HEARx Ltd. et al. - MRRS Decision
Headnote
Mutual Reliance Review System for ExemptiveRelief Applications - relief from prospectus and registrationrequirements in connection with an arrangement - first traderelief - relief from certain continuous disclosure and insiderreporting requirements - all subject to conditions.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am.,ss. 25, 53, 74(1), 75, 77, 78, 79, 80(b)(iii), 81(2), 107, 108,109, 121(2)(a)(ii).
Applicable Instruments
Multilateral Instrument 45-102 Resale of Securities
Rule 45-501 Exempt Distributions.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF ALBERTA, SASKATCHEWAN
MANITOBA, ONTARIO, QUÉBEC,NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARDISLAND,
AND NEWFOUNDLAND AND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEFAPPLICATIONS
AND
IN THE MATTER OF
HEARX LTD., HEARX CANADA INC.,HEARX ACQUISITION ULC
AND HELIX HEARING CARE OFAMERICA CORP.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof Alberta, Saskatchewan, Manitoba, Ontario, Québec,New Brunswick, Nova Scotia, Prince Edward Island and Newfoundlandand Labrador (collectively, the "Jurisdictions") hasreceived an application from HEARx Ltd. ("HEARx"),HEARx Canada Inc. ("Exchangeco") and HEARx AcquisitionULC ("Callco") (collectively, the "Filer")for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that:
(a) the trades of securities involved inconnection with the combination of HEARx and Helix HearingCare of America Corp. ("Helix") (the "Transaction")to be effected by way of an Arrangement (as defined below)shall be exempt from the requirements contained in the Legislationto be registered to trade in a security (the "RegistrationRequirements"), to file a preliminary prospectus anda prospectus and receive receipts therefore (the "ProspectusRequirements");
(b) Exchangeco be exempt in Alberta, Ontarioand Québec from the requirements of the Legislationapplicable in such jurisdictions to issue press releasesand file reports regarding material changes, to file withthe Decision Makers and to deliver to shareholders interimfinancial statements, audited annual financial statementsand an annual report, where applicable, information circulars(or to make an annual filing in lieu thereof) and annualinformation forms (including management's discussion andanalysis of the financial condition and results of operationof Exchangeco) (the "Continuous Disclosure Requirements");and
(c) each insider (as such term is definedin the Legislation) of Exchangeco be exempt in Alberta,Ontario and Québec from the insider reporting requirementsof the Legislation applicable in these jurisdictions (the"Insider Reporting Requirements"), subject tocertain conditions, as described below.
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Commission des valeurs mobilières du Québecis the principal regulator for this application;
AND WHEREAS the Filer has representedto the Decision Makers that:
1. HEARx and Helix have entered into a mergeragreement dated July 7, 2001, as amended and restated on November6, 2001, among HEARx and Helix (the "Merger Agreement")providing for the Transaction to be effected by way of anarrangement (the "Arrangement") under section 192of the Canada Business Corporations Act ("CBCA")involving holders of common shares of Helix (the "HelixCommon Shares"), holders of options to acquire HelixCommon Shares (the "Helix Options"), Helix, Exchangeco,Callco and HEARx.
2. HEARx is a corporation incorporated underthe laws of Delaware which is currently subject to the informationalrequirements of the United States Securities Exchange Actof 1934, as amended, and is not a "reporting issuer"under the securities legislation of any Province or Territoryof Canada. HEARx's principal corporate offices are locatedin West Palm Beach, Florida.
3. HEARx's authorized capital consists of20,000,000 Common Shares, $0.10 par value per share ("HEARxCommon Shares"), and 2,000,000 shares of preferred stock,$1.00 par value per share ("HEARx Preferred Shares").As of May 3, 2002, there were outstanding 15,540,743 HEARxCommon Shares, 4,796 HEARx Preferred Shares, purchase warrantsand options entitling the holders thereof to purchase an aggregateof approximately 3,572,271 HEARx Common Shares. As part ofthe Transaction, HEARx will create and issue one special votingshare (the "Special Voting Share") to a trustee(the "Trustee") which will be appointed as trusteeunder the Voting and Exchange Trust Agreement (described below).
4. HEARx has a rights agreement in place (the"HEARx Rights Agreement") which provides that eachHEARx Common Share shall trade with an associated right (the"HEARx Right"). The HEARx Rights Agreement and theHEARx Rights are described below.
5. The HEARx Common Shares are listed fortrading on the American Stock Exchange ("AMEX")under the symbol "EAR". HEARx will apply to AMEXto list the HEARx Common Shares issued pursuant to the Arrangementand those issuable from time to time in exchange for exchangeableshares of Exchangeco (the "Exchangeable Shares")or upon the exercise of outstanding Helix Options exchangedfor options to purchase HEARx Common Shares (the "ReplacementOptions"). In addition, HEARx will apply to the TorontoStock Exchange ("TSX") to list the HEARx CommonShares and the Exchangeable Shares.
6. Exchangeco is an indirect wholly ownedsubsidiary of HEARx. Exchangeco was incorporated under theCBCA on November 7, 2001 for the sole purpose of participatingin the Arrangement. Exchangeco currently has nominal assetsand activities. After the Arrangement is completed, Exchangecowill be a holding company that holds all of the outstandingHelix Common Shares other than those held by HEARx or Callco.Exchangeco's registered office is located in Toronto, Ontario.
7. The authorized capital of Exchangeco willbe amended prior to the Effective Date such that it will consistof an unlimited number of common shares and the ExchangeableShares. The Exchangeable Shares will rank senior to the commonshares of Exchangeco with respect to the payment of dividendsand the distribution of property or assets of Exchangeco amongits shareholders for the purpose of winding-up its affairs.
8. Prior to the Arrangement becoming effective,Exchangeco will adopt an Exchangeable Share rights plan (the"Exchangeable Share Rights Plan") substantiallyequivalent to the HEARx Rights Agreement, which is describedbelow. Pursuant to the Exchangeable Share Rights Plan, eachExchangeable Share issued in the Arrangement or otherwisewill have an associated Exchangeable Share right (the "ExchangeableShare Right"), entitling the holder of such ExchangeableShare Right to acquire additional Exchangeable Shares in certainlimited circumstances.
