Exhibit 10.1
EXECUTION
COPY
SERIES A NOTE PURCHASE
AGREEMENT
THIS SERIES A NOTE PURCHASE
AGREEMENT (this “ Agreement ”) is made
and entered into as of this 19th day of January, 2007 (the “
Execution Date ”) by and among Storm Cat Energy
Corporation, a company incorporated under the laws of the Province
of British Columbia, Canada (the “ Company
”), and each of the purchasers set forth on Schedule
I affixed hereto (each a “ Purchaser
” and collectively the “ Purchasers
”).
Recitals:
A.
The Company is engaged in the exploration and development of large
unconventional gas reserves from fractured shales, coal beds and
tight sand formations and is seeking capital to fund its drilling
program and repay its existing mezzanine debt;
B.
The Company desires to sell and issue to each Purchaser, and each
Purchaser desires to purchase from the Company, upon the terms and
conditions stated in this Agreement, the Series A Subordinated
Convertible Notes due March 31, 2012 (the “
Notes ”) in the aggregate principal amount of
US$18,535,000, substantially in the form attached hereto as
Exhibit A (the “ Private
Placement ”);
C.
The Company has engaged Banc of America Securities LLC, Coker &
Palmer, Inc. and First Albany Capital Inc. as its placement agents
(the “ Placement Agents ”) for the
Private Placement on a “best efforts” basis;
D.
The Notes shall be convertible into the Company’s common
shares, without par value per share (the “ Common
Shares ”) and contemporaneous with the purchase and
sale of the Notes, the parties hereto will enter into a Convertible
Notes Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B (the “
Registration Rights Agreement ”), pursuant to
which, among other things, the Company will agree to provide
certain registration rights with respect to the Common Shares
issuable upon conversion of the Notes under the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (the “ 1933 Act ”), and
applicable state securities laws;
E.
Concurrently with this Private Placement, the Company intends to
commence an offering of Series B Subordinated Convertible Notes due
March 31, 2012 (the “ Series B
Notes ”) in the aggregate principal amount of
US$31,660,000 (the “ Series B Note Offering
”);
F.
The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D (“
Regulation D ”), as promulgated by the U.S.
Securities and Exchange Commission (the “ SEC
”) under the 1933 Act, and in reliance on the exemption from
Canadian prospectus and registration requirements contained in
Canadian National Instrument 45-106 as adopted by the British
Columbia Securities Commission, the Alberta Securities Commission
and the Ontario Securities Commission (“ NI
45-106 ”); and
G.
The parties desire to set forth the terms and conditions of and to
provide for the issuance by the Company of the Notes as described
herein.
NOW, THEREFORE,
in consideration of the mutual
promises made herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1.
Definitions . In addition to those terms defined above
and elsewhere in this Agreement, for the purposes of this
Agreement, the following terms shall have the meanings set forth in
this Section 1 :
“ Affiliate
” means, with respect to any Person, any other Person which
directly or indirectly Controls, is Controlled by, or is under
common Control with, such Person.
“ Allocation
Percentage ” means a fraction, the numerator of which
is the aggregate principal amount of Notes issued to a Purchaser on
the Closing Date and the denominator of which is the aggregate
principal amount of all Notes issued on the Closing
Date.
“ AMEX ”
means the American Stock Exchange.
“ Approved Shares
Plan ” means any employee benefit plan currently
existing or hereinafter created which has been approved by the
Board of Directors of the Company, pursuant to which the
Company’s securities may be issued to any employee,
consultant, officer or director for services provided to the
Company.
“ Bloomberg
” means Bloomberg Financial Markets.
“ Business Day
” means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of
business.
“ Capital Shares
” means: (1) in the case of a corporation, corporate
stock; (2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock; (3) in
the case of a partnership or limited liability company, partnership
interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
“ Change of
Control ” means any Fundamental Transaction other
than (i) any reorganization, recapitalization or reclassification
of the Common Shares in which holders of the Company’s voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the
members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (ii) pursuant to
a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company.
“ Change of Control
Prepayment Premium ” means (i) for Change of Control
Notice delivered or required to be delivered in connection with a
Change of Control prior to the first (1st) anniversary of the
Closing Date, 115%, (ii) for Change of Control Notice delivered or
required to be delivered in connection with a Change of Control on
or following the first (1st) anniversary of the Closing Date but
prior to the second (2nd) anniversary of the Closing
Date,
2
112%, and (iii) for any Change of
Control Notice delivered or required to be delivered in connection
with a Change of Control on or following the second (2nd)
anniversary of the Closing Date, 110%.
“ Closing Sale
Price ” means, for any security as of any date, the
last closing trade price for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to
operate on an extended hours basis and does not designate the
closing trade price then the last trade price of such security
prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or,
if the Principal Market is not the principal securities exchange or
trading market for such security the last trade price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last trade price of such
security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no last
trade price is reported for such security by Bloomberg, the average
of the ask prices of any market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If the
Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Requisite
Holders. If the Company and the Requisite Holders are unable
to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 4.1(b)(iii)
. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
“ Common Shares
” has the meaning set forth in the Recitals, and also
includes any securities into which the Common Shares may be
reclassified, which in all cases shall be prescribed securities
under Regulation 6208 of the Income Tax Act
(Canada).
“ Company’s
Knowledge ” means the actual knowledge of the
officers of the Company, after reasonable due inquiry and
investigation.
“ Confidential
Information ” means trade secrets, confidential
information and know-how (including but not limited to ideas,
formulae, compositions, processes, procedures and techniques,
research and development information, computer program code,
performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer
and supplier lists and related information).
“ Control
” means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by
contract or otherwise.
“ Conversion
Amount ” means the sum of (1) accrued interest since
the last payment of interest and Additional Amounts, if any, and
(2) the aggregate principal amount of the Note being converted or
redeemed.
“ Conversion
Price ” means US$1.20, subject to adjustment as
provided herein.
“ Convertible
Securities ” means any stock or securities (other
than Options) directly or indirectly convertible into or
exchangeable or exercisable for Common Shares.
3
“
Cumulative Dividend Adjustment ” means, for
each Note, as of any date of determination, the sum of all Dividend
Adjustments for such Note made in respect of all dividends or
distributions declared or paid on the Common Shares (other than a
dividend or distribution in Common Shares) prior to such date of
determination.
“
Dividend Adjustment ” means, for each Note, an
amount equal to the quotient of (x) the aggregate amount of any
dividend or distribution (other than a dividend or distribution in
Common Shares) that the Purchaser of such Note would have received
had such Purchaser converted the entire amount of such Note into
Common Shares at the Conversion Rate in effect immediately prior to
the record date for such dividend or distribution, divided by (y)
the average of the Weighted Average Price of the Common Shares for
the five consecutive Trading Days ended on such record
date.
“ Eligible
Market ” means the TSX, New York Stock Exchange, The
NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ
Capital Market.
