Exhibit 4.49
EXCHANGE AGREEMENT
AGREEMENT, dated as of April 28, 2001, between American International
Petroleum Corporation (the " Company"), a Nevada corporation, and GCA Strategic
Investment Fund Limited ("Purchaser"), a Bermuda Corporation.
R E C I T A L S:
WHEREAS, the Company desires and Purchaser has agreed to exchange the
Bridge Notes due April 28, 2001, made by the Company and held by Purchaser set
forth on Schedule 1.1 of this Agreement (the "Bridge Notes") for the Company's
$5,936,128.00 aggregate principal amount 3% Convertible Debentures due April 28,
2002 (the " Convertible Debentures"), with terms and conditions as set forth in
the form of Convertible Debenture attached hereto as Exhibit A;
WHEREAS, the Convertible Debentures will be convertible into shares of the
Company's common stock, $0.08 par value per share (the " Common Stock");
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as interest under, and upon conversion of,
the Convertible Debentures (the "Conversion Shares") as set forth in the
Registration Rights Agreement in the form attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Additional Shares of Common Stock" has the meaning set forth in Section
11.6.
"Affiliate" means, with respect to any Person (the " Subject Person"), (i)
any other Person (a " Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Exchange Agreement, as amended, supplemented or
otherwise modified from time to time in accordance with its terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Bridge Notes" has the meaning set forth in the recitals to this Agreement.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the
Company; (ii) any sale or other disposition (other than by reason of death or
disability) to any Person by any executive officers and/or employee directors of
the Company within ten Trading Days following the dates on which the
Registration Statement Amendment and the Registration Statement (as such terms
are defined in Section 10.4 of this Agreement) are declared effective by the
Commission. (iii) individuals constituting the Board of Directors of the Company
on the date hereof (together with any new Directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in office.
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"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. (" Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $0.08 par value per share, of the
Company.
"Company" means American International Petroleum Corporation, a Nevada
corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible
Debenture by the holder thereof to the Company as specified in each Convertible
Debenture.
"Conversion Price" has the meaning set forth in the Convertible Debentures.
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"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Debentures" means the Company's 3% Convertible Debentures due
April 28, 2002 substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
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"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"Formula Price" has the meaning set forth in Section 3.4 (a).
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the
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Uniform Commercial Code or comparable law of any jurisdiction in respect of any
of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at
any time thereafter, the holders of more than 50% in aggregate principal amount
of the 3% Convertible Debentures due April 28, 2002 outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Maturity Date" shall mean the date of maturity of the Convertible
Debentures.
"Maximum Number of Shares" shall mean that percentage that the Company may
issue without shareholder approval under the applicable rules of the National
Market or the applicable OTC Bulletin Board or equivalent entity, of the then
issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
shareholders of the Company may have previously approved.
"Mortgage" means the amendment to the agreement between St. Marks Refinery,
Inc., the Company and Purchaser dated the date hereof substantially in the form
of Exhibit F attached hereto.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the
New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Debenture.
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"Officer's Certificate" shall mean a certificate executed by the president,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock Company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
Group for employees of any member of the ERISA Group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchaser" means GCA Strategic Investment Fund Limited and its successors
and assigns, including holders from time to time of the Convertible Debentures.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(e).
"Registration Statement" has the meaning set forth in Section 10.4(b).
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"Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" shall have the meaning set forth in Section 7.1(a).
"Security Agreement" means the Amendments to the Pledge and Security
Agreements between the Company and Purchaser dated the date hereof substantially
in the form of Exhibit E attached hereto.
"Securities" means the Convertible Debentures, and, as applicable, the
Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Debentures and the completion of the
offering (including without limitation the payment of any fees or expenses in
connection therewith), which such Solvency Certificate shall be in the form of
Exhibit C attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
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"Subsidiary" has the meaning set forth in Section 4.27.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Debentures,
the Registration Rights Agreement, the Security Agreement, the Mortgage and the
other agreements contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) (" GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II. EXCHANGE OF SECURITIES
Section 2.1 Exchange of Securities. Subject to the terms and conditions set
forth herein, the Purchaser agrees to exchange the Bridge Notes due the date
hereof and the Company agrees to issue to Purchaser Convertible Debentures in
the aggregate principal amount of Five Million Nine Hundred Thirty Six Thousand
One Hundred Twenty Eight Dollars ($5,936,128.00).
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Section 2.2 Closing.
(a) The Purchaser shall deliver to the Company each of the Bridge Notes on
the Closing Date in exchange for the Convertible Debentures.
(b) The Convertible Debentures issued on the Closing Date shall be dated
the date hereof and interest shall begin to accrue on the Convertible Debentures
as of the date hereof.
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
Section 3.1 Payment of Principal and Interest; Payment Mechanics. The Company
will pay all amounts due on each Convertible Debenture by the method and at the
address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Debenture or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Debenture, the holder shall surrender the Convertible Debenture
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office. Prior to any sale or other disposition of any
Convertible Debenture, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Debenture to the Company in
exchange for a new Convertible Debenture or Convertible Debentures. The Company
will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Convertible Debenture purchased under this Agreement and that
has made the same agreement relating to this Convertible Debenture as Purchaser
has in this Section 3.1; provided that such transferee is an "accredited
investor" under Rule 501 of the Securities Act.