9. Exchangeco is currently a closed companywithin the meaning of that term under the Securities Act(Québec) (the "Act"). Prior to the completionof the Transaction, the articles of Exchangeco will be amendedto remove the closed company restrictions of Exchangeco. Uponcompletion of the Transaction and the listing of the ExchangeableShares on the TSX, Exchangeco will become a reporting issuerunder the Act. Exchangeco will also become a reporting issuerunder the securities legislation of Alberta and Ontario asa result of the Transaction.
10. Callco is a wholly-owned subsidiary ofHEARx. Callco is an unlimited liability company formed underthe Companies Act (Nova Scotia) on October 3, 2001,for the sole purpose of participating in the Arrangement.Callco holds all of the outstanding common shares of Exchangeco.Callco will deliver HEARx Common Shares in exchange for HelixCommon Shares to those holders of Helix Common Shares electingto receive HEARx Common Shares under the Arrangement and willhold the call rights related to the Exchangeable Shares. Callco'sregistered office is located in Halifax, Nova Scotia.
11. The authorized capital of Callco consistsof 1,000,000 common or ordinary shares without nominal orpar value. As of June 6, 2002, there were 100 common sharesissued and outstanding in the name of HEARx.
12. Helix was incorporated under the BusinessCorporations Act (Alberta) on August 26, 1996. On July9, 1999, Helix's Articles of Incorporation were amended toallow the continuance of Helix under the CBCA. The Articlesof Helix were again amended on November 30, 2000, to allowfor the amalgamation of Helix and its subsidiary, RegionalHearing Consultants, Inc. Helix, through its primary operatingsubsidiaries, manages and provides supply services to a largenetwork of hearing health care clinics in the Province ofQuébec and owns and operates hearing health care clinicsin the Province of Ontario and in nine states in the UnitedStates. Helix's principal corporate office is located at 7100,Jean-Talon East, Suite 610, Montreal, Québec H1M 3S3.
13. The authorized capital of Helix consistsof an unlimited number of Common Shares without par valueand an unlimited number of first preferred shares and an unlimitednumber of second preferred shares (collectively, the "HelixPreferred Shares"). As of May 3, 2002, there were anaggregate 46,161,190 Helix Common Shares issued and outstanding.The Helix Common Shares are currently listed for trading onthe TSX under the symbol "HCA".
14. As of May 3, 2002 up to a maximum of 11,317,017common shares may be issued pursuant to the convertible securitiesexercisable to acquire Helix Common Shares.
15. The Transaction will be effected by wayof the Arrangement which will require, among other things:(a) the approval of the holders of not less than 66 2/3% ofthe Helix Common Shares outstanding, present in person orby proxy at the Helix Meeting which has been called for June26, 2002 for the purpose of approving the Arrangement; and(b) the approval of the Superior Court of Québec, theapplication in respect of which has been heard on June 27,2002.
16. In connection with the Helix Meeting,Helix delivered to the holders of Helix Common Shares a proxycircular (the "Circular") including the prospectusof HEARx under applicable U.S. Securities laws in connectionwith the issuance of HEARx Common Shares (the "JointProxy Statement/HEARx Prospectus"). The Joint Proxy Statement/HEARxProspectus contains U.S. prospectus-level disclosure of thebusiness and affairs of HEARx, a description of HEARx preparedpursuant to applicable Canadian corporate and securities lawand a detailed description of the Transaction and the Arrangement.The Circular was prepared in conformity with the provisionsof the Act, the CBCA and the interim order of the SuperiorCourt of Justice (Québec) dated May 17, 2002.
17. HEARx will hold a special meeting of itsstockholders (the "HEARx Meeting") to: (i) approvethe issuance of the HEARx Common Shares to be used as considerationin the Transaction, including the HEARx Common Shares to beissued upon exchange of Exchangeable Shares and upon the exerciseof Replacement Options; (ii) amend HEARx's certificate ofincorporation to change the name of HEARx to Hear USA, Inc.;and (iii) approve the Hear USA 2002 Flexible Stock Plan whichwill provide a sufficient number of Replacement Options. TheJoint Proxy Statement/HEARx Prospectus will also serve asthe HEARx management information circular in respect of thesematters.
18. On the Arrangement becoming effective,the steps described below will occur:
(a) Each outstanding Helix Common Share,other than (A) Helix Common Shares held by shareholdersexercising their dissent rights who are ultimately entitledto be paid the fair value of the Helix Common Shares heldby them, or (B) Helix Common Shares held by HEARx, willbe automatically transferred by the holder thereof to Exchangecoin exchange, at the election of the holder, for:
(i) that number of HEARx Common Sharesequal to the product of the total number of Helix CommonShares held by such shareholder multiplied by 0.3537 (the"Exchange Ratio");
(ii) that number of Exchangeable Shares(and certain ancillary rights) equal to the product ofthe total number of such Helix Common Shares held by suchshareholder multiplied by the Exchange Ratio; or
(iii) a combination of HEARx Common Sharesand Exchangeable Shares (and certain ancillary rights),which aggregate number of HEARx Common Shares and ExchangeableShares is equal to the product of the total number ofsuch Helix Common Shares held by such shareholder multipliedby the Exchange Ratio;
the whole as set forth in a letter of transmittaland election form sent by Helix (the "Letter of Transmittaland Election Form"), provided that notwithstandingthe foregoing, only shareholders of Helix who are either,(1) Canadian residents who hold such Helix Common Shareson their own behalf, or (2) persons who hold such HelixCommon Shares on behalf of one or more Canadian residents,shall be entitled to elect to receive Exchangeable Sharesin respect of any such Helix Common Shares as set out inparagraphs (ii) and (iii) above, and any elections to receiveExchangeable Shares made by any other shareholders of Helixshall be invalid, and the Helix Common Shares of any suchinvalidly-electing Helix Shareholder shall be deemed tohave been transferred to Exchangeco solely in considerationfor HEARx Common Shares pursuant to (i) above; and any shareholderof Helix resident in Canada who fail to make an effectiveelection shall only be entitled to receive ExchangeableShares as set out in paragraph (ii) above and any shareholderof Helix not resident in Canada who fail to make an effectiveelection shall only be entitled to receive HEARx CommonShares as set out in paragraph (i) above;
(b) coincident with the transfer of theHelix Common Shares to Exchangeco, HEARx and Callco shallexecute a support agreement (the "Exchangeable ShareSupport Agreement") and HEARx, Callco, Exchangeco andthe Trustee will enter into a voting and exchange trustagreement (the "Voting and Exchange Trust Agreement")and all rights of holders of Exchangeable Shares under theVoting and Exchange Trust Agreement shall be received bythem as part of the property receivable by them in exchangefor Helix Common Shares so transferred; and
(c) each Helix Option outstanding on theEffective Date will be exchanged for a Replacement Optionto purchase the number of HEARx Common Shares equal to theproduct of the Exchange Ratio multiplied by the number ofHelix Common Shares that may be purchased as if such HelixOption was exercisable and exercised immediately prior tothe Arrangement becoming effective and the option exerciseprice shall be adjusted by dividing the exercise price underthe Helix Options by the Exchange Ratio.