“ Equity
Conditions ” means: (i) on each day during the
period beginning six (6) months prior to the applicable date of
determination and ending on and including the applicable date of
determination (the “ Equity Conditions Measuring
Period ”), either (x) the Registration Statement
(as defined in the Registration Rights Agreement) filed pursuant to
the Registration Rights Agreement shall be effective and available
for the resale of all of the Registrable Securities in accordance
with the terms of the Registration Rights Agreement or (y) all
Common Shares issuable upon conversion of the Notes shall be
eligible for sale without restriction and without the need for
registration under any applicable federal or state securities laws;
(ii) on each day during the Equity Conditions Measuring Period, the
Common Shares are designated for quotation on a Principal Market or
any applicable Eligible Market and shall not have been suspended
from trading on such exchange or market (other than suspensions of
not more than three (3) days and occurring prior to the applicable
date of determination due to business announcements by the Company)
nor shall proceedings for such delisting or suspension be pending
or threatened in writing by such exchange or market nor shall such
proceeding have been commenced as a result of falling below the
minimum listing maintenance requirements of such exchange or
market; (iii) on each day during the Equity Conditions Measuring
Period, the Company shall have delivered Common Shares upon
conversion of the Notes to the Purchasers on a timely basis as set
forth in Section 4.1(b)(ii) hereof, respectively; (iv) any
applicable Common Shares to be issued in connection with the event
requiring determination may be issued in full without violating
Section 4.5 hereof or the rules or regulations of the
exchange or market upon which the Company’s Common Shares are
then listed or quoted and from and after the Shareholder Meeting
Deadline, the Company shall have obtained the Shareholder Approval;
(v) during the Equity Conditions Measuring Period, the Company
shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Note
Document; (vi) during the Equity Conditions Measuring Period, there
shall not have occurred either (A) the public announcement of a
pending, proposed or intended Fundamental Transaction which has not
been abandoned, terminated or consummated or (B) a Event of Default
or an event that with the passage of time or giving of notice would
constitute a Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of at least all of
the Registrable Securities in accordance
4
with the terms of the Registration
Rights Agreement or (y) any Common Shares issuable upon conversion
of the Notes not to be eligible for sale without restriction
pursuant to Rule 144(k) and any applicable state or Canadian
provincial securities laws; and (viii) the Company otherwise shall
have been in material compliance with and shall not have materially
breached any provision, covenant, representation or warranty of any
Note Document.
“ Equity
Interests ” means Capital Shares and all warrants,
options or other rights to acquire Capital Shares.
“ Excluded
Securities ” means any Common Shares issued or
issuable or deemed to be issued in accordance with Section
4.4 hereof by the Company: (i) in connection with any Approved
Shares Plan; (ii) upon conversion of the Notes; (iii) upon
conversion of the Series B Notes; (iv) upon conversion, exercise or
exchange of any Options or Convertible Securities which are
outstanding on the day immediately preceding the Execution Date,
provided that such issuance of Common Shares upon exercise of such
Options or Convertible Securities is made pursuant to the terms of
such Options or Convertible Securities in effect on the date
immediately preceding the Execution Date and such Options or
Convertible Securities are not amended, modified or changed on or
after the Execution Date; and (v) in connection with any stock
split, stock dividend, recapitalization or similar transaction by
the Company for which adjustment is made pursuant to Section
4.4(b) .
“ Fundamental
Transaction ” means that the Company shall (or in the
case of clause (v) any “person” or “group”
(as these terms are used for purposes of Sections 13(d) and 14(d)
of the 1934 Act)), directly or indirectly, in one or more related
transactions, (i) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of
the Company to another Person, or (ii) allow another Person or
Persons (other than a Person or Persons already holding more than
50% of the aggregate ordinary voting power represented by issued
and outstanding common shares) to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50%
of the outstanding shares of Voting Shares (not including any
shares of Voting Shares held by the Person or Persons making or
party to, or associated or Affiliated with the Person or Persons
making or party to, such purchase, tender or exchange offer), or
(iii) consummate a share purchase agreement or other business
combination (including, without limitation, a merger,
consolidation, reorganization, recapitalization, spin-off or scheme
of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Voting
Shares (not including any shares of Voting Shares held by the other
Person or other Persons making or party to, or associated or
Affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or
(iv) reorganize, recapitalize or reclassify its Common Shares,
or (v) is or shall become the “beneficial owner” (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly,
of 50% of the aggregate ordinary voting power represented by issued
and outstanding Common Shares.
“ Indebtedness
” means, without duplication (i) all indebtedness for
borrowed money, (ii) all obligations issued, undertaken or assumed
as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with
generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (iii)
all reimbursement or payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or
5
similar instruments, including
obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness
created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of
such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement
which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified
as a capital lease, (vii) all indebtedness referred to in clauses
(i) through (vi) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest
or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all
contingent obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (i) through (vii)
above.
“ Intellectual
Property ” means all of the following: (i) patents
and patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice); (ii)
trademarks, service marks, trade dress, trade names, corporate
names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights;
(iv) registrations, applications and renewals for any of the
foregoing; (v) Confidential Information; and (vi) computer software
(including, but not limited to, data, data bases and
documentation).
“ Material Adverse
Effect ” means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or
otherwise), or business of the Company or any Subsidiary; or (ii)
the ability of the Company to issue and sell the securities
contemplated hereby and to perform its obligations under the Note
Documents.
“ Material
Contract ” means any contract of the Company or any
Subsidiary that was actually filed, or required to be filed, (i) as
an exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item
601(b)(10) of Regulation S-K; or (ii) with the securities
regulatory authorities in the provinces and territories of Canada
through the System for Electronic Document Analysis and Retrieval
(“ SEDAR ”) under applicable Canadian
securities laws.
“ Maturity Date
” means, with respect to each Note, March 31,
2012.
“ Note ”
or “ Notes ” has the meaning set forth in
the Recitals, and also includes any securities into which the Notes
may be reclassified.
“ Note Documents
” means this Agreement, the Notes, the Subordination
Agreement and the Registration Rights Agreement.
“ Options
” means any rights, warrants or options to subscribe for or
purchase Common Shares or Convertible Securities.
“ Person ”
means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company,
joint venture, sole
6
proprietorship, unincorporated
organization, governmental authority or any other form of entity
not specifically listed herein.
“ Placement Agents
Agreement ” means that certain Letter
Agreement, dated as of November 17, 2006, by and among the Company,
Banc of America Securities LLC, and Coker & Palmer, Inc., as
amended on November 22, 2006, to join First Albany Capital Inc. and
to amend the terms of compensation to be paid to the Placement
Agents.
“ Principal
Market ” means AMEX, or if the Common Shares are not
traded on the Principal Market, an Eligible Market.
“ Redemption
Date ” means any Event of Default Redemption Date and
any Change of Control Redemption Date.
“ Requisite
Holders ”means, with respect to any consent, vote or
other action, (i) prior to the Closing Date (as defined in
Section 2.2 ), the Purchasers who have subscribed to
purchase a majority of the aggregate principal amount of the Notes;
and (ii) following the Closing Date, the Purchasers holding a
majority of the aggregate principal amount of the Notes then
outstanding.
“ SEC
Filings ” has
the meaning set forth in Section 5.7 .
“ SEDAR
Filings ” has
the meaning set forth in Section 5.7 .
“ Senior Debt
” means the principal of (and premium, if any), interest on,
and all fees and other amounts (including, without limitation, any
out-of-pocket costs, enforcement expenses (including out-of-pocket
legal fees and disbursements), collateral protection expenses and
other reimbursement or indemnity obligations relating thereto)
whether now or hereafter outstanding and payable by Company and/or
its Subsidiaries under or in connection with the (i) Credit
Agreement, dated as of July 28, 2006, as amended by the First
Amendment to Credit Agreement dated as of August 29, 2006, among
the Company, Storm Cat Energy (USA) Corporation, a Colorado
corporation, various financial institutions party thereto as
lenders and JPMorgan Chase Bank, N.A., as Global Administrative
Agent, (ii) Credit Agreement, dated as of July 28, 2006, among the
Company, various financial institutions party thereto as lenders,
JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian
Administrative Agent, and JPMorgan Chase Bank, N.A., as Global
Administrative Agent, as the same may be further amended,
supplemented, restated, refinanced, or otherwise modified from time
to time; and (iii) any other Indebtedness ranking senior in right
of payment to the Notes incurred in the future by the
Company.
