as such holder may direct,
subject to any applicable contractual restrictions and any restrictions
imposed by applicable securities laws. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date
of such surrender of certificates representing shares of this Series in
proper order for conversion, and all rights of the holder of such shares
as a holder of such shares shall cease at such time, and the person or
persons in whose name or names the certificates for such Common Shares
are to be issued shall be treated for all purposes as having become the
record holder or holders thereof at such time; provided, however, that
any such surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such Common Shares are to be
issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day on
which such stock transfer books are opened.
"(e) "Upon conversion in the manner provided in this Section 7 of
only a portion of the number of shares of this Series represented by a
certificate so surrendered for conversion, the Corporation shall issue
and deliver or cause to be delivered at the Conversion Office to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate or
certificates representing the number of shares of this Series
representing the unconverted portion of the certificate so surrendered,
issued in such name or names as such holder may direct, subject to any
applicable contractual restrictions and any restrictions imposed by
applicable securities laws.
"(f) All shares of this Series which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall forthwith cease
and terminate except only the right of the holder thereof to receive
Common Shares in exchange therefor. Any shares of this Series so
converted shall be retired and canceled and shall not be reissued, and
the Corporation may from time to time take such appropriate action as
may be necessary to reduce the authorized shares of this Series
accordingly.
(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
C-9
payment of which shall be sufficient at the given time to acquire one Common
Share of the Corporation upon conversion of shares of this Series. Upon each
adjustment of the Conversion Price pursuant to this Section 7(g), the registered
holder of shares of this Series shall thereafter be entitled to acquire upon
exercise, at the Conversion Price resulting from such adjustment, the number of
Common Shares of the Corporation obtainable by multiplying the Conversion Price
in effect immediately prior to such adjustment by the number of shares of Common
Shares of the Corporation acquirable immediately prior to such adjustment and
dividing the product thereof by the Conversion Price resulting from such
adjustment. For purposes of this Section 7(g), the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (x) the number of
shares of the Corporation's Common Shares outstanding at such time, (y) the
number of Common Shares of the Corporation issuable assuming conversion at such
time of all outstanding shares of the Corporation's other series of convertible
preferred stock, if any, and (z) the number of Common Shares of the Corporation
deemed to be outstanding at such time under subparagraphs 7(g)(ii)(1) to (8),
inclusive.
(ii) Except as provided in paragraph 7(g)(iii) or 7(g)(vi) below,
if and whenever on or after the Initial Issuance Date, the Corporation shall
issue or sell, or shall in accordance with subparagraphs 7(g)(ii)(1) to (8),
inclusive, be deemed to have issued or sold (such issuance or sale, whether
actual or deemed, the "Triggering Transaction") any Common Shares for a
consideration per share less than
(I) (if the Common Shares are not traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) the
Conversion Price in effect immediately prior to the time of such
issuance or sale, then forthwith upon such issuance or sale the
Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by dividing: (i) an amount equal to
the sum of (x) the product derived by multiplying the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction by the Conversion Price then in effect, plus (y) the
consideration, if any, received by the Company upon consummation of such
Triggering Transaction, by (ii) an amount equal to the sum of (x) the
Number of Common Shares Deemed Outstanding immediately prior to such
Triggering Transaction plus (y) the number of Common Shares issued (or
deemed to be issued in accordance with subparagraphs 7(g)(ii)(1) to (8))
in connection with the Triggering Transaction; or
(II) (if the Common Shares are traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market) the
average Market Price for the ten trading days immediately preceding such
issuance or sale, then forthwith upon such Triggering Transaction, the
Conversion Price shall, subject to subparagraphs (1) to (8) of this
Section 7(g)(ii), be reduced to the Conversion Price (calculated to the
nearest tenth of a cent) determined by multiplying the Conversion Price
in effect immediately prior to the time of such Triggering Transaction
by a fraction, the numerator of which shall be the sum of (x) the Number
of Common Shares Deemed Outstanding immediately
C-10
prior to such Triggering Transaction and (y) the number of Common Shares
which the aggregate consideration received by the Company upon such
Triggering Transaction would purchase at the average Market Price for
the ten trading days immediately preceding such Triggering Transaction,
and the denominator of which shall be the Number of Common Shares Deemed
Outstanding immediately after such Triggering Transaction.