19. As a result of the foregoing, upon thecompletion of the Arrangement, all of the issued and outstandingHelix Common Shares will be held directly by HEARx or indirectlyby HEARx through Exchangeco.
20. The Exchangeable Shares, together withthe Voting and Exchange Trust Agreement described below, willprovide holders thereof with a security of a Canadian issuerhaving economic and voting rights which are substantiallyeconomically equivalent to those of a HEARx Common Share.Exchangeable Shares will generally be received by Canadianresident holders of Helix Common Shares who validly make ajoint tax election with Exchangeco on a tax-deferred rolloverbasis for the purposes of the Income Tax Act (Canada)("ITA") and, provided that the Exchangeable Sharesare listed on a prescribed stock exchange in Canada (whichcurrently includes the TSX), will be "qualified investments"for certain investors and will not constitute "foreignproperty", in each case, under the ITA. The ExchangeableShares will be exchangeable by a holder thereof for HEARxCommon Shares on a one-for-one basis at any time at the optionof such holder and will be required to be exchanged on orafter the fifth anniversary of the Arrangement/Effective Date,subject to earlier mandatory exchange upon the occurrenceof certain events, as more fully described below. Subjectto applicable law and the paragraphs below, dividends willbe payable on the Exchangeable Shares contemporaneously andin the equivalent amount per share as dividends on the HEARxCommon Shares. The Exchangeable Shares are subject to adjustmentor modification in the event of a stock split or other changeto the capital structure of HEARx so as to maintain at alltimes the initial one-to-one relationship between the ExchangeableShares and HEARx Common Shares.
21. The Exchangeable Shares will rank priorto the common shares of Exchangeco and any other shares rankingjunior to the Exchangeable Shares with respect to the paymentof dividends and the distribution of property or assets inthe event of the liquidation, dissolution or winding-up ofExchangeco, whether voluntary or involuntary, or any otherdistribution of property or assets of Exchangeco among itsshareholders for the purpose of winding-up its affairs. Therights, privileges, restrictions and conditions attachingto the Exchangeable Shares (the "Exchangeable Share Provisions")will provide that each Exchangeable Share will entitle theholder to dividends from Exchangeco payable at the same timeas, and equivalent to, each dividend paid by HEARx on a HEARxCommon Share. The record date for the determination of theholders of Exchangeable Shares entitled to receive ExchangeableShares in connection with any subdivision of ExchangeableShares and the effective date of such subdivision shall bethe same dates as the record date and the payment date, respectively,for the corresponding stock dividend declared on HEARx CommonShares.
22. The Exchangeable Shares will be non-voting,except as required by the applicable law or through the SpecialVoting Share to be issued to the Trustee pursuant to the Votingand Exchange Trust Agreement, and will be retractable at theoption of the holder at any time. Subject to the overridingretraction call right of Callco referred to below, upon retractionthe holder will be entitled to receive from Exchangeco foreach Exchangeable Share retracted an amount equal to the currentmarket price of a HEARx Common Share on the last businessday prior to the retraction date, to be satisfied by the deliveryof one HEARx Common Share, together with, on the designatedpayment date therefor, an amount equal to all declared andunpaid dividends on each such retracted Exchangeable Shareheld by the holder on any dividend record date prior to thedate of retraction (such aggregate amount, the "RetractionPrice"). Upon being notified by Exchangeco of a proposedretraction of Exchangeable Shares, Callco will have an overridingretraction call right (the "Retraction Call Right")to purchase from the holder all of the Exchangeable Sharesthat are the subject of the retraction notice for a priceper share equal to the Retraction Price.
23. Subject to the applicable law and theoverriding redemption call right of Callco referred to below,Exchangeco may redeem all but not less than all of the thenoutstanding Exchangeable Shares (other than Exchangeable Sharesheld by HEARx and its affiliates) on, or any time after, thefifth anniversary of the Effective Date of the Transaction(the "Redemption Date"). As described in the JointProxy Statement/HEARx Prospectus, in certain circumstancesthe Board of Directors of Exchangeco may accelerate the RedemptionDate. Upon such redemption, a holder will be entitled to receivefrom Exchangeco for each Exchangeable Share redeemed an amountequal to the current market price of a HEARx Common Shareon the last business day prior to the Redemption Date, tobe satisfied by the delivery of one HEARx Common Share, togetherwith, on the designated payment date thereof, an amount equalto all declared and unpaid dividends on each such redeemedExchangeable Share held by the holder on any dividend recorddate prior to the Redemption Date (such aggregate amount,the "Redemption Price"). Upon being notified byExchangeco of a proposed redemption of Exchangeable Shares,Callco will have an overriding redemption call right (the"Redemption Call Right") to purchase on the RedemptionDate all but not less than all of the then outstanding ExchangeableShares (other than Exchangeable Shares held by HEARx and itsaffiliates) for a price per share equal to the RedemptionPrice. Upon the exercise of the Redemption Call Right by Callco,holders will be obligated to sell their Exchangeable Sharesto Callco. If Callco exercises its Redemption Call Right,Exchangeco's right and obligation to redeem the ExchangeableShares on the Redemption Date will terminate.
