Securities Law & Instruments

Headnote

Application for registrationand prospectus relief in connection with certain future tradesin securities arising out of recent reorganization of closelyheld Ontario issuer to become operating subsidiary of U.S.-basedholding company. As a result of use of exchangeable share structure,discretionary relief believed to be necessary for certain futuretrades resulting from the Reorganization. Relief granted subjectto resale restriction that first trade in a security acquiredpursuant to Ruling deemed to be a distribution unless conditionsin subsections (3) or (4) of section 2.6 of Multilateral Instrument45-102 are satisfied.

Statutes Cited

Securities Act, R.S.O. 1990,c. S.5, as am., sections 25, 53, 74(1).

Instrument Cited

Multilateral Instrument 45-102- Resale of Securities.

IN THE MATTER OF

THE SECURITIES ACT, R.S.O.1990,

CHAPTER S. 5, AS AMENDED (the"Act")

AND

IN THE MATTER OF

HYGEIA CORPORATION (ONTARIO),

HYGEIA HOLDINGS COMPANY (NOVASCOTIA) AND

HYGEIA CORPORATION (DELAWARE)

RULING

(Subsection 74(1))

UPON the applicationof Hygeia Corporation (Ontario) ("Hygeia Ontario"),Hygeia Holdings Company (Nova Scotia) ("Hygeia Holdings")and Hygeia Corporation (Delaware) ("Hygeia", and collectivelywith Hygeia Ontario and Hygeia Holdings, the "Applicants")to the Ontario Securities Commission (the "Commission")for a ruling, pursuant to subsection 74(1) of the Act, thatcertain future trades in securities arising out of the recentreorganization of Hygeia Ontario shall not be subject to sections25 or 53 of the Act (the "Reorganization");

AND UPON consideringthe application and the recommendation of staff of the Commission;

AND UPON the Applicantshaving represented to the Commission as follows:

1. Hygeia Ontario is a companyincorporated under the Ontario Business Corporations Act.Hygeia Ontario carries on business as a preferred providerorganization for hospitals and insurance companies.

2. The authorized capitalof Hygeia Ontario consists of an unlimited number of commonshares (the "Hygeia Ontario Common Shares") andan unlimited number of preference shares. Immediately priorto the Reorganization (described below), Hygeia Ontario had13 shareholders. As at October 31, 2001, there were issuedand outstanding (i) 8,463,714 Hygeia Ontario Common Shares;and (ii) options to purchase 551,020 Hygeia Ontario CommonShares ("Hygeia Ontario Options") held by officers,directors, employees and consultants of Hygeia Ontario.

3. Hygeia Ontario is not areporting issuer in Ontario or in any other jurisdiction,and none of its securities are listed or posted for tradingon any exchange.

4. Hygeia is a corporationexisting under the laws of the State of Delaware. Hygeia'sauthorized capital consists of common stock and preferredstock. Hygeia has the authority to issue fifty million sharesof common stock ("Common Stock"), par value $0.001per share, and one million shares of preferred stock, parvalue $0.001 per share. Hygeia is also authorized to issuea series of preferred stock designated as "Series A PreferredStock", par value $0.001 per share, which consists ofone of the one million shares of preferred stock which Hygeiais authorized to issue (the "Hygeia Special Voting Share").

5. None of the shares of Hygeiaare or will be listed or posted for trading on any exchange.Hygeia is not a reporting issuer in any jurisdiction. Hygeiais not currently subject to the reporting requirements ofthe United States Securities Exchange Act of 1934, as amended.

6. Hygeia Holdings is a corporationorganized under the laws of the Province of Nova Scotia. HygeiaHoldings is a private company and is not a reporting issuerin any jurisdiction. The authorized capital of Hygeia Holdingsconsists of a billion common shares. As a result of the Reorganization(described below), Hygeia owns all of the issued and outstandingshares of Hygeia Holdings, and Hygeia Holdings owns all ofthe outstanding Hygeia Ontario Common Shares.

