-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B9IQ9yUWpyXQTCQzK9DfUtHBVMvDRYVVjNvL758P8ZcSx+f2EMYhVb5GALnlKT9L CNwQXkMZ5qIkvvepGCmxwg== 0001012410-01-000008.txt : 20010205 0001012410-01-000008.hdr.sgml : 20010205 ACCESSION NUMBER: 0001012410-01-000008 CONFORMED SUBMISSION TYPE: PRE 14C PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICHOR CORP CENTRAL INDEX KEY: 0000927761 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 251741849 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14C SEC ACT: SEC FILE NUMBER: 000-25132 FILM NUMBER: 1520613 BUSINESS ADDRESS: STREET 1: 400 BURRARD STREET SUITE 1250 CITY: VANCOUVER BRITISH CO STATE: A1 ZIP: 15146 BUSINESS PHONE: 6046835767 MAIL ADDRESS: STREET 1: 300 OXFORD DR CITY: 400 BURRARD STREET S STATE: A1 ZIP: 15146 FORMER COMPANY: FORMER CONFORMED NAME: PDG REMEDIATION INC DATE OF NAME CHANGE: 19940801 PRE 14C 1 0001.txt SCHEDULE 14C INFORMATION STATEMENT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14C INFORMATION Proxy Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 (Amendment No. ) ---- Check the appropriate box: [x] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) [ ] Definitive Information Statement ICHOR CORPORATION (Name of Registrant as Specified in its Charter) Payment of Filing Fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: THE REGISTRANT EXPECTS TO RELEASE THE DEFINITIVE INFORMATION STATEMENT TO SECURITYHOLDERS ON OR ABOUT FEBRUARY 12, 2001 2 ICHOR CORPORATION 17 Dame Street Dublin 2 Ireland INFORMATION STATEMENT --------------------- This Information Statement is being mailed to the shareholders of record on January 19, 2001 of ICHOR Corporation ("ICHOR"), commencing on or about February , 2001, in connection with the prior approval, on January 19, 2001, by the board of directors (the "Board") of ICHOR, of the corporate action referred to below and its subsequent adoption, also on January 19, 2001, by the holders of a majority of the shares (the "Common Shares") of common stock, $0.01 par value per share of ICHOR outstanding. Accordingly, all necessary corporate approvals in connection with the matters discussed herein have been obtained, and this Information Statement is furnished solely for the purpose of informing shareholders of ICHOR and including information under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), of the matters discussed herein. For this reason, ICHOR is not calling a special meeting of the shareholders in respect of the corporate action referred to below and is not asking shareholders for a proxy or consent. The total number of Common Shares outstanding on January 19, 2001 was 8,165,830. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. ICHOR, as authorized by the necessary approvals of the Board and the holders of a majority of the outstanding Common Shares of ICHOR, has approved the adoption of an amendment (the "Amendment") to the Certificate of Incorporation of ICHOR to increase the authorized number of Common Shares of ICHOR from 30,000,000 to 80,000,000. Specifically, Section 4 of the Certificate of Incorporation of ICHOR will be amended to read as follows: "4. The total number of shares of all classes of stock which the Corporation shall have authority to issue is Eighty-Five Million (85,000,000) shares, of which Five Million (5,000,000) shares shall be preferred stock, $.01 par value, and Eighty Million (80,000,000) shares shall be common stock, $.01 par value. The preferred stock of the Corporation may be issued from time to time in one or more series. The Board of Directors is expressly authorized, in a resolution or resolutions providing for the issue of such preferred stock, to fix, state and express the powers, rights, designations, preferences, qualifications, limitations and restrictions thereof and to fix the number of shares of such series. Except as otherwise provided by law, the shares of stock of the Corporation, regardless of class, may be issued by the Corporation from time to time in such amounts, for such consideration and for such corporate purposes as the Corporation's Board of Directors may from time to time determine." The Amendment was adopted to facilitate the issuance of approximately 33,311,398 Common Shares and securities convertible into Common Shares of ICHOR to certain shareholders of Hippocampe S.A. ("Hippocampe") in consideration for the direct and indirect 3 transfer to ICHOR of approximately 99.9% of the outstanding shares of Hippocampe (the "Share Exchange") pursuant to two share exchange agreements (the "Share Exchange Agreements") dated for reference December 13, 2000. The Amendment is scheduled to take place on or about March , 2001, but no earlier than 20 days from the date this Information Statement is first sent to ICHOR's shareholders. ICHOR expects that the Share Exchange will be effectuated shortly following the Amendment. Final closing of the Share Exchange will be publicly announced by ICHOR, and updated information, if any, concerning the Share Exchange will be provided in a Form 8-K to be filed by ICHOR after the closing. Hippocampe is a privately-held research and development company engaged in fundamental and applied research in the area of human and veterinary biology and medicine, with a particular emphasis on humanitarian aspects (i.e., retroviral pathogenesis, such as AIDS, oncogenesis and transplantation). The date of this Information Statement is January 31, 2001. 2 4 FORWARD-LOOKING STATEMENTS Certain statements included in this Information Statement are "forward- looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Information Statement and can be identified by words such as "estimates", "projects", "expects", "intends", "believes", "plans", or their negatives or other comparable words. Forward-looking statements are not guarantees and may involve risks and uncertainties. Actual results could differ materially from those expressed or implied in the forward-looking statements. Actual results may differ materially from those expressed or implied in the forward-looking statements. Actual results may differ materially from those expressed in the forward-looking statements due to risks facing operations or due to actual facts differing from the assumptions underlying certain predictions. EXCHANGE RATES Certain monetary amounts in this Information Statement are expressed in Euros (E). The following table sets out the exchange rates for the conversion of Euros into U.S. dollars as at the end of each of the following periods, the average exchange rates (based on the average exchange rates on the last day of each month in such periods) and the range of high and low exchange rates for such periods.
Year Ended Nine Months Ended December 31, September 30, -------------- -------------------------- 1999 1999 2000 -------------- -------- -------- End of the period 1.0045 1.0665 0.8765 High for the period 1.1791 1.1791 1.0388 Low for the period 1.0015 1.0124 0.8476 Average for the period 1.0590 1.0720 0.9322
The Euro did not exist prior to January 1, 1999. On January 19, 2001, the rate of exchange for the conversion of Euros into U.S. dollars was E1 = U.S.$0.9399. 3 5 INDEX TO THE INFORMATION STATEMENT Item Page - ---- ---- Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Comparative Unaudited Per Share Data . . . . . . . . . . . . . . . . . 8 Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . 10 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 13 Quantitative and Qualitative Disclosures About Market Risk . . . . . . 15 Description of the Amendment . . . . . . . . . . . . . . . . . . . . . 16 Description of the Share Exchange. . . . . . . . . . . . . . . . . . . 18 Related Party Transactions and Interest of Certain Persons in Matters to be Acted Upon . . . . . . . . . . . . . . . . . . . . . . 24 Description of ICHOR . . . . . . . . . . . . . . . . . . . . . . . . . 25 Description of Hippocampe. . . . . . . . . . . . . . . . . . . . . . . 26 Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Market for Common Equity and Related Stockholder Matters . . . . . . . 37 Security Ownership of Certain Beneficial Owners and Management . . . . 38 Unaudited Pro Forma Condensed Combined Financial Information . . . . . 40 Additional and Available Information . . . . . . . . . . . . . . . . . 46 Incorporation of Certain Documents by Reference. . . . . . . . . . . . 46 Exhibit 1.1 - Certificate of Amendment of Certificate of Incorporation of ICHOR Corporation Exhibit 1.2 - Share Exchange Agreement dated for reference December 13, 2000 between ICHOR Corporation and certain shareholders of Hippocampe S.A. (Agreement A) Exhibit 1.3 - Share Exchange Agreement dated for reference December 13, 2000 between ICHOR Corporation and certain shareholders of Hippocampe S.A. (Agreement B) Exhibit 1.4 - Underwriting Agreement dated for reference July 24, 2000 between Hippocampe S.A. and MFC Merchant Bank S.A. Exhibit 1.5 - Credit Facility Agreement dated for reference July 27, 2000 between Hippocampe S.A. and MFC Merchant Bank S.A. Exhibit 1.6 - Assignment Agreement dated for reference December 29, 2000 among ICHOR Corporation, Hippocampe S.A. and MFC Merchant Bank S.A. Exhibit 1.7 - Annual Report on Form 10-K of ICHOR Corporation for the year ended December 31, 1999 Exhibit 1.8 - Quarterly Report on Form 10-Q of ICHOR Corporation for the quarterly period ended September 30, 2000 Exhibit 1.9 - Financial Statements of Hippocampe S.A. 4 6 SUMMARY The following is a brief summary of certain information contained elsewhere in this Information Statement. This summary is not intended to be complete and is qualified in its entirety by the more detailed information contained in this Information Statement and in the Exhibits hereto, to which reference is made for a complete statement of the matters discussed below. Capitalized terms used and not defined in this summary have the meaning set forth elsewhere in this Information Statement. You are urged to read this Information Statement and the Exhibits hereto in their entirety. The Amendment - ------------- We have approved the adoption of the Amendment to our Certificate of Incorporation to increase the authorized number of our Common Shares from 30,000,000 to 80,000,000. See "Description of the Amendment". A copy of the Certificate of Amendment of our Certificate of Incorporation to effect the increase in the authorized number of our Common Shares is attached as Exhibit 1.1. Approval of the Amendment and the Share Exchange - ------------------------------------------------ The Amendment was approved by unanimous written consent of the Board on January 19, 2001. The Amendment was also approved by the written consent of the holders of approximately 88.4% of the outstanding Common Shares on January 19, 2001, pursuant to Section 228 of the Delaware General Corporation Law. Delaware law requires approval of the Amendment by a majority of the outstanding Common Shares. See "Description of the Amendment". The Share Exchange and the Share Exchange Agreements were approved by the Board and did not require submission to you under Delaware law. See "Description of the Share Exchange - The Share Exchange Agreements". Purpose of the Amendment - ------------------------ Effective December 13, 2000, we entered into the Share Exchange Agreements to, directly and indirectly, acquire approximately 99.9% of the outstanding shares of Hippocampe in consideration of an aggregate of approximately 33,311,398 of our Common Shares and securities convertible into our Common Shares. The Share Exchange is subject to certain conditions customary for transactions of its nature including, among other things, that we receive shareholder approval to increase our authorized share capital to a level necessary to complete the Share Exchange. We currently have only 30,000,000 authorized Common Shares, of which 8,165,830 are issued and outstanding. Accordingly, the Amendment was adopted to facilitate the issuance to certain shareholders of Hippocampe of our Common Shares and securities convertible into our Common Shares and to satisfy the afore- mentioned condition of the Share Exchange. See "Description of the Amendment" and "Description of the Share Exchange". After giving effect to the Share Exchange, including giving effect to the Common Shares or share purchase warrants to be issued to MFC Merchant Bank S.A. ("MFC Bank"), a licensed Swiss Bank of Geneva, Switzerland, pursuant to certain agreements (the "Bank Agreements") made between Hippocampe and MFC Bank, Hippocampe shareholders will own approximately 5 7 66.3% of our issued and outstanding Common Shares on a diluted basis. See "Description of the Share Exchange". The Amendment and the Closing of the Share Exchange - --------------------------------------------------- We expect to file a Certificate of Amendment of our Certificate of Incorporation to effect the increase in the authorized number of our Common Shares on or about March , 2001, but no earlier than 20 days from the date this Information Statement is first sent to you. See "Description of the Amendment". We expect that the Share Exchange will be effectuated shortly following the Amendment to increase the authorized number of our Common Shares. See "Description of the Share Exchange". Share Exchange Parties - ---------------------- We are a corporation organized under the laws of the State of Delaware with an office address at 17 Dame Street, Dublin 2, Ireland (tel.: 3531-679- 1688). We are a publicly traded company with our Common Shares quoted on the Over-the-Counter Bulletin Board (the "OTC Bulletin Board") operated by the National Association of Securities Dealers, Inc. See "Description of ICHOR". Hippocampe is a privately-held corporation organized under the laws of France with an office address at 52, Chanoine Cartellier, F-69230 Saint-Genis- Laval, France (tel.: 334-72-39-52-09). Hippocampe is a research and development company engaged in fundamental and applied research in the area of human and veterinary biology and medicine, with a particular emphasis on humanitarian aspects (i.e., retroviral pathogenesis, such as AIDS, oncogenesis and transplantation). See "Description of Hippocampe". Related Party Transactions and Interest of Certain Persons in Matters to be Acted Upon - ------------------------------------------------------------------------- Pursuant to the Bank Agreements and in connection with the provision of a credit facility to Hippocampe, and acting as an advisor in relation to the Share Exchange and other matters, MFC Bank has received and will receive certain fees, including 2,017,854 of our Common Shares to be issued upon the closing of the Share Exchange and share purchase warrants which, upon the closing of the Share Exchange, will entitle MFC Bank to purchase up to approximately 6,730,599 of our Common Shares, subject to final adjustment, for a period expiring on July 31, 2003. MFC Bank is a wholly-owned subsidiary of MFC Bancorp Ltd., which currently, directly and indirectly, owns approximately 43.7% of our outstanding Common Shares. Michael J. Smith, our Secretary, is the President, Chief Executive Officer and a director of MFC Bancorp Ltd. See "Related Party Transactions and Interest of Certain Persons in Matters to be Acted Upon". Appraisal Rights - ---------------- You are not entitled to appraisal rights under the Delaware General Corporation Law in connection with the corporate actions referred to in this Information Statement or in connection with the Share Exchange. 6 8 Regulatory Matters - ------------------ We are not aware of any federal or state regulatory requirements which must be complied with or approvals which must be obtained in connection with the Share Exchange. Tax and Accounting Treatment of the Share Exchange - -------------------------------------------------- The Share Exchange has been structured with the intent that it be tax- free to us and you for federal income tax purposes. The Share Exchange will be accounted for as a reverse purchase. See "Description of the Share Exchange - Accounting Treatment". Risk Factors - ------------ The Amendment, the Share Exchange, the business of Hippocampe and any investment in our Common Shares are subject to a number of risk factors as set forth in this Information Statement commencing on page 33. See "Risk Factors". 7 9 COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth selected comparative unaudited per share data for ICHOR on a historical and pro forma basis, giving effect to the Share Exchange as a reverse purchase, and for Hippocampe on a historical basis. The pro forma comparative unaudited per share data assumes the Share Exchange had been consummated at the beginning of the periods presented. The information set forth below is based on and derived from: * the historical financial statements and related notes of ICHOR incorporated by reference in this Information Statement from ICHOR's Annual Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, attached as Exhibits 1.7 and 1.8, respectively; * the historical financial statements and related notes of Hippocampe attached as Exhibit 1.9; and * the unaudited pro forma condensed combined financial information and related notes included elsewhere in this Information Statement. This information should be read in conjunction with such historical financial statements and unaudited pro forma condensed combined financial information and related notes. The per share data set forth below is presented for comparative purposes only and is not necessarily indicative of the future consolidated financial position, the results of the future operations or the actual results or consolidated financial position of ICHOR as the legal parent of Hippocampe that would have been achieved had the Share Exchange been consummated as of the dates or for the periods indicated. Hippocampe reports its results in Euros (E). Since the Share Exchange will be accounted for as a reverse purchase, with the continuing entity being Hippocampe, the unaudited pro forma condensed combined financial information below is reported in Euros.
ICHOR HIPPOCAMPE ------------------------- ----------- Pro Forma Historical Combined Historical ------------ ------------ ---------- ($) (E) (E) NET BOOK VALUE PER SHARE:(1) September 30, 2000 $ (0.59) E - E (59.69) DIVIDENDS DECLARED PER SHARE:(1) Nine months ended September 30, 2000 - - - Year ended December 31, 1999 - - - NET LOSS FROM CONTINUING OPERATIONS PER SHARE:(1) Nine months ended September 30, 2000 (0.03) - (26.89) Year ended December 31, 1999 (0.14) (0.01) (12.64) - ----------------- (1) Basic and diluted per share data is the same.
8 10 For Hippocampe, the total number of shares outstanding throughout the respective periods above is 7,820 shares. For ICHOR, the total number of Common Shares outstanding throughout the respective periods above is based on the weighted average Common Shares outstanding, calculated on a diluted basis, as follows:
Pro Forma Historical Combined(1) ------------ ---------------- Nine months ended September 30, 2000 4,918,770 43,495,082 Year ended December 31, 1999 4,910,386 43,486,698 - ---------------- (1) Securities exchangeable into Common Shares of ICHOR (i.e., LuxCo Preferred Shares) to be issued to certain shareholders of Hippocampe in connection with the Share Exchange have been considered to be issued and outstanding Common Shares of ICHOR.
9 11 SELECTED FINANCIAL DATA ICHOR - ----- The selected financial data of ICHOR set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and related notes of ICHOR incorporated by reference in this Information Statement from ICHOR's Annual Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, and the unaudited pro forma condensed combined financial information and related notes included elsewhere in this Information Statement. The historical financial data may not be indicative of ICHOR's future performance as a consolidated company. The financial data for the nine months ended September 30, 1999 and 2000 and the pro forma financial information was derived from unaudited financial data which includes, in the opinion of the registrant, all adjustments which are of a normal recurring nature, including those made to conform with U.S. generally accepted accounting principles, necessary to present fairly the data for such periods. Results for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. Hippocampe reports its results in Euros (E). Since the Share Exchange will be accounted for as a reverse purchase, with the continuing entity being Hippocampe, the unaudited pro forma condensed combined financial information below is reported in Euros. 10 12
Eleven Pro Forma Months Combined Year Ended Ended Year Ended Year Ended Year Ended Year Ended January 31, December 31, December 31, December 31, December 31, December 31, ----------- ------------ ------------ ------------ ------ - ------ ------------ 1996 1996 1997 1998 1999 1999 ----------- ------------ ------------ ------------ ------ - ------ ------------ ($000s, except per share amounts) (E000s, except per share amounts) (unaudited) OPERATING DATA Fee income $ - $ - $ - $ 144 $ - - E - General and administrative expenses 791 1,042 418 497 373 399 Interest expense 406 423 613 102 192 180 Loss from continuing operations (1,183) (1,320) (1,025) (178) (470) (541) Net loss (2,858) (1,399) (4,054) (178) (470) (541) COMMON SHARE DATA(1) Loss from contin- uing operations per common share (0.48) (0.51) (0.21) (0.08) (0.14) (0.01) Net loss per common share (1.16) (0.54) (0.83) (0.08) (0.14) (0.01) Cash dividends per common share - - - - - - - Weighted average common shares outstanding (000s) 2,456 2,586 4,913 4,908 4,910 43,486,698(2) BALANCE SHEET DATA Working capital 2,417 3,903 89 2,141 2,289 Total assets 5,578 5,582 2,028 3,281 2,681 Long-term obli- gations and redeemable preferred stock - 1,916 - - - - Total stockholders' equity 2,438 1,987 89 2,141 2,652
Pro Forma Combined Nine Months Nine Months Ended Ended September 30, September 30, --------------------------------- - ---------------- 1999 2000 2000 -------------- -------------- - ---------------- ($000s, except per share amounts) (E000s, except per share amounts) (unaudited) (unaudited) OPERATING DATA Fee income $ - $ - E - General and administrative expenses 289 275 364 Interest expense - - - - Income (loss) from continuing operations (126) 69 (138) Net income (loss) (126) 69 (138) COMMON SHARE DATA(1) Loss from continuing operations per common share (0.06) (0.03) (0.00) Net loss per common share (0.06) (0.03) (0.00) Cash dividends per common share - - - - Weighted average common shares outstanding (000s) 4,908 4,919 43,495,082(2) BALANCE SHEET DATA Working capital 1,055 2,721 333 Total assets 4,043 2,722 1,086 Long-term obligations and redeemable preferred stock - - 242 Total stockholders' equity 2,024 2,721 162 - ----------------------- (1) Basic and diluted common share data is the same. (2) Securities exchangeable into Common Shares of ICHOR (i.e., LuxCo Preferred Shares) to be issued to certain shareholders of Hippocampe in connection with the Share Exchange have been considered to be issued and outstanding Common Shares of ICHOR.
11 13 Hippocampe - ---------- The selected financial data of Hippocampe set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and related notes of Hippocampe. The financial data for the nine months ended September 30, 1999 and 2000 was derived from unaudited financial data which includes, in the opinion of the registrant, all adjustments, which are of a normal recurring nature, including those made to conform with U.S. generally accepted accounting principles, necessary to present fairly the data for such periods. Results for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for a full year. Hippocampe reports its results in Euros (E).
Nine Months Year Ended Ended December 31, September 30, -------------------------------- - - ---------------------- 1997 1998 1999 1999 2000 ---------- ---------- ---------- - - --------- ---------- (E, except per share amounts) (unaudited) OPERATING DATA Operating revenues E 13,721 E 41,597 E 46,631 E 17,944 E 9,567 Research and development expenses 19,958 70,239 93,902 72,984 147,618 General and administrative expenses 33,533 38,212 48,896 30,373 72,209 Loss from continuing operations (39,770) (67,616) (98,808) (85,413) (210,260) COMMON SHARE DATA(1) Loss from continuing operations per common share (5.09) (8.65) (12.64) (10.92) (26.89) Cash dividends per common share - - - - - - Weighted average common shares outstanding 7,820 7,820 7,820 7,820 7,820 BALANCE SHEET DATA Working capital (45,478) (40,153) (23,534) (114,766) (295,177) Total assets 43,497 76,852 146,167 100,996 455,999 Long-term obligations 69,669 138,394 242,209 138,394 242,209 Total stockholders' equity (90,081) (157,697) (256,505) (243,110) (466,765) - ------------------- (1) Basic and diluted common share data is the same.
12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ICHOR - ----- The management's discussion and analysis of financial condition and results of operations of ICHOR is incorporated by reference in this Information Statement from ICHOR's Annual Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000. Hippocampe - ---------- The following discussion and analysis of the financial condition and results of operations of Hippocampe should be read in conjunction with its financial statements and related notes. Hippocampe is a development stage company. It reports its results in Euros (E). Results of Operations Comparison of the Nine Months Ended September 30, 2000 to the Nine Months Ended September 30, 1999 Revenues, which consist primarily of medical products sold, decreased to E9,567 in the nine months ended September 30, 2000 from E17,944 in the nine months ended September 30, 1999. Expenses increased to E219,827 in the nine months ended September 30, 2000 from E103,357 in the nine months ended September 30, 1999. Research and development expenses increased to E147,618 in the current period from E72,984 in the comparative period of 1999. General and administrative expenses increased to E72,209 in the nine months ended September 30, 2000 from E30,373 in the comparative period of 1999. Both research and development expenses and general and administrative expenses increased as a result of an increase in research activities. Hippocampe reported a net loss of E210,260, or E26.89 per share, in the nine months ended September 30, 2000, compared to E85,413, or E10.92 per share, in the nine months ended September 30, 1999. Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998 Revenues, which consist primarily of medical products sold, increased to E46,631 in the year ended December 31, 1999 from E41,597 in the year ended December 31, 1998. Expenses increased to E142,798 in the year ended December 31, 1999 from E108,451 in the year ended December 31, 1998. Research and development expenses increased to E93,902 in the year ended December 31, 1999 from E70,239 in the comparative period of 1998. General and administrative expenses increased to E48,896 in the year ended December 31, 1999 from E38,212 in the comparative period of 1998. Both research and development expenses and general and administrative expenses increased as a result of an increase in research activities. 13 15 Hippocampe reported a net loss of E98,808, or E12.64 per share, in the year ended December 31, 1999, compared to E67,616, or E8.65 per share, in the year ended December 31, 1998. Comparison of the Year Ended December 31, 1998 to the Year Ended December 31, 1997 Revenues, which consist primarily of medical products sold, increased to E41,597 in the year ended December 31, 1998 from E13,721 in the year ended December 31, 1997. Expenses increased to E108,451 in the year ended December 31, 1998 from E53,491 in the year ended December 31, 1997. Research and development expenses increased to E70,239 in the year ended December 31, 1998 from E19,958 in the comparative period of 1997. General and administrative expenses increased to E38,212 in the year ended December 31, 1998 from E33,533 in the comparative period of 1997. Both research and development expenses and general and administrative expenses increased as a result of an increase in research activities. Hippocampe reported a net loss of E67,616, or E8.65 per share, in the year ended December 31, 1998, compared to E39,770, or E5.09 per share, in the year ended December 31, 1997. Liquidity and Capital Resources Hippocampe had cash of E190,241 at September 30, 2000, compared to E36,409 at December 31, 1999. Operating activities used cash of E116,738 in the nine months ended September 30, 2000, compared to providing cash of E15,801 in the nine months ended September 30, 1999. An increase in accounts payable and other liabilities provided cash of E87,708 in the nine months ended September 30, 2000, compared to E109,557 in the nine months ended September 30, 1999. Investing activities, consisting primarily of patent application and maintenance fees, used cash of E161,816 in the nine months ended September 30, 2000. Financing activities provided cash of E432,386 in the nine months ended September 30, 2000 as a result of borrowings pursuant to a revolving term facility. The revolving term facility is in the principal amount of up to E1.3 million and matures on August 31, 2001. At September 30, 2000, Hippocampe had borrowed an aggregate of E432,386 pursuant to this revolving term facility. Hippocampe expects that it will require substantial additional capital to continue its research and development, clinical studies and regulatory activities necessary to bring its potential products to market and to establish production, marketing and sales capabilities. 14 16 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ICHOR - ----- A discussion of the quantitative and qualitative disclosures about market risk with respect to ICHOR is incorporated by reference in this Information Statement from ICHOR's Annual Report on Form 10-K for the year ended December 31, 1999 and ICHOR's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000. Hippocampe - ---------- Hippocampe is exposed to market risk from changes in interest rates which may affect its financial condition and results of operations. Hippocampe does not enter into derivative contracts for its own account to hedge against such risk. Interest Rate Risk Fluctuations in interest rates may affect the fair value of financial instruments sensitive to interest rates. An increase in interest rates may decrease the fair value and a decrease in interest rates may increase the fair value of such financial instruments. Hippocampe has debt obligations which may be sensitive to interest rate fluctuations. The following table provides information about Hippocampe's exposure to interest rate fluctuations for the carrying amount of such debt obligations as at September 30, 2000 and expected cash flows from these debt obligations:
Expected Future Cash Flow ----------------------------- - ---------------------- Carrying Fair Year Ending September 30, Value Value 2001 2002 2003 2004 2005 Thereafter -------- ------- ------ ------ ------ ----- - - ------ ----------- (E000s) Debt obligations(1) E 432 E 432 E 432 E - E - E - - E - E - - ------------------ (1) Debt obligations consist of Hippocampe's notes payable.
15 17 DESCRIPTION OF THE AMENDMENT ICHOR has approved the adoption of an Amendment to the Certificate of Incorporation of ICHOR to increase the authorized number of Common Shares of ICHOR from 30,000,000 to 80,000,000. A copy of the Certificate of Amendment of the Certificate of Incorporation of ICHOR to effect this Amendment is attached as Exhibit 1.1. Specifically, Section 4 of the Certificate of Incorporation of ICHOR will be amended to read as follows: "4. The total number of shares of all classes of stock which ICHOR shall have authority to issue is Eighty-Five Million (85,000,000) shares, of which Five Million (5,000,000) shares shall be preferred stock, $.01 par value, and Eighty Million (80,000,000) shares shall be common stock, $.01 par value. The preferred stock of ICHOR may be issued from time to time in one or more series. The Board of Directors is expressly authorized, in a resolution or resolutions providing for the issue of such preferred stock, to fix, state and express the powers, rights, designations, preferences, qualifications, limitations and restrictions thereof and to fix the number of shares of such series. Except as otherwise provided by law, the shares of stock of ICHOR, regardless of class, may be issued by ICHOR from time to time in such amounts, for such consideration and for such corporate purposes as ICHOR's Board of Directors may from time to time determine." The Amendment was approved by unanimous written consent of the Board on January 19, 2001. The Amendment was also approved by the written consent of the holders of approximately 88.4% of the outstanding Common Shares on January 19, 2001. Pursuant to Section 228 of the Delaware General Corporation Law, corporate actions can be authorized provided shareholders holding at least a majority of the outstanding Common Shares of ICHOR on the record date consent in writing thereto. Accordingly, all necessary corporate approvals in connection with the Amendment have been obtained. For this reason, ICHOR is not calling a special meeting of the shareholders in respect of the Amendment and is not asking for a proxy or consent. The Amendment will become effective upon filing of a Certificate of Amendment of the Certificate of Incorporation of ICHOR with the Secretary of State of the State of Delaware. ICHOR expects to file a Certificate of Amendment to effect the increase in the authorized number of Common Shares of ICHOR on or about March , 2001, but no earlier than 20 days from the date this Information Statement is first sent to shareholders of ICHOR. Effective December 13, 2000, ICHOR entered into the Share Exchange Agreements to, directly and indirectly, acquire approximately 99.9% of the outstanding shares of Hippocampe in consideration of an aggregate of approximately 33,311,398 Common Shares and securities convertible into Common Shares of ICHOR. The Share Exchange is subject to certain conditions customary for transactions of its nature including, among other things, that ICHOR receives shareholder approval to increase its authorized share capital to a level necessary to complete the Share Exchange. The authorized capital stock of ICHOR is currently 30,000,000 Common Shares and 5,000,000 shares of preferred stock, $0.01 par value. Currently, 8,165,830 Common Shares are issued and outstanding. Accordingly, the Amendment to increase the authorized number of Common Shares of ICHOR was adopted to facilitate the issuance to 16 18 certain shareholders of Hippocampe of the Common Shares and securities convertible into Common Shares of ICHOR and to satisfy a condition of the Share Exchange. The additional Common Shares to be authorized by the Amendment will have rights identical to the currently outstanding Common Shares of ICHOR. Any authorized but unissued Common Shares following the completion of the Amendment and the Share Exchange will be available for issuance by the Board for such corporate purposes as the Board determines to be in the best interests of ICHOR. While the primary purpose of the increase in the authorized number of Common Shares is to facilitate the issuance of Common Shares in connection with the Share Exchange, it might be possible for the Board to issue a large number of Common Shares to impede completion of a proposed hostile merger, tender offer or other takeover attempt which some shareholders of ICHOR may at the time deem to be in their best interest. Without further shareholder approval, the Board could: * adopt a "poison pill" which would, under certain circumstances related to an acquisition not approved by the Board, give certain holders the right to acquire additional Common Shares at a low price; or * sell Common Shares in a private transaction to purchasers who would oppose a takeover or favor the current Board. Although the proposal to increase the authorized number of Common Shares has been prompted by business and financial considerations and not by the threat of any known or threatened hostile takeover attempt, shareholders should be aware that approval of this proposal could facilitate future efforts to deter or prevent changes in control of ICHOR, including transactions in which the shareholders might otherwise receive a premium for their shares over then current market prices. In addition, additional Common Shares, if issued, could reduce existing shareholders' percentage ownership and voting power and, depending on the transaction in which they are issued, could affect the per share book value or other per share financial information. The issuance of additional Common Shares, by reducing the percentage of equity of ICHOR owned by present shareholders, would reduce such present shareholders' ability to influence the election of directors or any other action taken by the holders of Common Shares and would potentially reduce per share dividends, if any. In addition, the holders of Common Shares do not have pre-emptive rights. 17 19 DESCRIPTION OF THE SHARE EXCHANGE The Share Exchange Agreements - ----------------------------- ICHOR entered into a share exchange agreement ("Agreement A") dated for reference December 13, 2000 with shareholders owning approximately 50.7% of the issued and outstanding shares of Hippocampe. Pursuant to Agreement A, such Hippocampe shareholders will, on the closing of the Share Exchange, transfer their shares of Hippocampe to ICHOR in consideration of ICHOR issuing to them Common Shares of ICHOR. A copy of Agreement A is attached as Exhibit 1.2. ICHOR also entered into a separate share exchange agreement ("Agreement B") dated for reference December 13, 2000 with shareholders owning approximately 49.2% of the issued and outstanding shares of Hippocampe. Pursuant to Agreement B, such Hippocampe shareholders will, on the closing of the Share Exchange, transfer their shares of Hippocampe to a new wholly-owned subsidiary that ICHOR will establish under the laws of Luxembourg ("LuxCo"). In exchange for their shares of Hippocampe, such Hippocampe shareholders will be issued preferred shares of LuxCo (the "LuxCo Preferred Shares") which are convertible into Common Shares of ICHOR at the option of the holder. A copy of Agreement B is attached as Exhibit 1.3. Upon the closing of the Share Exchange, ICHOR will contribute and transfer to LuxCo the shares of Hippocampe that ICHOR receives from Hippocampe shareholders under Agreement A for additional common shares of LuxCo. Upon the closing of the Share Exchange, Hippocampe will become an approximately 99.9%-owned subsidiary of LuxCo, which, in turn, will be a wholly-owned subsidiary of ICHOR. The Share Exchange and the Share Exchange Agreements were approved by the Board and did not require submission to shareholders of ICHOR under Delaware law. ICHOR expects that the Share Exchange will be effectuated shortly following the Amendment to the Certificate of Incorporation of ICHOR to increase the authorized number of Common Shares of ICHOR. The aggregate number of Common Shares and securities convertible into Common Shares of ICHOR issuable to shareholders of Hippocampe upon the closing of the Share Exchange is approximately 33,311,398 Common Shares. After giving effect to the Share Exchange, including giving effect to the Common Shares of ICHOR and share purchase warrants to be issued to MFC Bank pursuant to the Bank Agreements, Hippocampe shareholders will own approximately 66.3% of the issued and outstanding Common Shares of ICHOR on a diluted basis. All of the Common Shares and securities convertible into Common Shares of ICHOR acquired by the shareholders of Hippocampe pursuant to the Share Exchange will be subject to resale restrictions in accordance with United States federal and state securities laws. In connection with the Share Exchange, effective December 29, 2000, all of the 467,500 issued and outstanding shares of Series 1 preferred stock in the capital of ICHOR and 97,206 issued and outstanding shares of Series 2 preferred stock in the capital of ICHOR were, in aggregate, redeemed for $2,170,000 and converted for 3,247,060 Common Shares of ICHOR. 18 20 Further, ICHOR intends to seek to raise additional capital to fund working capital requirements following the Share Exchange. The additional capital may be raised prior to the closing of the Share Exchange as provided for in the Share Exchange Agreements. Reasons for the Share Exchange - ------------------------------ In approving the Share Exchange, the Share Exchange Agreements and the transactions contemplated therein, and subsequently the Amendment, the Board considered a number of factors, including, but not limited to, the following: * ICHOR currently does not have an operating business. However, ICHOR has certain value as a public company subject to the reporting requirements of the SEC; * Hippocampe is a privately-held company which is seeking to reverse merge with or be purchased by a public U.S. company in order to attempt to gain access to funding and a greater shareholder base; * The acquisition of approximately 99.9% of the shares of Hippocampe gives the shareholders of ICHOR the opportunity to participate in the biopharmaceutical and biotechnology market and to capitalize on the research and development efforts of and the patents registered by Hippocampe to date and in the future; and * The Board reviewed a range of alternative strategies that might be pursued by ICHOR and the possible values that might be achieved through those strategies and concluded that the alternative strategies were either unlikely to result in a greater value to ICHOR or its shareholders or carried greater risk than the acquisition by ICHOR of shares of Hippocampe. The foregoing discussion of the information and factors considered and given weight by the Board is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Share Exchange, the Share Exchange Agreements and the transactions contemplated therein, and subsequently the Amendment, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, individual members of the Board may have given different weights to different factors. Terms and Ancillary Agreements Relating to the LuxCo Preferred Shares - --------------------------------------------------------------------- The LuxCo Preferred Shares will rank senior to common shares of LuxCo with respect to dividends and liquidating distributions of LuxCo. However, the LuxCo Preferred Shares will be non-voting in LuxCo. All votes in respect of LuxCo will be exercised by ICHOR as the holder of all of the voting rights in the common shares of LuxCo. Notwithstanding that the LuxCo Preferred Shares are non-voting, the holders of LuxCo Preferred Shares will be permitted to vote as a class with respect to certain matters involving LuxCo. In all material respects, the LuxCo Preferred Shares will have similar rights in ICHOR as Common Shares of ICHOR, including the right to receive dividends and the right to vote at shareholder meetings of ICHOR. The rights attaching to the LuxCo Preferred Shares will be 19 21 given effect, in part, by certain agreements to be entered on the closing of the Share Exchange, including: * a shareholder agreement (the "Shareholder Agreement") between ICHOR and the holders of the LuxCo Preferred Shares providing for the support by ICHOR of the rights attaching to the LuxCo Preferred Shares; * a support agreement (the "Support Agreement") between ICHOR and LuxCo providing for the support by ICHOR of the rights attaching to the LuxCo Preferred Shares; and * a voting and exchange trust agreement (the "Voting and Exchange Trust Agreement") among ICHOR, LuxCo and a trustee providing for the voting rights of the LuxCo Preferred Shares in ICHOR. The Shareholder Agreement will provide for the following principal terms, among others: * Holders of LuxCo Preferred Shares will be entitled to receive dividends equivalent to dividends paid on the number of Common Shares of ICHOR into which such LuxCo Preferred Shares may be exchanged; * Holders of LuxCo Preferred Shares will have the right, at any time at their option, to require LuxCo to exchange their LuxCo Preferred Shares for Common Shares of ICHOR at the established exchange ratio. Since each LuxCo Preferred Share is intended to be economically equivalent to the number of Common Shares of ICHOR which it may be exchanged, the established exchange ratio will be adjusted in the event that ICHOR undertakes a stock split or consolidation, issues stock dividends or otherwise changes its share capital; * On the liquidation of LuxCo, holders of the LuxCo Preferred Shares will be entitled to exchange their LuxCo Preferred Shares for Common Shares of ICHOR at the established exchange ratio; and * LuxCo Preferred Shares will be automatically exchanged by LuxCo for Common Shares of ICHOR at the established exchange ratio on December 31, 2011, which automatic redemption date will be accelerated in certain circumstances, including: (a) if the number of outstanding LuxCo Preferred Shares falls below 5% of the number of LuxCo Preferred Shares outstanding immediately following the completion of the Share Exchange; or (b) upon the occurrence of a change of control of ICHOR. The Support Agreement will provide, among other things, for the following covenants of ICHOR: * ICHOR will not declare or pay a dividend on Common Shares of ICHOR unless LuxCo can simultaneously pay the same dividend on the LuxCo Preferred Shares, and that it will cause LuxCo to declare and pay such equivalent dividend; 20 22 * ICHOR will satisfy all exchange requests or redemptions of LuxCo Preferred Shares that will not cause LuxCo to be liquidated or dissolved and that it will not undertake a stock split or consolidation, issue stock dividends or otherwise change its share capital without adjusting the established exchange ratio with respect to the number of Common Shares of ICHOR for which LuxCo Preferred Shares may be exchanged; * ICHOR will ensure that LuxCo will have a sufficient number of Common Shares of ICHOR in the event of a liquidation of LuxCo; and * So long as there are any outstanding LuxCo Preferred Shares owned by a person other than ICHOR or its affiliates, ICHOR will remain the direct or indirect beneficial owner of all issued and outstanding voting shares in the capital of LuxCo. The Voting and Exchange Trust Agreement will provide for the following principal terms, among others: * ICHOR will issue to a trustee a single Special Voting Preferred Share of ICHOR, the terms of which will confer on the trustee that number of votes with respect to matters on which holders of Common Shares of ICHOR are entitled to vote, equal to the number of outstanding LuxCo Preferred Shares (multiplied by the established exchange ratio), other than LuxCo Preferred Shares held by ICHOR or any of its affiliates. As beneficiaries of the voting trust, the holders of LuxCo Preferred Shares will have the same right to vote in respect of meetings of holders of Common Shares of ICHOR as if they owned Common Shares of ICHOR directly; and * ICHOR will grant certain "insolvency put rights" to the holders of LuxCo Preferred Shares, including but not limited to: (a) an "automatic exchange right" that would be invoked by the commencement of the voluntary dissolution or liquidation of ICHOR, in which event the LuxCo Preferred Shares would automatically be acquired by ICHOR in exchange for the appropriate number of Common Shares of ICHOR; and (b) an "optional exchange right" that would permit the holders of LuxCo Preferred Shares, at their option upon the occurrence of certain insolvency events with respect to LuxCo, to require ICHOR to purchase the LuxCo Preferred Shares directly from the holder, for a purchase price payable in the appropriate number of Common Shares of ICHOR to the trustee in respect of the voting trust, for the benefit of the holders of LuxCo Preferred Shares in the same manner as the voting rights. The insolvency put rights will be granted by ICHOR to the trustee in respect of the voting trust, for the benefit of the holders of LuxCo Preferred Shares in the same manner as voting rights. 