EXHIBIT 25
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT") dated as of August 26,
2004 by and among INTEROIL CORPORATION (the "COMPANY"), the initial investors
listed on the Schedule of Purchasers attached hereto (individually, an "INITIAL
PURCHASER" and collectively with any Subsequent Purchasers (as defined below)
who become a party hereto pursuant to the terms hereof, the "PURCHASERS").
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Debentures. All references to dollars or "$" shall refer to
U.S. dollars.
WHEREAS, the Company has authorized the issuance of up to Forty
Million ($40,000,000) aggregate principal amount of its 8 7/8% Senior
Convertible Debentures in the form attached hereto as Exhibit A (together with
any senior convertible debentures issued in replacement thereof in accordance
with the terms thereof, the "DEBENTURES"), which Debentures shall be convertible
into shares of the Company's common shares, no par value per share (the "COMMON
SHARES") (as converted, the "UNDERLYING SHARES"), in accordance with the
Debentures.
WHEREAS, the Debentures bear interest, which at the option of the
Company, subject to certain conditions, may be paid in Common Shares (the
"INTEREST SHARES").
WHEREAS, each Initial Purchaser wishes to purchase, severally but
not jointly, and the Company wishes to sell, upon the terms and conditions
stated in this Agreement, (i) that aggregate principal amount of Debentures set
forth opposite such Initial Purchaser's name on the Schedule of Purchasers
(which aggregate principal amount for all Initial Purchasers equals $30,000,000)
and (ii) warrants, in substantially the form attached hereto as Exhibit B (the
"WARRANTS"), to acquire that number of shares of Common Shares (as exercised,
collectively, the "WARRANT SHARES") equal to 7,987 Warrant Shares for each
$1,000,000 aggregate principal amount of Debentures set forth opposite such
Initial Purchaser's name on the Schedule of Purchasers.
WHEREAS, the Company will have the right to sell, upon the terms and
conditions stated in this Agreement, up to an additional $10,000,000 of
Debentures to additional Purchasers.
WHEREAS, the Purchasers will have the registration rights with
respect to the Underlying Shares, the Warrant Shares and the Interest Shares
pursuant to the terms of that certain Registration Rights Agreement to be
entered into between the Company and the Purchasers in the form of Exhibit C
(the "REGISTRATION RIGHTS AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES AND WARRANTS
Section 1.1 Issuance of Debentures; Warrants. (a) Upon the following terms
and conditions of this Agreement, the Company shall issue and sell to each
Initial Purchaser and such Initial Purchaser shall purchase from the Company on
the Initial Closing Date (as defined below), (i) the aggregate principal amount
of Debentures set forth opposite such Initial Purchaser's name on the Schedule
of Purchasers and (ii) Warrants to purchase that number of Common Shares set
forth opposite such Initial Purchaser's name on the Schedule of Purchasers.
(a) Upon the following terms and conditions of this Agreement, the
Company shall have the right to issue and sell to any other investor who is an
existing stockholder of the Company on the date hereof and a "non-U.S." Person
(as defined under Rule 902 of Regulation S as promulgated by the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 ACT")) (each such investor, a "SUBSEQUENT PURCHASER") and such
Subsequent Purchaser shall purchase from the Company on the Subsequent Closing
Date (as defined below), (i) the aggregate principal amount of Debentures (which
Debentures shall be identical to the Debentures issued to the Initial
Purchasers) that shall be set forth opposite such Subsequent Purchaser's name on
an amended Schedule of Purchasers (which aggregate amount for all Subsequent
Purchasers shall not exceed $10,000,000) and (ii) Warrants (which Warrants shall
be identical to the Warrants issued to the Initial Purchasers including having
proportionate warrant coverage to the amount of Debentures purchased) to
purchase that number of Common Shares that shall be set forth opposite such
Purchaser's name on an amended Schedule of Purchasers. Each Subsequent Purchaser
shall execute a counterpart signature page to this Agreement agreeing to be
bound by the terms hereof and the Company shall amend the Schedule of Purchasers
to reflect such Subsequent Purchasers and shall distribute such amended Schedule
of Purchasers to each of the Initial Purchasers. Notwithstanding the foregoing,
in no event shall the Company issue any Debentures or Warrants to any Subsequent
Purchaser if such issuance would require the registration of any of the
Debentures or Warrants under the 1933 Act.
Section 1.2 Purchase Price. The purchase price for the Debentures and
Warrants to be acquired by each Purchaser (the "PURCHASE PRICE") shall be the
Purchase Price set forth opposite such Purchaser's name on the Schedule of
Purchasers hereto.
Section 1.3 The Closing.
(a) Timing. (i) Subject to the fulfillment or waiver of the
conditions set forth in Article V hereof, the purchase and sale of $30,000,000
aggregate principal amount of the Debentures and applicable Warrants shall take
place at a closing (the "INITIAL CLOSING"), at least one, but no more than
three, Trading Days (as defined in the Debenture) following the date hereof or
such other date as the Initial Purchasers and the Company may agree upon (the
"INITIAL CLOSING DATE").
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(ii) Subject to the fulfillment or waiver of the conditions
set forth in Article V hereof, the purchase and sale of up to $10,000,000
aggregate principal amount of the Debentures and applicable Warrants to the
Subsequent Purchasers shall take place at a closing (the "SUBSEQUENT CLOSING")
at any time following the date hereof but no more than seven Trading Days
following the date hereof (the "SUBSEQUENT CLOSING DATE"). The Initial Closing
and the Subsequent Closing collectively are referred to in this Agreement as the
"CLOSINGS." The Initial Closing Date and the Subsequent Closing Date
collectively are referred to in this Agreement as the "CLOSING DATE."
(b) Form of Payment and Closing. On the applicable Closing Date,
the Company shall deliver to each Purchaser all of the Debentures and Warrants
purchased by it hereunder, each registered in the name of such Purchaser or its
nominee. The Debentures and Warrants shall be issued in accordance with the
terms of this Agreement. On the applicable Closing Date each Purchaser shall
deliver the Purchase Price set forth opposite such Purchaser's name on the
Schedule of Purchasers by wire transfer to an account designated in writing by
the Company at least one Business Day prior to the applicable Closing Date. In
addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the applicable Closing. The Debentures and Warrants will be fully owned and paid
for by the Purchasers as of the applicable Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers as
of the date hereof and as of each Closing Date:
(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the Province of New Brunswick and has the requisite corporate power
to own its properties and to carry on its business as now being conducted. The
Company does not have Subsidiaries (defined as any entity in which the Company,
directly or indirectly, owns 25% or more of the capital stock or other equity or
similar interest) other than the Subsidiaries listed on Schedule 2.1(a) attached
hereto. Except where specifically indicated to the contrary, all references in
this Agreement to subsidiaries shall be deemed to refer to all direct and
indirect subsidiaries of the Company. Each of the Company and its Subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary other than those in
which the failure so to qualify would not have a Material Adverse Effect. In
this Agreement, "Material Adverse Effect" means any adverse effect on the
business, operations, properties, prospects or financial condition of the
Company and its Subsidiaries and which is (either alone or together with all
other adverse effects) material to the Company and its Subsidiaries taken as a
whole, and any material adverse effect on the transactions contemplated under
this Agreement, the Debentures, the Warrants, and the Registration Rights
Agreement (the "TRANSACTION DOCUMENTS"), or any other agreement or document
contemplated hereby or thereby.
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(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform the Transaction
Documents and to issue the Debentures in accordance with the terms hereof, (ii)
the execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby, including the
issuance of the Debentures, have been duly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
Directors (or any committee or subcommittee thereof) or stockholders is
required, (iii) when delivered, the Transaction Documents will have been duly
executed and delivered by the Company, (iv) when delivered, the Transaction
Documents will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except (A) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies, the
discretion that a court may exercise in the granting of equitable remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable law and (v) the Debentures and
Warrants and the Underlying Shares and Warrant Shares issuable upon the
conversion and/or exercise thereof have been duly authorized and, upon issuance
thereof and payment therefor in accordance with the terms of this Agreement, the
Debentures and Warrants will be validly issued, free and clear of any and all
liens, claims and encumbrances, except for restrictions on transfer imposed by
applicable securities laws and referenced in Sections 6.1 and 6.2 below.