24. Subject to the overriding liquidationcall right of Callco referred to below, in the event of liquidation,dissolution or winding-up of Exchangeco, holders of ExchangeableShares (other than Exchangeable Shares held by HEARx and itsaffiliates) will be entitled to put their shares to HEARxin exchange for HEARx Common Shares pursuant to the Votingand Exchange Trust Agreement. Upon a proposed liquidation,dissolution or winding-up of Exchangeco, Callco will havean overriding liquidation call right (the "LiquidationCall Right") to purchase from all but not less than allof the holders of Exchangeable Shares (other than ExchangeableShares held by HEARx and its affiliates) on the effectivedate of such liquidation, dissolution or winding-up (the "LiquidationDate") all but not less than all of the ExchangeableShares held by each such holder for a price per share equalto the current market price of a HEARx Common Share on thelast business day prior to the Liquidation Date, to be satisfiedby the delivery of one HEARx Common Share, together with anadditional amount equivalent to the full amount of all declaredand unpaid dividends on each Exchangeable Share held by suchholder on any dividend record date prior to the date of purchaseby Callco.
25. Upon the occurrence of certain changesin Canadian tax law, HEARx has the right to purchase or causeCallco to purchase the Exchangeable Shares (other than ExchangeableShares hold by HEARx and its affiliates) prior to the fifthanniversary of the Effective Date.
26. Upon the liquidation, dissolution or winding-upof HEARx, all Exchangeable Shares held by holders (other thanExchangeable Shares held by HEARx and its affiliates) willbe automatically exchanged for HEARx Common Shares pursuantto the Voting and Exchange Trust Agreement, in order thatholders of Exchangeable Shares will be able to participatein the dissolution of HEARx on a pro rata basis withthe holders of HEARx Common Shares.
27. Upon the exchange of an Exchangeable Sharefor a HEARx Common Share, the holder of the Exchangeable Sharewill no longer be a beneficiary of the trust created by theVoting and Exchange Trust Agreement that holds the SpecialVoting Share, as described below.
28. On December 14, 1999, pursuant to a RightsAgreement between HEARx and The Bank of New York, as rightsagent ("Rights Agent"), HEARx's Board of Directorsdeclared a dividend of one preferred share purchase right("HEARx Right") for each outstanding HEARx CommonShare. Each HEARx Right entitles the registered holder topurchase from HEARx one one-hundredth of a share of HEARxSeries H Junior Participating Preferred Stock, par value $1.00per share, at an exercise price of U.S.$28 (the "PurchasePrice"), subject to adjustment. The HEARx Rights willnot be exercisable until the Distribution Date (defined below).The HEARx Rights will attach to and trade only together withHEARx Common Shares. The HEARx Rights will be separate fromHEARx Common Shares. Certificates for the HEARx Rights willbe issued and the HEARx Rights will become exercisable uponthe earlier of (a) the close of business on the tenth businessday after a person or group of affiliated or associated persons(other than HEARx, any subsidiary of HEARx, any employee benefitplan of HEARx or the trustee appointed under the Voting andExchange Trust Agreement) (an "Acquiring Person")has acquired, or obtained the right to acquire, beneficialownership of 15% or more of the HEARx Common Shares then outstandingwithout the prior consent of HEARx, or (b) the close of businesson the tenth business day (or such later date as may be determinedby the HEARx's Board of Directors) after a person or groupannounces a tender or exchange offer without the prior consentof HEARx, the consummation of which would result in ownershipby a person or group of 15% or more of the then outstandingHEARx Common Shares (other than HEARx, any subsidiary of HEARxor an employee benefit plan of HEARx and certain affiliatedentities). The earlier of such dates is referred to as the"Distribution Date". The HEARx Rights will expireon the earliest of (i) December 31, 2009, unless the dateis extended by HEARx (the "Final Expiration Date"),or (ii) redemption or exchange of the HEARx Rights as describedbelow. At any time after an Acquiring Person obtains 15% ormore of the then outstanding HEARx Common Shares and priorto the acquisition by such Acquiring Person of 50% or moreof the outstanding HEARx Common Shares, the Board of Directorsof HEARx may exchange the HEARx Rights (other than HEARx Rightsowned by the Acquiring Person), in whole or in part, at anexchange ratio of one HEARx Common Share per HEARx Right.Unless the HEARx Rights are earlier redeemed, in the eventthat an Acquiring Person obtains 15% or more of the then outstandingHEARx Common Shares, then each holder of a HEARx Right whichhas not theretofor been exercised (other than HEARx Rightsbeneficially owned by the Acquiring Person, which will thereafterbe void) will thereafter have the right to receive, upon exercise,the number of HEARx Common Shares that equal the result obtainedby multiplying the then current purchase price by the numberof one one-hundredth of a share of preferred stock for whicha right is then exercisable and dividing that product by 50%of the then current per-share market price of HEARx CommonShares. Similarly, unless the HEARx Rights are earlier redeemed,in the event that, after an Acquiring Person obtains 15% ormore of the then outstanding HEARx Common Shares, (i) HEARxis acquired in a merger or other business combination transaction,or (ii) 50% or more of HEARx's consolidated assets or earningpower are sold (other than in transactions in the ordinarycourse of business), proper provision must be made so thateach holder of a HEARx Right which has not theretofore beenexercised (other than HEARx Rights beneficially owned by theAcquiring Person, which will thereafter be void) will thereafterhave the right to receive, upon exercise, shares of commonstock of the acquiring company having a value equal to oneone-hundredth times the Purchase Price and dividing that productby 50% of the then current market price per share of the commonstock of the acquiring company on the date of such mergeror other business combination transaction. At any time priorto the time an Acquiring Person becomes such, HEARx may redeemthe HEARx Rights in whole, but not in part, at a price of$0.01 per Right. The redemption of the HEARx Rights may bemade effective at such time, on such basis and with such conditionsas HEARx's Board of Directors may establish.