21 23 Representations and Warranties - ------------------------------ The Share Exchange Agreements contain various customary representations and warranties of the parties thereto, including, among others: * representations by each of the parties to the respective Share Exchange Agreements as to the authorization and the enforceability of the respective Share Exchange Agreements against each such party; * representations by ICHOR as to its corporate status, authorized capital and compliance concerning filings with the U.S. Securities and Exchange Commission (the "SEC"), as to the accuracy of its financial statements, as to the validity of certain securities to be issued by it and as to the corporate status and authorized capital of and validity of certain securities to be issued by LuxCo; and * representations by each of the shareholders of Hippocampe as to the ownership of securities of Hippocampe, the corporate status and authorized capital of Hippocampe, the accuracy of and absence of material changes in the financial statements of Hippocampe, the validity of the patents of Hippocampe and the carrying on of business in the ordinary course since December 31, 1999. The representations and warranties contained in the Share Exchange Agreements will survive the closing of the Share Exchange. Covenants - --------- The Share Exchange Agreements contain various customary covenants of the parties thereto, including, among others, that the parties will use all commercially reasonable efforts to make effective the transactions contemplated by the Share Exchange Agreements, that ICHOR will carry on and each of the shareholders of Hippocampe will cause Hippocampe to carry on business in the ordinary course, that ICHOR will not and each of the shareholders of Hippocampe will not cause Hippocampe to create or incur material liens or debt or make any material disposition of property or patents. In addition, the Share Exchange Agreements contain covenants of ICHOR to execute and deliver and, where applicable, cause LuxCo to execute and deliver the Support Agreement, the Voting and Exchange Trust Agreement and the Shareholder Agreement, and to issue to the trustee the Special Voting Preferred Share of ICHOR. Conditions - ---------- The Share Exchange is subject to certain conditions customary for transactions of this nature including, among others, that: * ICHOR receives shareholder approval to increase its authorized share capital to a level necessary to complete the Share Exchange; * the Bank Agreements, which include an underwriting agreement, attached as Exhibit 1.4, relating to MFC Bank's services as an advisor in the Share Exchange and to raise capital for Hippocampe and a credit facility agreement, attached as 22 24 Exhibit 1.5, relating to a credit facility provided by MFC Bank to Hippocampe, be duly and validly assigned and transferred to ICHOR; and * the representations and warranties of the parties are true and correct on the closing of the Share Exchange and that, as at the time of closing of the Share Exchange, the parties have complied with all covenants and agreements in the respective Share Exchange Agreements. The Bank Agreements and any share purchase warrants referenced therein were assigned by Hippocampe to ICHOR, effective upon the closing of the Share Exchange, pursuant to an assignment agreement dated for reference December 29, 2000. The assignment agreement is attached as Exhibit 1.6. Accounting Treatment - -------------------- The Share Exchange will be accounted for as a reverse purchase of the shares of Hippocampe by ICHOR in accordance with U.S. generally accepted accounting principles. The accounting treatment applied in the reverse purchase differs from the legal form of the transaction and the continuing entity is Hippocampe. 23 25 RELATED PARTY TRANSACTIONS AND INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON Pursuant to the Bank Agreements, MFC Bank acted as an advisor in the Share Exchange and will receive certain compensation in respect thereof, including 2,017,854 Common Shares of ICHOR to be issued upon the closing of the Share Exchange. MFC Bank also provided a credit facility to Hippocampe in connection with which MFC Bank has received certain fees as well as share purchase warrants which, upon the closing of the Share Exchange, will entitle MFC Bank to purchase up to approximately 6,730,599 Common Shares of ICHOR, subject to final adjustment, at an exercise price of approximately E0.2319 and for a period expiring on July 31, 2003. ICHOR will assume the rights and obligations of Hippocampe under the Bank Agreements effective upon the closing of the Share Exchange. Pursuant to the Bank Agreements, MFC Bank has agreed to attempt to raise additional capital on a best efforts basis to fund working capital requirements following the Share Exchange. MFC Bank will be paid customary fees and expenses, and will receive additional share purchase warrants, in connection with the provision of these services. MFC Bank will have a right of first refusal until 24 months after the closing of the Share Exchange on any financing and capital raising activities of ICHOR. MFC Bank will also act as the trustee under the Voting and Exchange Trust Agreement, and will be paid customary fees and expenses in relation thereto. MFC Bank is a wholly-owned subsidiary of MFC Bancorp Ltd., which currently, directly and indirectly, owns approximately 43.7% of the currently outstanding Common Shares of ICHOR. Michael J. Smith, the Secretary of ICHOR, is the President, Chief Executive Officer and a director of MFC Bancorp Ltd. 24 26 DESCRIPTION OF ICHOR Information with respect to the business of ICHOR can be obtained from ICHOR's Annual Report on Form 10-K for the year ended December 31, 1999 which is incorporated by reference in this Information Statement. As disclosed in the Annual Report on Form 10-K of ICHOR for the year ended December 31, 1999, ICHOR acquired approximately 87% of the issued and outstanding shares of common stock of Nazca Holdings Ltd. ("Nazca") effective June 30, 1999, pursuant to a purchase agreement (the "Purchase Agreement") among ICHOR and the former majority holders (the "Vendors") of the shares (the "Nazca Shares") of common stock of Nazca. Nazca, through a subsidiary, is in the business of the exploration for and development of groundwater resources in Chile. In addition, as disclosed in the Annual Report on Form 10-K of ICHOR for the year ended December 31, 1999, in 1999 two of the Vendors purported to exercise an option (the "Option") granted pursuant to the Purchase Agreement to reacquire approximately 37.6% of the Nazca Shares. ICHOR believed the attempted exercise to be invalid, as the conditions to be met prior to exercise were not satisfied. A dispute arose between the two Vendors purporting to exercise the Option and ICHOR as to the validity of the exercise of the Option. In order to settle the dispute relating to the purported exercise of the Option, effective July 28, 2000, ICHOR completed an agreement with one of the Vendors to sell all of ICHOR's interest in the Nazca Shares and certain receivables due from Nazca to ICHOR (the "Receivables"), in exchange for a promissory note from that Vendor in the amount of $600,000 which accrues interest at the rate of 5% per annum and is due on June 30, 2001. ICHOR also obtained a release from, and granted a release to, Nazca and the Vendors with respect to any claims arising out of or connected with Nazca. The consideration payable for the Nazca Shares and the Receivables is the result of a negotiated settlement of a disputed claim. ICHOR has no further interest in Nazca. For further information with respect to the settlement, including the agreement with the Vendor referred to above, see the Current Report on Form 8-K of ICHOR dated August 9, 2000. Accordingly, ICHOR does not currently have an operating business. Prior to the entering into of the Share Exchange Agreements, ICHOR's main business was the identification of a particular business or industry within which it would seek an acquisition or merger. Effective December 13, 2000, ICHOR entered into the Share Exchange Agreements with Hippocampe. 25 27 DESCRIPTION OF HIPPOCAMPE The Company - ----------- Hippocampe is a biotechnology research and development company organized in 1990 under the laws of France, with research activities coordinated in Lyon, France. Hippocampe's focus is fundamental and applied research in human and veterinary biology and medicine, with a particular emphasis on humanitarian aspects of such research (i.e., retroviral pathogenesis, such as AIDS, oncogenesis and organ transplantation). Hippocampe's current objective is to develop vaccine and therapeutic compounds and specific therapies for certain retroviral diseases or diseases with a viral autoimmune content. The first products and applications target human and animal AIDS. The basic operational strategy of Hippocampe has been to divide its main areas of research into discrete modules, each with its own scientific interest. These modules are outsourced under Hippocampe's supervision to specialized and complementary, public and private research teams. Hippocampe organizes the schedule and progress of the individual research teams to facilitate the overall development of its research goals. The research teams are authorized to co-publish their results at the appropriate time and in agreement with Hippocampe. However, Hippocampe retains all intellectual property rights on the combined research results and applies for patent protection of the research results whenever such protection is justified. Hippocampe has a limited operating history and its products are in an early stage of development. However, Hippocampe believes it has made a major finding with a new and precise molecular mimicry between a conserved part of GP41 (an HIV transmembrane protein) in a trimeric form and interleukine-2, the immune system's conductor protein. This discovery may explain that an HIV infection can trigger an immune response that turns against the immune system itself. This research indicates potential for a major link that may have a significant impact in developing animal and human AIDS vaccines and therapeutic molecules in the field of HIV and FIV infection. The key principal of Hippocampe is Dr. Pierre-Francois Serres. Dr. Serres began his career as a professor and researcher at the medical faculty of the University of Lyon in France. From 1975 and prior to starting Hippocampe, he held various teaching and research positions at French medical universities and biomedical institutes, among them the Institut Pasteur in Lyon, France. Dr. Serres founded Hippocampe in 1990. Viruses - ------- Viruses are noncellular organisms consisting of DNA or RNA and a protein coat. During the free and infectious stages of their life cycle, viruses do not carry out the usual functions of living cells, such as respiration and growth. Instead, when viruses enter a living plant, animal or bacterial cell, they make use of the host cell's chemical energy and synthesizing ability to replicate. After the replication of the viral components by the infected host cell, virus particles are released and the host cell is often destroyed. HIV The approximately 2450 viral species identified to date are divided into approximately 75 groups. The human immunodeficiency virus ("HIV") belongs to the group of retroviruses, so 26 28 named because they contain a reverse transcriptase, an enzyme that copies viral RNA back into DNA (the reverse of the usual process in which DNA is copied into RNA). Retroviruses include spumaviruses, oncoviruses (viruses causing cancers) and lentiviruses (viruses with a slow pathogenic action). HIV belongs to the subgroup of retroviruses called lentiviruses. HIV causes a disease called acquired immunodeficiency syndrome ("AIDS"). After entering into a target cell, HIV uses its reverse transcriptase to infect the cell's chromosomes. Thus, the infected cell is able to start reproducing the virus. Two types of HIV involved in AIDS, HIV1 and HIV2, have been identified. HIV2 is not as virulent as HIV1. Along with HLTV1 and HLTV2 (oncoviruses linked to leukemia), HIV1 and HIV2 are the only retroviruses that cause diseases in humans. Other AIDS-associated lentiviruses that cause diseases in animals include FIV (causing AIDS in felines), SIV (causing AIDS in monkeys) and BIV (causing AIDS in bovines). The Immune System - ----------------- The immune system has the function of protecting the body against infection and foreign substances, including viruses and bacteria. This function is carried out by white blood cells (leukocytes) and by a number of accessory cells, including B lymphocytes that produce the antibodies needed to fight infection and cytotoxic T lymphocytes that destroy cells infected with viruses. When an immunocompetent cell recognizes foreign material or a biological invader presented by macrophages, it normally induces a response. This recognition function depends on the immune system's ability to recognize specific foreign molecular configurations, generically referred to as antigens. T4 lymphocytes, as central cells of the immune system, specifically recognize foreign invaders presented by macrophages. After this specific recognition of a presented antigen, T4 lymphocytes play a major role in the immune response, producing interleukine-2 ("IL-2"), a central interleukine that activates all the accessory cells previously described and the overall immune response. Interleukin-2 IL-2 is a hormone-like substance produced by stimulated T-cells. IL-2 causes activation of other T-cells and "orchestrates" the immune response to non-host antigens. IL-2 also increases the proliferation and maturation of CD4 cells. From the early stage of HIV infection, IL-2 production gradually declines, causing the immune system to collapse. AIDS - ---- Viral Envelope of HIV The viral envelope of HIV is covered with mushroom-shaped spikes that enable the virus to attach itself to the target cell. The cap of each "mushroom" is made of three GP120 molecules and its stem of three GP41 molecules. GP160 is a glycoprotein that is the precursor of HIV envelope proteins GP120 and GP41. GP120 is a glycoprotein that protrudes from the surface of HIV and binds to the CD4 receptor of the CD4+ T-cells. In a two-step process that allows HIV to breach the membrane of 27 29 T-cells, the GP120-CD4 complex refolds to reveal a second structure that binds to CCR5 or CXCR4, two of several chemokine co-receptors used by the virus to gain entry into T-cells. GP41 is a glycoprotein embedded in the outer envelope of HIV and plays a key role in HIV's infection of cells by carrying out the fusion of the viral and cell membranes. AIDS Human AIDS is the last stage of the illness caused by the HIV virus infection. Although HIV1 is able to trigger a strong immune response with the production of antibodies and immunocompetent cells, it characteristically induces a progressive decline of the immune system leading to AIDS. The main cellular target of HIV is a special class of white blood cells critical to the immune system and known as helper T lymphocytes, or T4 helper cells. These cells play a major role in normal immune responses by stimulating or activating, by way of IL-2 production, all the other cells involved in immune protection. Once HIV has entered the helper T-cell, it can cause the cell to function poorly or even destroy the cell. As AIDS develops, non-infected T4 cells are also destroyed. As the infection progresses, the control of HIV levels by the immune system weakens, the viral level in the blood rises and the level of critical T-cells declines to a fraction of its normal value. In HIV-infected subjects, the immune system does not fulfil its function, due to a dynamic situation involving continuous infection, destruction and replacement of destroyed CD4+ cells with billions of new cells that are infected and killed each day. Essentially, the immune system enters a lengthy process of virus production, destruction and cellular regeneration. After many years of this process, the capacity to regenerate immune cells is lost in most cases, resulting in the absolute decline of the CD4 segment of the immune system and the development of full-blown AIDS. HIV can also infect other cells, including macrophages as well as certain brain, skin and liver cells. The main observed AIDS-associated disorders are: * a drop of peripheral IL-2; * a decrease of non-infected helper T lymphocytes; * lymphoproliferation disorders and microglobulin increase; and * hypergammaglobulinemia. Hippocampe's Findings: A Precise Molecular Mimicry between Trimeric GP41 - ------------------------------------------------------------------------ and IL-2 - -------- Molecular Mimicry between Trimeric GP41 and IL-2 Hippocampe has discovered a molecular mimicry between the trimeric GP41 and IL-2. The first results of Hippocampe's research were recently communicated by Pr. Luc Montagnier, an internationally recognized expert in the field of AIDS research, to the French Academy of Sciences and were published in November 2000.1 - ---------------------------- 1 Serres P.F.; 2000. Molecular mimicry between the trimeric ectodomain of the transmembrane protein of immunosuppressive lentiviruses (HIV-SIV-FIV) and interleukin 2. C.R. Acad. Sci. Paris, Sciences de la vie / Life Sciences, 323: 1019-1029. 28 30 Hippocampe has also demonstrated that the mimicry exists in three mammal species known to develop AIDS: humans, monkeys and felines. The discovered host-virus autoimmune mimicry is therefore applicable to the known human and animal AIDS-associated retroviruses. Autoimmune Consequences for HIV-Infected Subjects Hippocampe found some of the expected autoimmune consequences of the described virus-host molecular mimicry in HIV-infected subjects. As expected, HIV positive sera recognize human IL-2, and cross-reactivity was found between the structurally and physically analogous antigenic sites of GP41 (HIV1) and human IL-2. The tests included 2352 HIV positive and HIV negative sera. The results demonstrated that 100% of HIV positive patients (stage II, III, IV CDC) were positive for the anti IL-2 response. The first results were presented by Dr. Serres in an international symposium held in late November 2000 organized by the Merieux Foundation: "Autoimmunity induced by infection or immunization." The presentation was entitled: "AIDS: an immune response against the immune system. The role of a precise tridimensional molecular mimicry." Hippocampe expects these results to be published in the Journal of Autoimmunity in the Spring of 2001. Therapeutic and Vaccinal Uses of Hippocampe's Findings - ------------------------------------------------------ Current Research Objectives Hippocampe's current research modules are focused in the following four fields: * Fundamental research: Hippocampe believes that the mimicry between trimeric GP41 and IL-2 can largely explain the main AIDS- associated disorders: a drop of peripheral IL-2; a decrease of non-infected helper T lymphocytes; lymphoproliferation disorders and microglobulin increase; and hypergammaglobulinemia. Hippocampe is currently working to demonstrate that these AIDS- associated disorders are the result of the tridimensional GP41 (HIV1 and HIV2) / human IL-2 molecular mimicry. * Therapeutic molecules: Hippocampe believes that, based on the mimicry, an application involving the development of particular synthetic peptides and monoclonal antibodies (some of which have already been developed) would inhibit the fusion between the HIV virus and its target cell in an infected subject. Hippocampe's strategy is to use therapeutic molecules that would make it impossible for the virus to bind to the target cell and thus inhibit the reproduction of HIV. Applications may complement, and potentially even provide a substitute for, available antiretroviral drugs. It has been shown that the transmission of HIV depends on the viral load, and that no transmission has been observed from individuals carrying fewer than 1,500 viral copies/ml of blood. Therefore, treatment with therapeutic agents may provide a strategy to control the AIDS epidemic by abolishing or reducing transmission of HIV. * Therapeutic and preventive vaccines: Hippocampe believes that its findings may lead to novel therapeutic and preventive vaccine strategies, in both human and veterinary applications. Hippocampe believes that a preventive vaccine would be 29 31 useful against all known strains of HIV1 and HIV2 published to date. The vaccinal approach of Hippocampe relies on the precise immunological cross-reactivity observed between trimeric GP41 and the cytokine IL-2. * AIDS cartridge: Hippocampe has developed a number of therapeutic Immunocartridges that have already been tested and approved by the Ethics Committee for the Treatment of Systemic Lupus Erythematosus and Hemophilia A in France. A number of international scientific publications have described the process.2 Hippocampe's research has demonstrated that the anti IL-2 antibodies in HIV-infected subjects recognize sites on IL-2 that are crucial for its bioactivity. Therefore, Hippocampe believes that the development of an "AIDS cartridge" could be efficient in the restoration of the immune system (i.e., the CD4/CD8 and the viral load) of HIV-infected subjects. Products and Processes in Development Hippocampe has targeted four prototypes that could be exploited at a commercial level: * Human and animal therapeutic molecules (pharmacological agents) that could be administered to humans infected by HIV and felines infected by FIV in order to block the cell infection by the virus. * Human and animal therapeutic vaccines (immunotherapeutic agents) that could be administered to humans infected by HIV and felines infected by FIV in order to orient the immune system for recognizing the transmembrane glycoprotein of the virus and not the host's IL-2. * Human and animal preventive vaccines that could be administered to healthy humans and felines to prevent infection by the HIV or FIV virus. * AIDS cartridge that could selectively remove the identified immunosuppressive antibodies present in the serum of AIDS patients, using peptides that have been tested for activity. Hippocampe's Intellectual Property - Patents - -------------------------------------------- Hippocampe's policy has been to protect its technology (products and processes) by obtaining basic patents followed by application patents. To date, Hippocampe has registered two patents in France, each of which has subsequently been registered pursuant to the Patent Cooperation Treaty (PCT). Hippocampe has also acquired an additional patent concerning the AIDS cartridge, registered in 13 countries in Europe. The Market - ---------- According to the December 2000 update to the UNAIDS Report on the Global HIV/AIDS Epidemic, the estimated number of people living with HIV/AIDS at the end of 2000 was approximately 36 million. People newly infected with HIV in 2000 are estimated to total more - ------------------------------- 2 See e.g., Traeger J., Laville M., Serres P.F., Cronenberger M., Thomas M., Rey M.J. and Bourgeat C.; 1992. A new device for specific extracorporeal immunoadsorption of anti DNA antibodies. J. Med. Interne, 143 (1): 9-12. 30 32 than 5 million. In 2000, approximately 3 million people died of AIDS, which brings the estimated total number of AIDS deaths since the beginning of the epidemic to almost 22 million. The following table shows the extent of the HIV/AIDS epidemic:
Estimated Estimated number of number of Estimated people living people newly deaths due with HIV/AIDS Adult infected with to HIV/AIDS at the end prevelance HIV during during of 2000 rate 2000 2000 Country (millions) (%) (thousands) (thousands) - ------- ------------- ---------- ------------- ----------- Sub-Saharan Africa 25.3 8.8 3,800 2,400 South & South- East Asia 5.8 0.6 780 470 Latin America 1.4 0.5 150 50 North America 0.9 0.6 45 20 Eastern Europe & Central Asia 0.7 0.4 250 14 East Asia & Pacific 0.6 0.1 130 25 Western Europe 0.5 0.2 30 7 North Africa & Middle East 0.4 0.2 80 24 Caribbean 0.4 2.3 60 32 Australia & New Zealand <0.1 0.1 <1 <1 TOTAL 36.1 1.1 5,300 3,000
- -------------------- Source: December 2000 update to the UNAIDS Report on the Global HIV/AIDS Epidemic. Accordingly, Hippocampe believes that there is an existing and future market for safe, effective and affordable preventive vaccines for uninfected persons and for pharmacological and/or immunological treatment of infected individuals to curtail and reduce infection levels below the transmissible levels. Most of the demand would come from the large populations of the developing world, although a preventive vaccine would also be appropriate for subgroups of high-risk individuals in industrialized countries. Recognizing the commercial market in developing countries is constrained by limited resources, Hippocampe's approach in this market will be to explore subsidized production and distribution negotiated with international agencies (e.g., UNAIDS/World Health Organization and World Bank), bilateral aid donors (e.g., USAID) and The International AIDS Vaccine Initiative (IAVI). Competition - ----------- The biotechnology and biopharmaceutical industries are highly competitive, especially in the field of HIV. Hippocampe faces significant competition for some of its therapeutic compounds and for its preventive vaccines. Therapeutic Molecules (Pharmacological Agents) If Hippocampe is successful in developing its therapeutic agents and obtaining regulatory approval with respect thereto, Hippocampe believes there are significant existing and future markets for the treatment of HIV and AIDS. Hippocampe believes that its unique approach may provide an advantage over existing competitors. However, Hippocampe will compete with existing developed and approved therapies. The U.S. Department of Health and Human Services 31 33 Food and Drug Administration ("FDA") has already approved a number of antiviral drugs to treat HIV and AIDS. The drugs fall into two categories depending on which of the following viral enzymes they target: HIV protease or reverse transcriptase ("RT"). The objective of approved protease inhibitor drugs is to prevent the assembly of new virus particles. The approved protease inhibitors include drugs such as Invirase, Fortovase, Norvir, Crixivan, Viracept and Agenerase. RT inhibitor drugs aim at blocking reverse transcriptases and preventing transcription of the viral genetic material from RNA to DNA. There are two classes of RT drugs: nucleoside analogue inhibitors and non-nucleoside inhibitors. The approved nucleoside analogue inhibitors include drugs such as Retrovir, Videx, Hivid, Zerit, Epivir, Combivir and Ziagen. The approved non- nucleoside inhibitors include drugs such as Viramuno, Rescriptor and Sustiva. Both HIV protease and RT drugs have demonstrated their efficacy in terms of HIV blood concentration and are used to slow the progression of the disease. Furthermore, efficacy has generally been higher with drug combinations. However, none of these drugs appear to present a cure and mutations of the HIV's envelope produce viral strains resistant to both classes of drugs. Toxic side effects on the peripheral nervous system and gastrointestinal tract are additional issues relating to these drugs. Non- compliance on combination therapies and interruptions in dosing could have an effect on and trigger accelerated viral replication. There can be no assurance that currently approved drugs or products developed in the future for the treatment of HIV/AIDS by Hippocampe's competitors will not be effectively marketed and sold, or that such drugs or products will not render Hippocampe's therapeutic compounds obsolete, noncompetitive or uneconomical. Hippocampe believes that numerous companies are developing new pharmaceutical products for the treatment of the HIV/AIDS. In addition, Hippocampe may compete with multinational companies that have greater financial, manufacturing, technical and human resources; greater marketing and distribution capability; greater experience in preclinical and clinical trials; and greater experience in obtaining regulatory and FDA approvals. Preventive Vaccines Hippocampe is conducting research for the development of a preventive vaccine that would provide protection against the known strains of HIV1 and HIV2 viruses. Hippocampe's approach to vaccine development is based on the observed immunological cross-reactivity between the well-preserved, antigenic and immunodominant domain of GP41 and IL-2, and relies on the observation of expected autoimmune consequences in HIV-infected subjects. The worldwide vaccine market is dominated by several large multinational companies. All of these companies have greater financial, manufacturing, technical and human resources; greater marketing and distribution capability, greater experience in preclinical and clinical trials; and greater experience in obtaining regulatory and FDA approvals than Hippocampe. However, Hippocampe does not believe that any of the technologies derived from the intellectual property portfolios of other companies have a competitive advantage over Hippocampe's technology. 32 34 RISK FACTORS The Amendment, the Share Exchange, the business of Hippocampe and any investment in the Common Shares of ICHOR are subject to a number of risk factors. After completion of the Share Exchange, risk factors applicable to the business of Hippocampe shall be equally applicable to ICHOR. Such risk factors include but are not limited to the following: The Share Exchange may not close. - --------------------------------- The Share Exchange is subject to certain conditions customary for transactions of this nature. There can be no assurance that these conditions will be satisfied or that the Share Exchange will be completed without significant delays or at all. If ICHOR and the shareholders of Hippocampe do not complete the Share Exchange for any reason, ICHOR may subject itself to a number of material risks, including but not limited to the following: * the price of the Common Shares of ICHOR may decline to the extent that the current market price of Common Shares of ICHOR reflects a market assumption that each party will complete the Share Exchange; and * ICHOR must pay costs related to the Share Exchange even if the Share Exchange is not completed. In addition, there can be no assurance that, if the Share Exchange is completed, the operations of ICHOR and Hippocampe will be successfully integrated. The costs of the Share Exchange are substantial. - ------------------------------------------------ The costs to complete the Share Exchange are substantial and include, among other things, expenses for investment bankers, attorneys and accountants. As a result of the Share Exchange, current holders of Common Shares of - ----------------------------------------------------------------------- ICHOR will experience immediate and substantial dilution. - --------------------------------------------------------- The issuance of Common Shares and securities convertible into Common Shares of ICHOR in connection with the Share Exchange will reduce existing shareholders' percentage ownership and voting power in ICHOR. The issuance of securities, by reducing the percentage of equity of ICHOR owned by present shareholders, will reduce such present shareholders' ability to influence the election of directors or any other action taken by the holders of Common Shares of ICHOR and may reduce per share dividends, if any. In addition, holders of Common Shares of ICHOR will experience an immediate and substantial dilution in net tangible book value per share and other per share financial information as a result of the Share Exchange. 33 35 Hippocampe has a limited operating history and is expected to continue to - -------------------------------------------------------------------------- generate losses. - ---------------- To date, Hippocampe has engaged primarily in research, development and limited clinical testing. Hippocampe had an accumulated deficit of E585,980 as at September 30, 2000. Hippocampe also sustained net losses of E39,770 in 1997, E67,616 in 1998, E98,808 in 1999 and E210,260 in the nine months ended September 30, 2000. There can be no assurance that Hippocampe will generate profits in the foreseeable future, if at all. Hippocampe's products are in an early stage of development. - ----------------------------------------------------------- All of Hippocampe's products are at an early stage of development. The successful commercialization of its products will require significant further research, development, testing and regulatory approvals and additional investment. If Hippocampe cannot advance its products beyond the early stages of product development or demonstrate clinical efficacy, it may never commercialize a product. There can be no assurance that any of Hippocampe's products in the research or pre-clinical development stage will yield results that would permit or justify clinical testing or that products that advance to clinical testing will receive regulatory approval or be commercialized. In addition, the process of obtaining regulatory approval is costly, time consuming, uncertain and subject to unanticipated delays. If Hippocampe is unable to commercialize the current research, or if it is unable to commercialize the current research without significant delay, it does not have other products from which to derive revenue. Hippocampe's products may not achieve market acceptance. - -------------------------------------------------------- There can be no assurance that any products Hippocampe successfully develops, if approved for marketing, will achieve market acceptance. Technological change and competition may render Hippocampe's potential - ----------------------------------------------------------------------- products obsolete. - ------------------ The biopharmaceutical and biotechnology industries continue to undergo rapid change and competition is intense and is expected to increase. Competitors may succeed in developing technologies and products that are more effective or affordable than any being developed by Hippocampe or that would render Hippocampe's technology and products obsolete and noncompetitive. Many of Hippocampe's competitors have substantially greater experience, financial and technical resources and production, marketing and development capabilities than Hippocampe. Political or social factors may delay or impair Hippocampe's ability to - ------------------------------------------------------------------------ market its products. - -------------------- Products developed for use in addressing the HIV/AIDS epidemic have been and will continue to be subject to competing and changing political and social pressures. The political and social response to the HIV/AIDS epidemic has been highly charged and unpredictable. These pressures can transcend national barriers. They may delay or cause resistance to bringing Hippocampe's products to market or limit the pricing of such products. Hippocampe may be dependent on third parties for manufacturing, marketing - -------------------------------------------------------------------------- and sales. - ---------- As Hippocampe has no manufacturing facilities, it may be entirely dependent on third parties to produce its products. In addition, as Hippocampe has no marketing or sales 34 36 capabilities, it may be entirely dependent on third parties to market and sell its products. There can be no assurance that Hippocampe will be able to locate third parties to manufacture, market and sell its products, to enter into agreements on satisfactory terms or to have its products manufactured, marketed and sold at a sufficiently low cost and in a sufficiently timely manner. Hippocampe will need additional funds in the future to continue its - -------------------------------------------------------------------- operations. - ----------- Hippocampe will require substantial future capital in order to continue to conduct the time consuming research and development, clinical studies and regulatory activities necessary to bring its potential products to market and to establish production, marketing and sales capabilities. There can be no assurance that the cash reserves of Hippocampe or the combined cash reserves of Hippocampe and ICHOR together with any funding subsequently received will satisfy capital requirements. In addition, there can be no assurance that additional funding will be received or on reasonable terms. Additional funding may significantly dilute shareholders of ICHOR or may limit Hippocampe's rights to its currently developing technology. If adequate funds cannot be obtained, Hippocampe may need to curtail significantly its product development programs and/or relinquish rights to its technologies or product candidates. Hippocampe may become subject to product liability claims. - ---------------------------------------------------------- Hippocampe faces an inherent risk of exposure to product liability suits in connection with vaccines being tested in human clinical trials and products that may be sold commercially. Hippocampe may become subject to a product liability suit if its products cause injury or if vaccinated individuals subsequently become infected with HIV. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a vaccine, injury to the reputation of Hippocampe, withdrawal of clinical trial volunteers and loss of revenues. Hippocampe may face difficulties in the conduct of its proprietary research - --------------------------------------------------------------------------- programs. - --------- Hippocampe conducts a significant portion of its research and development activities through proprietary research programs. Any conflict with its collaborators could reduce its ability to obtain future collaboration agreements and could negatively influence its relationship with existing collaborators. Further, disagreements with Hippocampe's collaborators could develop over rights to Hippocampe's intellectual property. Certain collaborators could also become competitors in the future. Hippocampe faces uncertainties related to patents and proprietary - ------------------------------------------------------------------ technology. - ----------- Hippocampe's success will depend in part on its ability to: * obtain patent protection for its products; * preserve trade secrets; * prevent third parties from infringing on its patents; and * refrain from infringing on the patents of other parties, both domestically and internationally. 35 37 Hippocampe's present patent positions are highly uncertain and any future patents it receives for potential products may be subject to the same uncertainty. In addition, there can be no assurance that certain claims in the patent application process will not fail or that they receive such limited approval that the value of any patents could diminish. Any patents that Hippocampe procures may require cooperation with other parties holding related patents. Hippocampe may have difficulty forming a successful relationship with such other parties. There can be no assurance that Hippocampe's patents or future patents will be enforceable and afford adequate protection against competitors. In addition, there can be no assurance that third parties will not claim that Hippocampe's technology, current or future products or manufacturing processes infringe their proprietary rights. Hippocampe may have to undertake costly litigation to enforce any patents issued or licensed to it or to determine the scope and validity of another party's proprietary rights. There can be no assurance that a court of competent jurisdiction would validate Hippocampe's issued or licensed patents. An adverse outcome in litigation or an interference or other proceeding in a court or patent office could subject Hippocampe to significant liabilities to other parties, require Hippocampe to license disputed rights from other parties or require Hippocampe to cease using such technology. Hippocampe is dependent on certain key employees. - ------------------------------------------------- Hippocampe is highly dependent on its senior scientific staff, particularly Dr. Pierre-Francois Serres. Dr. Serres has played a critical role in the development of Hippocampe and Hippocampe's research and development activities. The loss of his services may prevent Hippocampe from achieving its scientific objectives. The price of Common Shares of ICHOR may fluctuate significantly. - ---------------------------------------------------------------- In connection with the Share Exchange, the Common Shares of ICHOR may experience significant volatility. Stock markets, in general, have experienced significant volatility with respect to biopharmaceutical and biotechnology based stocks. The volatility of biopharmaceutical and biotechnology based stocks often does not relate to the operating performance of the companies represented by the stock. Factors such as announcements of the introduction of new products or services by Hippocampe or its competitors, market conditions in the biopharmaceutical and biotechnology sectors, rumors relating to Hippocampe or its competitors and litigation or public concern as to safety of Hippocampe's potential products may have a significant impact on the market price of the Common Shares of ICHOR. 36 38 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ICHOR - ----- ICHOR's Common Shares were quoted on the NASDAQ SmallCap Market under the trading symbol "ICHR" until February 8, 2000 when ICHOR's Common Shares were delisted from The Nasdaq Stock Market. ICHOR's Common Shares are now quoted on the OTC Bulletin Board under the symbol "ICHR". The following table sets forth the quarterly high and low sale price per share of ICHOR's Common Shares for the periods indicated:
Fiscal Quarter Ended High Low -------------------- ---- --- 1998 March 31 $ 1.75 $ 1.25 June 30 2.00 1.25 September 30 2.25 1.25 December 31 3.25 1.25 1999 March 31 $ 2.88 1.25 June 30 3.25 1.50 September 30 4.63 1.00 December 31 5.00 2.00 2000 March 31 $ 3.25 $ 1.50 June 30 2.00 0.50 September 30 0.59 0.49 December 31 3.44 0.38
At January 19, 2001, ICHOR had approximately 18 holders of record of its Common Shares, some of which are securities clearing agencies and intermediaries. ICHOR has not paid any dividends on its Common Shares and does not anticipate that it will pay any dividends in the foreseeable future. Hippocampe - ---------- Hippocampe is a privately-held corporation. Its shares are not traded or quoted on a public securities market. At January 19, 2001, Hippocampe had approximately 13 holders of record of its shares. Hippocampe has not paid any dividends on its shares. 37 39 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as at January 19, 2001 regarding the beneficial ownership of ICHOR's Common Shares, upon the closing of the Share Exchange and based on the current shareholder structure of Hippocampe and ICHOR, by: * each person known by ICHOR to be a beneficial owner of more than five percent of the outstanding Common Shares of ICHOR on January 19, 2001; * each of the executive officers and directors of ICHOR prior to the closing of the Share Exchange; * all executive officers and directors of ICHOR prior to the closing of the Share Exchange as a group; and * each person known by ICHOR to be a beneficial owner of more than five percent of the outstanding shares of Hippocampe on January 19, 2001. The following is based solely on statements filed with the SEC or other information ICHOR believes to be reliable.