(c) Capitalization. Except as set forth on Schedule 2.1(c), as of
the date hereof, the authorized capital stock of the Company consists of an
unlimited number of Common Shares, of which as of the date hereof, 25,849,146
shares are issued and outstanding and 2,375,290 shares are issuable and reserved
for issuance pursuant to the Company's stock option plans or securities
exercisable or exchangeable for, or convertible into, Common Shares. All of such
outstanding shares have been, or upon issuance will be, validly issued, fully
paid and nonassessable. As of the date hereof, except as disclosed in Schedule
2.1(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register or qualify the sale of any of their
securities the applicable securities laws and regulations of any jurisdiction
("SECURITIES Laws") other than pursuant to the Registration Rights Agreement,
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings 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, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance, exercise or conversion
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of the Debentures or the Warrants as described in this Agreement and (vii) the
Company does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Purchasers true and correct copies of the Company's Articles of Amalgamation, as
amended and as in effect on the date hereof (the "ARTICLES OF AMALGAMATION"),
and the Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and
the terms of all securities convertible or exchangeable into or exercisable for
Common Shares and the material rights of the holders thereof in respect thereto.
(d) Issuance of Shares. Upon issuance in accordance with this
Agreement and the terms of the Debentures and the Warrants, the Underlying
Shares, the Interest Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(e) No Conflicts. Except as disclosed in Schedule 2.1(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby and issuance of the Debentures and Warrants, and the Underlying Shares
and Warrant Shares will not (i) result in a violation of the Articles of
Amalgamation or the By-laws; (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a violation of
any material law, rule, regulation, order, judgment or decree (including United
States federal and state securities laws and regulations, Canadian and
provincial securities laws and regulations and the rules and regulations of the
Toronto Stock Exchange ("PRINCIPAL MARKET") or other securities exchange or
trading market on which the Common Shares are traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 2.1(e), neither the Company nor its Subsidiaries is in violation of any
term of, or in default under, (x) its certificate of incorporation, any
certificate of designations, preferences and rights of any outstanding series of
preferred stock or by-laws or their organizational charter or by-laws,
respectively, (y) any material contract, agreement, mortgage, indebtedness,
indenture, instrument, or (z)(i) any judgment, decree or order or (ii) any
statute, rule or regulation applicable to the Company or its Subsidiaries, the
non-compliance with which (in the case of (z)(i) only), would be material to the
Company or its Subsidiaries or interfere with the performance of its obligations
under the Transaction Documents. Except as set forth on Schedule 2.1(e) or as
specifically contemplated by this Agreement and as required under Securities
Laws and the rules of the Principal Market, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents or the issuance
of the Debentures, the Warrants and the Underlying Shares and Warrant Shares, in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
2.1(e), all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof.
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(f) Regulatory Filings.
(i) Since January 1, 2003, the Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the applicable regulatory authorities ("REGULATORY
AUTHORITIES") pursuant to the reporting requirements of the Securities
Laws (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to
as the "REGULATORY FILINGS"). The Company has delivered to each Purchaser
or its representatives true and complete copies of any Regulatory Filings
that were not filed electronically via SEDAR. As of their respective
dates, the Regulatory Filings complied in all material respects with the
requirements of the Securities Laws applicable to the Regulatory Filings,
and none of the Regulatory Filings, at the time they were filed with the
Regulatory Authorities, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the
Regulatory Filings complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the Regulatory Authorities with respect thereto. Such financial
statements have been prepared in accordance with Canadian generally
accepted accounting principles, consistently applied, during the periods
involved (except (x) as may be otherwise indicated in such financial
statements or the notes thereto, or (y) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments).
No other written information provided by or on behalf of the Company to
the Purchasers which is not included in the Regulatory Filings, including,
without limitation, information referred to in Section 2.2(b) of this
Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein,
in the light of the circumstance under which they are or were made, not
misleading.
(ii) The Company (A) is a reporting issuer in the Canadian
provinces of British Columbia, Alberta and Ontario ("CANADIAN
JURISDICTIONS") and not in default of applicable Canadian Securities Laws;
(B) has a current Annual Information Form and is eligible under National
Instrument 44-101 to file a short form prospectus with Canadian securities
regulatory authorities of the Canadian Jurisdictions; and (C) meets the
general eligibility requirements for use of Form F-10 under the 1933 Act.
(g) Absence of Certain Changes. Except as disclosed in Schedule
2.1(g), since December 31, 2003 there has been no adverse change or adverse
development in the business, properties, assets, operations, financial
condition, prospects, liabilities or results of operations of the Company or its
Subsidiaries which has had or, to the knowledge of the Company or its
Subsidiaries, is reasonably likely to have a Material Adverse Effect. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek
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protection pursuant to any bankruptcy law nor does the Company or its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings. Except as disclosed in the
Regulatory Filings, Schedule 2.1(g) lists all material events, transactions and
agreements which have occurred or been entered into by the Company since January
1, 2003.
(h) Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Shares or any of the Company's Subsidiaries or any of the Company's
or the Company's Subsidiaries' officers or directors in their capacities as
such, (i) except as set forth in Regulatory Filings which were filed at least 10
days before the date hereof, (ii) except as set forth in Schedule 2.1(h), and
(iii) except which would not be reasonably likely to result in net liability to
the Company in excess of $5,000,000.
(i) Acknowledgment Regarding Purchaser's Purchase of Securities.
The Company acknowledges and agrees that each Purchaser is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further represents to the Purchasers that the Company's decision to enter into
the Transaction Documents has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and its representatives.
(j) No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the execution of this Agreement (the material terms of
which will be disclosed in the press release referred to in Section 3.10 below),
no event, liability, development or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a filing
filed with the Regulatory Authorities relating to an issuance and sale by the
Company of its Common Shares and which has not been publicly disclosed.
(k) No Inside Information. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided, and they shall not provide, any Purchaser with any material non-public
information.
(l) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of
Debentures and Warrants to the Purchasers to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of the Principal Market, nor will the Company or any of its
Subsidiaries take any action or steps that would cause the offering of the
Debentures to be integrated with other offerings.
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(m) Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened, the effect
of which would be reasonably likely to result in a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement. The Company and its Subsidiaries believe that relations
between the Company and its Subsidiaries and their respective employees are
good. No "executive officer" as defined in Rule 501(f) of the 1933 Act whose
departure would be adverse to the Company has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company.
(n) Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 2.1(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two (2) years from the date of this Agreement where such
expiration or termination could reasonably be expected to have a Material
Adverse Effect. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or other similar rights
of others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth on Schedule 2.1(n),
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademarks, trade name rights, patents, patent rights, inventions,
copyrights, licenses, service names, service marks, service mark registrations,
trade secrets or other infringement. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
(o) Environmental Laws. Except as set forth in Schedule 2.1(o)],
the Company and its Subsidiaries (i) are in compliance with any and all
applicable foreign, federal, provincial, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where such noncompliance or failure to
receive permits, licenses or approvals referred to in clauses (i), (ii) or (iii)
above could have, individually or in the aggregate, a Material Adverse Effect.
(p) Title. The Company and its Subsidiaries have good and
marketable title to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 2.1(p) or such as do not
materially and adversely affect the value of such property and do not interfere
with the use
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made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.
(q) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary for comparably situated companies in the businesses in
which the Company and its Subsidiaries are engaged. Neither the Company nor any
such Subsidiary has been refused any insurance coverage sought or applied for
and neither the Company nor any such Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries taken as a whole.