For purposes of determining the adjusted Conversion Price under
this paragraph 7(g)(ii), the following subsections (1) to (8), inclusive, shall
be applicable:
(1) In case the Corporation at any time shall in any
manner grant (whether directly or by assumption in an
amalgamation or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Shares or
any stock or other securities convertible into or exchangeable
for Common Shares (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether
or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price
per share for which the Common Shares are issuable upon exercise,
conversion or exchange (determined by dividing (x) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the
aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (y) the total maximum
number of Common Shares issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities) shall be less than the average Market Price in effect
for the ten trading days immediately prior to the time of the
granting of such Option (if the Common Shares are traded on the
New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market) or the 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
C-11
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.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraphs (1) or (2), or the rate
at which any Convertible Securities referred to in subparagraph
(1) or (2) are convertible into or exchangeable for Common Shares
shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set
forth in paragraphs 7(g)(ii) or 7(g)(iv)), the Conversion Price
in effect at the time of such change shall forthwith be
readjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price,
additional consideration or rate, as the case may be, at the time
initially granted, issued or sold. If the purchase price provided
for in any Option referred to in subparagraph (1) or the rate at
which any Convertible Securities referred to in subparagraphs (1)
or (2) are convertible into or exchangeable for Common Shares,
shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then
in case of the delivery of Common Shares upon the exercise of any
such Option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be adjusted to such respective amount
as would have been obtained had such Option or Convertible
Security never been issued as to such Common Shares and had
adjustments been made upon the issuance of the
C-12
Common Shares delivered as aforesaid, but only if as a result of
such adjustment the Conversion Price then in effect hereunder is
hereby reduced.
(4) On the expiration of any Option or the termination of
any right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(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.
C-13
(iii) In the event the Corporation shall declare a dividend upon
the Common Shares (other than a dividend payable in Common Shares covered by
subparagraph 7(g)(ii)(7)) payable otherwise than out of earnings or earned
surplus, determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries (herein referred to as "Liquidating Dividends"), then, as soon
as possible after the conversion of any shares of this Series, the Corporation
shall, subject to applicable law, pay to the person converting such shares of
this Series an amount equal to the aggregate value at the time of such exercise
of all Liquidating Dividends (including but not limited to the Common Shares
which would have been issued at the time of such earlier exercise and all other
securities which would have been issued with respect to such Common Shares by
reason of stock splits, stock dividends, amalgamations or reorganizations, or
for any other reason). For the purposes of this paragraph 7(g)(iii), a dividend
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as determined in good faith by the
Board.
(iv) In case the Corporation shall at any time subdivide (other
than by means of a dividend payable in Common Shares covered by paragraph
7(g)(ii)(7)) its outstanding Common Shares into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding Common Shares
of the Corporation shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(v) If any capital reorganization or reclassification of the
share capital of the Corporation, or amalgamation of the Corporation with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common
Shares shall be entitled to receive stock, securities, cash or other property
with respect to or in exchange for Common Shares, then, as a condition of such
reorganization, reclassification, amalgamation or sale, lawful and adequate
provision shall be made whereby the holders of shares of this Series shall have
the right to acquire and receive upon conversion of the shares of this Series,
which right shall be prior to the rights of the holders of stock 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
C-14
made to and accepted by the holders of more than 50% of the outstanding Common
Shares of the Corporation, the Corporation shall not effect any amalgamation or
sale with the person having made such offer or with any Affiliate (as defined
below) of such person, unless prior to the consummation of such amalgamation or
sale the holders of the shares of this Series shall have been given a reasonable
opportunity to then elect to receive upon the conversion of the shares of this
Series either the stock, securities or assets then issuable with respect to the
Common Shares of the Corporation or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Shares in accordance with
such offer. For purposes hereof, the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
(vi) The provisions of this Section 7(g) shall not apply to any
Common Shares issued, issuable or deemed outstanding under subparagraphs
7(g)(ii)(1) to (8) inclusive: (i) to any person pursuant to any stock option,
stock purchase or similar plan or arrangement for the benefit of employees of
the Corporation or its subsidiaries in effect on the Initial Issuance Date or
thereafter adopted by the Board of Directors of the Corporation, (ii) pursuant
to options, warrants and conversion rights in existence on the Initial Issuance
Date, (iii) upon exercise of the warrants of the Corporation issued to Warburg
pursuant to the Warrant Agreement or (iv) on conversion of the shares of this
Series or the sale of any additional shares of this Series.
(vii) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Shares, or
(2) the Corporation shall declare any dividend upon its Common
Shares payable in stock or make any special dividend or other
distribution to the holders of its Common Shares, or
(3) the Corporation shall offer for subscription pro rata to the
holders of its Common Shares any additional shares of stock of any class
or other rights, or
(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:
C-15
(A) at least twenty (20) days' prior written notice of the
date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding
up; and
(B) in the case of any such reorganization, reclassification,
amalgamation, sale, dissolution, liquidation or winding
up, at least twenty (20) days' prior written notice of
the date when the same shall take place.