Amount and Amount and Nature of Nature of Beneficial Percent Beneficial Percent Name and Address Ownership of Class Ownership(1) of Class(1) of Beneficial Owner (Pre-Share Exchange) (Post-Share Exchange) - ------------------- ---------- -------- ----------- ----------- MFC Bancorp Ltd. 17 Dame Street Dublin 2, Ireland 3,567,380(2) 43.7% 12,315,832(2)(3) 24.5% Parkland Ventures Limited 8 Queensway House Queen Street St. Helier, Jersey Channel Islands JF2 4WD 1,620,000 19.8% 1,620,000 3.7% Sutton Park International Ltd. P.O. Box 146, Road Town, Tortola, British Virgin Islands 2,597,060 31.8% 2,597,060 5.9% MFC Merchant Bank S.A. 6, Cours de Rive, 1211 Geneva 3, Switzerland 970,320 11.9% 9,718,772(4) 19.4% Jin-Soo Choi President and Director of ICHOR - - - - Young-Soo Ko Director of ICHOR - - - - Jae-Sun Lee Director of ICHOR - - - -
38 40
Amount and Amount and Nature of Nature of Beneficial Percent Beneficial Percent Name and Address Ownership of Class Ownership(1) of Class(1) of Beneficial Owner (Pre-Share Exchange) (Post-Share Exchange) - ------------------- ---------- -------- ----------- ----------- Michael J. Smith Secretary of ICHOR -(5) - -(5) - All executive officers and directors of ICHOR as a group (4 persons) - - - - Pierre-Francois Serres(6) 52, Chanoine Cartellier F-69230 Saint-Genis-Laval, France - - 11,129,393(7) 25.1% Aralis Participations S.A.(6) Les Avouillons 4 CH-1196 Gland VD, Switzerland - - 9,124,482 20.6% Martine Reindle(6) CP 18 CH-1295 Mies, Switzerland - - 4,291,365 9.7% Bertrand Favreau(6) 61, Rue de l'oise F-60200 Compiegne, France - - 2,137,151 4.8% Patrice Pactol(6) 130 Route du Bouleau F-69125 Brindas, France - - 2,137,151 4.8%
- -------------------- (1) Securities exchangeable into Common Shares of ICHOR (i.e., LuxCo Preferred Shares) to be issued to certain shareholders of Hippocampe in connection with the Share Exchange have been considered to be issued and outstanding Common Shares of ICHOR. (2) MFC Bancorp Ltd. indirectly owns 2,597,060 Common Shares through Sutton Park International Ltd. and 970,320 Common Shares through MFC Bank. (3) Upon the closing of the Share Exchange, MFC Bancorp Ltd. will indirectly own 6,431,560 Common Shares and 5,884,272 share purchase warrants through MFC Bank. (4) Upon the closing of the Share Exchange, MFC Bank will own 3,834,500 Common Shares and 5,884,272 share purchase warrants, each of which entitles the holder to purchase one Common Share. (5) Michael J. Smith is the President, Chief Executive Officer and a director of MFC Bancorp Ltd. (6) Current shareholders of Hippocampe. (7) Pierre-Francois Serres will also have voting rights in 2,039,038 Common Shares which will be beneficially owned by Martine Reindle but held in usufrucht by Pierre-Francois Serres. 39 41 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The following unaudited pro forma condensed combined financial information relates to the Share Exchange, which will be accounted for as a reverse purchase. The following unaudited pro forma condensed combined financial information has been prepared based upon the historical financial statements and related notes of ICHOR and Hippocampe, respectively, giving effect to the Share Exchange. Hippocampe reports its results in Euros (E). Since the Share Exchange will be accounted for as a reverse purchase, with the continuing entity being Hippocampe, the unaudited pro forma condensed combined financial information is reported in Euros. The accounting treatment applied in a reverse purchase differs from the legal form of the transaction and the continuing entity is Hippocampe. The unaudited pro forma condensed combined financial information does not purport to present the financial condition and results of operations of ICHOR and Hippocampe had the Share Exchange actually been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information is not necessarily indicative of the future results of operations and should be read in connection with the historical financial statements and related notes of ICHOR and Hippocampe, respectively. 40 42 Unaudited Pro Forma Condensed Combined Balance Sheet September 30, 2000 (E000s)
Pro Forma Combined U.S. Dollars ICHOR Hippocampe Pro Forma Pro Forma (Information Historical Historical Adjustments Combined Only) ---------- ---------- ----------- --------- ----------- ASSETS Current Assets Cash and investments E 2,395 E 190 E (2,476) E 109 $ 96 Accounts receivable, net 26 76 - 102 89 Note receivable 685 - - 685 600 Other assets - 119 - 119 104 ------- ------ --------- ------ ------ Total current assets 3,106 385 (2,476) 1,015 889 Patents and Other - 71 - 71 62 ------- ------ --------- ------ ------ E 3,106 E 456 E (2,476) E1,086 $ 951 ======= ====== ========= ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other liabilities E 1 E 249 E - E 250 $ 219 Note payable - 432 - 432 379 ------- ------ --------- ------ ------ Total current liabilities 1 681 - 682 598 Payable to Shareholders - 242 - 242 212 Shareholders' Equity Preferred stock 6,136 - (6,136) - - Common stock 6,619 119 (4,816) 1,922 1,683 Retained deficit (9,569) (586) 8,395 (1,760) (1,542) Treasury stock (81) - 81 - - ------- ------ --------- ------- ------ 3,105 (467) (2,476) 162 141 ------- ------ --------- ------- ------ E 3,106 E 456 E (2,476) E 1,086 $ 951 ======= ====== ========= ======= ======
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. 41 43 Unaudited Pro Forma Condensed Combined Statement of Operations For the Year Ended December 31, 1999 (E000s, except per share amounts)
ICHOR Hippocampe Pro Forma Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- --------- Revenues Interest E 143 E - E - E 143 Other 28 47 - 75 -------- ---------- ---------- --------- 171 47 - 218 Costs and expenses General and administrative 350 49 - 399 Research and development - 97 - 97 Interest 180 - - 180 Equity in loss of unconsolidated subsidiary 83 - - 83 -------- ---------- ---------- --------- 613 146 - 759 -------- ---------- ---------- --------- Net loss E (442) E (99) E - E (541) ======== ========== ========== ========= Basic and diluted loss per common share E (0.13) E (12.64) E (0.01) ======== ========== ========= Weighted average number of shares outstanding 4,910,386 7,820 43,486,698 ========= ========== ==========
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. 42 44 Unaudited Pro Forma Condensed Combined Statement of Operations For the Nine Months Ended September 30, 2000 (E000s, except per share amounts)
Pro Forma Combined U.S. Dollars ICHOR Hippocampe Pro Forma Pro Forma (Information Historical Historical Adjustments Combined Only) ---------- ---------- ----------- --------- ---------- Revenues Interest E 107 E 10 E - E 117 $ 103 Gain on disposal of an uncon- solidated subsidiary 316 - - 316 277 Other 6 - - 6 5 ---------- ---------- ----------- --------- ---------- 429 10 - 439 385 Costs and expenses General and administrative 292 72 - 364 319 Research and development - 148 - 148 130 Equity in loss of uncon- solidated subsidiary 65 - - 65 57 ---------- ---------- ----------- ---------- ---------- 357 220 - 577 560 ---------- ---------- ----------- ---------- ---------- Net income (loss) E 72 E (210) E - E (138) $ (121) ========== ========== =========== ========== ========== Basic and diluted loss per common share E (0.03) E (26.85) E (0.00) $ (0.00) ========== ========== ========== ========== Weighted average number of shares out- standing 4,918,770 7,820 43,495,082 43,495,082 ========== ========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. 43 45 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (1) ICHOR (a United States company) and Hippocampe (a French company) plan to combine their operations where Hippocampe stockholders will exchange their stock for the common stock of ICHOR. Because Hippocampe will be the continuing entity, this combination will be accounted for as a reverse purchase. During the first nine months of 2000 and the year ended December 31, 1999, ICHOR had no significant operations other than the disposal of an unconsolidated subsidiary. Hippocampe is a company in the development stage which is involved in the research and development of human health products. Hippocampe's main research efforts have been concentrated in the prevention and treatment of the AIDS virus. All of Hippocampe's activities have been conducted in France. The combined companies expect to continue the research and development activities. Consistent with the location of its activities, beginning January 1, 1999, Hippocampe adopted the Euro (E) as its corporate currency. Accordingly, Hippocampe prepared its 2000 and 1999 historical financial statements in Euros. Because Hippocampe is the continuing entity, these pro forma financial statements have been prepared using Euros. The financial statements of ICHOR have been restated from U.S. dollars to Euros for each period presented. The translation adjustments did not result in significant foreign currency gains or losses in the pro forma condensed combined statements of operations. (2) The unaudited pro forma condensed combined balance sheet as of September 30, 2000 and pro forma statements of operations for the nine month period ended September 30, 2000 and the year ended December 31, 1999 are based on historical financial statements of ICHOR and Hippocampe. The unaudited pro forma condensed combined balance sheet as of September 30, 2000 gives effect to the proposed combination of ICHOR and Hippocampe as if it had occurred as of September 30, 2000. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2000 and the year ended December 31, 1999 have been prepared to illustrate the effects of the proposed combination of ICHOR and Hippocampe as if the combination occurred January 1, 1999. The pro forma condensed combined financial statements may not be indicative of the actual results of the acquisition. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The accompanying unaudited pro forma condensed combined financial statements should be read in connection with the historical financial statements of ICHOR and Hippocampe. (3) Pro forma adjustments include the effect of the following: * ICHOR'S redemption and conversion of all 564,706 outstanding ICHOR preferred shares for cash of E2,476,000 and 3,247,060 shares of common stock; * Issuance of 33,311,398 shares of ICHOR common stock and shares convertible into shares of common stock of ICHOR to the shareholders of Hippocampe; and 44 46 * Issuance of 2,017,854 shares of ICHOR common stock to MFC Bank, a related party, in settlement of transaction fees. For the purposes of the unaudited pro forma financial statements, the transaction fee is recorded at the quoted market price of ICHOR's common stock as at September 30, 2000 ($0.51 per share or E1,174,000). (4) Pro forma loss per share is adjusted to give effect to the issuance of shares to affect the acquisition, and the redemption and conversion of the preferred shares, as if these transactions had occurred on January 1, 1999. Warrants and options are not included in the computation of diluted loss per share because the effect of the warrants and options would be anti-dilutive. 45 47 ADDITIONAL AND AVAILABLE INFORMATION ICHOR is subject to the information filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. ICHOR's filings are also available to the public on the SEC's internet site (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by ICHOR under the Exchange Act with the SEC are incorporated herein by reference: * ICHOR's Annual Report on Form 10-K for the year ended December 31, 1999; and * ICHOR's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000. ICHOR will provide without charge to each person, including any beneficial owner of such person, to whom a copy of this Information Statement has been delivered, on written or oral request, a copy of any and all of the documents referred to above that have been or may be incorporated by reference herein other than exhibits to such documents (unless such exhibits are specifically incorporated by reference herein). Requests for such copies should be directed to 17 Dame Street, Dublin 2, Ireland (tel.: 3531-679-1688). Additionally, ICHOR is providing copies of its Annual Report on Form 10-K for the year ended December 31, 1999 and its Quarterly Report on Form 10-Q for the period ended September 30, 2000 as Exhibits 1.7 and 1.8, respectively, with this filing. All documents filed by ICHOR pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Information Statement shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Information Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Information Statement. 46 48 By Order of the Board of Directors, /s/ Jin-Soo Choi ----------------------------------- Jin-Soo Choi President January 31, 2001 47 EX-1.1 2 0002.txt CERTIFICATE OF AMENDMENT 1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF ICHOR CORPORATION, a Delaware corporation ICHOR CORPORATION (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law") DOES HEREBY CERTIFY: FIRST: That the name of the Corporation is ICHOR CORPORATION, and that the Corporation was incorporated pursuant to the General Corporation Law on September 16, 1996. SECOND: That on January 19, 2001, the Board of Directors duly adopted resolutions proposing to amend the Certificate of Incorporation of the Corporation and, by written consent in accordance with Section 228 of the General Corporation Law, stockholders of the Corporation holding the requisite number of shares of the Corporation consented to the resolutions setting forth the proposed amendment, which resolutions are as follows: RESOLVED THAT paragraph 4 of the Certificate of Incorporation of the Corporation be, and is hereby, amended to read as follows: "4. The total number of shares of all classes of stock which the Corporation shall have authority to issue is Eighty-Five Million (85,000,000) shares, of which Five Million (5,000,000) shares shall be preferred stock, $.01 par value, and Eighty Million (80,000,000) shares shall be common stock, $.01 par value. The preferred stock of the Corporation may be issued from time to time in one or more series. The Board of Directors is expressly authorized, in a resolution or resolutions providing for the issue of such preferred stock, to fix, state and express the powers, rights, designations, preferences, qualifications, limitations and restrictions thereof and to fix the number of shares of such series. Except as otherwise provided by law, the shares of stock of the Corporation, regardless of class, may be issued by the Corporation from time to time in such amounts, for such consideration and for such corporate purposes as the Corporation's Board of Directors may from time to time determine." 2 - 2 - THIRD: That the said amendment was duly adopted on January , 2001 in accordance with the provisions of Section 242 of the General Corporation Law. IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of Incorporation has been signed by the President of the Corporation as of , 2001. By: ----------------------- , President EX-1.2 3 0003.txt SHARE EXCHANGE AGREEMENT A 1 SHARE EXCHANGE AGREEMENT This Agreement dated for reference the 13th day of December, 2000. BETWEEN: The undersigned SHAREHOLDERS of Hippocampe, more particularly described on the signature pages hereto (collectively, the "Shareholders") AND: ICHOR CORPORATION, a corporation organized under the laws of Delaware in the United States, with an address at 17, Dame Street, Dublin 2, Ireland ("ParentCo") WHEREAS: A. Each Shareholder owns the Hippocampe Common Shares as set forth beside his name on the signature pages hereto; and B. The Shareholders propose to contribute to ParentCo their Hippocampe Common Shares in consideration for ParentCo Shares, upon the terms and conditions set forth herein. NOW THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS For the purposes of this Agreement, including the recitals, and any amendments hereto, unless the context otherwise requires, the following words and phrases shall have the following meanings, respectively: 1.1 "Agreement" means this share exchange agreement and any Schedules hereto, as amended, supplemented or restated from time to time; 1.2 "Bank Agreements" means the underwriting agreement (the "Underwriting Agreement") between Hippocampe and MFC Merchant Bank S.A. dated for reference July 24, 2000, as amended, supplemented or restated from time to time, the credit facility agreement (the "Credit Facility Agreement") between Hippocampe and MFC Merchant Bank S.A. dated for reference July 27, 2000, as amended, supplemented or restated from time to time, the Acte de Nantissement between Hippocampe and MFC Merchant Bank S.A. dated for reference July 27, 2000, the Contrat de Gage between Hippocampe and MFC Merchant Bank S.A. dated August 18, 2000 and any other documents and agreements entered into pursuant to, provided for or contemplated by either the Underwriting Agreement or the Credit Facility Agreement; and 1.3 "Hippocampe" means Hippocampe S.A., a societe anonyme organized under the laws of France, with an address at 52, avenue Chanoine Cartellier, F-69230 Saint-Genis-Lavel, France; 2 1.4 "Hippocampe Common Shares" means the common shares in the capital of Hippocampe; 1.5 "Losses", in respect of any matter, means all claims, demands, proceedings, losses, damages, liabilities, deficiencies, costs and expenses (including, without limitation, all legal and other professional fees and disbursements, interest, penalties and amounts paid in settlement) arising directly or indirectly as a consequence of such matter; 1.6 "LuxCo" means a corporation to be organized under the laws of Luxembourg as a wholly-owned subsidiary of ParentCo; 1.7 "LuxCo Share Exchange Agreement" means a share exchange agreement between ParentCo and certain shareholders of Hippocampe entered into concurrently with this Agreement, as amended, supplemented or restated from time to time; 1.8 "ParentCo Common Shares" means the common shares in the capital of ParentCo. 2. EXCHANGE OF SHARES 2.1 Subject to the terms and conditions hereof, each of the Shareholders shall contribute to ParentCo the Hippocampe Common Shares as set forth beside his name on the signature pages hereto and ParentCo shall issue to each Shareholder 4,265.77 ParentCo Common Shares for each Hippocampe Share set forth beside such Shareholder's name on the signature pages hereto. 2.2 Subject to the terms and conditions hereof, the securities to be contributed or issued hereunder shall be delivered to the respective parties as each in writing shall direct. 3. REPRESENTATIONS AND WARRANTIES OF PARENTCO 3.1 ParentCo, by its acceptance hereof, represents and warrants to the Shareholders that the statements contained in Schedule "A" hereto are correct and complete as of the date of this Agreement and shall be correct and complete as of the Closing Date (as though made then) and acknowledges and confirms that the Shareholders are relying upon such representations and warranties in connection with the transactions contemplated herein. 3.2 Notwithstanding the representations and warranties of ParentCo contained in Section 3.1 hereof and the covenants of ParentCo contained in Section 5.1 hereof, the Shareholders represent, warrant, acknowledge and agree that ParentCo may prior to the Time of Closing raise up to U.S.$2 million in equity for working capital purposes. 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS 4.1 The Shareholders severally represent and warrant to ParentCo that the statements contained in this Section 4.1 are correct and complete as of the date of this Agreement and shall be correct and complete as of the Closing Date (as though made then) and hereby acknowledge and confirm that ParentCo is relying upon such representations and warranties in connection with the transactions contemplated herein: (a) each Shareholder has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder; - 2 - 3 (b) this Agreement has been duly executed and delivered by and on behalf of each Shareholder and constitutes legal, valid and binding obligations of each Shareholder enforceable against such Shareholder in accordance with its terms; (c) the Hippocampe Common Shares owned by each Shareholder are owned by such Shareholder as the sole legal and beneficial owner of record with good, full and marketable title thereto, free and clear of any mortgages, liens, charges, restrictions, security interests, adverse claims, pledges, encumbrances or demands whatsoever, and are issued and outstanding as fully paid and non-assessable, other than certain shares of by Ms. Martine Reindle held in usufrucht by Pierre-Francois Serres; (d) no person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase, acquisition, transfer or contribution from any Shareholder of any of the Hippocampe Common Shares or any interest therein or right thereto owned by such Shareholder, other than pursuant hereto; and (e) there is no legal or regulatory action or proceeding pending or threatened by any person to enjoin, restrict or prohibit the contribution of the Hippocampe Common Shares by each Shareholder as contemplated herein. 4.2 In addition to the representations and warranties made in Section 4.1 hereof, the Shareholders severally represent and warrant to ParentCo that the statements contained in Schedule "B" hereto are correct and complete as of the date of this Agreement and shall be correct and complete as of the Closing Date (as though made then) and hereby acknowledge and confirm that ParentCo is relying upon such representations and warranties in connection with the transactions contemplated herein. 5. COVENANTS OF PARENTCO 5.1 ParentCo covenants as follows: (a) ParentCo shall use all commercially reasonable efforts to take all action and do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement; (b) from the date hereof to the Time of Closing, ParentCo shall carry on its business, operations and affairs only in the ordinary and normal course consistent with past practice; (c) from the date hereof to the Time of Closing, ParentCo shall not create, incur, assume or suffer to exist: (i) any material lien on any of its property or assets now owned or hereafter acquired; or (ii) contingently or otherwise, any material debt; (d) from the date hereof to the Time of Closing, ParentCo shall not make or permit to exist any change, condition, event or occurrence in or with respect to the nature of its business which when taken individually with all other changes, conditions, events or occurrences could reasonably be expected to have a material adverse effect: (i) on the property or assets of ParentCo; (ii) on the condition or prospects, financial or otherwise, of ParentCo; (iii) on the ability of ParentCo to perform and comply with this Agreement; and - 3 - 4 (e) from the date hereof to the Time of Closing, ParentCo shall not enter into or agree to enter into any transaction or series of related transactions (whether by way of reconstruction, reorganization, consolidation, combination, amalgamation, merger, transfer, sale, lease, modification or otherwise), other than in connection with the transactions contemplated herein, whereby: (i) all or substantially all of the undertaking, property or assets of ParentCo will become the property of any other person or the continuing corporation resulting therefrom; or (ii) the corporate structure of ParentCo would be modified, changed, altered or amended in any manner which would have a material adverse effect on the ability of ParentCo to perform and comply with this Agreement. 6. COVENANTS OF THE SHAREHOLDERS 6.1 The Shareholders severally covenant as follows: (a) the Shareholders shall use all commercially reasonable efforts to take all action and do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement; (b) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe to carry on its business, operations and affairs only in the ordinary and normal course consistent with past practice; (c) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe not to create, incur, assume or suffer to exist: (i) any material lien on any of its property or assets now owned or hereafter acquired; or (ii) contingently or otherwise, any material debt; (d) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe not to make or permit to exist any change, condition, event or occurrence in or with respect to the nature of its business which when taken individually with all other changes, conditions, events or occurrences could reasonably be expected to have a material adverse effect: (i) on the property or assets of Hippocampe; (ii) on the condition or prospects, financial or otherwise, of Hippocampe; or (iii) on the ability of the Shareholders to perform and comply with this Agreement; and (e) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe not to enter into or agree to enter into any transaction or series of related transactions (whether by way of reconstruction, reorganization, consolidation, combination, amalgamation, merger, transfer, sale, lease, modification or otherwise), other than in connection with the transactions contemplated herein, whereby: (i) all or substantially all of Hippocampe's undertaking, property or assets will become the property of any other person or the continuing corporation resulting therefrom; - 4 - 5 (ii) all or substantially all of the material patents of Hippocampe will become the property of any other person; or (iii) the corporate structure of Hippocampe would be modified, changed, altered or amended in any manner which would have a material adverse effect on the ability of the Shareholders to perform and comply with this Agreement. 7. CLOSING PROCEDURE 7.1 The closing of the transactions contemplated herein shall take place on the date to be determined in the sole discretion of ParentCo, such date not to be later than March 31, 2001, at the offices of MFC Merchant Bank S.A. at 6, Cours de Rive, 1211 Geneva 3, Switzerland, or at such other time or place as may be mutually agreed upon. The date of the closing of the transactions contemplated in this Agreement is referred to herein as the "Closing Date" and the time of closing on such date is referred to herein as the "Time of Closing". 7.2 At the Time of Closing on the Closing Date, ParentCo shall: (a) deliver to each Shareholder 4,265.77 ParentCo Common Shares issued to such Shareholder for each Hippocampe Share currently held by such Shareholder; (b) deliver to the Shareholders certified resolutions of the directors of ParentCo authorizing the issuance to the Shareholders of the ParentCo Common Shares to be issued by ParentCo hereunder; and (c) deliver or cause to be delivered such other documents as are required or contemplated to be delivered by ParentCo pursuant to this Agreement. 7.3 At the Time of Closing on the Closing Date, the Shareholders shall: (a) deliver or cause to be delivered to ParentCo transfer forms (i.e., ordres de mouvement) representing the Hippocampe Common Shares owned by each Shareholder duly executed for contribution to ParentCo; (b) cause to be executed and delivered to ParentCo certified resolutions of the directors of Hippocampe authorizing the contribution to ParentCo of the issued and outstanding Hippocampe Common Shares to be contributed by the Shareholders hereunder; and (c) deliver or cause to be delivered such other documents as are required or contemplated to be delivered by the Shareholders pursuant to this Agreement. 7.4 This Agreement shall take effect concurrently with the LuxCo Share Exchange Agreement. 8. CONDITIONS OF CLOSING 8.1 The obligation of ParentCo to complete the transactions contemplated herein shall be subject to the following conditions to be fulfilled and/or performed at or prior to the Time of Closing on the Closing Date: - 5 - 6 (a) ParentCo shall have received the requisite Shareholder approval to increase its authorized ParentCo Common Shares in sufficient amounts to meet its obligations hereunder and under the LuxCo Share Exchange Agreement; (b) the Bank Agreements and any share purchase warrants referred to therein shall have been duly and validly assigned by Hippocampe to ParentCo in a form satisfactory to ParentCo; (c) the representations and warranties of the Shareholders contained in this Agreement shall be true and correct in all material respects at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (d) the Shareholders shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by them; and (e) in aggregate, at least 90% of the issued and outstanding Hippocampe Common Shares shall have been contributed to ParentCo and/or LuxCo pursuant to this Agreement and the LuxCo Share Exchange Agreement. 8.2 In the event that the conditions referred to in Section 8.1 hereof shall not have been fulfilled at or prior to the Time of Closing to the satisfaction of ParentCo, acting reasonably, or waived by ParentCo, or in the event that the Closing Date has not occurred on or prior to March 31, 2001, this Agreement shall be rescinded and ParentCo shall be released from all obligations hereunder. 8.3 The obligation of the Shareholders to complete the transactions contemplated herein shall be subject to the following conditions to be fulfilled and/or performed at or prior to the Time of Closing on the Closing Date: (a) ParentCo shall have received an indemnity from MFC Bancorp Ltd. from and against all claims or actions arising out of the business and undertakings of ParentCo prior to the Time of Closing; (b) the representations and warranties of ParentCo contained in this Agreement shall be true and correct in all material respects at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (c) ParentCo shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it; and (d) in aggregate, at least 90% of the issued and outstanding Hippocampe Common Shares shall have been contributed to ParentCo and/or LuxCo pursuant to this Agreement and the LuxCo Share Exchange Agreement. 8.4 In the event that the conditions referred to in Section 8.3 hereof shall not have been fulfilled at or prior to the Time of Closing to the satisfaction of the Shareholders, acting reasonably, or waived by the Shareholders, or in the event that the Closing Date has not occurred on or prior to March 31, 2001, this Agreement shall be rescinded and the Shareholders shall be released from all obligations hereunder. - 6 - 7 9. INDEMNIFICATION 9.1 ParentCo agrees to indemnify and save harmless the Shareholders from all Losses suffered or incurred by the Shareholders as a result of or arising directly or indirectly out of or in connection with: (i) any breach by ParentCo of or any inaccuracy of any representation or warranty of ParentCo; or (ii) any breach or non-performance by ParentCo of any covenant to be performed by it that is contained in this Agreement or in any agreement, certificate or other document delivered pursuant hereto. 9.2 Each Shareholder severally agrees to indemnify and save harmless ParentCo from all Losses suffered or incurred by ParentCo as a result of or arising directly or indirectly out of or in connection with: (i) any breach by such Shareholder of or any inaccuracy of any representation or warranty of such Shareholder; or (ii) any breach or non-performance by such Shareholder of any covenant to be performed by it, that is contained in this Agreement or in any agreement, instrument, certificate or other document delivered pursuant hereto. 10. COSTS AND EXPENSES 10.1 All costs and expenses of or incidental to the transactions contemplated herein are to be assumed and paid by the party incurring such costs and expenses. 11. NOTICES 11.1 Any notice required or permitted to be given hereunder to ParentCo shall be given by notice in writing addressed to the President of ParentCo hand delivered or sent by registered mail to the address mentioned on the first page of this Agreement, or to any new address previously notified to the party giving the notice. Any notice required or permitted to be given hereunder to a Shareholder shall be given by notice in writing addressed to such Shareholder hand delivered or sent by registered mail to the respective address mentioned on the signature pages of this Agreement, or to any new address previously notified to the party giving the notice. Any such notices shall be deemed to have been given and received at the time of hand delivery or delivery by the relevant postal service, as the case may be. 12. SECTIONS AND HEADINGS 12.1 The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or a Schedule refers to the specified Section of or Schedule to this Agreement. 13. NUMBER, GENDER AND PERSONS 13.1 In this Agreement, words importing the singular number only shall include the plural and vice versa, words importing gender shall include all genders and words importing persons shall include individuals, corporations, partnerships, associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities. - 7 - 8 14. SUCCESSORS AND ASSIGNS 14.1 All the terms and provisions of this Agreement shall be binding upon and enure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns but shall not be assignable prior to the Time of Closing by a Shareholder without the written consent of ParentCo or by ParentCo without the written consent of the Shareholders. 15. SURVIVAL 15.1 It is understood and agreed that all warranties, representations, covenants, indemnities and agreements of the parties herein contained or contained in any certificates or documents submitted pursuant to or in connection with the transactions contemplated herein shall survive the completion of the transactions contemplated herein and the termination of this Agreement and shall continue in full force and effect for the benefit of the other parties for a period of two years following the Closing Date. 16. FURTHER ASSURANCES 16.1 Each party to this Agreement covenants and agrees that, from time to time subsequent to the Closing Date, it will, at the request and expense of the requesting party, execute and deliver all such documents and do all such other acts and things as any other party hereto, acting reasonably, may from time to time request be executed or done in order to better evidence or perfect or effectuate any provision of this Agreement or of any agreement or other document executed pursuant to this Agreement or any of the respective obligations intended to be created hereby or thereby. 17. AMENDMENTS 17.1 This Agreement may be amended or modified by an agreement in writing executed by the parties hereto. Except as aforesaid, no amendment, waiver or modification of this Agreement shall be effective. 18. SEVERABILITY 18.1 Should a provision of this Agreement be or become invalid, the validity of the remaining provisions of this Agreement shall not be affected. The parties hereto undertake to replace any such invalid provision without delay with a valid provision which as nearly as possible duplicates the economic intent of the invalid provision. 19. ENGLISH VERSION 19.1 The parties hereby represent, warrant, acknowledge and agree that: (i) they have agreed that this Agreement be drawn up in the English language; and (ii) the English version of this Agreement shall govern for all purposes. 20. GOVERNING LAW 20.1 This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties shall be governed by, the laws of the State of New York in the United States. - 8 - 9 21. JURISDICTION 21.1 Each of the parties irrevocably attorns to the exclusive jurisdiction of the courts in the State of New York in the United States. 22. COUNTERPARTS 22.1 This Agreement may be executed in any number of counterparts, each of which when delivered, either in original or facsimile form, shall be deemed to be an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF the parties have executed this Agreement in counterparts, one for each party. ICHOR CORPORATION Per: ------------------------------ Authorized Signatory - 9 - 10 THE FOLLOWING SHAREHOLDERS OF HIPPOCAMPE S.A.: SIGNED, SEALED and DELIVERED by ) ARALIS PARTICIPATION S.A. ) in the presence of: ) ) ARALIS PARTICIPATION S.A. ) - ------------------------------- ) Per: ------------------------- Signature ) (Authorized Signatory) - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address of Aralis Participation S.A. - ------------------------------- ) ------------------------------- ) 2139 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) MARTIN REINDLE ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) MARTIN REINDLE - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 1006 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) ERNST LUBKE ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) ERNST LUBKE - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 293 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held - 10 - 11 SIGNED, SEALED and DELIVERED by ) CHRISTIAN ROCHET ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) CHRISTIAN ROCHET - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 293 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) MARCUARD COOK & CIE SA ) in the presence of: ) ) MARCUARD COOK & CIE SA ) - ------------------------------- ) Per: --------------------------- Signature ) (Authorized Signatory) - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address of Marcuard Cook & Cie - ------------------------------- ) ------------------------------- ) 235 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held - 11 - 12 SCHEDULE "A" REPRESENTATIONS AND WARRANTIES OF PARENTCO (a) ParentCo has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization. ParentCo is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. ParentCo has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. (b) ParentCo has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by and on behalf of ParentCo and constitutes legal, valid and binding obligations of ParentCo enforceable against ParentCo in accordance with its terms. (c) The authorized capital of ParentCo consists of 30 million ParentCo Common Shares (approximately 80 million ParentCo Shares at the Time of Closing) and five million shares of preferred stock, $0.01 par value per share, of which 4,918,770 ParentCo Common Shares and 564,706 shares of preferred stock, $0.01 par value per share are issued and outstanding as of the date of this Agreement and 8,165,580 ParentCo Common Shares shall be outstanding as of the Time of Closing. No person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option that could require ParentCo to issue, sell, or otherwise cause to become outstanding any of its capital, other than: (i) pursuant hereto; (ii) pursuant to the LuxCo Share Exchange Agreement; (iii) pursuant to the Bank Agreements; and (iv) the holders of options to acquire ParentCo Common Shares previously granted pursuant to ParentCo's stock option plans. (d) ParentCo has made all filings with the U.S. Securities and Exchange Commission that it has been required to make within the past two years under the U.S. Securities Act of 1933, as amended, and the U.S. Securities Exchange Act of 1934, as amended (collectively the "Public Reports"). Each of the Public Reports has complied with the U.S. Securities Act of 1933, as amended, and the U.S. Securities Exchange Act of 1934, as amended, in all material respects. None of the Public Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (e) ParentCo has filed quarterly reports on Form 10-Q for the fiscal quarters ended September 30, 2000 (the "Most Recent Fiscal Quarter End"), June 30, 2000 and March 31, 2000 and an annual report on Form 10-K for the fiscal year ended December 31, 1999. The financial statements of ParentCo included in or incorporated by reference into these Public Reports (including the related notes and schedules) have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of ParentCo as of the indicated dates and the results of operations of ParentCo for the indicated periods, and are correct and complete in all respects, and are consistent with the books and records of ParentCo; provided, however, that the interim statements are subject to normal year-end adjustments. (f) Since the Most Recent Fiscal Quarter End, there has not been any material adverse change in the financial condition of ParentCo. 13 (g) ParentCo does not have any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for taxes, except for: (i) liabilities set forth on the face of the balance sheet dated as of the Most Recent Fiscal Quarter End; and (ii) liabilities which have arisen after the Most Recent Fiscal Quarter End in the ordinary course of business or which it assumes under the Bank Agreements. A-2 14 SCHEDULE "B" REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS (a) No person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase, acquisition, contribution or issuance of any Hippocampe Common Shares or any interest therein or right thereto, other than pursuant hereto and the LuxCo Share Exchange Agreement or MFC Merchant Bank S.A. pursuant to the Underwriting Agreement. (b) The authorized capital of Hippocampe is in the amount of FF 782,000 divided into 7,820 Hippocampe Common Shares of FF 100 each. (c) Hippocampe has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority to carry on its business as now conducted and as presently proposed to be conducted and to own, lease and operate its properties and assets. (d) There is no action, proceeding or investigation pending or, to the knowledge of the Shareholders, after due inquiry, threatened, against or affecting Hippocampe, at law or in equity or before or by any federal, state, local or other governmental department, commission, board or agency, domestic or foreign, which could in any way materially adversely affect Hippocampe or the condition (financial or otherwise) of Hippocampe. (e) The descriptions of the assets and the liabilities of Hippocampe set out in the balance sheets of Hippocampe as at December 31, 1998 and December 31, 1999, including the notes thereto, are true and correct, accurately and fairly present the financial position and condition of Hippocampe as at the respective dates thereof, reflect all liabilities (absolute, accrued, contingent or otherwise, as applicable) of Hippocampe as at the respective dates thereof, and have been prepared in accordance with French generally accepted accounting principles applied on a consistent basis. (f) The statements of earnings, retained earnings and changes in financial position of Hippocampe, as applicable, for the years ended December 31, 1997, December 31, 1998 and December 31, 1999, including the notes thereto, in each case accurately and fairly present the results of the operations of Hippocampe for the respective periods covered thereby and have been prepared in accordance with French generally accepted accounting principles applied on a consistent basis throughout such period. (g) There is not, in the constating documents or by-laws of Hippocampe, any restriction upon or impediment to the payment of dividends by Hippocampe to the holders of the Hippocampe Common Shares. (h) There is no person, firm or corporation acting or purporting to act for Hippocampe entitled to any brokerage or finder's fee in connection with this Agreement or any of the transactions contemplated hereunder, other than pursuant to the Bank Agreements. (i) Hippocampe has conducted, and at the Time of Closing shall be conducting, its business in compliance in all material respects with all applicable laws, rules and regulations of its jurisdiction in which its business is carried on and is duly licensed, registered or qualified in all jurisdictions in 15 which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated, and all such licenses, registrations and qualifications are valid and subsisting and in good standing and none of the same contains any burdensome term, provision, condition or limitation which has an adverse effect on the operation of its business as now carried on. (j) Hippocampe has conducted, and at the Time of Closing shall be conducting, its business in compliance in all material respects with all applicable licensing and anti-pollution legislation, regulations or by-laws, environmental protection legislation, regulations or by-laws or other similar legislation, regulations or by-laws or other lawful requirements of any governmental or regulatory bodies which are applicable to Hippocampe. (k) Hippocampe is not in default or breach of, and the execution and delivery of this Agreement by the Shareholders and the performance and compliance with the terms of this Agreement will not result in any breach of, or be in conflict with or constitute a default under, or create a state of facts which after notice or lapse of time, or both, would constitute a default under, any term or provision of the constating documents or by-laws of Hippocampe, any resolutions passed or consented to by the directors or shareholders of Hippocampe or any mortgage, note, indenture, contract, agreement (written or oral), instrument, lease or other document to which Hippocampe is a party or any judgement, decree, order, statute, rule or regulation applicable to Hippocampe, and no terms or provision thereof materially adversely affects the business, operations or condition (financial or otherwise) of Hippocampe or its properties or assets. (l) Hippocampe has duly and on a timely basis filed all tax returns to be filed by it, has paid all taxes due and payable by it and has paid all assessments and re-assessments and all other taxes, governmental charges, penalties, interest and other fines due and payable by it and which are claimed by any governmental authority to be due and owing and adequate provision has been made for taxes payable for any fiscal period ended for which tax returns are not yet required to be filed, if required; there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return or payment of any tax, governmental charge or deficiency by Hippocampe; there are no actions, suits, proceedings, investigations or claims threatened or pending against Hippocampe in respect of taxes, governmental charges or assessments or any matters under discussion with any governmental authority relating to taxes, governmental charges or assessments asserted by any such authority. (m) All of the material agreements of Hippocampe have been duly authorized, executed and delivered by each of the parties thereto and are legal, valid and binding obligations of the parties thereto enforceable in accordance with their respective terms against each of the parties thereto. (n) All necessary patent applications in respect of its material patents have been duly filed and Hippocampe has good and valid title to such patents, and Hippocampe did not disclose to the public the existence of the subject matter of any of the patents prior to the date of filing of each of the patents. (o) Since December 31, 1999, Hippocampe has not made any payment on account of a redemption or a distribution or return of capital (including, without limitation, cash dividends or any repayment of shareholder loans or distributions) to any shareholder or holder of securities. (p) Since December 31, 1999, Hippocampe has carried on its business, operations and affairs only in the ordinary and normal course consistent with past practice. B-2 16 (q) Each Shareholder acknowledges that the ParentCo Common Shares issued pursuant hereto have not been registered under the U.S. Securities Act of 1933, as amended, and may be offered, sold or otherwise transferred only: (i) to ParentCo; (ii) outside the U.S. in accordance with Rule 904 of Regulation S under the U.S. Securities Act of 1933, as amended; or (iii) inside the U.S. in accordance with: (A) Rule 144A under the U.S. Securities Act of 1933, as amended; (B) Rule 144 under the U.S. Securities Act of 1933, as amended, if applicable; or (C) with the prior written consent of ParentCo, another exemption from registration under the U.S. Securities Act of 1933. B-3 EX-1.3 4 0004.txt SHARE EXCHANGE AGREEMENT B 1 SHARE EXCHANGE AGREEMENT This Agreement dated for reference the 13th day of December, 2000. BETWEEN: The undersigned SHAREHOLDERS of Hippocampe, more particularly described on the signature pages hereto (collectively, the "Shareholders") AND: ICHOR CORPORATION, a corporation organized under the laws of Delaware in the United States, with an address at 17, Dame Street, Dublin 2, Ireland ("ParentCo") WHEREAS: A. Each Shareholder owns the Hippocampe Common Shares as set forth beside his name on the signature pages hereto; B. ParentCo proposes to establish LuxCo as a wholly-owned subsidiary; and C. The Shareholders propose to contribute to LuxCo their Hippocampe Common Shares in consideration for LuxCo Exchangeable Preferred Shares, upon the terms and conditions set forth herein. NOW THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS For the purposes of this Agreement, including the recitals, and any amendments hereto, unless the context otherwise requires, the following words and phrases shall have the following meanings, respectively: 1.1 "Agreement" means this share exchange agreement and any Schedules hereto, as amended, supplemented or restated from time to time; 1.2 "Bank Agreements" means the underwriting agreement (the "Underwriting Agreement") between Hippocampe and MFC Merchant Bank S.A. dated for reference July 24, 2000, as amended, supplemented or restated from time to time, the credit facility agreement (the "Credit Facility Agreement") between Hippocampe and MFC Merchant Bank S.A. dated for reference July 27, 2000, as amended, supplemented or restated from time to time, the Acte de Nantissement between Hippocampe and MFC Merchant Bank S.A. dated for reference July 27, 2000, the Contrat de Gage between Hippocampe and MFC Merchant Bank S.A. dated August 18, 2000 and any other documents and agreements entered into pursuant to, provided for or contemplated by either the Underwriting Agreement or the Credit Facility Agreement; 2 1.3 "Hippocampe" means Hippocampe S.A., a societe anonyme organized under the laws of France, with an address at 52, avenue Chanoine Cartellier, F-69230 Saint-Genis-Lavel, France; 1.4 "Hippocampe Common Shares" means the common shares in the capital of Hippocampe; 1.5 "Losses", in respect of any matter, means all claims, demands, proceedings, losses, damages, liabilities, deficiencies, costs and expenses (including, without limitation, all legal and other professional fees and disbursements, interest, penalties and amounts paid in settlement) arising directly or indirectly as a consequence of such matter; 1.6 "LuxCo" means a corporation to be organized under the laws of Luxembourg as a wholly-owned subsidiary of ParentCo; 1.7 "LuxCo Common Shares" means the common shares in the capital of LuxCo; 1.8 "LuxCo Exchangeable Preferred Shares" means the shares in the capital of LuxCo which will be exchangeable at the option of the holder into ParentCo Common Shares on a 1,066.44-for-one basis pursuant to the Shareholder Agreement, such shares with substantially the rights, privileges, restrictions and conditions described in Schedule "C" hereto; 1.9 "ParentCo Common Shares" means the common shares in the capital of ParentCo; 1.10 "ParentCo Share Exchange Agreement" means a share exchange agreement between ParentCo and certain shareholders of Hippocampe entered into concurrently with this Agreement, as amended, supplemented or restated from time to time; 1.11 "ParentCo Special Voting Preferred Share" means the one share of special voting preferred stock of ParentCo, with substantially the rights, privileges, restrictions and conditions described in the Voting and Exchange Trust Agreement; 1.12 "Shareholder Agreement" means a shareholder agreement to be made among the Shareholders, ParentCo and LuxCo relating to the LuxCo Exchangeable Preferred Shares, with terms substantially as described in Schedule "C" hereto; 1.13 "Support Agreement" means the support agreement to be made between ParentCo and LuxCo relating to the LuxCo Exchangeable Preferred Shares, with terms substantially as described in Schedule "C" hereto; 1.14 "Trustee" means MFC Merchant Bank S.A., the trustee to be appointed under the Voting and Exchange Trust Agreement, and any successor thereto; and 1.15 "Voting and Exchange Trust Agreement" means an agreement to be made between ParentCo, LuxCo and the Trustee relating to the LuxCo Exchangeable Preferred Shares and the ParentCo Special Voting Preferred Share, with terms substantially as described in Schedule "C" hereto. - 2 - 3 2. EXCHANGE OF SHARES 2.1 Subject to the terms and conditions hereof, each of the Shareholders shall contribute to LuxCo the Hippocampe Common Shares as set forth beside his name on the signature pages hereto and ParentCo shall cause LuxCo to issue to each Shareholder four LuxCo Exchangeable Preferred Shares, with substantially the rights, privileges, restrictions and conditions described in Schedule "C" hereto, for each Hippocampe Share set forth beside such Shareholder's name on the signature pages hereto. 