(r) Regulatory Permits. The Company and its Subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities, necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(s) Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with Canadian generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) Foreign Corrupt Practices Act. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(u) Tax Status. The Company and each of its Subsidiaries has duly
and timely made or filed all Canadian federal and provincial income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject, has duly completed and correctly
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reported all income and all other amounts and information required to be
reported, and (i) has duly and timely paid all taxes and other governmental
assessments and charges, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and (ii) has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. The Company has duly and timely withheld all taxes and other
amounts required by applicable law to be withheld by it, and has duly and timely
remitted to the appropriate government of authority such taxes and any other
amounts required by law to be remitted by it. The Company has duly and timely
paid all installments on account of taxes for the current year. There are no
unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and
the Company is not aware of any basis for any such claim.
(v) Certain Transactions. Except as set forth on Schedule 2.1(v)
and in the Regulatory Filings filed on SEDAR or EDGAR at least thirty (30)
Trading Days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule 2.1(c), none of
the officers, directors or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director or any such employee has a substantial interest or is an
officer, director, trustee or partner.
(w) Acknowledgment of Dilution; Hedging.
(i) The Company understands and acknowledges that the number
of Underlying Shares issuable upon conversion of Debentures and Warrant
Shares issuable upon exercise of the Warrants, pursuant to the Debentures
and Warrants purchased pursuant to this Agreement will increase in certain
circumstances. The Company further acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue Underlying Shares upon conversion of Debentures and
Warrant Shares upon exercise of Warrants pursuant to this Agreement is
absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other shareholders of the
Company.
(ii) The Company acknowledges that the issuance of the
Underlying Shares, as contemplated hereby and by the provisions of the
Debentures, could result in material dilution of the equity interests in
the Company held as of the date hereof by the Company's existing
shareholders. The Company further acknowledges that (i) the Purchasers may
engage in hedging activities at various times during the period following
the public announcement of the execution of this Agreement as provided in
Section 3.10 below, and during the period that the Debentures are
outstanding, including, without limitation, during the periods that the
value of the Common Shares deliverable with respect to the Debentures is
being determined, and (ii) such hedging activities (if any)
10
could reduce the value of such existing shareholders' equity interests in
the Company at and after the time that the hedging activities are being
conducted.
(x) Application of Takeover Protections. There are no
anti-takeover provisions contained in the Company's Articles of Amalgamation or
otherwise which will or could be triggered as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Underlying Shares and the Purchasers' ownership of the
Underlying Shares.
(y) Rights Plan. Neither the Company nor any of its Subsidiaries
has adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Shares or a change in control of
the Company.
(z) Obligations Absolute. The Company agrees that, subject only to
the conditions, qualifications and exceptions (if any) specifically set forth in
the Transaction Documents, its obligations under the Transaction Documents are
unconditional and absolute. Except to the extent (if any) specifically set forth
in the Transaction Documents, the Company's obligations thereunder are not
subject to any right of set off, counterclaim, delay or reduction.
(aa) Issuance of Underlying Shares and Warrant Shares. The
Underlying Shares and Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of Debentures in accordance with the terms thereof
or exercise of the Warrants in accordance with the terms thereof, such
Underlying Shares or Warrant Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
except for transfer restrictions imposed by applicable securities laws, and
listed on the Principal Market and may be listed on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market (each "an Approved
Market"), and the holders of such Underlying Shares or Warrant Shares shall be
entitled to all rights and preferences accorded to a holder of Common Shares. As
of the date of this Agreement, the outstanding Common Shares are currently
listed on the Principal Market.
(bb) Brokers. Other than its Letter of Agreement with Merrill
Lynch, the Company has taken no action which would give rise to any claim by any
person for brokerage commissions, finder's fees or similar payments by the
Company or the Purchasers relating to this Agreement or the transactions
contemplated hereby, provided that any such fees shall be paid by the Company.
(cc) No MFN or Variable Rate Transactions. The Company has no
outstanding securities or other instruments issued pursuant to any MFN or
Variable Rate Transaction.
"MFN TRANSACTION" shall mean a transaction in which the
Company issues or sells any securities in a capital raising transaction or
series of related transactions (the "MFN OFFERING") which grants to the investor
(the "MFN INVESTOR") the right to receive additional securities based upon
future capital raising transactions of the Company on terms more favorable than
those granted to the MFN Investor in the MFN Offering.
11
"VARIABLE RATE TRANSACTION" shall mean a transaction in
which the Company issues or sells, on or subsequent to the Initial Closing Date
(a) any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares Common Shares
either (x) at a conversion, exercise or exchange rate or other price that is
based upon and/or varies with the trading prices of or quotations for the Common
Shares at any time after the initial issuance of such debt or equity securities,
or (y) with a fixed conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Shares (but excluding standard anti-dilution provisions), or (b) any
securities of the Company pursuant to an "equity line" structure which provides
for the sale, from time to time, of securities of the Company which are
registered for resale pursuant to the 1933 Act or to be qualified for resale
under the Securities Laws.
(dd) Indebtedness.
(1) Except as disclosed in Schedule 2.1(dd), neither
the Company nor any of its Subsidiaries has any outstanding Indebtedness (as
defined below). Schedule 2.1(dd) provides a description of the material terms of
any such outstanding Indebtedness. For purposes of this Agreement: (i)
"Indebtedness" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services, (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) 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), (F) all
monetary obligations under any leasing or similar arrangement which, in
accordance with Canadian GAAP, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien 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 (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and (ii) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto.
(2) The Company and its Subsidiaries are (i) current
with respect to all payment obligations regarding Indebtedness for borrowed
money or debt securities;
12
and (ii) except as set forth in Schedule 2.1(ee), have no outstanding accounts
payable or other trade creditor obligations in excess of 30 days old.
(ee) Financial Position. None of the Company, its Subsidiaries nor
any of their Affiliates has received any communication, written or oral, from
the Company's independent auditors that such auditors intend to include a "going
concern" or other qualification in their opinion with respect to Company's
financial statements for the years ended December 31, 2003 and 2004, nor does
the Company have any knowledge of any facts or circumstances which would
reasonably require their auditors to include such a "going concern" or other
qualifications in such opinion.
(ff) Listing and Maintenance Requirements. Between January 1, 2003
and July 14, 2004, when it became listed on the Principal Market, the Company
was in compliance with all listing and maintenance requirements for the TSX
Venture Exchange and since July 14, 2004, the Company has been in compliance
with all listing and maintenance requirements for the Principal Market except,
in each case, as could not reasonably be expected to result in a Material
Adverse Effect. The Company has no knowledge of any facts or circumstance which
would reasonably lead to delisting or suspension of the Common Shares by the
Principal Market in the foreseeable future. Since January 1, 2003, the Company
has not received any communication, written or oral, from Regulatory Authorities
or the TSX Venture Exchange or the Principal Market regarding the suspension or
delisting of the Common Shares from the Principal Market, other than the
migration of the Common Shares from the TSX Venture Exchange in connection with
the commencement of listing on the Principal Market.
(gg) Legends. The Company shall issue the Debentures and Warrants
and certificates for the Underlying Shares and Warrant Shares to the Purchaser
without any legend except as described in Article VI below.
Section 2.2 Representations and Warranties of the Purchaser. Each
Purchaser on behalf of itself, severally and not jointly, hereby makes the
following representations and warranties to the Company as of the date hereof
and the applicable Closing Date:
(a) Accredited Investor Status; Sophisticated Purchaser. The
Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the 1933 Act and as defined in Ontario
Securities Commission Rule 45-501 Exempt Distributions and Multilateral
Instrument 45-103 Capital Raising Exemptions of the Canadian Securities
Administrators. The Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of the Debentures, the Warrants, Underlying Shares and Warrant Shares.
The Purchaser acknowledges that it can bear that economic risk and complete loss
of its investment in the Debentures, the Warrants, the Underlying Shares and the
Warrant Shares.