“ Series B Note Purchase
Agreement ” means that certain Series B Note Purchase
Agreement, dated as January 19, 2007, by and among the
Company and each of the purchasers party thereto.
“ Subordination
Agreement ” means that certain Subordination and
Intercreditor Agreement, dated as of the Closing Date, among the
Company, Storm Cat Energy (USA) Corporation, a Colorado
corporation, JPMorgan Chase Bank, N.A., as Global
Administrative
7
Agent, JPMorgan Chase Bank, N.A.,
Toronto Branch, as Canadian Administrative Agent, and any other
Person thereto.
“ Subsidiary
” of any Person means another Person, an amount of
the voting securities of which, other voting ownership or voting
partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity
interests of which), is owned directly or indirectly by such first
Person.
“ Successor
Entity ” means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction
or the Person with which such Fundamental Transaction shall have
been made.
“ Tax ”
means any tax, levy, impost, duty or other charge or withholding of
a similar nature (including any related penalty or
interest).
“ Tax Deduction
” means a deduction or withholding for or on account of Tax
from a payment under the Notes.
“ TSX ”
means the Toronto Stock Exchange.
“ Trading Day
” means any day on which the Common Shares are traded on the
Principal Market, or, if the Principal Market is not the principal
trading market for the Common Shares, then on the principal
securities exchange or securities market on which the Common Shares
are then traded; provided that “Trading Day”
shall not include any day on which the Common Shares are scheduled
to trade on such exchange or market for less than 4.5 hours or any
day that the Common Shares are suspended from trading during the
final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time
of trading on such exchange or market, then during the hour ending
at 4:00:00 p.m., New York Time).
“ Voting Shares
” of a Person means Capital Shares of such Person of the
class or classes pursuant to which the holders thereof have the
general voting power to elect, or the general power to appoint, at
least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time Capital
Shares of any other class or classes shall have or might have
voting power by reason of the happening of any
contingency).
“ Weighted Average
Price ” means, for any security as of any date, the
dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New
York City Time, and ending at 4:00:00 p.m., New York City Time, as
reported by Bloomberg through its “Volume at Price”
function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York
City Time, and ending at 4:00:00 p.m., New York City Time, as
reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours,
the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported
in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted
Average
8
Price cannot be calculated for such
security on such date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the
Requisite Holders. If the Company and the Requisite Holders
are unable to agree upon the fair market value of the Common
Shares, then such dispute shall be resolved pursuant to Section
4.1(b)(iii) below with the term “Weighted Average
Price” being substituted for the term “Closing Sale
Price.” All such determinations shall be appropriately
adjusted for any share dividend, share split or other similar
transaction during such period.
“ 1934 Act
” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
2.
Purchase and Sale of the Notes; Closing .
2.1
Purchase and Sale of the Notes . The Company has duly
authorized US$18,535,000 in aggregate principal amount of the
Notes, for issuance to the Purchasers on the terms and subject to
the conditions set forth in this Agreement, and will be in
substantially the form of Exhibit A attached hereto, with such
changes thereto, if any, as may be approved by the Requisite
Holders. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined below), each of the
Purchasers shall severally, and not jointly, purchase, and the
Company shall sell and issue to the Purchasers, the Notes in the
respective amounts set forth opposite the Purchasers’ names
on Schedule I
attached hereto
in exchange for the cash consideration set forth opposite their
respective names on Schedule I .
2.2
Closing .
(a)
The closing (the “ Closing ”) of the purchase and
sale of the Notes to the Purchasers shall take place at the offices
of King & Spalding LLP, 1185 Avenue of the Americas, New York,
New York 10036, or at such other location and on such other date as
the Company and the Requisite Holders shall mutually agree. The
date and time of the Closing (the “ Closing Date ”) shall take place on
10:00 AM, Eastern Standard Time, one (1) Business day following the
confirmation that the conditions to Closing specified herein have
been satisfied or duly waived by the Requisite Holders or the
Company, as applicable (or such other time and date mutually agreed
to by the Company and the Requisite Holders).
(b)
On the Closing Date, each Purchaser shall (i) pay by wire transfer
of immediately available funds (U.S. dollars) an amount
representing such Purchaser’s “ Aggregate Purchase Price ”, as set forth on such
Purchaser’s signature page and opposite such
Purchaser’s name on Schedule I attached hereto, in
accordance with the Company written wire instructions set forth
on Schedule II
attached hereto;
and (ii) deliver to the Placement Agents and the Company a duly
executed counterpart to the Registration Rights Agreement and
Subordination Agreement.
(c)
On the Closing Date, (i) the Company shall deliver to the King
& Spalding LLP, in trust, the Notes, registered in such name or
names and such denomination or denominations as the Purchasers may
designate, with instructions that such Notes are to be held for
release to the Purchasers only upon payment in full of the
Aggregate Purchase Price to the
9
Company and (ii) the Company shall
wire in immediately available funds following receipt of the
Aggregate Purchase Price (A) the Cash Placement Agents Fee to the
Placement Agents and (C) the Placement Agents Counsel Fees to King
& Spalding LLP and Osler, Hoskin & Harcourt LLP
(collectively, “ Placement Agents Counsel
”).
3.
Interest and Repayment . With respect to each
Note:
3.1.
Interest on the Notes . Interest will accrue on the
Notes from and including the issue date until such principal is
paid in full (whether at maturity or by redemption or conversion)
and be payable in arrears on each of March 31, June 30,
September 30, December 31 of each year, commencing June 30,
2007, and on the date on which such principal is repaid in full
(whether at maturity or by redemption or conversion). The
Notes will bear interest on the outstanding principal amount
thereof at a rate equal to 9 1/4% per annum. Each payment of
principal or interest on the Notes will be made to each Purchaser
by certified or bank cashier’s check or wire transfer of
immediately available funds, at such address or to such account as
such Purchaser specifies in writing to the Company at least five
Business Days before such payment is to be made.
3.2.
Interest after Maturity . In the event the Company
shall fail to make any payment of the principal amount of, or
interest on, any Note when due, the Company shall pay interest on
such unpaid amount, payable from time to time on demand, from the
date such amount shall have become due to the date of payment
thereof (after as well as before judgment), accruing on a daily
basis, at a per annum rate of 12%.
3.3.
Payments and Computations .
(a)
The Company will pay all sums becoming due on each Note for
interest or principal, without the presentation or surrender of the
Note or the making of any notation thereon, except that if a Note
is paid in full (either in cash or upon conversion), following such
payment, the Note shall be surrendered to the Company at their
principal office for cancellation.
(b)
Interest on each Note shall be calculated for the actual number of
days (including the first day but excluding the last day of any
relevant period) elapsed and shall be computed on the basis of a
360-day year of twelve 30-day months. Each interest rate
which is calculated under this Agreement and the Note on any basis
other than the actual number of days in a calendar year (the
“deemed interest period”) is, for purposes of the
Interest Act (Canada), equivalent to a yearly rate
calculated by dividing such interest rate by the number of day in
the deemed interest period, then multiplying such result by the
actual number of days in the calendar year (365 or 366).
(c)
If a payment date is not a Business Day at a place of payment, then
(notwithstanding any other provision of this Agreement or the
Notes) payment of interest, premium or principal otherwise due on
such date shall instead be made at that place on the next
succeeding Business Day and no interest shall accrue on such
payment for the intervening period.
10
3.4.
Payment at Maturity or Upon Conversion .