2.2 Subject to the terms and conditions hereof, the securities to be contributed or issued hereunder shall be delivered to the respective parties as each in writing shall direct. 3. REPRESENTATIONS AND WARRANTIES OF PARENTCO 3.1 ParentCo, by its acceptance hereof, represents and warrants to the Shareholders that the statements contained in Schedule "A" hereto are correct and complete as of the date of this Agreement and shall be correct and complete as of the Closing Date (as though made then) and acknowledges and confirms that the Shareholders are relying upon such representations and warranties in connection with the transactions contemplated herein. 3.2 Notwithstanding the representations and warranties of ParentCo contained in Section 3.1 hereof and the covenants of ParentCo contained in Section 5.1 hereof, the Shareholders represent, warrant, acknowledge and agree that ParentCo may prior to the Time of Closing raise up to U.S.$2 million in equity for working capital purposes. 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS 4.1 The Shareholders severally represent and warrant to ParentCo that the statements contained in this Section 4.1 are correct and complete as of the date of this Agreement and shall be correct and complete as of the Closing Date (as though made then) and hereby acknowledge and confirm that ParentCo is relying upon such representations and warranties in connection with the transactions contemplated herein: (a) each Shareholder has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (b) this Agreement has been duly executed and delivered by and on behalf of each Shareholder and constitutes legal, valid and binding obligations of each Shareholder enforceable against such Shareholder in accordance with its terms; (c) the Hippocampe Common Shares owned by each Shareholder are owned by such Shareholder as the sole legal and beneficial owner of record with good, full and marketable title thereto, free and clear of any mortgages, liens, charges, restrictions, security interests, adverse claims, pledges, encumbrances or demands whatsoever, and are issued and outstanding as fully paid and non-assessable; (d) no person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase, acquisition, transfer or contribution from any Shareholder of any of the Hippocampe Common Shares or any interest therein or right thereto owned by such Shareholder, other than pursuant hereto; and - 3 - 4 (e) there is no legal or regulatory action or proceeding pending or threatened by any person to enjoin, restrict or prohibit the contribution of the Hippocampe Common Shares by each Shareholder as contemplated herein. 4.2 In addition to the representations and warranties made in Section 4.1 hereof, the Shareholders severally represent and warrant to ParentCo that the statements contained in Schedule "B" hereto are correct and complete as of the date of this Agreement and shall be correct and complete as of the Closing Date (as though made then) and hereby acknowledge and confirm that ParentCo is relying upon such representations and warranties in connection with the transactions contemplated herein. 5. COVENANTS OF PARENTCO 5.1 ParentCo covenants as follows: (a) ParentCo shall use all commercially reasonable efforts to take all action and do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement; (b) from the date hereof to the Time of Closing, ParentCo shall carry on its business, operations and affairs only in the ordinary and normal course consistent with past practice; (c) from the date hereof to the Time of Closing, ParentCo shall not create, incur, assume or suffer to exist: (i) any material lien on any of its property or assets now owned or hereafter acquired; or (ii) contingently or otherwise, any material debt; (d) from the date hereof to the Time of Closing, ParentCo shall not make or permit to exist any change, condition, event or occurrence in or with respect to the nature of its business which when taken individually with all other changes, conditions, events or occurrences could reasonably be expected to have a material adverse effect: (i) on the property or assets of ParentCo; (ii) on the condition or prospects, financial or otherwise, of ParentCo; (iii) on the ability of ParentCo to perform and comply with this Agreement; and (e) from the date hereof to the Time of Closing, ParentCo shall not enter into or agree to enter into any transaction or series of related transactions (whether by way of reconstruction, reorganization, consolidation, combination, amalgamation, merger, transfer, sale, lease, modification or otherwise), other than in connection with the transactions contemplated herein, whereby: (i) all or substantially all of the undertaking, property or assets of ParentCo will become the property of any other person or the continuing corporation resulting therefrom; or (ii) the corporate structure of ParentCo would be modified, changed, altered or amended in any manner which would have a material adverse effect on the ability of ParentCo to perform and comply with this Agreement. - 4 - 5 6. COVENANTS OF THE SHAREHOLDERS 6.1 The Shareholders severally covenant as follows: (a) the Shareholders shall use all commercially reasonable efforts to take all action and do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement; (b) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe to carry on its business, operations and affairs only in the ordinary and normal course consistent with past practice; (c) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe not to create, incur, assume or suffer to exist: (i) any material lien on any of its property or assets now owned or hereafter acquired; or (ii) contingently or otherwise, any material debt; (d) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe not to make or permit to exist any change, condition, event or occurrence in or with respect to the nature of its business which when taken individually with all other changes, conditions, events or occurrences could reasonably be expected to have a material adverse effect: (i) on the property or assets of Hippocampe; (ii) on the condition or prospects, financial or otherwise, of Hippocampe; or (iii) on the ability of the Shareholders to perform and comply with this Agreement; and (e) from the date hereof to the Time of Closing, the Shareholders shall cause Hippocampe not to enter into or agree to enter into any transaction or series of related transactions (whether by way of reconstruction, reorganization, consolidation, combination, amalgamation, merger, transfer, sale, lease, modification or otherwise), other than in connection with the transactions contemplated herein, whereby: (i) all or substantially all of Hippocampe's undertaking, property or assets will become the property of any other person or the continuing corporation resulting therefrom; (ii) all or substantially all of the material patents of Hippocampe will become the property of any other person; or (iii) the corporate structure of Hippocampe would be modified, changed, altered or amended in any manner which would have a material adverse effect on the ability of the Shareholders to perform and comply with this Agreement. 7. CLOSING PROCEDURE 7.1 The closing of the transactions contemplated herein shall take place on the date to be determined in the sole discretion of ParentCo, such date not to be later than March 31, 2001, at the offices of MFC Merchant Bank S.A. at 6, Cours de Rive, 1211 Geneva 3, Switzerland, or at such other time or place as may be mutually agreed upon. The date of the closing of the transactions contemplated in this Agreement is referred to herein as the "Closing Date" and the time of closing on such date is referred to herein as the "Time of Closing". - 5 - 6 7.2 At the Time of Closing on the Closing Date, ParentCo shall: (a) cause to be delivered to each Shareholder four LuxCo Exchangeable Preferred Shares issued to such Shareholder for each Hippocampe Share currently held by such Shareholder; (b) cause to be executed and delivered to the Shareholders certified resolutions of the directors of LuxCo authorizing the issuance to the Shareholders of the LuxCo Exchangeable Preferred Shares to be issued by LuxCo hereunder; and (c) deliver or cause to be delivered such other documents as are required or contemplated to be delivered by ParentCo and LuxCo, as applicable, pursuant to this Agreement. 7.3 At the Time of Closing on the Closing Date, the Shareholders shall: (a) deliver or cause to be delivered to LuxCo transfer forms (i.e., ordres de mouvement) representing the Hippocampe Common Shares owned by each Shareholder duly executed for contribution to LuxCo; (b) cause to be executed and delivered to LuxCo certified resolutions of the directors of Hippocampe authorizing the contribution to LuxCo of the issued and outstanding Hippocampe Common Shares to be contributed by the Shareholders hereunder; and (c) deliver or cause to be delivered such other documents as are required or contemplated to be delivered by the Shareholders pursuant to this Agreement. 7.4 This Agreement shall take effect concurrently with the ParentCo Share Exchange Agreement. 8. CONDITIONS OF CLOSING 8.1 The obligation of ParentCo to complete the transactions contemplated herein shall be subject to the following conditions to be fulfilled and/or performed at or prior to the Time of Closing on the Closing Date: (a) ParentCo shall have received the requisite Shareholder approval to increase its authorized ParentCo Common Shares in sufficient amounts to meet its obligations hereunder and under the ParentCo Share Exchange Agreement; (b) the Bank Agreements and any share purchase warrants referred to therein shall have been duly and validly assigned by Hippocampe to ParentCo in a form satisfactory to ParentCo; (c) the representations and warranties of the Shareholders contained in this Agreement shall be true and correct in all material respects at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (d) the Shareholders shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by them; and - 6 - 7 (e) in aggregate, at least 90% of the issued and outstanding Hippocampe Common Shares shall have been contributed to ParentCo and/or LuxCo pursuant to this Agreement and the ParentCo Share Exchange Agreement. 8.2 In the event that the conditions referred to in Section 8.1 hereof shall not have been fulfilled at or prior to the Time of Closing to the satisfaction of ParentCo, acting reasonably, or waived by ParentCo, or in the event that the Closing Date has not occurred on or prior to March 31, 2001, this Agreement shall be rescinded and ParentCo shall be released from all obligations hereunder. 8.3 The obligation of the Shareholders to complete the transactions contemplated herein shall be subject to the following conditions to be fulfilled and/or performed at or prior to the Time of Closing on the Closing Date: (a) ParentCo shall have received an indemnity from MFC Bancorp Ltd. from and against all claims or actions arising out of the business and undertakings of ParentCo prior to the Time of Closing; (b) the representations and warranties of ParentCo contained in this Agreement shall be true and correct in all material respects at the Time of Closing, with the same force and effect as if such representations and warranties were made at and as of such time; (c) ParentCo shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it; and (d) in aggregate, at least 90% of the issued and outstanding Hippocampe Common Shares shall have been contributed to ParentCo and/or LuxCo pursuant to this Agreement and the ParentCo Share Exchange Agreement. 8.4 In the event that the conditions referred to in Section 8.3 hereof shall not have been fulfilled at or prior to the Time of Closing to the satisfaction of the Shareholders, acting reasonably, or waived by the Shareholders, or in the event that the Closing Date has not occurred on or prior to March 31, 2001, this Agreement shall be rescinded and the Shareholders shall be released from all obligations hereunder. 9. COVENANTS RELATING TO THE LUXCO EXCHANGEABLE PREFERRED SHARES 9.1 ParentCo covenants in favour of the Shareholders that, at or prior to the Time of Closing and subject to the satisfaction or waiver of the other conditions herein contained in favour of each such party: (a) ParentCo shall execute and deliver and cause LuxCo to execute and deliver the Support Agreement, with terms substantially as described in Schedule "C" hereto; (b) ParentCo shall execute and deliver, cause LuxCo to execute and deliver and use all commercially reasonable efforts to cause the Trustee to execute and deliver the Voting and Exchange Trust Agreement, with terms substantially as described in Schedule "C" hereto; (c) ParentCo shall execute and deliver the Shareholder Agreement, with terms substantially as described in Schedule "C" hereto; and (d) ParentCo shall issue to the Trustee the Special Voting Share. - 7 - 8 10. INDEMNIFICATION 10.1 ParentCo agrees to indemnify and save harmless the Shareholders from all Losses suffered or incurred by the Shareholders as a result of or arising directly or indirectly out of or in connection with: (i) any breach by ParentCo of or any inaccuracy of any representation or warranty of ParentCo; or (ii) any breach or non-performance by ParentCo of any covenant to be performed by it that is contained in this Agreement or in any agreement, certificate or other document delivered pursuant hereto. 10.2 Each Shareholder severally agrees to indemnify and save harmless ParentCo from all Losses suffered or incurred by ParentCo as a result of or arising directly or indirectly out of or in connection with: (i) any breach by such Shareholder of or any inaccuracy of any representation or warranty of such Shareholder; or (ii) any breach or non-performance by such Shareholder of any covenant to be performed by it, that is contained in this Agreement or in any agreement, instrument, certificate or other document delivered pursuant hereto. 11. COSTS AND EXPENSES 11.1 All costs and expenses of or incidental to the transactions contemplated herein are to be assumed and paid by the party incurring such costs and expenses. 12. NOTICES 12.1 Any notice required or permitted to be given hereunder to ParentCo shall be given by notice in writing addressed to the President of ParentCo hand delivered or sent by registered mail to the address mentioned on the first page of this Agreement, or to any new address previously notified to the party giving the notice. Any notice required or permitted to be given hereunder to a Shareholder shall be given by notice in writing addressed to such Shareholder hand delivered or sent by registered mail to the respective address mentioned on the signature pages of this Agreement, or to any new address previously notified to the party giving the notice. Any such notices shall be deemed to have been given and received at the time of hand delivery or delivery by the relevant postal service, as the case may be. 13. SECTIONS AND HEADINGS 13.1 The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or a Schedule refers to the specified Section of or Schedule to this Agreement. 14. NUMBER, GENDER AND PERSONS 14.1 In this Agreement, words importing the singular number only shall include the plural and vice versa, words importing gender shall include all genders and words importing persons shall include individuals, corporations, partnerships, associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities. - 8 - 9 15. SUCCESSORS AND ASSIGNS 15.1 All the terms and provisions of this Agreement shall be binding upon and enure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns but shall not be assignable prior to the Time of Closing by a Shareholder without the written consent of ParentCo or by ParentCo without the written consent of the Shareholders. 16. SURVIVAL 16.1 It is understood and agreed that all warranties, representations, covenants, indemnities and agreements of the parties herein contained or contained in any certificates or documents submitted pursuant to or in connection with the transactions contemplated herein shall survive the completion of the transactions contemplated herein and the termination of this Agreement and shall continue in full force and effect for the benefit of the other parties for a period of two years following the Closing Date. 17. FURTHER ASSURANCES 17.1 Each party to this Agreement covenants and agrees that, from time to time subsequent to the Closing Date, it will, at the request and expense of the requesting party, execute and deliver all such documents and do all such other acts and things as any other party hereto, acting reasonably, may from time to time request be executed or done in order to better evidence or perfect or effectuate any provision of this Agreement or of any agreement or other document executed pursuant to this Agreement or any of the respective obligations intended to be created hereby or thereby. 18. AMENDMENTS 18.1 This Agreement may be amended or modified by an agreement in writing executed by the parties hereto. Except as aforesaid, no amendment, waiver or modification of this Agreement shall be effective. 19. SEVERABILITY 19.1 Should a provision of this Agreement be or become invalid, the validity of the remaining provisions of this Agreement shall not be affected. The parties hereto undertake to replace any such invalid provision without delay with a valid provision which as nearly as possible duplicates the economic intent of the invalid provision. 20. ENGLISH VERSION 20.1 The parties hereby represent, warrant, acknowledge and agree that: (i) they have agreed that this Agreement be drawn up in the English language; and (ii) the English version of this Agreement shall govern for all purposes. 21. GOVERNING LAW 21.1 This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties shall be governed by, the laws of the State of New York in the United States. - 9 - 10 22. JURISDICTION 22.1 Each of the parties irrevocably attorns to the exclusive jurisdiction of the courts in the State of New York in the United States. 23. COUNTERPARTS 23.1 This Agreement may be executed in any number of counterparts, each of which when delivered, either in original or facsimile form, shall be deemed to be an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF the parties have executed this Agreement in counterparts, one for each party. ICHOR CORPORATION Per: ------------------------------ Authorized Signatory - 10 - 11 THE FOLLOWING SHAREHOLDERS OF HIPPOCAMPE S.A.: SIGNED, SEALED and DELIVERED by ) PIERRE-FRANCOIS SERRES ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) PIERRE-FRANCOIS SERRES - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 2609 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) BERTRAND FAVREAU ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) BERTRAND FAVREAU - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 501 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) PATRICE PACTOL ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) PATRICE PACTOL - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 501 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held - 11 - 12 SIGNED, SEALED and DELIVERED by ) DORIA TROIANI ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) DORIA TROIANI - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 102 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) YVES BUSH ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) YVES BUSH - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 100 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held SIGNED, SEALED and DELIVERED by ) MICHELE ROSSI ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) MICHELE ROSSI - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 10 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held - 12 - 13 SIGNED, SEALED and DELIVERED by ) ALESSANDRO ZUCCATO ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) ALESSANDRO ZUCCATO - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 1 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held - 13 - 14 SIGNED, SEALED and DELIVERED by ) BERNADETTE DAOUT ) in the presence of: ) ) ) - ------------------------------- ) ------------------------------- Signature ) BERNADETTE DAOUT - ------------------------------- ) Name ) - ------------------------------- ) ------------------------------- Address ) Address - ------------------------------- ) ------------------------------- ) 30 - ------------------------------- ) ------------------------------- Occupation Number of Hippocampe Common Shares Held - 14 - 15 SCHEDULE "A" REPRESENTATIONS AND WARRANTIES OF PARENTCO (a) ParentCo has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization. ParentCo is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. ParentCo has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. (b) ParentCo has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by and on behalf of ParentCo and constitutes legal, valid and binding obligations of ParentCo enforceable against ParentCo in accordance with its terms. (c) The authorized capital of ParentCo consists of 30 million ParentCo Common Shares (approximately 80 million ParentCo Shares at the Time of Closing) and five million shares of preferred stock, $0.01 par value per share, of which 4,918,770 ParentCo Common Shares and 564,706 shares of preferred stock, $0.01 par value per share are issued and outstanding as of the date of this Agreement and 8,165,830 ParentCo Common Shares shall be outstanding as of the Time of Closing. No person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option that could require ParentCo to issue, sell, or otherwise cause to become outstanding any of its capital, other than: (i) pursuant hereto; (ii) pursuant to the ParentCo Share Exchange Agreement; (iii) pursuant to the Bank Agreements; and (iv) the holders of options to acquire ParentCo Common Shares previously granted pursuant to ParentCo's stock option plans. (d) The ParentCo Common Shares to be issued upon the exchange from time to time of the LuxCo Exchangeable Preferred Shares shall be duly and validly issued and outstanding as fully paid and non- assessable. (e) The ParentCo Special Voting Preferred Share to be issued to the Trustee pursuant to the Voting and Exchange Trust Agreement shall be duly and validly issued and outstanding as fully paid and non- assessable. (f) ParentCo has made all filings with the U.S. Securities and Exchange Commission that it has been required to make within the past two years under the U.S. Securities Act of 1933, as amended, and the U.S. Securities Exchange Act of 1934, as amended (collectively the "Public Reports"). Each of the Public Reports has complied with the U.S. Securities Act of 1933, as amended, and the U.S. Securities Exchange Act of 1934, as amended, in all material respects. None of the Public Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (g) ParentCo has filed quarterly reports on Form 10-Q for the fiscal quarters ended September 30, 2000 (the "Most Recent Fiscal Quarter End"), June 30, 2000 and March 31, 2000 and an annual report on Form 10-K for the fiscal year ended December 31, 1999. The financial statements of ParentCo included in or incorporated by reference into these Public Reports (including the related notes and schedules) have been prepared in accordance with U.S. generally 16 accepted accounting principles applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of ParentCo as of the indicated dates and the results of operations of ParentCo for the indicated periods, and are correct and complete in all respects, and are consistent with the books and records of ParentCo; provided, however, that the interim statements are subject to normal year-end adjustments. (h) Since the Most Recent Fiscal Quarter End, there has not been any material adverse change in the financial condition of ParentCo. (i) ParentCo does not have any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for taxes, except for: (i) liabilities set forth on the face of the balance sheet dated as of the Most Recent Fiscal Quarter End; and (ii) liabilities which have arisen after the Most Recent Fiscal Quarter End in the ordinary course of business or which it assumes under the Bank Agreements. (j) At the Time of Closing, LuxCo shall be duly organized and validly existing and in good standing under the laws of its jurisdiction of organization. At the Time of Closing, LuxCo shall be duly authorized to conduct business and be in good standing under the laws of each jurisdiction where such qualification is required. At the Time of Closing, LuxCo shall have full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. (k) At the Time of Closing, the authorized capital of LuxCo shall consist of LuxCo Common Shares held by ParentCo and LuxCo Exchangeable Preferred Shares issued hereunder. (l) At the Time of Closing, all but not less than all of the issued and outstanding LuxCo Common Shares shall be owned by ParentCo as the sole legal and beneficial owner of record with good and marketable title thereto, free and clear of any mortgages, liens, charges, restrictions, security interests, adverse claims, pledges, encumbrances or demands whatsoever. At the Time of Closing, no person, firm or corporation shall have any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase, acquisition, transfer or contribution from ParentCo of any LuxCo Common Shares. (m) At the Time of Closing, there shall not be any issued or outstanding LuxCo Exchangeable Preferred Shares, and no person, firm or corporation shall have any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase, acquisition, transfer, contribution or issuance of any LuxCo Exchangeable Preferred Shares, other than pursuant hereto. (n) The LuxCo Exchangeable Preferred Shares to be issued at the Time of Closing shall be duly and validly issued and outstanding as fully paid and non-assessable. (o) Other than with respect to the nominal capital contribution made by ParentCo to LuxCo in conjunction with the organization of LuxCo in Luxembourg, LuxCo shall not have any assets or liabilities (absolute, accrued, contingent or otherwise) at the Time of Closing. A-2 17 SCHEDULE "B" REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS (a) No person, firm or corporation has any agreement or option, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option for the purchase, acquisition, contribution or issuance of any Hippocampe Common Shares or any interest therein or right thereto, other than pursuant hereto and the ParentCo Share Exchange Agreement or MFC Merchant Bank S.A. pursuant to the Underwriting Agreement. (b) The authorized capital of Hippocampe is in the amount of FF 782,000 divided into 7,820 Hippocampe Common Shares of FF 100 each. (c) Hippocampe has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority to carry on its business as now conducted and as presently proposed to be conducted and to own, lease and operate its properties and assets. (d) There is no action, proceeding or investigation pending or, to the knowledge of the Shareholders, after due inquiry, threatened, against or affecting Hippocampe, at law or in equity or before or by any federal, state, local or other governmental department, commission, board or agency, domestic or foreign, which could in any way materially adversely affect Hippocampe or the condition (financial or otherwise) of Hippocampe. (e) The descriptions of the assets and the liabilities of Hippocampe set out in the balance sheets of Hippocampe as at December 31, 1998 and December 31, 1999, including the notes thereto, are true and correct, accurately and fairly present the financial position and condition of Hippocampe as at the respective dates thereof, reflect all liabilities (absolute, accrued, contingent or otherwise, as applicable) of Hippocampe as at the respective dates thereof, and have been prepared in accordance with French generally accepted accounting principles applied on a consistent basis. (f) The statements of earnings, retained earnings and changes in financial position of Hippocampe, as applicable, for the years ended December 31, 1997, December 31, 1998 and December 31, 1999, including the notes thereto, in each case accurately and fairly present the results of the operations of Hippocampe for the respective periods covered thereby and have been prepared in accordance with French generally accepted accounting principles applied on a consistent basis throughout such period. (g) There is not, in the constating documents or by-laws of Hippocampe, any restriction upon or impediment to the payment of dividends by Hippocampe to the holders of the Hippocampe Common Shares. (h) There is no person, firm or corporation acting or purporting to act for Hippocampe entitled to any brokerage or finder's fee in connection with this Agreement or any of the transactions contemplated hereunder, other than pursuant to the Bank Agreements. (i) Hippocampe has conducted, and at the Time of Closing shall be conducting, its business in compliance in all material respects with all applicable laws, rules and regulations of its jurisdiction in which its business is carried on and is duly licensed, registered or qualified in all jurisdictions in 18 which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated, and all such licenses, registrations and qualifications are valid and subsisting and in good standing and none of the same contains any burdensome term, provision, condition or limitation which has an adverse effect on the operation of its business as now carried on. (j) Hippocampe has conducted, and at the Time of Closing shall be conducting, its business in compliance in all material respects with all applicable licensing and anti-pollution legislation, regulations or by-laws, environmental protection legislation, regulations or by-laws or other similar legislation, regulations or by-laws or other lawful requirements of any governmental or regulatory bodies which are applicable to Hippocampe. (k) Hippocampe is not in default or breach of, and the execution and delivery of this Agreement by the Shareholders and the performance and compliance with the terms of this Agreement will not result in any breach of, or be in conflict with or constitute a default under, or create a state of facts which after notice or lapse of time, or both, would constitute a default under, any term or provision of the constating documents or by-laws of Hippocampe, any resolutions passed or consented to by the directors or shareholders of Hippocampe or any mortgage, note, indenture, contract, agreement (written or oral), instrument, lease or other document to which Hippocampe is a party or any judgement, decree, order, statute, rule or regulation applicable to Hippocampe, and no terms or provision thereof materially adversely affects the business, operations or condition (financial or otherwise) of Hippocampe or its properties or assets. (l) Hippocampe has duly and on a timely basis filed all tax returns to be filed by it, has paid all taxes due and payable by it and has paid all assessments and re-assessments and all other taxes, governmental charges, penalties, interest and other fines due and payable by it and which are claimed by any governmental authority to be due and owing and adequate provision has been made for taxes payable for any fiscal period ended for which tax returns are not yet required to be filed, if required; there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return or payment of any tax, governmental charge or deficiency by Hippocampe; there are no actions, suits, proceedings, investigations or claims threatened or pending against Hippocampe in respect of taxes, governmental charges or assessments or any matters under discussion with any governmental authority relating to taxes, governmental charges or assessments asserted by any such authority. (m) All of the material agreements of Hippocampe have been duly authorized, executed and delivered by each of the parties thereto and are legal, valid and binding obligations of the parties thereto enforceable in accordance with their respective terms against each of the parties thereto. (n) All necessary patent applications in respect of its material patents have been duly filed and Hippocampe has good and valid title to such patents, and Hippocampe did not disclose to the public the existence of the subject matter of any of the patents prior to the date of filing of each of the patents. (o) Since December 31, 1999, Hippocampe has not made any payment on account of a redemption or a distribution or return of capital (including, without limitation, cash dividends or any repayment of shareholder loans or distributions) to any shareholder or holder of securities. (p) Since December 31, 1999, Hippocampe has carried on its business, operations and affairs only in the ordinary and normal course consistent with past practice. B-2 19 (q) Each Shareholder acknowledges that the LuxCo Exchangeable Preferred Shares issued pursuant hereto and any ParentCo Common Shares to be issued from time to time upon the exchange of LuxCo Exchangeable Preferred Shares have not been registered under the U.S. Securities Act of 1933, as amended, and may be offered, sold or otherwise transferred only: (i) to ParentCo or LuxCo, as applicable; (ii) outside the U.S. in accordance with Rule 904 of Regulation S under the U.S. Securities Act of 1933, as amended; or (iii) inside the U.S. in accordance with: (A) Rule 144A under the U.S. Securities Act of 1933, as amended; (B) Rule 144 under the U.S. Securities Act of 1933, as amended, if applicable; or (C) with the prior written consent of ParentCo or LuxCo, as applicable, another exemption from registration under the U.S. Securities Act of 1933. B-3 20 SCHEDULE "C" TERMS AND ANCILLARY AGREEMENTS RELATING TO THE LUXCO EXCHANGEABLE PREFERRED SHARES LuxCo Exchangeable Preferred Share Provisions - --------------------------------------------- The LuxCo Exchangeable Preferred Shares have the following rights, privileges, restrictions and conditions: Ranking The LuxCo Exchangeable Preferred Shares rank senior to LuxCo Common Shares with respect to dividends and liquidating distributions. Voting Rights The LuxCo Exchangeable Preferred Shares are non-voting in LuxCo. All votes in respect of LuxCo are exercised by ParentCo as the holder of all of the voting rights in LuxCo Common Shares. Notwithstanding that the LuxCo Exchangeable Preferred Shares are non-voting, the holders of LuxCo Exchangeable Preferred Shares are permitted to vote as a class with respect to certain matters involving LuxCo. Shareholder Agreement - --------------------- The Shareholder Agreement provides for the following principal terms: Dividends Holders of LuxCo Exchangeable Preferred Shares are entitled to receive dividends equivalent to dividends paid on the number of ParentCo Common Shares into which such LuxCo Exchangeable Preferred Shares may be exchanged. Exchange by the Holder A holder of LuxCo Exchangeable Preferred Shares has the right, at any time at its option, to require LuxCo to exchange its LuxCo Exchangeable Preferred Shares for ParentCo Common Shares. The exchange ratio is set at 1,066.44-for-one (the "Exchange Ratio"), so that each LuxCo Exchangeable Preferred Share is exchangeable for 1,066.44 ParentCo Common Shares. Liquidation Distribution On the liquidation of LuxCo, holders of the LuxCo Exchangeable Preferred Shares are entitled to exchange their LuxCo Exchangeable Preferred Shares for ParentCo Common Shares at the Exchange Ratio. 21 Redemption by LuxCo LuxCo Exchangeable Preferred Shares are automatically exchanged by LuxCo for ParentCo Common Shares at the Exchange Ratio, on December 31, 2011, which automatic redemption date is accelerated in certain circumstances, including: (a) if the number of outstanding LuxCo Exchangeable Preferred Shares falls below 5% of the LuxCo Exchangeable Preferred Shares outstanding immediately following the completion of the transactions contemplated in this Agreement (i.e., the share exchange agreement); or (b) upon the occurrence of a change of control of ParentCo. Anti-Dilution Provisions Since each LuxCo Exchangeable Preferred Share is intended to be economically equivalent to the number of ParentCo Common Shares into which it may be exchanged, the exchange ratio is adjusted in the event that ParentCo undertakes a stock split or consolidation, issues stock dividends or otherwise changes its share capital. Support Agreement - ----------------- The Support Agreement includes covenants of ParentCo: (a) that it will not declare or pay a dividend on ParentCo Common Shares unless LuxCo can simultaneously pay the same dividend on the LuxCo Exchangeable Preferred Shares, and that it will cause LuxCo to declare and pay such equivalent dividend; (b) that it will ensure that LuxCo will have a sufficient number of ParentCo Common Shares in the event of a liquidation of LuxCo; (c) that it will satisfy all exchange requests or redemptions of LuxCo Exchangeable Preferred Shares that will not cause LuxCo to be liquidated or dissolved; (d) that it will not undertake a stock split or consolidation, issue stock dividends or otherwise change its share capital without adjusting the exchange ratio with respect to the number of ParentCo Common Shares into which LuxCo Exchangeable Preferred Shares may be exchanged; and (e) that, so long as there are any outstanding LuxCo Exchangeable Preferred Shares owned by a person other than ParentCo or its affiliates, ParentCo will remain the direct or indirect beneficial owner of all issued and outstanding voting shares in the capital of LuxCo. Voting and Exchange Trust Agreement - ----------------------------------- The Voting and Exchange Trust Agreement provides for the following principal terms: C-2 22 ParentCo Special Voting Preferred Share ParentCo issues to the Trustee a single ParentCo Special Voting Preferred Share. The terms of the ParentCo Special Voting Preferred Share confer on the Trustee that number of votes with respect to matters on which holders of ParentCo Common Shares are entitled to vote, equal to the number of outstanding LuxCo Exchangeable Preferred Shares (multiplied by the exchange ratio), other than LuxCo Exchangeable Preferred Shares held by ParentCo or any affiliates. The Voting and Exchange Trust Agreement provides a mechanism under which holders of LuxCo Exchangeable Preferred Shares may instruct the Trustee how to vote the particular votes conferred by the ParentCo Special Voting Preferred Share relating to the holder's LuxCo Exchangeable Preferred Shares. By virtue of this voting trust mechanism, a holder of LuxCo Exchangeable Preferred Shares has a complete bundle of rights that collectively is equivalent to the rights the holder would have if the holder owned ParentCo Common Shares directly. As a beneficiary of the voting trust, the holder of LuxCo Exchangeable Preferred Shares has the same right to vote in respect of meetings of holders of ParentCo Common Shares as if the holder owned ParentCo Common Shares directly, and as a holder of LuxCo Exchangeable Preferred Shares, the holder has the right to dividends equivalent to those paid in respect of ParentCo Common Shares, and the indirect right to participate in a liquidating distribution of ParentCo by virtue of the right at any time to exchange the LuxCo Exchangeable Preferred Shares into ParentCo Common Shares. Insolvency Put Rights ParentCo grants certain "insolvency put rights" to the holders of LuxCo Exchangeable Preferred Shares. These put rights include: (a) an "automatic exchange right" that would be invoked by the commencement of the voluntary dissolution or liquidation of ParentCo, in which event the LuxCo Exchangeable Preferred Shares would automatically be acquired by ParentCo in exchange for the appropriate number of ParentCo Common Shares; and (b) an "optional exchange right" that would permit the holders of LuxCo Exchangeable Preferred Shares, at their option upon the occurrence of certain insolvency events with respect to LuxCo, to require ParentCo to purchase the LuxCo Exchangeable Preferred Shares directly from the holder, for a purchase price payable in the appropriate number of ParentCo Common Shares to the Trustee in respect of the voting trust, for the benefit of the holders of LuxCo Exchangeable Preferred Shares in the same manner as the voting rights. The insolvency put rights are granted by ParentCo to the Trustee in respect of the voting trust, for the benefit of the holders of LuxCo Exchangeable Preferred Shares in the same manner as voting rights. C-3 EX-1.4 5 0005.txt UNDERWRITING AGREEMENT 1 UNDERWRITING AGREEMENT This Agreement dated for reference the 24th day of July, 2000 BETWEEN: HIPPOCAMPE S.A., 52, avenue Chanoine Cartellier, F-69230 Saint- Genis-Laval, France, a soci,t, anonyme organized under the laws of France AND: MFC MERCHANT BANK S.A., 53, route de Malagnou, P.O. Box 509, CH-1211 Geneva 17, Switzerland, a bank organized under the laws of Switzerland WHEREAS: A. The Corporation owns certain Patents; B. The Corporation proposes to go public and MFC has expertise in assisting companies to go public on securities markets; C. The Corporation wishes to engage MFC to assist it with the Reorganization and to use its best efforts to obtain subscriptions for shares with the objective of raising at least U.S.$10 million and up to U.S.