(b) Information. The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company which have been requested and materials relating to the offer and
sale of the Debentures, the Warrants, Warrant Shares and Underlying Shares which
have been requested by the Purchaser. The Purchaser and its advisors, if any,
have been afforded the opportunity to ask questions of the
13
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Purchaser or its advisors, if any, or its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 2.1 above. The Purchaser
understands that its purchase of the Debentures and Warrants involves a high
degree of risk. The Purchaser has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Debentures and Common Shares.
(c) No Governmental Review. The Purchaser understands that no
United States federal or state agency, any other government or governmental
agency, or Regulatory Authority has passed on or made any recommendation or
endorsement of the Debentures and Underlying Shares or the fairness or
suitability of the investment in the Debentures, Warrants, Warrant Shares and
Underlying Shares nor have such authorities passed upon or endorsed the merits
thereof.
(d) Legends. The Purchaser acknowledges that, while any
certificate representing Underlying Shares or Warrant Shares contains legends
restricting their transfer, (i) such securities cannot be traded through the
facilities of the Toronto Stock Exchange since the certificate is not freely
transferable and consequently is not "good delivery" in settlement of
transactions on the Toronto Stock Exchange; and (ii) that the Toronto Stock
Exchange would deem the selling securityholder to be responsible for any loss
incurred on a sale made by him in such securities. As such, at any such time
that there is a restrictive legend on any certificate representing Underlying
Shares, such certificate shall also bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE
TORONTO STOCK EXCHANGE; HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH
THE FACILITIES OF SUCH EXCHANGE SINCE THEY ARE NOT FREELY TRANSFERABLE, AND
CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE.
(e) Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Purchaser and is a
valid and binding agreement of the Purchaser enforceable against the Purchaser
in accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies. The Purchaser has the
requisite power and authority to enter into and perform its obligations under
this Agreement, entered into by the parties hereto in connection with the
transactions contemplated by this Agreement.
(f) Residency. Each Purchaser is a resident of the jurisdiction
set forth opposite such Purchaser's name on the Schedule of Purchasers.
(g) No Conflicts. The execution, delivery and performance of this
Agreement, by the Purchaser and the consummation by the Purchaser of the
transactions contemplated
14
hereby will not (i) result in a violation of the certificate of incorporation,
by-laws or other documents of organization of the Purchaser or (ii) result in a
violation of any law, rule, regulation or decree applicable to the Purchaser.
(h) Purchase Representation. The Purchaser is purchasing the
Debentures and the Warrants for its own account and not with a view to
distribution in violation of any securities laws provided, however, that by
making the representations herein, such Purchaser does not agree to hold any of
the Debentures or Warrants for a minimum or other specific term and reserves the
right to dispose of the Debentures or Warrants in accordance with or pursuant to
a registration statement or an exemption under the 1933 Act and/or applicable
Canadian securities laws. The Purchaser understands that neither the Debentures,
the Warrants nor the Common Shares issuable upon conversion or exercise thereof
have been registered under the 1933 Act or qualified under the "blue sky" laws
of any jurisdiction and may be resold in the U.S. only if registered pursuant to
the provisions of the 1933 Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law. The Purchaser has been advised and understands
that the Company, in issuing the Debentures and Warrants, is relying upon, among
other things, the representations and warranties of the Purchaser contained in
this Section 2.2 in concluding that such issuance is a "private offering" and is
exempt from the registration provisions of the 1933 Act. The Purchaser
acknowledges that it may be required to complete and be bound by a Toronto Stock
Exchange Private Placement Questionnaire and Undertaking.
(i) Rule 144. The Purchaser understands that there is no public
trading market for the Debentures or Warrants, that none is expected to develop,
and that the Debentures and Warrants must be held indefinitely unless and until
such Debentures, Warrants or Underlying Shares or Warrant Shares received upon
conversion or exercise thereof are registered under the 1933 Act or an exemption
from registration is available. The Purchaser has been advised or is aware of
the provisions of Rule 144 promulgated under the 1933 Act.
(j) Brokers. The Purchaser has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or the Purchaser relating to this Agreement or
the transactions contemplated hereby.
(k) Reliance by the Company. The Purchaser understands that the
Debentures and Warrants are being offered and sold in reliance on a
transactional exemption from the registration requirements of federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of the Purchaser set forth herein in order to determine the applicability of
such exemptions and the suitability of the Purchaser to acquire the Debentures
and Warrants, and the Underlying Shares and Warrant Shares issuable upon
conversion or exercise thereof.
15
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing; Effective Registration. Until such
time as no Debentures or Warrants are outstanding, the Company (a) will cause
the Common Shares (including the Underlying Shares, the Interest Shares and the
Warrant Shares) to (i) continue at all times to be listed on the Principal
Market and (ii) after the initial listing of the Common Shares on an Approved
Market, continue at all times to be listed on an Approved Market, (b) will
comply in all material respects with its reporting and filing obligations under
the Securities Laws, and (c) will not take any action or file any document
(whether or not permitted by the Securities Laws or the rules thereunder) to
terminate or suspend such reporting and filing obligations. Until such time as
no Debentures or Warrants are outstanding, the Company shall comply in all
material respects with the Company's reporting, filing and other obligations
under the by-laws or rules of each Approved Market on which the Common Shares
are subsequently listed.
Section 3.2 Certificates on Conversion. Upon any conversion by the
Purchaser (or then holder of Debentures) of the Debentures pursuant to the terms
thereof, the Company shall, if the Purchaser so elects, issue and deliver to the
Purchaser (or holder) within three (3) Trading Days of the conversion date a new
Debenture or Debentures for the aggregate principal amount of Debentures which
the Purchaser (or holder) has not yet elected to convert but which are evidenced
in part by the Debentures submitted to the Company in connection with such
conversion (with the denominations of such new Debenture(s) designated by the
Purchaser or holder).
Section 3.3 Replacement Debentures. The Debenture(s) held by the Purchaser
(or another holder) may be exchanged by the Purchaser (or such holder) at any
time and from time to time for Debenture(s) with different denominations
representing an equal aggregate principal amount of Debenture(s), as requested
by the Purchaser (or such holder) upon surrendering the same to the Company at
the address set forth in the Debenture. No service charge will be made for such
registration or transfer or exchange.
Section 3.4 Securities Compliance. The Company shall notify the Regulatory
Authorities, the Principal Market and any Approved Market on which the Common
Shares are listed, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Debentures and the Warrants and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Debentures, the Warrants and the Underlying Shares and Warrant Shares issuable
upon conversion or exercise thereof.
Section 3.5 Notices. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of Common Shares, contemporaneously with the
delivery of such notices or information to such holders of Common Shares.
16
Section 3.6 Use of Proceeds. The Company agrees that the net proceeds
received by the Company from the sale of the Debentures and Warrants, shall be
used only for acquisitions, operations and working capital.
Section 3.7 Reservation of Shares; Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued Common Shares, solely for the purpose of effecting the conversion of
the Debentures and exercise of the Warrants, such number of its Common Shares as
shall from time to time be sufficient to effect the conversion of all Debentures
and the exercise of all Warrants. .
Section 3.8 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
Section 3.9 Form D; Blue Sky Laws; Form 45-501F1.
(a) The Company agrees to file a Form D with respect to the
Debentures and the Warrants, in accordance with Regulation D and to provide a
copy thereof to the Purchaser promptly after such filing. The Company shall, on
or before the applicable Closing Date, take such action as the Company shall
have reasonably determined is necessary to qualify the Debentures, Warrants,
Underlying Shares and Warrant Shares for sale to the Purchaser under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Purchaser on or prior to the applicable Closing Date;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where it is not now so qualified or to take any action that would subject it to
service of process in suits or taxation, in each case, in any jurisdiction where
it is not now so subject.
