EXHIBIT A
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1),(2),
(3) OR (7) UNDER THE SECURITIES ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT SECURED BY SUCH SECURITIES.
UNLESS PERMITTED UNDER CANADIAN SECURITIES LAWS, THE HOLDER OF THESE SECURITIES
SHALL NOT TRADE THE SECURITIES BEFORE THE DATE THAT IS FOUR (4) MONTHS AND A DAY
AFTER THE DATE OF ISSUE OF THESE SECURITIES.
No. [ ] US$[ ]
Date: [_________], 2006
NORTH AMERICAN PALLADIUM LTD.
SERIES [__] CONVERTIBLE NOTE DUE
[________________], 200[_]
THIS NOTE is one of a series of duly authorized and issued convertible
promissory notes of North American Palladium Ltd., a company incorporated under
the Canada Business Corporations Act (the "COMPANY"), designated as its Series
[__] Convertible Notes due [_____________], 200[_], in the initial aggregate
principal amount of US$[________________] (collectively, the "NOTES").
FOR VALUE RECEIVED, the Company promises to pay to the order of
[___________] or its registered assigns (the "HOLDER"), the principal amount of
[__________] Dollars [(US$__________)], on [______________], 200[_](1) (the
"MATURITY DATE"), or such earlier date as the Notes are required or permitted to
be repaid as provided hereunder, and to pay interest to
-----------------------------
(1) 28-30 months from the Issue Date (pursuant to SECTION 3(A)).
the Holder on the then outstanding principal amount of this Note in accordance
with the provisions hereof. In addition, the Company shall pay to the order of
the Holder interest on any principal or interest payable hereunder that is not
paid in full when due, whether at the time of any stated interest payment date
or maturity or by prepayment, acceleration or declaration or otherwise, for the
period from and including the due date of such payment to but excluding the date
the same is paid in full, at a rate of 12% per annum (but in no event in excess
of the maximum rate permitted under applicable law).
Interest payable under this Note shall be computed on the basis of a
year of 360 days and actual days elapsed (including the first day but excluding
the last day) occurring in the period for which interest is payable.
Payments of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided in SECTION 17
or by wire transfer to such account specified from time to time by the Holder
hereof for such purpose as provided in SECTION 17.
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Note, (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Securities Purchase Agreement, dated as of
March 24, 2006, among the Company and the Purchasers identified therein (the
"PURCHASE AGREEMENT"), and (b) the following terms have the meanings indicated:
"AMEX" means the American Stock Exchange.
"BANKRUPTCY EVENT" means any of the following events: (a) the
Company or a Subsidiary of the Company commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any Subsidiary thereof; (b) there is
commenced against the Company or any Subsidiary any such case or proceeding that
is not dismissed within 60 days after commencement; (c) the Company or any
Subsidiary is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered and the order is not
discharged or stayed within 60 days; (d) the Company or any Subsidiary suffers
the appointment of any custodian or the like for it or any substantial part of
its property that is not discharged or stayed within 60 days; (e) the Company or
any Subsidiary makes a general assignment for the benefit of creditors; (f) the
Company or any Subsidiary fails to pay, or states that it is unable to pay or is
unable to pay, its debts generally as they become due; (g) the Company or any
Subsidiary calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Company or any
Subsidiary, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
New York City or Toronto, Canada are authorized or required by law or other
governmental action to close.
2
"CHANGE OF CONTROL" means the occurrence of any of the following
in one or a series of related transactions, in each case (other than pursuant to
clause (e) below) only if the occurrence is not approved or undertaken by KFOC
or its affiliates (so long as, at the time of such approval or undertaking,
KFOC, or an affiliate of KFOC, holds a majority of the Notes purchased by KFOC
under the Transaction Documents): (a) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1) under
the Exchange Act) of more than 50% of the voting rights or equity interests in
the Company; (b) a replacement of more than 50% of the members of the Company's
board of directors that is not approved or nominated by those individuals who
are members of management or the board of directors on the date hereof (or other
directors previously approved by such individuals); (c) an amalgamation, merger
or consolidation of the Company or a sale directly or indirectly of 50% or more
of the assets of the Company, unless following such transaction or series of
transactions, the holders of the Company's securities prior to such transaction
continue to hold at least 50% of the voting rights and equity interests in the
surviving entity or acquirer of such assets; (d) a recapitalization,
reorganization or other transaction involving the Company or any Subsidiary that
constitutes or results in a transfer of more than 50% of the voting rights or
equity interests in the Company; (e) consummation of a "Rule 13e-3 transaction"
as defined in Rule 13e-3 under the Exchange Act with respect to the Company or
any other transaction that would result in the Company no longer being a
reporting company under the Exchange Act; or (f) the execution by the Company or
its controlling shareholders of an agreement providing for or reasonably likely
to result in any of the foregoing events.
"CLOSING PRICE" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Shares are then
listed or quoted on an Eligible Market, the closing bid price per Common Share
for such date (or the nearest preceding date) on the primary Eligible Market; or
(b) if the Common Shares are not then listed or quoted on an Eligible Market,
the closing bid price per Common Share for such date (or the nearest preceding
date) on the TSX; or (c) in all other cases, the fair market value of a Common
Share as determined by an independent appraiser selected in good faith jointly
by the Purchasers and the Company, the cost of which shall be paid by the
Company.
"COMMON SHARES" means the common shares of the Company and any
securities into which they may be reclassified or for which they may be
exchanged.
"CONVERSION PRICE" means US$12.18(2), subject to adjustment from
time to time pursuant to SECTION 13.
"ELIGIBLE MARKET" means any of the AMEX, the New York Stock
Exchange, the Nasdaq National Market, or the Nasdaq Capital Market.
--------------------------
(2) 113% of Market Price, but with respect to any Notes issued pursuant to
the Second Closing or any Unit Warrant Closing, no less than the price
which reflects the maximum discount allowable by the TSX from the volume
weighted average price of the Common Shares on the TSX for the five
consecutive Trading Days preceding such Second Closing or Unit Warrant
Closing (reflected in US$ using the applicable daily exchange rate over
such five-day period). For the purposes hereof, "MARKET PRICE" means the
VWAP for the five consecutive trading days immediately prior to the
Initial Closing Date.