29. Prior to the Effective Date of the Transaction,Exchangeco will adopt the Exchangeable Share Rights Plan whichwill be substantially equivalent to the HEARx Rights Agreement.Pursuant thereto, each Exchangeable Share issued in the Arrangementwill have an associated Exchangeable Share Right entitlingthe holder of such Exchangeable Share Right to acquire additionalExchangeable Shareson terms and conditions substantially thesame as the terms and conditions upon which a holder of HEARxCommon Shares is entitled to acquire HEARx Series H JuniorParticipating Preferred Shares under the HEARx Rights Agreement(with the definitions of beneficial ownership, the calculationof percentage ownership and the number of shares outstandingand related provisions applying, as appropriate, to HEARxCommon Shares and Exchangeable Shares as though they werethe same security). The Exchangeable Share Rights are intendedto have characteristics essentially equivalent in economiceffect to the HEARx Rights.
30. The Special Voting Share will be authorizedfor issuance and, pursuant to the Arrangement, issued to theTrustee appointed under the Voting and Exchange Trust Agreement.Except as otherwise required by applicable law, the SpecialVoting Share will be entitled to the number of votes, exercisableat any meeting of the holders of HEARx Common Shares, equalto the number of votes that would attach to the HEARx CommonShares into which the Exchangeable Shares outstanding fromtime to time (and not owned by HEARx and its affiliates) couldbe exchanged. Holders of Exchangeable Shares will exercisethe voting rights attached to the Special Voting Share throughthe mechanism of the Voting and Exchange Trust Agreement.The holders of HEARx Common Shares and the holders of theSpecial Voting Share will vote together as a single classon all matters except to the extent voting as a separate classis required by applicable law or the HEARx Certificate ofIncorporation. The holder of the Special Voting Share willnot be entitled to receive dividends from HEARx and, in theevent of any liquidation, dissolution or winding-up of HEARx,will not be entitled to share in the assets available fordistribution to stockholders. At such time as the SpecialVoting Share has no votes attached to it because there areno Exchangeable Shares outstanding not owned by HEARx andits affiliates, the Special Voting Share will be cancelled.
31. The Special Voting Share will be issuedto and held by the Trustee for the benefit of the holdersof the Exchangeable Shares outstanding from time to time (otherthan HEARx and its affiliates) pursuant to a Voting and ExchangeTrust Agreement to be entered into by HEARx, Exchangeco, Callcoand the Trustee contemporaneously with the closing of theTransaction. Each voting right attached to the Special VotingShare must be voted by the Trustee pursuant to the instructionsof the holder of the related Exchangeable Share. In the absenceof any such instructions from a holder as to voting, the Trusteewill not be entitled to exercise the related voting rights.Upon the exchange of a holder's Exchangeable Shares for HEARxCommon Shares, all rights of such holder of Exchangeable Sharesto instruct the Trustee to exercise votes attached to theSpecial Voting Share in respect of the exchanged ExchangeableShare will cease.
32. Under the Voting and Exchange Trust Agreement,HEARx will grant to the Trustee for the benefit of the holdersof the Exchangeable Shares a right (the "Exchange Right")exercisable upon the insolvency of Exchangeco, to requireHEARx to purchase from a holder of Exchangeable Shares (otherthan HEARx or its affiliates) all or any part of the ExchangeableShares held by that holder. The purchase price for each ExchangeableShare purchased by HEARx under the Exchange Right will bean amount equal to the current market price of a HEARx CommonShare on the last business day prior to the day of closingthe purchase and sale of such Exchangeable Share under theExchange Right multiplied by the current HEARx Common StockEquivalent, in each case determined on the last business dayprior to the day of closing of the purchase and sale of suchExchangeable Share under the Exchange Right, which shall besatisfied in full in respect of the Exchangeable Shares inregard to which a Holder has exercised the Exchange Rightby causing to be delivered to such Holder such whole numberof shares of HEARx Common Stock as is equal to the productobtained by multiplying the number of such Exchangeable Sharesby the Current HEARx Common Stock Equivalent, rounded downto the nearest whole number, to be satisfied by the deliveryto the Trustee, on behalf of the holder, of one HEARx CommonShare, together with an additional amount equivalent to thefull amount of all declared and unpaid dividends on such ExchangeableShare held by the holder of record on any dividend recorddate prior to the closing of the purchase and sale.
33. Contemporaneously with the closing ofthe Transaction, HEARx, Exchangeco and Callco will enter intoan Exchangeable Share Support Agreement which will providethat so long as any Exchangeable Shares (other than ExchangeableShares held by HEARx or its affiliates) remain outstanding:(a) HEARx will not declare or pay any dividends on the HEARxCommon Shares unless Exchangeco is able to declare and pay,and simultaneously declares and pays, as the case may be,an equivalent dividend on the Exchangeable Shares; (b) thatHEARx will itself and ensure that Exchangeco and Callco willbe able to honour the redemption and retraction rights anddissolution entitlements that are attributes of the ExchangeableShares under the Exchangeable Share Provisions and the relatedredemption, retraction liquidation, and change-of-law callrights described above; and (c) that HEARx will ensure thatCallco does not exercise its vote as a shareholder to initiatethe voluntary liquidation, dissolution or winding-up of Exchangeconor take any action or omit to take any action that is designedto result in the liquidation, dissolution or winding-up ofExchangeco.
34. The Exchangeable Share Support Agreementand the Exchangeable Share Provisions will provide, that,without the prior approval of Exchangeco and the holders ofExchangeable Shares, HEARx will not issue or distribute additionalHEARx Common Shares, securities exchangeable for or convertibleinto or carrying rights to acquire HEARx Common Shares, rights,options or warrants to subscribe therefor, evidences of indebtednessor other assets, to all or substantially all holders of HEARxCommon Shares, nor shall HEARx change the HEARx Common Shares,unless the same or an economically equivalent distributionon or change to the Exchangeable Shares (or in the rightsof the holders thereof) is made simultaneously.