(b) The Company agrees to file a Form 45-501F1 with respect to the
Debentures and Warrants pursuant to Rule 45-501 - Exempt Distributions of the
Ontario Securities Commission within the manner and in the time periods
specified thereunder.
Section 3.10 Publicity. The Company shall, immediately following the entry
into this Agreement, issue a press release in Canada (which shall specifically
state that it is not for dissemination in the United States) with respect to
such transactions, in the form of the press release attached as EXHIBIT D hereto
(the "PRESS RELEASE"). On or before 5:00 p.m., New York Time, on the first
Business Day following the date hereof, the Company shall file a material change
report, which shall be available on SEDAR, describing the terms of the
transactions contemplated by the Transaction Documents, and attaching the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of Debenture, the form of
Warrant and the Registration Rights Agreement) as exhibits to such filing
(including all attachments, the "MATERIAL CHANGE REPORT"). From and after the
publication of the Press Release, no Purchaser shall be in possession of any
material, nonpublic information received from the Company, any of its
Subsidiaries or any of its respective officers, directors, employees or agents,
that is not disclosed in the Press Release. The Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Purchaser with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the Press Release without the express written
17
consent of such Purchaser. In the event of a breach of the foregoing covenant by
the Company, any of its Subsidiaries, or any of its or their respective
officers, directors, employees and agents, in addition to any other remedy
provided herein or in the Transaction Documents, a Purchaser shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Purchaser shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, shareholders or agents for any such disclosure.
Subject to the foregoing, neither the Company nor any Purchaser shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the Material Change Report and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case
of clause (i) each Purchaser shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
Section 3.11 Foreign Private Issuer. So long as the Debenture and Warrants
are outstanding, the Company shall remain a "foreign private issuer" as defined
in the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT");
provided however, that the Company may cease to be a foreign private issuer as a
result of a Permitted Merger Transaction. As used herein, a Permitted Merger
Transaction is any merger, consolidation or similar transaction in which the
holder of Debentures or Warrants is entitled to receive cash, securities or
other property, and any securities which the holder is entitled to receive are
registered, freely tradable and listed on the Principal Market or an Approved
Market.
Section 3.12 Prohibited Issuances. The Company shall not issue any Common
Shares, or warrants, options or any other securities convertible or exchangeable
for Common Shares, at a price per Common Share that is less than the Conversion
Price (as defined in the Debenture) until 60 days after the Initial Closing
Date.
Section 3.13 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its Subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees and
consultants, shall be approved by a majority of the Company's outside directors.
Section 3.14 Transfer of Assets; Subsidiaries. While any of the Debentures
remain outstanding, without the prior written consent of the Purchasers (which
may be withheld in the Purchasers' sole discretion), neither the Company nor any
of the Subsidiaries shall sell, offer to sell, or otherwise transfer, or dispose
of any material portion of their respective assets other than for fair value or
in the ordinary course of business in accordance with past practice.
Section 3.15 Incurrence of Indebtedness.
(a) Definitions. For purposes of the Transaction Documents, the
following definitions shall apply:
18
(i) "ANZ CREDIT FACILITY" means that certain loan of
[deleted for confidentiality].
(ii) "BNP CREDIT FACILITY" means that certain [deleted for
confidentiality].
(iii) "COLLATERAL ACCOUNT" shall have the meaning provided to
such term in Section 3.23 hereof.
(iv) "DEFEASANCE AMOUNT" means (i) with respect to any
Indebtedness incurred solely in connection with the purchase of equipment
("EQUIPMENT FINANCING"), an amount equal to 20% of such Equipment
Financing (ii) with respect to any Indebtedness incurred solely in
connection with a Project Financing Indebtedness, an amount equal to 5% of
such Project Financing Indebtedness and (iii) in all other circumstances
an amount equal to 25% of such Indebtedness.
(v) "PERMITTED DEFEASED INDEBTEDNESS" means Indebtedness
incurred by the Company or its Subsidiaries provided that the Company
irrevocably deposits in the Collateral Account cash in U.S. dollars,
non-callable U.S. Government Obligations (as defined in the Debentures),
or a combination thereof, in an amount equal to or greater than the
applicable Defeasance Amount.
(vi) "PERMITTED INDEBTEDNESS"
(A) the BNP Credit Facility and the ANZ Credit
Facility;
(B) Loan Agreement [deleted for confidentiality];
(C) Deferred payment of [deleted for confidentiality];
(D) The vendor financing of the balance of the
purchase price with respect to the prospective purchase of Shell
Papua New Guinea Limited by the Company or a nominee of the Company
under the Purchase and Sale Agreement between Shell Overseas
Holdings Limited and the Company not to exceed $[deleted for
confidentiality];
(E) Loan of [deleted for confidentiality];
(F) Loan Agreements between [deleted for
confidentiality];
(G) Obligations with respect to customary provisions
regarding post-closing purchase price adjustments and
indemnification in agreements for the purchase or sale of a business
or assets;
(H) Permitted Refinancing Indebtedness;
(I) Indebtedness arising out of payment obligations
under non-speculative hedging transaction; and
19
(J) Inter-company Indebtedness.
(vii) "PERMITTED REFINANCING INDEBTEDNESS" means the purchase,
redemption, repayment, defeasance or other acquisition or retirement for
value of Permitted Indebtedness described in clauses (B) through (F) in
the definition thereof, in exchange for, or out of the aggregate net cash
proceeds of, a substantially concurrent incurrence of, Indebtedness;
provided, that, the principal amount of such new Indebtedness does not
exceed the principal amount of the Indebtedness being so purchased,
redeemed, repaid, defeased, acquired or retired, plus the amount of any
premium required to be paid in connection with such refinancing pursuant
to the terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing and such new Indebtedness has a stated
maturity for its final scheduled principal payment that is at least 91
days later than the stated maturity for the final scheduled principal
payment of the Debentures; and, provided further, that, the interest for
such new Indebtedness is no greater than market rate interest for
comparable Indebtedness.
(viii) "PROJECT FINANCING INDEBTEDNESS" means Indebtedness of
any Subsidiary of the Company incurred in connection with the acquisition
by the such Subsidiary of fixed assets used in the oil and gas Business
(including office buildings and other real property used in conducting its
operations) and any renewals and refinancings of such Indebtedness;
provided that the holders of such Project Financing Indebtedness agree
that they will look solely to the fixed assets so acquired which secure
such Indebtedness (subject to customary exceptions such as
indemnifications for environmental, title, fraud and other matters), and
neither the Company nor any other Subsidiary (a) is directly or indirectly
liable for such Indebtedness or (b) provides credit support, including any
undertaking, guarantee, agreement or instrument that would constitute
Indebtedness (other than the grant of a lien on such acquired fixed assets
or the stock of the Subsidiary which holds such assets).
(b) Prohibition on Additional Indebtedness. So long as any
Debenture is outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, incur or guarantee,
assume or suffer to exist any Indebtedness other than Permitted Indebtedness and
other than the Indebtedness evidenced by the Debentures unless either of the
following conditions have been met:
(i) Both prior to and after giving effect to the incurrence
of such Indebtedness, the aggregate Indebtedness of the Company and its
Subsidiaries (on a consolidated basis) is not in excess of [deleted for
confidentiality] for the Company and its Subsidiaries (on a consolidated
basis) for the twelve-month period ending with the last day of the period
covered by, and as set forth in the financial statements of, the Company's
most recently filed Form 20-F or Form 6-K. To the extent that the Company
or its Subsidiary incurs any such Indebtedness in connection with the bona
fide purchase of a business, EBITDA for such twelve-month period shall
include the EBITDA of such purchased business during such period
calculated on a pro forma basis as if the acquisition occurred on the
first day of the period; or
20
(ii) Such Indebtedness would qualify as Permitted Defeased
Indebtedness.
