MEMORANDUM OF UNDERSTANDING
MDS INC., a corporation incorporated under the laws of the
Province of Canada
(hereinafter called "MDS")
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HEMOSOL INC., a corporation incorporated under the laws of the
Province of Ontario
(hereinafter called "Hemosol")
WHEREAS MDS is a holder of securities in the capital of Hemosol;
AND WHEREAS Xxxxxxx wishes to borrow Cdn.$20 million (the "Loan") from a
Canadian chartered bank or other suitable institutional lender (the "Lender"),
the proceeds of which shall be deployed to, among other things, pay for ongoing
clinical trials of its flagship product, HEMOLINK (TM) and complete
construction of its Meadowpine manufacturing facility.
AND WHEREAS MDS is prepared to assist Xxxxxxx in obtaining such Loan on
favourable terms by guaranteeing all of the obligations of Hemosol to the Lender
in respect of the Loan.
AND WHEREAS the intention of this memorandum of understanding ("MOU") is to set
out the principal terms and conditions pursuant to which MDS is prepared to
guarantee the obligations of Hemosol to the Lender in respect of the Loan.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained
in this MOU and other good and valuable consideration (the receipt and adequacy
of which is hereby acknowledged by the parties hereto), the parties hereto agree
as set forth below.
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1. BORROWING
1.1 Hemosol will seek to borrow $20 million from the Lender and
the obligations of Hemosol in connection with the Loan will be secured by a
fixed and floating first charge in favour of the Lender over all the real and
personal property assets of Hemosol (the "Security"). The Loan shall have a term
of 18 months and, subject to Hemosol obtaining all requisite approvals to
issuing the additional warrants referred to in paragraph 2.1, up to 30 months,
the last business day of such term being referred to herein as the "Latest
Repayment Date".
1.2 The obligations of Hemosol under the Loan will be collaterally
secured by a guarantee from MDS in favour of the Lender (the "Guarantee"). The
Guarantee shall be in the form customarily used by the Lender, the terms of
which shall include however, but not be limited to, full rights of subrogation
in favour of MDS.
2. GUARANTEE FEE
2.1 In consideration of providing the Guarantee, Hemosol shall
cause to be issued to MDS warrants entitling the holder, subject to the
satisfaction of the requirements set out in sections 2.2 and 2.3, to subscribe
for and purchase up to 6,000,000 fully paid and non-assessable common shares of
Hemosol ("Shares") (subject to customary adjustments including, but not limited
to, any subdivision or consolidation of the common shares of Hemosol) at a price
per Share of Cdn. $1.00 (the "Warrants"). In addition, to the extent Hemosol
wishes to extend the Loan from 18 months to 30 months, Hemosol shall issue to
MDS up to an additional four million warrants, at $1.00 per Warrant, on the
terms set forth in paragraph 2.3 and shall obtain all requisite approvals,
including TSX listing approval, prior to the end of the first 18 month period.
2.2 Warrants entitling MDS to purchase up to 5,000,000 Shares at a
price of Cdn. $1.00 per Share shall be exercisable, in whole or in part, at any
time and from time to time, on or after the date upon which the Guarantee is
delivered by MDS to the Bank in connection with the Loan (the "Funding Date")
and prior to the later of:
(a) the third anniversary of the Funding Date; and
(b) if the Loan is not repaid within 15 months of the Funding
Date, the earlier of twelve months following the date upon
which the Loan is repaid in full and the fifth anniversary of
the Funding Date.
2.3 For each whole or part month that the Loan remains outstanding
beyond 15 months (the "Fifteenth Month of the Term") (to a maximum of an
additional 15 months) (each such whole or part month being an "Extension
Month"), MDS may exercise Warrants entitling it to subscribe for up to the
number of Shares set forth in Table 1 below (it being acknowledged that the
warrants set forth in months 4 through 15 are subject to the TSX listing
approval as set
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forth in paragraph 2.1 hereof) and such Warrants may be exercised at any time
and from time to time during the period from and after the first day of the
subject Extension Month and prior to the third anniversary of such date provided
in no event shall any Warrants be exercisable after the fifth anniversary of the
Funding Date..