$20 million, plus over-allotments, from the public; D. It is intended that prior to a public offering, the Corporation will effect the Reorganization to directly or indirectly transfer and/or assign to a new company or shell company, among other things, the Patents, the Corporation's rights and obligations under this Agreement and certain outsourcing contracts; and E. The Corporation has and may in the future have certain cash flow requirements and MFC proposes to provide the Corporation a revolving line of credit in the amount of up to Euro 1,300,000. NOW THEREFORE THIS AGREEMENT WITNESSETH that the parties hereby agree as follows: 1. DEFINITIONS For the purposes of this Agreement, including the recitals, and any amendments hereto, unless the context otherwise requires, the following words and phrases shall have the following meanings, respectively: 1.1 "Additional Financing" means any financing and capital raising activities required by the Corporation other than the sale of the Offered Shares contemplated by Sections 2.1 and 2.2 hereof and any amounts advanced under the Credit Facility; 1.2 "Closing Date" means such date as determined by MFC after consultation with the Corporation but in no event later than nine months after the date of this Agreement; 2 2 1.3 "Common Shares" means the common or voting shares in the capital of the Corporation or NewCo, as applicable; 1.4 "Consent Letter" means a letter from Aralis Services S.A. consenting to the transfer and/or assignment of certain outsourcing contracts between the Corporation and Aralis Services S.A. from the Corporation to NewCo, which letter is attached hereto as Schedule B; 1.5 "Conversion Price" means the price equal to Euro 1,170,000/0.10n, where "n" equals the number of Common Shares outstanding on the applicable calculation date, calculated on a post-Reorganization and fully diluted basis; 1.6 "Corporation" means Hippocampe S.A. and any successors and assigns hereof; 1.7 "Credit Facility" means a secured line of credit to be arranged by MFC in favour of the Corporation in an amount of up to Euro 1.3 million; 1.8 "Issue Price" means the price per Offered Share at which MFC will solicit purchasers for the Offered Shares; 1.9 "Major Transaction" means, other than the Reorganization, the occurrence, in one or a series of related transactions, of any of the following: (i) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the Corporation's assets; (ii) the sale, assignment or transfer, in one or a series of related transactions, of all or substantially all of the Patents or the Corporation's other intellectual property rights; or (iii) the acquisition by any person or group of direct or indirect majority in interest (more than 50%) in the Common Shares of the Corporation by way of merger, amalgamation, consolidation, wind up or otherwise; 1.10 "Material change" means a material change for the purposes of the Securities Legislation; 1.11 "Material fact" means a material fact for the purposes of the Securities Legislation; 1.12 "MFC" means MFC Merchant Bank S.A.; 1.13 "Misrepresentation " includes, but is not limited to, a misrepresentation for the purposes of the Securities Legislation; 1.14 "NewCo" means a company mutually agreeable to the Corporation and MFC, being either a new company or an existing, financially sound, "shell" company listed or quoted in the United States; 1.15 "Offered Shares" means the aggregate number of Common Shares to be issued and sold by NewCo pursuant to Sections 2.1 and 2.2 hereof following the completion of the Reorganization; 1.16 "Offering Documents" means the final offering documents of the Corporation approved, signed and certified in accordance with the Securities Legislation relating to the offering and distribution of the Offered Shares through MFC; 1.17 "Option" means the option to sell additional Common Shares pursuant to Section 2.2 hereof; 3 3 1.18 "Patents" means the patents set forth in Schedule C hereto and any existing or future related applications, interests, intellectual property rights, research, studies and technology deriving therefrom or from the AIDS related research of the Corporation; 1.19 "Preliminary Offering Documents" means the preliminary offering documents of the Corporation relating to the offering and distribution of the Offered Shares through MFC; 1.20 "Reorganization" means the direct or indirect transfer and/or assignment by the Corporation to NewCo, in one or a series of related transactions, of, among other things, the following: (i) the Corporation's rights and obligations under this Agreement; (ii) the Patents; and (iii) the outsourcing contracts referenced in the Consent Letter which are still outstanding at the time of the transfer; 1.21 "Scientific Advisory Board" means a scientific advisory board to be constituted prior to the completion of the Offering Documents for the purpose of overseeing the scientific research conducted by the Corporation, consisting of a minimum of three qualified representatives; 1.22 "Securities Commissions" means, collectively, any securities regulatory bodies having jurisdiction over the parties hereto or the transactions contemplated by this Agreement; 1.23 "Securities Legislation" means, collectively, all applicable securities laws and the respective regulations, rulings and orders made thereunder and the applicable policy statements issued by the Securities Commissions thereunder; 1.24 "Supplementary Material" means, collectively, an amendment to the Offering Documents, any amended or supplemental offering documents or any ancillary material, information, evidence, return, report, application, statement or document which may be filed by or on behalf of the Corporation under the Securities Legislation; and 1.25 "Time of Closing" means 2:00 p.m. (Geneva time) on the Closing Date, or such other time on the Closing Date as the Corporation and MFC may agree upon. 2. SALE OF OFFERED SHARES 2.1 Subject to the terms and conditions hereof, the Corporation hereby appoints MFC as, and MFC hereby agrees to act as, the exclusive agent of the Corporation to solicit purchasers for up to U.S.$20 million in Common Shares at the Issue Price on the terms set forth in the Offering Documents and in accordance with the terms and conditions of this Agreement. 2.2 MFC shall have the Option to sell on behalf of the Corporation, for the sole purpose of covering over-allotments, additional Common Shares in an amount equal to 30% of the value of the Common Shares sold pursuant to Section 2.1 hereof, which Option can be exercised by notice in writing given to the Corporation by MFC at any time up to 60 days after the Closing Date. Such notice shall specify the number of Common Shares to be sold pursuant to the Option. 2.3 The Issue Price shall be a price at which MFC in good faith believes that the Offered Shares can be sold, as determined by it after its review of the Corporation and the capital markets and as approved by the Corporation. The number of Common Shares to be offered for sale by MFC pursuant to Section 2.1 hereof will be adjusted and set by MFC after the determination of the Issue Price. 4 4 2.4 MFC shall be entitled in connection with the sale of the Offered Shares to retain as sub-agents a selling group consisting of other registered investment dealers. If MFC retains such sub-agents, MFC may pay them commissions in amounts reasonably determined by MFC, provided that any such commissions do not exceed the commissions payable to MFC hereunder. MFC may direct, in writing, that commissions payable to its sub-agents shall be paid directly by the Corporation; in the event that MFC does not so direct the Corporation, all commissions shall be paid by the Corporation to MFC who shall be responsible for the payment of commissions to the members of its selling group. In addition, if MFC retains such sub-agents, MFC agrees that it, and not the Corporation, shall be responsible for the proper selection of the sub-agents, the proper provision of instructions to the sub-agents and the proper monitoring of the sub-agents. MFC agrees that it shall give reasonable consideration to adding such sub- agents as it and the Corporation may reasonably believe will add value to and contribute to the success of the sale of the Offered Shares, provided that the appointment of any such sub-agents shall be made in accordance with the terms otherwise set forth in this Section 2.4. 2.5 Commissions shall be payable to MFC and its sub-agents hereunder if subscriptions for U.S.$10 million in Offered Shares are deposited with MFC on the day prior to the Closing Date. In the event that subscriptions for U.S.$10 million in Offered Shares are not deposited with MFC on the day prior to the Closing Date: (a) all subscriptions will be returned promptly by MFC to the subscribers without interest or deductions; and (b) the Corporation and MFC shall bear all expenses incurred in the manner provided in Section 9.1 hereof. 2.6 It is understood that MFC intends to make an offering of the Offered Shares on the terms to be set forth in the Offering Documents and in accordance with the terms and conditions of this Agreement. 2.7 Subject to the terms of this Agreement and overall market conditions, MFC shall use all reasonable efforts to conclude the distribution of the Offered Shares as soon as practicable and shall notify the Corporation when such distribution has concluded. 2.8 In connection with the sale of the Offered Shares contemplated in Sections 2.1 and 2.2 hereof, MFC agrees to: (a) advise the Corporation as to the steps and formalities which are needed or recommended in order to make a successful public offering; (b) assist the Corporation to prepare the Preliminary Offering Documents and the Offering Documents; (c) assist the Corporation to comply with the provisions of the Securities Legislation and all other applicable laws; and (d) recommend and market the Offered Shares to MFC's clients and to portfolio managers and securities dealers, both in Europe and North America, as applicable. 5 5 2.9 MFC agrees not to sell the Offered Shares in any jurisdiction, other than Switzerland, unless the Corporation is satisfied, acting reasonably, that the sale will comply with or be exempt from the requirements of the Securities Legislation in such jurisdiction. In this respect, MFC agrees to provide, at the request of the Corporation, mutually satisfactory evidence of compliance or exemption from third parties, at the expense of the Corporation. 3. ANCILLARY OBLIGATIONS OF MFC 3.1 In connection with being appointed as the exclusive agent of the Corporation pursuant to Section 2.1 hereof, MFC agrees to use its reasonable best efforts for a period commencing on the date of this Agreement and expiring 24 months after the completion of the Reorganization (or if the Reorganization is not completed, expiring 24 months after the date of this Agreement) to do the following if and to the extent requested by the Corporation: (a) arrange and make available the Credit Facility; (b) if the Reorganization and the sale of the Offered Shares contemplated in Sections 2.1 and 2.2 hereof are completed, and in accordance with Section 5.4 hereof, arrange for the listing of NewCo on a European stock exchange; and (c) if the Reorganization and the sale of the Offered Shares contemplated in Sections 2.1 and 2.2 hereof are completed, and in accordance with Section 5.4 hereof, arrange Additional Financing, as requested by the Corporation. In connection therewith, MFC agrees to: (i) on terms mutually satisfactory to the Corporation and MFC, incorporate or identify NewCo, transfer the assets of the Corporation to NewCo and otherwise assist the Corporation to complete the Reorganization; (ii) advise generally with respect to investor relations of NewCo and arrange publicity on NewCo's operations and potential; (iii) prepare a written research report with respect to NewCo and partner with a North American associate to cover NewCo's stock; and (iv) publish earnings estimates with respect to NewCo on a regular basis to the investing and brokerage community. In addition, MFC will advise the Corporation generally on fiscal matters as to such matters as may be requested and on such terms as may be mutually agreed upon by the Corporation and MFC. 6 6 4. FULFILMENT MODALITIES 4.1 All subscribers for Offered Shares shall make payments in respect thereof to MFC at its principal office in the City of Geneva. MFC shall retain custody of all subscription payments so received by it and shall deal with the same upon the following terms: (a) at the Time of Closing, it shall pay to the Corporation all subscription payments (less commissions) so received by it and shall advise the Corporation as to the number of Offered Shares subscribed for by each subscriber and the amount of the commission payable in respect of each subscriber; in the event of an over-subscription, MFC may, in agreement with the Corporation, direct which subscriptions for Offered Shares are to be delivered to the Corporation; (b) in the event of termination of this Agreement pursuant to Article 10 hereof, if subscriptions for at least U.S.$10 million in Offered Shares are not received by the day prior to the Closing Date or if the closing of the sale of the Offered Shares is not consummated on or before the Closing Date, MFC shall mail to each subscriber within three days of receipt of such notice, advice or occurrence or following the Closing Date, as the case may be, a cheque in the amount of the subscription payment (including commissions) paid by each subscriber, without interest or deduction, together with the subscription form signed by him, if such subscription payment (less commissions) has not been paid to the Corporation as required under the foregoing provisions of this Section 4.1; and (c) interest accrued on the subscription payments from the time of payment until the Time of Closing shall be credited and applied by MFC towards the expenses of the sale of Common Shares. Payment to the Corporation of the subscription payments (less commissions) shall be made against delivery to MFC at the Time of Closing of subscription agreements accepted by the Corporation representing the Offered Shares (which subscription agreements will have been submitted to the Corporation for approval). At the Time of Closing, the Corporation shall deliver to MFC the requisite certificates, opinions, comfort letters and other such documents provided for in this Agreement or as may reasonably be requested by MFC and a bank draft or certified check made payable to MFC for expenses, fees, etc. Upon delivery of the accepted subscription agreements, the Corporation shall cause its transfer agent, in exchange therefor, to issue and deliver forthwith definitive share certificates for the Offered Shares at such principal offices, in such numbers and condition as to registration as MFC shall have requested not less than 24 hours prior to the Time of Closing. 4.2 The obligation of MFC hereunder to complete the sale of the Offered Shares contemplated in Sections 2.1 and 2.2 hereof shall be subject to the accuracy of the representations and warranties of the Corporation herein contained as of the date hereof and to the due fulfilment of and compliance with the covenants of the Corporation herein contained and to the following additional conditions: (a) on or before the date seven days prior to the Closing Date (or such later date or dates as MFC may approve in writing), the Corporation shall, with MFC's advice, take or cause to 7 7 be taken all steps and proceedings (including the filing of, and the issuance of receipts for, the Offering Documents) that may be requisite under the applicable Securities Legislation to qualify the Offered Shares for sale to the public in all such jurisdictions through registrants who have complied with the relevant provisions of the applicable Securities Legislation; (b) at all times until the distribution of the Offered Shares shall have been completed, the Corporation shall, with MFC's advice and to the satisfaction of counsel for MFC, promptly take or cause to be taken all additional steps and proceedings that from time to time may be requisite under the Securities Legislation to continue so to qualify the Offered Shares or, in the event that the Offered Shares have, for any reason, ceased so to qualify, to re-qualify the Offered Shares; and (c) the Corporation shall complete the Reorganization on terms and by such time satisfactory to MFC and provide such evidence of such completion as MFC may require. 4.3 The Corporation shall deliver to MFC at the Time of Closing a certificate signed by the Chief Executive Officer and by the Chief Financial Officer of the Corporation under its corporate seal, dated the Closing Date, addressed to MFC, to the effect that: (a) the representations and warranties set forth in Section 4.2 hereof and in any certificate of the Corporation delivered to MFC pursuant hereto or in connection herewith, are true and correct as of the Time of Closing with the same force and effect as if made at and as of the Time of Closing after giving effect to the transactions contemplated hereby; (b) the Corporation has duly complied with all the covenants and satisfied all the conditions herein contained to be performed or satisfied by it at or prior to the Time of Closing; (c) no order, ruling or determination having the effect of suspending the sale or ceasing the trading of the Common Shares has been issued and no proceedings for that purpose have been instituted or are pending or are, to their knowledge, contemplated or threatened under any of the Securities Legislation or any securities commission or regulatory authority having jurisdiction elsewhere; and (d) each such officer has carefully examined the Offering Documents and, since the respective dates as of which information is given in the Offering Documents, the Corporation has not incurred any material liabilities or obligations (absolute, accrued, contingent or otherwise) or entered into any transaction not in the ordinary course of business; there has been no material change in the assets, financial position, business or results of operations of the Corporation and, to the best of its knowledge and information, there has occurred no event and exists no state of facts that, under the Securities Legislation, is required to be set forth in an amendment to the Offering Documents that has not been so set forth. 4.4 At the Time of Closing, MFC shall receive favourable legal opinions from counsel for the Corporation, dated the Closing Date, with respect to such relevant matters as MFC may require. 4.5 At the Time of Closing, MFC shall receive a letter from the auditors of the Corporation, dated the Closing Date, addressed to MFC, commenting on the financial statements of the Corporation and certain 8 8 other information of a financial nature contained in the Offering Documents, which letter shall be in substantially the same form and on substantially the same terms as the letter of such auditors addressed to MFC and delivered at the time of the execution of the Offering Documents. 5. OBLIGATIONS AND COVENANTS OF THE CORPORATION 5.1 The Corporation shall provide, at MFC's request and on a timely basis, accurate and complete factual information. The Corporation shall thereafter provide MFC with accurate and complete updates, if any, of such factual information. 5.2 The Corporation agrees with MFC to execute or procure the execution of all documents and to use its best efforts to take or cause to be taken all such steps as may be reasonably necessary or desirable to fulfil to the satisfaction of counsel for MFC and counsel for the Corporation, all legal requirements to enable MFC to offer the Offered Shares for sale. 5.3 The Corporation agrees to pay to MFC at the Time of Closing, upon due completion of the sale of the Offered Shares, a fee equal to 10% of the Issue Price for each Offered Share sold by MFC under Sections 2.1 and 2.2 hereof, such fee to be deducted by MFC from the gross proceeds of the Offered Shares sold. 5.4 In addition to appointing MFC as the exclusive agent of the Corporation pursuant to Section 2.1 hereof, the Corporation hereby grants to MFC for a period commencing on the date of this Agreement and expiring 24 months after the completion of the Reorganization (or if the Reorganization is cancelled, terminated or otherwise not completed, expiring 24 months after the cancellation, termination or non-completion of the Reorganization) the exclusive right, but not the obligation, to provide the services contemplated by this Agreement, including arranging the Credit Facility, facilitating the Reorganization, arranging for a listing on a German stock exchange and arranging for any Additional Financing. The Corporation agrees to pay to MFC a fee equal to 10% of the gross proceeds of any Additional Financing arranged by MFC, provided that MFC shall not be entitled to receive such fees in respect of gross proceeds of subscriptions for Common Shares accepted by MFC and the Corporation and solicited exclusively by shareholders of the Corporation from existing friends, relatives, associates and affiliates, and not by the Corporation or MFC. If the Corporation obtains Additional Financing from a party or parties other than MFC, without the prior written consent of MFC, which consent shall not be unreasonably withheld, the Corporation shall forthwith pay to MFC, in cash or Common Shares at the option of MFC, 10% of all consideration and capital received or receivable by the Corporation from such Additional Financing. 5.5 In consideration of the financial, advisory and other services rendered and to be rendered by MFC in connection with the transactions contemplated by this Agreement, including, without limiting the generality of the foregoing, acting as financial adviser to the Corporation in connection with such transactions, arranging the Credit Facility, facilitating the Reorganization, arranging for a listing on a German stock exchange, assisting in the preparation of the Preliminary Offering Documents and the Offering Documents and related documentation, using its best efforts to effect the distribution and sale of the Offered Shares including distributing the Offered Shares both directly and through other dealers and brokers, performing administrative work in connection with the proposed distribution and sale of the Offered Shares and preparing research reports and earnings estimates, the Corporation agrees to pay to MFC: 9 9 (a) a monthly retainer fee of Euro 10,000 for a period of nine months, commencing on the date hereof, with the first payment to be made at the time of the first advance to the Corporation under the Credit Facility (the "Retainer Fee"); (b) upon completion of the Reorganization, a success fee equal to 4% of the issued and outstanding Common Shares following the completion of the Reorganization, calculated on a fully diluted basis; and (c) upon the successful listing of NewCo on a German stock exchange, a fee of Euro 150,000 for such listing and for arranging associated market making activities to be paid either in cash or Common Shares at the option of MFC. 5.6 Any amounts which are payable by the Corporation to MFC hereunder shall be paid by bank drafts or certified cheques payable at par in Euros in immediately available funds. 5.7 As part of MFC's compensation for the services to be performed by it under this Agreement, the Corporation agrees to issue and deliver to MFC the following share purchase warrants and to execute and deliver warrant certificate(s) setting forth the terms and conditions of the share purchase warrants, which shall be substantially in the form of the warrant certificate attached hereto as Schedule A: (a) warrants to be issued on the date of the first advance of funds under the Credit Facility (the "Advance Date") entitling MFC to convert an amount equal to the maximum principal amount of the Credit Facility of Euro 1,300,000 into 10% of the Common Shares, calculated on a post- Reorganization and fully diluted basis and determined on the date of the completion of the Reorganization (the "Conversion Rate"), exercisable at any time up to and including the date three years after the Advance Date at a price equal to the Conversion Price calculated on the date of the completion of the Reorganization; (b) warrants to be issued on the Advance Date entitling MFC to convert an amount equal to the Retainer Fee of Euro 90,000 under the Agreement and the arrangement fee of Euro 130,000 and interest under the Credit Facility into Common Shares at the Conversion Rate, exercisable at any time up to and including the date three years after the Advance Date at a price equal to the Conversion Price calculated on the date of the completion of the Reorganization; and (c) warrants to be issued at the Time of Closing in an amount equal to 2% of the Common Shares issued and outstanding after the sale of the Offered Shares contemplated by Sections 2.1 and 2.2 hereof, calculated on a fully diluted basis, exercisable at any time up to and including the date three years after the Closing Date at a price equal to 115% of the Issue Price. 5.8 The Corporation covenants and agrees, as hereinafter set out, with MFC, now and at all times subsequent hereto during the distribution of the Offered Shares, that: (a) the Offering Documents will fully comply with the requirements of the Securities Legislation; (b) the Offering Documents will during such period provide full, true and plain disclosure of all material facts relating to the Corporation and to the Offered Shares; and 10 10 (c) the Offering Documents will not during such period contain any misrepresentation or any untrue, false or misleading statement of a material fact or omit to state any material fact required to be stated therein or necessary to make any statement therein, in the light of the circumstances in which it is made, not false or misleading, provided, however, that the foregoing covenants of the Corporation shall not apply with respect to information and statements contained in the Offering Documents or omissions from the Offering Documents which, in either case, relate solely to MFC, and provided further, that the foregoing covenants shall not be considered to be contravened as a consequence of any material change occurring after the date hereof or the occurrence of any event or state of facts after the date hereof which is of such a nature as to render the Offering Documents as then amended untrue, false or misleading or result in a misrepresentation in the Offering Documents or result in the Offering Documents containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statement therein in the light of the circumstances in which it was made not false or misleading if, in each such case, the Corporation complies with the provisions of Section 5.10 hereof. 5.9 The Corporation shall promptly inform MFC in writing during the period of the distribution of the Offered Shares of the full particulars of any material change (actual, anticipated or threatened) in the assets, liabilities (contingent or otherwise), business operations or capital of the Corporation considered as a whole or of any change in any material fact contained or referred to in the Offering Documents or any Supplementary Material, which is, or may be, of such a nature as to make any statement of such fact a misrepresentation or untrue, false or misleading or result in a misrepresentation in the Offering Documents or any Supplementary Material. If the Corporation is uncertain as to whether a material change (actual, anticipated or threatened) as aforesaid has occurred, the Corporation shall promptly inform MFC of the full particulars of the event giving rise to the uncertainty and shall consult with MFC as to whether such event constitutes a material change as aforesaid. In the event that, in the opinion of MFC, such a material change has occurred, MFC may terminate its obligations under this Agreement in the manner contemplated by Section 10.5 hereof. 5.10 The Corporation also agrees, during the period from the date hereof and prior to the completion of the distribution of the Offered Shares, promptly to advise MFC of any change in any material fact contained in the Offering Documents or any Supplementary Material or whether any event or state of facts has occurred after the date hereof which, in any case, is of such a nature as to render the Offering Documents or any Supplementary Material untrue or misleading in a material respect or to result in a misrepresentation in the Offering Documents or any Supplementary Material, including as a result of the Offering Documents or any Supplementary Material containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statement therein, in the light of the circumstances in which it was made, not false or misleading. 5.11 During the course of the distribution of the Offered Shares by or through MFC, the Corporation shall advise MFC promptly of any request of any Securities Commission or other securities commission or regulatory authority for amendment of or supplement to the Offering Documents or any Supplementary Material or for any additional information, of the issuance by any Securities Commission or other securities commission or regulatory authority of any cease trading or stop order relating to the Common Shares (including the Offered Shares), or of the institution or threat of institution of any proceeding for that purpose, or of the receipt by the Corporation of any communication from any Securities Commission or other securities commission or regulatory authority relating to the Offering Documents, any Supplementary Material or the offering of the Offered Shares referred to herein. The 11 11 Corporation shall use its best efforts to prevent the issuance of any such cease trading or stop order and, if issued, to obtain the withdrawal thereof as soon as possible. 5.12 During the period commencing on the date hereof and ending on the 180th day following the Closing Date, without the prior written consent of MFC, the Corporation shall not issue or announce the issuance of any Common Shares or any other securities which are convertible into or exchangeable for Common Shares; provided, however, that this covenant shall not apply to the Offered Shares or any other securities to be distributed by, through or to MFC as contemplated herein. 5.13 The net proceeds to the Corporation from the issuance and sale of the Offered Shares shall be applied as indicated under "Use of Proceeds" in the Offering Documents. 5.14 The Corporation shall, with MFC's advice, take all necessary steps and promptly file or cause to be filed with any stock exchanges designated by MFC all necessary documents to ensure that all the issued Common Shares (including the Offered Shares) are listed and posted for trading on the said exchange(s) as soon as practicable after the Closing Date. 5.15 The Corporation shall allow MFC, from the date of this Agreement until not earlier than 24 months after the completion of the Reorganization (or if the Reorganization is cancelled, terminated or otherwise not completed, until not earlier than 24 months after the cancellation, termination or non-completion of the Reorganization), to elect or appoint one non-executive director to the board of directors of the Corporation. The Corporation shall also allow MFC, from the date of this Agreement until not earlier than 24 months after the completion of the Reorganization (or if the Reorganization is cancelled, terminated or otherwise not completed, until not earlier than 24 months after the cancellation, termination or non-completion of the Reorganization), to propose nominees to the Scientific Advisory Board for consideration by the Corporation and to approve nominees to the Scientific Advisory Board proposed by the Corporation. 5.16 The Corporation shall arrange for its own registrar and transfer agent required in connection with any of the transactions contemplated by this Agreement. 5.17 The Corporation shall at all times allow MFC and its representatives to conduct all due diligence investigations and examinations which MFC may reasonably require in order to fulfil its obligations as agent, in order to avail itself of a defense to any claim for misrepresentation in the Offering Documents and in order to enable MFC to responsibly execute any certificate in the Offering Documents which may be required to be executed by MFC. 6. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION The Corporation hereby represents and warrants, and acknowledges that MFC is relying on such representations and warranties in entering into this Agreement, that: 6.1 The Corporation has been duly incorporated and organized and is validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite corporate power and authority to carry on its business as now conducted and as presently proposed to be conducted, to own, lease and operate its properties and assets and to carry out the provisions hereof; 6.2 The Corporation has conducted and is conducting its business in compliance in all material respects with all applicable laws, rules and regulations of its jurisdiction in which its business is carried 12 12 on and is duly licensed, registered or qualified in all jurisdictions in which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated, and all such licenses, registrations and qualifications are valid and subsisting and in good standing and none of the same contains any burdensome term, provision, condition or limitation which has an adverse effect on the operation of its business as now carried on; 6.3 The descriptions of the assets and the liabilities of the Corporation set out in the balance sheets of the Corporation as at December 31, 1998 and December 31, 1999, including the notes thereto, are true and correct, accurately and fairly present the financial position and condition of the Corporation as at the respective dates thereof, reflect all liabilities (absolute, accrued, contingent or otherwise, as applicable) of the Corporation as at the respective dates thereof, and have been prepared in accordance with French generally accepted accounting principles applied on a consistent basis; 6.4 The Corporation has no subsidiaries; 6.5 The authorized capital of the Corporation is in the amount of FF 782,000 divided into 7,820 Common Shares of FF 100 each of which, as at the date hereof, 7,820 Common Shares (and no more) are issued and outstanding as fully paid and non-assessable and, other than MFC, no person, firm or corporation now has (except pursuant hereto) any agreement or option, or right or privilege (whether pre-emptive or contractual) capable of becoming an agreement (including convertible securities or warrants) for the purchase, subscription or issuance of any unissued shares, securities or warrants of the Corporation, as applicable; 6.6 The statements of earnings, retained earnings and changes in financial position of the Corporation, as applicable, for the five most recent fiscal periods, including the notes thereto, in each case accurately and fairly present the results of the operations of the Corporation for the respective periods covered thereby and have been prepared in accordance with French generally accepted accounting principles applied on a consistent basis throughout such period; 6.7 There is no action, proceeding or investigation pending or, to the knowledge of the Corporation and its directors and officers, threatened, against or affecting the Corporation, at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission, board or agency, domestic or foreign, which could in any way materially adversely affect the Corporation or the condition (financial or otherwise) of the Corporation or which questions the validity of the sale of the Offered Shares or any action taken or to be taken by the Corporation pursuant to or in connection with this Agreement; 6.8 The Corporation has not, directly or indirectly, declared or paid any dividend or declared or made any other distribution on any of its shares or securities of any class, or, directly or indirectly, redeemed, purchased or otherwise acquired any of its shares or securities, and has not agreed to do any of the foregoing during the last five completed fiscal years; 6.9 There is not, in the constating documents or by-laws of the Corporation, any restriction upon or impediment to the declaration or payment of dividends by the directors of the Corporation or the payment of dividends by the Corporation to the holders of the Common Shares; 6.10 There is no person, firm or corporation acting or purporting to act for the Corporation entitled to any brokerage or finder's fee in connection with this Agreement or any of the transactions contemplated hereunder, except as provided herein, and in the event any person, firm or corporation acting or 13 13 purporting to act for the Corporation establishes a claim for any such fee from MFC, the Corporation covenants to indemnify and hold harmless MFC with respect thereto and with respect to all costs reasonably incurred in the defence thereof, other than as disclosed in writing by the Corporation to MFC on or before the date hereof; 6.11 This Agreement has been duly authorized, executed and delivered on behalf of the Corporation and is a legal, valid and binding obligation of the Corporation enforceable in accordance with its terms; 6.12 The Corporation is conducting its respective businesses in compliance in all material respects with all applicable licensing and anti- pollution legislation, regulations or by-laws, environmental protection legislation, regulations or by-laws or other similar legislation, regulations or by-laws or other lawful requirements of any governmental or regulatory bodies which are applicable to the Corporation. The Corporation is not aware of any such legislation, regulation, by-law or lawful requirement currently in force or proposed to be brought into force by any governmental authority which the Corporation anticipates it will be unable to comply with without materially adversely affecting its business; 6.13 The Corporation is not in default or breach of, and the execution and delivery of this Agreement, the performance and compliance with the terms of this Agreement and the issuance and sale of the Offered Shares by the Corporation will not result in any breach of, or be in conflict with or constitute a default under, or create a state of facts which after notice or lapse of time, or both, would constitute a default under, any term or provision of the constating documents or by-laws of the Corporation, any resolutions passed or consented to by the directors or shareholders of the Corporation or any mortgage, note, indenture, contract, agreement (written or oral), instrument, lease or other document to which the Corporation is a party or any judgement, decree, order, statute, rule or regulation applicable to the Corporation, and no terms or provision thereof materially adversely affects the business, operations or condition (financial or otherwise) of the Corporation or its properties or assets; 6.14 None of the directors or senior officers of the Corporation, any holder of more than 10% of the outstanding Common Shares or any associate or affiliate of any of the foregoing persons or companies has had any material interest, direct or indirect, by way of beneficial ownership in the Common Shares or otherwise, in any transaction or in any proposed transaction which has materially affected or will materially affect the Corporation, other than as disclosed by the Corporation to MFC on or before the date hereof; 6.15 The Corporation has duly and on a timely basis filed all tax returns to be filed by it, has paid all taxes due and payable by it and has paid all assessments and re-assessments and all other taxes, governmental charges, penalties, interest and other fines due and payable by it and which are claimed by any governmental authority to be due and owing and adequate provision has been made for taxes payable for any fiscal period ended for which tax returns are not yet required to be filed, if required; there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any tax return or payment of any tax, governmental charge or deficiency by the Corporation; there are no actions, suits, proceedings, investigations or claims threatened or pending against the Corporation in respect of taxes, governmental charges or assessments or any matters under discussion with any governmental authority relating to taxes, governmental charges or assessments asserted by any such authority; 6.16 All of the material agreements of the Corporation have been duly authorized, executed and delivered by each of the parties thereto and are legal, valid and binding obligations of the parties thereto enforceable in accordance with their respective terms against each of the parties thereto; and 14 14 6.17 To the best of the Corporation's knowledge, all necessary patent applications in respect of the Patents have been duly filed and the Corporation has good and valid title to the Patents, and the Corporation did not disclose to the public the existence of the subject matter of any of the Patents prior to the date of filing of each of the Patents. 7. REPRESENTATIONS AND WARRANTIES OF MFC MFC hereby represents and warrants, and acknowledges that the Corporation is relying on such representations and warranties in entering into this Agreement, that: 7.1 MFC has been duly incorporated and organized and is validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite corporate power and authority to carry its business; 7.2 There is no action, proceeding or investigation pending or, to the knowledge of MFC and its directors and officers, threatened, against or affecting MFC, at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission, board or agency, domestic or foreign, which could in any way materially adversely affect MFC or the condition (financial or otherwise) of MFC or which could adversely affect the offering of Common Shares under this Agreement; and 7.3 This Agreement has been duly authorized, executed and delivered on behalf of MFC and is a legal, valid and binding obligation of MFC enforceable in accordance with its terms. 8. INDEMNIFICATION, CONTRIBUTION, ETC. 8.1 The Corporation covenants and agrees to protect, indemnify and hold harmless MFC and its sub-agents and each director, officer and employee or agent of MFC and its sub-agents, from and against any and all losses, claims, damages, liabilities (whether arising under the Securities Legislation or otherwise), costs or expenses caused or incurred: (a) by reason of or arising out of any information or statement contained in the Preliminary Offering Documents, in the Offering Documents, in any Supplementary Material or otherwise which is or is alleged to be untrue or by reason of or arising out of the omission or alleged omission to provide any information or state any fact the omission of which makes or is alleged to make any such information or statement untrue or misleading in the light of the circumstances in which it was made; and/or (b) by reason of or arising out of the omission or alleged omission to state in the Preliminary Offering Documents, in the Offering Documents, in any Supplementary Material or otherwise, any material fact; and/or (c) by reason of or arising out of any misrepresentation or alleged misrepresentation contained in the Preliminary Offering Documents, in the Offering Documents, in any Supplementary Material or otherwise; and/or (d) by reason of or arising directly or indirectly out of any order, inquiry or investigation of the type referred to in Section 10.2(c) or (d) hereof; and/or 15 15 (e) by reason of or arising from a breach of any representation or warranty contained in this Agreement or any non- compliance with the Securities Legislation. 8.2 Notwithstanding Section 8.1 hereof, the indemnification contained in Section 8.1 does not and shall not apply in respect of any losses, claims, damages, liabilities, costs or expenses caused or incurred by reason of or arising out of any statement, omission, misrepresentation, order, inquiry, investigation or other matter or thing referred to in Section 8.1 which is based upon or results from any information relating solely to MFC and which is furnished in writing to the Corporation by MFC expressly for use in the Preliminary Offering Documents or in the Offering Documents, or in any Supplementary Material. 8.3 In the event that any claim, action, suit or proceeding, including, without limiting the generality of the foregoing, any inquiry or investigation (whether formal or informal) is brought or instituted against any of the persons or corporations in respect of which indemnification is or might reasonably be considered to be provided for in Section 8.1 hereof, such person or corporation (the "Indemnified Party") shall promptly notify the Corporation and the Corporation shall promptly retain counsel who shall be reasonably satisfactory to the Indemnified Party to represent the Indemnified Party in such claim, action, suit or proceeding and the Corporation shall pay all of the reasonable fees and disbursements of such counsel relating to such claim, action, suit or proceeding. 8.4 In any such claim, action, suit or proceeding, the Indemnified Party shall have the right to retain other counsel to act on his or its behalf; provided that the fees and disbursements of such other counsel shall be paid by the Indemnified Party unless: (a) the Corporation and the Indemnified Party shall have mutually agreed to the retention of such other counsel; or (b) the named parties to any such claim, action, suit or proceeding (including any added, third or impleaded parties) include both the Corporation and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them (such as the availability of different defences). 8.5 Notwithstanding anything contained in this Article 8, neither the Corporation nor MFC shall agree to any settlement of any such claim, action, suit or proceeding unless the other has consented in writing thereto, and the Corporation shall not be liable for any settlement of any such claim, action, suit or proceeding unless it has consented in writing thereto. 8.6 To the extent that the indemnification provided for in Section 8.1 hereof (as qualified by Section 8.2 hereof) is unavailable, in whole or in part, for any reason to an Indemnified Party in respect of any losses, claims, damages, liabilities, costs or expenses (or claims, actions, suits or proceedings in respect thereof) referred to therein, the Corporation shall contribute to the amount paid or payable (or, if such indemnity is unavailable only in respect of a portion of the amount so paid or payable, such portion of the amount so paid or payable) by such Indemnified Party as a result of such losses, claims, damages, liabilities, costs or expenses (or claims, actions, suits or proceedings in respect thereof): (a) in such proportion as is appropriate to reflect the relative benefits received by the Corporation on the one hand and MFC on the other hand from the offering of the Offered Shares; or 16 16 (b) if the allocation provided by subsection (a) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in subsection (a) above but also the relative fault of the Corporation on the one hand and MFC on the other hand in connection with the information, statement, omission, misrepresentation, order, inquiry, investigation or other matter or thing referred to in Section 8.1 hereof which resulted in such losses, claims, damages, liabilities, costs or expenses (or claims, actions, suits or proceedings in respect thereof), as well as any other relevant equitable considerations. The parties hereto agree that the relative benefits received by the Corporation on the one hand and MFC on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of the fee payable to MFC but before deducting expenses) received by the Corporation is to the fee received by MFC, as set forth in the Offering Documents. The relative fault of the Corporation on the one hand and of MFC on the other shall be determined by reference to, among other things, whether the information, statement, omission, misrepresentation, order, inquiry, investigation or other matter or thing referred to in Section 8.1 hereof which resulted in such losses, claims, damages, liabilities, costs or expenses (or claims, actions, suits or proceedings in respect thereof) relates to information supplied by or steps or actions taken or done by or on behalf of the Corporation or to information supplied by or steps or actions taken or done by or on behalf of MFC and the relative intent, knowledge, access to information and opportunity to correct or prevent such statement, omission, misrepresentation, order, inquiry, investigation or other matter or thing referred to in Section 8.1 hereof. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages, liabilities, costs or expenses (or claims, actions, suits or proceedings in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such losses, claims, damages, liabilities, costs or expenses (or claims, actions, suits or proceedings in respect thereof), whether or not resulting in any such action, suit, proceeding or claim. The parties agree that it would not be just and equitable if contribution pursuant to this Section 8.6 were determined by any method of allocation which does not take into account the equitable considerations referred to above in this Section 8.6. 8.7 The rights and remedies of MFC set forth in Sections 8.1, 8.2, 8.3, 8.4, 8.5 and 8.6 hereof are, to the fullest extent possible in law, mutually exclusively and are cumulative and not alternative and the election by MFC to exercise any such right or remedy shall not be, and shall not be deemed to be, a waiver of the other such rights and remedies. 8.8 If any provision of Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6 or 8.7 hereof is determined to be void, voidable or unenforceable, in whole or in part, such determination shall not affect or impair or be deemed to affect or impair the validity of any other provision of this Agreement and such void, voidable or unenforceable provision shall be severable from this Agreement. 