(a)
The outstanding principal amount of each Note, together with any
accrued interest thereon, shall be due and payable in full in cash
on the earlier of: (i) the Maturity Date, or (ii) such other
date as the Note becomes due and payable or purchasable pursuant to
this Agreement. Payment of principal on the Notes will be
made to each Purchaser by certified or bank cashier’s check
or wire transfer of immediately available funds, at such address
and to such account as the Purchaser shall specify in writing to
the Company at least five Business Days before such payment is to
be made.
(b)
Upon any conversion of any Note in accordance with the terms of
Section 4 hereunder, the Conversion Amount shall be
converted into a number of whole Common Shares at the Conversion
Rate (as defined below), with any fractional shares that may result
treated in the manner set forth in Section 4.1(a) of this
Agreement.
4.
Conversion of Notes . The Notes shall be convertible
into Common Shares on the terms and conditions set forth in this
Section 4 .
4.1.
Purchaser’s Conversion Right . Subject to the
provisions of Section 4.5 , at any time or times on or after
the Closing Date, any Purchaser shall be entitled to convert the
Conversion Amount into fully paid and nonassessable Common Shares
in accordance with Section 4.1(a) at the Conversion Rate (as
defined below):
(a)
Conversion . The number of Common Shares issuable upon
conversion of each Note pursuant to this Section 4.1 shall
be determined according to the following formula (the “
Conversion Rate ”):
(Conversion Amount/Conversion Price)
+ the Cumulative Dividend Adjustment for that Note
No fractional Common Shares are to
be issued upon the conversion of any Note, but rather the Company,
at its option, shall either (a) round up such fraction to the
nearest whole share, or (b) pay an amount in cash equal to the
product of (i) such fraction, multiplied by (ii) the Closing
Sale Price of a Common Share on the date of the Conversion Notice
(as defined below), computed to the nearest whole cent, in lieu of
issuing a fractional share.
(b)
Mechanics of Conversion . The conversion of Notes
shall be conducted in the following manner:
(i)
Purchaser’s Delivery Requirements . To convert
Notes into Common Shares on any date (a “ Conversion
Date ”), the Purchaser shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., New York City Time, on such date, a copy of a properly
completed notice of conversion executed by the registered Purchaser
of the Notes subject to such conversion in the form attached hereto
as Exhibit C (the “ Conversion
Notice ”) to the Company and the Company’s
designated transfer agent (the “ Transfer Agent
”) and (B) surrender to a common carrier for delivery to the
Company as soon as practicable following such date the original
Notes being converted (or compliance with the procedures set forth
in Section 10.3 ).
11
(ii)
Company’s Response . Upon receipt by the Company
of copy of the later of a Conversion Notice and the original Note,
the Company shall (I) as soon as practicable, but in any event
within two (2) Trading Days, send, via facsimile, a confirmation of
receipt of such Conversion Notice to such Purchaser and the
Transfer Agent, which confirmation shall constitute an instruction
to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein and (II) on or before the third
(3rd) Trading Day following the date of receipt by the Company of
the later of such Conversion Notice and the original Note (the
“ Share Delivery Date ”), (A) provided
the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program and the Registration Statement (as
defined in the Registration Rights Agreement) upon which the Common
Shares issuable upon conversion of the Notes has been declared
effective by the SEC, credit such aggregate number of Common Shares
to which the Purchaser shall be entitled to the Purchaser’s
or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (B) if the Transfer
Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the
Purchaser or its designee, for the number of Common Shares to which
the Purchaser shall be entitled. If the aggregate principal
amount of the Note that is being converted in accordance with the
Conversion Note is less than that aggregate principal amount of
such Note being converted, then the Company shall, as soon as
practicable and in no event later than three (3) Business Days
after receipt of the original Note (the “ Note
Delivery Date ”) and at its own expense, issue and
deliver to the Purchaser a new Note representing the aggregate
principal amount of the Note not converted.
(iii)
Dispute Resolution . In the case of a dispute as to
the determination of the Closing Sale Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the
Transfer Agent to issue to the Purchaser the number of Common
Shares that is not disputed and shall transmit an explanation of
the disputed determinations or arithmetic calculations to the
Purchaser via facsimile within two (2) Business Days of receipt of
such Purchaser’s Conversion Notice or other date of
determination. If such Purchaser and the Company are unable
to agree upon the determination of the Closing Sale Price or
arithmetic calculation of the Conversion Rate within two (2)
Business Days of such disputed determination or arithmetic
calculation being transmitted to the Purchaser, then the Company
shall within two (2) Business Days submit via facsimile (A) the
disputed determination of the Closing Sale Price to an independent,
reputable investment bank selected by the Company and approved by
the Requisite Holders or (B) the disputed arithmetic calculation of
the Conversion Rate to the Company’s independent, outside
accountant. The Company shall cause, at the Company’s
expense, the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the
Company and the Purchasers of the results no later than two (2)
Business Days from the time it receives the disputed determinations
or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent error.
(iv)
Record Holder . The Person or Persons entitled to
receive the Common Shares issuable upon a conversion of Notes shall
be treated for all purposes as the record holder or holders of such
Common Shares on the Conversion Date.
12
(v)
Pro Rata Conversion; Disputes . In the event the
Company receives a Conversion Notice from more than one Purchaser
for the same Conversion Date and the Company can convert some, but
not all, of such Notes, the Company shall convert from each
Purchaser electing to have Notes converted at such time a pro rata
amount of such Purchaser’s Notes submitted for conversion
based on the number of Notes submitted for conversion on such date
by such Purchaser relative to the number of Notes submitted for
conversion on such date. In the event of a dispute as to the
number of Common Shares issuable to a Purchaser in connection with
a conversion of Notes, the Company shall issue to such Purchaser
the number of Common Shares not in dispute and resolve such dispute
in accordance with Section 4.1(b)(iii) .
4.2.
Conversion at the Company’s Election . On any
date (the “ Conversion Election Date ”)
after the eighteen (18) month anniversary of the Closing Date, so
long as (A) the Equity Conditions shall have been satisfied or
waived in writing by the applicable Purchaser from and including
the date of the Company Conversion Election Notice (as defined
below) through and including the Company Election Conversion Date
(as defined below) and (B) on any twenty (20) out of thirty (30)
consecutive Trading Days immediately preceding the date of the
Company Conversion Election Notice, the Weighted Average Price of
the Common Shares exceeds 175% of the Conversion Price (as adjusted
for any stock dividend, stock split, stock combination or other
similar transaction during such period), the Company shall have the
right, in its sole discretion, to require that some or all of the
outstanding Notes be converted (the “ Company
Conversion Election ”) at the applicable Conversion
Rate; provided , however , that the Company may not
consummate more than one (1) Company Conversion in any thirty (30)
Trading Day period. The Company shall exercise its right to Company
Conversion Election by providing each Purchaser written notice
(“ Company Conversion Notice ”) by
facsimile and overnight courier on the Conversion Election Date.
The date on which each of such Purchasers actually receives the
Company Conversion Election Notice is referred to herein as the
“ Company Conversion Election Notice Date
.” If the Company elects to require conversion of some,
but not all, of such Notes then outstanding, the Company shall
require conversion of an amount from each Purchaser equal to the
product of (I) the total number of Notes which the Company has
elected to convert multiplied by (II) such Purchaser’s
Allocation Percentage (such amount with respect to each Purchaser
of such Notes being referred to herein as its “ Pro
Rata Conversion Amount ”). In the event that any
initial Purchaser of the Notes shall sell or otherwise transfer any
of such Purchaser’s Notes, the transferee shall be allocated
a pro rata portion of such Purchaser’s Allocation Percentage.