3
"EQUITY CONDITIONS" means, with respect to Common Shares
issuable pursuant to the Transaction Documents (including, without limitation,
upon conversion or exercise in full of the Notes, Warrants and Unit Warrants),
that each of the following conditions are satisfied: (a) the number of
authorized but unissued and otherwise unreserved Common Shares is sufficient for
such issuance; (b) there are no restrictions upon issuance or resale of such
Common Shares under applicable U.S. securities laws, except to the extent that
certain restrictions on the resale of the Common Shares issuable in satisfaction
of an interest payment may apply to the Holder(s), provided that the Holder(s)
may request the filing of a registration statement to cover the resale of such
Common Shares pursuant to SECTION 2(A)(II) of the Registration Rights Agreement;
(c) the Common Shares are listed or quoted (and are not suspended from trading)
on an Eligible Market and such Common Shares are approved for listing upon
issuance; (d) such issuance would be permitted in full without violating SECTION
15 of this Note or the rules or regulations of any Trading Market; (e) no
Triggering Event or Event of Default, nor any event or circumstance that with
the passage of time and without being cured would constitute a Triggering Event
or Event of Default has occurred and not been cured; (f) neither the Company nor
any Subsidiary is in default or has breached (without cure) any obligation under
any Transaction Document; (g) no public announcement of a pending or proposed
Change of Control transaction has occurred that has not been consummated; and
(h) the VWAP for the five consecutive Trading Days prior to an "Interest Payment
Date," "Principal Payment Date," "Conversion Date," "Event Payment Date" or
"Change in Control Payment Date," (each as hereinafter defined) as applicable,
and the VWAP on the Trading Day preceding the applicable date, is greater than
US$3.00 (as adjusted for any stock splits, stock combinations and similar
events).
"EVENT EQUITY VALUE" means the arithmetic average of the Closing
Prices for the five consecutive Trading Days preceding either (a) the date of
delivery of the notice requiring payment of the Event Equity Value, or (b) the
date on which such required payment (together with any other payments, expenses
and liquidated damages then due and payable under the Transaction Documents) is
paid in full, whichever is greater.
"FLOATING PRICE SECURITY" means Common Share Equivalents with an
Effective Price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Shares.
"GOING CONCERN OPINION" means the issuance of an audit letter
containing a "going concern" qualification by the Company's independent public
accountant in connection with the Company's annual report on Form 40-F pursuant
to Section 13(a) or 15(d) under the Exchange Act or any other filing with the
Commission.
"ISSUE DATE" means the date of the issuance of this Note.
"KFOC" means Xxxxxx-Xxxxxxx Oil Company.
"ORIGINAL ISSUE DATE" means the date of the first issuance of
any of the Notes pursuant to the Purchase Agreement, regardless of the number of
transfers of any particular Note.
4
"REQUIRED EFFECTIVENESS DATE" means the date on which an
Underlying Shares Registration Statement is required to become effective
pursuant to the Registration Rights Agreement.
"TRADING DAY" means (a) any day on which the Common Shares are
listed or quoted, and traded on the AMEX, or (b) if the Common Shares are not
then listed or quoted, and traded on the AMEX, then any Business Day.
"TRADING MARKET" means the AMEX, the TSX or any other national
securities exchange, market or trading or quotation facility on which the Common
Shares are then listed or quoted.
"TRIGGERING EVENT" means any of the following events: (a)
immediately prior to any Bankruptcy Event; (b) the Common Shares are not listed
or quoted, or are suspended from trading, on an Eligible Market for a period of
five or more Trading Days (which need not be consecutive Trading Days) in any
180 day period; (c) the Company fails for any reason to deliver a certificate
evidencing any Securities to a Purchaser within five Trading Days after delivery
of such certificate is required pursuant to the Transaction Documents or the
exercise or conversion rights of the Purchasers pursuant to the Transaction
Documents are otherwise suspended for any reason, except as such exercise or
conversion may be limited pursuant to SECTIONS 15(C) and (D) or except in the
event the Company timely pays the Buy-In Price pursuant to SECTION 9(F) or
Section 5(c) of the Warrants, as applicable; (d) the Company fails to have
available a sufficient number of authorized but unissued and otherwise
unreserved Common Shares available to issue Underlying Shares upon conversion of
the Notes and exercise of the Warrants and the Additional Units or any
conversion of Convertible Securities or fails to have full authority, including
under all laws, rules and regulations of any Trading Market, to issue such
Underlying Shares, except as such issuance may be limited pursuant to SECTIONS
15(C) and (D); (e) at any time after the Required Effectiveness Date, any Common
Shares issued or issuable pursuant to the Transaction Documents are not listed
on an Eligible Market (f) any other Event (as defined in the Registration Rights
Agreement) occurs and remains uncured for ten days; (g) the Company fails to
make any cash payment required under the Transaction Documents and such failure
is not cured within three Business Days after notice of such default is first
given to the Company by a Purchaser; (h) the issuance of a Going Concern
Opinion; (i) the Company breaches Section 4.15 of the Purchase Agreement; or (j)
the Company defaults in the timely performance of any other obligation under the
Transaction Documents and such default continues uncured for a period of ten
days after the date on which notice of such default is first given to the
Company by a Purchaser (it being understood that no prior notice need be given
in the case of a default that cannot reasonably be cured within ten days).
"TSX" means the Toronto Stock Exchange.
"UNDERLYING SHARES" means the Common Shares issuable (a) upon
conversion of the Notes and/or upon exercise of the Warrants (including the
Notes and Warrants issuable upon exercise of the Unit Warrants, (b) as payment
of principal and/or interest under the Notes, and (c) in satisfaction of any
other obligation (if any) of the Company to issue Common Shares pursuant to the
Transaction Documents.
5
"VOLUME WEIGHTED AVERAGE PRICE" or "VWAP" means, with respect to
any particular Trading Day, the volume weighted average trading price per Common
Share on such Trading Day on the primary Eligible Market on which the Common
Shares are traded on such Trading Day, as reported by Bloomberg, L.P., or any
successor thereto performing similar functions.
2. INTEREST.
(a) The Company shall pay interest to the Holder on the then
outstanding principal amount of this Note at a rate of 6.5% per annum. Interest
shall be payable on the first day of February, April, June, August, October and
December (each, an "INTEREST PAYMENT DATE") in arrears (each payment, an
"INTEREST PAYMENT"), except if such date is not a Business Day such interest
shall be payable on the next succeeding Business Day. The first Interest Payment
will be payable on the first Interest Payment Date occurring not less than 30
days following the Issue Date.
