EXHIBIT 10.8.1
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "1933 ACT"), AND ARE BEING OFFERED AND SOLD IN
RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.
SUCH SECURITIES MAY NOT BE REOFFERED FOR SALE OR RESOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE REGISTERED UNDER THE APPLICABLE PROVISIONS OF THE 1933 ACT OR
ARE EXEMPT FROM SUCH REGISTRATION. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES ADMINISTRATION OR REGULATORY AUTHORITY.
AMERICAN NATURAL ENERGY CORPORATION
CONVERTIBLE SECURED DEBENTURE SUBSCRIPTION AGREEMENT
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INSTRUCTIONS: To properly complete this Subscription Agreement:
(1) All subscribers must complete this page and page 2;
(2) All subscribers must complete and sign the Schedule A, Certificate of
Accredited Investor;
(3) If a resident of Ontario or otherwise subject to the securities laws of the
Province of Ontario, a subscriber must complete and sign Schedule B,
Accredited Investor Certification (Ontario);
(4) All subscribers must complete and sign Schedule C, U.S. Certification (even
if you are not a U.S. resident or citizen);
(5) If a portfolio manager or NOT an individual (i.e., you are a corporation,
partnership, trust or entity other than an individual), a subscriber must
complete and sign Schedule D, Form 4C Corporate Placee Registration Form;
(6) All subscribers must complete and sign the applicable Form W-8 Certificate
of Foreign Status for United States Tax Withholding (Schedule E); and
(7) All subscribers must provide the purchase price for their Debentures to
▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP in Calgary, Alberta (Purchasers' Special Counsel),
Attention: ▇▇▇▇▇▇ ▇▇▇▇, by certified cheque, bank draft or wire transfer,
so that it will be available for payment to the Corporation at Closing, or
make other arrangements for payment for their Debentures acceptable to the
Lead Investor, ▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP and the Corporation.
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TO: American Natural Energy Corporation (the "CORPORATION")
The undersigned (hereinafter referred to as the "PURCHASER") hereby irrevocably
subscribes for and agrees to purchase from the Corporation the principal amount
of convertible secured debentures (the "DEBENTURE(S)") of the Corporation set
forth below for a total consideration equal to such principal amount (the
"PURCHASE PRICE"), upon and subject to the terms and conditions, and hereby
covenants, represents and warrants, as set forth in "Terms and Conditions of
Subscription for Convertible Secured Debentures of American Natural Energy
Corporation" dated for reference October 3, 2003 attached hereto and expressly
incorporated herein.
1. The Purchaser represents that securities of the Corporation presently owned
(beneficially, directly or indirectly) by the Purchaser are as follows:
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Type of Security Number or Amount
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2. The Purchaser represents that the Purchaser IS/IS NOT (CIRCLE ONE) an
Insider(1) of the Corporation (as defined below).
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1 "Insider" of the Issuer as defined in the British Columbia Securities Act
means:
(a) a director or senior officer of the issuer;
(b) a director or senior officer of a person that is itself an
insider or subsidiary of the issuer;
(c) a person that has:
(i) direct or indirect beneficial ownership of;
(ii) control or direction over; or
(iii) a combination of direct or indirect beneficial ownership
of and of control or direction over securities of the issuer
carrying more than 10% of the voting rights attached to all the
issuer's outstanding voting securities, excluding, for the purpose
of the calculation of the percentage held, any securities held by
the person as underwriter in the course of a distribution; or
(d) the issuer itself, if it has purchased, redeemed or otherwise
acquired any securities of its own issue, for so long as it
continues to hold those securities.
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PURCHASER'S INFORMATION SUBSCRIPTION INFORMATION
----------------------- ------------------------
Name: _____________________________________________ Principal Amount of Debentures Purchased:
Name of Purchaser - please print
US$
_______________________________________________________
By: _______________________________________________ -----------------------------------------------------------
Signature of Authorized Signatory
___________________________________________________ -----------------------------------------------------------
Official Capacity or Title - please print NON PRINCIPAL INFORMATION
-------------------------
If the Purchaser is signing as an agent for one or
Please print name of individual whose signature appears more principals and is not a trust company or an
above if different than the name of the Purchaser printed insurer or, in British Columbia a portfolio manager,
above. in either case purchasing as trustee or agent for
accounts fully managed by it, complete the following:
___________________________________________________ _______________________________________________________
Purchaser's Address Name of Principal
___________________________________________________ _______________________________________________________
Principal's Address
___________________________________________________
Telephone Number and Facsimile Number ______________________________________________________
___________________________________________________ _______________________________________________________
Email Address Telephone Number
___________________________________________________ _______________________________________________________
Social Insurance Number / Tax Identification Number Email Address
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REGISTRATION INSTRUCTIONS (IF DIFFERENT FROM THE DELIVERY INSTRUCTIONS (IF DIFFERENT FROM THE
PURCHASER'S NAME AND ADDRESS GIVEN UNDER PURCHASER'S PURCHASER'S ADDRESS GIVEN UNDER PURCHASER'S
INFORMATION): INFORMATION):
___________________________________________________ _______________________________________________________
Name Name
___________________________________________________ _______________________________________________________
Account reference, if applicable Account reference, if applicable
___________________________________________________ _______________________________________________________
Address Address
___________________________________________________ _______________________________________________________
___________________________________________________ _______________________________________________________
Telephone Number Telephone Number and Contact Name
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ACCEPTANCE: The Corporation hereby accepts the above subscription and the
Corporation covenants, represents and warrants to the Purchaser as set forth in
this Subscription Agreement including the above specified "Terms and Conditions
of Subscription for Convertible Secured Debentures of American Natural Energy
Corporation".
AMERICAN NATURAL ENERGY CORPORATION , 2003
--------------------------------
Acceptance and Execution Date
Per:
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Authorized Signatory
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TERMS AND CONDITIONS
OF
SUBSCRIPTION FOR CONVERTIBLE SECURED DEBENTURES
OF
AMERICAN NATURAL ENERGY CORPORATION
Dated for reference October 3, 2003
1. Definitions. In this Subscription Agreement, unless the context
otherwise requires:
(a) A "CHANGE OF CONTROL" of the Corporation will be deemed to have
occurred at such time as (i) any person or group of related
persons for purposes of Section 13(d) of the U.S. Exchange Act
becomes the beneficial owner (as defined under Rule 13d-3 or any
successor rule or regulation promulgated under the U.S. Exchange
Act), directly or indirectly, of 50% or more of the total voting
power of the common shares in the capital of the Corporation or
(ii) there shall be consummated any consolidation or merger of
the Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which the common shares in
the capital of the Corporation would be converted into cash,
securities or other property, other than a merger or
consolidation of the Corporation in which the holders of the
common shares in the capital of the Corporation outstanding
immediately prior to the consolidation or merger hold, directly
or indirectly, at least a majority of the common shares in the
capital of the surviving corporation immediately after such
consolidation or merger;
(b) "CLOSING" means the completion of the issue and sale by the
Corporation and the purchase by the Purchaser of Debentures
pursuant to this Subscription Agreement;
(c) "CLOSING DATE" means the day on which Debentures are issued to
the Purchaser pursuant to this Subscription Agreement;
(d) "CORPORATION" means American Natural Energy Corporation, a
corporation organized under the laws of the State of Oklahoma;
(e) "CURRENT AIF" has the meaning defined in MI 45-102;
(f) "DEBENTURES" means the convertible secured debentures of the
Corporation offered for sale by the Corporation, as described
herein;
(g) "DISTRIBUTION DATE" means the date that the Debentures are
distributed to the Purchaser;
(h) "EXCHANGE" means the TSX Venture Exchange or, if the Shares of
the Corporation become listed on The Toronto Stock Exchange, The
Toronto Stock Exchange;
(i) "LEAD INVESTOR" means TransAtlantic Petroleum Corp., of Calgary,
Alberta;
(j) "MIDDLEMARCH" means Middlemarch Partners Limited;
(k) "MI 45-102" means Multilateral Instrument 45-102, entitled
"Resale of Securities", adopted by the Securities Commissions;
(l) "MI 45-103" means Multilateral Instrument 45-103, entitled
"Capital Raising Exemptions", adopted by, among other regulatory
authorities, the British Columbia Securities Commission and the
Alberta Securities Commission;
(m) "OFFERING" means the offering by the Corporation of up to US$12.0
million aggregate principal amount of Debentures;
(n) "PUBLIC DOCUMENTS" means, in respect of the Corporation, its
annual information form dated August 29, 2003 for the year ended
December 31, 2002, which includes its audited annual financial
statements as at and for the year ended December 31, 2002, its
proxy statement dated August 29, 2003 for its annual meeting of
shareholders called for September 24, 2003, its
unaudited interim financial statements as at and for the six
months ended June 30, 2003 as contained in its BC Form 51-901F,
Schedule A dated August 27, 2003, and its material change report
dated September 11, 2003, all of which documents have been filed
on SEDAR in Canada;
(o) "PURCHASERS" means the purchasers, including the Purchaser, of
Debentures;
(p) "PURCHASERS' SPECIAL COUNSEL" means ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇;
(q) "QUALIFYING ISSUER" means a qualifying issuer as defined in MI
45-102;
(r) "REPORTING ISSUER JURISDICTION" means, for the purpose of MI
45-102, one of Alberta, British Columbia, Manitoba, Nova Scotia,
Ontario, Quebec or Saskatchewan;
(s) "RULE 45-501" means Rule 45-501, entitled "Exempt Distributions",
as adopted by the Ontario Securities Commission;
(t) "SECURITIES" means, collectively, the Debentures and the Shares;
(u) "SECURITIES COMMISSIONS" means, collectively, the securities
commissions of British Columbia, Alberta, Saskatchewan, Manitoba,
Ontario, Quebec, New Brunswick, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Island and
Newfoundland and Labrador;
(v) "SECURITIES LAWS" means, collectively, the applicable securities
laws of each of the Provinces of British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, ▇▇▇▇▇▇
▇▇▇▇▇▇ Island and Newfoundland and Labrador and the respective
rules and regulations made and forms prescribed thereunder
together with all applicable published policy statements and
blanket orders and rulings of the Securities Commissions;
(w) "SHARES" means the shares of common stock, par value of US$0.01,
in the capital of the Corporation;
(x) "TRUST INDENTURE" means the trust indenture to be dated on or
before the Closing Date between the Corporation and Computershare
Trust Company of Canada, as trustee, together with all other
documentation, instruments and agreements dated on or before the
Closing Date incidental thereto, including without limitation a
collateral agency agreement with a U.S. collateral agent and
security and mortgage documents in favour of the U.S. collateral
agent;
(y) "U.S. EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, of the United States of America; and
(z) "U.S. SECURITIES ACT" and "1933 ACT" means the Securities Act of
1933, as amended, of the United States of America.