9. GENERAL 9.1 All costs and expenses of or incidental to the transactions herein contemplated and the issuance and sale of the Offered Shares hereunder are to be assumed and paid by the Corporation, including, without limiting the generality of the foregoing, the fees, disbursements and other costs associated with the arranging of the Credit Facility, the completion of the Reorganization and the arranging for a listing on a German stock exchange, the engraving or lithographing of the definitive share certificates for the 17 17 Common Shares, the fees, charges and expenses of the transfer agent and registrar of the Common Shares, fees and disbursements of counsel to MFC, the fees and expenses payable, if any, to stock exchanges, the fees and disbursements of qualifying the offering of the Offered Shares for sale to the public under the Securities Legislation, the preparation and printing of the Preliminary Offering Documents, the Offering Documents and any amendments or supplements thereto and the said definitive certificates, the fees, charges and expenses of counsel and auditors of the Corporation and all facsimile, telex, telephone and other correspondence charges, legal fees and travelling and entertainment expenses. Unless otherwise specified herein, all costs and expenses shall be payable by the Corporation within 25 days from the date of billing by MFC. MFC agrees to provide to the Corporation for approval (which shall not be unreasonably withheld) estimates of any such costs and expenses to exceed $3,000 per item. 9.2 Unless otherwise specified, all monetary amounts referred to in this Agreement are in Euros. 9.3 The Corporation shall take all necessary steps to secure a written agreement to ensure the continuing involvement of Dr. Pierre Francois Serres as a leading researcher for the Corporation, to be effective as of the date of this Agreement and to expire not earlier than the later of three years from the date of this Agreement or the completion of the last milestone of the Business Plan with respect to NewCo as existing at the date of this Agreement. The Corporation shall also enter into a non- competition agreement with Dr. Serres extending at least two years beyond the end of Dr. Serres' contractual involvement with the Corporation. 10. TERMINATION OF AGREEMENT 10.1 The Corporation agrees that the conditions contained in Sections 4.2, 4.3, 4.4 and 4.5 hereof will be complied with so far as the same relate to acts to be performed or caused to be performed by the Corporation, that it will use its best efforts to cause such conditions to be complied with and that if any of the said conditions are not complied with, MFC may give notice to the Corporation as hereinafter provided terminating its obligations hereunder and in such event the obligations of MFC hereunder shall be at an end. It is understood that MFC may waive in whole or in part non-compliance with any of the conditions contained herein or extend the time for compliance therewith without prejudice to its rights in respect of any other condition or conditions or any other or subsequent breach or non-compliance, provided that any such waiver or extension shall be binding upon MFC only if the same is in writing. 10.2 The obligations of MFC contained in this Agreement may also be terminated by MFC in the event that prior to the Time of Closing: (a) there should develop, occur or come into effect any catastrophe of national or international consequence or any accident, governmental law or regulation or other occurrence of any nature whatsoever which, in the opinion of MFC, seriously affects or will seriously affect the financial markets or the business of the Corporation; (b) the state of the financial markets becomes such that the Offered Shares cannot, in the sole opinion of MFC, be profitably marketed; (c) any order is made suspending trading in the Common Shares or any order to cease or suspend trading in Common Shares is made pursuant to any of the Securities Legislation or is made by any other regulatory authority, and has not been rescinded, revoked or withdrawn; 18 18 (d) any inquiry or investigation (whether formal or informal) in relation to the Corporation or the Corporation's directors or officers, is commenced or threatened by any officer or official of any of the Securities Commissions or by any officer or official of any other regulatory authority which operates to prevent or restrict trading in or distribution of the Common Shares or the Offered Shares or which impacts the marketability of the Offered Shares; (e) there shall have occurred any adverse material change in relation to the Corporation or a development that could reasonably result in an adverse material change in relation to the Corporation; or (f) MFC determines, in its sole discretion, that the results of any due diligence investigation are not satisfactory. 10.3 Each Party which is not in default of its obligations under this Agreement shall be authorized to terminate this Agreement if the other party does not fulfill or properly fulfill all or part of its obligations under this Agreement. In such a case, a reasonable and appropriate deadline shall be fixed in writing by the obliging party to the non- obliging party. Failing fulfilment of the relevant obligation(s) by the non-obliging party within the set deadline, the obliging party shall be entitled to give notice in writing of immediate termination of this Agreement without prejudice of any damages. If the obliging party elects not to terminate the Agreement, it shall nevertheless retain all its rights to claim fulfilment of the Agreement or damages for non-fulfilment. 10.4 The obligations, but not the rights, of any party under this agreement shall terminate in the event of bankruptcy, winding up or similar proceedings involving such party. 10.5 Any termination pursuant to the provisions of this Agreement shall be effected by notice given in accordance with Section 11.1 hereof; provided always that notwithstanding the giving of any notice of termination hereunder, the Corporation shall pay the expenses referred to in Section 9.1 hereof incurred up to the time of giving such notice. 10.6 The right of MFC to terminate this Agreement pursuant to the provisions of this Article 10 is in addition to such other remedies as it may have in respect of any default, misrepresentation, act or failure to act of the Corporation in respect of any of the matters contemplated by this Agreement. 10.7 It is understood and agreed that MFC may exercise any or all of its rights provided for in this Article 10 notwithstanding the occurrence of any of the matters referred to in Sections 5.9 or 5.10 hereof and notwithstanding any act or thing done or taken by MFC or any inaction of MFC, whether before or after the occurrence of any such matter, including, without limiting the generality of the foregoing, any act of MFC related to the offering or to the continued offering of the Offered Shares for sale to the public and any act taken by MFC in connection with the Offering Documents or any amendment or supplement thereto relating to any such matter, including the execution of an amendment to the Offering Documents, and MFC shall only be considered to have waived or to be estopped from exercising or relying upon any of its rights under any Section of this Article 10 if such waiver or estoppel is in writing and specifically waives such exercise or reliance. 19 19 10.8 In the event of a termination by MFC of its obligations under this Agreement, as herein provided, the Corporation shall continue to be liable to MFC under this Agreement and, in particular, without limitation, under Section 9.1 and Article 8 hereof. 10.9 If the Corporation effects a Major Transaction and fails to proceed with the offering of Common Shares contemplated in Sections 2.1 and 2.2, the Corporation shall pay to MFC in cash or Common Shares at the option of MFC an amount equivalent to, as applicable, 10% of the aggregate sale, lease or transfer price of the assets sold, leased or transferred in the Major Transaction, 10% of the aggregate sale, assignment or transfer price of the Patents or other intellectual property rights sold, assigned or transferred in the Major Transaction, or 10% of the aggregate sale price of the Common Shares, calculated on a fully diluted basis, in the Major Transaction. Notwithstanding the foregoing, the parties shall retain all other rights and obligations of the parties under this Agreement. 10.10 If MFC arranges for a bona fide lender willing to provide a secured line of credit of up to Euro 1.3 million under the Credit Facility with terms of repayment and interest rates that are reasonably on "market terms" offered by other Swiss, French or U.S. banks to other similar creditworthy clients and the Corporation refuses such facility, the Corporation shall immediately pay a fee of Euro 130,000 to MFC. 10.11 If the Reorganization is cancelled, terminated or otherwise not completed by the Corporation, other than solely as a direct result of the actions or fault of MFC, the outstanding balance of the Credit Facility shall become immediately due and payable on the terms and conditions applicable under the Credit Facility and the Corporation shall immediately issue to MFC, Common Shares equivalent to 10% of the issued and outstanding Common Shares, calculated on a fully diluted basis. The Corporation shall remain obligated to pay to MFC any other costs, expenses, fees or other compensation contemplated by this Agreement for any other services performed under this Agreement. 11. NOTICES 11.1 Any notice required or permitted to be given hereunder by either party shall be given by notice in writing addressed to the President of the notified party hand delivered or sent by registered mail to the respective address mentioned on the first page of this Agreement, or to any new address previously notified to the other party. Any such notice shall be deemed to have been given and received at the time of hand delivery or delivery by the relevant postal service, as the case may be. 12. SUCCESSORS AND ASSIGNS 12.1 All the terms and provisions of this Agreement shall be binding upon and enure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns but shall not be assignable by the parties hereto prior to the Time of Closing without the written consent of the other parties. 12.2 The parties hereby acknowledge and agree that: (i) as part of and upon the Reorganization being completed, the Corporation may transfer and assign (the "Assignment") its rights and obligations under this Agreement to NewCo, upon terms satisfactory to the Corporation and MFC; (ii) from and after the date of the Reorganization and such Assignment the rights and obligations of the Corporation under this Agreement (including the representations and warranties) will be assumed by NewCo; and (iii) the Corporation after the Reorganization and Assignment shall be released from its obligations except as may be otherwise agreed upon by the Corporation in the Assignment. 20 20 13. CANCELLATION OF PREVIOUS AGREEMENTS 13.1 This Agreement supersedes all prior understandings and agreements, whether written or oral, between the parties relating to the transactions provided for herein, including the letter agreement between the parties dated May 4, 2000. 14. SURVIVAL 14.1 It is understood and agreed that all warranties, representations, covenants, indemnities and agreements of the Corporation herein contained or contained in any certificates or documents submitted pursuant to or in connection with the transactions herein referred to shall survive the sale of the Offered Shares and the termination of this Agreement and shall continue in full force and effect for the benefit of MFC regardless of any investigation by or on behalf of MFC with respect thereto for a period of two years following the Closing Date. 15. AMENDMENTS 15.1 This Agreement may be amended or modified by an agreement in writing executed by the parties hereto. Except as aforesaid, no amendment, waiver or modification of this Agreement shall be effective. 16. SEVERABILITY 16.1 Should a provision of this Agreement be or become invalid, the validity of the remaining provisions of this Agreement shall not be affected. The parties hereto undertake to replace any such invalid provision without delay with a valid provision which as nearly as possible duplicates the economic intent of the invalid provision. 17. ENGLISH VERSION 17.1 The parties hereby represent, warrant, acknowledge and agree that: (i) they have agreed that this Agreement be drawn up in the English language; and (ii) the English version of this Agreement shall govern for all purposes. 18. GOVERNING LAW 18.1 This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties shall be governed by, the laws of Switzerland. 19. JURISDICTION 19.1 Each of the parties irrevocably attorns to the exclusive jurisdiction of the Swiss courts in Geneva (Switzerland). 21 21 20. COUNTERPARTS 20.1 This Agreement may be executed in any number of counterparts, each of which when delivered, either in original or facsimile form, shall be deemed to be an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF the parties have executed this Agreement in two counterparts, one for each party. HIPPOCAMPE S.A. Per: --------------------- Authorized Signatory MFC MERCHANT BANK S.A. Per: --------------------- Authorized Signatory 22 SCHEDULE A SHARE PURCHASE WARRANTS THE SHARE PURCHASE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS EXERCISED ON OR BEFORE 2:00 P.M. (GENEVA TIME) ON --- [INSERT NAME OF THE CORPORATION] WARRANT SHARE PURCHASE WARRANTS CERTIFICATE --- NO. TO PURCHASE COMMON SHARES --- --- This is to certify that for value received (the "Holder") is the --- registered holder of a warrant evidencing a right issued by (the --- "Corporation") to the Holder to subscribe for and purchase up to and including fully paid and non-assessable common shares in the capital --- of the Corporation (the "Common Shares") upon the terms and conditions as hereinafter set forth. Exercise Date - ------------- The right granted hereunder to purchase Common Shares shall be exercised on or before 2:00 p.m. (Geneva time) on (the "Expiry Date"), after which --- all rights conferred hereunder shall be void and of no further value. Exercise Price - -------------- The exercise price shall be the sum of per Common Share (the "Exercise --- Price"). Exercise of Warrant - ------------------- The rights granted hereunder may be exercised, in whole or in part, at any time prior to the Expiry Date by the Holder hereof completing the subscription form attached hereto and made a part hereof and delivering same to the Corporation, located at Attention: together ---, --- with this certificate and the appropriate sum payable to the order of the Corporation, at par in the amount of the Exercise Price of the Common Shares subscribed for, which may not exceed the number shown on the face hereof. Payment - ------- The Common Shares subscribed for must be paid in full at the time of subscription, by certified cheque or bank draft payable to or to the order of the Corporation. Share Certificate - ----------------- Upon compliance with the conditions as aforesaid, the Corporation will cause to be issued to the person or persons in whose name or names the Common Shares so subscribed for are to be issued the number of Common Shares subscribed for and such person or persons shall be deemed upon presentation and payment as aforesaid, to be the holder or holders of record of such Common Shares. Within fourteen days 23 A-2 of compliance of the conditions aforesaid, the Corporation will cause to be mailed or delivered to the Holder at the address or addresses specified in the subscription form a certificate or certificates evidencing the number of Common Shares subscribed for. Exchange of Warrant Certificates - -------------------------------- Each warrant certificate may be exchanged for another certificate or certificates entitling the Holder thereof to purchase a like aggregate number of Common Shares as the certificate or certificates surrendered then entitle such Holder to purchase. Any Holder desiring to exchange a warrant certificate or certificates shall make such request in writing delivered to the Corporation, and shall surrender, properly endorsed, the certificate or certificates to be so exchanged. Thereupon, the Corporation shall execute and deliver to the person entitled thereto a new warrant certificate or certificates, as the case may be, as so requested. Mutilated or Missing Warrant - ---------------------------- In case any warrant shall be mutilated, lost, stolen or destroyed, the Corporation may issue and deliver in exchange and substitution for and upon cancellation of the mutilated warrant, or in lieu of and in substitution for the warrant lost, stolen or destroyed, a new warrant of like tenor and representing an equivalent right or interest. Transfer of Warrant - ------------------- This warrant shall be transferable upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. Upon any transfer, the Corporation shall deliver a new warrant or warrants to the persons entitled thereto. Exercise in Whole or in Part - ---------------------------- This warrant may be exercised in whole or in part, and if exercised in part, the Corporation shall issue another certificate, in a form evidencing the remaining rights to purchase Common Shares, provided that any such right shall terminate on the Expiry Date. No Fractional Common Shares - --------------------------- No fractional Common Shares will be issued on exercise of this warrant, nor shall any compensation be made for such fractional Common Shares, if any. Representations - --------------- The Corporation represents, warrants and covenants that any and all Common Shares transferred and sold to a Holder upon each warrant exercise shall be: (i) duly and validly created and issued by the Corporation; (ii) fully paid and non-assessable; (iii) validly outstanding; and (iv) free and clear of all liens, charges or encumbrances whatsoever. 24 A-3 Dilution - -------- In the event of any reclassification, subdivision or redivision of the issued Common Shares at any time prior to the Expiry Date into a greater number of Common Shares (including the declaration of payment of any stock dividend), the Corporation shall deliver at the time of any exercise thereafter of the right hereby granted, at no additional cost to the Holder hereof, all Common Shares which represent the Common Shares over which the right would have been exercised if such exercise of the right hereby granted had been prior to the date of reclassification, subdivision or redivision. In the event of any consolidation or change in the Common Shares at any time prior to the Expiry Date to a lesser number of Common Shares, the Corporation shall deliver at the time of any exercise thereafter of the rights only such lesser number of Common Shares as represented by the Common Shares over which the rights would have been exercised if such exercise of the right hereby granted had been prior to the date of such consolidation or change. The Holder hereof shall pay for such Common Shares an amount calculated by multiplying the Exercise Price by the number of Common Shares over which the right would have been exercised if such exercise had been prior to the date of such consolidation or change. In the event that the Corporation shall at any time prior to the Expiry Date, amalgamate, consolidate with or merge into another corporation, the Holder hereof shall thereafter receive, upon the exercise of his rights, the securities or property to which a Holder of the number of Common Shares then delivered upon the exercise of the within rights would have been entitled to upon such amalgamation, consolidation or merger, and the Corporation will take steps in connection with such amalgamation, consolidation or merger as may be necessary to ensure that the provisions hereof shall thereafter be applicable, as near as reasonably may be in relation to any securities or properties thereafter delivered upon the exercise of the rights hereby granted. A sale of all or substantially all of the assets of the Corporation for a consideration (apart from the assumption of obligations), consisting primarily of securities, shall be deemed a consolidation, amalgamation or merger for the foregoing purposes. Upon any adjustment of the number of Common Shares which may be purchased by this warrant, and/or the purchase price per Common Share, the Corporation shall give written notice to the Holder of this warrant, determined as of the date of notice, giving particulars of such adjustment. In the event the Corporation agrees to sell all or substantially all of the assets of the Corporation for cash, it shall give the Holder hereof at least thirty days notice prior to the date of finalization of such proposed sale, determined as of the date of notice. Successors - ---------- All of the covenants and provisions of this warrant by or for the benefit of the Corporation or the Holders shall bind and enure to the benefit of their respective successors and assigns hereunder. IN WITNESS WHEREOF the Corporation has caused its corporate seal to be affixed hereto and this certificate to be signed by the signature of a duly authorized officer effective this day of . --- --- [INSERT THE NAME OF THE CORPORTION] Per: ---------------------- (Authorized Signatory) 25 A-4 SUBSCRIPTION FORM ----------------- (To be executed upon exercise of Share Purchase Warrant) The undersigned hereby subscribes for the undernoted Common Shares of at the Exercise Price of per Common Share. --- --- Number of Common Shares: --------------------------- Total Exercise Price: --------------------------- Subscriber's Signature: --------------------------- Subscriber's Address: --------------------------- Dated: --------------------------- Note: payment of the Total Exercise Price must be included. 26 A-5 TRANSFER FORM ------------- For value received, hereby sells, ---------------------------------- assigns and transfers unto Share ---------------------------------- Purchase Warrants represented by this Warrant Certificate, and do hereby irrevocably constitute and appoint as Attorney to ------------------------- transfer the said Share Purchase Warrants on the books of the Corporation with full power of substitution in the premises. Dated: ----------------, --------- In the presence of: - ------------------------------ ----------------------------- 27 SCHEDULE B CONSENT OF ARALIS SERVICES S.A. TO: HIPPOCAMPE S.A. We confirm that we have received and reviewed a copy of the underwriting agreement between Hippocampe S.A. and MFC Merchant Bank S.A. dated for reference July 24, 2000 (the "Underwriting Agreement"). We hereby consent to the assignment of our existing outsourcing contracts with Hippocampe S.A. from Hippocampe S.A. to NewCo (as defined in the Underwriting Agreement) pursuant to the proposed Reorganization (as defined in the Underwriting Agreement). Dated for reference this 24th day of July, 2000. ARALIS SERVICES S.A. Per: --------------------- Authorized Signatory 28 SCHEDULE C LIST OF PATENTS OF THE CORPORATION Application No. Application Date Publication No. - --------------- ---------------- --------------- 97/14387 November 17, 1997 2711011 PCT/FR98/02447 November 17, 1998 W099/25377 99/06528 May 21, 1999 N/A PCT/FR00/01399 May 22, 2000 N/A EX-1.5 6 0006.txt CREDIT FACILITY AGREEMENT 1 THIS CREDIT FACILITY AGREEMENT dated for reference the 27th day of July, 2000, BETWEEN: MFC MERCHANT BANK S.A., a bank organized under the laws of Switzerland (hereinafter, the "Lender") AND: HIPPOCAMPE S.A., a societe anonyme organized under the laws of France (hereinafter, the "Borrower") WHEREAS the Borrower has requested that the Credit Facility be made available by the Lender to the Borrower and the Lender has agreed to make the Credit Facility available to the Borrower upon the terms and conditions set out herein. NOW THEREFORE THIS AGREEMENT WITNESSES that the parties hereto agree as follows: ARTICLE 1 - INTERPRETATION Section 1.1. Definitions. When used in this agreement (including the recitals and schedules hereto) (the "Agreement") or in any amendment hereto, the terms listed in Schedule B hereto shall, unless otherwise expressly provided, have the meanings assigned to them therein. ARTICLE 2 - THE CREDIT FACILITY Section 2.1. Credit Facility. The Lender shall make available to the Borrower in accordance with, and subject to the terms and conditions of, this Agreement, until August 31, 2001 (the "Maturity Date"), a revolving term facility in the principal amount of up to Euro 1,300,000 (the "Credit Facility") and made available to the Borrower by way of Advances in accordance with Section 2.2 hereof. Section 2.2. The Advances. On the terms and conditions set forth herein the Lender, from time to time, on any banking day, prior to the Maturity Date, agrees to make advances to the Borrower ("Advances"). Each Advance shall be in an aggregate amount of not less than Euro 50,000 and in integral multiples of Euro 10,000. Section 2.3. Making the Advances. Each Advance shall be made on three banking days' notice. Each such notice shall be given by a borrowing notice in form satisfactory to the Lender (the "Borrowing Notice") which shall specify therein (i) the requested date of such Advance; (ii) the aggregate amount of such Advance; and (iii) the Outstanding Amount having given effect to such Advance. Section 2.4. Use of Proceeds. The Borrower shall use all Advances to fund: (i) fees associated with registering and maintaining the registration of the Patents; (ii) operating and research activities until December 31, 2000; and (iii) working capital and general corporate activities. ARTICLE 3 - REPAYMENT Section 3.1. Payments. The Borrower shall pay or repay to the Lender on the Maturity Date all amounts owing under the Credit Facility and not previously paid or repaid hereunder, without set-off, counterclaim or deduction, unless, in the case of set-off, such set-off is specifically acknowledged in writing by the Lender. 2 2 Section 3.2. Interest on Advances. The Borrower shall pay to the Lender on the first banking day of each calendar month (the "Interest Payment Dates"), the first such date falling on October 1, 2000, Interest on the unpaid principal amount of each Advance made to it from the date of such Advance in Euros, until such principal amount shall be repaid in full, at the Interest Rate. Interest shall accrue from day to day and shall be compounded monthly in arrears. Section 3.3. Fees. Provided the Lender is prepared to make Advances to the Borrower up to the amount set forth in Section 2.1 hereof, the Borrower shall pay the Lender on the Closing Date an arrangement fee equal to Euro 130,000 (the "Arrangement Fee"), whether or not any Advances are made under this Agreement; provided that the parties hereto may agree in writing to include the Arrangement Fee as an Outstanding Amount, with Interest to be paid thereon in accordance with Section 3.2 hereof and to be repaid in accordance with Section 3.1 hereof. Section 3.4. Borrower's Right to Prepay the Loan. The Borrower may, on ten banking days' prior notice given to the Lender, prepay the outstanding aggregate principal amount of the Advances made to the Borrower under the Credit Facility, in whole or in part, together with accrued Interest to the date of such prepayment on the amount prepaid. Each prepayment shall be in a principal amount of not less than Euro 50,000 and in integral multiples of Euro 10,000 thereafter. ARTICLE 4 - SECURITY Section 4.1. Security. As general and continuing security for the performance of all Obligations of the Borrower under the Credit Facility Documents, the Borrower shall deliver to the Lender, in form and substance satisfactory to the Lender: (a) on or prior to the Closing Date, a pledge agreement in the aggregate principal amount of Euro 1,300,000, which agreement shall pledge all existing and future pecuniary claims of the Borrower against third parties; (b) on or prior to the Closing Date, a pledge agreement in the aggregate principal amount of Euro 1,300,000, which agreement shall pledge the Patents (now existing and hereafter acquired or registered); and (c) at or prior to the time of completion of the Reorganization, a demand debenture in the aggregate principal amount of Euro 1,300,000 duly created by the Borrower in favour of the Lender, which debenture shall contain a first fixed and specific charge and security interest on the interest of the Borrower in and to all of its property, assets and undertakings and a floating charge on the interest of the Borrower in and to all of its other property, assets and undertakings not otherwise specifically mortgaged and charged under the debenture. In addition, as general and continuing security for the performance of all Obligations of the Borrower under the Credit Facility Documents, the Borrower undertakes to pledge to the Lender, until the debenture contemplated in Section 4.1(c) above is delivered to the Lender, any of its future patents derived from the Patents, in and restricted to the field of human and animal AIDS, each time and as soon as such future patent comes into existence, and to deliver to the Lender a patent pledge agreement in form and substance satisfactory to the Lender; provided that the Lender at the time of entering into each future patent pledge agreement simultaneously undertakes in writing to the Borrower and any other party designated by the Borrower not to hinder the applications of such future patents in fields other than human and animal AIDS. Section 4.2. Continued Perfection and Agreed Releases of Security. The Borrower shall take such action and execute and deliver to the Lender such agreements, conveyances, deeds and other documents and instruments as the Lender shall reasonably request for the purpose of establishing, perfecting, preserving and protecting the Security, in each case forthwith upon request therefor by the Lender and in form and 3 3 substance reasonably satisfactory to the Lender. ARTICLE 5 - CONDITIONS PRECEDENT TO THE ADVANCES Section 5.1. Conditions Precedent to the Initial Advance. The obligation of the Lender to make its initial Advance is subject to the fulfillment of: (i) the conditions precedent set forth in Section 5.2; and (ii) the following conditions precedent: (a) the Lender shall have received, in a form satisfactory to it: (i) copies certified by a senior officer of the Borrower of its Charter Documents, the resolutions of its board of directors approving the Credit Facility Documents and all documents evidencing any necessary corporate action of the Borrower with respect to the Credit Facility Documents; (ii) a certificate of good standing for the Borrower; and (iii) a favourable opinion of Borrower's counsel as to such matters as the Lender may require; (b) the Credit Facility Documents shall have been executed and delivered to the Lender, the Security shall have been created, and all registrations, filings or recordings necessary or desirable to preserve, protect or perfect the enforceability and priority of the Security shall have been completed, all in such form, content and manner as is satisfactory to the Lender; (c) all of the representations and warranties contained in Article 6 hereof shall be correct on and as of the Closing Date as though made on and as of such date; and (d) the Lender shall have received such other documents as it may reasonably request. Section 5.2. Conditions Precedent to All Advances. The obligation of the Lender to make an Advance and the right of the Borrower to deliver a Borrowing Notice shall be subject to the condition precedent that on the date of such Advance and after giving effect thereto and to the application of proceeds therefrom: (i) the representations and warranties contained in Article 6 hereof are true and correct in every material respect on the date of the Advance as if made on and as at such date; (ii) no event has occurred and is continuing, or would result from such Advance, which constitutes or would, with the giving of notice or the passage of time, constitute an Event of Default; (iii) such Advance will not violate any applicable Law; (iv) there have been no amendments to the Charter Documents or authorizing resolutions of the Borrower, subsequent to those delivered to the Lender pursuant to Section 5.1(a) which are material to the ability of the Borrower to enter into this Agreement and any of the other Credit Facility Documents and to perform its obligations hereunder and thereunder; and (v) the Lender shall have received, if requested, such other certificates and documentation as it may reasonably request with respect to the foregoing and opinions from Borrower's counsel updating opinions previously delivered. ARTICLE 6 - REPRESENTATIONS AND WARRANTIES Section 6.1. Representations and Warranties by the Borrower. The Borrower represents and warrants to the Lender as outlined in Schedule C hereto. ARTICLE 7 - COVENANTS OF THE BORROWER Section 7.1. Affirmative Covenants. Until the Obligations are paid and satisfied in full and this Agreement has been terminated, the Borrower shall (or, if applicable, shall cause the relevant action to take place): (a) Financial Reporting. Deliver to the Lender as soon as available and in any case within 45 days or 90 days after the end of each financial quarter or year, respectively, quarterly and audited annual financial statements of the Borrower prepared in accordance with French 4 4 GAAP and certified by a senior officer of the Borrower as being true and correct in all material respects; (b) Corporate Existence. Preserve and maintain in full force and effect its corporate existence and all qualifications to carry on the Borrower's business; (c) Compliance with Laws, etc. Comply with all applicable Laws, non-compliance with which could have a Material Adverse Effect; (d) Payment of Taxes and Claims. Pay and discharge before the same shall become delinquent: (i) all Taxes, assessments and Official Body charges or levies; and (ii) all lawful claims which, if unpaid, might become a Lien upon or in respect of the Borrower's business or the Borrower's assets or properties; (e) Visitation, Inspection, etc. Permit the Lender or any representative thereof on reasonable notice to visit and inspect the Borrower's business, to examine the Borrower's records and make copies and take extracts therefrom, and to discuss the Borrower's affairs, finances and accounts with the officers of the Borrower at such reasonable times during normal office hours and as often as may be reasonably requested; (f) Notice of Default. Promptly notify the Lender in writing of any Default or Event of Default or any default, or event, condition or occurrence which with notice or lapse of time, or both, would constitute a default, under any agreement; (g) Maintain Registration of Patents. File all such materials, documents and applications, and take all such actions, as are necessary to maintain the validity and proper registration of the Patents; (h) Maintain Title. Maintain and, as soon as reasonably practicable, defend and take, all action necessary or advisable at any time, and from time to time, to maintain, defend, exercise or renew its right, title and interest in and to all of its property and assets; (i) Pay Obligations to Lender and Perform Other Covenants. Make full and timely payment of its Obligations hereunder and duly comply with the terms and covenants contained in each of the Credit Facility Documents, all at the times and places and in the manner set forth therein, and at all times take all action necessary to maintain the Liens provided for under or pursuant to this Agreement and the Security Documents as valid and perfected first Liens on the property intended to be covered thereby (subject only to Permitted Encumbrances); (j) Notices of Official Body Action. Promptly notify the Lender in writing of any notice of any action by any Official Body or any action, suit, proceeding or investigation (or any basis therefor) pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower before any Official Body, where the amount involved exceeds Euro 50,000 or the equivalent amount in another currency; (k) Debenture. Execute and deliver to the Lender the debenture contemplated in Section 4.1(c) hereof at or prior to the time of completion of the Reorganization; (l) Reorganization. Complete the Reorganization on or before February 1, 2001 on terms satisfactory to the Lender and furnish the Lender with such evidence of such completion as the Lender may require; and 5 5 (m) Further Assurances. At its cost and expense, upon request by the Lender, duly execute and deliver, or cause to be duly executed and delivered, to the Lender, such further instruments and do and cause to be done such other acts as may be necessary or proper in the reasonable opinion of the Lender to carry out more effectually the provisions and purposes of this Agreement and the other Credit Facility Documents. Section 7.2. Negative Covenants. Until the Obligations are paid and satisfied in full and this Agreement has been terminated, the Borrower shall not (or if applicable shall not permit the relevant action to take place), unless the Lender otherwise consents in accordance with the provisions of this Agreement: (a) Liens. Create, incur, assume or suffer to exist any Lien on any of its property or assets now owned or hereafter acquired other than the Liens created prior to the entering into of this Agreement or Liens created by the Security and any Permitted Encumbrances; (b) Debt. Create, incur, assume or suffer to exist, contingently or otherwise, any Debt other than Debt created prior to the entering into of this Agreement or Debt created by this Agreement; (c) Change in Nature of Business. Make or permit to exist any change, condition, event or occurrence in or with respect to the nature of its business which when taken individually with all other changes, conditions, events or occurrences could reasonably be expected to have a Material Adverse Effect; (d) Mergers, etc. Enter into or agree to enter into any transaction or series of related transactions (whether by way of reconstruction, reorganization, consolidation, combination, amalgamation, merger, transfer, sale, lease, modification or otherwise), other than in connection with the Reorganization, whereby: (i) all or substantially all of the Borrower's undertaking, property or assets will become the property of any other person or the continuing corporation resulting therefrom; (ii) all or substantially all of the AIDS Related Intellectual Property Rights will become the property of any other person; (iii) there would be permitted any change in the direct or indirect Control of the Borrower; or (iv) the corporate structure of the Borrower would be modified, changed, altered or amended in any manner; (e) Reorganization. Complete the Reorganization without taking such action and without executing and delivering to the Lender such agreements, conveyances, deeds and other documents and instruments as the Lender shall request in connection therewith for the purpose of preserving and protecting the Security, in each case forthwith upon request therefor by the Lender and in form and substance satisfactory to the Lender; (f) Distributions. Prior to payment in full of all Obligations hereunder, make any payment on account of a redemption or a distribution or return of capital (including, without limitation, cash dividends or any repayment of shareholder loans or distributions) to any shareholder or holder of securities; (g) Use of Proceeds. Other than repayments of advances to the Borrower by Aralis S.A. in the aggregate amount of FFr. 600,000 used by the Borrower for patent fees and registration and PCT extensions, use the proceeds of any Advance made available to it hereunder for repayment of any shareholder loans or short-term loans or redemption of any shareholder capital without the prior written consent of the Lender; (h) Subsidiaries. Create any Subsidiaries or transfer and/or assign any assets or operations to any Subsidiaries; and 6 6 (i) Agreements with Related Parties. Enter into any agreement or arrangement with any person with whom the Borrower does not deal at arm's-length, including any affiliate thereof. Section 7.3. Warrants. As part of the Lender's compensation for the services to be performed by it under this Agreement, the Borrower agrees to issue and deliver to the Lender the following share purchase warrants and to execute and deliver warrant certificate(s) setting forth the terms and conditions of the share purchase warrants, which shall be substantially in the form of the warrant certificate attached as Schedule A to the underwriting agreement made between the Borrower and the Lender dated for reference July 24, 2000 (the "Underwriting Agreement"): (a) warrants to be issued on the Closing Date entitling the Lender to convert an amount equal to the maximum amount set forth in Section 2.1 hereof of Euro 1,300,000 into 10% of the common shares of the Borrower (the "Common Shares"), calculated on a post-Reorganization and fully diluted basis and determined on the date of the completion of the Reorganization (the "Conversion Rate"), exercisable at any time up to and including the date three years after the Closing Date at a price equal to Euro 1,170,000/0.10n, where "n" equals the number of Common Shares outstanding on the applicable calculation date, calculated on the date of the completion of the Reorganization on a post- Reorganization and fully diluted basis (the "Conversion Price"); and (b) warrants to be issued on the Closing Date entitling the Lender to convert an amount equal to the retainer fee of Euro 90,000 under the Underwriting Agreement and the Arrangement Fee of Euro 130,000 and the Interest under this Agreement into Common Shares at the Conversion Rate, exercisable at any time up to and including the date three years after the Closing Date at a price equal to the Conversion Price. It is understood by both parties hereto that the issuance and delivery of the share purchase warrants pursuant to Section 5.7 of the Underwriting Agreement satisfies the obligations of the Borrower to issue and deliver the warrants described in this Section 7.3. ARTICLE 8 - EVENTS OF DEFAULT Section 8.1. Events of Default. An event of default ("Event of Default") shall have occurred and be continuing in respect of the Borrower if: (a) Failure to Make Payments. The Borrower shall fail to pay any principal, Interest, fees or other amounts hereunder when the same becomes due and payable and in the case of Interest, fees and other amounts, the failure shall remain unremedied for a period of three banking days following notice from the Lender to the Borrower; (b) Representations and Warranties Incorrect. Any representation or warranty made by the Borrower herein or in any other Credit Facility Document or any representation, warranty or certification made by the Borrower (or any of their officers) in any certificate or other writing delivered in connection with any of the Credit Facility Documents, or any representation or warranty deemed to be made by the Borrower provided herein or therein, shall prove to have been incorrect in any material respect when made or deemed to be made; (c) Failure to Perform Negative Covenants. The Borrower shall fail to observe any of the negative covenants or financial covenants contained in the Credit Facility Documents including, without limitation, in Section 7.2; 7 7 (d) Failure to Perform Other Covenants. The Borrower shall fail to perform or observe any other term, covenant or agreement contained in any of the Credit Facility Documents and such failure shall remain unremedied for 15 days; (e) Failure to Pay Debts to Third Parties. The Borrower shall fail to pay the principal of or premium or interest on any Debt which is outstanding in an aggregate principal amount in excess of Euro 50,000 (or the equivalent amount in any other currency) when the same becomes due and payable and such failure shall remain unremedied for a period of five banking days; (f) Event of Bankruptcy. The Borrower shall commit or permit to exist any Event of Bankruptcy in respect of the Borrower; (g) Judgments. Any judgment or order for the payment of money in excess of Euro 50,000 (or the equivalent amount in any other currency) in respect of the Borrower shall be rendered against the Borrower and enforcement proceedings shall have been commenced by any creditor upon such judgment or order and not stayed within 10 days; (h) Unenforceability. This Agreement or any Credit Facility Document shall, at any time after execution and delivery, and for any reason (other than in accordance with the respective terms), cease to be in full force and effect or shall be declared to be null and void, or the validity or enforceability of any thereof shall be contested by the Borrower or any other party thereto, or the Borrower or any other such party shall deny that it has any further liability or obligation thereunder; (i) Challenge to Security. Any of the Security shall at any time after the execution and delivery of the relevant Security Document and for any reason cease to constitute a valid and subsisting Lien (subject only to Permitted Encumbrances) in respect of the assets and properties referred to therein or cease to rank in priority or in the matter contemplated herein other than by reason of the act or omission of the Lender; (j) Material Adverse Effect. There occurs any change, condition, event or occurrence which, when considered individually or together with all other changes, conditions, events or occurrences could reasonably be expected to have a Material Adverse Effect; (k) Failure to Complete Reorganization. The Borrower shall terminate, cancel or otherwise not complete the Reorganization on or before February 1, 2001; or (l) Failure to Deliver Debenture. The Borrower shall fail to execute and deliver to the Lender the debenture contemplated in Section 4.1(c) hereof at or prior to the time of completion of the Reorganization, then in any such event, the Lender may by notice to the Borrower: (i) cancel all the obligations of the Lender in respect of the Credit Facility, whereupon no further Advances may be made; (ii) declare the Obligations under the Agreement to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable; and (iii) take all steps and proceedings as, in the opinion of the Lender is necessary or desirable to preserve, protect or enforce the Security. ARTICLE 9 - MISCELLANEOUS Section 9.1. Notices, etc. Except as otherwise expressly provided herein, all notices, requests, demands, directions and communications by one party to the other shall be sent by hand delivery or registered mail, and shall be effective when hand delivered or when delivered by the relevant postal service, as the case may be. All such notices shall be addressed to the President of the notified party at its address 8 8 given on the signature page of this Agreement, or in accordance with any unrevoked written direction from such party to the other party in accordance with this Section 9.1. Section 9.2. Reimbursement for Certain Expenses. (1) The Borrower shall pay or cause to be paid and shall indemnify and save the Lender harmless against liability for the payment of all reasonable out-of-pocket expenses, including without limitation counsel or compliance review fees and expenses and disbursements incurred by the Lender in connection with, among other things, the preparation or review of documentation pursuant to this Agreement, on-site inspections by the Lender or the enforcement or preservation of rights under this Agreement or the other Credit Facility Documents or any agreement or instrument contemplated hereby or thereby, including such expenses as may be incurred by the Lender in the collection of the Obligations or any litigation, proceeding or dispute in any way relating to the Obligations or the Credit Facility Documents. (2) The parties hereto may agree in writing to include any expenses as an Outstanding Amount, with Interest to be paid thereon in accordance with Section 3.2 hereof and to be repaid in accordance with Section 3.1 hereof. Section 9.3. No Waiver; Remedies. No failure on the part of the Lender or the Borrower to exercise, and no delay in exercising, any right under any of the Credit Facility Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any of the Credit Facility Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by Law. Section 9.4. Taxes, Costs, etc. All payments by the Borrower under this Agreement and the other Credit Facility Documents shall be made free and clear of, and without deduction or withholding for, Taxes unless such Taxes are required by Law to be deducted or withheld. If the Borrower shall be required by Law to deduct or withhold any Taxes from or in respect of any sum payable under this Agreement or the other Credit Facility Documents: (i) the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings applicable to additional amounts paid under this Section 9.4, the Lender receives an amount equal to the sum it would have received if no deduction or withholding had been made; (ii) the Borrower shall make such deductions or withholdings; and (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxation authority or other authority in accordance with applicable Law. Section 9.5. Right of Set-Off. Upon the occurrence and during the continuance of any Event of Default, the Lender shall have the right, to the fullest extent permitted by Law, to set off and apply any and all deposits at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower, against any and all of the obligations of the Borrower now or hereafter existing under any of the Credit Facility Documents. Section 9.6. Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder to the Lender from Euros (the "Original Currency") into the Judgment Currency, the parties hereto agree that the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase the Original Currency with the Judgment Currency on the banking day preceding that on which final judgment is paid or satisfied. Section 9.7. Governing Law. The Credit Facility Documents shall be governed by, and construed in accordance with, the laws of Switzerland and shall be treated in all respects as Swiss contracts without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. Section 9.8. Consent to Jurisdiction. (1) Each of the parties hereby irrevocably attorns to the non-exclusive jurisdiction of the Courts of Geneva (Switzerland) in any action or proceeding arising out of or 9 9 relating to this Agreement, or any other Credit Facility Document. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. (2) Nothing in this Section 9.8 shall affect the right of the Lender to serve legal process in any other manner permitted by Law or affect the right of the Lender to bring any action or proceeding against the Borrower or its property in the courts of other jurisdictions. Section 9.9. English Version. The parties hereby represent, warrant, acknowledge and agree that: (i) they have agreed that this Agreement be drawn up in the English language; and (ii) the English version of this Agreement shall govern for all purposes. Section 9.10. Successors and Assigns. The Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender, which consent may be arbitrarily withheld. Section 9.11. Severability. If one or more provisions of this Agreement and/or a Security Document be or become invalid, or unenforceable in whole or in part in any jurisdiction, the validity of the remaining provisions of this Agreement and/or a Security Document shall not be affected. The parties hereto undertake to replace any such invalid provision without delay with a valid provision which as nearly as possible duplicates the economic intent of the invalid provision. Section 9.12. Counterparts. This Agreement may be executed in counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWER ------------ HIPPOCAMPE S.A. 52, avenue Chanoine Cartellier F-69230 Saint-Genis-Laval France Per: -------------------------- Authorized Signing Officer Per: -------------------------- Authorized Signing Officer THE LENDER ----------- MFC MERCHANT BANK S.A. 53, route de Malagnou P.O. Box 509 CH-1211 Geneva 17 Switzerland Per: -------------------------- Authorized Signing Officer Per: -------------------------- Authorized Signing Officer 10 SCHEDULE A LIST OF PATENTS OF BORROWER Application No. Application Date Publication No. - --------------- ---------------- --------------- 97/14387 November 17, 1997 2711011 PCT/FR98/02447 November 17, 1998 W099/25377 99/06528 May 21, 1999 N/A PCT/FR00/01399 May 22, 2000 N/A 11 SCHEDULE B DEFINITIONS "AIDS Related Intellectual Property Rights" means the Patents and any existing or future related AIDS applications, interests, intellectual property rights, research, studies and technology deriving therefrom or from the AIDS related research of the Borrower; "BBA" means the British Bankers' Association; "BBA Libor" means the one month Euro London Inter-Bank Offered Rate fixed daily by the BBA; "Charter Documents" means constating documents and by-laws, and all amendments thereto; "Closing Date" means two banking days following satisfaction by the Borrower or waiver by the Lender of all conditions to Advance set out in the Credit Documents or such other date as may be agreed upon by the parties; "Consent" means any permit, license, approval, consent, order, right, certificate, judgment, writ, injunction, award, determination, direction, decree, authorization, franchise, privilege, grant, waiver, exemption and other concession or by-law, rule or regulation; "Control" over a person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or other equity interest, representation on its board of directors or body performing similar functions, by contract or otherwise. The terms "Controlling" and "Controlled" will have corollary meanings; "Credit Facility Documents" means the Agreement, the Security Documents and the Information Documents and all other documents to be executed and delivered to the Lender or by the Borrower thereunder; "Debt" of any person means: (i) all indebtedness of such person for and in respect of borrowed money, including obligations with respect to bankers' acceptances, letters of credit and letters of guarantee; (ii) all indebtedness of such person for the deferred purchase price of property or services represented by a note or other evidence of indebtedness or other security; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even though the rights or remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (iv) all obligations under leases which, in accordance with GAAP (or accounting principles generally accepted in the jurisdiction of incorporation or organization of such person), are recorded as capital leases in respect of which such person is liable as lessee; (v) the aggregate amount at which any shares in the capital of such person which are redeemable or retractable at the option of the holder thereof may be retracted or redeemed; and (vi) all Debt Guaranteed by such person; provided that obligations related to any grant or subsidy which is to be reimbursed on a revenue or profit success basis are not considered Debt under this definition; "Debt Guaranteed" by any person means the maximum amount which may be outstanding at any time of all Debt of the kind referred to in (i) through (v) or the definition of Debt which is directly or indirectly guaranteed by such person or such person agreed (contingently or otherwise) to purchase or otherwise acquire, or in respect of which such person is otherwise assured a creditor against loss by means of an indemnity, security or bond; 12 B-2 "Event of Bankruptcy" means, in respect of any person, that such person shall generally not pay its Debts as such Debts become due, or shall admit in writing its inability to pay its Debts generally as they become due, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any such person seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding-up, a reorganization, arrangement, adjustment, protection, relief or a composition of it or its Debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or for the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against such person (but not instituted by such person), either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against such person or for the appointment of a receiver, trustee, custodian or other similar official for such person or for any substantial part of its property) shall occur; or such person shall take any action to authorize any of the actions set forth above; "Information Documents" means, collectively, at any time and in any form, information provided by the Borrower or on behalf of the Borrower to the Lender in writing in respect of the Borrower's business, including, without limitation, all certificates, the financial statements of the Borrower and all materials reasonably requested by the Lender for the purpose, inter alia, of providing such information to prospective assignees, all as from time to time amended, supplemented or replaced; "Interest" means the interest accrued on Advances outstanding from time to time at the Interest Rate compounded monthly not in advance, and payable, in arrears, on the Interest Payment Dates; "Interest Periods" means, collectively, periods of one month, each subsequent period commencing upon the expiry of the prior period, and "Interest Period" means any one such period. Interest shall be calculated on the basis of a year of 360 days and the actual number of days (including the first day but excluding the last day) occurring in the period for which such Interest is payable; "Interest Rate" means, at any time, Libor plus 4% per annum. With each successive Interest Period the Libor shall be reset on the second banking day prior to the commencement of the Interest Period and there shall be a corresponding change in the rate of interest payable under the Agreement without the necessity of prior notice thereof to the Borrower or any other person; "Judgment Currency" means the currency in which a court of competent jurisdiction may render judgment in connection with any litigation relating to the repayment of any amounts under the Agreement; "Law" means any law (including common law and equity), constitution, statute, order, treaty, regulation, rule, ordinance, order, injunction, writ, judgment, determination, decree or award of any Official Body; "Libor" means BBA Libor or, if no such published rate is then available, the rate of interest calculated by the Lender, as being the arithmetic average (rounded up, if necessary, to the nearest full multiple of 1/16 of one percent) at which, in accordance with its normal practice, it would be prepared to offer to leading banks in the London interbank market for delivery on the first day of the particular Interest Period and for a period equal to such Interest Period based on the number of days comprised therein, deposits in Euros of amounts comparable to the Principal Sum or the balance outstanding thereof during such Interest Period, at or prior to 11:00 a.m. London, England, local time on the second banking day prior to an Advance and thereafter on the second banking day prior to the commencement of each subsequent Interest Period; "Lien" means any mortgage, pledge, lien, hypothecation, security interest or other encumbrance or charge (whether fixed, floating or otherwise) or title retention, any right of set-off (arising otherwise than by operation of Law) and any deposit of monies under any agreement or arrangement whereby such monies may be withdrawn only upon the fulfillment of any condition as to the discharge of any other indebtedness or other obligation to any creditor, or any right of or arrangement of any kind with any creditor to have its claim 13 B-3 satisfied prior to other creditors with or from the proceeds of any properties, assets or revenues of any kind now owned or later acquired; "Material Adverse Effect" means: (i) a material adverse effect on the property or assets of the Borrower and its Subsidiaries taken as a whole; (ii) a material adverse effect on the condition or prospects, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole; (iii) a material adverse effect on the ability of the Borrower to perform and comply with the Agreement or to pay or perform any of the Obligations; (iv) a material adverse effect on the priority, effectiveness or enforceability of the Security; or (v) a material adverse effect on the condition or prospects, financial or otherwise, of the Borrower; "Obligations" means all obligations, liabilities and indebtedness of the Borrower to the Lender with respect to the principal of and Interest on Advances and the payment or performance of all other obligations, liabilities and indebtedness of the Borrower to the Lender under the Agreement or arising under and pursuant to any one or more of the Credit Facility Documents or with respect to the Advances and all fees, costs, expenses and indemnity obligations thereunder; "Official Body" means any government or political subdivision or any agency (including, without limitation, any licensing or regulatory agency), body, office, authority, bureau, central bank, monetary authority, commission, department or instrumentality thereof, or any court, board, tribunal, grand jury or arbitrator, commission or instrumentality thereof, whether foreign or domestic and, when used in the context of a particular person having jurisdiction over such person; "Outstanding Amount" means, in respect of the Credit Facility, on any day, an amount calculated and expressed in Euros equal to the aggregate principal amount of all Advances made by the Lender under the Credit Facility; "Patents" means the patents set forth in Schedule A hereto and any existing or future related AIDS applications deriving therefrom or from the AIDS related research of the Borrower; "Permitted Encumbrances" means, in respect of the Borrower, from time to time, any Lien not intentionally created by the Borrower and covering an asset which the Lender determines (acting reasonably) not to be required for or integral to the operation of the business of the Borrower or the effectiveness or value of the Security, and in respect of which Lien either (i) the same is discharged or (ii) the Borrower provides the Lender such substituted security as the Lender shall consider satisfactory, in either (i) or (ii) above within 15 days of written notice from the Lender to the Borrower; "Reorganization" means a reorganization of the Borrower contemplated in the Underwriting Agreement pursuant to which the Borrower may directly or indirectly transfer and/or assign to a new company or an existing "shell" company, in one or a series of related transactions, among other things, the following: (i) the Borrower's rights and obligations under the Underwriting Agreement; (ii) the AIDS Related Intellectual Property Rights; and (iii) certain outsourcing contracts; "Security" means the security given to the Lender, at any time and from time to time to secure the Obligations, including, without limitation, the security referred to in Section 4.1 of the Agreement; "Security Documents" means the documents referred to in Section 4.1 of the Agreement and the agreements, instruments and documents delivered from time to time to the Lender by the Borrower or any other person, for the purpose of establishing, perfecting, preserving and protecting the Security; and "Security Document" means any one of them as the context prescribes or requires; 14 B-4 "Subsidiary" means, at any time, as to any person, any corporation, partnership or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at such time directly or indirectly owned by such a person; and "Taxes" means any and all present or future taxes (including, without limitation, all stamp, documentary, excise or property taxes), levies, imposts, deductions, charges or withholdings and liabilities with respect thereto. 15 SCHEDULE C REPRESENTATIONS AND WARRANTIES OF THE BORROWER (a) Organization and Corporate Power. The Borrower has been duly incorporated and organized and is validly subsisting and in good standing under the laws of its jurisdiction and has full corporate right, power and authority to enter into and perform its obligations under each of the Credit Facility Documents to which it is or shall be a party and has full corporate right, power and authority to own and operate its properties and to carry on its business; (b) Conflict with Other Instruments. The execution and delivery by the Borrower of each of the Credit Facility Documents and the performance by the Borrower of its obligations thereunder, including, without limitation, the performance of the terms of the Security Documents, do not and will not: (i) conflict with or result in a breach of any of the terms, conditions or provisions of: (A) the Charter Documents of the Borrower; (B) any Law applicable to or binding on the Borrower; or (C) any contractual restriction binding on or affecting the Borrower or its properties the breach of which would have a Material Adverse Effect; or (ii) result in, or require or permit: (A) the imposition of any Lien on or with respect to the properties now owned or hereafter acquired by the Borrower; or (B) the acceleration of the maturity of any Debt of the Borrower, under any contractual provision binding on or affecting the Borrower; (c) Consents, Official Body Approvals. The execution and delivery of each of the Credit Facility Documents and the performance by the Borrower of its obligations thereunder have been duly authorized by all necessary action on the part of the Borrower, and no Consent under any applicable Law and no registration, qualification, designation, declaration or filing with any Official Body having jurisdiction over the Borrower is or was necessary therefor. The Borrower possesses all Consents, in full force and effect, under any applicable Law which are necessary in connection with the operation of its business, the non-possession of which could reasonably be expected to have a Material Adverse Effect; (d) Execution of Binding Obligation. The Agreement has been duly executed and delivered by the Borrower, and the Agreement constitutes, and the remaining Credit Facility Documents when duly executed by the Borrower pursuant to the Agreement and delivered for value will constitute, legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms; (e) No Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, after due enquiry, threatened against or affecting the Borrower (nor, to the knowledge of the Borrower, after due enquiry, any basis therefor) before any Official Body having jurisdiction over the Borrower which purport to or do challenge the validity or propriety of the transactions contemplated by the Credit Facility Documents or the documents, instruments or agreements executed and delivered in connection therewith or related thereto, which if adversely determined could reasonably be expected to have a Material Adverse Effect; (f) No Defaults. The Borrower is not in breach of or in default under, in any respect: (i) its Charter Documents; (ii) any applicable Law; (iii) any contract or agreement binding on or affecting it or its property or assets (including, without limitation, the Credit Facility Documents); (iv) any material indenture, mortgage, deed of trust; or (v) any writ, judgment, determination or award binding on it or affecting it where such breach or defect could, in the case of (ii), (iii), (iv) or (v) above, have a Material Adverse Effect; 16 C-2 (g) Information Documents. The information contained in the Information Documents is true and accurate in all material respects and does not contain any untrue statement of a material fact. The Information Documents do not omit to state any fact necessary in order to make any of the information contained in the Information Documents not misleading in all material respects; (h) Material Changes. No changes occurred or are continuing in respect of the financial condition of the Borrower from that set out in the most recently delivered financial statements of the Borrower which could have a Material Adverse Effect; and no Law, regulation, rule or policy, or any change therein, has been enacted or proposed prior to the Closing Date which may have a Material Adverse Effect; (i) Patents. To the best of the Corporation's knowledge, all necessary patent applications in respect of the Patents have been duly filed and the Corporation has good and valid title to the patents, and the Corporation did not disclose to the public the existence of the subject matter of any of the patents prior to the date of filing of each of the Patents; (j) Title to Assets. The Borrower has good and marketable title to all of its properties and assets, and the Security will constitute a first charge on the legal and beneficial interests of the Borrower in and to all such properties and assets, subject only to such Liens as are described in Section 7.2(a) of the Agreement and the Permitted Encumbrances; (k) Absence of Changes. Since the date of the most recently delivered financial statements of the Borrower, the Borrower has carried on its business, operations and affairs only in the ordinary and normal course consistent with past practice; and (l) Subsidiaries. The Borrower has no Subsidiaries. EX-1.6 7 0007.txt ASSIGNMENT AGREEMENT 1 ASSIGNMENT AGREEMENT The Assignment Agreement is dated for reference December 29, 2000 and made among ICHOR CORPORATION ("ICHOR"), a corporation organized under the laws of the State of Delaware in the United States, HIPPOCAMPE S.A. ("Hippocampe"), a corporation organized under the laws of France, and MFC MERCHANT BANK S.A. ("Merchant Bank"), a bank organized under the laws of Switzerland. WHEREAS: A. ICHOR and certain shareholders of Hippocampe entered into two share exchange agreements (the "Share Exchange Agreements") dated for reference December 13, 2000, pursuant to which it is a condition of closing that the Bank Agreements (as defined in the Share Exchange Agreements) made between Hippocampe and Merchant Bank and any share purchase warrants referred to therein shall have been duly and validly assigned by Hippocampe to ICHOR; and B. Hippocampe wishes to assign to ICHOR and ICHOR has agreed to assume and be responsible to perform the Bank Agreements on the terms and conditions hereinafter set forth; and C. Merchant Bank has agreed to consent to the assignment of the Bank Agreements from Hippocampe to ICHOR upon the terms and conditions herein. NOW THEREFORE THIS AGREEMENT WITNESSETH that the parties hereby agree as follows: 1. Assignment. (1) Hippocampe hereby assigns and transfers all of its present and future rights and obligations under the Bank Agreements and any share purchase warrants referred to therein to ICHOR. (2) ICHOR accepts and agrees to the assignment of all of Hippocampe's present and future rights and obligations under the Bank Agreements to ICHOR and hereby assumes any and all of Hippocampe's rights and obligations thereunder. (3) Merchant Bank hereby consents to the assignment of all of Hippocampe's present and future rights and obligations under the Bank Agreements to ICHOR and the assumption by ICHOR of such rights and obligations. (4) This Assignment Agreement will be effective immediately upon the closing (the "Closing") of the transactions provided for in the Share Exchange Agreements without further notice or action of the parties. 2. Representations, Warranties and Covenants. (1) Hippocampe represents and warrants that it has not previously assigned, in whole or in part, or encumbered in any way the Bank Agreements. (2) Each of the parties represents and warrants that it has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, that it has all necessary power and authority to execute and deliver this Assignment Agreement and to 2 - 2 - perform its obligations hereunder, and that this Assignment Agreement has been duly executed and delivered by and on behalf of such party and constitutes legal, valid and binding obligations of such party enforceable against it in accordance with its terms. 3. Merchant Bank Fees. The parties hereto covenant and agree that all fees, shares, warrants, remuneration or other amounts or expenses due or payable to Merchant Bank under: (i) Section 5.5(a) of the underwriting agreement made between Merchant Bank and Hippocampe dated for reference July 24, 2000 (the "UA"); (ii) Section 5.5(b) of the UA; and (iii) Section 5.7 (a) and (b) of the UA, are and are hereby deemed to be fully earned by Merchant Bank as at the date above first written and shall be paid by ICHOR to Merchant Bank on Closing. 4. Further Assurances. Each party to this Agreement covenants and agrees that, from time to time, it will, at the request and expense of the requesting party, execute and deliver all such documents and do all such other acts and things as any other party hereto, acting reasonably, may from time to time request be executed or done in order to better evidence or perfect or effectuate any provision of this Agreement or of any agreement or other document executed pursuant to this Agreement or any of the respective obligations intended to be created hereby or thereby including, without limitation amending and restating the Bank Agreements in a form and content satisfactory to each of ICHOR and Merchant Bank, acting reasonably. 5. Successors and Assigns. This Assignment Agreement shall enure to the benefit of the parties hereto and their permitted successors and assigns. 6. Governing Law. This Assignment Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties shall be governed by, the laws of Switzerland. Venue shall be Geneva. 7. Counterparts. This Assignment Agreement may be executed in any number of counterparts, each of which when delivered, either in original or facsimile form, shall be deemed to be an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF the parties have executed this Assignment Agreement in counterparts, one for each party. ICHOR CORPORATION Per: ------------------------------- Authorized Signatory HIPPOCAMPE S.A. Per: ------------------------------- Authorized Signatory MFC MERCHANT BANK S.A. Per: ------------------------------- Authorized Signatory EX-1.7 8 0008.txt EXHIBIT 10-K 1 ========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- --------- Commission File Number 000-25132 ICHOR Corporation (Exact name of Registrant as specified in its charter) Delaware 25-1741849 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Suite 1620, 400 Burrard Street Vancouver, British Columbia, Canada V6C 3A6 (Address of principal executive offices) (Postal Code) Registrant's telephone number, including area code: (604) 683-5767 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title of Class) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $4,656,900 as of March 15, 2000, computed on the basis of the average of the bid and ask prices on such date. As of March 27, 2000, there were 4,918,770 shares of the Registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1999 Proxy Statement to be filed within 120 days of the period ended December 31, 1999 are incorporated by reference into Part III. ========================================================================== 2 FORWARD-LOOKING STATEMENTS Statements in this report, to the extent they are not based on historical events, constitute forward-looking statements. Forward-looking statements include, without limitation, statements regarding the outlook for future operations, forecasts of future costs and expenditures, evaluation of market conditions, the outcome of legal proceedings, the adequacy of reserves, or other business plans. Investors are cautioned that forward- looking statements are subject to an inherent risk that actual results may vary materially from those described herein. Factors that may result in such variance, in addition to those accompanying the forward-looking statements, include changes in interest rates, prices, and other economic conditions; actions by competitors; natural phenomena; actions by government and regulatory authorities; uncertainties associated with legal proceedings; technological development; future decisions by management in response to changing conditions; and misjudgments in the course of preparing forward-looking statements. 2 3 TABLE OF CONTENTS ----------------- PAGE ---- PART I ------ ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . .4 ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . .5 ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . .6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . .6 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . .6 ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . .7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . .7 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . . 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . 10 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . 10 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . 10 ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . 11 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . 11 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 11 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3 4 PART I ITEM 1. BUSINESS The Corporation ICHOR Corporation was incorporated in July 1994 pursuant to the laws of the Commonwealth of Pennsylvania under the name "PDG Remediation, Inc.". In November 1996, the Corporation reincorporated under the laws of the State of Delaware and changed its name to "ICHOR Corporation". In this document, unless the context otherwise requires, the "Corporation" refers to ICHOR Corporation and its subsidiaries. Development of the Corporation From its inception to December 1997, the Corporation operated in the environmental services business. The Corporation's initial operations included a thermal treatment facility in Florida and remediation services offices in Florida and Pennsylvania. In December 1996, the Corporation acquired a waste oil recycling facility in Illinois. The Corporation completed its initial public offering in February 1995. In July 1996, Drummond Financial Corporation ("Drummond") acquired a 59.5% interest in the Corporation from PDG Environmental, Inc. In December 1996, the Corporation issued approximately 50.3% of the Corporation's common stock to TriMaine Holdings, Inc. ("TriMaine") (previously Logan International Corp.) as partial consideration for a loan receivable through which the Corporation acquired its waste oil recycling facility. TriMaine and Drummond are controlled by MFC Bancorp Ltd. ("MFC"). In response to changes in the Florida market, the Corporation closed certain remediation services offices and sold certain remediation facilities in 1995 and 1996. The Corporation sold the balance of its remediation services operations in April 1997 and its waste oil recycling facility in December 1997. In March 1998, the Corporation sold its wholly- owned subsidiary, ICHOR Services, Inc. ("Services"). In 1998, following the sale of Services, ICHOR provided consulting services to an industrial customer in Europe. In the first quarter of 1998, the Corporation completed the issuance of an aggregate of 467,500 shares of 5% Cumulative Redeemable Convertible Preferred Stock, Series 1 of the Corporation to affiliates of MFC. In December 1998, Drummond and Logan transferred all of their shares of common stock of the Corporation to a wholly-owned subsidiary of MFC. In the last quarter of 1999 the Corporation completed the issuance of an aggregate of 97,206 shares of 5% Cumulative Redeemable Convertible Preferred Stock, Series 2 of the Corporation to Drummond in consideration of a debt forgiveness of $972,060. For further information with respect to this transaction, including the Debt Settlement Agreement between Drummond and the Corporation dated November 30, 1999, see the Corporation's Form 8-K dated December 7, 1999. On February 8, 2000, the Corporation's securities were delisted from the Nasdaq SmallCap Market for failure to meet listing qualifications. For further information with respect to such matter see the Corporation's Form 8-K dated February 9, 2000. 4 5 Current Business In October, 1998, the Company entered into an agreement (the "Original Purchase Agreement") with the shareholders of Nazca Holdings Ltd. ("Nazca") to acquire all of the issued and outstanding shares of Nazca. Effective June 30, 1999, the Corporation and the former majority shareholders of Nazca entered into a revised agreement (the "Revised Agreement"), pursuant to which, the Original Purchase Agreement was replaced and the Corporation acquired approximately 87% of the issued and outstanding shares of common stock of Nazca. Nazca, through a subsidiary, is in the business of the exploration for and development of ground water resources in Chile. Chile is divided into seven regions (referred to herein as "Regions I - VII") having separate regimes dealing with the grant and administration of Water Rights ("Water Rights"). Nazca completed a hydrogeological reconnaissance of Regions I and II in 1995 and 1996. Nazca's hydrogeological reconnaissance of Regions III - VII is currently ongoing. Nazca, through a subsidiary company, has applied for a number of exploration concessions (each a "Concession") and has been granted three Concessions to date and expects to be granted one additional Concession in the near future. Exploration and development work is continuing with respect to Concessions having a potential production capacity of 1,300 litres/ second, with the objective of establishing perpetual Water Rights and supplying ground water to customers under long term supply agreements. A Water Right provides the holder a perpetual right to sell the amount of water flow (calculated in litres/second) from the Well which the Water Right pertains to. Following application, it can take up to two years for a Water Right to be granted. Following the grant of Water Rights, water may be legally sold by the holder thereof. To complete delivery of a water resource to an end-user, construction of a pumping station and piping to transmit the water must be completed, following which production and sales of water may commence. An alternative available to Nazca is to sell Water Rights after they are obtained rather than proceeding with the development of an operating utility. To date, applications for Water Rights for 57 litres/second of flow have been applied for by Nazca and are outstanding with the Direccion General de Aquas of Chile. In connection with the Revised Agreement, the Corporation granted options in favour of certain former shareholders of Nazca, allowing them to repurchase shares of Nazca common stock sold to the Corporation in certain circumstances. In December of 1999, two former shareholders of Nazca purported to exercise their options to repurchase approximately 38% of Nazca's common stock. The Corporation believes the attempted exercise of the former shareholders' options to be invalid as certain conditions required to be met prior to exercise were not satisfied. However, as a result of the dispute the Corporation has accounted for its interest in Nazca on an equity accounting basis after having given effect to the purported option exercise. At December 31, 1999, the Corporation had no employees. ITEM 2. PROPERTIES The Corporation's administrative facilities are located on leased premises located in Vancouver, British Columbia, Canada. 5 6 ITEM 3. LEGAL PROCEEDINGS The Corporation is subject to routine litigation incidental to its business. The Corporation does not believe that the outcome of such litigation will have a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. The Corporation's common stock were quoted on the NASDAQ SmallCap Market under the trading symbol "ICHR" until February 8, 2000 when the Corporation's securities were delisted from The Nasdaq Stock Market. The following table sets forth the quarterly high and low sale price per share of the Corporation's common stock for the periods indicated: Fiscal Quarter Ended High Low - -------------------- ---- --- 1998 March 31 $ 1.75 $ 1.25 June 30 2.00 1.25 September 30 2.25 1.25 December 31 3.25 1.25 1999 March 31 $ 2.88 $ 1.25 June 30 3.25 1.50 September 30 4.63 1.00 December 31 5.00 2.00 (b) Shareholders. At March 27, 2000, the Corporation had approximately 15 holders of record of its common stock, some of which are securities clearing agencies and intermediaries. (c) Dividends. The Corporation has not paid any dividends on its common stock and does not anticipate that it will pay any dividends in the foreseeable future. 6 7 ITEM 6. SELECTED FINANCIAL DATA The following table reflects selected consolidated financial data for the Corporation for the fiscal years ended December 31, 1999, 1998 and 1997, respectively, the 11 months ended December 31, 1996 and the fiscal year ended January 31, 1996. In September 1996, the Corporation changed its fiscal year end from January 31 to December 31.
For the Year For the Year For the Year For the 11 For the Year Ended Ended Ended Months Ended Ended December 31, December 31, December 31, December 31, January 31, ------------ ------------ ------------ ------------ - ----------- - - 1999 1998 1997 1996 1996 ------------ ------------ ------------ ------------ - ----------- - - (Dollars in thousands, except per share amounts) OPERATING DATA Fee income $ - $ 144 $ - $ - $ - General and administrative expenses 373 497 418 1,042 791 Interest expense 192 102 613 423 406 Loss from continuing operations (470) (178) (1,025) (1,320) (1,183) Net loss (470) (178) (4,054) (1,399) (2,858) COMMON SHARE DATA Loss from continuing operations per common share (0.14) (0.08) (0.21) (0.51) (0.48) Net loss per common share (0.14) (0.08) (0.83) (0.54) (1.16) Weighted average common shares outstanding (in thousands) 4,910 4,908 4,913 2,586 2,456 BALANCE SHEET DATA Working capital 2,289 2,141 89 3,903 2,417 Total assets 2,681 3,281 2,028 5,582 5,578 Long-term obligations - - - 1,916 - - Total stockholders' equity 2,652 2,141 89 1,987 2,438 - -------------- (1) Basic and diluted common share data is the same.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition of the Corporation for the years ended December 31, 1999, 1998 and 1997, respectively, should be read in conjunction with the Corporation's audited consolidated financial statements and related notes included elsewhere herein. . The Corporation sold its environmental remediation services operations in April 1997 and a waste oil recycling facility in December 1997. These operations have been accounted for as discontinued operations for the year ended December 31, 1997. Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's method of presentation. 7 8 Results of Operations for the Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 Revenues for the year ended December 31, 1999 decreased to $0.2 million, from $0.7 million for the comparative period of 1998 primarily as a result of the sale by the Corporation of Ichor Services, Inc. ("Services"), a wholly-owned subsidiary of the Corporation, in the first quarter of 1998 which was reported as a gain on disposal of a subsidiary in 1998. Costs and expenses decreased to $0.7 million in the year ended December 31, 1999 from $0.9 million in the year ended December 31, 1998 primarily as a result of a decrease in general and administrative expenses resulting from the sale of Services and lower head office expenses, partially offset by an equity loss related to Nazca. In the year ended December 31, 1998, the Corporation had accrued $0.3 million in settlement of a class action lawsuit. Interest expense increased to $0.2 million in the year ended December 31, 1999 from $0.1 million in the year ended December 31, 1998 primarily as a result of interest paid on an amount owing under a line of credit with an affiliate. General and administrative expenses for the year ended December 31, 1999 decreased to $0.4 million from $0.5 million in the comparative period of 1998, primarily as a result of a decrease in employees of the Corporation. The Corporation reported a net loss of $0.5 million, or $0.14 per share, in the year ended December 31, 1999. In the year ended December 31, 1998, the Corporation reported a net loss of $0.2 million, or $0.08 per share. Results of Operations for the Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997 Revenues for the year ended December 31, 1998 increased to $0.7 million, from $6,000 for the comparative period of 1997. In the year ended December 31, 1998, the Corporation reported income of $0.1 million from consulting fees. Effective March 31, 1998, the Corporation sold Services and recognized a non-cash accounting gain of $0.4 million on the sale as a result of the disposal of net liabilities of Services. Costs and expenses decreased to $0.9 million in the year ended December 31, 1998 from $1.0 million in the year ended December 31, 1997. Interest expense decreased to $0.1 million in the year ended December 31, 1998 from $0.6 million in the year ended December 31, 1997, primarily as a result of the sale of Services in the first quarter of 1998, which had financed certain receivables for work performed under certain Florida State rehabilitation programs. General and administrative expenses for the year ended December 31, 1998 increased to $0.5 million from $0.4 million in the comparative period of 1997, primarily as a result of an increase in professional fees. In the year ended December 31, 1998, the Corporation paid $0.3 million in settlement of a class action lawsuit. The Corporation reported a net loss of $0.2 million, or $0.08 per share, in the year ended December 31, 1998. In the year ended December 31, 1997, the Corporation reported a net loss of $4.1 million, or $0.83 per share, which included a loss of $3.0 million, or $0.62 per share, from discontinued operations. 8 9 Liquidity and Capital Resources The Corporation had cash of $2.3 million at December 31, 1999, compared to $50,000 at December 31, 1998. The Corporation maintains a line of credit with an affiliate in the amount of $0.8 million to fund working capital requirements. The line of credit was fully utilized and repaid by the issuance of preferred stock as at December 31, 1999. Net cash provided by operating activities was $0.6 million in the year ended December 31, 1999, compared to cash used by operating activities of $0.9 million in the year ended December 31, 1998. A decrease in accounts receivable provided cash of $0.5 million in the year ended December 31, 1999, compared to an increase in same using cash of $0.3 million in the comparable period of 1998. An increase in accounts payable and other liabilities provided cash of $21,000 in the year ended December 31, 1999 and used cash of $0.1 million in the year ended December 31,1998. Investing activities provided cash of $1.6 million in the year ended December 31, 1999 primarily as a result of payment received on a promissory notes held by the Corporation. Investing activities in the year ended December 31, 1998 used cash of $1.5 million, primarily as a result of the acquisition of a note receivable. On October 20, 1998, the Corporation entered into an agreement to acquire all of the issued and outstanding shares of common stock of Nazca, which is in the business of the exploration for and development of ground water resources in Chile. See "Item 1. Business - Current Business" herein for further details with respect to the agreement. Under a revised agreement entered into with the majority shareholders of Nazca in July 1999, the original purchase agreement was replaced and the Corporation acquired approximately 87% of the issued and outstanding shares of common stock of Nazca effective June 30, 1999. For further information with respect to the transaction, including the revised agreement, see the Corporation's Form 8-K/A dated August 12, 1999, which is incorporated herein by reference. In November of 1999, the Corporation collected all outstanding principal and interest due on a note receivable in the principal amount of $1.4 million, and collected the full amount of approximately $0.6 million due from an affiliate. In addition, in November of 1999 the Corporation repaid approximately $0.3 million in advances from affiliates. Financing activities provided cash of $9,000 in the year ended December 31, 1999, compared to $2.2 million in the year ended December 31, 1998. The Corporation believes that its assets and line of credit should enable the Corporation to meet its current ongoing requirements. The Corporation anticipates that it may require substantial capital to pursue current and future acquisitions of businesses and/or operating assets and will seek such capital through debt and/or equity financing. 9 10 Year 2000 Many of the world's computer systems currently record years in a two-digit format. These computer systems may be unable to properly interpret dates beyond the year 1999, which could lead to business disruptions and is commonly referred to as the "Year 2000" issue. To date, the Corporation has not experienced any significant problems as a result of the Year 2000 issue and based on its current information, management of the Corporation has determined that the Year 2000 issue will not pose significant operational problems for its computer systems as it only utilizes commercially available software and personal computers, which are Year 2000 compliant. The total cost to the Corporation of Year 2000 compliance activities has not been and is not currently anticipated to be material to its financial position or results of operations in any given year. In addition, management of the Corporation has had communications with clients to ascertain their Year 2000 readiness and developed contingency plans as required. The determination by management and costs relating to the Year 2000 issue are based on management's best estimates, which were derived utilizing numerous assumptions of future events. However, there can be no assurance that these estimates will be achieved and actual results could vary materially from those anticipated. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data required with respect to this Item 8, and as identified in Item 14 of this annual report, are included in this annual report commencing on page 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year. 10 11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Index to Financial Statements Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Financial Statement Schedules Independent Auditors' Report Schedule II - Valuation and Qualifying Accounts Schedule III - Unaudited Financial Statements of Nazca Holdings Ltd. All other schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3) List of Exhibits 2.1 Agreement and Plan of Merger dated October 1, 1996 between ICHOR Corporation and PDG Remediation, Inc. Incorporated by reference to the Corporation's Schedule 14C dated September 17, 1996. 3.1 Articles of Incorporation. 3.2 Certificate of Designations. Incorporated by reference to the Corporation's Form 8-K dated March 12, 1998. 3.3 Certificate of Designations. Incorporated by reference to the Corporation's Form 8-K dated December 7, 1999. 3.4 Bylaws. 11 12 10.1 Amended 1994 Stock Option Plan. 10.2 1995 Qualified Incentive Stock Option Plan. 10.3 Loan Agreement dated January 15, 1997 among Drummond Financial Corporation, the Corporation and ICHOR Services, Inc. 10.4 Debt Settlement Agreement between Logan International Corp. and the Corporation dated February 20, 1998. 10.5 Debt Settlement Agreement between Sutton Park International Ltd. and the Corporation dated February 20, 1998. 10.6 Subscription Agreement between Constable Investments Ltd. and the Corporation dated February 26, 1998. 10.7 Subscription Agreement between Conqueror Holdings Ltd. and the Corporation dated February 26, 1998. 10.8 Subscription Agreement between Sutton Park International Ltd. and the Corporation dated February 26, 1998. 10.9 Subscription Agreement between Zellstoff-und Papierfabrik Rosenthal GmbH and the Corporation dated February 26, 1998. 10.10 Purchase Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated October 17, 1998. Incorporated by reference to the Corporation's Form 8-K dated October 20, 1998. 10.11 Amendment to the Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated October 17, 1998. Incorporated by reference to the Corporation's Form 8- K/A dated April 9, 1999. 10.12 Revised Purchase Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated July 28, 1999. Incorporated by reference to the Corporation's Form 8- K/A dated August 12, 1999. 10.13 Debt Settlement Agreement between Drummond Financial Corporation and the Corporation dated November 30, 1999. Incorporated by reference to the Corporation's Form 8-K dated December 7, 1999. 23 Consent of Independent Auditors. 27 Article 5 - Financial Data Schedule for the year ended December 31, 1999. - -------------------- (1) Incorporated by reference to the Corporation's Form 10-K dated January 31, 1996. (2) Incorporated by reference to the Corporation's Definitive Schedule 14A dated July 8, 1996. (3) Incorporated by reference to the Corporation's Form 10-K dated December 31, 1997. (4) Incorporated by reference to a Schedule 13D\A dated March 13, 1998. (5) Incorporated by reference to the Corporation's Form 10-K dated December 31, 1996.