(b) At the Holder's election, the Company shall pay each
Interest Payment either (i) in cash, (ii) in Common Shares, or (iii) in any
combination thereof. The Holder may deliver written notice (an "INTEREST PAYMENT
Notice") to the Company indicating the manner in which it elects to receive an
Interest Payment at least ten Trading Days prior to each Interest Payment Date,
but the Holder may indicate in any such notice that the election contained
therein shall continue for subsequent Interest Payment Dates until revised in a
subsequent Interest Payment Notice. Failure to timely provide such written
notice before any Interest Payment Date shall be deemed an election by the
Holder to be paid in cash in respect of the Interest Payment due on such
Interest Payment Date.
(c) Notwithstanding the foregoing, the Company may not pay
interest to the Holder by issuing Common Shares unless, at such time, the Equity
Conditions are satisfied (or waived in writing by the Holder) with respect to
such Common Shares; provided, that if clause (h) of the Equity Conditions is the
reason the Company may not issue Common Shares pursuant to this Section, but the
minimum price requirement in such clause was met during any of the five Trading
Days during the measurement period, the Holder may waive such clause (h) to
allow the Company to pay interest using a combination of cash and Common Shares,
with the portion of such interest paid in Common Shares being proportionate to
the number of Trading Days during which the minimum price requirement was met
during the five Trading Day measurement period.
(d) In the event the Holder elects to be paid all or any
portion of an Interest Payment in Common Shares, the number of Common Shares
issuable in respect of such Interest Payment shall be calculated by dividing the
portion of the Interest Payment the Holder has elected to receive in Common
Shares by 90% of the VWAP for the five consecutive Trading Days immediately
preceding the Interest Payment Date.
(e) In the event the Holder elects to be paid all or any
portion of an Interest Payment in Common Shares, and the Company is unable to
issue such Common Shares due to restrictions on issuance imposed under
applicable U.S. or Canadian securities laws or rules or regulations of the
Eligible Market on which the Common Shares are then traded or the TSX or a
6
failure of any of the Equity Conditions, any portion of such Interest Payment
that the Company may not pay in Common Shares shall be paid in cash on the
applicable Interest Payment Date. To the extent that interest is to be paid in
Common Shares, the Company shall, on or before the third Trading Day following
the applicable Interest Payment Date, issue and deliver to the Holder a
certificate, registered in the name of the Holder or its designee, for the
number of Common Shares to which the Holder is entitled.
3. PRINCIPAL.
(a) The Company shall pay the principal balance of this Note
to the Holder in nine equal payments made on the first day of February, April,
June, August, October and December (each, a "PRINCIPAL PAYMENT"), such payments
commencing on the first such day that is at least twelve months after the Issue
Date and with final payment in full of all outstanding principal to be made on
the ninth such payment (the date of each required payment of principal, a
"PRINCIPAL PAYMENT DATE"). If a Principal Payment Date is not a Business Day,
then the Principal Payment due on that date will be due on the next succeeding
Business Day. To the extent any portion of the principal balance of this Note
has been converted by the Holder to Common Shares pursuant to SECTION 8 below,
the final Principal Payment that would otherwise be payable to the Holder shall
be reduced by the portion of the principal so converted until reduced to zero,
and thereafter Principal Payments shall be reduced in reverse order of maturity
(I.E., last scheduled Principal Payment first), provided that the Holder may
elect prior to any Principal Payment, by indicating so in writing prior to the
date thereof, that any prior conversion should be applied to reduce an earlier
Principal Payment that would otherwise be payable to the Holder. Unless the
Holder has elected to be paid a Principal Payment in Common Shares pursuant to
SECTION 3(B), the Company may defer a Principal Payment to the Holder until a
subsequent Principal Payment Date, but not later than the final Principal
Payment Date as provided above; PROVIDED, HOWEVER, that if the Company intends
to defer a cash payment to the Holder, the Company must deliver written notice
(a "DEFERMENT NOTICE") to the Holder not less than five Trading Days prior to
the applicable Principal Payment Date. The amount of any deferred Principal
Payment shall remain outstanding and interest will continue to accrue (and shall
be payable) on such outstanding amount until the date of payment.
(b) At the Holder's election, the Company shall pay any
Principal Payment either (i) in cash, (ii) in Common Shares, or (iii) in any
combination thereof. The Holder may deliver written notice (a "PRINCIPAL PAYMENT
Notice") to the Company indicating the manner in which it elects to receive a
Principal Payment at least ten Trading Days prior to each Principal Payment
Date, but the Holder may indicate in any such notice that the election contained
therein shall continue for subsequent Principal Payment Dates until revised in a
subsequent Principal Payment Notice. Failure to timely provide such written
notice before any Principal Payment Date shall be deemed an election by the
Holder to be paid in cash in respect of the Principal Payment due upon such
Principal Payment Date.
(c) Notwithstanding the foregoing, the Company may not pay
the principal balance of this Note to the Holder by issuing Common Shares
unless, at such time, the Equity Conditions are satisfied (or waived in writing
by the Holder) with respect to such Common Shares and all of the Underlying
Shares then issuable upon conversion in full of all the outstanding amount of
the Notes, the Warrants and the Unit Warrants (without regard to any
7
limitation on conversion or exercise, as applicable, or issuance of Common
Shares); provided, that if clause (h) of the Equity Conditions is the reason the
Company may not issue Common Shares pursuant to this Section, but the minimum
price requirement in such clause was met during any of the five Trading Day
measurement period, the Holder may waive such clause (h) to allow the Company to
pay principal using a combination of cash and Common Shares, with the portion of
such principal paid in Common Shares being proportionate to the number of
Trading Days during which the minimum price requirement was met during the five
Trading Day measurement period.
(d) In the event the Holder elects to be paid all or any
portion of a Principal Payment in Common Shares, the number of Common Shares
issuable in respect of such Principal Payment shall be calculated by dividing
the portion of the Principal Payment the Holder has elected to receive in Common
Shares by 90% of the VWAP for the five consecutive Trading Days immediately
preceding the Principal Payment Date (but not including such date).