2. Terms of Offering.
(a) The Debentures will be sold by private placement pursuant to
available exemptions from securities legislation in British
Columbia, Alberta and Ontario and pursuant to the exemptions from
the registration requirements of the U.S. Securities Act provided
by Regulation S and Rule 506 of Regulation D of the U.S.
Securities Act. By its acceptance of this offer from the
Purchaser, the Corporation covenants, agrees and confirms that
the Purchaser will have the benefit of all of the
representations, warranties, covenants, agreements, terms and
conditions set forth herein.
(b) The Purchaser acknowledges and the Corporation agrees and
covenants that:
(i) the Offering will provide additional financing for the
Corporation of up to US$12.0 million for the repayment of
outstanding debt of the Corporation to Bank One, N.A.,
TransAtlantic Petroleum (USA) Corp. and Quest Investment
Corporation, for the future exploration and development of
the Corporation's Bayou Couba oil and gas leases and for
working capital purposes;
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(ii) each of the placees in the Offering is entering into
substantially this form of subscription agreement;
(iii) the Offering is subject to the Corporation receiving a
minimum of US$10.0 million in aggregate principal amount
of subscriptions; and
(iv) upon Closing, a finder's fee will be paid to Middlemarch
equal to 3% of the gross proceeds to the Corporation from
the Offering.
3. Debentures. The Debentures shall have the following terms and
conditions attached, which terms and conditions shall be reflected in
the Trust Indenture:
(a) Principal Amount. The Debentures shall be in the aggregate
principal amount of up to US$12 million;
(b) Interest. The Debentures shall bear interest at 8% per annum,
payable in equal quarterly payments on the last day of each
calendar quarter, with the first payment due on December 31,
2003. If any interest payments to a Purchaser are subject to U.S.
withholding tax, the interest payments to that Purchaser will be
grossed-up so that the additional amount of interest compensates
the Purchaser for the applicable U.S. withholding tax on a net
basis after all taxes; provided that the Purchaser will be
obliged to repay to the Corporation any amount of the withholding
tax that the Purchaser effectively recovers on a net basis, as a
tax credit or otherwise, under the tax laws of its jurisdiction
of residence. This gross-up will not apply to subsequent
purchasers of Debentures;
(c) Maturity Date. The Debentures shall mature and be repayable in
cash on September 30, 2005 (the "MATURITY DATE");
(d) Conversion. The Debentures shall be convertible into Shares at
any time and from time to time after the issuance of the
Debentures and prior to the Maturity Date on the basis, subject
to adjustment under the anti-dilution provisions, of one Share
for each US$0.45 of principal amount of Debenture;
(e) Redemption. The Debentures shall not be redeemable prior to
October 1, 2004. The Debentures shall be redeemable at the option
of the Corporation at any time on or following October 1, 2004
and prior to the Maturity Date if the registration statement
referred to below in section 5(e) has been declared effective and
remains effective and if the weighted average trading price of
the Shares on the Exchange exceeds a price (which price would
currently be US$0.75) equal to 166 2/3% of the conversion price
per share in paragraph 3(d) above for a 20 consecutive trading
day period;
(f) Anti-Dilution. Anti-dilution provisions satisfactory to the Lead
Investor and Purchasers' Special Counsel shall apply to the
conversion rate in paragraph 3(d) above;
(g) Change of Control. The Debentures shall become immediately due
and payable in cash in the event of a Change of Control of the
Corporation;
(h) Other Debt. During the period in which any Debentures are
outstanding, the Corporation shall not be entitled to incur any
additional debt in excess of US$2.0 million without the approval
of holders of 66 2/3% of the outstanding principal amount of the
Debentures;
(i) Security. The Debentures shall be secured by a first charge on
all assets of the Corporation, including oil and gas leases and
rights, ▇▇▇▇▇, facilities and other assets including seismic
data;
(j) Address of Purchaser. The Debentures shall be issued and
registered in the name of the Purchaser at the address indicated
on the first two pages of this Subscription Agreement; and
(k) Other Provisions. The provisions, attributes and characteristics
of the Debentures shall be as fully set forth in the Trust
Indenture.
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4. Corporation's Representations and Warranties. The Corporation
represents, warrants and covenants to the Purchaser and its counsel as
follows, and agrees that by delivery of the Debentures at Closing it
shall be representing and warranting as of the Closing Date that:
(a) the Corporation is duly organized and in good standing as a
corporation under the laws of the State of Oklahoma and is duly
registered and otherwise qualified and in good standing to carry
on business and own property in each jurisdiction, including
without limitation the State of Louisiana, where the Corporation
carries on business or owns property.
(b) the Corporation is a "reporting issuer" under the Securities
Laws, is current and in compliance with all required filings
under the Securities Laws and is not in default on the records of
any of the Securities Commissions. The Corporation is current and
in compliance with all required filings under the U.S. Exchange
Act and the U.S. Securities Act.
(c) the Corporation's authorized share capital consists of
100,000,000 shares of common stock with a par value of US$0.01
per share of which, as at October 3, 2003, there were 26,054,546
common shares outstanding all of which are fully-paid and
non-assessable. The Corporation has outstanding stock options to
acquire up to an aggregate of 1,550,000 common shares, as
follows:
NUMBER OF SHARES
UNDER OPTION OPTION EXERCISE PRICE OPTION EXPIRY DATE
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150,000 US$0.47 May 1, 2005
1,400,000 US$0.32 December 13, 2006
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1,550,000
==========
Other than such outstanding options and the Debentures, there are
no rights to purchase, options to acquire, warrants, convertible
or exchangeable securities or other rights or claims to acquire,
or other agreements or obligations, contingent or otherwise, to
issue, any unissued shares in the capital of the Corporation and
there are no shares of the Corporation held in treasury. Except
for the exercise of any such outstanding options, after October
3, 2003 and on and before the Closing Date the Corporation will
not issue or agree to issue or be or become obligated,
contingently or otherwise, to issue any shares in the capital of
the Corporation.
(d) the Corporation's Public Documents contain full, true and plain
disclosure of all material facts and information in respect of
the Corporation and its assets, liabilities, financial condition,
operations, prospects, business and affairs. The Public Documents
do not contain any misrepresentation (as defined in the
Securities Act (British Columbia)).
(e) the audited annual financial statements and the unaudited interim
financial statements of the Corporation contained in the
Corporation's Public Documents have been prepared in accordance
with accounting principles generally accepted in the United
States of America and such financial statements fairly present in
all material respects the financial condition, results of
operations and cash flows of the Corporation as of the dates and
for the periods presented in such financial statements.
(f) since June 30, 2003, there have been no material changes in the
business or affairs of the Corporation and the Corporation has
not incurred any liabilities or obligations, except for:
(i) material changes, liabilities and obligations disclosed in
the Public Documents; and
(ii) other liabilities and obligations incurred in the ordinary
course of the Corporation's business and operations as
described in the Public Documents, which other liabilities
and obligations are individually and in the aggregate not
material.
(g) the description in the Corporation's Annual Information Form
contained in its Public Documents of its interests in the Bayou
Couba properties in Louisiana discloses all material terms,
limitations and burdens of the Corporation's interest in such
properties and of the agreements and obligations
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of the Corporation in respect of such properties. To the best of
the Corporation's knowledge, all proceedings in respect of the
bankruptcy of Couba Operating Company are complete and final and
there are no outstanding proceedings, appeals or rights of appeal
in respect thereof, and neither Couba nor any of the creditors or
shareholders of Couba have any claims or rights against the Bayou
Couba properties or the Corporation except as described in the
Public Documents; provided that the Corporation is aware of a
claim, which the Corporation does not believe is material and is
not disclosed in the Public Documents, by a Class 7 unsecured
creditor for inclusion in the unsecured creditors' pool in the
amount of approximately US$300,000.
(h) the engineers and the engineering firm that prepared the May 13,
2003 Bayou Couba Report and the May 15, 2003 Bayou Couba Report
(each as defined in the annual information form contained in the
Corporation's Public Documents) were provided, in the course of
their preparation of such reports, with all pertinent and
relevant information relating to the Bayou Couba properties
including without limitation full details of the interest and
obligations of the Corporation in respect of such properties. To
the best of the Corporation's knowledge, the results in such
reports properly reflect the interest and obligations of the
Corporation in respect of such properties and such reports fairly
present the Corporation's estimated proved reserves and its
estimated future net revenue therefrom and the present value
thereof as of the effective dates indicated in the reports and do
not contain any misrepresentation (as defined in the Securities
Act (British Columbia)).