The Company Conversion Election Notice shall indicate (x) the
aggregate principal amount of such Notes the Company has selected
for conversion, (y) the date selected by the Company for conversion
(the “ Company Delivery Date ”), which
date shall be not less than twenty (20) Trading Days or more than
sixty (60) Trading Days after the Company Conversion Election
Notice Date, and (z) each Purchaser’s Pro Rata Conversion
Amount. Subject to the satisfaction of all the conditions of this
Section 4.2 , on the Company Election Conversion Date each
Purchaser of Notes selected for conversion will be deemed to have
submitted a Conversion Notice in accordance with Section
4.1(b)(i) for a the aggregate principal amount of Notes equal
to such Purchaser’s Pro Rata Conversion Amount.
Notwithstanding the above, any Purchaser may convert such Notes
selected for conversion hereunder which shall reduce such
Purchaser’s Pro Rata Conversion Amount into Common Shares
pursuant to Section 4.1 on or prior to the date immediately
preceding the Company Election Conversion Date.
13
4.3.
Taxes .
(a)
Any and all payments made by the Company hereunder, including any
amounts received on a conversion or redemption of the Notes and any
amounts on account of interest payments or deemed interest
payments, must be made by it without any Tax Deduction, unless a
Tax Deduction is required by law. If the Company is aware
that it must make a Tax Deduction (or that there is a change in the
rate or the basis of a Tax Deduction), it must notify the affected
Purchasers promptly.
(b)
If a Tax Deduction is required by law to be made by the Company as
it applies on the Closing Date and to the affected Purchaser or
Purchasers according to their legal status and domicile as at the
Closing Date, then the amount of the payment due from the Company
will be increased to an amount which (after making the Tax
Deduction including any Tax Deduction applicable to additional sums
payable pursuant to this Section 4.3(b) ) leaves an amount
equal to the payment which would have been due if no Tax Deduction
had been required (“ Additional Amount
”).
(c)
If the Company is required to make a Tax Deduction, it must make
the minimum Tax Deduction allowed by law and must make any payment
required in connection with that Tax Deduction within the time
allowed by law. As soon as practicable after making a Tax
Deduction or a payment required in connection with a Tax Deduction,
the Company must deliver to the Purchaser any official receipt or
form, if any, provided by or required by the taxing authority to
whom the Tax Deduction was paid.
(d)
In the event that the Company fails to make a required Tax
Deduction or fails to remit a Tax Deduction to the applicable
taxing authority, the Company shall indemnify and hold harmless
each Purchaser for the full amount of any taxes, interest payments
and penalties assessed against such Purchaser, including the amount
of any taxes payable by such Purchaser in respect of payments
received pursuant to this Section 4.3(d) .
(e)
In addition, the Company agrees to pay in accordance with
applicable law any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies that
arise from any payment made hereunder or in connection with the
execution, delivery, registration or performance of, or otherwise
with respect to, the Notes (“ Other Taxes
”). As soon as practicable after making a payment of Other
Taxes, the Company must deliver to such Purchaser any official
receipt or form, if any, provided by or required by the taxing
authority to whom the Tax Deduction was paid.
(f)
The obligations of the Company under this Section 4.3 shall
survive the Maturity Date of the Notes and the payment for the
Notes and all other amounts payable hereunder.
4.4.
Adjustments to Conversion Price . The Conversion Price will
be subject to adjustment from time to time as provided in this
Section 4.4 .
(a)
Adjustment of Conversion Price upon Issuance of Common
Shares . If and whenever on or after the Execution Date, the
Company issues or sells, or in accordance with this Section
4.4(a) is deemed to have issued or sold, any Common
Shares
14
(including the issuance or sale of
Common Shares owned or held by or for the account of the Company,
but excluding Common Shares deemed to have been issued or sold by
the Company in connection with any Excluded Security) for a
consideration per share (the “ New Issuance
Price ”) less than the Conversion Price in effect
immediately prior to such issue or sale (the foregoing a “
Dilutive Issuance ”), then immediately after
such Dilutive Issuance, the Conversion Price then in effect shall
be reduced to an amount equal to the product of (x) the Conversion
Price in effect immediately prior to such issuance or sale,
and (y) the following fraction:
N(0) + N(1)
---------------
N(0) + N(2)
where:
N(0) =
the number of Common Shares
of the Company outstanding immediately prior to such Dilutive
Issuance (without taking into account the conversion, exercise or
exchange of any Convertible Securities, including the
Notes);
N(1) =
the number of Common Shares of such
the Company for which the aggregate consideration, if any, received
or receivable by the Company for the total number of such
additional Common Shares so issued, sold or deemed issued or sold
in such dilutive issuance would be convertible or exchangeable at
the Conversion Price for such Common Shares in effect immediately
prior to such Dilutive Issuance; and
N(2) =
the number of such additional Common
Shares of the Company so issued, sold or deemed
issued or sold in such Dilutive Issuance.
For purposes of determining the
adjusted Conversion Price under this Section 4.4(a) , the
following shall be applicable:
(i)
Issuance of Options . If the Company in any manner grants or
sells any Options and the lowest price per share for which one
Common Share is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option is less than the
Conversion Price in effect immediately prior to such issue or sale,
then each such Common Share underlying such Option shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 4.4(a)(i) , the
“lowest price per share for which one Common Share is
issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon
exercise of such Option” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one Common Share upon granting or
sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Share
or of such Convertible Securities upon the exercise of such Options
or
15
upon the actual issuance of such
Common Shares upon conversion or exchange or exercise of such
Convertible Securities.
(ii)
Issuance of Convertible Securities . If the Company in any
manner issues or sells any Convertible Securities and the lowest
price per share for which one Common Share is issuable upon such
conversion or exchange or exercise thereof is less than the
Conversion Price in effect immediately prior to such issue or sale,
then each such Common Share underlying such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes
of this Section 4.4(a)(ii) , the “lowest price per
share for which one Common Share is issuable upon such conversion
or exchange or exercise” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one Common Share upon the issuance
or sale of the Convertible Security and upon the conversion or
exchange or exercise of such Convertible Security. No further
adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Share upon conversion or exchange or
exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section
4.4(a) , no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
(iii)
Change in Option Price or Rate of Conversion . If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Shares changes at any time,
the Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities provided for
such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 4.4(a)(iii) ,
if the terms of any Option or Convertible Security that was
outstanding as of the Execution Date are changed in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the Common Shares deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be
made if such adjustment would result in an increase of the
Conversion Price then in effect.
(iv)
Calculation of Consideration Received . In case any Option
is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the
parties thereto, the Options will be deemed to have been issued for
a consideration of $0.01. If any Common Shares, Options or
Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor. If
any Common Shares, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the
fair value of such consideration, except where such consideration
consists of publicly traded securities, in which case the amount of
consideration received by the Company will be the Closing Sale
Price of such
16
securities on the date of receipt of
such securities. If any Common Shares, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Shares,
Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the
Requisite Holders. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring
valuation (the “ Valuation Event ”), the
fair value of such consideration will be determined within ten (10)
Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by
the Company and the Requisite Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by
the Company.
(v)
Record Date . If the Company takes a record of the holders
of Common Shares for the purpose of entitling them (I) to receive a
dividend or other distribution payable in Common Shares, Options or
in Convertible Securities or (II) to subscribe for or purchase
Common Shares, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(b)
Adjustment of Conversion Price upon Subdivision or Combination
of Common Shares . If the Company at any time after the
Execution Date subdivides (by any share split, share dividend,
recapitalization or otherwise) its outstanding Common Shares into a
greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately
reduced. If the Company at any time after the Execution Date
combines (by combination, reverse share split or otherwise) its
outstanding Common Shares into a smaller number of shares and the
Conversion Price in effect immediately prior to such combination
will be proportionately increased.