Prospectus and Registration Relief
35. The steps under the Transaction and theattributes of the Exchangeable Shares contained in the ExchangeableShare Provisions, the Voting and Exchange Trust Agreement,the Exchangeable Share Support Agreement and the ExchangeableShare Rights Plan involve or may involve a number of tradesof securities, including trades related to the issuance ofthe Exchangeable Shares and HEARx Common Shares pursuant tothe Transaction or upon the issuance of HEARx Common Sharesin exchange for Exchangeable Shares. The trades and possibletrades in securities to which the Transaction gives rise arethe following:
(a) the issuance by HEARx of HEARx CommonShares to Exchangeco in exchange for Class A Special Sharesand the subsequent transfer by Exchangeco of HEARx CommonShares to holders of Helix Common Shares entitled to receiveHEARx Common Shares upon the Arrangement or the issuanceby HEARx or Callco of HEARx Common Shares to holders ofHelix Common Shares entitled to receive HEARx Common Sharesupon the Arrangement;
(b) the transfer to Exchangeco of HelixCommon Shares by Helix Shareholders or those held by HelixShareholders exercising their right of dissent and ultimatelyentitled to receive fair value, and those held by HEARxor any of its affiliates;
(c) the issuance of Exchangeable Sharesby Exchangeco to Helix Shareholders validly electing toreceive Exchangeable Shares upon the Arrangement;
(d) the transfer of Helix Common Sharesto Helix by dissenting Helix shareholders pursuant to theArrangement;
(e) the grant of the change-in-law callright by holders of Exchangeable Shares to HEARx;
(f) the exchange of Helix Options for ReplacementOptions and the issuance and delivery of HEARx Common Sharesto a holder of a Replacement Option upon the exercise hereof;
(g) the grant by HEARx to the Trustee forthe benefit of holders of Exchangeable Shares, pursuantto the Voting and Exchange Trust Agreement, of the ExchangeRight, the Automatic exchange right and the voting rightspursuant to the Special Voting Share;
(h) the issuance by HEARx, pursuant to theVoting and Exchange Trust Agreement, of the Special VotingShare to the Trustee for the benefit of the holders of theExchangeable Shares;
(i) the issuance and intra-group transfersof HEARx Common Shares and related issuances of Class ASpecial Shares and/or shares of HEARx affiliates in considerationthereof, all by and between HEARx and its affiliates, fromtime to time to enable Exchangeco to deliver HEARx CommonShares to a holder of Exchangeable Shares upon a retractionof the Exchangeable Shares held by such holder, and thesubsequent delivery thereof by or at the direction of Exchangecoupon such retraction;
(j) the transfer of Exchangeable Sharesby the holder to Exchangeco upon the holder's retractionof Exchangeable Shares;
(k) the grant of the Liquidation Call Rightto Callco to purchase all of the outstanding ExchangeableShares from the holders of such shares upon a proposed liquidation,dissolution of winding-up of Exchangeco;
(l) the grant of the Retraction Call Rightto Callco to purchase from a holder of Exchangeable Sharesall of the Exchangeable Shares of such holder that are thesubject of the retraction notice;
(m) the grant of the Redemption Call Rightto Callco to purchase all of the outstanding ExchangeableShares from the holders of such shares upon notice fromExchangeco of a proposed redemption of Exchangeable Shares;
(n) the issuance and intra-group transfersof HEARx Common Shares and related issuances of Class ASpecial Shares and/or shares of HEARx affiliates in considerationtherefore, all by and between HEARx and its affiliates,from time to time to enable Callco to deliver HEARx CommonShares to a holder of Exchangeable Shares in connectionwith Callco's exercise of its overriding retraction callright, and the subsequent delivery thereof by Callco uponthe exercise of such overriding retraction call right;
(o) the transfer of Exchangeable Sharesby the holder to Callco upon Callco exercising its overridingretraction call right;
(p) the issuance and intra-group transfersof HEARx Common Shares and related issuances of Class ASpecial Shares and/or shares of HEARx affiliates in considerationtherefore, all by and between HEARx and its affiliates,to enable Exchangeco to deliver HEARx Common Shares to holdersof Exchangeable Shares upon the redemption of the ExchangeableShares, and the subsequent delivery thereof by or at thedirection Exchangeco upon such redemption;
(q) the transfer of Exchangeable Sharesby holders to Exchangeco upon the redemption of ExchangeableShares;
(r) the issuance and intra-group transfersof HEARx Common Shares and related issuances of Class ASpecial Shares and/or shares of HEARx affiliates in considerationtherefor, all by and between HEARx and its affiliates, toenable Callco to deliver HEARx Common Shares to holdersof Exchangeable Shares in connection with Callco's exerciseof its overriding redemption call right, and the subsequentdelivery thereof by Callco upon the exercise of such overridingredemption call right;
(s) the transfer of Exchangeable Sharesby holders to Callco upon Callco exercising its overridingredemption call right;
(t) the issuance and intra-group transfersof HEARx Common Shares and related issuances of Class ASpecial Shares and/or shares of HEARx affiliates in considerationtherefor, all by and between HEARx and its affiliates, toenable Exchangeco to deliver HEARx Common Shares to holdersof Exchangeable Shares on the liquidation, dissolution orwinding-up of Exchangeco and the subsequent delivery thereofby Exchangeco upon such liquidation, dissolution or winding-up;
(u) the transfer of Exchangeable Sharesby holders to Exchangeco on the liquidation, dissolutionor winding-up of Exchangeco;
(v) the issuance and intra-group transfersof HEARx Common Shares and related issuances of Class ASpecial Shares and/or shares of HEARx affiliates in considerationtherefor, all by and between HEARx and its affiliates, toenable Callco to deliver HEARx Common Shares to holdersof Exchangeable Shares in connection with Callco's exerciseof its overriding liquidation call right and the subsequentdelivery thereof by Callco upon the exercise of such overridingliquidation call right;