(i) the Corporation has no further interest or obligation whatsoever
(other than for any liability fully reflected in the balance
sheet of the Corporation as at June 30, 2003, including the notes
to such financial statements) in respect of (i) the South Fort
Stockton Project, Pecos County, Texas; (ii) First Calgary
Petroleums Ltd.; (iii) Block 43, Yemen; or (iv) the Corporation's
former eastern Oklahoma coal seam trend leases and operations.
The Corporation has no business or property interests or
operations other than in respect of its Bayou Couba properties
and its head office premises in Tulsa, Oklahoma.
(j) To the best of the Corporation's knowledge, the Corporation is in
compliance, in all material respects, with all laws pertaining to
its oil and gas operations and all environmental laws, and is not
subject to any operational orders or notices or environmental
clean-up orders or notices from governmental authorities, and the
Corporation is not in default, in any material respect, under any
of its contractual obligations.
(k) the Corporation is not aware of any current, pending or
threatened litigation proceedings or potential claims which are
not disclosed in the Public Documents and which, if adversely
determined against the Corporation, could result in a material
liability to the Corporation.
5. Covenants of the Corporation. The Corporation covenants that:
(a) the Corporation, at the Distribution Date, will have filed all
documents that it is required to file under the continuous
disclosure provisions of the Securities Laws, including annual
and interim financial information, annual reports, press releases
disclosing material changes and material change reports;
(b) there will not have been a material adverse change in the
financial position of the Corporation on or prior to the Closing
Date from the financial position set out in the Corporation's
unaudited financial statements as at and for the six month period
ended June 30, 2003;
(c) at the Distribution Date, the Corporation will not have made a
material transaction since its Current AIF, except for this
Offering, unless a material change report has been filed in
compliance with Securities Laws with respect thereto;
(d) the Corporation is now, and on the Closing Date the Corporation
will be, a Qualifying Issuer and the Corporation will remain a
reporting issuer, and not in default, under the Securities Laws
in British Columbia, Alberta and Ontario for a minimum of 24
months immediately following the Distribution Date;
5
(e) the Corporation will, as promptly as practicable after the
Closing Date, file with and will thereafter use its best efforts
to have declared effective by the U.S. Securities and Exchange
Commission a registration statement with respect to the issue of
Shares pursuant to the Debentures and the Purchaser agrees to
provide to the Corporation such information as it may reasonably
request in connection therewith; and
(f) the Corporation is now, and on the Closing Date the Corporation
will be, an "issuer" (as defined under the U.S. Securities Act).
6. Purchaser's Documents. The Purchaser shall deliver to the Corporation
concurrently with the execution of this Subscription Agreement or
prior to the Closing a completed and originally executed copy of:
(a) the Certificate of Accredited Investor (Schedule A);
(b) if the Purchaser is a resident of Ontario or otherwise subject to
the securities laws of the Province of Ontario, the Accredited
Investor Certification (Ontario) (Schedule B);
(c) the U.S. Certification (Schedule C);
(d) if the Purchaser is a portfolio manager or is NOT an individual
(i.e., a corporation, partnership, trust or entity other than an
individual), the Form 4C Corporate Placee Registration Form
(Schedule D), and
(e) the applicable Form W-8 Certificate of Foreign Status for United
States Tax Withholding (Schedule E); and
such information, additional undertakings, questionnaires and other
documents as the Corporation may reasonably request in connection with
the issue and sale of the Debentures. The Purchaser shall deliver AT
OR PRIOR TO CLOSING the total purchase price for the Debentures,
either by paying such amount to Purchasers' Special Counsel in trust,
to be paid by it at Closing on behalf of the Purchaser; or by making
other arrangements for payment which are acceptable to the Lead
Investor, Purchasers' Special Counsel and the Corporation. The
Purchaser acknowledges and agrees that such undertakings,
questionnaires and other documents, when executed and delivered by the
Purchaser, will form part of and will be incorporated into this
Subscription Agreement with the same effect as if each constituted a
representation and warranty or covenant of the Purchaser hereunder in
favour of the Corporation. The Purchaser consents to the filing of
such undertakings, questionnaires and other documents as may be
required to be filed with any stock exchange or securities regulatory
authority in connection with the transactions contemplated hereby.
7. Acceptance or Rejection. The Corporation will have the right in its
sole discretion to accept or reject this offer at any time at or prior
to the Closing. The Purchaser acknowledges and agrees that the
acceptance of this offer by the Corporation is subject to acceptance
of the Offering by the Exchange and any other regulatory authority
having jurisdiction with respect to the Corporation, and will be
conditional upon issuance and the sale of the Purchaser's Debentures
to the Purchaser being exempt from any prospectus and registration
requirements of all applicable securities legislation, including under
the U.S. Securities Act and state securities laws. The Corporation
will be deemed to have accepted this offer upon the delivery at the
Closing of the Purchaser's Debentures to the Purchaser or Purchasers'
Special Counsel in accordance with the provisions hereof. If the
Purchaser's Debentures have not been delivered to the Purchaser or
Purchasers' Special Counsel on or before October 31, 2003, then this
Subscription Agreement shall terminate and all subscription funds
advanced to Purchasers' Special Counsel or to the Corporation
hereunder shall be repaid forthwith to the Purchaser.
8. Purchaser's Representations and Warranties. The Purchaser acknowledges
that the following representations and warranties by it, and those
given in the Certificates attached hereto as Schedules A, B, C, D and
E, are given with the intention that they will be relied upon by the
Corporation and its counsel in determining the Purchaser's eligibility
or, if applicable, the eligibility of others on whose behalf the
Purchaser is contracting hereunder to purchase the Debentures under
applicable securities legislation. The Purchaser represents and
warrants to the Corporation and its counsel that its representations
and warranties
6
are true as of the date of this offer and will be true as of the date
of this Subscription Agreement and agrees that by accepting delivery
of the Debentures it shall be representing and warranting as of the
Closing Date, that:
(a) Attached Schedules. The Purchaser has duly completed and executed
all Certificates in Schedules A, B, C, D and E attached hereto
applicable to such Purchaser and hereby confirms the truth and
accuracy of all statements made therein;
(b) Residency. The Purchaser is a resident or is otherwise subject to
the jurisdiction referred to under "Purchaser's Information" on
the execution page hereof, which address is the residence or
place of business of the Purchaser and not created or used solely
for the purpose of acquiring the Debentures.
(c) Acknowledgements. The Purchaser hereby acknowledges to the
Corporation that it is aware that:
(i) no securities commission or similar regulatory authority
in Canada, the United States of America or elsewhere has
reviewed or passed on the merits of the Securities; or
(ii) there is no government or other insurance covering the
Securities;
(iii) there are risks associated with the purchase of the
Securities;
(iv) there are restrictions on the Purchaser's ability to
resell the Securities and it is the responsibility of the
Purchaser to find out what those restrictions are and to
comply with them before selling such Securities;
(v) the Corporation is relying on an exemption under the
securities laws of British Columbia, Alberta and Ontario
from the requirements to provide the Purchaser with a
prospectus and to sell the Securities through a person
registered to sell securities under securities laws and,
as a consequence of acquiring the Securities pursuant to
this exemption, certain protections, rights and remedies
provided by securities legislation in British Columbia,
Alberta or Ontario, including statutory rights of
recession or damages, will not be available to the
Purchaser; and
(vi) the certificates to be delivered to the Purchaser
representing the Securities purchased by the Purchaser
will be in compliance with the applicable securities law
of British Columbia, Alberta and Ontario and contain a
legend stating that the Securities are subject to resale
restrictions;
(d) Compliance with Securities Legislation. Each Purchaser will
comply with the requirements of all applicable securities
legislation in British Columbia, Alberta, Ontario and the United
States in connection with the acquisition of Debentures and will
provide such evidence of compliance with all such matters as the
Corporation may reasonably request;
(e) U.S. Securities Laws. Each Purchaser acknowledges being aware
that the Securities are "restricted securities" as defined under
Rule 144 under the U.S. Securities Act and have not been
registered under the U.S. Securities Act or the securities laws
of any State of the United States and that, except as provided in
paragraph 5(e) above regarding the registration of the Shares and
as provided in the Trust Indenture, the Corporation has no other
obligation to register any of the Securities under the U.S.