(e) In the event the Holder elects to be paid all or any
portion of a Principal Payment in Common Shares, and the Company is unable to
issue such Common Shares due to restrictions on issuance imposed under
applicable U.S. or Canadian securities laws or rules or regulations of the
Eligible Market on which the Common Shares are then traded or the TSX or a
failure of any of the Equity Conditions, any portion of such Principal Payment
that the Company may not pay in Common Shares shall be paid in cash on the
applicable Principal Payment Date. To the extent that Principal Payments are to
be paid in Common Shares, the Company shall, on or before the third Trading Day
following the applicable Principal Payment Date, (i) issue and deliver to such
Holder a certificate, registered in the name of the Holder or its designee, for
the number of Common Shares to which the Holder is entitled, or (ii) except to
the extent prohibited by law or to the extent the Company cannot do so after
using commercially reasonable efforts, at all times after the Holder has
notified the Company that this clause (ii) shall apply, credit the number of
Common Shares to which the Holder shall be entitled to the Holder's or its
designee's balance account with the Depository Trust Company (the "DTC") through
its Deposit Withdrawal Agent Commission System.
4. RANKING AND COVENANTS.
(a) Except for the Restricted Debt Amount and Permitted
Debt, no Debt shall be incurred or suffered to exist by the Company that is
senior to or pari passu with this Note in right of payment, whether with respect
to interest, principal, damages or upon liquidation or dissolution or otherwise.
So long as any Notes are outstanding, the Company will not, and will not permit
any Subsidiary to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any Debt of any kind in excess of the Restricted Debt Amount
then in effect, other than Permitted Debt.
(b) So long as any Notes are outstanding, neither the
Company nor any Subsidiary shall, directly or indirectly, (i) redeem, purchase
or otherwise acquire any capital stock or set aside any monies for such a
redemption, purchase or other acquisition of its capital stock (other than
pursuant to clause (a) of the definition of Excluded Stock), or (ii) issue any
Floating Price Security.
8
(c) If, at any time (i) while any Note is outstanding, the
Company or any Subsidiary issues or incurs any Debt other than Permitted Debt or
Debt within the limitations of the Restricted Debt Amount, or (ii) prior to
September [__], 2007, the Company or any Subsidiary effects any Subsequent
Placement (other than the issuance of Common Shares pursuant to the definition
of Excluded Stock), the Company shall notify the Holder of such event and offer
to repurchase an amount of this Note from the Holder having an aggregate price
(as determined below) equal to the lesser of (A) the net proceeds of such Debt
or Subsequent Placement, and (B) the aggregate amount required to repurchase
this entire Note pursuant to this SECTION 4(C). All Notes repurchased under this
SECTION 4(C) shall be repurchased at a price equal to the greater of (A) the
outstanding principal amount of the Notes purchased, plus all accrued but unpaid
interest thereon through the date of payment, and (B) the Event Equity Value of
the Underlying Shares then issuable upon conversion of the Notes purchased
(without regard to any restrictions on conversion) and the closing of such
repurchase shall occur promptly upon notice from the Holder of an exercise of
rights hereunder.
5. RESERVATION OF UNDERLYING SHARES. The Company covenants that it
will at all times reserve and keep available out of its authorized but unissued
and otherwise unreserved Common Shares, solely for the purpose of enabling it to
issue Underlying Shares as required hereunder, the number of Underlying Shares
which are then issuable and deliverable upon the conversion of (and otherwise in
respect of) each Note (taking into account the adjustments set forth in SECTION
11), free from preemptive rights or any other contingent purchase rights of
Persons other than the Holder. The Company covenants that all Underlying Shares
so issuable and deliverable shall, upon issuance in accordance with the terms
hereof, be duly and validly authorized and issued and fully paid and
nonassessable. The Company covenants that it shall use its best efforts to
satisfy each of the Equity Conditions.
6. REGISTRATION OF NOTES. The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the "NOTE REGISTER")
in the name of each record holder thereof from time to time. The Company may
deem and treat the registered Holder of this Note as the absolute owner hereof
for the purpose of any conversion hereof or any payment of interest or principal
hereon, and for all other purposes, absent actual notice to the contrary.
7. REGISTRATION OF TRANSFERS AND EXCHANGES. Subject to Section 4.1
of the Purchase Agreement, this Note and all rights hereunder are transferable
in whole or in part upon the books of the Company by the Holder; provided,
however, that the transferee shall agree in writing to be bound by the terms and
subject to the conditions of this Note and the Purchase Agreement. The Company
shall register the transfer of any portion of this Note in the Note Register
upon surrender of this Note to the Company at its address for notice set forth
herein. Upon any such registration or transfer, a new Note, in substantially the
form of this Note (any such new Note, a "NEW NOTE"), evidencing the portion of
this Note so transferred shall be issued to the transferee and a New Note
evidencing the remaining portion of this Note not so transferred, if any, shall
be issued to the Holder. The acceptance of the New Note by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Note. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
9
8. CONVERSION.
(a) AT THE OPTION OF THE HOLDER. The Holder may apply all or
any portion of the outstanding principal amount of this Note to acquire Common
Shares at the applicable Conversion Price then in effect. The Holder may apply
all or a portion of the principal amount of this Note to acquire Common Shares
pursuant to this paragraph at any time and from time to time after the Issue
Date, by delivering to the Company a conversion notice (the "CONVERSION
NOTICE"), in the form attached hereto, appropriately completed and duly signed,
and the date any such Conversion Notice is delivered to the Company (as
determined in accordance with the notice provisions hereof) is a "CONVERSION
DATE." The application of all or any portion of the principal amount of this
Note to acquire Common Shares under this paragraph is referred to in this Note
as a "conversion".
(b) AT OPTION OF THE COMPANY. If, at any time following the
15th month anniversary of the Issue Date, the VWAP for each of any 25
consecutive Trading Days exceeds 150% of the initial Conversion Price (as
adjusted for any stock dividend, stock split, stock combination or other similar
transaction), the Company may require the Holder to convert all or any portion
of this Note into Common Shares based on the Conversion Price then in effect.
The Company may require a conversion pursuant to this paragraph by delivering an
irrevocable written notice of such election to the Holder within two Trading
Days following the occurrence of such event, and the tenth Trading Day after the
delivery of such notice will be the "CONVERSION DATE" for such required
conversion. Notwithstanding the foregoing, the Company may not require any
conversion under this paragraph (and any notice thereof will be void), unless
from the beginning of such 25 consecutive Trading Days through the Conversion
Date, the Equity Conditions are satisfied (or waived in writing by the Holder)
on each Trading Day with respect to all of the Underlying Shares then issuable
upon conversion in full of the outstanding amount of all Notes, Warrants and
Unit Warrants (without regard to any limitation on conversion or exercise, as
applicable, or issuance of Common Shares).