Section 3.16 Dividends; Stock Repurchases. So long as any Debentures
remain outstanding, the Company will not declare any dividends on any shares of
any class of its capital stock (other than dividends consisting solely of Common
Shares or rights to purchase Common Shares), or apply any of its property or
assets to the purchase, redemption or other retirement of, or set apart any sum
for the payment of any dividends on, or for the purchase, redemption or other
retirement of, or make any other distribution by reduction of capital or
otherwise in respect of, any shares of any class of its capital stock.
Section 3.17 Corporate Existence; Reporting Company. So long as any
Debentures or Warrants remain outstanding, (i) the Company and each Subsidiary
will maintain its corporate existence in good standing and remain qualified to
do business as a foreign corporation in each jurisdiction in which the nature of
its activities or the character of the properties it owns or leases makes such
qualification necessary and (ii) following its listing on the AMEX, will remain
a reporting issuer under the Exchange and applicable Canadian securities laws.
Section 3.18 MFN and Variable Rate Transactions. So long as any Debentures
or Warrants remain outstanding, the Company will not engage in any MFN
Transactions or Variable Rate Transactions.
Section 3.19 Withholding. If withholding on payments to any Purchaser
under the Debenture are required, the Company will withhold at the lowest rate
permitted by the Treaty.
Section 3.20 AMEX Listing. The Company will use its commercially
reasonable efforts to have the Common Shares listed for trading on the American
Stock Exchange no later than 120 days from the Initial Closing Date.
Section 3.21 Additional Issuances of Securities.
(a) From the date hereof until the date that no Debentures remain
outstanding, the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of any of its or its subsidiaries'
equity or equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during its
life and under any circumstances, convertible into or exchangeable or
exercisable for Common Shares or any rights, warrants or options to subscribe
for or purchase Common Shares or any stock or securities that are convertible
into or exercisable or exchangeable for Common Shares (any such offer, sale,
grant, disposition or announcement being referred to as a "SUBSEQUENT
PLACEMENT") unless the Company shall have first complied with this Section 3.21.
(i) The Company shall deliver to each Purchaser a written
notice (the "OFFER NOTICE") of any proposed or intended issuance or sale
or exchange (the "OFFER") of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or
exchanged, (y)
21
identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z)
offer to issue and sell to or exchange with the Purchasers not less than
30% of the Offered Securities, allocated among the Purchasers (a) based on
such Purchaser's pro rata portion of the number of Underlying Shares into
which the Debentures purchased hereunder are convertible at such time (the
"BASIC AMOUNT"), and (b) with respect to each Purchaser that elects to
purchase its Basic Amount, any additional portion of the Offered
Securities attributable to the Basic Amounts of other Purchasers as such
Purchaser shall indicate it will purchase or acquire should the other
Purchasers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
(ii) To accept an Offer, in whole or in part, a Purchaser
must deliver a written notice to the Company prior to the end of the tenth
(10th) Business Day after such Purchaser's receipt of the Offer Notice
(the "OFFER PERIOD"), setting forth the portion of the Purchaser's Basic
Amount that such Purchaser elects to purchase and, if such Purchaser shall
elect to purchase all of its Basic Amount, the Undersubscription Amount,
if any, that such Purchaser elects to purchase (in either case, the
"NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by all
Purchasers are less than the total of all of the Basic Amounts, then each
Purchaser who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for;
provided, however, that if the Undersubscription Amounts subscribed for
exceed the difference between the total of all the Basic Amounts and the
Basic Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"),
each Purchaser who has subscribed for any Undersubscription Amount shall
be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Purchaser bears to
the total Basic Amounts of all Purchasers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the
extent its deems reasonably necessary.
(iii) The Company shall have fifteen (15) days from the
expiration of the Offer Period above to offer, issue, sell or exchange all
or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by the Purchasers (the "REFUSED SECURITIES"), but only
to the offerees described in the Offer Notice (if so described therein)
and only upon terms and conditions (including, without limitation, unit
prices and interest rates) that are not more favorable to the acquiring
person or persons or less favorable to the Company than those set forth in
the Offer Notice.
(iv) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 3.21(a)(iii) above), then each Purchaser, at
its sole option and in its sole discretion, may reduce the number or
amount of the Offered Securities specified in its Notice of Acceptance to
an amount that shall be not less than the number or amount of the Offered
Securities that the Purchaser elected to purchase pursuant to Section
3.21(a)(ii) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange
22
(including Offered Securities to be issued or sold to Purchasers pursuant
to Section 3.21(a)(iii) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have
again been offered to the Purchasers in accordance with Section 3.21(a)(i)
above.
(v) Upon the closing of the issuance, sale or exchange of
all or less than all of the Refused Securities, the Purchasers shall
acquire from the Company, and the Company shall issue to the Purchasers,
the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 3.21(a)(iii) above if the
Purchasers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Purchasers of any Offered Securities is subject
in all cases to the preparation, execution and delivery by the Company and
the Purchasers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Purchasers and their
respective counsel.
(vi) Any Offered Securities not acquired by the Purchasers or
other Persons in accordance with Section 3.21(a)(iii) above may not be
issued, sold or exchanged until they are again offered to the Purchasers
under the procedures specified in this Agreement.
(b) Exceptions. The restrictions contained in Subsection (a) above
shall not apply (1) in connection with any employee benefit plan 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, officer, director or
consultant for services provided to the Company or any of its subsidiaries, or
pursuant to the exercise of any securities of the Company issued thereunder; (2)
upon exercise of the Warrants or conversion of the Debentures or upon issuance
of the Interest Shares; (3) upon conversion of any options or convertible
securities that are outstanding on the day immediately preceding the Closing
Date, provided, that the terms of such options or convertible securities are not
amended, modified or changed on or after the Closing Date; (4) in connection
with any bona fide strategic transaction or acquisition by the Company, whether
through an acquisition for stock or a merger, of any business, assets or
technologies the primary purpose of which is not to raise equity capital; (5) in
connection with any issuance of securities that is not (A) a private placement
under Canadian or U.S. securities laws or the rules of the Principal Market (or
the Approved Market, if applicable) or (B) a sale to a limited number of
institutional investors pursuant to a shelf registration statement; or (6) if
the consideration therefor consists solely of non-cash or non-marketable
securities and the transaction was not undertaken primarily for financing
purposes.
Section 3.22 Segment Reporting. Beginning January 1, 2005, the Company
shall issue its financial statements in a manner such that Average Consolidated
EBITDA for each quarter thereafter shall be readily determinable.
Section 3.23 Collateral Account. The Company shall use its commercially
reasonable best efforts to establish within ten days of the Initial Closing Date
and maintain at all times
23
thereafter free from any and all competing liens, a cash collateral account at a
bank or other financial institution reasonably acceptable to the Initial
Purchasers (the "COLLATERAL ACCOUNT") with respect to which the Company has
delivered to the Trustee (as defined in the Debenture) as the collateral agent
(the "COLLATERAL AGENT") an account control agreement satisfactory in form and
substance to the Collateral Agent duly executed by the Company and such bank or
financial institution. The Company hereby grants to the Collateral Agent (for
the benefit of the holders of the Debentures) a first priority security interest
in the Collateral Account, all cash, U.S. Government Obligations (as defined in
the Debentures) and/or other property deposited therein from time to time and
all products and proceeds thereof, as collateral security for the Company's
obligations under this Agreement and the Debentures, whether now existing or
hereafter incurred.
ARTICLE IV
TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Purchaser or its respective nominee(s), for the Underlying
Shares and Warrant Shares in such amounts as specified from time to time by a
Purchaser to the Company upon delivery of a conversion or exercise notice or
repayment of any portion of the Debenture in Common Shares or upon delivery of
an exercise notice for the Warrant and Warrant Shares (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Purchasers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Purchasers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
ARTICLE V
CONDITIONS TO CLOSINGS
Section 5.1 Conditions Precedent to the Obligation of the Company to Sell.
The obligation hereunder of the Company to issue and/or sell the Debentures and
Warrants at the Closing is subject to the satisfaction, at or before the
Closing, of each of the applicable conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties.