Securities Act or the securities laws of any state of the United
States. The Securities may not be offered or sold in the United
States unless registered in accordance with United States federal
securities laws and all applicable state securities laws or
exemptions from such requirements are available. The Purchaser
acknowledges that the Corporation will not register any transfer
of any of the Securities not made pursuant to such registration
or pursuant to an available exemption from registration;
7
(f) Offshore Purchasers - Compliance with Laws of Purchaser's
Residence. If a Purchaser or any beneficial purchaser for whom it
is acting is not a resident of British Columbia, Alberta, Ontario
or the United States, the Purchaser represents and warrants to
the Corporation that:
(i) the Purchaser has knowledge of, or has been independently
advised as to, the applicable securities laws of its and
any such beneficial purchaser's jurisdiction of residence
which would apply to this subscription, if there are any;
(ii) the Purchaser and any such beneficial purchaser are
purchasing the Debentures pursuant to exemptions from any
substantive or procedural requirements under the
applicable securities laws of the Purchaser's and such
beneficial purchaser's jurisdiction of residence or, if
such is not applicable, the Purchaser and any such
beneficial purchaser are permitted to purchase the
Purchaser's Debentures under the applicable securities
laws of the Purchaser's and such beneficial purchaser's
jurisdiction of residence without the need for the
Corporation, the Purchaser or any such beneficial
purchaser to comply with any substantive or procedural
requirements of any kind whatsoever in the Purchaser's and
such beneficial purchaser's jurisdiction of residence; and
(iii) the Purchaser will, if requested by the Corporation,
deliver to the Corporation a certificate or opinion of
local counsel from the Purchaser's and such beneficial
purchaser's jurisdiction of residence which will confirm
the matters referred to in subparagraph (ii) above to the
satisfaction of the Corporation, acting reasonably;
(g) Authorization and Effectiveness. If the Purchaser is a
corporation, the Purchaser is a valid and subsisting corporation,
has the necessary corporate capacity and authority to execute and
deliver this offer and to observe and perform its covenants and
obligations hereunder and has taken all necessary corporate
action in respect thereof, if the Purchaser is a partnership,
syndicate or other form of unincorporated organization, the
Purchaser has the necessary legal capacity and authority to
execute and deliver this offer and to observe and perform its
covenants and obligations hereunder and has obtained all
necessary approvals in respect thereof, or, if the Purchaser is
an individual, the Purchaser has attained the age of majority and
is legally competent to execute this agreement and to take all
actions required pursuant thereto, and, in each case, upon
acceptance by the Corporation, this Subscription Agreement
constitutes a legal, valid, binding and enforceable contract of
the Purchaser or the beneficial purchaser for which it is
purchasing, as the case may be;
(h) Absence of Offering Memorandum. The offering and sale of the
Purchaser's Debentures to the Purchaser were not made through an
advertisement of the Debentures in printed media of general and
regular paid circulation, radio or television, or any other form
of advertisement, and the Purchaser has not requested, nor does
it need to receive, an offering memorandum or other document
prepared by the Corporation describing its business and affairs,
in order to assist it in making an investment decision in respect
of the Debentures, and, except for this Subscription Agreement,
no other documents have been delivered or otherwise furnished by
the Corporation to the Purchaser in connection with such offering
and sale;
(i) Unincorporated Organization. If the Purchaser is a syndicate,
partnership or other form of unincorporated organization, the
Purchaser warrants and represents that it was not created solely
to permit purchases of securities without a prospectus by groups
of individuals or other persons who are not "accredited
investors" as that term is defined in MI 45-103 (see Schedules
attached hereto);
(j) Economic Risks. The Purchaser has such knowledge and experience
in financial and business affairs as to be capable of evaluating
the merits and risks of the investment hereunder and is able to
bear the economic risk of loss of such investment;
(k) Disclosure to Regulatory Authorities. The funds representing the
Purchase Price advanced by the Purchaser to the Corporation
hereunder do not represent proceeds of crime for the purposes of
the Proceeds of Crime (Money Laundering) Act (Canada) and the
Purchaser acknowledges that the Corporation may in the future be
required by law to disclose the Purchaser's name and other
8
information relating to this Subscription Agreement and the
Purchaser's subscription hereunder, on a confidential basis, to
securities regulatory authorities or pursuant to the Proceeds of
Crime (Money Laundering) Act (Canada). To the best of its
knowledge none of the subscription funds provided by the
Purchaser (A) have been or will be derived from or related to any
activity that is deemed criminal under the law of Canada, the
United States of America, or any other jurisdiction, or (B) are
being tendered on behalf of a person or entity who has not been
identified to the Purchaser, and (ii) it shall promptly notify
the Issuer if the Purchaser discovers that any of such
representations ceases to be true, and to provide the Issuer with
appropriate information in connection therewith;
(l) No Undisclosed Information. The Debentures are not being
purchased by the Purchaser as a result of any material
information concerning the Corporation that has not been publicly
disclosed and the Purchaser's decision to tender this offer and
acquire the Debentures has not been made as a result of any oral
or written representation as to fact or otherwise made by or on
behalf of the Corporation or any other person and is based
entirely upon currently available public information concerning
the Corporation;
(m) Adequate Information. The Purchaser has had access to and has
received all such information concerning the Corporation that the
Purchaser considers necessary in connection with the Purchaser's
investment decision;
(n) No Recommendation or Endorsement. The Purchaser acknowledges that
no agency, governmental authority, regulatory body, stock
exchange or other entity has made any finding or determination as
to the merit for investment of, nor have any such agencies or
government authorities made any recommendation or endorsement
with respect to, the Securities; and
(o) No Representation as to the Securities. No person has made to the
Purchaser any written or oral representations:
(i) that any person will resell or repurchase the Securities;
(ii) that any person will refund the purchase price for the
Securities;
(iii) as to the future price or value of the Securities; or
(iv) that the Securities will be listed and posted for trading
on any stock exchange or that application has been made to
list the Shares on any stock exchange other than the TSX
Venture Exchange.
9. Conditions to Closing. Closing of the purchase by the Purchaser of the
Debentures pursuant to this Subscription Agreement is subject to
fulfilment of the following conditions:
(a) completion of due diligence investigations in respect of the
Corporation by or on behalf of the Lead Investor, and the
information obtained thereby being acceptable to the Lead
Investor in its sole discretion;
(b) the Corporation and Computershare Trust Company of Canada (or
such other trust company as may be acceptable to the Corporation
and to the Lead Investor and Purchasers' Special Counsel, acting
reasonably), as trustee, entering into the Trust Indenture, to
provide for the creation and issue of the Debentures on the terms
provided herein, and other documents to provide the security for
the Debentures being entered into as contemplated herein, all in
form and substance satisfactory (in their sole discretion, acting
reasonably) to the Lead Investor and Purchasers' Special Counsel;
(c) the issue of the Debentures to the Purchaser, all in form and
substance satisfactory (in their sole discretion, acting
reasonably) to the Lead Investor and Purchasers' Special Counsel;
(d) concurrently with the Closing of the offering of the Debentures,
all indebtedness of the Corporation to Bank One, N.A.,
TransAtlantic Petroleum (USA) Corp. and Quest Investment
9
Corporation being repaid in full with the proceeds from the
Offering, and such creditors fully releasing or undertaking to
release all security interests and mortgages held by them for
such indebtedness, all in form and substance satisfactory (in
their sole discretion acting reasonably) to the Lead Investor and
Purchasers' Special Counsel;
(e) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ being validly appointed or
elected members of the Board of Directors of the Corporation
effective on the Closing;
(f) the Chief Executive Officer and the Chief Financial Officer of
the Corporation certifying to the Purchasers and Purchasers'
Special Counsel at Closing that the representations and
warranties of the Corporation contained herein and in the Trust
Indenture are true and correct at such time, as if made at such
time, and that the Corporation is not in default of any of its
covenants contained herein or in the Trust Indenture, and in each
case neither the Lead Investor nor Purchasers' Special Counsel
having any knowledge to the contrary;
(g) the receipt of legal opinions, addressed to the Purchasers and
Purchasers' Special Counsel, from the Corporation's Canadian and
U.S. legal counsel, all in form and substance satisfactory (in
their sole discretion, acting reasonably) to the Lead Investor
and Purchasers' Special Counsel; and
(h) the receipt by the Corporation of all necessary regulatory and
stock exchange approvals for the issue of the Debentures and the
issue of Shares on conversion of the Debentures, all in form and
substance satisfactory (in their sole discretion, acting
reasonably) to the Lead Investor and Purchasers' Special Counsel.
10. Hold Period and Resale Conditions. The Purchaser understands and
acknowledges that the Securities will be subject to certain resale
restrictions under applicable securities laws and the rules and
policies of the Exchange and the Purchaser agrees to comply with such
restrictions and further acknowledges that the Securities specifically
cannot be resold unless:
(a) subject to certain exceptions provided under the 1933 Act, the
Securities are registered under the 1933 Act and applicable state
securities laws or unless an exemption from such registration
requirements is available (Schedule F hereto provides a
description of some exemptions from registration requirements);
and
(b) for any resale in the Reporting Issuer Jurisdictions, the resale
is made pursuant to private placement exemptions from prospectus
requirements under applicable Canadian securities laws, or a
prospectus is filed in respect of the resale, or the Purchaser
complies with the following conditions:
(i) the Corporation is at the time of the resale trade, and
has been for the four months immediately preceding the
resale trade, a reporting issuer in one of the Reporting
Issuer Jurisdictions;
(ii) the selling security holder has held the Securities for at
least four months from the Distribution Date;
(iii) the resale trade is not a "control distribution" as
defined in MI 45-102 (generally speaking, the resale trade
is not from the holdings of a control person or control
group in respect of the Corporation);
(iv) no unusual effort is made to prepare the market or to
create a demand for the Securities that are the subject of
the trade;
(v) no extraordinary commission or consideration is paid to a
person or company in respect of the trade;
10
(vi) if the selling security holder is an insider or officer of
the Corporation, the selling security holder has no
reasonable grounds to believe that the Corporation is in
default of the Securities Laws; and
(vii) the Purchaser files a report, if required, of any resale,
in the form, within the time and where required, in
accordance with applicable securities legislation.
11. Legend. The Purchaser acknowledges and accepts that certificates
representing the Securities will bear the following legends:
(a) "Unless permitted under securities legislation, the holder of the
securities shall not trade the securities before [four months and
one day after the Closing Date]."; and
(b) The legend set forth in Schedule C hereto.
In addition, the Purchaser acknowledges and accepts that certificates
representing the Shares will bear the following legend:
"Without the prior written approval of the TSX Venture Exchange
(the "Exchange") and compliance with 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 Exchange or otherwise in Canada or
to or for the benefit of a Canadian resident before [four months
and one day after the Closing Date]"
12. No Revocation. The Purchaser agrees that this offer is made for
valuable consideration and may not be withdrawn, cancelled, terminated
or revoked by the Purchaser, subject to any conditions in favour of
the Purchaser not being fulfilled on or prior to Closing or any other
legal rights to withdraw, cancel or terminate this Subscription
Agreement contained herein.