12 13 (b) Reports on Form 8-K The Corporation filed the following reports with respect to the indicated items: Form 8-K dated October 26, 1999: Item 5. Other Events Form 8-K/A dated November 15, 1999: Item 5. Other Events Item 7. Financial Statements and Exhibits Form 8-K dated December 7, 1999: Item 5. Other Events Item 7. Financial Statements and Exhibits Form 8-K/A dated December 8, 1999: Item 5. Other Events Form 8-K dated February 9, 2000: Item 5. Other Events 13 14 - -------------------------------------------------------------------------- PETERSON SULLIVAN P.L.L.C. 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Shareholders Ichor Corporation and Subsidiary We have audited the consolidated balance sheets of Ichor Corporation and Subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years ended December 31, 1999, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ichor Corporation and Subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity with generally accepted accounting principles. /s/ Peterson Sullivan P.L.L.C. March 24, 2000 Seattle, Washington 14 15 ICHOR CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (In Thousands of Dollars)
ASSETS 1999 1998 --------- --------- Current Assets Cash and cash equivalents $ 2,262 $ 50 Accounts receivable 56 560 Notes receivable - 2,080 Advances to affiliates - 540 Other assets - 51 --------- --------- Total current assets 2,318 3,281 Investment in and advances to unconsolidated subsidiary 363 - --------- --------- $ 2,681 $ 3,281 ========= =========
The accompanying notes are an integral part of these financial statements. 15 16
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998 --------- --------- Current Liabilities Accounts payable and other liabilities $ 29 $ 8 Advances from affiliates - 1,132 ------ --------- Total current liabilities 29 1,140 Shareholders' Equity Preferred stock, $.01 par value; 5,000,000 shares authorized; Series 1, nonvoting; shares issued and outstanding 564,706 at December 31, 1999, and 467,500 at December 31, 1998 6 5 Common stock, $.01 par value; 30,000,000 shares authorized; shares issued 4,981,570 at December 31, 1999, and 4,970,320 at December 31, 1998 50 50 Additional paid-in capital on preferred stock 5,371 4,400 Additional paid-in capital on common stock 5,752 5,743 Retained deficit (8,456) (7,986) -------- --------- 2,723 2,212 Less cost of 62,800 shares of common stock held in treasury at December 31, 1999 and 1998 (71) (71) -------- --------- 2,652 2,141 ------- --------- $ 2,681 $ 3,281 ======= =========
The accompanying notes are an integral part of these financial statements. 16 17 ICHOR CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars, Except for Per Share Amounts)
1999 1998 1997 ------ ------ -------- Revenues Interest $ 153 $ 92 $ 6 Fees - 144 - Gain on disposal of a subsidiary - 437 - Other 30 8 - ------ ------ ------- 183 681 6 Costs and expenses General and administrative 373 497 418 Interest 192 102 613 Litigation settlement - 260 - Equity in loss of unconsolidated subsidiary 88 - - ------ ------ ------- 653 859 1,031 Loss from continuing operations (470) (178) (1,025) Discontinued operations (any tax benefits from losses are fully reserved; any taxes associated with gains are offset by tax losses) Loss from operation of environmental remediation services segment - - (489) Gain on sale of environmental remediation services segment - - 59 Loss from operation of waste oil recycling facility - - (1,224) Loss on sale of waste oil recycling facility - - (1,375) ------ ------ ------- Loss from discontinued operations - - (3,029) ------ ------ ------- Net loss $ (470) $ (178) $(4,054) Basic loss per common share Loss from continuing operations $ (.14) $ (.08) $ (.21) Discontinued operations - - (.62) ------ ------ ------- Net loss $ (.14) $ (.08) $ (.83) ====== ====== =======
The accompanying notes are an integral part of these financial statements. 17 18 ICHOR CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
--------------Common Stock------------- ------------ Preferred Stock----------- Additional Additional Number Par Paid-in Treasury Number of Par Paid-in Retained of Shares Value Capital Stock Shares Value Capital Deficit Total --------- ----- --------- -------- --------- ---- - - ---------- -------- ----- Balance at December 31, 1996 4,922,720 $ 50 $ 5,743 $ (52) - $ - - $ - $ (3,754) $1,987 Net loss - - - - - - - - (4,054) (4,054) Conversion of debt by other subsidiaries of the Company's parent - - - - 217,500 2 2,173 - 2,175 Repurchase of common stock held in treasury (15,200) - - (19) - - - - - (19) --------- ----- -------- -------- ------ ------ - - ------- ----------- ------ - - Balance at December 31, 1997 4,907,520 50 5,743 (71) 217,500 2 2,173 (7,808) 89 Net loss - - - - - - - - (178) (178) Preferred shares issued for cash (215,000 shares purchased by related parties at $10 per share) - - - - 250,000 3 2,227 - 2,230 --------- ----- -------- --------- ------- ------ - - ------- ----------- ------ - - Balance at December 31, 1998 4,907,520 50 5,743 (71) 467,500 5 4,400 (7,986) 2,141 Net loss - - - - - - - - (470) (470) Shares issued for exercise of options 11,250 - 9 - - - - - - 9 Preferred shares issued for payment of debt to another subsidiary of MFC - - - - 97,206 1 971 - 972 --------- ----- -------- --------- ------ ----- - -- ------ ---------- ----- - - Balance at December 31, 1999 4,918,770 $ 50 $ 5,752 $ (71) 467,500 5 4,400 (7,986) 2,141 ========= ===== ======== ========= ======= ========= ====== ========== =======
The accompanying notes are an integral part of these financial statements. 18 19 ICHOR CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
1999 1998 1997 ------ ------ ------ Cash Flows from Operating Activities Net loss $ (470) $ (178) $(4,054) Adjustments to reconcile net loss to cash flows from operating activities Equity in loss of unconsolidated subsidiary 88 - - Gain on disposal of subsidiary - (437) - Changes in current assets and liabilities Cash held in escrow - 145 637 Accounts receivable 504 (254) (185) Advances to affiliates 540 (270) (270) Prepaid expenses and other assets - - 106 Accounts payable and other liabilities 21 (115) (403) Advances from affiliates (160) 352 360 Net assets of discontinued operations - - 2,723 Other 51 (100) 42 ------ ------ ------ Net cash provided by (used in) operating activities 574 (857) (1,044) Cash Flows from Investing Activities Change in note receivable 2,080 (1,400) - Advances to unconsolidated subsidiary (451) - - Investment - (50) - ------ ------ ------ Net cash provided by (used in) investing activities 1,629 (1,450) - Cash Flows from Financing Activities Proceeds from issuance of preferred shares - 2,230 - Proceeds from issuance of common shares 9 - - Purchase of stock held in treasury - - (19) Proceeds from debt - - 750 Principal payments on debt - - (188) ------ ------ ------- Net cash provided by financing activities 9 2,230 543 ------ ------ ------ Increase (decrease) in cash 2,212 (77) (501) Cash, beginning of year 50 127 628 ------ ------ ------ Cash, end of year $ 2,262 $ 50 $ 127
The accompanying notes are an integral part of these financial statements. 19 20 ICHOR CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands of Dollars, Except for Per Share Amounts) Note 1. The Company and Summary of Significant Accounting Policies The Company - ----------- Under an agreement, effective June 30, 1999, Ichor Corporation ("the Company") completed the acquisition of its present interest in Nazca Holdings Ltd. ("NHL"). A wholly-owned subsidiary of NHL is in the business of locating and developing ground water resources in Chile to be sold to mining, agricultural and public utility customers. NHL is included in these consolidated financial statements under the equity method beginning July 1, 1999. The Company was a subsidiary of MFC Bancorp Ltd. ("MFC") until December 1999. Prior to December 1997, the Company was in the environmental industry, providing environmental remediation services and operating a recycling waste oil facility. The Company sold the remediation services segment of its business in April 1997 for $147 in cash and retained the segment's current assets and liabilities. The waste oil recycling facility was sold in December 1997 for $1,000 including $320 in cash and a $680 note which was paid in 1999. Both segments were accounted for as discontinued operations and unless otherwise stated, all notes to financial statements relate to continuing operations. Further, in March 1998, the Company sold a subsidiary at a non-cash accounting gain of $437 which resulted from the assumption of the subsidiary's liabilities by the purchaser. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents - ------------------------- Cash equivalents consist of highly liquid debt instruments with maturities of three months or less. Cash balances are occasionally in excess of federally insured amounts. Taxes on Income - --------------- The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates. 20 21 Note 1. (Continued) Earnings Per Share - ------------------ Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares. The conversion of convertible preferred stock and stock options have not been reflected as exercised for the purposes of computing earnings or loss per share since the conversion of such stock or exercise of such options would be antidilutive. The weighted average number of shares was 4,910,386, 4,907,520 and 4,912,643 for the years ended December 31, 1999, 1998 and 1997. The loss from operations to compute the amount attributable to common shareholders includes the recognition of preferred stock dividends in arrears of $237, $214 and none for 1999, 1998 and 1997, respectively. Preferred Stock - --------------- The entire redemption value of Preferred Shares, Series 1, can be exchanged for common stock at 90% of the common stock average market price (as defined). Redemption value is $10 per share and shares are redeemable only by the Company with a 30 day notice. The Preferred Shares, Series 1, have a liquidation preference over other stock to the extent of the redemption value plus unpaid dividends. This stock has an annual cumulative dividend rate of 5%, payable quarterly and no dividends may be paid on common stock if preferred share dividends are in arrears. Stock-Based Compensation - ------------------------ Compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock. There is no stock-based compensation included in these consolidated financial statements. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair Value of Financial Instruments - ----------------------------------- The fair value of the notes receivable and advances to/from an affiliate at December 31, 1998, were estimated to approximate their recorded values based on the terms of the instruments. Notes receivable at December 31, 1998, included $1,400 from one company which was secured and had interest at 8.75%. Interest paid amounted to none, $102 and $613 for 1999, 1998 and 1997, respectively. 21 22 Note 1. (Continued) New Accounting Standard - ----------------------- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" is effective for periods beginning after June 15, 2000, and establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Because the Company does not engage in any derivative or hedging activities, there should be no impact on its financial statements. Note 2. Investment In and Advances To Unconsolidated Subsidiary The Company advanced $451 to NHL and has agreed to pay 20% of future operating cash flows, as defined, of the Chilean operations discussed in Note 1 for the NHL shares. The following is a summary of NHL's financial position at December 31, 1999, and the results of its operations for the six-month period ended December 31, 1999. Assets $ 1,313 Liabilities 1,231 Shareholders' equity 82 Revenues $ 49 Net loss 180 Note 3. Income Taxes The reconciliation of income tax on income from continuing operations computed at the federal statutory rates to income tax expense is as follows:
Years Ended December 31 ------------------------------------------ 1999 1998 1997 ------- ------ ------ Tax at statutory rate $ (160) $ (60) $(349) Permanent difference associated with gain on disposal of subsidiary - (149) - Equity in loss of unconsolidated subsidiary 30 - - Valuation allowance 130 209 377 Other - - (28) ------- ------ ------ $ - $ - $ - ======= ====== ======
22 23 Note 3. (Continued) The significant components of the Company's deferred tax asset as of December 31, 1999 and 1998, is as follows:
1999 1998 ------- ------- Net operating loss carryforward $ 1,158 $ 1,028 Valuation allowance for deferred tax asset (1,158) (1,028) ------- ------- Net deferred tax asset $ - $ - ======= =======
The Company has a net operating loss carryforward of approximately $3,407 at December 31, 1999, which expires at: $756 in 2010; $35 in 2011; $1,449 in 2012; $785 in 2018; $382 in 2019. The Company's utilization of the losses is subject to limitation due to ownership and operational changes, except those that expire in 2012 and 2013. Note 4. Stock Option Plans 1994 Amended Stock Option Plan - ------------------------------ The Company's 1994 stock option plan provides for the issuance of up to 350,000 shares of the Company's common stock to employees and non-employee directors. The following table summarizes information with respect to this plan:
Weighted Average Number of Exercise Shares Price --------- -------- Outstanding at January 1, 1997 179,500 $ .81 Granted 145,000 2.00 Canceled - Reusable (89,500) 1.10 -------- Outstanding at December 31, 1997 235,000 1.39 Canceled - Reusable (30,000) 1.19 -------- Outstanding at December 31, 1998 205,000 1.51 Exercised (11,250) .75 -------- Exercisable at December 31, 1999 193,750 $ 1.55 ======== ======= Reserved for future grants at December 31, 1999 145,000 ========
Almost all options have an expiration date ten years after issuance. 23 24 Note 4. (Continued) 1995 Qualified Incentive Stock Option Plan - ------------------------------------------ The Company's board of directors approved a second stock option plan on August 15, 1996 which provides for the issuance of up to 150,000 shares of the Company's common stock to key employees. The following table summarizes information with respect to this plan:
Weighted Average Number of Exercise Shares Price --------- -------- Outstanding at January 1, 1997 125,000 $ .75 Granted - - Canceled - Reusable (25,000) .75 -------- Outstanding at December 31, 1999, 1998 and 1997 100,000 $ .75 ======== ======= Reserved for future grants at December 31, 1999 50,000 ========
Compensation - ------------ For both the 1994 Amended Stock Option Plan and the 1995 Qualified Incentive Stock Option Plan, when options are granted, or the exercise price is adjusted, the exercise price cannot be less than the fair market value of the Company's common stock (as defined). However, had compensation expense been recognized on the basis of fair value pursuant to Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," instead of the method used by the Company, there would have been no proforma effect with respect to net loss at either December 31, 1999 or 1998, and the effect at December 31, 1997, was not material. 24 25 - -------------------------------------------------------------------------- PETERSON SULLIVAN P.L.L.C. 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Ichor Corporation and Subsidiary Our report on the consolidated financial statements of Ichor Corporation and Subsidiary is included on page 14 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Peterson Sullivan P.L.L.C. March 24, 2000 Seattle, Washington 25 26 ICHOR CORPORATION AND SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Year Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
Additions ------------------ Balance at Charged Balance at beginning Charged to other close of period to income accounts Deductions of period ---------- --------- -------- ---------- ---------- Year Ended December 31, 1999 Allowance for doubtful accounts $ - $ - $ - $ - $ - ===== ===== ===== ===== ===== Year Ended December 31, 1998 (2) Allowance for doubtful accounts $ 562 $ - $ - $ 562 $ - ===== ===== ===== ===== ===== Year Ended December 31, 1997 (1) Allowance for doubtful accounts $ 690 $ 2 $ - $ 130 $ 562 ===== ===== ===== ===== =====
(1) Allowance for uncollectibility sold in conjunction with sale of waste oil recycling facility. (2) Allowance for uncollectibility sold in conjunction with sale of ICHOR Services, Inc. 26 27 ICHOR CORPORATION AND SUBSIDIARY SCHEDULE III - UNAUDITED FINANCIAL STATEMENTS OF NAZCA HOLDINGS LTD. NAZCA HOLDINGS LTD. CONSOLIDATED BALANCE SHEET December 31, 1999 and 1998 Expressed in U.S. dollars (Unaudited)
1999 1998 ASSETS Current Assets Tax debtors $ 30,058 $ 22,492 Directors' and employees' advances - 456 Cash at bank and in hand 2,291 5,791 ---------- ---------- 32,349 28,739 Fixed Assets Office Equipment 6,289 8,385 Database 140,000 140,000 Concession development direct expenditure 1,134,099 835,430 ---------- ---------- $1,312,737 $1,012,554 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Amounts due to directors and employees $ 269,999 $ 78,203 Amount due to affiliates 794,941 339,619 Tax creditors - 5,002 Accrued expenses 166,047 133,120 ---------- ---------- 1,230,987 555,944 Shareholders' Equity Share capital 1,079,021 1,079,021 Accumulated deficit (997,271) (622,411) ---------- ---------- 81,750 456,610 ---------- ---------- $1,312,737 $1,012,554 ========== ==========
27 28 NAZCA HOLDINGS LTD. CONSOLIDATED PROFIT & LOSS ACCOUNT For the years ended December 31, 1999 and 1998 Expressed in U.S. dollars (Unaudited)
1999 1998 Income Consultancy income $ 48,681 $ - Expenses Directors' fees - 51,000 Directors' and employees' salaries and benefits 209,976 140,655 Legal and accounting fees 56,242 32,976 Administration and general expenses 100,835 57,599 Interest charge 22,527 16,402 Depreciation 2,096 1,000 Exchange losses 31,865 - --------- --------- 423,541 299,632 --------- --------- Loss for the year (374,860) (299,632) Accumulated deficit brought forward (622,411) (322,779) --------- --------- Accumulated deficit carried forward $(997,271) $(622,411) ========= =========
28 29 NAZCA HOLDINGS LTD. Notes to the Consolidated Accounts For the years ended December 31, 1999 and 1998 (Unaudited) 1. PRINCIPAL ACCOUNTING POLICIES i) Basis of accounting The accounts have been prepared under the historical cost convention, and in accordance with United States generally accepted accounting principles. ii) Basis of consolidation The consolidated accounts include the accounts of the company and its wholly-owned subsidiary company Nazca S.A. iii) Fixed Assets Office equipment is stated at cost less accumulated depreciation. Depreciation is computed to write down the cost over the estimated useful lives of the assets. The investment in the database is stated at cost. Concession development direct expenditure is stated at cost. Amortisation will be computed to write down the cost over the estimated economic lives of the concessions, as soon as supply is commenced. 2. SUBSIDIARY COMPANY Nazca S.A. is a development stage enterprise incorporated in Chile in November 1995 with the objective of exploring, developing and exploiting natural resources. It started water exploration activities in early 1996 in the northern regions of Chile where it owns several exploration concessions. The subsidiary company keeps its accounting records in Chilean currency, and its accounts have first been converted to United States generally accepted accounting principles and then translated into U.S. dollars. 3. FUTURE OPERATIONS AND FINANCING Further financing arrangements through the sale of equity and offtake agreements for the sale of water are being negotiated. This financing will be used for development work including exploration and production well drilling and securing water rights on a number of concessions that the subsidiary company controls in northern Chile over the next 2 years. 29 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 29, 2000 ICHOR CORPORATION By: /s/ J. Choi ---------------------------- J. Choi, President, and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ J. Choi March 29, 2000 - ------------------------- J. Choi President and Director /s/ Young-Soo Ko March 29, 2000 - ------------------------- Young-Soo Ko Director /s/ Jae-Sun Lee March 29, 2000 - ------------------------- Jae-Sun Lee Director /s/ Michael J. Smith March 29, 2000 - ------------------------- Michael J. Smith, Chief Financial Officer, Treasurer and Secretary 30 31 EXHIBIT INDEX Exhibit Number Description ------- ----------- 2.1 Agreement and Plan of Merger dated October 1, 1996 between ICHOR Corporation and PDG Remediation, Inc. Incorporated by reference to the Corporation's Schedule 14C dated September 17, 1996. 3.1 Articles of Incorporation.(1) 3.2 Certificate of Designations. Incorporated by reference to the Corporation's Form 8-K dated March 12, 1998. 3.3 Certificate of Designations. Incorporated by reference to the Corporation's Form 8-K dated December 7, 1999. 3.4 Bylaws.(1) 10.1 Amended 1994 Stock Option Plan.(2) 10.2 1995 Qualified Incentive Stock Option Plan.(2) 10.3 Loan Agreement dated January 15, 1997 among Drummond Financial Corporation, the Corporation and ICHOR Services, Inc.(5) 10.4 Debt Settlement Agreement between Logan International Corp. and the Corporation dated February 20, 1998.(4) 10.5 Debt Settlement Agreement between Sutton Park International Ltd. and the Corporation dated February 20, 1998.(4) 10.6 Subscription Agreement between Constable Investments Ltd. and the Corporation dated February 26, 1998.(4) 10.7 Subscription Agreement between Conqueror Holdings Ltd. and the Corporation dated February 26, 1998.(3) 10.8 Subscription Agreement between Sutton Park International Ltd. and the Corporation dated February 26, 1998.(4) 10.9 Subscription Agreement between Zellstoff-und Papierfabrik Rosenthal GmbH and the Corporation dated February 26, 1998. (3) 10.10 Purchase Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated October 17, 1998. Incorporated by reference to the Corporation's Form 8-K dated October 20, 1998. 10.11 Amendment to the Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated October 17, 1998. Incorporated by reference to the Corporation's Form 8-K/A dated April 9, 1999. 31 32 10.12 Revised Purchase Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated July 28, 1999. Incorporated by reference to the Corporation's Form 8-K/A dated August 12, 1999. 10.13 Debt Settlement Agreement between Drummond Financial Corporation and the Corporation dated November 30, 1999. Incorporated by reference to the Corporation's Form 8-K dated December 7, 1999. 23 Consent of Independent Auditors. 27 Article 5 - Financial Data Schedule for the year ended December 31, 1999. - ----------------- (1) Incorporated by reference to the Corporation's Form 10-K dated January 31, 1996. (2) Incorporated by reference to the Corporation's Definitive Schedule 14A dated July 8, 1996. (3) Incorporated by reference to the Corporation's Form 10-K dated December 31, 1997. (4) Incorporated by reference to a Schedule 13D\A dated March 13, 1998. (5) Incorporated by reference to the Corporation's Form 10-K dated December 31, 1996. 32 1 - -------------------------------------------------------------------------- PETERSON SULLIVAN P.L.L.C. 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS Independent Auditors' Consent ----------------------------- We hereby consent to the incorporation by reference in the registration statements (No. 333-15831 and 333-15829) on Form S-8 of Ichor Corporation and Subsidiary of our report dated March 24, 2000, relating to the balance sheets of Ichor Corporation and Subsidiary as of December 31, 1999 and 1998, and the related statements of operations, shareholders' equity and cash flows for the years ended December 31, 1999, 1998 and 1997, which report appears in the Annual Report of Form 10-K for the year ended December 31, 1999, of Ichor Corporation and Subsidiary. /s/ Peterson Sullivan P.L.L.C. March 27, 2000 Seattle, Washington EX-1.8 9 0009.txt EXHIBIT 10-Q 1 ========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission File Number: 000-25132 ICHOR CORPORATION (Exact name of Registrant as specified in its charter) Delaware 25-1741849 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17 Dame Street, Dublin 2 Ireland (Address of principal executive offices) (3531) 679 1688 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Class Outstanding at November 13, 2000 ------ ------------------------------- Common Stock, $0.01 4,918,770 par value ========================================================================== 2 FORWARD-LOOKING STATEMENTS Statements in this report, to the extent that they are not based on historical events, constitute forward-looking statements. Forward-looking statements include, without limitation, statements regarding the outlook for future operations, forecasts of future costs and expenditures, the evaluation of market conditions, the outcome of legal proceedings, the adequacy of reserves or other business plans. Investors are cautioned that forward-looking statements are subject to an inherent risk that actual results may vary materially from those described herein. Factors that may result in such variance, in addition to those accompanying the forward-looking statements, include changes in interest rates, prices and other economic conditions; actions by competitors; natural phenomena; actions by government authorities; uncertainties associated with legal proceedings; technological development; future decisions by management in response to changing conditions; and misjudgments in the course of preparing forward-looking statements. PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS ICHOR CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited) -2- 3 ICHOR CORPORATION Consolidated Balance Sheets (Unaudited) (dollars in thousands)
September 30, 2000 December 31, 1999 ------------------ ----------------- ASSETS Current Assets Cash and cash equivalents $ 2,099 $ 2,262 Accounts receivable, net 23 56 Note receivable 600 - ----------- ------------ Total current assets 2,722 2,318 Investment in and advances to unconsolidated subsidiary - 363 ----------- ------------ $ 2,722 $ 2,681 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other liabilities $ 1 $ 29 ----------- ------------ Total current liabilities 1 29 Shareholders' Equity Preferred stock 6 6 Common stock 50 50 Additional paid-in capital on preferred stock 5,371 5,371 Additional paid-in capital on common stock 5,752 5,752 Retained deficit (8,387) (8,456) ----------- ------------ 2,792 2,723 Less cost of shares of common stock held in treasury (71) (71) ------------ ------------ Total equity 2,721 2,652 ------------ ------------ $ 2,722 $ 2,681 ============ ============
The accompanying notes are an integral part of these financial statements. -3- 4 ICHOR CORPORATION Consolidated Statements of Operations (Unaudited) (dollars in thousands, except per share amounts)
For the Nine For the Nine Months Ended Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Revenues Interest income $ 101 $ 126 Gain on disposal of an unconsolidated subsidiary 298 - Other 6 30 ----------- ------------ 405 156 ----------- ------------ Costs and expenses General and administrative expenses 275 289 Equity in loss of an unconsolidated subsidiary 61 - ----------- ------------ 336 289 ----------- ------------ Income (loss) before minority interest 69 (133) Minority interest - 7 ----------- ------------ Net income (loss) $ 69 $ (126) =========== ============ Basic and diluted loss per share $ (0.03) $ (0.06) =========== ============
The accompanying notes are an integral part of these financial statements. -4- 5 ICHOR CORPORATION Consolidated Statements of Operations (Unaudited) (dollars in thousands, except per share amounts)
For the Three For the Three Months Ended Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Revenues Interest income $ 44 $ 37 Gain on disposal of an unconsolidated subsidiary 298 - Other 6 - ----------- ------------ 348 37 ----------- ------------ Costs and expenses General and administrative expenses 75 157 ----------- ------------ 75 157 ----------- ------------ Income (loss) before minority interest 273 (120) Minority interest - 7 ----------- ------------ Net income (loss) $ 273 $ (113) =========== ============ Basic earnings (loss) per share $ 0.04 $ (0.03) =========== ============ Diluted earnings (loss) per share $ 0.02 $ (0.03) =========== ============
The accompanying notes are an integral part of these financial statements. -5- 6 ICHOR CORPORATION Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
For the Nine For the Nine Months Ended Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Cash Flows from Operating Activies: Net income (loss) $ 69 $ (126) Adjustments to reconcile net income (loss) to cash flows from operating activities Gain on disposal of an unconsolidated subsidiary (298) - Equity in loss of an unconsolidated subsidiary 61 - Minority interest - (7) Changes in current assets and liabilities Accounts receivable 33 283 Accounts Payable and other liabilities (28) 81 Advance to affiliate - (47) Advance from affiliate - (40) ------------ ------------ Net cash provided by (used in) operating activities (163) 144 Cash Flows from Investing Activities: Purchase of subsidiary, net of cash acquired - 16 Decrease in note receivable - 680 Increase in resource property - (116) ------------ ----------- Net cash provided by investing activities - 580 Cash Flows from Financing Activities: Proceeds from issuance of common shares, net - 9 ------------ ----------- Net cash provided by financial activities - 9 ------------ ----------- Increase (decrease) in cash and cash equivalents (163) 733 Cash and cash equivalents, beginning of period 2,262 50 ----------- ----------- Cash and cash equivalents, end of period $ 2,099 $ 783 =========== ===========
The accompanying notes are an integral part of these financial statements. -6- 7 ICHOR CORPORATION Notes to consolidated Financial Statements September 30, 2000 (Unaudited) Note 1. Basis of Presentation The accompanying financial statements of ICHOR Corporation (the "Corporation") are unaudited. However, in the opinion of management, they include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Corporation for the specified periods. All adjustments made during the nine and three month periods ended September 30, 2000 were of a normal, recurring nature. The amounts presented for the nine and three month periods ended September 30, 2000 are not necessarily indicative of the results of operations for a full year. Additional information is contained in the audited consolidated financial statements and accompanying notes included in the Corporation's annual report on Form 10-K for the fiscal year ended December 31, 1999, and should be read in conjunction with such annual report. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. Note 2. Earnings (Loss) Per Share Basic earnings (loss) per share is calculated by dividing the net income or loss available to common shareholders by the weighted average number of common shares outstanding during the nine and three month periods ended September 30, 2000 and 1999, respectively. The weighted average number of shares outstanding was 4,918,770 and 4,907,561 for the nine month period ended September 30, 2000 and 1999, respectively, and 4,918,770 and 4,907,642 for the three month period ended September 30, 2000 and 1999, respectively. Diluted earnings (loss) per share takes into account common shares outstanding, potentially dilutive common shares and preferred shares convertible into common shares. -7- 8 PART I. FINANCIAL INFORMATION --------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition of ICHOR Corporation (the "Corporation") for the nine and three month periods ended September 30, 2000 should be read in conjunction with the Corporation's consolidated financial statements and related notes included elsewhere herein. Results of Operations - Nine Months Ended September 30, 2000 Revenues for the nine months ended September 30, 2000 increased to $0.4 million from $0.2 million for the comparative period of 1999, primarily as a result of an accounting gain on the disposal of an unconsolidated subsidiary. Interest income was $0.1 million for the nine months ended September 30, 2000 and 1999, respectively. Costs and expenses were $0.3 million for the nine months ended September 30, 2000 and 1999, respectively. The Corporation reported net income of $0.1 million, or a loss of $0.03 per common share, in the nine months ended September 30, 2000, compared to a net loss of $0.1 million, or a loss of $0.06 per common share, in the nine months ended September 30, 1999. Results of Operations - Three Months Ended September 30, 2000 Revenues for the three months ended September 30, 2000 increased to $0.3 million from $37,000 for the comparative period in 1999 primarily as a result of an accounting gain on the disposal of an unconsolidated subsidiary. Costs and expenses which were comprised of general and administrative expenses decreased to $0.1 million in the three months ended September 30, 2000 from $0.2 million in the three months ended September 30, 1999. Net income for the period was $0.3 million, or $0.04 basic earnings per common share, compared to a net loss of $0.1 million, or $0.03 basic loss per common share, for the comparative period of 1999. Liquidity and Capital Resources The Corporation had cash and cash equivalents of $2.1 million at September 30, 2000, compared to $2.3 million at December 31, 1999. Net cash used in operating activities was $163,000 in the nine months ended September 30, 2000, compared to net cash provided by operating activities of $144,000 in the nine months ended September 30, 1999. -8- 9 The Corporation previously acquired approximately 87% of the issued and outstanding shares of common stock of Nazca Holdings Ltd. ("Nazca") effective June 30, 1999, pursuant to a purchase agreement (the "Purchase Agreement") among the Corporation and the former majority holders (the "Vendors") of the shares (the "Shares") of common stock of Nazca. Nazca, through a subsidiary, is in the business of the exploration for and development of groundwater resources in Chile. In 1999 two of the Vendors purported to exercise an option (the "Option") granted pursuant to the Purchase Agreement to reacquire approximately 37.6% of the Shares. The Corporation believed the attempted exercise to be invalid, as the conditions to be met prior to exercise were not satisfied. A dispute arose between the two Vendors purporting to exercise the Option and the Corporation as to the validity of the exercise of the Option. In order to settle the dispute relating to the purported exercise of the Option, effective July 28, 2000, the Corporation completed an agreement with one of the Vendors to sell all of the Corporation's interest in the Shares of Nazca and certain receivables due from Nazca to the Corporation (the "Receivables"), in exchange for a promissory note from that Vendor in the amount of $600,000 which accrues interest at the rate of 5% per annum and is due on June 30, 2001. The Corporation also obtained a release from, and granted a release to, Nazca and the Vendors with respect to any claims arising out of or connected with Nazca. The consideration payable for the Shares and the Receivables is the result of a negotiated settlement of a disputed claim. As a result of the foregoing the Corporation has no further interest in Nazca. For further information with respect to the settlement, including the agreement with the Vendor referred to above, see the Corporation's Form 8-K dated August 9, 2000, which is incorporated herein by reference. The Corporation believes that its assets and line of credit should enable the Corporation to meet its current ongoing requirements. The Corporation anticipates that it may require substantial capital to pursue current and future acquisitions of businesses and/or operating assets and will seek such capital through debt and/or equity financing. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -9- 10 PART II. OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS The Corporation is not presently subject to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Corporation held its annual meeting of shareholders on July 12, 2000. At the meeting, Jae-Sun Lee was re-elected as a director of the Corporation for a three year term, as follows: ABSTENTIONS AND VOTES FOR VOTES WITHHELD BROKER NON-VOTES --------- -------------- ---------------- Jae Sun Lee 4,423,811 1,000 0 Jin Soo Choi and Young-Soo Ko continued their terms as directors of the Corporation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description ------- ----------- 27 Article 5 - Financial Data Schedule for the 3rd Quarter 2000 Form 10-Q. (b) Reports on Form 8-K The Corporation filed the following reports with respect to the indicated items during the third quarter ended September 30, 2000: Form 8 K/A dated August 9, 2000 Item 2. Acquisition and Disposition of Assets Item 7. Financial Statements and Exhibits -10- 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 14, 2000 ICHOR CORPORATION By: /s/ J. Choi ------------------------- J. Choi, President and Director By: /s/ Michael J. Smith ------------------------- Michael J. Smith, Secretary -11- 12 EXHIBIT INDEX Exhibit Number Description ------- ----------- 27 Article 5 - Financial Data Schedule for the 3rd Quarter 2000 Form 10-Q. EX-1.9 10 0010.txt FINANCIAL STATEMENT 1 HIPPOCAMPE SA (A Development Stage Company) FINANCIAL REPORT SEPTEMBER 30, 2000 2 CONTENTS Page FINANCIAL STATEMENTS Balance sheet 1 Statements of operations 2 Statements of cash flows 3 3 HIPPOCAMPE SA (A Development Stage Company) BALANCE SHEET September 30, 2000 (Unaudited) (In Euros)
U.S. Dollars (Information Only) 2000 2000 ------------ ------------ ASSETS Current Assets Cash $ 166,747 E 190,241 Accounts receivable, net 66,588 75,970 Other 104,450 119,167 ------------ ------------ Total current assets 337,785 385,378 Patents and Other 61,899 70,621 ------------ ------------ $ 399,684 E 455,999 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable and other liabilities $ 217,521 E 248,169 Note payable 378,987 432,386 ------------ ------------ Total current liabilities 596,508 680,555 Payable to Shareholders 212,297 242,209 Shareholders' Equity (Deficit) Common stock 104,492 119,215 Deficit accumulated during the development stage (513,613) (585,980) ------------ ------------ (409,121) (466,765) ------------ ------------ $ 399,684 E 455,999 ============ ============
1 4 HIPPOCAMPE SA (A Development Stage Company) STATEMENTS OF OPERATIONS For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) (In Euros)
U.S. Dollars (Information Only) September 30, September 30, September 30, 2000 2000 1999 ------------- ------------- ------------- Revenues $ 8,386 E 9,567 E 17,944 Expenses Research and development 129,388 147,618 72,984 General and administrative 63,291 72,209 30,373 ----------- ----------- ----------- 192,679 219,827 103,357 ----------- ----------- ----------- Net loss $ (184,293) E (210,260) E (85,413) =========== =========== =========== Basic and diluted loss per common share $ (23.57) E (26.89) E (10.92) =========== =========== =========== Weighted average number of shares outstanding 7,820 7,820 ============ ===========
2 5 HIPPOCAMPE SA (A Development Stage Company) STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) (In Euros)
September 30, September 30, 2000 1999 ------------- ------------- Cash Flows From Operating Activities Net loss E (210,260) E (85,413) Adjustments to reconcile net loss to net cash (used in) provided by operating activities Amortization 11,510 10,800 Increase in receivables (5,696) (19,143) Increase in accounts payable and other liabilities 87,708 109,557 ----------- ----------- Net cash (used in) provided by operating activities (116,738) 15,801 Cash Flows From Investing Activities Patents and other (189,256) - Certificate of deposit 27,440 - ----------- ----------- Net cash used in investing activities (161,816) - Cash Flows Provided by Financing Activities Borrowings under note payable 432,386 - ----------- ----------- Net increase in cash 153,832 15,801 Cash, Beginning of period 36,409 30,126 ----------- ----------- Cash, End of period E 190,241 E 45,927 =========== ===========
3 6 HIPPOCAMPE SA (A Development Stage Company) FINANCIAL REPORT DECEMBER 31, 1999 7 CONTENTS Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Balance sheets 2 Statements of operations 3 Statements of cash flows 4 Notes to financial statements 5 - 10 8 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Shareholders Hippocampe SA We have audited the accompanying balance sheets of Hippocampe SA (a development stage company) as of December 31, 1999 and 1998, and the related statements of operations and retained deficit, and cash flows for the years ended December 31, 1999, 1998 and 1997, and for the period from May 2, 1990 (inception) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hippocampe SA (a development stage company) as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999, 1998 and 1997, and for the period from May 2, 1990 (inception) to December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. /s/ Peterson Sullivan P.L.L.C. Peterson Sullivan P.L.L.C. Seattle, Washington November 28, 2000 1 9 HIPPOCAMPE SA (A Development Stage Company) BALANCE SHEETS December 31, 1999 and 1998 (In Euros)
U.S. Dollars (Information Only) ASSETS 1999 1999 1998 ---------- ---------- ---------- Current Assets Cash $ 36,576 E 36,409 E 30,126 Certificate of deposit 27,566 27,440 - Receivables 70,597 70,274 23,070 Other 2,819 2,806 2,806 ---------- ---------- ---------- Total current assets 137,558 136,929 56,002 Patents and Other 9,280 9,238 20,850 ---------- ---------- ---------- $ 146,838 E 146,167 E 76,852 ========== ========== ========== LIABILITIES Current Liabilities Accounts payable $ 100,605 E 100,144 E 62,141 Taxes and social costs payable 54,392 54,143 27,975 Other 6,204 6,176 6,039 ---------- ---------- ---------- Total current liabilities 161,201 160,463 96,155 Payable to shareholders 243,323 242,209 138,394 Shareholders' Equity Common stock, E15.24 par value; 7,820 shares authorized, issued and outstanding 119,763 119,215 119,215 Deficit accumulated during the development stage (377,449) (375,720) (276,912) ---------- ---------- ---------- (257,686) (256,505) (157,697) ---------- ---------- ---------- $ 146,838 E 146,167 E 76,852 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 2 10 HIPPOCAMPE SA (A Development Stage Company) STATEMENTS OF OPERATIONS AND RETAINED DEFICIT For the Years Ended December 31, 1999, 1998, 1997, and the Period from May 2, 1990 (Inception) to December 31, 1999 (In Euros)
Total US accumulated during Dollars development stage (Information (May 2, 1990 to Only) December 31, 1999 1999 1998 1997 1999) --------- --------- --------- --------- ---------- Revenues $ 46,846 E 46,631 E 41,597 E 13,721 E 211,115 Expenses Research and development 94,334 93,902 70,239 19,958 261,447 General and administrative 49,121 48,896 38,212 33,533 320,460 --------- --------- --------- --------- ---------- 143,455 142,798 108,451 53,491 581,907 --------- --------- --------- --------- ---------- Loss before income tax provision (96,609) (96,167) (66,854) (39,770) (370,792) Income tax provision 2,653 2,641 762 - 4,928 --------- --------- --------- --------- ---------- Net loss (99,262) (98,808) (67,616) (39,770) (375,720) Retained deficit, beginning (278,187) (276,912) (209,296) (169,526) - --------- --------- --------- --------- ---------- Retained deficit, ending $(377,449) E(375,720) E(276,912) E(209,296) E(375,720) ========= ========= ========= ========= ========== Basic and diluted loss per share $ (12.69) E (12.64) E (8.65) E (5.09) E (48.04) ========= ========= ========= ========= ==========
The accompanying notes are an integral part of these financial statements. 3 11 HIPPOCAMPE SA (A Development Stage Company) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, 1997, and the Period from May 2, 1990 (Inception) to December 31, 1999 (In Euros)
Total accumulated during development stage (May 2,1990 to December 31, 1999 1998 1997 1999) ---------- ---------- ---------- ---------- Cash Flows From Operating Activities Net loss E (98,808) E (67,616) E (39,770) E(375,720) Adjustments to reconcile net loss to net cash used in operating activities Amortization 11,612 9,391 1,645 52,513 Increase in receivables (47,204) (7,021) (3,480) (70,275) Increase in accounts payable 38,003 13,279 22,514 100,144 Increase (decrease) in taxes and social costs payable 26,168 23,774 (22) 54,143 Other 137 (5,228) 3,385 3,372 ---------- ---------- ---------- ---------- Net cash used in operating activities (70,092) (33,421) (15,728) (235,823) Cash Flows From Investing Activities Patents and other - (5,176) (26,713) (61,751) Certificates of deposit (27,440) - - (27,440) ---------- ---------- ---------- ---------- Net cash used in investing activities (27,440) (5,176) (26,713) (89,191) Cash Flows From Financing Activities Proceeds from the issuance of common stock - - - 119,215 Borrowings from shareholders 103,815 68,723 30,033 242,208 ---------- ---------- ---------- ---------- Net cash provided by financing activities 103,815 68,723 30,033 361,423 ---------- ---------- ---------- ---------- Net increase (decrease) in cash 6,283 30,126 (12,408) 36,409 Cash, Beginning of Period 30,126 - 12,408 - ---------- ---------- ---------- ---------- Cash, End of period E 36,409 E 30,126 E - E 36,409 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 12 NOTES TO FINANCIAL STATEMENTS Note 1. The Company and Summary of Significant Accounting Policies Organization/Development Stage Company - -------------------------------------- Hippocampe SA ("the Company") was created in 1990 as a French company for the purpose of engaging in research and development of human health products. All of the Company's activities have been conducted in France. The Company's main research efforts have been concentrated in the prevention and treatment of the AIDS virus. The Company has established a network over the past ten years enabling it to work with education centers, research centers, pharmaceutical laboratories and biotechnology companies. These financial statements have been prepared treating the Company as a development stage company. As of December 31, 1999, the Company had not performed any clinical testing and a commercially viable product is not expected for several more years. As such, the Company has not generated significant revenues. Revenues reported by the Company consist of incidental serum by-products of the Company's research and development activities. For the purpose of these financial statements, the development stage started May 2, 1990, which is the date when the Company was originally organized in France. The Company issued 7,820 shares of common stock in June, 1990 for E119,215 in cash. There were no other transactions affecting shareholders' equity since inception except for results of operations. Foreign Currency - ---------------- Consistent with the location of its activities, beginning January 1, 1999, the Company adopted the euro as its corporate currency. Accordingly, the Company prepared its 1999 financial statements in euros. The financial statements for prior years have been prepared using French francs as the reporting currency and have been restated in euros for each period presented using the Official Fixed Conversion Rate of E1 = FRF 6.55957. Therefore, the financial statements for prior years depict the same trends that would have been presented had they been presented in French francs. However, because they were originally prepared using French francs, they are not necessarily comparable to financial statements of a company which originally prepared its financial statements in a European currency other than the French francs and restated them in euros. All assets, liabilities, revenues and expenses have been reported using the above exchange rate, and no foreign exchange gains or losses have been recorded. There are no other potential elements for other comprehensive income so no statement of comprehensive income has been provided. 5 13 Note 1. (Continued) Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include highly liquid investments with original maturities of three months or less and are generally interest bearing. These assets are recorded at cost which approximates market. Interest and income tax paid on a cash basis were not material during 1999, 1998 and 1997. Certificate of Deposit - ---------------------- The certificate of deposit is stated at cost. The fair value approximates cost based on the length to maturity and interest rate. Revenue Recognition - ------------------- The Company records the sale of products when the products are shipped. Patents - ------- Patents are stated at historical cost and are amortized over five years. Financing - --------- In July 2000, the Company entered into a revolving term credit facility with a bank. This facility allows the Company to borrow up to E1,300,000 at LIBOR plus 4% repayable on August 31, 2001. As a part of this transaction, the Company issued warrants to the bank allowing the bank to convert amounts due under the credit facility into a maximum of 10% of the Company's common shares. Management believes that its existing cash, certificate of deposit, revolving credit facility and additional loans from shareholders will be sufficient to fund its cash requirements through 2000. However, the Company's existing capital resources may not be sufficient to fund the Company's operations through commercialization of its first product. Accordingly, the Company will need to raise substantial additional funds. The Company is currently evaluating several financing alternatives, some of which may involve the sale of additional equity, commencement of corporate partnerships and other methods of raising capital from public, private, and corporate sources. Management anticipates completion of one or more of these financing events prior to the end of 2001. As a part of planning for future financing, the Company's majority shareholders agreed to exchange their shares of the Company's common stock for shares in another entity in a transaction to be accounted for as a reverse purchase. 6 14 Note 1. (Continued) Taxes on Income - --------------- The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates. Earnings per Share - ------------------ Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive securities. There were no dilutive securities outstanding during the period May 2, 1990 to December 31, 1999. Estimates - --------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards - ------------------------ Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") will be effective for periods beginning after June 15, 2000. FAS 133 requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value provided certain conditions are met. The Company does not currently have derivative instruments or engage in hedging activities so there would be no affect on its consolidated financial statements. The United States Securities and Exchange Commission recently issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which the Company adopted in 2000. Currently, the impact of this bulletin on the Company's financial statements is unknown. 7 15 Note 1. (Continued) Research and Development - ------------------------ Research and development costs are expensed as incurred. When products being developed reach technological feasibility, costs associated with these products will be capitalized and amortized over their estimated useful lives. Note 2. Receivables
1999 1998 ---------- ---------- Trade receivables E 36,886 E 15,192 Refunds due from suppliers 18,742 16,652 Value added tax 13,663 - Other 6,235 - ---------- ---------- 75,526 31,844 Allowance for doubtful accounts (5,252) (8,774) ---------- ---------- E 70,274 E 23,070 ========== ==========
No collateral was required for the above receivables. Note 3. Taxes and Social Costs Payable
1999 1998 ---------- ---------- Salaries payable E 2,876 E 4,138 Social security and other social benefits 41,856 15,329 Income tax 1,117 - Value added tax 5,447 7,747 Other 2,847 761 ---------- ---------- E 54,143 E 27,975 ========== ==========
8 16 Note 4. Transactions with Shareholders Sales to a shareholder were E22,677 in 1999 and E0 in 1998 and 1997. Trade receivables include E20,467 at December 31, 1999, and E0 in 1998 from this shareholder. The amounts payable to shareholders bear no interest, have no collateral, and are repayable upon the Company becoming profitable. Since the timing of the Company becoming profitable cannot be determined, the fair value of the amounts payable to shareholders cannot be determined. The Company is not expected to become profitable in the near-term, therefore, the amounts payable to shareholder have been classified as long-term. Note 5. Income Taxes The reconciliation of income tax on income computed at the federal statutory rates to income tax expense is as follows:
1999 1998 1997 --------- --------- --------- U.S. Federal statutory rates on loss from operations E (20,867) E (11,924) E (5,962) Tax differential on foreign loss (12,376) (12,702) (4,978) Change in valuation allowance 35,884 25,388 10,940 --------- --------- --------- Income tax expense E 2,641 E 762 E - ========= ========= =========
Deferred tax asset is composed of the following:
December 31, 1999 December 31, 1998 ----------------- ----------------- Difference in book and tax basis of amounts payable to shareholder E 89,616 E 51,204 Net operating loss carryforwards - 2,528 Less valuation allowance for deferred tax asset (89,616) (53,732) ----------------- ----------------- Net deferred tax asset E - E - ================= =================
9 17 Note 5. (Continued) All of the Company's provision for income taxes was from French income. The Company had no net operating loss carryforwards as of December 31, 1999. Note 6. Commitments and Contingencies The Company leases property under noncancelable operating leases through January 2006. Future minimum lease payments under noncancelable operating leases are as follows: 2000 E 7,317 2001 7,317 2002 7,317 2003 7,317 2004 7,317 Thereafter 7,928 -------- E 44,513 ======== Total rent expense was E7,317, each for 1999, 1998 and 1997, respectively. The Company is involved in various matters of litigation arising in the ordinary course of business. In the opinion of management, the estimated outcome of such issues will not have a material effect on the Company's financial statements. 10 -----END PRIVACY-ENHANCED MESSAGE-----