9. MECHANICS OF CONVERSION.
(a) The number of Underlying Shares issuable upon any
conversion of this Note hereunder shall equal the outstanding principal amount
of this Note to be converted, plus the amount of any accrued but unpaid interest
on the portion of the principal amount of this Note to be converted through the
Conversion Date, divided by the Conversion Price on the Conversion Date.
(b) Upon any conversion of this Note, the Company shall
promptly (but in no event later than three Trading Days after the date the
Company receives the applicable Conversion Notice) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder, and in
such name or names as the Holder may designate, a certificate for the Underlying
Shares issuable upon such conversion. The Holder, or any Person so designated by
the Holder to receive Underlying Shares, shall be deemed to have become the
holder of record of such Underlying Shares as of the Conversion Date. The
Company shall, upon request of the Holder, except to the extent prohibited by
law or to the extent the Company cannot do so after using commercially
reasonable efforts, deliver Underlying Shares hereunder electronically through
the DTC or another established clearing corporation performing similar
functions, and
10
shall issue such Underlying Shares in the same manner as Common Shares in
respect of Interest Payments are issued pursuant to SECTION 2(E) above.
(c) The Holder shall be required to deliver the original
Note being converted in order to effect a conversion of such Note. The Holder
shall, however, be entitled to effect the conversion of the unconverted
principal amount by notice to the Company at any time during which the Note is
in transit to or from the Company or in the possession of the Company. Upon
surrender of this Note following one or more partial conversions, the Company
shall promptly deliver to the Holder a New Note representing the remaining
outstanding principal amount of such Note.
(d) If the Holder is converting less than all of the
principal amount of this Note, or if a conversion hereunder may not be effected
in full due to the application of SECTION 15, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to the
Holder a note identical in form to this Note indicating the principal amount
(and accrued interest) which has not been converted.
(e) The Company's obligations to issue and deliver
Underlying Shares upon conversion of this Note in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
any Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by any Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
any Holder or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to any Holder in connection
with the issuance of such Underlying Shares.
(f) If by the third Trading Day after a Conversion Date the
Company fails to deliver or cause to be delivered to the Holder such Underlying
Shares in such amounts and in the manner required pursuant to SECTION 9(a), then
the Holder will have the right to rescind such conversion. If by the third
Trading Day after a Conversion Date the Company fails to deliver or cause to be
delivered to the Holder such Underlying Shares in such amounts and in the manner
required pursuant to SECTION 9(A), and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Shares to
deliver in satisfaction of a sale by the Holder of the Underlying Shares which
the Holder anticipated receiving upon such conversion (a "BUY-IN"), then the
Company shall either (i) pay cash to the Holder (in addition to any other
remedies available to or elected by the Holder) in an amount equal to the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Shares so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Shares) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Shares and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (x) such number of Common Shares, multiplied by (y) the Closing Price
on the date of the event giving rise to the Company's obligation to deliver such
certificate.
(g) Each certificate for Underlying Shares shall bear a
restrictive legend to the extent and as provided in the Purchase Agreement and
any certificate issued at any time in
11
exchange or substitution for any certificate bearing such legend, shall also
bear such legend, unless, in the opinion of counsel for the holder thereof
(which opinion shall be reasonably satisfactory to counsel for the Company), the
securities represented thereby are not, at such time, required by law to bear
such legend.
10. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT" means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) any default in the payment (free of any claim of
subordination) of principal, interest or liquidated damages in
respect of any Notes, as and when the same becomes due and
payable (whether on a date specified for the payment of interest
or the date on which the obligations under the Note mature or by
acceleration, redemption, prepayment or otherwise), unless such
default is cured within three Business Days following such
default;
(ii) the Company or any Subsidiary defaults in any of
its covenants or other obligations in respect of (A) the
Restricted Debt Amount, or (B) any other note or any mortgage,
credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any Debt
due under any long term leasing or factoring arrangement of the
Company or any Subsidiary in an amount exceeding US$500,000,
whether such Debt now exists or is hereafter created, and any
such default is not waived or cured within the time permitted by
such agreements or which results in the Debt becoming due and
payable; or any event or circumstance occurs that with notice or
lapse of time would constitute such a default.
(iii) there is entered against the Company or any
Subsidiary (A) a final judgment or order for the payment of
money in an aggregate amount exceeding US$500,000, or (B) any
one or more non-monetary final judgments that in either case,
has not been paid within 30 days thereof or that has, or could
reasonably be expected to have, individually or in the
aggregate, a Material Averse Effect on the Company or any
Subsidiary;
(iv) any provision of any Transaction Document, at
any time after the Original Issue Date, and for any reason other
than as expressly permitted thereunder, ceases to be in full
force and effect; or the Company contests in any manner the
validity or enforceability of any Transaction Document or any
provision thereof; or the Company denies that it has any or
further liability or obligation under any Transaction Document,
or purports to revoke, terminate or rescind any Transaction
Documents;
(v) the occurrence of a Triggering Event; or
12
(vi) the occurrence of a Bankruptcy Event.
(b) At any time or times following the occurrence of an
Event of Default, the Holder shall have the option to elect, by notice to the
Company (an "EVENT NOTICE"), to require the Company to repurchase all or any
portion of the outstanding principal amount of this Note, at a repurchase price
equal to the greater of (A) such outstanding principal amount, plus all accrued
but unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal amount
and all such accrued but unpaid interest thereon. The aggregate amount payable
pursuant to the preceding sentence is referred to as the "EVENT PRICE." The
Company shall pay the Event Price to the Holder no later than the third Trading
Day following the date of delivery of the Event Notice with respect to any cash
payment and on the 20th Trading Day following the date of delivery of the Event
Notice with respect to any payment in Common Shares to the extent permitted (the
"EVENT PAYMENT DATE"), and upon receipt of the Event Price the Holder shall
deliver this Note and certificates evidencing any Underlying Shares so
repurchased to the Company (to the extent such certificates have been delivered
to the Holder).
(c) The Company, at the option of the Holder, shall pay the
Event Price (i) in cash, (ii) in Common Shares, or (iii) any combination
thereof. The Holder may specify the form of payment in the Event Notice; failure
to timely provide such notice shall be deemed an election by the Holder to be
paid the Event Price in cash. In the event that the Holder elects to be paid all
or any portion of the Event Price in Common Shares, the number of Common Shares
to be issued to the Holder as payment of the Event Price shall be calculated by
dividing the portion of the Event Price the Holder has elected to receive in
Common Shares by 90% of the VWAP for the five consecutive Trading Days
immediately preceding the Event Payment Date. To the extent an Event Price is to
be paid in Common Shares, the Company shall, on or before the third Trading Day
following the applicable Event Payment Date, (i) issue and deliver to the Holder
a certificate, registered in the name of the Holder or its designee, for the
number of Common Shares to which the Holder is entitled, or (ii) at all times
after the Holder has notified the Company that this clause (ii) shall apply,
except to the extent prohibited by law or to the extent the Company cannot do so
after using commercially reasonable efforts, credit the number of Common Shares
to which the Holder shall be entitled to the Holder's or its designee's balance
account with the DTC through its Deposit Withdrawal Agent Commission System.