13. Indemnity. The Purchaser agrees to indemnify and hold harmless the
Corporation and its directors, officers, employees, agents, advisers
and shareholders from and against any and all loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and
all fees, costs and expenses whatsoever reasonably incurred in
investigating, preparing or defending against any claim, law suit,
administrative proceeding or investigation whether commenced or
threatened) arising out of or based upon any representation or
warranty of the Purchaser contained herein or in any document
furnished by the Purchaser to the Corporation in connection herewith
being untrue in any material respect or any breach or failure by the
Purchaser to comply with any covenant or agreement made by the
Purchaser herein or in any document furnished by the Purchaser to the
Corporation in connection herewith. The Corporation agrees to
indemnify and hold harmless the Purchaser and its directors, officers,
employees, agents, advisers and shareholders from and against any and
all loss, liability, claim, damage and expense whatsoever (including,
but not limited to, any and all fees, costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against
any claim, law suit, administrative proceeding or investigation
whether commenced or threatened) arising out of or based upon any
representation or warranty of the Corporation contained herein or in
any document furnished by the Corporation to the Purchaser in
connection herewith being untrue in any material respect or any breach
or failure by the Corporation to comply with any covenant or agreement
made by the Corporation herein or in any document furnished by the
Corporation to the Purchaser in connection herewith.
14. Modification. Neither this Subscription Agreement nor any provision
hereof shall be modified, changed, discharged or terminated except by
an instrument in writing signed by the party against whom any waiver,
change, discharge or termination is sought.
15. Assignment. This Subscription Agreement and any interest herein or any
of the rights arising hereunder may be assigned only together with a
transfer of the Debentures purchased hereunder and in accordance with
applicable securities laws and the rules of the Exchange, and provided
that the assignee agrees in writing to be bound by the terms and
conditions of this Subscription Agreement and completes and executes
the Acknowledgment of Assignment Form attached to the certificates
representing the Debentures and delivers it to the Corporation.
11
16. Notice. All notices or other communications to be given hereunder
shall be delivered by hand or by telecopier, and if delivered by hand,
shall be deemed to have been given on the date of delivery or, if sent
by telecopier, on the date of transmission if sent before 5:00 p.m.
and such day is a business day or, if not, on the first business day
following the date of transmission.
Notice to the Corporation shall be addressed to:
American Natural Energy Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Notices to the Purchaser shall be addressed to the address of the
Purchaser set out on the execution page hereof under "Purchaser's
Information".
Either the Corporation or the Purchaser may change its address for
service aforesaid by notice in writing to the other party hereto
specifying its new address for service hereunder.
17. Miscellaneous. The agreement resulting from the acceptance of this
Subscription Agreement by the Corporation contains the whole agreement
between the Corporation and the Purchaser in respect of the subject
matter hereof and there are no warranties, representations, terms,
conditions or collateral agreements, express, implied or statutory,
other than as expressly set forth herein and in any amendments hereto
and in the Trust Indenture and the Debentures. All representations,
warranties, agreements and covenants made or deemed to be made by the
Purchaser herein will survive the execution and delivery, and
acceptance, of this offer and the Closing. Time shall be of the
essence of this Subscription Agreement. This Subscription Agreement
and the rights and obligations of the parties hereunder will be
governed by and construed according to the laws of the Province of
British Columbia. This Subscription Agreement will enure to the
benefit of and be binding upon the parties hereto, and their heirs,
executors, administrators, successors and permitted assigns. This
Subscription Agreement may be executed in any number of counterparts,
each of which when delivered, either in original or facsimile form,
shall be deemed to be an original and all of which together shall
constitute one and the same document. The Purchaser acknowledges and
agrees that all costs incurred by the Purchaser, including any fees
and disbursements of any counsel retained by the Purchaser (other than
the fees and disbursements of Purchasers' Special Counsel and fees and
disbursements of U.S. counsel retained by it which shall be paid by
the Corporation if the Closing occurs or if the Closing does not occur
solely as a result of the fault of the Corporation), relating to the
sale of the Debentures to the Purchaser shall be borne by the
Purchaser. The Purchaser, on its own behalf and, if applicable, on
behalf of others for whom it is contracting hereunder, agrees that
this offer is made for valuable consideration and may not be
withdrawn, cancelled, terminated or revoked by the Purchaser, on its
own behalf and, if applicable, on behalf of others for whom it is
contracting hereunder. The covenants, representations and warranties
of the Corporation contained herein and in the Trust Indenture and the
Debentures shall survive the closing of the transactions contemplated
hereby.
12
SCHEDULE A
CERTIFICATE OF ACCREDITED INVESTOR
(ALL PURCHASERS TO COMPLETE)
TO: AMERICAN NATURAL ENERGY CORPORATION
RE: SUBSCRIPTION FOR CONVERTIBLE SECURED DEBENTURES OF THE CORPORATION
Capitalized terms not specifically defined in this Certificate have the meaning
ascribed to them in the Convertible Secured Debenture Subscription Agreement to
which this Schedule A is attached. In the event of a conflict between the terms
of this Certification and such Subscription Agreement, the terms of this
Certification shall prevail.
The undersigned Purchaser of Debentures hereby certifies that:
1. The Purchaser, or an authorized representative of the Purchaser, has
read the Convertible Secured Debenture Subscription Agreement and
understands that the offering of the Debentures is being made on a
prospectus exempt basis.
2. The Purchaser is an accredited investor as defined in Multilateral
Instrument 45-103, by virtue of being:
[PLEASE CHECK ONE]
a. _____ a Canadian financial institution(1), or an authorized foreign
bank listed Schedule III of the Bank Act (Canada),
b. _____ the Business Development Bank of Canada incorporated under the
Business Development Bank of Canada Act (Canada),
c. _____ an association under the Cooperative Credit Associations Act
(Canada) located in Canada or a central cooperative credit
society for which an order has been made under subsection 473(1)
of that Act,
d. _____ a subsidiary of any person or company referred to in paragraphs
(a) to (c), if the person or company owns all of the voting
securities of the subsidiary, except the voting securities
required by law to be owned by directors of that subsidiary,
e. _____ a person or company registered under the securities legislation
of a jurisdiction of Canada, as an adviser or dealer, other than
a limited market dealer registered under the Securities Act
(Ontario) or the Securities Act (Newfoundland and Labrador),
f. _____ an individual registered or formerly registered under the
securities legislation of a jurisdiction of Canada, as a
representative of a person or company referred to in paragraph
(e),
g. _____ the government of Canada or a jurisdiction of Canada, or any
crown corporation, agency or wholly owned entity of the
government of Canada or a jurisdiction of Canada,
h. _____ a municipality, public board or commission in Canada,
i. _____ any national, federal, state, provincial, territorial or
municipal government of or in any foreign jurisdiction, or any
agency of that government,
j. _____ a pension fund that is regulated by either the Office of the
Superintendent of Financial Institutions (Canada) or a provincial
pension commission or similar regulatory authority of a
jurisdiction of Canada,
k. _____ a registered charity under the Income Tax Act (Canada) that, in
regard to the trade, has obtained advice from an eligibility
adviser or other adviser registered to provide advice on the
securities being traded,
l. _____ an individual who, either alone or with a spouse, beneficially
owns, directly or indirectly, financial assets(2) having an
aggregate realizable value that before taxes, but net of any
related liabilities(3), exceeds $1,000,000,
m. _____ an individual whose net income before taxes exceeded $200,000 in
each of the two most recent years or whose net income before
taxes combined with that of a spouse exceeded $300,000 in each of
the two most recent years and who, in either case, reasonably
expects to exceed that net income level in the current year,
n. _____ a person or company, other than a mutual fund or non-redeemable
investment fund, that, either alone or with a spouse, had net
assets of at least $5,000,000, and unless the person or company
is an individual, that amount is shown on its most recently
prepared financial statements,
o. _____ a mutual fund or non-redeemable investment fund that, in the
local jurisdiction, distributes its securities only to persons or
companies that are accredited investors,
p. _____ a mutual fund or non-redeemable investment fund that, in the
local jurisdiction, is distributing or has distributed its
securities under one or more prospectuses for which the regulator
has issued receipts,
q. _____ a trust company or trust corporation registered or authorized to
carry on business under the Trust and Loan Companies Act (Canada)
or under comparable legislation in a jurisdiction of Canada or a
foreign jurisdiction, trading as a trustee or agent on behalf of
a fully managed account(4),
r. _____ a person or company trading as agent on behalf of a fully managed
account(4) if that person or company is registered or authorized
to carry on business under the securities legislation of a
jurisdiction of Canada or a foreign jurisdiction as a portfolio
manager or under an equivalent category of adviser or is exempt
from registration as a portfolio manager or the equivalent
category of adviser,
s. _____ an entity organized in a foreign jurisdiction that is analogous
to any of the entities referred to in paragraphs (a) through (e)
and paragraph (j) in form and function, or
t. _____ a person or company in respect of which all of the owners of
interests, direct or indirect, legal or beneficial, except the
voting securities required by law to be owned by directors, are
persons or companies that are accredited investors.
(1) A Canadian financial institution means a bank, loan corporation, trust
company, insurance company, treasury branch, credit union or caisse
populaire that in each case is authorized to carry on business in Canada or
a province or territory of Canada, or the Confederation des caisses
populaires et d'economie ▇▇▇▇▇▇▇▇▇▇ du Quebec.
(2) For the purposes of Multilateral Instrument 45-103 and this Certificate,
the term "financial assets" means cash and securities.