(c)
Other Events . If any event occurs of the type contemplated
by the provisions of this Section 4.4 but not expressly
provided for by such provisions (including, without limitation, the
granting of share appreciation rights, “phantom stock
rights” or other rights with equity features), then the
Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of
the Purchasers; provided that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to
this Section 4.4 .
(d)
Notices .
(i)
Immediately upon any adjustment of the Conversion Price pursuant to
Section 4.4 , the Company will give written notice thereof
to each Purchaser, setting forth in reasonable detail, and
certifying, the calculation of such adjustment. In the case of a
dispute as to the determination of such adjustment, then such
dispute shall be resolved in accordance with the procedures set
forth in Section 4.1(b)(iii) .
17
(ii)
The Company will give written notice to each Purchaser at least ten
(10) Business Days prior to the date on which the Company closes
its books or takes a record (I) with respect to any dividend or
distribution upon the Common Shares, (II) with respect to any pro
rata subscription offer to holders of Common Shares or (III) for
determining rights to vote with respect to any Fundamental
Transaction, provided that such information shall be made
known to the public prior to or in conjunction with such notice
being provided to such Purchaser.
(iii)
The Company will also give written notice to each Purchaser at
least ten (10) Business Days prior to the date on which any
Fundamental Transaction will take place, provided that such
information shall be made known to the public prior to or in
conjunction with such notice being provided to such
Purchaser.
(e)
Additional Notes; Variable Securities; Dilutive Issuances .
For so long as any Notes are outstanding, the Company will not,
without the prior written consent of the Requisite Holders, issue
any Notes and the Company shall not issue any other securities that
would cause a breach or default under this Agreement other than
those issued pursuant to the Series B Note Purchase Agreement. For
so long as any Notes remain outstanding, the Company shall not, in
any manner, issue or sell any rights, warrants or options to
subscribe for or purchase Common Shares or directly or indirectly
convertible into or exchangeable or exercisable for Common Shares
at a conversion, exchange or exercise price which varies or may
vary after issuance with the market price of the Common Shares,
including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price with
respect to the Common Shares into which any Notes are
convertible.
4.5.
Limitation on Beneficial Ownership . The Company shall not
effect any conversion of Notes, and no Purchaser shall have the
right to convert any Notes, to the extent that after giving effect
to such conversion, the beneficial owner of such shares (together
with such Person’s Affiliates) would have acquired, through
conversion of Notes or otherwise, beneficial ownership of a number
of Common Shares that exceeds 9.99% (“ Maximum
Percentage ”) of the number of Common Shares
outstanding immediately after giving effect to such
conversion. For purposes of the foregoing, the number of
Common Shares beneficially owned by a Person and its Affiliates
shall include the number of Common Shares issuable upon conversion
of the Notes with respect to which the determination of such
sentence is being made, but shall exclude the number of Common
Shares which would be issuable upon (A) conversion of the
remaining, nonconverted Notes beneficially owned by such Person or
any of its Affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any other notes, preferred
shares or warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained in this Section
beneficially owned by such Person or any of its Affiliates. Except
as set forth in the preceding sentence, for purposes of this
Section 4.5 , beneficial ownership shall be calculated in
accordance with Section 13(d) of the 1934 Act. For purposes of this
Section 4.5 , in determining the number of outstanding
Common Shares, a Purchaser may rely on the number of outstanding
Common Shares as reflected in (1) the Company’s most recent
Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB or Form 8-K, as the
case may be, (2) a more recent public announcement by the Company,
or (3) any other notice by the Company or the Transfer Agent
setting forth the number of Common Shares outstanding. For any
reason at any time, upon the written request of
18
any Purchaser, the Company shall
within one (1) Business Day following the receipt of such notice,
confirm orally and in writing to any such Purchaser the number of
Common Shares then outstanding. In any case, the number of
outstanding Common Shares shall be determined after giving effect
to the conversion or exercise of securities of the Company,
including the Notes, by such Purchaser and its Affiliates since the
date as of which such number of outstanding Common Shares was
reported. By written notice to the Company, any Purchaser may from
time to time increase or decrease the Maximum Percentage to any
other percentage not in excess of 19.99% nor below 9.99% as
specified in such notice; provided , that (I) any such
increase or decrease will not be effective until the sixty-first
(61 st ) day after such written notice is delivered to
the Company, and (II) any such increase or decrease will apply only
to the Purchaser providing such written notice and not to any other
Purchaser.
4.6.
Limitation on
Number of Common Shares Issuable Upon Conversion of Notes .
Notwithstanding anything to the contrary contained herein, the
Company shall not issue any Common Shares upon conversion of the
Notes if the issuance of such Common Shares would:
(a)
exceed that number Common Shares which the Company may issue upon
conversion of the Notes without breaching the Company’s
obligations under the rules or regulations of the Principal Market,
or any other the market or exchange where the Common Shares are
then traded (the “ Exchange Cap ”); or
(b)
be an
issuance of Common Shares at an effective issue price per Common
Share that is less than the
market price for the Common Shares (as defined pursuant to Section
601 of the Toronto Stock Exchange Company Manual) as at the date on
which the Company entered into this Agreement, less a discount of
twenty percent (20%), except that such limitations
shall not apply in the event that the Company (c) obtains
Shareholder Approval as required by the applicable rules of both
the Principal Market and the Toronto Stock Exchange (and any
successor rules or regulations) for issuances of Common Shares in
excess of such number of Common Shares, or at an effective price
per Common Share that is less than such discount from the market
price, or (d) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Required Holders. Until such
approval or written opinion is obtained, no Purchaser shall be
issued, in the aggregate, upon conversion of the Notes, Common
Shares in an amount greater than the product of (i) the Exchange
Cap amount multiplied by (ii) their Allocation Percentage (the
“ Exchange Cap Allocation ”) nor shall
the Company issue any Common Shares at an effective price per
Common Share that is less than such discount from the market price.
In the event that any Purchaser shall sell or otherwise transfer
any of such Purchaser’s Notes, the transferee shall be
allocated a pro rata portion of such Purchaser’s Exchange Cap
Allocation. In the event that any Purchaser shall convert all of
such Purchaser’s Notes into a number of Common Shares which,
in the aggregate, is less than such Purchaser’s Exchange Cap
Allocation, then the difference between such Purchaser’s
Exchange Cap Allocation and the number of Common Shares actually
issued to such Purchaser shall be allocated to the respective
Exchange Cap Allocations of the remaining Purchasers on a pro rata
basis in proportion to the number of Notes then held by each such
Purchaser.
19
5.
Representations and Warranties of the Company . The
Company hereby represents and warrants to the Purchasers and the
Placement Agents that, except as set forth in the schedules
delivered herewith (collectively, the “
Disclosure Schedules
”):
5.1.
Organization, Good Standing and Qualification . The
Company is a company validly existing and in good standing under
the Business Corporations Act (British Columbia) and has all
requisite power and authority to carry on its business as now
conducted and to own its properties. Each Subsidiary is an
entity duly incorporated or otherwise organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company and each
Subsidiary is duly qualified to do business and is in good standing
in each jurisdiction in which the conduct of its business or its
ownership or its leasing of property makes such qualification
necessary, unless the failure to so qualify would have a Material
Adverse Effect. The Company is presently a reporting issuer
in the Canadian provinces of British Columbia, Alberta and Ontario
and is not in default of the applicable securities legislation of
such provinces.
5.2.