(w) the transfer of Exchangeable Sharesby holders to Callco upon Callco exercising its overridingliquidation call right;
(x) upon the exercise of the change-in-lawcall right by HEARx: (i) if HEARx effects the share change,the issuance and delivery of HEARx Common Shares by HEARxto holders of Exchangeable Shares; (ii) if Callco effectsthe share exchange at HEARx's direction, the issuance andintra-group transfers of HEARx Common Shares and relatedissuances of shares of HEARx affiliates in considerationtherefor, all by and between HEARx and its affiliates, toenable Callco to deliver HEARx Common Shares to holdersof Exchangeable Shares in connection with the exercise ofthe parent call right, and the subsequent delivery thereofby Callco upon the exercise of such parent call right; and(iii) the transfer of Exchangeable Shares by holders toHEARx (if (i)) or Callco (if (ii)) on the exercise of acall right by HEARx;
(y) the issuance and delivery of HEARx CommonShares by HEARx to holders of Exchangeable Shares upon theexercise of the Exchange Right by such holder;
(z) the issuance and delivery of HEARx CommonShares by HEARx to holders of Exchangeable Shares pursuantto the Automatic exchange right;
(aa) the transfer of Exchangeable Sharesby a holder to HEARx upon the exercise of the Exchange Rightor the Automatic exchange right by such holder or pursuantto the Automatic exchange right;
(bb) the issuance of Exchangeable ShareRights pursuant to the Exchangeable Share Rights Plan, theissuance of Exchangeable Shares upon exercise of ExchangeableShare Rights pursuant to the Exchangeable Share Rights Planand the first trades of such Exchangeable Shares;
(cc) the first trades of Exchangeable Sharesreceived in connection with the Arrangement; and
(dd) the first trades of HEARx Common Sharesreceived in connection with the Arrangement, upon the retractionor redemption of Exchangeable Shares or otherwise receivedin connection with the trades above in this paragraph 35.
(collectively, the "Trades")
36. The fundamental investment decision tobe made by a holder of Helix Common Shares is made at thetime of the Arrangement when such holder votes in respectof the Arrangement. As a result of this decision, a holder(other than a dissenting holder) will ultimately receive ExchangeableShares or HEARx Common Shares in exchange for the Helix CommonShares held by such holder. The Exchangeable Shares (togetherwith ancillary rights) will provide certain Canadian tax benefitsto certain Canadian holders but will otherwise be substantiallythe economic and voting equivalent of the HEARx Common Shares,and as such all subsequent exchanges of Exchangeable Sharesare in furtherance of the holder's initial investment decision.As mentioned above, that investment decision will be madeon the basis of the Circular which includes the Joint ProxyStatement/HEARx Prospectus and contains prospectus-level disclosureof the business and affairs of each of HEARx and Helix andof the particulars of the Transaction and the Arrangement.
37. If not for income tax considerations,Canadian resident holders of Helix Common Shares could havereceived HEARx Common Shares without the option of receivingExchangeable Shares. The option in favour of certain Canadianresident holders of Helix Common Shares to ultimately receiveExchangeable Shares under the Arrangement will enable thoseholders of Helix Common Shares to defer certain Canadian incometax (provided a valid tax election is made) and, providedthat the Exchangeable Shares are listed on a prescribed stockexchange in Canada (which currently includes the TSX), willpermit other holders to hold property that is not "foreignproperty" under the ITA.
38. As a result of the economic and votingequivalency between Exchangeable Shares (together with certainancillary rights) and HEARx Common Shares, holders of ExchangeableShares will have a participating interest determined by referenceto HEARx, rather than Exchangeco. Accordingly, it is the informationrelating to HEARx not Exchangeco, that will be relevant toholders of HEARx Common Shares and Exchangeable Shares.
39. Coincident with the distribution of theExchangeable Shares of HEARx Common Shares, as the case maybe, HEARx shall provide or cause Exchangeco to provide toeach recipient or proposed recipient of Exchangeable Sharesor HEARx Common Shares, as the case may be, resident in Canadaa statement that, as a consequence of the requested order,Exchangeco and its insiders will be exempt from certain disclosurerequirements applicable to reporting issuers and its insidersin Canada, and specifying those requirements Exchangeco andits insiders have been exempted from and identifying the disclosurethat will be made in substitution therefor.
40. HEARx will send concurrently to all holdersof HEARx Common Shares resident in Canada all disclosure materialfurnished to holders of HEARx Common Shares resident in theUnited States including, without limitation, copies of itsannual financial statements and all proxy solicitation materials.
41. For tax reasons, it is anticipated thatsubject to applicable law, Callco is likely to exercise theRedemption, Retraction and Liquidation Call Rights availableon each occasion when such rights become exercisable.
42. It may be desirable for Exchangeco topurchase from Callco, from time to time or once all ExchangeableShares have been acquired from holders thereof (other thanHEARx and its affiliates), the Exchangeable Shares held byCallco as a result of the exercise of these rights.
43. The purchase price to be paid by Exchangecoto Callco for the Exchangeable Shares would be the fair marketvalue of the Exchangeable Shares on the date of purchase andthe purchase price would be satisfied by the issue of commonshares or preferred shares of Exchangeco.