Such notice in accordance with the foregoing clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, amalgamation, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of the shares of this Series at the
address of each such holder as shown on the books of the Corporation.
(viii) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities or rights to purchase property (the "Purchase Rights")
pro rata to the record holders of the Common Shares of the Corporation and such
grants, issuances or sales do not result in an adjustment of the Conversion
Price under paragraph 7(g)(ii) hereof, then each holder of shares of this Series
shall be entitled to acquire (within thirty (30) days after the later to occur
of the initial exercise date of such Purchase Rights or receipt by such holder
of the notice concerning Purchase Rights to which such holder shall be entitled
under paragraph 7(g)(vii)) and upon the terms applicable to such Purchase Rights
either:
(A) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of Common Shares
acquirable upon conversion of shares of this Series
immediately before the grant, issuance or sale of such
Purchase Rights; provided that if any Purchase Rights
were distributed to holders of Common Shares without the
payment of additional consideration by such holders,
corresponding Purchase Rights shall be distributed to the
exercising holders of the shares of this Series as 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
C-16
acquired upon such exercise at the time or times at which
the Corporation granted, issued or sold such expired
Purchase Rights.
(ix) If any event occurs as to which, in the opinion of the
Board, the provisions of this Section 7(g) are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holders of the
shares of this Series in accordance with the essential intent and principles of
such provisions, then the Board shall make an adjustment in the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such rights as aforesaid, but in no event shall any adjustment have
the effect of increasing the Conversion Price as otherwise determined pursuant
to any of the provisions of this Section 7(g) except in the case of a
combination of shares of a type contemplated in paragraph 7(g)(iv) and then in
no event to an amount larger than the Conversion Price as adjusted pursuant to
paragraph 7(g)(iv).
"(h) No fractional Common Shares shall be issued upon the
conversion of any share or shares of this Series. If any fractional
interest in a Common Share would, except for the provisions of this
Section 7(h), be deliverable upon the conversion of any share or shares
of this Series, the Corporation shall in lieu of delivering the
fractional Common Share therefor satisfy such fractional interest by
payment to the holder of such surrendered share or shares of this Series
of an amount in cash equal (computed to the nearest cent) to the current
market value of such fractional interest, computed on the basis of the
Market Price of the Common Shares on the date of such conversion,
provided, however, that no amount shall be paid by the Corporation to
such holder of less than U.S. $5.00.
"(i) The Corporation shall be entitled to effect the mandatory
conversion, in whole or in part, of the shares of this Series in
accordance with this Section 7 if all of the Triggering Conditions (set
forth in Section 2(b) hereof) shall have been satisfied as of the date
of the notice described below. Upon such mandatory conversion, each
share of this Series subject to such conversion shall be converted into
Common Shares at the then effective Conversion Price for such shares. In
case the Corporation shall desire to exercise the right to convert all
or, as the case may be, any shares of this Series in accordance with the
right to do so, it shall provide notice to the holders of the shares of
this Series to be converted as hereinafter provided in this Section
7(i).
"(i) A notice of conversion shall be given to the holders
of shares of this Series to be converted by mailing by first-class mail
to their last addresses as they shall appear upon the register for
shares of this Series not less than 120 calendar days prior to the date
fixed for conversion.
"(ii) Each such notice of conversion (A) shall specify
the date fixed for conversion and the number of Common Shares issuable
to the holder of a share of this Series upon 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
C-17
converted, shall specify the number of shares of this Series held by
each holder, and the serial numbers of the certificates thereof, to be
converted. In case any certificate representing shares of this Series is
to be converted in part only, the notice of conversion which relates to
such certificate shall state the number of shares of this Series
represented by such certificate to be converted and shall state that on
and after the conversion date, upon surrender of such certificate, a new
certificate or certificates for a number of shares of this Series equal
to the unconverted portion thereof will be issued.
"(j) The Corporation will at all times reserve and keep
available, solely for the purposes of the issuance of Common Shares upon
conversion of the shares of this Series, the full number of Common
Shares as shall be issuable upon the conversion of all such outstanding
shares of this Series.
"The Corporation will endeavor to comply with all securities laws
regulating the offer and delivery of Common Shares upon conversion of
the shares of this Series and, that if any Common Shares required to be
reserved for purposes of conversion of the shares hereunder require
registration with or approval of any governmental authority under any
U.S. (federal or state) or Canadian law before such Common Shares may be
validly issued or delivered upon conversion, the Corporation will, in
good faith and as expeditiously as possible, endeavor to secure such
registration or approval, as the case may be.