Authorization . The Company has full power and
authority and has taken all requisite action on the part of the
Company, its officers, directors and shareholders necessary for (i)
the authorization, execution and delivery of the Note Documents;
(ii) authorization of the performance of all obligations of the
Company hereunder or thereunder; and (iii) the authorization,
issuance and delivery of the Notes and the Common Shares upon
conversion of the Notes in accordance with the terms thereof
The Note Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting
creditors’ rights generally.
5.3.
Capitalization .
(a)
Schedule 5.3 sets forth (i) the authorized capital shares of
the Company on the date hereof, (ii) the number of capital shares
issued and outstanding as of December 31, 2006, (iii) the number of
capital shares issuable pursuant to the Company’s share plans
as of December 31, 2006, and (iv) the number of capital shares
issuable and reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for any
capital shares of the Company as of December 31, 2006. All of
the issued and outstanding Company capital shares have been duly
authorized and validly issued and are fully paid, nonassessable and
free of pre-emptive rights. Other than the Purchasers upon
Closing, no Person is entitled to pre-emptive or similar statutory
or contractual rights with respect to any securities of the
Company. Except as described on Schedule 5.3 or
pursuant to this Agreement, (i) there are no outstanding warrants,
options, convertible securities or other rights, agreements or
arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind and, except as
contemplated by this Agreement, (ii) there are no outstanding debt
securities, notes, indentures, credit agreements, or credit
facilities of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound,
(iii) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments,
understandings
20
or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries, (iv) the
Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan
or agreement, and (v) the Company is not currently in negotiations
for the issuance of any equity securities of any kind. Except
as described on Schedule 5.3 , there are no voting
agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and
any of the security holders of the Company relating to the
securities of the Company. Except as described on Schedule
5.3 , the Company has not granted any Person the right to
require the Company to register any securities of the Company under
the 1933 Act, or qualify the distribution of any securities of the
Company by prospectus under any Canadian securities laws whether on
a demand basis or in connection with the registration or
qualification by prospectus of securities of the Company for its
own account or for the account of any other Person, except as
contemplated by the Registration Rights Agreement.
(b)
Except as described on Schedule 5.3 and in this Agreement,
the issuance and sale of the Notes hereunder will not obligate the
Company to issue Common Shares or other securities to any other
Person (other than the Purchasers) and will not result in the
adjustment of the exercise, conversion, exchange or reset price of
any outstanding security.
(c)
Except as set forth on Schedule 5.3 and in this Agreement,
the Company does not have outstanding shareholder purchase rights
or any similar arrangement in effect giving any Person the right to
purchase any equity interest in the Company upon the occurrence of
certain events or otherwise.
5.4.
Subsidiaries . Schedule 5.4 sets forth the
direct and indirect subsidiaries of the Company. The Company
owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any and all liens, encumbrances and
restrictions, and all the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid,
nonassessable and free of preemptive and similar rights. The
Company or one of its Subsidiaries has the unrestricted right to
vote, and (subject to limitations imposed by applicable law) to
receive dividends and distributions on, all capital securities of
its Subsidiaries as owned by the Company or such Subsidiary.
Neither the Company nor any Subsidiary is party to any material
joint venture, nor has any ownership interest in any other entity
that is material to the Company and not disclosed in the SEC
Filings and the SEDAR Filings.
5.5.
Valid Issuance .
(a)
The Notes have been duly and validly authorized and, when issued
and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and shall be free and clear of all
liens, encumbrances and restrictions, except for restrictions on
transfer set forth in the Note Documents or imposed by applicable
securities laws.
(b)
Upon conversion of the Notes in accordance with this Agreement, the
Common Shares will be validly issued, fully paid and nonassessable
free and clear of all encumbrances and restrictions, except for
restrictions on transfers and preemptive rights set forth in the
Note Documents or imposed by applicable securities laws. The
Company has reserved sufficient number of Common Shares for
issuance upon the conversion of the Notes, free and
21
clear of all encumbrances and
restrictions, except for restrictions on transfers and preemptive
rights set forth in the Note Documents or imposed by
applicable securities laws.
5.6.
Consents . The execution, delivery and performance by
the Company of the Note Documents and the offer, issuance and sale
of the Notes require no consent of, action by or in respect of, or
filing with, any Person, governmental body, agency, or official
other than those filings and consents set forth on Schedule
5.6 , consents or filings that have already been obtained,
filings with and approval by AMEX and TSX, the filings with the SEC
of one or more registration statements in accordance with the
Registration Rights Agreement, filings required by Section
12.7 hereof, and filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws and applicable laws of
the securities regulatory authorities in the provinces and
territories of Canada which the Company undertakes to file within
the applicable time periods.
5.7.
Delivery of SEC Filings and SEDAR Filings; Business .
All reports and other documents filed by the Company since January
1, 2004 (i) pursuant to the 1934 Act through the SEC’s
Electronic Data Gathering, Analysis and Retrieval (“
EDGAR ”) system and prior to
the date hereof (collectively, the “ SEC Filings ”) and (ii) with the
securities regulatory authorities in the provinces and territories
of Canada through the System for Electronic Document Analysis and
Retrieval and prior to the date hereof (collectively, the
“ SEDAR
Filings ”) are publicly
available for viewing by Purchasers. The SEC Filings are the
only filings required of the Company pursuant to the 1934 Act for
such period and the SEDAR Filings are the only filings required of
the Company pursuant to the laws, rules and regulations of the
securities regulatory authorities in the provinces and territories
of Canada for such period.
5.8.
Use of Proceeds . The proceeds of the sale of the
Notes hereunder shall be used by the Company to repay debt and for
general corporate and working capital purposes.
5.9.
No Material Adverse Change . Except as identified and
described in the SEC Filings or the SEDAR Filings or as described
on Schedule 5.9(a) , since September 30, 2006, there has not
been:
(a)
any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected
in the financial statements included in the SEC Filings or the
SEDAR Filings, except for changes in the ordinary course of
business which would not have a Material Adverse Effect,
individually or in the aggregate;
(b)
any declaration or payment of any dividend, or any authorization or
payment of any distribution, on any of the capital shares of the
Company, or any redemption or repurchase of any securities of the
Company;
(c)
any material damage, destruction or loss, whether or not covered by
insurance to any assets or properties of the Company;
(d)
any waiver, not in the ordinary course of business, by the Company
of a material right or of a material debt owed to it;
22
(e)
any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets,
properties, financial condition, operating results or business of
the Company;
(f)
any change or amendment to the Company’s Notice of Articles
and Articles or material change to any Material Contract by which
the Company is bound or to which any of their respective assets or
properties is subject;
(g)
any material labor difficulties or labor union organizing
activities with respect to employees of the Company;
(h)
any transaction entered into by the Company other than in the
ordinary course of business (other than as contemplated by the Note
Documents);
(i)
the loss of the services of any key employee, or material change in
the composition or duties of the senior management of the
Company;
(j)
the loss or threatened loss of any customer which had or would have
a Material Adverse Effect;
(k)
sold any assets, individually or in the aggregate, in excess of
US$500,000 outside of the ordinary course of business;
(l)
had capital expenditures, individually or in the aggregate, in
excess of US$1,500,000; or
(m)
any other event or condition of any character that had or would
have a Material Adverse Effect; provided , however ,
any decline in the market price of the Company’s Common
Shares as a result of the transactions contemplated by the Note
Documents, the public announcement thereof, or change in the
general economic or industry conditions shall not be deemed to be
such an event or condition.
5.10.
