Exhibit (d)(xviii)
MEMORANDUM OF UNDERSTANDING
MDS INC., a corporation governed by the laws of Canada
(hereinafter called "MDS")
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HEMOSOL CORP., a corporation incorporated under the laws of the
Province of Ontario
(hereinafter called "HEMOSOL")
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HEMOSOL LP, a partnership formed under the laws of the Province of
Ontario, by its general partner HEMOSOL CORP.
(hereinafter called the "PARTNERSHIP")
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HEMOSOL INC., a corporation incorporated under the laws of the Province
of Ontario
(hereinafter called "OLD HEMOSOL")
WHEREAS MDS is a holder of securities in the capital of Hemosol;
AND WHEREAS on October 22, 2002, Old Hemosol borrowed Cdn.$20 million
(the "Loan") from a Canadian chartered bank (the "Lender"), the proceeds of
which were to be deployed to, among other things, pay for ongoing clinical
trials of its flagship product, HEMOLINK(TM) and complete construction of its
Meadowpine manufacturing facility;
AND WHEREAS MDS agreed to assist Old Hemosol in obtaining the Loan on
favourable terms by guaranteeing all of the obligations of Old Hemosol to the
Lender in respect of the Loan;
AND WHEREAS on October 22, 2002 MDS and Old Hemosol entered into a
memorandum of understanding ("MOU") to set out the principal terms and
conditions pursuant to which MDS was prepared to guarantee (the "Original
Guarantee") the obligations of Old Hemosol to the Lender in respect of the Loan,
which terms and conditions included the obligation of Old Hemosol to issue
warrants of Old Hemosol to MDS;
AND WHEREAS MDS and Old Hemosol amended the MOU on December 29, 2003 to
set out the terms and conditions whereby MDS agreed to extend the term of the
Original Guarantee;
AND WHEREAS in connection with a plan of arrangement (the
"Arrangement") of Old Hemosol, involving Old Hemosol, its securityholders and
MDS effective the date hereof, (i) the obligations of Old Hemosol under the Loan
will be assumed by the Partnership; (ii) MDS, among others, will enter into an
assumption, assignment and release agreement (the "Assignment Agreement")
whereby the benefit of the Original Guarantee of MDS will be assigned to the
Partnership; (iii) the MOU, as amended, will be terminated; and (iv) Hemosol
will enter into this new memorandum of understanding with MDS (the "New MOU") on
substantially the same terms as the MOU, as amended, except that the warrants
issuable to MDS hereunder shall be issuable by Hemosol in lieu of Old Hemosol,
the number of warrants issuable hereunder shall be reduced by one-half and the
exercise price of each such warrant shall be reduced by $0.04;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in this memorandum of understanding and other good and valuable
consideration (the receipt and adequacy of which is hereby acknowledged by the
parties hereto), the parties hereto agree as set forth below.
1. BORROWING
1.1 In connection with the Partnership assuming Old Hemosol's obligations
under the Loan, the Partnership will grant to the Lender a fixed and floating
first charge in favour of the Lender over all of the real and personal property
of the Partnership (the "Security"). The term of the Loan shall end on
October 1, 2004 but may be extended to May 25, 2005 subject to Hemosol complying
with section 2.2 hereof. The last business day of the Loan's term shall be
referred to herein as the "Latest Repayment Date".
1.2 The obligations of the Partnership under the Loan will be collaterally
secured by a guarantee from MDS (the "New Guarantee") in favour of the Lender as
contemplated by the
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Assignment Agreement. The New Guarantee is in the same form as the Original
Guarantee provided by MDS in favour of the Lender, the terms of which include,
but are not limited to, full rights of subrogation in favour of MDS.
1.3 The MOU is terminated in accordance with the terms and conditions of
the Arrangement.
2. GUARANTEE FEE
2.1 In consideration of providing the Original Guarantee to Old Hemosol
and entering into the Assignment Agreement, MDS is and shall be entitled to, and
Hemosol shall issue to MDS, warrants of Hemosol entitling MDS, subject to the
satisfaction of the requirements set out in this section 2.1 and section 2.2, to
subscribe for and purchase up to 7,500,000 fully paid and non-assessable common
shares of Hemosol ("Shares") (subject to customary adjustments including, but
not limited to, any subdivision or consolidation of the common shares of
Hemosol) at a price per Share of Cdn. $0.96 (the "Warrants"). 5,500,000 Warrants
have been previously issued to MDS under the warrant certificate of Old Hemosol
dated October 22, 2002, as amended April 30, 2004, which certificate will be
assumed by Hemosol on April 30, 2004 and Hemosol will issue to MDS forthwith a
certificate issuing such Warrants. Hemosol agrees to use its reasonable
commercial efforts to obtain all requisite approvals, including Toronto Stock
Exchange listing approval, to issue and, upon receipt of all such approvals,
Hemosol shall issue to MDS on or after May 25, 2004, but by August 25, 2004, an
additional 2,000,000 Warrants (the "Additional Warrants"), with an exercise
price of $0.96 per Additional Warrant, which shall vest on the terms set forth
in paragraph 2.2 and shall be evidenced by a warrant certificate of Hemosol.