(3) For the purposes of Multilateral Instrument 45-103 and this Certificate,
the term "related liabilities" means (a) liabilities incurred or assumed
for the purpose of financing the acquisition or ownership of financial
assets, or (b) liabilities that are secured by financial assets.
(4) For the purposes of Multilateral Instrument 45-103 and this Certificate,
the term "fully managed account" means an account for which a person or
2
company makes the investment decisions if that person or company has fully
discretion to trade in securities for the account without requiring the
client's express consent to a transaction.
3. The Purchaser is purchasing the Debentures as principal (i.e., for its own
account and benefit only). For this purpose, a trust company or trust
corporation described in paragraph (q) above (other than a trust company or
trust corporation registered under the laws of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Island that is
not registered under the Trust and Loan Companies Act (Canada) or under
comparable legislation in another jurisdiction of Canada) and a person or
company described in paragraph (r) above is deemed to be purchasing as
principal.
DATED _______________________________, 2003.
_________________________________________________
Signature of Purchaser
_________________________________________________
Name of Purchaser
_________________________________________________
_________________________________________________
Address of the Purchaser
3
SCHEDULE B
ACCREDITED INVESTOR CERTIFICATION
(ONTARIO PURCHASERS)
TO: AMERICAN NATURAL ENERGY CORPORATION
RE: SUBSCRIPTION FOR CONVERTIBLE SECURED DEBENTURES OF THE CORPORATION
Capitalized terms not specifically defined in this Certification have the
meaning ascribed to them in the Convertible Secured Debenture Subscription
Agreement to which this Schedule B is attached. In the event of a conflict
between the terms of this Certification and such Subscription Agreement, the
terms of this Certification shall prevail.
The following certification must be completed and signed by each purchaser of
securities of American Natural Energy Corporation (the "Corporation") that is
resident in, or is otherwise subject to the securities laws of, the Province of
Ontario.
The undersigned purchaser acknowledges and agrees that the Corporation is
relying on the matters certified hereto by the purchaser to determine the
ability of the Corporation to issue securities of the Corporation to the
purchaser in a manner exempt from the prospectus requirements of the Securities
Act (Ontario).
The undersigned purchaser of Debentures of the Corporation hereby certifies
that:
1. The undersigned purchaser is an "accredited investor" within the
meaning of Rule 45-501 of the Ontario Securities Commission, and is an
"accredited investor" in the following category (please check the
applicable category below):
______ (a) a bank listed in Schedule I or II of the Bank Act (Canada), or an
authorized foreign bank listed in Schedule III of that Act;
______ (b) the Business Development Bank incorporated under the Business
Development Bank Act (Canada);
______ (c) a loan corporation or trust corporation registered under the Loan
and Trust Corporations Act or under the Trust and Loan Companies
Act (Canada), or under comparable legislation in any other
jurisdiction;
______ (d) a co-operative credit society, credit union central, federation
of caisses populaires, credit union or league, or regional caisse
populaire, or an association under the Cooperative Credit
Associations Act (Canada), in each case, located in Canada;
______ (e) a company licensed to do business as an insurance company in any
jurisdiction;
______ (f) a subsidiary of any company referred to in paragraph (a), (b),
(c), (d) or (e), where the company owns all of the voting shares
of the subsidiary;
______ (g) a person or company registered under the Securities Act (Ontario)
or securities legislation in another jurisdiction as an adviser
or dealer, other than a limited market dealer;
______ (h) the government of Canada or of any jurisdiction, or any crown
corporation, instrumentality or agency of a Canadian federal,
provincial or territorial government;
______ (i) any Canadian municipality or any Canadian provincial or
territorial capital city;
______ (j) any national, federal, state, provincial, territorial or
municipal government of or in any foreign jurisdiction, or any
instrumentality or agency thereof;
______ (k) a pension fund that is regulated by either the Office of the
Superintendent of Financial Institutions (Canada) or a provincial
pension commission or similar regulatory authority;
______ (l) a registered charity under the Income Tax Act (Canada);
______ (m) an individual who beneficially owns, or who together with a
spouse beneficially own, financial assets [meaning cash,
securities, or any contract of insurance or deposit or evidence
thereof that is
not a security for purposes of the Securities Act (Ontario)]
having an aggregate realizable value that, before taxes but net
of any related liabilities [meaning liabilities incurred or
assumed for the purpose of financing the acquisition or ownership
of financial assets and liabilities that are secured by financial
assets], exceeds $1,000,000;
______ (n) an individual whose net income before taxes exceeded $200,000 in
each of the two most recent years or whose net income before
taxes combined with that of a spouse exceeded $300,000 in each of
those years and who, in either case, has a reasonable expectation
of exceeding the same net income level in the current year;
______ (o) an individual who has been granted registration under the
Securities Act (Ontario) or securities legislation in another
jurisdiction as a representative of a person or company referred
to in paragraph (g), whether or not the individual's registration
is still in effect;
______ (p) a promoter of the Corporation or an affiliated entity of a
promoter of the Corporation;
______ (q) a spouse, parent, grandparent or child of an officer, director or
promoter of the Corporation;
______ (r) a person or company that, in relation to the Corporation, is an
affiliated entity or a person or company referred to in clause
(c) of the definition of distribution in subsection 1(1) of the
Securities Act (Ontario);
______ (s) an issuer that is acquiring securities of its own issue;
______ (t) a company, limited partnership, limited liability partnership,
trust or estate, other than a mutual fund or non-redeemable
investment fund, that had net assets of at least $5,000,000 as
reflected in its most recently prepared financial statements;
______ (u) a person or company that is recognized by the Ontario Securities
Commission as an accredited investor;
______ (v) a mutual fund or non-redeemable investment fund that, in Ontario,
distributes its securities only to persons or companies that are
accredited investors (within the meaning of Rule 45-501 of the
Ontario Securities Commission);
______ (w) a mutual fund or non-redeemable investment fund that, in Ontario,
distributes its securities under a prospectus for which a receipt
has been granted by the Director under the Securities Act
(Ontario);
______ (x) a managed account (within the meaning of Rule 45-501 of the
Ontario Securities Commission) if it is acquiring a security that
is not a security of a mutual fund or non-redeemable investment
fund;
______ (y) an account that is fully managed by a trust corporation
registered under the Loan and Trust Corporations Act (Ontario);
______ (z) an entity organized outside of Canada that is analogous to any of
the entities referred to in paragraphs (a) through (g) and
paragraph (k) in form and function; or
______ (aa) a person or company in respect of which all of the owners of
interests, direct or indirect, legal or beneficial, are persons
or companies that are accredited investors.
2. The undersigned purchaser of Debentures of the Corporation is
purchasing the Debentures as principal (i.e., for its own account and
benefit only).
DATED ________________________ , 2003.
__________________________________________
Signature of Purchaser
__________________________________________
Name of Purchaser
__________________________________________
__________________________________________
Address of the Purchaser
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SCHEDULE C
U.S. CERTIFICATE OF ACCREDITED INVESTOR
(ALL PURCHASERS TO COMPLETE)
TO: AMERICAN NATURAL ENERGY CORPORATION
RE: SUBSCRIPTION FOR CONVERTIBLE SECURED DEBENTURES OF THE CORPORATION
Capitalized terms not specifically defined in this Certification have the
meaning ascribed to them in the Convertible Secured Debenture Subscription
Agreement to which this Schedule C is attached. In the event of a conflict
between the terms of this Certification and such Subscription Agreement, the
terms of this Certification shall prevail.
In addition to the covenants, representations and warranties contained in the
Subscription Agreement to which this Schedule C is attached, the undersigned
(the "Purchaser") covenants, represents and warrants to the Corporation that:
(a) It is authorized to consummate the purchase of the Debentures.
(b) It has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the Debentures
and it is able to bear the economic risk of loss of its entire investment.
(c) The Corporation has provided to it the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering and it has
had access to such information concerning the Corporation as it has considered
necessary or appropriate in connection with its investment decision to acquire
the Debentures, including access to the Corporation's public filings available
on the Internet at ▇▇▇.▇▇▇.▇▇▇ and at ▇▇▇.▇▇▇▇▇.▇▇▇, and that any answers to
questions and any request for information have been complied with to the
Purchaser's satisfaction.
(d) It is acquiring the Debentures for its own account, for investment purposes
only and not with a view to any resale, distribution or other disposition of the
Debentures in violation of the United States securities laws.
(e) The address of the Purchaser set out on page 1 of the Subscription Agreement
is the true and correct principal address of the Purchaser and can be relied on
by the Corporation and the Agent for the purposes of state blue-sky laws.
(f) It understands (i) the Securities have not been registered under the United
States Securities Act of 1933, as amended (the "1933 Act") or the securities
laws of any state of the United States and, except as provided in paragraph 5(e)
of the Subscription Agreement regarding the registration of the Shares and as
provided in the Trust Indenture, there is no other obligation of the Corporation
to do so, (ii) the sale contemplated hereby is being made in reliance on an
exemption from such registration requirements; and (iii) subject to certain
exceptions provided under the 1933 Act, the Securities may not be transferred or
converted unless such Securities, as applicable, are registered under the 1933
Act and applicable state securities laws or unless an exemption from such
registration requirements is available.