TABLE 1
MONTHS LOAN IS OUTSTANDING NUMBER OF ADDITIONAL WARRANTS BECOMING
BEYOND FIFTEENTH MONTH OF THE TERM EXERCISABLE
1 333,333
2 333,333
3 333,333
4 333,333
5 333,333
6 333,334
7 333,333
8 333,333
9 333,333
10 333,333
11 333,333
12 333,333
13 333,333
14 333,333
15 333,337
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TOTAL 5,000,000
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2.4 If the Loan is extended beyond the Fifteenth Month of the Term
and Hemosol repays in full all amounts owed under the Loan in any month prior to
the Latest Repayment Date, no Warrants, in excess of those which are already
exercisable as of the end of the month in which the Loan is repaid in full shall
be exercisable.
3. CONDITIONS
3.1 The conditions precedent to the provision of the Guarantee by
MDS are the following:
(a) MDS and its legal counsel must have sufficient opportunity to
review and must ultimately approve, in form and substance, all
documentation relating to the Loan including, without
limitation, the loan agreement and all documentation relating
to the Security and the Warrants;
(b) MDS and its legal counsel must be satisfied with the form and
substance of the Guarantee which shall provide, without
limiting the generality of the foregoing, that MDS has full
rights of subrogation upon MDS paying to the Lender all
amounts outstanding in connection with the Loan at the time
the Guarantee is called upon, and the Loan and Guarantee
transactions are in compliance with OSC Policy 61-501 and the
Shares issuable upon exercise of the Warrants shall be subject
to a hold period of no more than twelve (12) months;
(c) MDS shall receive an opinion from legal counsel to Hemosol
confirming, among other things, that there are no security
interests in, or other encumbrances on title to, any of the
real property assets of Hemosol that rank in priority to the
security interest in such assets granted to the Lender as
security for the Loan. MDS shall receive a search report from
legal counsel to Hemosol confirming, subject to customary
limitations with respect to the accuracy, completeness and
currency of the records of public registries, that: (i) with
the exception of financing statements registered in respect of
assets leased by Xxxxxxx from a secured creditor, there are no
secured parties with a financing statement registered in the
Ontario Personal Property Registry (the "PPSR") registered in
priority to the financing statement registered in the PPSR in
favour of the Lender; (ii) with the exception of a notice of
intention to grant special security registered in favour of
the Lender, there are no banks with a notice of intention to
grant special security registered against Hemosol under the
Bank Act (Canada); and (iii) there are no executions
registered against the personal property of Hemosol in the
land registry offices in those countries in which Hemosol has
located any personal property;
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(d) the approval and consent of the Toronto Stock Exchange in
respect of the issuance of the Warrants (other than the
4,000,000 warrants to be issued in the event the loan is
extended from 18 to 30 months which listing approval shall be
obtained at the time of such extension), must be received;
(e) no material adverse change shall have occurred with respect to
Hemosol between the time of execution of this MOU and the date
upon which MDS is required to execute and deliver the
Guarantee;
(f) Hemosol shall have obtained all necessary third party,
shareholder, director and regulatory consents required in
connection with the transactions contemplated herein; and
(g) any such other conditions as are commercially reasonable and
customary in transactions similar to those contemplated
herein.
4. EXPENSES
4.1 Hemosol shall pay, or cause to be paid, all reasonable fees
(including, but not limited to, all legal and documentation fees) and expenses
incurred by MDS in connection with the preparation of this MOU, the Loan, the
Guarantee, the Security and any other documentation relating to the transaction
contemplated herein as well as the reasonable expenses of MDS in connection with
the enforcement of its rights, all whether or not documentation relating to the
Loan is promptly executed or any amounts are advanced thereunder.
5. CONFIDENTIALITY AND PUBLIC DISCLOSURE
5.1 Except as otherwise agreed by MDS and Xxxxxxx , neither MDS
nor Hemosol will disclose the existence of any details of this MOU or the
transaction contemplated herein to any party other than their respective
directors, officers and advisors who have a need to know and to the Lender and
its advisors who have agreed to maintain such information in confidence, until
such time as required by applicable laws or regulations.