"All Common Shares which shall be issued upon conversion of the
shares of this Series will upon issuance be fully paid and nonassessable
and not subject to preemptive rights.
"(k) The issuance of certificates for Common Shares upon
conversion of shares of this Series shall be made without charge for any
stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder
of record of the share or shares of this Series so converted, the holder
thereof shall pay to the Corporation the amount of any tax which may be
payable in respect of any transfer involved in such issuance or shall
establish to the satisfaction of the Corporation that such tax has been
paid or is not payable.
"(l) In case (A) the Corporation shall take any action which
would require an adjustment in the number of Common Shares issuable to
holders of shares of this Series upon conversion thereof pursuant to
Section 7(g) above; or (B) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Corporation;
then the Corporation shall cause to be given to the holders of the
shares of this Series at least ten days prior to the applicable record
date hereinafter specified, a notice of (X) the date on which a record
is to be taken for the purpose of any dividend, distribution or grant to
holders of Common Shares which would require such an adjustment, or, if
a
C-18
record is not to be taken, the date as of which the holders of Common
Shares of record to be entitled to such dividend, distribution, or grant
are to be determined or (Y) the date on which such reorganization,
reclassification, amalgamation, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which
it is expected that holders of Common Shares of record shall be entitled
to exchange their Common Shares for securities or other property or
other assets deliverable upon such reorganization, reclassification,
amalgamation, sale, transfer, dissolution, liquidation, or winding up.
Failure to give such notice or any defect therein shall not affect the
legality or validity of any proceedings described in subparagraphs (A)
or (B) of this Section 7(l).
"8. Hold Period. A holder of shares of this Series shall in no
event sell or otherwise transfer any of the shares of this Series, or any Common
Shares issued upon the due conversion of any shares of this Series, for a period
of six months from the Initial Issuance Date. The Corporation shall issue or
cause to be issued certificates representing shares of this Series, and of
Common Shares issued upon due conversion of any shares of this Series, which
contain such legends as the Corporation in its discretion deems adequate to
reflect the hold period described in this Section 8.
"9. Miscellaneous.
"(a) For the purposes hereof:
"(i) the term "outstanding", when used in reference to
shares of this Series, shall mean issued shares of this Series,
excluding shares of this Series called for redemption; and
"(ii) the term "subsidiary" shall mean any company a
majority of whose outstanding voting capital stock (other than
directors' qualifying shares), at the time as of which any
determination is being made, shall be owned by the parent of such
company either directly or through other subsidiaries; and
"(iii) any shares of a series or class of shares of the
Corporation shall be deemed to rank:
"(A) prior to shares of this Series, whether or
not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of shares of this Series, if the
holders of such shares of a series or class of shares
shall be entitled to receipt from the Corporation of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, in preference or priority to
the holders of shares of this Series, as the case may be;
C-19
"(B) on a parity with or equal to shares of this
Series, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per
share thereof be different from those of shares of this
Series, if the holders of such shares of a series or
class of shares shall be entitled to the receipt from the
Corporation of dividends or of amounts distributable upon
liquidation to their respective dividend rates or
liquidation prices, without preference or priority one
over the other as between the holders of such shares of a
series or class of shares and the holders of shares of
this Series; and
"(C) subordinate to shares of this Series, whether
or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be
different from those of shares of this Series, if the
rights of the holders of such shares of a series or class
of shares shall be subordinate to the rights of the
holders of shares of this Series in respect of the
receipt from the Corporation of dividends and of amounts
distributable upon liquidation, dissolution or winding
up, including, without limitation, the Common Shares of
the Corporation.
"(b) So long as any shares of this Series are outstanding, in the
event of any conflict between the provisions hereof and any corporate
document of the Corporation (both as presently existing or hereafter
amended and supplemented) the provisions hereof, as the same may be
amended or supplemented, shall be and remain controlling.
"(c) The holders of the shares of this Series shall have no
preemptive rights.
SECOND: That such determination of the designation, powers, preferences
and the relative participating, optional and other special rights and
qualifications, limitations and restrictions thereof relating to such Series A
Convertible Preferred Shares was duly made by the Board of Directors of the
Corporation in accordance with the provisions of Section 27 of the Business
Corporations Act (Alberta).
C-20
IN WITNESS WHEREOF, this Certificate has been signed by the President
and the Secretary of HealthCare Capital Corp, and the Corporation has caused its
corporate seal to be hereunto affixed, all as of the ---- day of January, 1998.
HEALTHCARE CAPITAL CORP.
By:
Xxxxxxx X. Xxxxxx
Title: President
[Corporate Seal]
Attest:
----------------------------------
Xxxxxxx XxXxxx
Secretary
C-21