(g) The Purchaser is an "accredited investor" as defined in Rule 501 of
Regulation D of the 1933 Act by virtue of meeting one of the following criteria
(PLEASE HAND-WRITE YOUR INITIALS ON THE APPROPRIATE LINES):
1. An organization described in Section 501(c)(3) of the
Initials _______ United States Internal Revenue Code, a corporation, a
Massachusetts or similar business trust or partnership,
not formed for the specific purpose of acquiring the
Debentures, with total assets in excess of USD
$5,000,000;
2. A trust that (a) has total assets in excess of USD
Initials _______ $5,000,000, (b) was not formed for the specific purpose
of acquiring the Debentures and (c) is directed in its
purchases of the Debentures by a person who has such
knowledge and experience in financial and business
matters that he/she is capable of evaluating the merits
and risks of an investment in the Debentures;
3. An investment company registered under the Investment
Initials _______ Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act;
4. A Small Business Investment Company licensed by the U.S.
Initials _______ Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1958;
5. A private business development company as defined in
Initials _______ Section 202(a)(22) of the Investment Advisors Acts of
1940; or
6. The Purchaser is a natural person whose total personal
Initials _______ net worth, either individually or jointly with such
person's spouse, at the time of purchase, exceeds
$1,000,000.
7. The Purchaser is a natural person who had individual
Initials _______ income in excess of $200,000, or joint income with the
person's spouse in excess of $300,000, in each of the two
most recent years and reasonably expects to reach the
same income level in the current year.
8. An entity in which all of the equity owners satisfy the
Initials _______ requirements of one or more of the foregoing categories.
(h) The Purchaser has not purchased the Debentures as a result of any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the 1933 Act), including advertisements, articles, notices or
other communications published in any newspaper, magazine or similar media or
broadcast over radio or television, or other form of telecommunications,
including electronic display, or any seminar or meeting whose attendees have
been invited by general solicitation or general advertising.
(i) If the Purchaser decides to offer, sell or otherwise transfer any of the
Securities, it will not offer, sell or otherwise transfer any of such Securities
directly or indirectly, unless:
i. such Securities are registered under the 1933 Act and any applicable
state securities laws;
ii. the sale is to the Corporation; iii. the sale is made pursuant to the
exemption from the registration requirements under the 1933 Act
provided by Rule 144 thereunder and in accordance with any applicable
state securities or "blue sky" laws;
iv. the sale is to an institutional "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the 1933 Act and a purchaser's
letter containing the same representations, warranties and agreements
as those contained in this certification, and satisfactory to the
Corporation, is executed by the purchaser and delivered to the
Corporation prior to the sale; or
v. the securities are sold in a transaction that does not require
registration under the 1933 Act or any applicable state laws and
regulations governing the offer and sale of securities.
(j) It understands and agrees that the Shares may not be issued to the Purchaser
unless they are registered under the 1933 Act and any applicable state
securities laws or unless an exemption from such registration requirements is
available.
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(k) It acknowledges that it has not purchased the Securities as a result of, and
will not itself engage in, any "directed selling efforts" (as defined in
Regulation S under the ▇▇▇▇ ▇▇▇) in the United States in respect of the
Securities which would include any activities undertaken for the purpose of, or
that could reasonably be expected to have the effect of, conditioning the market
in the United States for the resale of the Securities; provided however that the
Purchaser may sell or otherwise dispose of any of the Securities pursuant to
registration of the Securities pursuant to the 1933 Act and any applicable state
securities laws or under an exemption from such registration requirements and as
otherwise provided herein; and
(l) The certificates representing the Securities, as well as all certificates
issued in exchange for or in substitution of the foregoing, until such time as
is no longer required under the applicable requirements of the 1933 Act or
applicable state securities laws, will bear, on the face of such certificate, a
legend substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW. NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED OR DISPOSED OF WITHOUT
(A) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY OTHER
APPLICABLE UNITED STATES STATE OR FEDERAL SECURITIES LAWS COVERING ANY SUCH
TRANSACTION OR (B) AN EXEMPTION FROM REGISTRATION (BASED ON RECEIPT BY THE
CORPORATION OF AN ACCEPTABLE LEGAL OPINION STATING THAT SUCH TRANSACTION IS
EXEMPT FROM REGISTRATION, IF SO REQUESTED BY THE CORPORATION), OR (C) THE
CORPORATION OTHERWISE SATISFYING ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION."
(m) It understands and agrees that there may be material tax consequences to the
Purchaser of an acquisition or disposition of the Securities. The Corporation
gives no opinion and makes no representation with respect to the tax
consequences to the Purchaser under United States, state, local or foreign tax
law of the undersigned's acquisition or disposition of such Securities.
(o) It consents to the Corporation making a notation on its records or giving
instructions to any transfer agent of the Corporation in order to implement the
restrictions on transfer set forth and described in this U.S. Certification and
the Subscription Agreement.
Dated _______________ 2003
X_________________________________________
Signature of individual (if Purchaser IS
an individual)
X_________________________________________
Authorized signatory (if Purchaser is NOT
an individual)
__________________________________________
Name of Purchaser (PLEASE PRINT)
__________________________________________
Name of authorized signatory (PLEASE PRINT)
__________________________________________
Official capacity of authorized signatory
(PLEASE PRINT)
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SCHEDULE D
FORM 4C
CORPORATE PLACEE REGISTRATION FORM
The subscriber either [CHECK APPROPRIATE BOX]:
[ ] has previously filed with the TSX Venture Exchange (the "Exchange") a
Form 4C, Corporate Placee Registration Form and represents and warrants
that there has been no change to any of the information in the
Corporate Placee Registration Form previously filed with the Exchange
up to the date hereof; or
[ ] hereby delivers a completed Form 4C, Corporate Placee Registration
Form filing with the Exchange.
Where subscribers to a Private Placement are not individuals, the following
information about the placee must be provided. This Form will remain on file
with the Exchange. The corporation, trust, portfolio manager or other entity
(the "Placee") need only file it on one time basis, and it will be referenced
for all subsequent Private Placements in which it participates. If any of the
information provided in this Form changes, the Placee must notify the Exchange
prior to participating in further placements with Exchange listed companies. If
as a result of the Private Placement, the Placee becomes an Insider of the
Issuer, Insiders of the Placee are reminded that they must file a Personal
Information Form (2A) with the Exchange.
1. Placee Information:
(a) Name: ________________________________________________________________
(b) Complete Address: ____________________________________________________
______________________________________________________________________
(c) Jurisdiction of Incorporation or Creation: ___________________________
2. (a) Is the Placee purchasing securities as a portfolio manager
(Yes/No)? ____________________________________________________________
(b) Is the Placee carrying on business as a portfolio manager outside
of Canada (Yes/No)? _____________________________________________________
3. If the answer to 2(b) above was "Yes", the undersigned certifies that:
(a) It is purchasing securities of an Issuer on behalf of managed accounts
for which it is making the investment decision to purchase the securities
and has full discretion to purchase or sell securities for such accounts
without requiring the client's express consent to a transaction;
(b) it carries on the business of managing the investment portfolios of
clients through discretionary authority granted by those clients (a
"portfolio manager" business) in ____________________ [jurisdiction], and
it is permitted by law to carry on a portfolio manager business in that
jurisdiction;
(c) it was not created solely or primarily for the purpose of purchasing
securities of the Issuer;
(d) the total asset value of the investment portfolios it manages on behalf
of clients is not less than $20,000,000; and
(e) it has no reasonable grounds to believe, that any of the directors,
senior officers and other insiders of the Issuer, and the persons that
carry on investor relations activities for the Issuer has a beneficial
interest in any of the managed accounts for which it is purchasing.
4. If the answer to 2(a) above was "No", please provide the names and addresses
of control persons of the Placee:
---------------------------------------------------------------------------------------------------------
NAME CITY PROVINCE OR STATE COUNTRY
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
The undersigned acknowledges that it is bound by the provisions of applicable
Securities Law, including provisions concerning the filing of insider reports
and reports of acquisitions (See for example, sections 87 and 111 of the
Securities Act (British Columbia) and sections 176 and 182 of the Securities Act
(Alberta).
Dated at ______________________________________ on _____________________________
_______________________________________________
(Name of Purchaser - please print)
_______________________________________________
(Authorized Signature)
_______________________________________________
(Official Capacity - please print)
_______________________________________________
(please print name of individual whose
signature appears above)
THIS IS NOT A PUBLIC DOCUMENT
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SCHEDULE E
FORM W-8
CERTIFICATE OF FOREIGN STATUS OF BENEIFICAL OWNER
FOR UNITED STATES TAX WITHHOLDING
Payments of interest to a Purchaser will be subject to U.S. income tax
withholding unless certain certification requirements are satisfied. The
certification requirements will be satisfied if either (i) the beneficial owner
of the Debentures timely certifies to the Corporation (or the Corporation's
paying agent), under penalties of perjury, that such owner is a non-U.S. person
and provides its name and address, or (ii) a custodian, broker, nominee, or
other intermediary acting as an agent for the beneficial owner (such as a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business) that
holds the Debentures in such capacity timely certifies to the Corporation (or
the Corporation's paying agent), under penalties of perjury, that such statement
has been received from the beneficial owner of the Debentures by such
intermediary, or by any other financial institution between such intermediary
and the beneficial owner, and furnishes to the Corporation (or the Corporation's
paying agent) a copy thereof. The foregoing certification may be provided on a
properly completed Internal Revenue Service ("IRS") Form W-8BEN or W-8IMY
(attached), as applicable, or any successor forms, duly executed under penalties
of perjury. With respect to the certification requirement for Debentures that
are held by an entity that is classified for United States federal income tax
purposes as a foreign partnership, unless the foreign partnership has entered
into a withholding agreement with the IRS, the foreign partnership will be
required, in addition to providing an intermediary Form W-81MY, to attach an
appropriate certification by each partner.