SEC Filings; SEDAR Filings . At the time of filing
thereof, (i) the SEC Filings complied as to form in all material
respects with the requirements of the 1934 Act; and (ii) the SEDAR
Filings complied as to form in all material respects with the laws,
rules and regulations of the securities regulatory authorities in
the provinces and territories of Canada, and neither the SEC
Filings nor the SEDAR Filings contained any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The
SEDAR Filings did not contain any “misrepresentation”
within the meaning of Canadian securities laws. The Company
is not (with or without the lapse of time or the giving of notice,
or both) in material breach or default of any Material Contract
and, to the Company’s Knowledge, no other party to any
Material Contract is (with or without the lapse of time or the
giving of notice, or both) in material breach or default of any
Material Contract. The Company has not received any notice of
the intention of any party to terminate any Material
Contract.
23
5.11.
No Conflict, Breach, Violation or Default . The
execution, delivery and performance of the Note Documents by the
Company and the issuance and sale of the Notes will not conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (i) the
Company’s Notice of Articles and Articles, both as in effect
on the date hereof, or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or
charter documents, each as in effect on the date hereof; or (ii)(a)
any statute, rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction over
the Company, any Subsidiary or any of their respective assets or
properties, or (b) except as set forth on Schedule 5.11, any
Material Contract to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary is bound or to which any
of its assets or properties is subject.
5.12.
Tax Matters . The Company and each of its Subsidiaries
has timely prepared and filed all tax returns required to have been
filed by the Company and each of its Subsidiaries with all
appropriate governmental agencies and timely paid all taxes shown
thereon or otherwise owed by them, except to the extent being
disputed in good faith or would not have a Material Adverse
Effect. The charges, accruals and reserves on the books of
the Company in respect of taxes for all fiscal periods are adequate
in all material respects, and there are no material unpaid
assessments against the Company nor, to the Company’s
Knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any
foreign, federal, state or local taxing authority except for any
assessment that is not material to the Company. All taxes and
other assessments and levies that the Company is required to
withhold or to collect for payment have been duly withheld and
collected and paid to the proper governmental entity or third party
when due, except to the extent being disputed in good faith or
would not have a Material Adverse Effect. There are no tax
liens or claims pending or, to the Company’s Knowledge,
threatened against the Company, any of its Subsidiaries or any of
its assets or property. Except as described on Schedule
5.12 , there are no outstanding tax sharing agreements or other
such arrangements between the Company or any Subsidiary and any
other entity and neither the Company nor any Subsidiary is
presently undergoing any audit by a taxing authority, or has waived
or extended any statute of limitations at the request of any taking
authority.
5.13.
Title to Properties .
(a)
Except as disclosed in the SEC Filings or the SEDAR Filings, each
of the Company and its Subsidiaries has good title to all real
properties and all other properties and assets owned by it, in each
case free from liens, encumbrances and defects, except as would not
individually or in the aggregate would have a Material Adverse
Effect; and except as disclosed in the SEC Filings or the SEDAR
Filings, the Company and each Subsidiary holds any leased real or
personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or
currently planned to be made thereof by them, except as would not
individually or in the aggregate would have a Material Adverse
Effect.
(b)
All interests in natural resource properties of the Company and its
Subsidiaries as disclosed in the SEC Filings and the SEDAR Filings
are in all material respects: (i) owned or held by the Company or a
Subsidiary as owner thereof with good title; (ii) valid and
enforceable; and (iii) free and clear of any liens, charges or
encumbrances, and no royalty is
24
payable in respect of any of them
except as disclosed in the SEC Filings and the SEDAR Filings,
except as would not individually or in the aggregate would have a
Material Adverse Effect; no other material property rights are
necessary for the conduct of the Company’s and each
Subsidiary’s business, and there are no material restrictions
on the ability of the Company or any Subsidiary to use, transfer or
otherwise exploit any such property rights except as disclosed in
the SEC Filings and the SEDAR Filings, and the Company does not
know of any claim or basis for a claim that may adversely affect
such rights in any material respects except as disclosed in the SEC
Filings and the SEDAR Filings.
5.14.
Certificates, Authorities and Permits . The Company
and its Subsidiaries possess adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it, and neither
the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to
the Company or any Subsidiary, would have a Material Adverse
Effect, individually or in the aggregate.
5.15.
Employee Relations .
(a) Neither the Company nor any of
its Subsidiaries is a party to any collective bargaining agreement
or employs any member of a union. The Company and its Subsidiaries
believe that their relations with their employees are good. No
executive officer of the Company or any of its Subsidiaries has
notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise
terminate such officer’s employment with the Company or any
such Subsidiary. No executive officer of the Company or any of its
Subsidiaries is to the Company’s Knowledge, or is to the
Company’s Knowledge expected to be, in violation of any
material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition
agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing
matters.
(b)
The Company and its Subsidiaries are in compliance with all U.S.
and Canadian federal, state, provincial, local and foreign laws and
regulations respecting labor, employment and employment practices
and benefits, terms and conditions of employment and wages and
hours, except where failure to be in compliance would not, either
individually or in the aggregate, have a Material Adverse
Effect.
5.16.
Intellectual Property .
(a)
All Intellectual Property of the Company is currently in compliance
with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable, except to the
extent that any non-compliance would not individually or in the
aggregate have a Material Adverse Effect. No Intellectual
Property of the Company that is necessary for the conduct of
Company’s business as currently conducted or as currently
proposed to be conducted has been or is now involved in any
cancellation, dispute or litigation,
25
and, to the Company’s
Knowledge, no such action is threatened. No patent of the
Company has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
(b)
All of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property that are necessary for
the conduct of the Company’s business as currently conducted
or as currently proposed to be conducted to which the Company is a
party or by which any of its assets are bound (other than
generally commercially available, non-custom, off-the-shelf
software application programs having a retail acquisition price of
less than US$10,000 per license) (collectively, “
License Agreements
”) are
valid and binding obligations of the Company that are parties
thereto and, to the Company’s Knowledge, the other parties
thereto, enforceable in accordance with their terms, except to the
extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’
rights generally, and to the Company’s Knowledge there exists
no event or condition that would result in a material violation or
breach of or constitute (with or without due notice or lapse of
time or both) a default by the Company under any such License
Agreement.
(c)
The Company owns or has the valid right to use all of the
Intellectual Property that is necessary for the conduct of the
Company’s business as currently conducted or as currently
proposed to be conducted, free and clear of all liens,
encumbrances, adverse claims or obligations to license all such
owned Intellectual Property and Confidential Information, other
than licenses entered into in the ordinary course of the
Company’s business, except that any such invalidity or liens,
encumbrances, or obligations would not have a Material Adverse
Effect. The Company has a valid and enforceable right to use
all third party Intellectual Property and Confidential Information
used or held for use in the business of the Company as currently
conducted or as currently proposed to be conducted, except such
invalidity or unenforceable right shall not have a Material Adverse
Effect.
(d)
To the Company’s Knowledge, the conduct of the
Company’s business as currently conducted and as currently
proposed to be conducted does not and will not infringe any
Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party. To the
Company’s Knowledge, the Intellectual Property and
Confidential Information of the Company that are necessary for the
conduct of Company’s business as currently conducted or as
currently proposed to be conducted are not being infringed by any
third party. There is no litigation or order pending or
outstanding or, to the Company’s Knowledge, threatened or
imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual
Property or Confidential Information of the Company and the
Company’s use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s
Knowledge, there is no valid basis for the same.
(e)
The consummation of the transactions contemplated hereby will not
result in the alteration, loss, impairment of or restriction on the
Company’s ownership or right to use any of the Intellectual
Property or Confidential Information that is necessary for the
conduct of the Company’s business as currently conducted or
as currently proposed to be conducted, except as would not have a
Material Adverse Effect.
5.17.
Environmental Matters .
26
(a)
The Company and