Section 3.2 Payment of Interest. Interest shall accrue on the outstanding
principal amount of each Convertible Debenture and shall be payable as specified
therein.
Section 3.3 Voluntary Prepayment. For so long as no Event of Default shall have
occurred and is continuing, the Company may, at its option, repay, in whole or
in part, the Convertible Debentures, in accordance with Sections 3 and 5.1 of
Exhibit A hereto, following at least five (5) Business Days prior written notice
to Purchaser (the expiration date of such five (5) Business Day period being
referred to as the "prepayment date"); provided, however, that if such date is
not a Business Day, the prepayment date shall be the next Business Day
thereafter.
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Section 3.4 Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change in Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company to
any Person in a single transaction or series of related transactions, (iii)
a consolidation, merger or amalgamation of the Company with or into another
Person in which the Company is not the surviving entity (other than a
merger which is effected solely to change the jurisdiction of incorporation
of the Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock)
(each of items (i), (ii) and (iii) being referred to as a " Sale Event"),
or (iv) the occurrence of a Registration Default which continues uncured
for a period of twenty (20) days, then, in each case, the Company shall,
upon request of the Majority Holders, redeem the Convertible Debentures,
subject to the provisions of Section 5 of the Convertible Debentures. The
redemption price payable upon any such redemption shall be the Redemption
Price in Section 5 of the Convertible Debentures (referred to herein as the
"Formula Price").
(b) At the option of Purchaser, upon the consummation of one or more
Financings except a Permitted Financing, the Company shall use 25% of the
Net Cash Proceeds therefrom (unless such Net Cash Proceeds from each such
Financing is less than $250,000) to redeem the Convertible Debentures.
(c) Upon the issuance of the Maximum Number of Shares and the failure
within 40 days of such issuance to obtain shareholder approval to issue
additional shares of Common Stock (the " Redemption Event"), the Company
shall redeem the outstanding balance of each Convertible Debenture for the
Formula Price.
(d) In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock registered
under the Registration Statement filed by the Company to fully convert the
Convertible Debentures held by Purchaser and sell such shares issued
thereon, then the Company shall immediately file an amendment to the then
current registration statement to register a sufficient number of such
shares to convert said Convertible Debentures. Upon the failure within
twenty (20) Trading Days to register a sufficient number of such shares,
the Company shall redeem the outstanding balance of each Convertible
Debenture for the Formula Price. In addition, failure of the Company to
register a sufficient number of such shares to fully convert said
Convertible Debentures shall be a Registration Default under Section
10.4(e) from the date of the Notice of Conversion to the date of the
earlier of (i) the redemption of the outstanding balance of the Convertible
Debentures or (ii) full conversion of the Convertible Debentures.
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Section 3.5 Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible
Debentures pursuant to Sections 3.3 or 3.4 above shall be deemed to be
effective and consummated (for purposes of determining the Formula Price
and the time at which Purchaser shall thereafter not be entitled to deliver
a Notice of Conversion for the Convertible Debentures) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event or the Registration Default;
(iii) A redemption pursuant to Section 3.4(b), three (3) Business
Days following the date of consummation of the applicable Financing
(meaning closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), the date specified
in each Convertible Debenture.
(b) On the Maturity Date and on the effective date of a prepayment or
redemption of the Convertible Debentures as specified in Section 3.5(a)
above, the Company shall deliver by wire transfer of funds the
prepayment/redemption price to Purchaser of the Convertible Debentures
subject to prepayment or redemption. Should Purchaser not receive payment
of any amounts due on prepayment or redemption of its Convertible
Debentures by reason of the Company's failure to make payment at the times
prescribed above for any reason, the Company shall pay to the applicable
holder on demand (x) interest on the sums not paid when due at an annual
rate equal to the greater of (I) the maximum lawful rate and (II) 18% per
annum, compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but not
limited to, reasonable attorneys' fees and costs, whether or not suit or
other formal proceedings are instituted.
(c) The Company shall select the Convertible Debentures to be redeemed
in any redemption in which not all of the Convertible Debentures are to be
redeemed so that the ratio of the Convertible Debentures of each holder
selected for redemption to the total Convertible Debentures owned by that
holder shall be the same as the ratio of all such Convertible Debentures
selected for redemption bears to the total of all then outstanding
Convertible Debentures. Should any Convertible Debentures required to be
redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the applicable Convertible Debentures shall be
redeemed on the earliest possible dates thereafter to the maximum extent
permitted by law.