(d) In connection with any Event of Default, the Holder need
not provide, and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Any such declaration
may be rescinded and annulled by the Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right incidental thereto.
11. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
Underlying Shares upon conversion of (or otherwise in respect of) this Note
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax
13
which may be payable in respect of any transfer involved in the registration of
any certificates for Underlying Shares or Notes in a name other than that of the
Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Note or receiving Underlying
Shares in respect hereof.
12. REPLACEMENT CERTIFICATES. If any certificate for Underlying
Shares is mutilated, lost, stolen or destroyed, or the Holder fails to deliver
such certificate as may otherwise be provided herein the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for such certificate, a replacement
certificate, bearing the same legends, if any, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction (in
such case) and, in each case, customary and reasonable indemnity. Applicants for
a new certificate under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable third-party
costs as the Company may prescribe.
13. CERTAIN ADJUSTMENTS. The Conversion Price is subject to
adjustment from time to time as set forth in this SECTION 13.
(a) DIVIDENDS AND STOCK SPLITS. If the Company, at any time
while this Note is outstanding, (i) pays a dividend on its Common Shares or
otherwise makes a distribution on any class of capital stock that is payable in
Common Shares, (ii) subdivides outstanding Common Shares into a larger number of
shares, or (iii) combines outstanding Common Shares into a smaller number of
shares, then in each such case the applicable Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of Common
Shares outstanding immediately before such event and the denominator of which
shall be the number of Common Shares outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this SECTION 13 (A) shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this SECTION 13(A) shall become
effective immediately after the effective date of such subdivision or
combination.
(b) PRO RATA DISTRIBUTIONS. If the Company, at any time
while this Note is outstanding, distributes to all holders of Common Shares (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Shares covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (including cash)
(in each case, "DISTRIBUTED PROPERTY"), then in each such case the applicable
Conversion Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution shall be
adjusted (effective on such record date) to equal the product of such Conversion
Price multiplied by a fraction the denominator of which shall be the average of
the Closing Prices for the five Trading Days immediately prior to (but not
including) such record date (the "AVERAGE CLOSING PRICE") and the numerator of
which shall be such Average Closing Price less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Share, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company (an "APPRAISER").
In such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the
14
average of the values determined by each of the Appraiser and such additional
appraiser. Subject to the approval of the TSX, as an alternative to the
foregoing adjustment to the applicable Conversion Price, at the request of the
Holder delivered before the 60th day after the record date fixed for
determination of shareholders entitled to receive such distribution, the Company
will hold the Distributed Property in escrow and deliver to the Holder, the
Distributed Property that the Holder would have been entitled to receive in
respect of such number of Underlying Shares had the Holder been the record
holder of such Underlying Shares immediately prior to such record date, within
three Trading Days following conversion of this Note.
(c) FUNDAMENTAL CHANGES. If, at any time while this Note is
outstanding, (i) the Company effects any amalgamation, merger or consolidation
of the Company with or into another Person, (ii) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Shares are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Shares
or any compulsory share exchange pursuant to which the Common Shares are
effectively converted into or exchanged for other securities, cash or property
(other than as a result of a subdivision or combination of Common Shares covered
by SECTION 13(A) above) (in any such case, a "FUNDAMENTAL CHANGE"), then upon
any subsequent conversion of this Note, the Holder shall have the right only to
receive for each Underlying Share that would have been issuable upon such
conversion absent such Fundamental Change, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Change if it had been, immediately prior to such
Fundamental Change, the holder of one Common Share (the "ALTERNATE
CONSIDERATION"). The aggregate Conversion Price will not be affected by any such
Fundamental Change, but the Company shall apportion such aggregate Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Shares are given any choice as to the securities, cash or
property to be received in a Fundamental Change, then the Holder shall be given
the same choice as to the Alternate Consideration it is entitled to receive upon
any conversion of the Holder's Note following such Fundamental Change. To the
extent necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Change shall issue to the Holder
a Note consistent with the foregoing provisions and evidencing the Holders'
right to convert such Note only into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Change is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this SECTION 13(C) and ensuring that the Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Change.
(d) SUBSEQUENT EQUITY SALES.
(i) If, at any time prior to September [__], 2007,
the Company or any Subsidiary issues additional Common Shares or
rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable for Common Shares or
otherwise entitling any Person to acquire Common Shares
(collectively, "COMMON SHARE EQUIVALENTS") at a purchase price
per Common Share (the "EFFECTIVE PRICE") less than the
Conversion Price (as adjusted hereunder to such
15
date), then the Conversion Price shall be reduced to equal the
Effective Price; provided that in no event shall the Conversion
Price be reduced below US$[___](3) (as adjusted for any stock
split, stock combination, reorganization or similar event
affecting the capital stock of the Company). For purposes of
this paragraph, in connection with any issuance of any Common
Share Equivalents, (A) the maximum number of Common Shares
potentially issuable at any time upon conversion, exercise or
exchange of such Common Share Equivalents (the "DEEMED NUMBER")
shall be deemed to be outstanding upon issuance of such Common
Share Equivalents, (B) the Effective Price applicable to such
Common Shares shall equal the minimum dollar value of
consideration payable to the Company to purchase such Common
Share Equivalents and to convert, exercise or exchange them into
Common Shares, divided by the Deemed Number, (C) no further
adjustment shall be made to the Conversion Price upon the actual
issuance of Common Shares upon conversion, exercise or exchange
of such Common Share Equivalents, and (D) to the extent that any
such Common Share Equivalents expire before fully converted,
exercised or exchanged, the Exercise Price will be readjusted to
reflect such expiration.
(ii) If, at any time while this Note is outstanding,
the Company directly or indirectly issues Common Share
Equivalents with an Effective Price or a number of underlying
shares that floats or resets or otherwise varies or is subject
to adjustment based (directly or indirectly) on market prices of
the Common Shares (a "FLOATING PRICE SECURITY"), then for
purposes of applying the preceding paragraph in connection with
any subsequent conversion, the Effective Price will be
determined separately on each Conversion Date and will be deemed
to equal the lowest Effective Price at which any holder of such
Floating Price Security is entitled to acquire Common Shares on
such Conversion Date (regardless of whether any such holder
actually acquires any shares on such date).