7. In 2001, Hygeia Ontariodetermined it to be in the best interests of its shareholdersif it reorganized its shareholdings so that it became an indirectwholly-owned subsidiary of Hygeia (the "Reorganization").

8. In connection with theproposed Reorganization, Hygeia mailed an information circularfor information purposes on August 24, 2001 to each holderof Hygeia Ontario Common Shares containing a detailed descriptionof the Reorganization and the characteristics of the ExchangeableShares.

9. Shareholders of Hygeiaand Hygeia Ontario approved the Reorganization at respectiveshareholders' meetings held on September 5, 2001. In connectionwith the Reorganization, shareholders of Hygeia Ontario ("HygeiaOntario Shareholders") approved articles of amendmentof Hygeia Ontario (the "Articles") which were filedand became effective on January 1, 2002.

10. Effective January 1, 2002,all of the issued and outstanding Hygeia Ontario Common Sharesheld by the Hygeia Ontario Shareholders were exchanged fornon-voting exchangeable shares in the capital of Hygeia Ontario(the "Exchangeable Shares"). Immediately followingthe Reorganization, all existing options of Hygeia Ontariowere cancelled and replaced by equivalent options (the "ReplacementOptions") for shares of common stock of Hygeia.

11. The Exchangeable Shares,together with an exchangeable share support agreement enteredinto at closing among Hygeia, Hygeia Holdings and Hygeia Ontario(the "Support Agreement") and a voting and exchangetrust agreement entered into at closing among Hygeia, HygeiaHoldings, Hygeia Ontario and a trustee (the "Voting Trustand Exchange Agreement"), all as described below, provideholders thereof with a security of Hygeia Ontario having economicrights which are, as nearly as practicable, equivalent tothose of the common shares of Hygeia.

12. The Exchangeable Sharesrank prior to the common shares of Hygeia Ontario with respectto the payment of dividends and the distribution of assetsin the event of a liquidation, dissolution or winding-up ofHygeia Ontario to the extent described below.

13. The rights, privileges,restrictions and conditions attaching to the ExchangeableShares (the "Exchangeable Share Provisions") providethat each Exchangeable Share entitles the holder to dividendsfrom Hygeia Ontario payable at the same time as, and equivalentto, each dividend paid by Hygeia on the common shares of Hygeia.Subject to the overriding call right of Hygeia Holdings (orHygeia) described below, on the liquidation, dissolution orwinding-up of Hygeia Ontario, a holder of Exchangeable Sharesis entitled to receive from Hygeia Ontario for each ExchangeableShare held an amount equal to the current market price ofa common share of Hygeia, to be satisfied by delivery of onecommon share of Hygeia, together with all declared and unpaiddividends on each such Exchangeable Share held by the holderon any dividend record date prior to the date of liquidation,dissolution or winding-up (such aggregate amount, the "LiquidationPrice"). Upon a proposed liquidation, dissolution orwinding-up of Hygeia Ontario, Hygeia Holdings (or Hygeia)will have an overriding call right (the "LiquidationCall Right") to purchase all of the outstanding ExchangeableShares from the holders thereof (other than Hygeia or itsaffiliates) for a price per share equal to the LiquidationPrice.

14. The Exchangeable Sharesare non-voting (except as required by the Exchangeable ShareProvisions or by applicable law) and are retractable at theoption of the holder at any time. Subject to the overridingcall right of Hygeia Holdings (or Hygeia) described below,upon retraction the holder will be entitled to receive fromHygeia Ontario for each Exchangeable Share retracted an amountequal to the current market price of a common share of Hygeia,to be satisfied by delivery of one common share of Hygeia,together with, on the designated payment date therefor, alldeclared and unpaid dividends on each such retracted ExchangeableShare held by the holder on any dividend record date priorto the date of retraction (such aggregate amount, the "RetractionPrice"). Upon being notified by Hygeia Ontario of a proposedretraction of Exchangeable Shares, Hygeia Holdings (or Hygeia)will have an overriding call right (the "Retraction CallRight") to purchase from the holder all of the ExchangeableShares that are the subject of the retraction notice for aprice per share equal to the Retraction Price.