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6. ASSIGNMENT
6.1 Neither MDS nor Hemosol shall be permitted to assign all or
any portion of its right or obligations hereunder.
DATED on the 22nd day of October, 2002.
MDS INC.
By: /s/ XXXXX XXXXX
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HEMOSOL INC.
By: /s/ XXX XXXXXXXX
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[LETTERHEAD OF MDS INC.]
December 29, 2003
Xxx Xxxxxxxx
President and Chief Executive Officer
Hemosol Inc.
0000 Xxxxxxxxxx Xxxx.
Mississauga, ON L5N 8H9
AMENDMENT TO MEMORANDUM OF UNDERSTANDING
Reference is made to a memorandum of understanding (the "MOU")
dated October 22, 2002 between MDS Inc. ("MDS"), and Hemosol Inc. ("Hemosol"),
which sets out the principal terms and conditions on which MDS agreed to
guarantee all present and future debts and liabilities owing by Hemosol to The
Bank of Nova Scotia under a $20,000,000 non-revolving credit facility.
In consideration of the mutual promises herein made and for
other good and valuable consideration hereby acknowledged by the parties to be
adequate, the MOU is hereby amended as follows:
1. The phrase "The Loan shall have a term of 18 months and,
subject to Hemosol obtaining all requisite approvals to issuing the additional
warrants referred to in paragraph 2.1, up to 30 months..." in paragraph 1.1
under section 1 entitled "BORROWING" of the MOU is hereby deleted and replaced
with the following phrase:
"The Loan shall have a term which shall terminate on October 1, 2004
and, subject to Hemosol obtaining all requisite approvals to issuing
the additional warrants referred to in paragraph 2.1, up to May 25,
2005...".
2. The last sentence of paragraph 2.1 in section 2 entitled
"GUARANTEE FEE" of the MOU is hereby deleted and replaced with the following:
"Hemosol agrees to use its reasonable commercial efforts to obtain all
requisite approvals, including TSX listing approval, to issue, and,
upon receipt of all such approvals, shall issue, to MDS on or after May
25, 2004, but by August 25, 2004, an additional four million Warrants,
at $1.00 per Warrant, on the terms set forth in paragraph 2.3. In
addition, upon receipt of all such approvals for and the issuance of
such additional four million Warrants by August 25, 2004, the term of
the
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Guarantee shall be extended from October 21, 2004 to June 20, 2005
automatically and without any further action required by either Hemosol
or MDS. In the event that such four million additional Warrants are not
issued to MDS (with all such approvals having been obtained) by August
25, 2004 and the term of the Guarantee is not extended beyond October
21, 2004, Hemosol shall have no further obligation to issue any such
additional Warrants."
3. The phrase "(other than the 4,000,000 warrants to be issued in
the event the loan is extended from 18 to 30 months..." in paragraph 3.1(d)
under section 3 entitled "CONDITIONS" of the MOU is hereby deleted and replaced
with the following phrase:
"(other than the additional 4,000,000 warrants to be issued, subject to
receipt of all such approvals, by August 25, 2004 and which will result
in the extension of the loan from October 1, 2004 to May 25, 2005...".
Except as expressly amended pursuant to this amending letter,
the MOU shall remain in full force and effect and without modification and the
MOU, together with this amending letter, constitutes the entire agreement of the
parties hereto with respect to the subject matter therein and herein contained.
This amending letter may be executed in one or more counterparts each of which
shall be deemed an original and all of which when taken together shall
constitute one and the same instrument. This amending letter shall be effective
as of September 30, 2003.
Your execution of this amending letter in the space indicated
below shall constitute your agreement with the provisions hereof.
Yours very truly,
MDS INC.
by /s/ J.A.H. XXXXXX
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Name: J.A.H. Xxxxxx
Title: SVP & CFO
We hereby agree with and accept the provisions of this
amending letter effective as of September 30, 2003.
HEMOSOL INC.
by /s/ XXX XXXXXXXX
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Xxx Xxxxxxxx
President and Chief Executive Officer