(iii) Notwithstanding the foregoing, no adjustment
will be made under this paragraph (d) in respect of any
issuances of Common Shares and Common Share Equivalents made
pursuant to the definition of Excluded Stock.
(e) CALCULATIONS. All calculations under this SECTION 13
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of Common Shares outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Shares.
(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment pursuant to this SECTION 13, the Company at its expense will promptly
compute such adjustment in accordance with the terms hereof and prepare a
certificate describing in reasonable detail such
----------------------
(3) Price reflecting the maximum discount to the market price allowable by
the TSX from the volume weighted average price of the Common Shares on
the TSX for the five Trading Days preceding the Issue Date (reflected in
US$ using the applicable daily exchange rate over such five-day period).
16
adjustment and the transactions giving rise thereto, including all facts upon
which such adjustment is based. Upon written request, the Company will promptly
deliver a copy of each such certificate to the Holder and to the Company's
Transfer Agent.
(g) NOTICE OF CORPORATE EVENTS. If the Company (i) declares
a dividend or any other distribution of cash, securities or other property in
respect of its Common Shares, including without limitation any granting of
rights or warrants to subscribe for or purchase any capital stock of the Company
or any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits shareholder approval for any Fundamental Change, or
(iii) authorizes the voluntary dissolution, liquidation or winding up of the
affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least seven
Trading Days prior to the applicable record or effective date on which a Person
would need to hold Common Shares in order to participate in or vote with respect
to such transaction, and the Company will take all steps reasonably necessary in
order to ensure that the Holder is given the practical opportunity to convert
this Note prior to such time so as to participate in or vote with respect to
such transaction; provided, however, that the failure to deliver such notice or
any defect therein shall not affect the validity of the corporate action
required to be described in such notice.
14. CHANGE OF CONTROL.
(a) EXCHANGE UPON CHANGE OF CONTROL. As long any Notes are
outstanding, prior to the consummation of any Change of Control following which
the Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Change of Control
(in each case, the "ACQUIRING Entity") a written agreement (in form and
substance reasonably satisfactory to the Holder) to deliver to the Holder in
exchange for such Note, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Note
(including, without limitation, having an interest rate and conversion price
equal to the interest rate and the Conversion Price of this Note) and reasonably
satisfactory to the Holder. Prior to the consummation of any other Change of
Control, the Company shall make appropriate provision (in form and substance
reasonably satisfactory to the Holder) to ensure that the Holder will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) such number of Common Shares immediately theretofore acquirable and
receivable upon the conversion of this Note such shares of stock, securities or
assets that would have been issued or payable in such Change of Control with
respect to or in exchange for the number of Common Shares which would have been
acquirable and receivable upon the conversion of this Note as of the date of
such Change of Control (without taking into account any limitations or
restrictions on the convertibility of the Notes).
(b) OPTIONAL REPURCHASE UPON CHANGE OF CONTROL. In addition
to the rights of the Holder under SECTION 14(A), upon a Change of Control of the
Company the Holder shall have the right, at the Holder's option, to require the
Company to repurchase all or a portion of this Note at an aggregate price equal
to the greater of (A) the outstanding principal amount of such Note plus all
accrued but unpaid interest thereon through the date of payment, and (B) the
Equity Event Value of the Underlying Shares issuable upon conversion of such
Note (without taking into account any limitations or restrictions on the
convertibility of the Notes) (the "CHANGE OF
17
CONTROL REPURCHASE PRICE"). No sooner than 60 days nor later than 10 days prior
to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "NOTICE OF CHANGE OF CONTROL") to
the Holder. At any time during the period beginning after receipt of a Notice of
Change of Control (or, in the event a Notice of Change of Control is not
delivered at least ten days prior to a Change of Control, at any time on or
after the date which is ten days prior to a Change of Control) and ending two
Trading Days after the date of such Change of Control, the Holder may require
the Company to repurchase all or a portion of this Note by delivering written
notice thereof via facsimile and overnight courier (a "NOTICE OF REPURCHASE UPON
CHANGE OF CONTROL") to the Company, which Notice of Repurchase Upon Change of
Control shall indicate (i) the portion of this Note that the Holder is
submitting for repurchase, and (ii) the applicable Change of Control Repurchase
Price, as calculated pursuant to this SECTION 14(B). Upon the Company's receipt
of a Notice of Repurchase Upon Change of Control from the Holder, the Company
shall promptly, but in no event later than two Trading Days following such
receipt, notify the Holder by facsimile of the Company's receipt of such Notice
of Repurchase Upon Change of Control. The Company shall deliver the applicable
Change of Control Repurchase Price simultaneously with, and only upon, the
consummation of the Change of Control (such date, the "CHANGE OF CONTROL PAYMENT
DATE"). Payments provided for in this SECTION 14(B) shall have priority to
payments to other shareholders in connection with a Change of Control.
15. LIMITATION ON CONVERSION.
(a) Notwithstanding anything to the contrary contained
herein, the number of Common Shares that may be acquired by the Holder upon any
conversion of this Note (or otherwise in respect of this Note) shall be limited
to the extent necessary to ensure that, following such conversion (or other
issuance), the total number of Common Shares then beneficially owned by the
Holder and its Affiliates and any other Persons whose beneficial ownership of
Common Shares would be aggregated with the Holder's for purposes of Section
13(d) of the Exchange Act, does not exceed 9.9% (the "MAXIMUM PERCENTAGE") of
the total number of issued and outstanding Common Shares (including for such
purpose the Common Shares issuable upon such conversion). Each delivery of a
Conversion Notice by the Holder will constitute a representation by the Holder
that it has evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of Underlying Shares requested in such
Conversion Notice is permitted under this paragraph. For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. [NEW
PURCHASER NOTE ONLY]
(c) Notwithstanding anything to the contrary contained
herein, the maximum aggregate number of Common Shares that may be issued
pursuant to the Transaction Documents shall not exceed the Issuable Maximum,
unless shareholder approval for issuances of Common Shares in excess of the
Issuable Maximum is obtained pursuant to Section 4.21 of the Purchase Agreement.