The representations and warranties of the Purchasers will be true and correct in
all material respects as of the date when made and as of the Closing Date, as
though made at that time.
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(b) Performance by the Purchaser. The Purchasers shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by the Purchasers at or prior to the Closing, including payment of
the purchase price set forth on the signature page hereto.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
Section 5.2 Conditions Precedent to the Obligation of each Purchaser to
Purchase. The obligation hereunder of each Purchaser, to acquire and pay for the
Debentures and Warrants at the Closing is subject to the satisfaction, at or
before the Closing, of each of the applicable conditions set forth below. These
conditions are for each Purchaser's benefit and may be waived by such Purchaser
at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects (except those representations and warranties which are
qualified by materiality in which case such representations and warranties shall
be true and correct in all respects) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties as of an earlier date, which shall be true and correct in all
material respects (except those representations and warranties which are
qualified by materiality in which case such representations and warranties shall
be true and correct in all respects) as of such date).
(b) Performance by the Company. The Company shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Company at or prior to the Closing, including, without
limitation, delivery of the Debentures and Warrants to the Purchasers.
(c) Registration Rights Agreement. The Company and the Purchasers
shall have entered into the Registration Rights Agreement.
(d) TSE. From the date hereof to the Closing Date, trading in the
Company's Common Shares shall not have been suspended (which shall not include
any halt in trading) nor shall there have been any pending or threatened
suspensions, and the Common Shares shall be listed on the Principal Market.
(e) No Injunction; TSE Approval. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents. The Principal Market shall have
approved the listing of the Underlying Shares and Warrant Shares for trading
thereon. The Principal Market shall not have objected or indicated that it may
object to the consummation of any of the transactions contemplated by this
Agreement.
(f) Opinion of Counsel. At the Closing, the Purchasers shall have
received an opinion of counsel to the Company in the form attached hereto as
EXHIBIT F and such other
25
opinions, certificates and documents as the Purchasers or their counsel shall
reasonably require incident to the Closing.
(g) Officer's Certificates. The Company shall have delivered to
the Purchaser a certificate in form and substance satisfactory to the Purchasers
and their counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Articles of Amalgamation, By-Laws, good
standing and authorizing resolutions of the Company.
(h) Miscellaneous. The Company shall have delivered to the
Purchasers such other documents relating to the transactions contemplated by
this Agreement or the Purchasers or their counsel may reasonable request.
ARTICLE VI
LEGEND AND STOCK
Section 6.1 U.S. Legend.
(a) Upon payment therefor as provided in this Agreement, the
Company will issue one or more Debentures and Warrants in the name each
Purchaser or its nominees and in such denominations to be specified by such
Purchaser prior to (or from time to time subsequent to) Closing. Each Debenture
and Warrant and any certificate representing Underlying Shares or Warrant Shares
issued upon conversion or exercise thereof, prior to such Underlying Shares of
Warrant Shares becoming duly registered under the 1933 Act and freely tradeable
on the Principal Market, shall be stamped or otherwise imprinted with legends in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
(b) The Company agrees to reissue certificates representing
Debentures, Warrants or Common Shares issuable upon conversion of Debentures or
exercise of Warrants, without the legends set forth above in Section 6.1(a), at
such time as (i) the holder thereof is permitted to dispose of such Debentures
or Warrants and/or Underlying Shares or Warrant Shares issuable upon conversion
of the Debentures or exercise of the Warrants without registration under the
1933 Act, or (ii) such securities are sold to a purchaser or purchasers who (in
the opinion of counsel to the seller or the Purchaser, in form and substance
reasonably satisfactory to the Company and its counsel) are able to dispose of
such shares publicly without registration under the 1933 Act and state
securities laws, or (iii) such securities have been sold pursuant to an
effective registration statement under the 1933 Act, or (iv) a declaration by
the seller that such securities have been sold pursuant to Rule 904 under
Regulation S of the 1933 Act.
26
Section 6.2 Canadian Legend.
(a) For a period of four months from the Closing Date, each
Debenture and Warrant and any certificate representing Underlying Shares or
Warrant Shares issued upon conversion or exercise thereof shall bear the
following legend:
Unless permitted under securities legislation, the holder of this
security must not trade the security in Canada before the date that is four
months and one day following the Closing Date (the "FREE TRADING DATE"). The
securities issuable upon exercise or conversion of the securities represented by
this certificate are listed on the Toronto Stock Exchange; however, the said
securities can not be traded through the facilities of such exchange since they
are not freely transferable, and consequently any certificate representing such
securities is not "good delivery" in settlement of transactions on the Toronto
Stock Exchange.
(b) For a period of four months from the Closing Date, any
certificate representing Underlying Shares or Warrant Shares issued upon
conversion or exercise of any Debenture or Warrant, as the case may be, shall
bear the following legend:
Unless permitted under securities legislation, the holder of this
security must not trade the security in Canada before the Free Trading Date. The
securities represented by this certificate are listed on the Toronto Stock
Exchange; however, the said securities can not be traded through the facilities
of such exchange since they are not freely transferable, and consequently any
certificate representing such securities is not "good delivery" in settlement of
transactions on the Toronto Stock Exchange.
(c) For a period of fourth months from the Closing Date, any
certificate representing Underlying Shares or Warrant Shares issued upon
conversion or exercise of any Debenture or Warrant, as the case may be, shall
bear the following legend:
Unless permitted under securities legislation, the holder of this
security must not trade the security in Canada before the Free Trading Date.
Without prior written approval of the Toronto Stock Exchange and compliance with
all applicable securities legislation, the securities represented by this
certificate may not be sold, transferred, hypothecated or otherwise traded on or
through the facilities of the Toronto Stock Exchange or otherwise in Canada or
to or for the benefit of a Canadian resident until the Free Trading Date. The
securities represented by this certificate are listed on the Toronto Stock
Exchange; however, the said securities can not be traded through the facilities
of such exchange since they are not freely transferable, and consequently any
certificate representing such securities is not "good delivery" in settlement of
transactions on such exchange.
(d) The Company agrees to reissue certificates representing
Debentures, Warrants, Underlying Shares or Warrant Shares, as the case may be,
without the legends set forth above in Section 6.2(a) or Section 6.2(b), at such
time as (i) such securities are qualified for distribution by prospectus in
Canada or (ii) such securities are sold to a purchaser or purchasers in a
transaction that meets the requirements of (A) Section 2.5 of Multilateral
Instrument 45-102 - Resale of Securities (in the opinion of counsel to the
seller or the Purchaser, in form and substance reasonably satisfactory to the
Company and its counsel) and (B) the requirements of
27
the Toronto Stock Exchange; provided, that, the last sentence of the legends set
forth above in Section 6.2(a) or Section 6.2(b) shall not be removed in the case
of any certificate bearing the legend required by Section 6.1(a).
Section 6.3 Pledges, etc. Nothing herein shall limit the right of any
holder to pledge these securities pursuant to a bona fide margin account or
lending arrangement entered into in compliance with law, including applicable
securities laws.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement, may be terminated by action of
the Board of Directors of the Company or by the Purchasers at any time if the
Closing shall not have been consummated by the Closing Date set forth in Section
1.3(a) hereof; provided, however, that the party (or parties) prepared to close
shall retain its (or their) right to sue for any breach by the other party (or
parties).
ARTICLE VIII
INDEMNIFICATION
In consideration of each Purchaser's execution and delivery of this
Agreement and acquiring the Debentures and Warrants hereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Purchaser and
all of its partners, officers, directors, employees, members and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Debentures and Warrants or
(iii) the status of such Purchaser or holder of the Debentures or Warrants as an
investor in the Company and (d) the enforcement of this Section. Notwithstanding
the foregoing, Indemnified Liabilities shall not include any liability of any
Indemnitee arising solely out of such Indemnitee's willful misconduct or
fraudulent action(s). To the extent that the foregoing undertaking by the
Company may be
28
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
ARTICLE IX
GOVERNING LAW; MISCELLANEOUS
Section 9.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 9.2 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
Section 9.3 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity
29
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
Section 9.5 Entire Agreement; Amendments; Waivers.