44. It is intended that Exchangeco will immediatelycancel any Exchangeable Shares it purchases from Callco.
AND WHEREAS pursuant to the System, thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfiedthat the test contained in the Legislation that provides theDecision Maker with the Jurisdiction to make the Decision hasbeen met;
THE DECISION of the Decision Makers underthe Legislation is that :
1. the Registration Requirements and the ProspectusRequirements shall not apply to the Trades provided that:
(a) the first trade in Exchangeable Sharesacquired in connection with the Arrangement shall be deemedto be a distribution or primary distribution to the publicunder the Legislation of the Jurisdiction in which the tradetakes place (the "Applicable Legislation"), unless:
(i) except in Québec,
(A) the conditions in subsections (3)or (4) of section 2.6 of Multilateral Instrument 45-102("MI 45-102") are satisfied; and providedfurther that, in determining the period of time thatExchangeco has been a reporting issuer for the purposesof section 2.6 of MI 45-102, the period of time thatHelix has been a reporting issuer may be included; or
(B) where such first trade is a controldistribution as such term is defined in MI 45-102, suchtrade is made in compliance with section 2.8 of MI 45-102;and provided further that, in determining the periodof time that Exchangeco has been a reporting issuerfor the purposes of section 2.8 of MI 45-102, the periodof time that Helix has been a reporting issuer may beincluded; and the period of time that a holder of ExchangeableShares (or an affiliated or controlled entity of suchholder) held Helix common shares shall be included inthe calculation of the hold period);
(ii) in Québec, to the extent thatthere is no exemption available from the RegistrationRequirements and the Prospectus Requirements in respectof any of the Trades, the Trades are not subject to theRegistration Requirements and the Prospectus Requirements,provided that the issuer or one of the parties to theArrangement (including, for greater certainty, Helix)is and has been a reporting issuer in Québec ingood standing for the twelve months immediately precedingthe Trades (and for the purpose of determining the periodof time that the issuer or one of the parties to the Arrangementshas been a reporting issuer in Québec, the periodof time that Helix was a reporting issuer may be included);and no unusual effort is made to prepare the market orto create a demand for the Exchangeable Shares; and
(b) the first trade in HEARx Common Sharesacquired in connection with the Arrangement shall be deemedto be a distribution or primary distribution to the publicunder the Legislation unless, at the time of the trade:
(i) except in Québec,
(A) if HEARx is a reporting issuer inany Jurisdiction listed in Appendix B to MI 45-102 otherthan Québec, the conditions in subsections (3)or (4) of section 2.6 of MI 45-102 are satisfied; andfor the purpose of determining the period of time thatHEARx has been a reporting issuer under section 2.6,the period of time that Helix has been a reporting issuermay be included; or
(B) if HEARx is not a reporting issuerin any Jurisdiction other than Québec, such firsttrade is made through an exchange, or a market, outsideof Canada; and
(ii) in Québec, to the extent thatthere is no exemption available from the RegistrationRequirements and Prospectus Requirements in respect ofany of the Trades, the Trades are not subject to the RegistrationRequirements and the Prospectus Requirements, providedthat HEARx or one of the parties to the Arrangement (including,for greater certainty, Helix) is and has been a reportingissuer in Québec in good standing for the twelvemonths immediately preceding the Trades (and for the purposeof determining the period of time that the issuer or oneof the parties to the Arrangements has been a reportingissuer in Québec, the period of time that Helixwas a reporting issuer may be included); and no unusualeffort is made to prepare the market or to create a demandfor the HEARx Common Shares.
2. The Continuous Disclosure Requirementsand the Insider Reporting Requirements contained in the Legislationapplicable in Alberta, Ontario and Québec shall notapply to Exchangeco or any insider of Exchangeco, so longas:
(a) HEARx sends to all holders of ExchangeableShares resident in Canada contemporaneously all disclosurematerial furnished to holders of HEARx Common Shares residentin the United States, including, without limitation, copiesof its annual and interim financial statements and all proxysolicitation materials;
(b) HEARx files with each Decision Makercopies of all documents required to be filed by it withthe United States Securities and Exchange Commission underthe United States Securities Exchange Act of 1934,as amended, including, without limitation, copies of anyForm 10-K, Form 10-Q, Form 8-K and proxy solicitation materialprepared in connection with HEARx's shareholders meetingsand all such filings are made under Exchangeco's SEDAR profileand the filing fees which would otherwise be payable byExchangeco in connection with such filings are paid;
(c) HEARx complies with the requirementsof the AMEX in respect of making public disclosure of materialinformation on a timely basis and forthwith issues in Canadaand files with each Decision Maker any press release thatdiscloses a material change in HEARx's affairs;
(d) Exchangeco complies with the requirementsof the Legislation to issue press releases and file reportsregarding material changes in the affairs of Exchangecothat would be material to holders of Exchangeable Sharesbut would not be material to holders of HEARx Common Shares;
(e) coincident with the distribution ofthe Exchangeable Shares or HEARx Common Shares, as the casemay be, HEARx shall provide or cause Exchangeco to provideto each recipient or proposed recipient of ExchangeableShares or HEARx Common Shares, as the case may be, residentin Canada a statement that, as a consequence of the requestedorder, Exchangeco and its insiders are exempt from certaindisclosure requirements applicable to reporting issuersand its insiders in Canada, and specifying those requirementsExchangeco and its insiders have been exempted from andidentifying the disclosure that will be made in substitutiontherefor;
(f) HEARx includes in all future mailingsof proxy solicitation materials to holders of ExchangeableShares a clear and concise statement explaining the reasonfor the mailed material being solely in relation to HEARxand not in relation to Exchangeco, such statement to includea reference to the economic equivalency between the ExchangeableShares and HEARx Common Shares and the right to direct votingat HEARx meetings pursuant to the Voting and Exchange TrustAgreement;
(g) HEARx remains the direct or indirectbeneficial owner of all the issued and outstanding votingsecurities of Exchangeco, until no Exchangeable Share isoutstanding (except those held by HEARx or affiliates ofHEARx);
(h) Exchangeco does not issue any securitiesto the public other than the Exchangeable Shares in connectionwith this Arrangement;
and with respect to relief from complying withInsider Reporting Requirements, further provided that:
(i) such insider of Exchangeco does notreceive or have access to, in the ordinary course, informationas to material facts or material changes concerning HEARxbefore the material facts or material changes are generallydisclosed;
(j) such insider of Exchangeco is not adirector or senior officer of (i) HEARx or (ii) a "majorsubsidiary" of HEARx, as such term is defined in NationalInstrument 55-101: Exemptions from Certain Insider ReportingRequirements, as if HEARx was a reporting issuer; and
(k) such insider of Exchangeco is not aninsider of HEARx in a capacity other than as a directoror senior officer of a subsidiary of HEARx that is not amajor subsidiary of HEARx, as if HEARx were a reportingissuer.
July 10, 2002.
"Stéphane Garon"