(d) Notwithstanding anything to the contrary contained
herein, the maximum aggregate number of Common Shares that may be issued to KFOC
pursuant to the Transaction Documents shall not exceed the KFOC Maximum, unless
shareholder approval for issuances of
18
Common Shares in excess of the KFOC Maximum is obtained pursuant to Section 4.21
of the Purchase Agreement. [KFOC NOTE ONLY].
(e) During the ten Trading Days preceding the date for an
election by the Holder under SECTION 2(B) or 3(B) (a "TRIGGERING ELECTION"), the
Holder may request the Company to confirm that, to the Company's knowledge,
there exists as of that time no material undisclosed information concerning the
Company. Upon receipt of this request, the Company shall immediately and in good
faith conduct such a review of its condition, results of operations, assets,
prospects, discussions or negotiations with any third parties concerning
potential transactions of any type, and its public disclosures as a reasonable
investor would consider adequate to discover whether there exists, as of such
date, any material information concerning the Company that has not previously
been publicly disclosed, and, based on this review, respond to the Holder in
writing, which response shall be delivered no later than the third Trading Day
following receipt of such request from the Holder, either confirming that there
exists no material undisclosed information concerning the Company or indicating
that, in good faith, the Company cannot as of such time provide such
confirmation. [KFOC NOTE ONLY]
(f) If the Holder makes a request for confirmation pursuant
to SECTION 15(E), the Company shall thereupon have, during the period from the
date of its response to such request through the Trading Day on which the Holder
must make the Triggering Election, a continuing obligation to (i) monitor its
conditions, results of operations, prospects, assets discussions or negotiations
with others and public disclosures and (ii) immediately correct the initial
response it provided to the Holder if a change or series of changes shall occur
that would, taken as a whole, cause the Company's initial response, in light of
such change or changes, to be different if given as of such time. [KFOC NOTE
ONLY]
(g) If, in response to a request delivered to the Company by
the Holder pursuant to SECTION 15(E), the Company determines that it cannot
provide the requested confirmation (or if the Company provides such confirmation
then, pursuant to SECTION 15(F), corrects such confirmation by indicating that
it has determined that there is then in existence material undisclosed
information concerning the Company), then the Holder shall have the right by
notice delivered to the Company at any time before the Trading Day on which it
must make the Triggering Election to require the Company to disclose such
material undisclosed information in sufficient time and in a manner that will
cause the information to be widely disseminated to potential investors located
in Canada and the United States before the date on which the Triggering Election
shall be due; provided that, (i) if the Company, pursuant to SECTION 15(F),
makes a change in its initial response on a date where the time remaining before
a Triggering Election is not sufficient to permit a public announcement to be
widely disseminated before the Holder must make its election, the Holder's date
for the Triggering Election will be extended as necessary to allow the
announcement to be made and widely disseminated; and (ii) if at any time the
Holder and its affiliates collectively own less than 20% of the Common Shares
then outstanding, the right to require the Company immediately to disclose
material undisclosed information will be subject to the Company's right to
refuse such a request if, in its good faith judgment, disclosure would cause
material injury to the Company. [KFOC NOTE ONLY]
16. NO FRACTIONAL SHARES. The Company shall not issue or cause to be
issued fractional Underlying Shares on conversion of this Note. If any fraction
of an Underlying Share would, except for the provisions of this SECTION 16, be
issuable upon conversion of this Note, the
19
number of Underlying Shares to be issued will be rounded down to the nearest
whole share, with the fractional interest to be paid in cash based on the
current market price.
17. NOTICES. Any and all notices or other communications or
deliveries hereunder (including any Conversion Notice) shall be in writing and
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in the Purchase Agreement prior to 5:30 p.m. (New
York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in the Purchase Agreement on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day,
(iii) the Trading Day following the date of sending, if sent by nationally
recognized overnight courier service specifying next Business Day delivery, or
(iv) upon actual receipt by the party to whom such notice is required to be
given, if by hand delivery. The address and facsimile number of a party for such
notices or communications shall be as set forth in the Purchase Agreement,
unless changed by such party by two Trading Days' prior notice to the other
party in accordance with this SECTION 17.
18. MISCELLANEOUS.
(a) This Note shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
Subject to the restrictions on transfer set forth herein and in the Purchase
Agreement, this Note may be assigned by the Holder. The Company shall not be
permitted to assign this Note absent the prior written consent of the Holder.
(b) Subject to SECTION 18(A), nothing in this Note shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Note.
(c) No waiver or delay on the part of the Holder in exercise
of any right or privilege hereunder and no waiver of Event of Default hereunder
shall operate as a waiver thereof unless made in writing and signed by the
Holder. No written waiver shall preclude the further exercise by the Holder of
any right or privilege hereunder, or extend or apply to any further Event of
Default.
(D) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF. 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 (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), 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
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
20
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR 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. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL
BY JURY.
(e) The headings herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of
the provisions hereof.
(f) In case any one or more of the provisions of this Note
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Note shall not in
any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Note.
(g) In the event of any stock split, subdivision, dividend
or distribution payable in shares of Common Stock (or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Note to a price (if not otherwise adjusted) shall be amended to
appropriately account for such event.
(h) This Note, together with the other Transaction
Documents, constitutes the entire agreement of the parties with respect to the
subject matter hereof. No provision of this Note may be waived or amended except
in a written instrument signed, in the case of an amendment, by the Company and
the Holder or, in the case of a waiver, by the Holder. No waiver of any default
with respect to any provision, condition or requirement of this Note shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right. The restrictions set forth in
SECTIONS 15(A) and (B) hereof may not be amended or waived.
(i) The Holder shall have no rights as a holder of Common
Shares as a result of being a holder of this Note, except as required by law or
rights expressly provided in this Note.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.
NORTH AMERICAN PALLADIUM LTD.
By:_________________________________
Name:
Title:
SCHEDULE 1
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of
Convertible Notes (the "NOTES") into common shares (the "COMMON SHARES"), of
North American Palladium Ltd., a company organized under the Canadian Business
Corporations Act (the "COMPANY"), according to the conditions hereof, as of the
date written below.
-----------------------------------------------
Date to Effect Conversion
-----------------------------------------------
Principal amount of Notes owned prior to
conversion
-----------------------------------------------
Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)
-----------------------------------------------
Number of Common Shares to be Issued
-----------------------------------------------
Applicable Conversion Price
-----------------------------------------------
Principal amount of Notes owned subsequent to
Conversion
-----------------------------------------------
Name of Holder
By
---------------------------------------------
Name:
Title:
