Securities Law & Instruments

Headnote

Mutual Reliance System for Exemptive Relief Applications -- relief from registration and prospectus requirements in connection with the first trade of shares distributed to residents of Canada in connection with a merger -- issuer not a reporting issuer in any jurisdiction of Canada -- the conditions of the exemption in section 2.14 of National Instrument 45-102 Resale of Securities not fully met as resident of Canada own more than 10% of the total number of shares -- relief granted subject to conditions, including that the first trade must be made through an exchange or market outside of Canada or to a person or company outside of Canada.

Applicable Legislative Provisions

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

National Instrument 45-102 Resale of Securities.

September 4, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUÉBEC

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

HEALTHCARE ACQUISITION CORP.

(the Filer)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the registration and the prospectus requirements of the Legislation as they relate to the first trades of the Canadian Securities (as defined below) issued to residents in the Jurisdictions pursuant to a merger transaction (the Requested Relief), subject to certain terms and conditions.

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer was incorporated under the laws of the State of Delaware. The principal executive offices of the Filer are located at 2116 Financial Center at 666 Walnut Street, Des Moines, Iowa.

2. The Filer is not a reporting issuer or its equivalent in any jurisdiction of Canada and the Filer has no present intention of becoming a reporting issuer in any jurisdiction of Canada.

3. The Filer is a registrant with the Securities and Exchange Commission (SEC) and is subject to the requirements of the United States Securities Exchange Act of 1934 (1934 Act) and the rules and regulations of the American Stock Exchange (AMEX).

4. The shares of Common Stock, US$0.0001 par value, of the Filer (Common Shares) and warrants to purchase Common Shares with an exercise price of US$6.00 per share (Warrants) are listed and posted for trading on the AMEX under the symbols "HAQ" and "HAQ.WS", respectively. Other than the foregoing, none of the Filer's securities are listed or quoted on any exchange or market in Canada or outside of Canada.

5. The Filer has entered into an agreement and plan of merger (the Merger Agreement) dated as of January 19, 2007 by and among the Filer, PAI Acquisition Corp. (Subco) and PharmAthene, Inc. (PharmAthene) pursuant to which Subco, a wholly-owned Delaware incorporated subsidiary of the Filer, will in accordance with the provisions of Delaware law, be merged with and into PharmAthene, a Delaware corporation, and PharmAthene will survive to become a wholly-owned subsidiary of the Filer (the Merger).

6. Upon the Merger becoming effective, the Filer will unconditionally allot and issue, and reserve for issuance, an aggregate of 12,500,000 Common Shares (subject to upward adjustment in accordance with the Merger Agreement) to the holders of shares of common stock of PharmAthene, US$0.001 par value, (PharmAthene Shares), of Series A Convertible Preferred Stock of PharmAthene, US$0.001 par value, of Series B Convertible Preferred Stock of PharmAthene, US$0.001 par value, of Series C Convertible Preferred Stock of PharmAthene, US$0.001 par value, and of options to purchase 9,623,947 PharmAthene Shares (PharmAthene Options). As part of the Merger, the holders of the issued and outstanding secured 8% convertible notes of PharmAthene and secured 8% convertible note of PharmAthene Canada Inc. collectively with an aggregate principal amount of US$11,800,000 shall exchange such notes for 8% Senior Unsecured Convertible Notes of the Filer in the aggregate principal amount of US$12,500,000 (New Notes) (which notes shall be convertible into 1,250,000 Common Shares). The Filer will also establish a new share option plan and will reserve for issuance under such plan 3,500,000 shares.

7. The authorized capital stock of the Filer consists of 100,000,000 Common Shares and 1,000,000 shares of preferred stock, US$0.0001 par value, of which 11,650,000 Common Shares were outstanding as at the date of the Merger Agreement. As at such date, there were also outstanding (i) options with an exercise price of US$10 per unit to purchase up to 225,000 units (each unit consisting of one Common Share and one Warrant to purchase a Common Share), and (ii) 9,400,000 Warrants. To the knowledge of the Filer (which knowledge is derived from a geographic survey of holders of Common Shares dated July 12, 2007), 10,125 Common Shares are held by 3 residents of Canada. As a consequence of the Merger, the Filer will have issued and outstanding 23,670,935 Common Shares, 479,065 Common Shares reserved for issuance upon exercise of the PharmAthene Options, 3,500,000 Common Shares reserved for issuance under the new share option plan, 9,400,000 Warrants, and Common Shares and Warrants issuable upon exercise of 225,000 units, as well as the New Notes which are convertible into 1,250,000 Common Shares. On a fully diluted basis immediately following the Merger (excluding the Common Shares reserved for issuance under the new share option plan), the Filer will have 35,250,000 Common Shares outstanding. On a non-diluted basis, 3,003,493 Common Shares (or 12.7% of the total Common Shares) will be held by three institutional investors resident in Canada, who prior to the Merger becoming effective, were the holders of an aggregate of 13,396,533 shares of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock of PharmAthene. One of such Canadian institutional investors will also hold a New Note in the principal amount of US$2,000,000 and convertible into 200,000 Common Shares and certain Canadian employees will hold options to purchase Common Shares. The Common Shares, together with the underlying Common Shares issuable upon conversion of the

8. Any resale of the Canadian Securities by the Canadian holders thereof is expected to be made over AMEX, as there is no market for the Common Shares in Canada and none is expected to develop.

9. In the absence of an order granting relief, the first trade in Canadian Securities by any of the Canadian holders will be deemed to be a distribution pursuant to National Instrument 45-102 -- Resale of Securities (NI 45-102) unless, among other things, the Filer has been a reporting issuer for four months immediately preceding the trade in one of the Jurisdictions set forth in Appendix B to NI 45-102.

10. The first trade of the Canadian Securities will be deemed to be a distribution under NI 45-102 since the Filer is not a reporting issuer in any jurisdiction in Canada.

11. The Filer meets all eligibility criteria for the exception provided in Section 2.14 of NI 45-102except that residents of Canada will own, at the distribution date, more than 10% of a series of outstanding securities.

12. The Filer will be subject to the requirements of the 1934 and the reporting obligations under the rules of AMEX. Holders of Common Shares resident in Canada will receive copies of all shareholder materials provided to all other holders of the Common Shares.

13. The Filer is under no obligation to file a prospectus, thus the Common Shares held by Canadian residents are subject to resale restrictions that may never expire. Preventing the Canadian stockholders from reselling the Common Shares unless a prospectus is filed is prejudicial to the stockholders resident in Canada and does not protect the integrity of the Canadian capital markets.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) at the date of the first trade of the Canadian Securities, the Filer is not a reporting issuer in any jurisdiction of Canada where such concept exists; and

(b) the first trade of the Canadian Securities is made through an exchange, or market, outside of Canada or to a person or company outside of Canada.

"Wendell S. Wigle"
Commissioner
Ontario Securities Commission
 
"Harold P. Hands"
Commissioner
Ontario Securities Commission