15. Subject to the overridingcall right of Hygeia Holdings (or Hygeia) described below,Hygeia Ontario may redeem all the Exchangeable Shares thenoutstanding at any time on or after the date which is tenyears from the Effective Date (the "Redemption Date").The board of directors may accelerate the Redemption Datein certain circumstances which are set out in the ExchangeableShare Provisions. Upon such redemption, a holder will be entitledto receive from Hygeia Ontario for each Exchangeable Shareredeemed an amount equal to the current market price of acommon share of Hygeia, to be satisfied by the delivery ofone common share of Hygeia, together with all declared andunpaid dividends on each such redeemed Exchangeable Shareheld by the holder on any dividend record date prior to thedate of redemption (such aggregate amount, the "RedemptionPrice"). Upon being notified by Hygeia Ontario of a proposedredemption of Exchangeable Shares, Hygeia Holdings (or Hygeia)will have an overriding call right (the "Redemption CallRight") to purchase from the holders all of the outstandingExchangeable Shares (other than Hygeia or its affiliates)for a price per share equal to the Redemption Price.

16. Under the Voting Trustand Exchange Agreement, Hygeia has granted to the Trusteeunder the Voting Trust and Exchange Agreement (the "Trustee")for the benefit of the holders of the Exchangeable Sharesa put right (the "Optional Exchange Right"), exercisableupon the insolvency of Hygeia Ontario, to require Hygeia Holdings(or Hygeia) to purchase from a holder of Exchangeable Sharesall or any part of his or her Exchangeable Shares. The purchaseprice for each Exchangeable Share purchased by Hygeia Holdings(or Hygeia) will be an amount equal to the current marketprice of a common share of Hygeia, to be satisfied by deliveryto the Trustee, on behalf of the holder, of one common shareof Hygeia, together with an additional amount equivalent tothe full amount of all declared and unpaid dividends on suchExchangeable Share held by such holder on any dividend recorddate prior to the closing of the purchase and sale.

17. Under the Voting Trustand Exchange Agreement, upon the liquidation, dissolutionor winding-up of Hygeia, Hygeia Holdings (or Hygeia) willbe required to purchase each outstanding Exchangeable Share,and each holder will be required to sell all of his or herExchangeable Shares, (such purchase and sale obligations arehereafter referred to as the "Automatic Exchange Right")for a purchase price per share equal to the current marketprice of a common share of Hygeia, to be satisfied by thedelivery to the Trustee, on behalf of the holder, of one commonshare of Hygeia, together with an additional amount equivalentto the full amount of all declared and unpaid dividends oneach such Exchangeable Share held by such holder on any dividendrecord date prior to the closing of the purchase and sale.

18. Under the Voting Trustand Exchange Agreement, Hygeia issued and deposited with theTrustee the Hygeia Special Voting Share which entitles theholder to an equivalent number of votes at meetings of theholders of common shares of Hygeia equal to the number ofExchangeable Shares outstanding from time to time. The Trusteeholds the Hygeia Special Voting Share for and on behalf ofthe holders of Exchangeable Shares. The Trustee, as holderof record of the Hygeia Special Voting Share is entitled toall of the voting rights including the right to consent tovote in person or by proxy the Hygeia Special Voting Share,on any matter, question, or proposition whatsoever that mayproperly come before the common shareholders of Hygeia. TheTrustee may exercise the voting rights only on the basis ofinstructions received from the holders of Exchangeable Shareswho shall be entitled to instruct the Trustee as to the votingthereof. The Trustee holds the Hygeia Special Voting Shareand any other properties that may become the subject of thetrust for the exclusive benefit of the holders of ExchangeableShares. In this manner, the holders of Exchangeable Sharesholding the Exchangeable Shares will be entitled to exercisethe votes they would have received as shareholders of Hygeiaas if they had been issued shares of Hygeia pursuant to theReorganization.

19. Contemporaneously withthe closing of the Reorganization, Hygeia, Hygeia Holdingsand Hygeia Ontario entered into the Support Agreement whichprovides that Hygeia will not declare or pay any dividendon the common shares of Hygeia unless Hygeia Ontario simultaneouslydeclares and pays an equivalent dividend on the ExchangeableShares, and that Hygeia will ensure that Hygeia Ontario andHygeia Holdings will be able to honour the redemption andretraction rights and dissolution entitlements that are attributesof the Exchangeable Shares under the Exchangeable Share Provisionsand the related redemption, retraction and liquidation callrights described above.

20. The Support Agreementalso provides that, without the prior approval of the holdersof the Exchangeable Shares, actions such as distributionsof stock dividends, options, rights and warrants for the purchaseof securities or other assets, subdivisions, reclassifications,reorganizations and other changes cannot be taken in respectof the common shares generally without the same or an economicallyequivalent action being taken in respect of the ExchangeableShares.

21. As a result of the Reorganization,Hygeia indirectly owns all of the issued and outstanding commonshares of Hygeia Ontario.

22. The Applicants were entitledto rely on and have relied on existing statutory exemptionsfor the various trades of securities made in connection withthe Reorganization. However, as a result of the use of anexchangeable share structure, the Applicants believe thatdiscretionary relief may be necessary for certain future tradesresulting from the Reorganization.

23. The future trades andpossible future trades in securities resulting from the Reorganizationare the following:

(a) the issuance and intra-grouptransfers of common shares of Hygeia and related issuancesof shares of Hygeia affiliates in consideration therefor,all by and between Hygeia and its affiliates, from timeto time to enable common shares of Hygeia to be deliveredto a holder of Exchangeable Shares, and the subsequent deliverythereof to such holder, upon: (i) a holder's retractionof Exchangeable Shares; (ii) the exercise of the RetractionCall Right; (iii) the redemption of the Exchangeable Sharesby Hygeia Ontario; (iv) the exercise of the Redemption CallRight; (v) the liquidation, dissolution or winding-up ofHygeia Ontario; and (vi) the exercise of the LiquidationCall Right;

(b) the transfer of ExchangeableShares by the holder to Hygeia Ontario, Hygeia or HygeiaHoldings, as applicable, upon: (i) the holder's retractionof Exchangeable Shares; (ii) the exercise of its RetractionCall Right; (iii) the redemption of the Exchangeable Sharesby Hygeia Ontario; (iv) the exercise of the Redemption CallRight; (v) the liquidation, dissolution or winding-up ofHygeia Ontario; and (vi) the exercise of the LiquidationCall Right;

(c) the issuance and deliveryof common shares of Hygeia by Hygeia or Hygeia Holdingsto each other and to a holder of Exchangeable Shares uponthe exercise of the Optional Exchange Right or the AutomaticExchange Right;

(d) the transfer to Hygeiaof the Hygeia Special Voting Share by the Trustee upon theexchange, by any means, of all Exchangeable Shares for commonshares of Hygeia;

(e) the transfer of ExchangeableShares by a holder to Hygeia or Hygeia Holdings upon theTrustee's exercise of the Optional Exchange Right or theoccurrence of the Automatic Exchange Right; and

(f) the issuance and deliveryof common shares by Hygeia upon the exercise of the ReplacementOptions of Hygeia by the holders thereof (collectively,the "Future Trades").

AND WHEREAS the Commissionis satisfied that to do so would not be prejudicial to the publicinterest;

IT IS RULED, pursuantto subsection 74(1) of the Act, that sections 25 and 53 of theAct shall not apply to the Future Trades, provided that thefirst trade in a security acquired pursuant to this Ruling shallbe deemed a distribution unless the conditions in subsections(3) or (4) of section 2.6 of Multilateral Instrument 45-102are satisfied.

June 25, 2002.

"H. Lorne Morphy"                    "R.L.Shirriff"