Hemosol represents and warrants to MDS that it has all requisite shareholder
approval to issue the Additional Warrants. In addition, upon receipt of all such
approvals for and the issuance of the Additional Warrants by August 25, 2004,
the term of the New Guarantee shall be extended from October 21, 2004 to June
20, 2005 automatically and without any further action required by Hemosol, the
Partnership or MDS. In the event that the Additional Warrants are not issued to
MDS by August 25, 2004, the term of the New Guarantee will not be extended
beyond, and shall expire on, October 21, 2004 and Hemosol shall have no further
obligation to issue the Additional Warrants.
2.2 The terms of vesting of the Additional Warrants shall be such that
for each whole or part month that the Loan remains outstanding beyond May 25,
2004 (to a maximum of an additional 12 months) (each such whole or part month
being an "Extension Month"), MDS may exercise Additional Warrants entitling it
to subscribe for up to the number of Shares set forth in Table 1 below and such
Additional Warrants may be exercised at any time and from time to time during
the period from and after the first day of the subject Extension Month and prior
to the third anniversary of such date.
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TABLE 1
MONTHS LOAN IS OUTSTANDING NUMBER OF ADDITIONAL WARRANTS
BEYOND MAY 25, 2004 BECOMING EXERCISABLE
- -------------------------- -----------------------------
1 166,666
2 166,667
3 166,666
4 166,667
5 166,666
6 166,667
7 166,666
8 166,667
9 166,666
10 166,667
11 166,666
12 166,669
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TOTAL 2,000,000
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2.3 If Hemosol repays in full all amounts owed under the Loan in any
month prior to the Latest Repayment Date, no Warrants, in excess of those which
are already exercisable as of the end of the month in which the Loan is repaid
in full, shall be exercisable.
3. CONDITIONS
3.1 The conditions precedent to the execution of the Assignment Agreement
by MDS are the following:
(a) MDS and its legal counsel must have sufficient opportunity to review
and must ultimately approve, in form and substance, all documentation
relating to the assumption of the Loan and the assignment of the
Guarantee including, without limitation, the loan agreement and all
documentation relating to the Security and the Warrants;
(b) MDS and its legal counsel must be satisfied with the form and substance
of the New Guarantee, Assignment Agreement which shall provide, without
limiting the generality of the foregoing, that MDS has full rights of
subrogation upon MDS paying to the Lender all amounts outstanding in
connection with the Loan at the
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time the New Guarantee is called upon, and the Loan and New Guarantee
transactions are in compliance with OSC Policy 61-501 and the Shares
issuable upon exercise of the Warrants shall be subject to a hold
period of no more than four (4) months;
(c) MDS shall receive an opinion from legal counsel to Hemosol and the
Partnership confirming, among other things, that there are no security
interests in, or other encumbrances on title to, any of the real
property assets of the Partnership that rank in priority to the
security interest in such assets granted to the Lender as security for
the Loan. MDS shall receive a search report from legal counsel to the
Partnership confirming, subject to customary limitations with respect
to the accuracy, completeness and currency of the records of public
registries, that: (i) with the exception of financing statements
registered in respect of assets leased by the Partnership from a
secured creditor, there are no secured parties with a financing
statement registered in the Ontario Personal Property Registry (the
"PPSR") registered in priority to the financing statement registered in
the PPSR in favour of the Lender; (ii) with the exception of a notice
of intention to grant special security registered in favour of the
Lender, there are no banks with a notice of intention to grant special
security registered against the Partnership under the Bank Act
(Canada); and (iii) there are no executions registered against the
personal property of the Partnership in the land registry offices in
those countries in which the Partnership has located any personal
property;
(d) no material adverse change shall have occurred with respect to the
Partnership and Hemosol and the time period, if any, between the time
of execution of this Agreement and the date upon which MDS is required
to execute and deliver the Assignment Agreement;
(e) Hemosol and the Partnership shall have obtained all necessary third
party, shareholder, director and regulatory consents required in
connection with the transactions contemplated herein; and
(f) any such other conditions as are commercially reasonable and customary
in transactions similar to those contemplated herein.
4. EXPENSES
4.1 Hemosol and the Partnership shall pay, or cause to be paid, all
reasonable fees (including, but not limited to, all legal and documentation
fees) and expenses incurred by MDS in connection with the preparation of any
documentation relating to the transactions contemplated herein (other than any
documentation dated the date hereof) as well as the reasonable expenses of MDS
in connection with the enforcement of its rights, all whether or not
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documentation relating to the Loan is promptly executed or any amounts are
advanced thereunder.
5. ASSIGNMENT
5.1 None of MDS, Hemosol, Old Hemosol or the Partnership shall be
permitted to assign all or any portion of its rights or obligations hereunder.
DATED this 30th day of April, 2004.
MDS INC.
By:
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Name:
Title:
HEMOSOL CORP.
By:
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Name:
Title:
HEMOSOL LP, BY ITS GENERAL PARTNER
HEMOSOL CORP.
By:
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Name:
Title:
HEMOSOL INC.
By:
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Name:
Title:
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