(a) This Agreement and the other Transaction Documents supersede
all other prior oral or written agreements between the Purchaser, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein and therein contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Purchasers makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement or any of the other
Transaction Documents may be amended other than by an instrument in writing
signed by the Company and the holders of Debentures representing at least 60% of
the aggregate principal amount of the Debentures, or, if prior to the Closing
Date, the Company and the Purchasers listed on the Schedule of Purchasers as
being obligated to purchase at least 60% of the aggregate principal amount of
the Debentures, and any amendment to this Agreement or any of the other
Transaction Documents made in conformity with the provisions of this Section
9.5(a) shall be binding on all Purchasers and holders of Debentures, as
applicable. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Debentures then outstanding. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents, holders of
Debentures or holders of the Warrants, as the case may be. The Company has not,
directly or indirectly, made any agreements with any Purchasers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
(b) Each Purchaser may, as to itself only, at any time elect, by
notice to the Company, to waive (whether permanently or temporarily, and subject
to such conditions, if any, as the Purchaser may specify in such notice) any of
its rights under any of the Transaction Documents to acquire Common Shares from
the Company, in which event such waiver shall be binding against such Purchaser
in accordance with its terms; provided, however, that the voluntary waiver
contemplated by this sentence may not reduce such Purchaser's obligations to the
Company under the Transaction Documents.
Section 9.6 Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery or (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company: InterOil Corporation
25025 I-45 North, Suite 420
The Woodlands, TX 77380
Facsimile: (281) 292-0888
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Telephone: (281) 292-1800
Attention: Gary M. Duvall
With a copy to: Haynes & Boone LLP
1221 McKinney, Suite 2100
Houston, Texas 77010
Facsimile: (713) 236-5699
Telephone: (713) 547-2081
Attention: Guy Young, Esq.
If to a Purchaser:
As set forth on the Schedule of Purchasers.
Each party shall provide five (5) days prior written notice to the
other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service, shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
Section 9.7 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any Permitted Assignee (as
defined below). The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers,
including by merger or consolidation. Each Purchaser may assign some or all of
its rights hereunder to any assignee of the Debentures or Warrants or Underlying
Shares or Warrant Shares to whom the Purchasers may transfer the Debenture or
Warrants pursuant to securities laws and the rules of the Principal Market and
any Approved Market on which the Common Shares are listed (in each case, a
"PERMITTED ASSIGNEE"); provided, however, that any such assignment shall not
release any Purchaser from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, the Purchasers shall be entitled to pledge the Debentures
or Warrants or Underlying Shares or Warrant Shares in connection with a bona
fide margin account.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Survival. The representations, warranties and agreements of
the Company and the Purchasers contained in the Agreement shall survive the
Closing.
Section 9.10 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request
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in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.
Section 9.11 Placement Agent. The Purchasers and the Company each
acknowledges and warrants that it has not engaged any placement agent, other
than in the case of the Company pursuant to its Letter of Agreement with Merrill
Lynch, in connection with the sale of the Debentures and Warrants, provided that
any such fees will be paid exclusively by the Company.
Section 9.12 No Strict Construction. The language used in this agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 9.13 Remedies. Each Purchaser and each Permitted Assignee shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any person having any rights under any provision of the Transaction
Documents shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of the Transaction Documents and to exercise all other rights granted
by law. Each Purchaser and each Permitted Assignee without prejudice may
withdraw, revoke or suspend its pursuit of any remedy at any time prior to its
complete recovery as a result of such remedy.
Section 9.14 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Purchaser under the Transaction Documents or a
Purchaser enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state,
provincial or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
Section 9.15 Days. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
Section 9.16 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company or applicable
Subsidiary does not fully perform its respective related obligations within the
periods therein provided, then the Purchaser in its sole discretion may rescind
or withdraw from time to time any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
Section 9.17 Fees and Expenses. On the Closing Date, the Company shall
reimburse the Purchasers for its expenses incurred in connection with this
Agreement and the Transaction Documents, including, without limitation, legal
fees and expenses, up to $95,000 in the
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aggregate, of which $45,000 shall be allocated to Portside Growth & Opportunity
Fund and $50,000 shall be allocated to Manchester Securities Corp. (each, a
Purchaser) or their respective designee(s), which amount shall be withheld by
such Purchasers from their applicable Purchase Price at the Initial Closing.
Section 9.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto
or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitations,
the rights arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
* * * * *
[Signature Page Follows]
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IN WITNESS WHEREOF, each Purchaser and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date and year first above written.
COMPANY:
INTEROIL CORPORATION
By: ___________________________________________
Name:
Title:
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Purchaser and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date and year first above written.
PURCHASER:
MANCHESTER SECURITIES CORP.
By: ___________________________________________
Name:
Title:
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Purchaser and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date and year first above written.
PURCHASER:
PORTSIDE GROWTH AND OPPORTUNITY FUND
By: ___________________________________________
Name:
Title:
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Purchaser and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date and year first above written.
PURCHASER:
PROVIDENT PREMIER MASTER FUND, LTD.
By: ___________________________________________
Name:
Title:
[Signature Page to Securities Purchase Agreement]
SCHEDULE OF PURCHASERS
Principal
Purchaser Address Amount of Number of Purchaser's Representatives' Address
Purchaser Name and Facsimile Number Debentures Warrants and Facsimile Number
- ------------------ ------------------------------- ------------ ----------- ----------------------------------------
Manchester 712 Fifth Avenue $15,000,000 119,805 Kleinberg, Kaplan, Wolff & Cohen,
Securities Corp. New York, New York 10019 P.C.
Attention: Brett Cohen 551 Fifth Avenue
Telephone: (212) New York, New York 10176
Facsimile: (212) 974-2092 Attention: Lawrence Hui, Esq.
Telephone: (212) 986-6000
Residence: New York Facsimile: (212) 986-8866
Portside Growth and c/o Ramius Capital Group, L.L.C. $10,000,000 79,870 Schulte Roth & Zabel LLP
Opportunity Fund 666 Third Avenue, 26th Floor 919 Third Avenue
New York, NY 10017 New York, New York 10022
Attention: Jeffrey Smith Attn: Eleazer Klein, Esq.
Roger Anscher Telephone: (212) 756-2000
Telephone: (212) 845-7900 Facsimile: (212) 593-5955
Facsimile: (212) 845-7999
Residence: Cayman Islands
Provident Premier c/o Gemini Investment $ 5,000,000 39,935 Duval & Stachenfeld, LLP
Master Fund, Ltd. Strategies, LLC 300 E. 42nd Street. 3rd Floor
35 Waterview Boulevard New York, New York 10017
Parsippany, New Jersey 07054 Attn: Robert Mazzeo, Esq.
Attention: Steve W. Winters Telephone: (212) 692-5529
Telephone: (973) 404-1350 Facsimile: (212) 883-8883
Facsimile: (973) 404-1360
Residence: Cayman Islands
LIST OF SCHEDULES
Schedule 2.1(a) Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(e) No Conflicts
Schedule 2.1(g) Certain Changes
Schedule 2.1(h) Litigation
Schedule 2.1(n) Intellectual Property Rights
Schedule 2.1(p) Title
Schedule 2.1(v) Certain Transactions
Schedule 2.1 (dd) Indebtedness
LIST OF EXHIBITS
EXHIBIT A Form of Debenture
EXHIBIT B Form of Warrant
EXHIBIT C Registration Rights Agreement
EXHIBIT D Form of Press Release
EXHIBIT E Form of Subsidiary Guarantee
EXHIBIT F Opinion of Counsel