Notwithstanding certification as aforesaid, interest payments to
Debentureholders who own, directly or on an attribution basis, more than 10% of
the outstanding Common Shares of the Corporation (calculated under the
provisions of the Internal Revenue Code, which includes conversion of such
Debentureholder's Debentures into Common Shares) will be subject to U.S.
withholding tax. The Trust Indenture governing the Debentures will provide that,
if any interest payments to a Purchaser are subject to U.S. withholding tax, the
interest payments to that Purchaser will be grossed-up so that the additional
amount of interest compensates the Purchaser for the applicable U.S. withholding
tax on a net basis after all taxes; provided that the Purchaser will be obliged
to repay to the Corporation any amount of the withholding tax that the Purchaser
effectively recovers on a net basis, as a tax credit or otherwise, under the tax
laws of its jurisdiction of residence. This gross-up provision will not apply to
subsequent purchasers of Debentures.
SCHEDULE F
UNITED STATES RESALE RESTRICTIONS
The following discussion is a general description of the provisions of
U.S. securities laws and related rules and regulations relating to the re-sale
of Shares. In every instance, facts and circumstances relating to a specific
re-sale transaction may make the following discussion inapplicable. Persons
proposing to engage in a re-sale transaction are advised to consult with experts
before engaging in a re-sale transaction to assure compliance with U.S.
securities laws.
Restricted Securities
In Section 8(e) of the Subscription Agreement, the Purchaser
acknowledges that it is aware that the Debentures, and the Shares issuable on
conversion, are "restricted securities" as defined under the U.S. Securities
Act.
Re-sales of Conversion Shares
In order to enable the Purchaser to resell Shares issuable upon
conversion of a Debenture, the Corporation has agreed in Section 5(e) of the
Subscription Agreement to file and use its best efforts to have declared
effective by the U.S. Securities and Exchange Commission a registration
statement under the U.S. Securities Act. The Corporation has no reason to
believe at this time that it will be unable to have the registration statement
declared effective. However, in the event the registration statement is not
declared effective, a Purchaser will be able to resell the Shares, even if the
resale occurs outside the United States, only upon compliance with an exemption
from the registration requirements of the U.S. Securities Act.
Rule 144 Re-sales
Among other possible exemptions, the exemption under U.S. law most
frequently relied upon by persons who have purchased "restricted securities" is
Rule 144 adopted under the U.S. Securities Act.
After Twelve Months. Rule 144 is available for the sale of restricted
securities after a period of twelve months has expired from the date the
Debentures are purchased and fully paid for. Under the tacking provisions of
Rule 144, the twelve-month period will begin to run on the date the Debentures
are purchased and fully paid for. The holding period relates to the entire time
period the Debentures and Shares are held; it is not necessary that the Shares
issued on conversion be held for twelve months in order to meet the holding
period requirement.
After the twelve-month holding period has been met by a non-U.S.
subscriber, sales of Shares can be made pursuant to Rule 144 through a non-U.S.
broker on a non-U.S. exchange, subject to compliance with (1) the limitations on
the amount of securities that can be sold and (2) the manner of sale provisions
of Rule 144.
The limitation on the amount of Shares that can be sold limits a
selling Shareholder to selling, including sales of Shares made by the selling
Shareholder during the preceding three months, an amount of Shares not exceeding
1% of the Shares outstanding. This calculation is made without reflecting Shares
issuable on conversion or exercise of securities, including the Debentures,
options or warrants. Under certain facts and circumstances, Rule 144 contains
specific provisions regarding the determination of the amount of Shares that can
be sold during the three-month period including, but not limited to, the
following: When two or more affiliates or other persons agree to act in concert
for the purpose of selling Shares of the Corporation, all Shares sold for the
account of such persons during any three-month period will be aggregated for
purposes of determining the limitation on the amount of Shares sold. Rule 144
does not define "acting in concert" and it is a determination made based on
facts and circumstances at the time of the proposed sale. Shares which a selling
Shareholder can sell but which are not included in its determination of the
amount of Shares it can sell in reliance upon Rule 144 include Shares sold in a
transaction exempt pursuant to Section 4 of the U.S. Securities Act and not
involving any public offering (a private sale) and Shares sold offshore pursuant
to Regulation S under the U.S. Securities Act.
The manner of sale provisions require that the Shares be sold in
brokers' transactions and that the person or persons making the sale not solicit
or arrange for the solicitation of orders to purchase the securities in
anticipation of or in connection with the sale or make any payment in connection
with the offer or sale to any person other than
the broker who executes the sale. In order to be a broker's transaction, the
broker executing the sale can do nothing more than execute the order to sell as
agent for the person selling the Shares and receive no more than the customary
commission. In addition, the broker cannot solicit or arrange for the
solicitation of orders to buy the Shares or be aware of circumstances indicating
that the sale is a part of an unlawful distribution of the Shares in violation
of the registration requirements of the U.S. Securities Act.
A notice of sale on Form 144 is to be filed with the U.S. Securities
and Exchange Commission at the time of making a 144 sale.
After Twenty-four Months. After a period of twenty-four months has
expired from the date the Debentures are purchased and fully paid for, and
provided the Shares are to be sold by a person who is not an "affiliate" of the
Corporation, the Shares can be resold through a non-U.S. broker on a non-U.S.
exchange without complying with the above limitations on the amount of
securities sold, the manner of sale provisions and the notice filing
requirements of Rule 144 described above. This exemption is pursuant to Rule
144(k). Under these circumstances, it is the practice of U.S. securities lawyers
to permit the removal of U.S. restrictive legends on securities held by
non-affiliates after the twenty-four month holding period.
Persons who are deemed to be "affiliates" of the Corporation will
continue to be required to comply with the provisions of Rule 144 in making
re-sales of Shares after the twenty-four month holding period including the
limitations on the amount of securities that can be sold, compliance with the
manner of sale provisions and the notice filing requirement of the Rule. You can
assume that under Rule 144 an "affiliate" of the Corporation includes executive
officers, Directors and persons listed in the Corporation's disclosure documents
as 5% or greater stockholders (including shares which the relevant person has
the right to acquire, including through convertible securities and options).
"Affiliate" status is a determination made based upon the facts and
circumstances of the stockholders' relationships with the Corporation at the
time of the proposed sale. Therefore, it is difficult to state a general rule as
to when and whether or not a person may be deemed to be an "affiliate" of the
Corporation. Generally speaking, affiliate status will need to be considered by
the person intending to sell at the time of a proposed sale.
Possible U.S. Trading. If the Corporation's Shares are in the future
listed on a U.S. national securities exchange or are included in the NASDAQ
Stock Market, those facilities would be available for re-sales of Shares
pursuant to Rule 144 on substantially the same terms as re-sales are able to be
conducted on a non-U.S. exchange. However, until the Shares are listed or
included, it should not be expected that public re-sales in the U.S. will be
able to be made.
Absent U.S. trading in the Shares, subject to compliance with the
provisions of Rule 144 with respect to re-sales occurring on a non-U.S. exchange
and any required compliance with Regulation S under the U.S. Securities Act,
there is no prohibition applicable to the Corporation preventing a U.S. citizen
or resident from purchasing Shares.
Possible Private Sales
In addition to re-sales of Shares pursuant to Rule 144, re-sales of
Shares as well as of Debentures may be possible at any time, provided the
transaction is not deemed to be a public distribution by a selling security
holder. In order to rely on this exemption from the registration requirements of
the U.S. Securities Act, care must be taken at the outset to structure the
transaction properly. It is probably sufficient to be aware that an exemption of
this nature can be available but a Shareholder is well advised to seek expert
advice on how to structure and complete the transaction before embarking on it.
Otherwise, a Shareholder may find that steps it takes at the outset may make the
exemption unavailable.
Shares purchased in a private re-sale transaction will continue to be
"restricted securities" as held by the purchaser and continue to be subject to
the re-sale restrictions discussed above. Unless purchased from an affiliate of
the Corporation, the twelve and twenty-four month periods referred to above do
not start again for the purchaser. The purchaser in the private sale is entitled
to tack onto his holding period for the securities the period of time the
securities were held by the initial Purchaser. If the Shares are purchased from
an affiliate of the Corporation in a private sale, the holding period starts
again from the date of the private transaction.
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Regulation S Re-sales
Re-sales of Shares may also be effected pursuant to the provisions of
Regulation S. Under Rule 904 of Regulation S, re-sales by Shareholders who are
non-affiliates of the Corporation or persons who are dealers or persons
receiving a selling concession may be made in "offshore transactions" provided
no directed selling efforts are made in the United States by or on behalf of the
seller.
To meet the requirements of Regulation S for an "offshore transaction,"
the offer to sell the Shares may not be made to a person in the United States
and either (i) at the time the buy order originates, the buyer is outside the
United States or the seller and any person acting on its behalf reasonably
believes the buyer is outside the United States, or (ii) the transaction is
executed on a physical trading floor of an established foreign securities
exchange located outside the United States or the transaction is executed on a
designated offshore trading market and neither the seller nor anyone acting on
its behalf knows that the transaction has been pre-arranged with a buyer in the
United States.
Unless the provisions of Rule 144 described above also are complied
with in effecting the Regulation S re-sale, by virtue of the Corporation being a
U.S. domestic issuer and the provisions of Rule 905 of Regulation S providing
that the Shares held by the selling Shareholder are "restricted securities," the
Shares will remain "restricted securities" in the hands of the re-sale purchaser
and a legend and re-sale restrictions will be required to be imposed with
respect to any further re-sale of the Shares transferred to the person
purchasing Shares in the Rule 904 re-sale transaction. As a practical matter,
this legend requirement, arising out of Rule 905, will generally make re-sales
under Rule 904 of Regulation S that are not also made in compliance with Rule
144 on a Canadian exchange unavailable to be effected, since the exchanges do
not consider that delivery of legended certificates is valid delivery for trades
on the exchange.
3