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(d) Any Notice of Conversion delivered by Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or (y)
effective date of a voluntary prepayment pursuant to Section 3.3 or a
mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a)
above), shall be honored by the Company and the conversion of the
Convertible Debentures shall be deemed effected on the Conversion Date. In
addition, between the effective date of a voluntary prepayment pursuant to
Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as specified
in Section 3.5(a) above and the date the Company is required to deliver the
redemption proceeds in full to Purchaser, Purchaser may deliver a Notice of
Conversion to the Company. Such notice will be (x) of no force or effect if
the Company timely pays the prepayment or redemption proceeds to Purchaser
when due or (y) honored on or as of the date of the Notice of Conversion if
the Company fails to timely pay the prepayment or redemption proceeds to
Purchaser when due.
Section 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Debentures to Purchaser and each "qualified assignee" thereof
shall be made free and clear of and without deduction or withholding for
any and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless such Taxes are required by law
or the administration thereof to be deducted or withheld. If the Company
shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the
Convertible Debentures (i) the holders of the Convertible Debentures
subject to such Taxes shall have the right, but not the obligation, for a
period of thirty (30) days commencing upon the day it shall have received
written notice from the Company that it is required to withhold Taxes to
transfer all or any portion of the Convertible Debentures to a qualified
assignee to the extent such transfer can be effected in accordance with the
other provisions of this Agreement and applicable law; (ii) the Company
shall make such deductions or withholdings; (iii) the sum payable shall be
increased as may be necessary so that after making all required deductions
or withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 3.6) Purchaser receives an
amount equal to the sum it would have received if no such deduction or
withholding had been made; and (iv) the Company shall forthwith pay the
full amount deducted or withheld to the relevant taxation or other
authority in accordance with applicable. A "qualified assignee" of a
Purchaser is a Person that is organized under the laws of (i) the United
States or (II) any jurisdiction other than the United States or any
political subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws in
existence on the date of this Agreement would not be subject to any Taxes
and (z) from time to time, as and when requested by the Company, executes
and delivers to the Company and the Internal Revenue Service forms, and
provides the Company with any information necessary to establish such
assignee's continued exemption from Taxes under applicable law.
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(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "
Other Taxes") which arise from any payment made under any of the
Transaction Agreements or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement other than Taxes payable
solely as a result of the transfer from Purchaser to a Person of any
Security.
(c) The Company shall indemnify Purchaser, or qualified assignee, for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section 3.6) paid by Purchaser, or qualified assignee, and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be
made within 30 days from the date Purchaser or assignee makes written
demand therefor. A certificate as to the amount of such Taxes or Other
Taxes submitted to the Company by Purchaser or qualified assignee shall be
conclusive evidence of the amount due from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the Company
will furnish to Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating that it
is a non-U.S. person, together with any additional tax forms which may be
required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser as of the Closing Date the
following:
Section 4.1 Organization and Qualification. The Company and each Subsidiary is a
corporation (or other legal entity) duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with full power
and authority to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted. The
Company and each subsidiary is qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect. A " Material Adverse
Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
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Section 4.2 Authorization and Execution.
(a) The Company and each Subsidiary, as applicable, has all requisite
corporate power and authority to enter into and perform each Transaction
Agreement and to consummate the transactions contemplated hereby and
thereby and to issue the Securities in accordance with the terms hereof and
thereof.
(b) The execution, delivery and performance by the Company and each
Subsidiary, as applicable, of each Transaction Agreement and the issuance
by the Company of the Securities, have been duly and validly authorized by
the Board of Directors of the Company and each Subsidiary, as applicable,
and no further consent or authorization of the Company or its Subsidiaries,
their Board of Directors or the Company's shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the Transaction Agreements will constitute,
a valid and binding agreement of the Company and each Subsidiary, as
applicable, in each case enforceable against the Company and each
Subsidiary, as applicable, in accordance with its respective terms.
Section 4.3 Capitalization. As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 4.3 hereto
and except as set forth on Schedule 4.3 no other shares of capital stock of the
Company will be outstanding as of the Closing Date. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or similar rights of the shareholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Other than as set forth on Schedule 4.3 hereto, as of the
date hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Convertible Debentures or Conversion Shares. The Company has furnished to
Purchaser true and correct copies of the Company's Corporate Documents, and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
15
Section 4.4 Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications (" Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Conversion Shares issuable
upon conversion of the Convertible Debentures and (d) the filing of a "Form D"
as described in Section 7.13 below.
Section 4.5 Issuance of Shares. Upon conversion in accordance with the terms of
the Convertible Debentures, the Conversion Shares shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance other than those created by
Purchaser and shall not be subject to preemptive rights or similar rights of any
other shareholders of the Company. Assuming the representations and warranties
of Purchaser herein are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all applicable U.S.
federal and state securities laws. The Company understands and acknowledges
that, in certain circumstances, the issuance of Conversion Shares could dilute
the ownership interests of other shareholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Debentures is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
Section 4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation known by the
Company to be applicable to it, (ii) the Company Corporate Documents, (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary except those created by the Transaction Agreements. The Company and
each Subsidiary is in compliance with and conforms to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any instrumentality
thereof having jurisdiction over the conduct of its businesses or the ownership
of its properties, except where such failure would not have a Material Adverse
Effect.
Section 4.7 Financial Information. Since December 31, 2000 (the " Balance Sheet
Date"), except as disclosed in Schedule 4.7, there has been (x) no material
adverse change in the assets
16
or liabilities, or in the business or condition, financial or otherwise, or in
the results of operations or prospects, of the Company and its Subsidiaries,
whether as a result of any legislative or regulatory change, revocation of any
license or rights to do business, fire, explosion, accident, casualty, labor
trouble, flood, drought, riot, storm, condemnation, act of God, public force or
otherwise and (y) no material adverse change in the assets or liabilities, or in
the business or condition, financial or otherwise, or in the results of
operations or prospects, of the Company and its subsidiaries except in the
ordinary course of business; and to the knowledge of the Company no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future. The audited consolidated balance sheets of the Company and
its Subsidiaries for the period ending December 31, 2000, and the related
consolidated statements of income, changes in shareholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and (ii) have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such financial statements
fairly present the financial condition of the Company and its Subsidiaries at
the dates indicated and the consolidated results of their operations and cash
flows for the periods then ended and, except as indicated therein, reflect all
claims against and all Debts and liabilities of the Company and its
Subsidiaries, fixed or continency required to be reflected therein.
Section 4.8 Litigation. Except as set forth on Schedule 4.8, there is no action,
suit or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
of an adverse decision which could be reasonably expected to have a Material
Adverse Effect or which challenges the validity of any Transaction Agreements.
Section 4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the " Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all
17
applicable laws. All required employer and employee contributions and premiums
under the Benefit Plans to the date hereof have been made, the respective fund
or funds established under the Benefit Plans are funded in accordance with
applicable laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
Section 4.10 Environmental Matters. The costs and liabilities associated with
Environmental Laws (including the cost of compliance therewith) are unlikely to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses
in compliance in all material respects with all applicable Environmental Laws.
Section 4.11 Taxes. All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
Section 4.12 Investments, Joint Ventures. Other than as set forth in Schedule
4.12, the Company has no other direct or indirect Investment in any Person, and
the Company is not a party to any partnership, management, shareholders' or
joint venture or similar agreement.
Section 4.13 Not an Investment Company. Neither the Company nor any Subsidiary
is an "Investment Company" within the meaning of Investment Company Act of 1940,
as amended.
Section 4.14 Full Disclosure. The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
18
Section 4.15 No Solicitation; No Integration with Other Offerings. No form of
general solicitation or general advertising was used by the Company or, to the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Securities. Neither the Company,
nor, to its knowledge, any Person acting on behalf of the Company, has, either
directly or indirectly, sold or offered for sale to any Person (other than
Purchaser) any of the Securities or, within the six months prior to the date
hereof, any other similar security of the Company except as contemplated by this
Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to Purchaser will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the any National Market.
Section 4.16 Permits. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit, except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.
Section 4.17 Leases. Neither the Company nor any Subsidiary is a party to any
capital lease obligation with a value greater than $250,000 or to any operating
lease with an aggregate annual rental greater than $250,000 during the life of
such lease.
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There are
no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
Section 4.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
19
Section 4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
to the knowledge of the Company, patents, trademarks, trade names, copyrights,
technology, know-how and processes (collectively, " Intellectual Property") used
in, or necessary for the conduct of its business; no claims have been asserted
by any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of Company's and its Subsidiaries' knowledge, there is no
valid basis for any such claim and the use of such Intellectual Property by the
Company and its Subsidiaries will not infringe upon the rights of any Person.
Section 4.21 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
Section 4.22 Title to Properties. The Company and its Subsidiaries have good and
marketable title to all their respective properties reflected on the financial
statements referred to in Section 4.7, free and clear of all Liens. The property
designated as collateral in the Mortgage is owned by the Company or its
Subsidiaries free and clear of all Liens except as set forth therein.
Section 4.23 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.24 Reserved.
Section 4.25 Foreign Practices. Neither the Company nor any of its Subsidiaries
nor, to the Company's knowledge, any employee or agent of the Company or any
Subsidiary has made any payments of funds of the Company or Subsidiary, or
received or retained any funds, in each case in violation of any law, rule or
regulation.
Section 4.26 Title to Certain Assets. The Company owns the assets designated as
collateral and described on Exhibit A to the Security Agreement, free and clear
of any lien.
20
Section 4.27 Subsidiaries. Except for the directly and indirectly owned
subsidiaries of the Company as set forth on Schedule 4.27 (the "Subsidiaries"),
the Company does not own or hold any shares of stock or any other security or
interest in any other equity, or any rights to acquire any such security or
interest. Except for the Subsidiaries disclosed on Schedule 4.27, the Company
has never had any subsidiary corporation of which the securities having a
majority of voting power in electing the board of directors or representing a
majority of the economic interests were, at the time as of which any
determination was made, owned by the Company either directly or indirectly. The
number of authorized, issued and outstanding shares of capital stock of the
Subsidiaries is as set forth on Schedule 4.27. All outstanding shares of the
Subsidiaries capital stock are validly issued, fully paid and nonassessable, are
free from, and were not issued in violation of any preemptive rights, and are
owned of record and beneficially by the Company.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1 Purchaser. Purchaser hereby represents and warrants to the Company
that:
(a) Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it
pursuant to this Agreement are being acquired for its own account and, as
of the date hereof, not with a view toward, or for sale in connection with,
any distribution thereof except in compliance with applicable United States
federal and state securities law; provided that the disposition of
Purchaser's property shall at all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
exchange of the Securities pursuant thereto are within Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon Purchaser;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as
specified in this Agreement or the remaining Transaction Agreements;
(f) this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency
21
or similar laws affecting the enforceability of creditors rights generally
and (ii) equitable principles of general applicability;
(g) Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and Purchaser is capable of bearing the
economic risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient to
enable it to evaluate its investment in the Securities; Purchaser has been
afforded the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning
the terms and conditions of the offering of the Securities and the merits
and the risks of investing in the Securities; and Purchaser has been
afforded the opportunity to obtain such additional information which the
Company possesses or can acquire that is necessary to verify the accuracy
and completeness of the information given to Purchaser concerning the
Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained
by Purchaser in which any employee benefit plan (or its related trust) has
any interest; and
(j) Purchaser is a corporation organized under the laws of Bermuda.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase. The
obligation of Purchaser hereunder to exchange the Convertible Debentures at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by Purchaser at any time in its sole discretion:
(a) The Company and each Subsidiary, as required, shall have duly
executed this Agreement, the Registration Rights Agreement, and the
Security Agreement, the Mortgage and all other appropriate financing
statements, and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser a duly executed
certificate representing the Convertible Debenture in accordance with
Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
22
(d) The representations and warranties of the Company and its
Subsidiaries contained in each Transaction Agreement shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specified date) and the Company and its
Subsidiaries shall have performed, satisfied and complied with all
covenants, agreements and conditions required by such Transaction
Agreements to be performed, satisfied or complied with by them at or prior
to the Closing Date. Purchaser shall have received an Officer's Certificate
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by Purchaser, including but not limited to
certificates with respect to the Company and Subsidiary Corporate
Documents, resolutions relating to the transactions contemplated hereby and
the incumbencies of certain officers and Directors of the Company. The form
of such certificate is attached hereto as Exhibit D;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and exchange of the Securities
and the consummation of the transactions contemplated by the Transaction
Agreements;
(f) All applicable waiting periods in respect to the issuance and
exchange of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent or
impose any materially adverse conditions thereon or that could seek or
threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that, in
the judgment of Purchaser, could adversely affect the transactions set
forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchaser could reasonably have any such effect;
(h) Purchaser shall have received an opinion, dated the Closing Date,
of counsel to the Company, in form and substance satisfactory to Purchaser;
(i) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of Purchaser;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since December 31,
2000;
23
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or Purchaser hereunder;
(m) Purchaser shall have confirmed the receipt of the Convertible
Debentures to be issued, duly executed by the Company in the denominations
and registered in the name of Purchaser;
(n) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which
Purchaser reasonably deems material in connection with the purchase of the
Securities; and
(o) As of the Closing Date, no Default or Event of Default shall have
occurred and be continuing;
Section 6.2 Conditions to the Company's Obligations. The obligations of the
Company to issue and exchange the Securities to Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on the Closing Date and
Purchaser shall have performed and complied in all material respects with
all agreements required by this Agreement to be performed or complied with
by Purchaser at or prior to the Closing Date;
(b) The issue and exchange of the Securities by the Company shall not
be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by Purchaser;
(d) The Company shall have received the Bridge Notes for cancellation;
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
24
Section 7.1 Information. The Company will deliver to each holder of the
Convertible Debentures:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q
and 8-K (or other equivalents) which the Company or any Subsidiary has
filed with the Commission (collectively, "SEC Reports");
(b) simultaneously with the delivery of each item referred to in
clause (a) above, a certificate from the chief financial officer of the
Company stating that no Default or Event of Default has occurred and is
continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting forth
the details of such Default or Event of Default and the action which the
Company is taking or proposes to take with respect thereto;
(c) within two (2) days after any officer of the Company obtains
knowledge of a Default or Event of Default, or that any Person has given
any notice or taken any action with respect to a claimed Default hereunder,
a certificate of the chief financial officer of the Company setting forth
the details thereof and the action which the Company is taking or proposed
to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(e) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible
Debentures under Section 3.4, notice thereof together with a summary of all
material terms thereof and copies of all documents and instruments
associated therewith;
(f) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum
number of Conversion Shares issuable pursuant to the Transaction
Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any Subsidiary is a party in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought.
Section 7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by
25
appropriate proceedings and will maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same.
Section 7.3 Maintenance of Property; Insurance. The Company will, and will cause
each Subsidiary to, keep all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted. In addition,
the Company and each Subsidiary will maintain insurance in at least such amounts
and against such risks as it has insured against as of the Closing Date.
Section 7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
Section 7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
Section 7.6 Inspection of Property, Books and Records. The Company will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and transactions in
relation to their respective businesses and activities; and will permit, during
normal business hours, Purchaser' Representative or an affiliate thereof, as
representatives of Purchaser, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will not
result in any unreasonable expense to the Company, without Company consent), all
at such reasonable times.
Section 7.7 Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
Section 7.8 Reserved.
26
Section 7.9 Compliance with Terms and Conditions of Material Contracts . The
Company will, and will cause each Subsidiary to, comply, in all respects, with
all terms and conditions of all material contracts to which it is subject.
Section 7.10 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Convertible Debentures and issuance
of the Conversion Shares (based on the conversion price of the Convertible
Debentures in effect from time to time (the "Reserved Amount"). The Company
shall not reduce the Reserved Amount without the prior written consent of
Purchaser. With respect to all Securities which contain an indeterminate number
of shares of Common Stock issuable in connection therewith (such as the
Convertible Debentures), the Company shall include in the Reserve Amount, no
less than two (2) times the number of shares that is then actually issuable upon
conversion or exercise of such Securities. If at any time the number of shares
of Common Stock authorized and reserved for issuance is below the number of
Conversion Shares issued or issuable upon conversion of the Convertible
Debentures, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, either (x) calling a special meeting of shareholders to authorize
additional shares, in the case of an insufficient number of authorized shares or
(y) in lieu thereof, consummating the immediate repurchase of the Convertible
Debentures contemplated in Sections 3.4(c) and 10.3 hereof, respectively. In
addition to the foregoing, the Company shall undertake to authorize an
additional 50,000,000 shares of its Common Stock at its Annual Meeting of
Shareholders not later than July 15, 2001, and to reserve the Reserved Amount
for issuance of the Conversion Shares to Purchaser in accordance with the
provisions of this Agreement.
(b) The Company shall promptly file the Listing Applications and secure the
listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Convertible
Debentures. The Company will maintain the listing and trading of its Common
Stock on the OTC Bulletin Board. The Company will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers, Inc. (the "NASD") and such
exchanges, as applicable. The Company shall promptly provide to Purchaser copies
of any notices it receives from Nasdaq regarding the continued eligibility of
the Common Stock for listing on the OTC Bulletin Board or any National Market,
as applicable.
Section 7.11 Transfer Agent Instructions. Upon receipt of a Notice of
Conversion, the Company shall immediately direct the Company's transfer agent to
issue certificates, registered in the name of Purchaser or its nominee, for the
Conversion Shares, in such amounts as specified from time to time by Purchaser
to the Company upon proper conversion of the Convertible Debentures. Upon
conversion of any Convertible Debentures in accordance with
27
their terms the Company will, and will use its best lawful efforts to cause its
transfer agent to, issue one or more certificates representing shares of Common
Stock in such name or names and in such denominations specified by a Purchaser
in a Notice of Conversion. As long as the Registration Statement contemplated by
the Registration Rights Agreement shall remain effective, the shares of Common
Stock issuable upon conversion of any Convertible Debentures shall be issued to
any transferee of such shares from Purchaser without any restrictive legend upon
appropriate evidence of transfer in compliance with the Securities Act and the
rules and regulations of the Commission; provided that for so long as the
Registration Statement is effective, no opinion of counsel will be required to
effect any such transfer. The Company further warrants and agrees that no
instructions other than these instructions have been or will be given to its
transfer agent. Nothing in this Section 7.11 shall affect in any way a
Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
Section 7.12 Maintenance of Reporting Status; Supplemental Information. So long
as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
Section 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D" with
respect to the Securities as required under Regulation D of the Securities Act
and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for exchange
with Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to Purchaser on or prior to the Closing Date.
Section 7.14 Certain Payments. The Company agrees to pay all title insurance,
filing, recordation or other fees, including any taxes, relating to the
execution and perfection of the security interest evidenced by the Mortgage, and
to cooperate with Purchaser in connection with filing the appropriate documents
for the perfection of such security interest.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that from and after the date hereof for so long
as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
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Section 8.1 Limitations on Debt or Other Liabilities. Neither the Company nor
any Subsidiary will create, incur, assume or suffer to exist (at any time after
the Closing Date, after giving effect to the application of the proceeds of the
issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted
Financing, (y) Debt incurred in connection with equipment leases to which the
Company or its Subsidiaries are a party incurred in the ordinary course of
business; and (z) Debt incurred in connection with trade accounts payable,
imbalances and refunds arising in the ordinary course of business and (ii) any
equity securities (including Derivative Securities) (other than those securities
that are issuable (x) under or pursuant to stock option plans, warrants or other
rights programs that exist as of the date hereof, (z) in connection with the
acquisition (including by merger) of a business or of assets otherwise permitted
under this Agreement), unless the Company complies with the mandatory prepayment
terms of Section 3.4(b) hereof.
Section 8.2 Transactions with Affiliates. The Company and each Subsidiary will
not, directly or indirectly, pay any funds to or for the account of, make any
investment (whether by acquisition or stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate, except, (1) pursuant to those agreements
specifically identified on Schedule 8.2 attached hereto (with a copy of such
agreements annexed to such Schedule 8.2) and (2) on terms to the Company or such
Subsidiary no less favorable than terms that could be obtained by the Company or
such Subsidiary from a Person that is not an Affiliate of the Company upon
negotiation at arms' length, as determined in good faith by the Board of
Directors of the Company; provided that no determination of the Board of
Directors shall be required with respect to any such transactions entered into
in the ordinary course of business.
Section 8.3 Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
Section 8.4 Limitation on Asset Sales. Neither the Company nor any Subsidiary
will consummate an Asset Sale of material assets of the Company or any
Subsidiary without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary
29
course of business; provided, however, Asset Sale shall not include the sale of
a portion of the Company's ownership interest in License 1551 or License 953
relating to the development of certain oil and gas fields in Kazakhstan and the
sale of any oil or gas resulting from the development of such property under
License 1551 or License 953 owned by the Company.
Section 8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, except for the Company's 5% Secured
Convertible Debentures due February 18, 2004, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
Section 8.6 Prohibition on Discounted Equity Offerings.
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above, beginning on the Closing Date and continuing until 180
days following the date on which the Registration Statement is declared
effective by the Commission (the "Effective Date") or until such time as
all of the Convertible Debentures have been either redeemed or converted
into Conversion Shares in full, whichever is later to occur, the Company
agrees that it will not issue any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities (the
"Derivative Securities")) on terms that allow a holder thereof to acquire
such equity securities (or Derivative Securities) at a discount to the
Market Price of the Common Stock at the time of issuance or, in the case of
Derivative Securities at a conversion price based on any formula (other
than standard anti-dilution provisions) based on the Market Price on a date
later than the date of issuance so long as such conversion is not below the
Market Price on the date of issuance (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be limited
to, (i) any warrant, right or other security granted or offered in
connection with such issuance which, on the applicable date of grant, is
offered with an exercise or conversion price, as the case may be, at less
than the then current Market Price of the Common Stock or, if such security
has an exercise or conversion price based on any formula (other than
standard anti-dilution provisions) based on the Market Price on a date
later than the date of issuance, then at a price below the Market Price on
such date of exercise or conversion, as the case may be, or (ii) any
commissions, fees or other allowances paid in connection with such
issuances (other than customary underwriter or placement agent commissions,
fees or allowances). For the purposes of determining the Market Price at
which Common Stock is acquired under this Section, normal underwriting
commissions and placement fees (including underwriters' warrants) shall be
excluded.
(b) Beginning on the Closing Date and continuing until 180 days
following the Effective Date or until such time as all of the Convertible
Debentures have been either redeemed or converted into Conversion Shares in
full, whichever is later to occur,
30
the Company agrees it will not issue any of its equity securities (or
Derivative Securities), unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities." As used
herein "restricted securities" shall mean securities which may not be sold
by virtue of contractual restrictions imposed by the Company or otherwise,
in each case prior to twelve (12) months following the date of issuance of
such securities.
(c) The restrictions contained in this Section 8.6 shall not apply to
the issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this
Agreement, or (ii) stock option or other compensatory plans.
Section 8.7 Limitation on Stock Repurchases. Except as otherwise set forth in
the Convertible Debentures, the Company shall not, without the written consent
of the Majority Holders, redeem, repurchase or otherwise acquire (whether for
cash or in exchange for property or other securities or otherwise) any shares of
capital stock of the Company or any warrants, rights or options to purchase or
acquire any such shares.
ARTICLE IX. RESTRICTIVE LEGENDS
Section 9.1 Restrictions on Transfer. From and after their respective dates of
issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
Section 9.2 Notice of Proposed Transfers. Prior to any proposed Transfer of the
Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement and the Registration Rights Agreement, or (iii) to be made in
reliance on Rule 144 under the Securities Act), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in
31
the immediately preceding sentence, whereupon the holder of such Securities
shall be entitled to Transfer such Securities in accordance with the terms of
the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 10.1 Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause its
transfer agent to, issue and deliver shares of Common Stock consistent with
Section 7.11 hereof within three (3) New York Stock Exchange Trading Days
of delivery of a Notice of Conversion (the "Deadline") to Purchaser (or any
party receiving Securities by transfer from Purchaser) at the address of
Purchaser set forth in the Notice of Conversion, as the case may be. The
Company understands that a delay in the issuance of such certificates after
the Deadline could result in economic loss to Purchaser.
(b) Without in any way limiting Purchaser's right to pursue other
remedies, including actual damages and/or equitable relief, the Company
agrees that if delivery of the Conversion Shares is more than one (1)
Business Day after the Deadline (other than a failure due to the
circumstances described in Section 4.3 of the Convertible Debentures, which
failure shall be governed by such Section) the Company shall pay to
Purchaser, as liquidated damages and not as a penalty, $500 for each
$100,000 principal amount of Convertible Debentures then outstanding per
day in cash, for each of the first ten days following the Deadline that the
Company fails to deliver such Common Stock, and $1,000 for each $100,000
principal amount of Convertible Debentures then outstanding per day in
cash, for each day thereafter the Company fails to deliver such Common
Stock. Such cash amount shall be paid to Purchaser upon demand.
Section 10.2 Conversion Notice. The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this Agreement) to effect delivery to a Purchaser of certificates with or
without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Debentures, Purchaser will be entitled, if prior to the delivery of
such certificates, to revoke the Notice of Conversion, by delivering a notice to
such effect to the Company whereupon the Company and Purchaser shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion.
Section 10.3 Conversion Limit. Notwithstanding the conversion rights under the
Convertible Debentures, unless Purchaser delivers a waiver in accordance with
the immediately following sentence, in no event shall Purchaser be entitled to
convert any portion of the Convertible Debentures, in excess of that portion of
the Convertible Debentures, as applicable, of which the sum of (i) the number of
shares of Common Stock beneficially owned by Purchaser
32
and its Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Convertible Debenture or other Derivative Securities convertible into or
exchangeable for shares of Common Stock which contain a limitation similar to
that set forth in this Section 10.3), and (ii) the number of shares of Common
Stock issuable upon the conversion of the portion of the Convertible Debenture
with respect to which this determination is being made, would result in
beneficial ownership by Purchaser and its Affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of Section 10.3(i) beneficial
ownership shall be determined in accordance with Rule 13d-3 of the Exchange Act
and Regulations 13 D-G thereunder, except as otherwise provided in this Section
10.3. The foregoing limitation shall not apply and shall be of no further force
or effect (i) immediately preceding and upon the occurrence of any voluntary or
mandatory redemption or repayment transaction described herein or in the
Convertible Debentures, (ii) immediately preceding and upon any Sale Event,
(iii) on the Maturity Date or (iv) following the occurrence of any Event of
Default which is not cured for a period of ten (10) calendar days.
Section 10.4 Registration Rights.
(a) The Company shall grant Purchaser registration rights covering the
Conversion Shares (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
The Company shall prepare and file within seven (7) days following the
Company's Annual Meeting of Shareholders' for 2001, which meeting shall not
take place later than July 15, 2001 (the "Filing Date"), a registration
statement (the "Registration Statement") to register not less than
30,000,000 of Common Stock to cover the resale of the Registrable
Securities. In the event the Company fails to file the Registration
statement by the Filing Date, the Company shall pay Purchaser as liquidated
damages, and not as a penalty, an amount of cash equal to one percent of
the aggregate principal amount of Convertible Debentures then outstanding
per day until the Registration Statement is filed with the Commission. The
Company shall use its best efforts to cause the Registration Statement to
be declared effective by the Commission or the earlier of (i) 60 days
following the Filing Date or (ii) ten days following the receipt of a "no
review" or similar letter from the Commission (the "Required Effectiveness
Date"). The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such registration statement by
Purchaser).
(b) If the Registration Statement is not declared effective by the
Commission by the Required Effectiveness Date, the Company shall pay to
Purchaser, as liquidated damages and not as a penalty, an amount equal to
2% of the outstanding principal amount of the Convertible Debentures,
prorated, for each 30 day period the Registration Statement is not declared
effective by the Commission, which amount will be increased to 3% of the
outstanding principal amount of the Convertible Debentures in the event
that the Registration Statement is not declared effective by the Commission
within 90 days of the Filing Date. In the event the Company fails to obtain
an effective registration
33
statement by the 120th day following the Filing Date, the Company will
redeem the Convertible Debentures as set forth in Section 5 of the
Convertible Debentures. Additionally, the Company will grant to Purchaser
certain piggyback registration rights in the event the Company proposes to
effect a registered offering of Common Stock or warrants or both prior to
the filing of the Registration Statement referenced above.
(c) Any such liquidated damages shall be paid in cash by the Company
to Purchaser by wire transfer in immediately available funds on the last
day of each calendar week following the event requiring its payment.
(d) If, following the declaration of effectiveness of the Registration
Statement, such registration statement (or any prospectus or supplemental
prospectus contained therein) shall cease to be effective for any reason
(including but not limited to the occurrence of any event that results in
any prospectus or supplemental prospectus containing an untrue statement of
a material fact or omitting a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading) for the period
required in the Registration Rights Agreement (the "Registration
Maintenance Period"), the Company fails to file required amendments to the
Registration Statement in order to allow the Purchaser to exercise its
rights to receive unrestricted, unlegended, freely tradeable shares of
Common Stock, or if for any reason there are insufficient shares of such
shares of Common Stock registered under the then current Registration
Statement to effect full conversion of the Convertible Debentures (a
"Registration Default"), the Company shall immediately take all necessary
steps to cause the Registration Statement to be amended or supplemented so
as to cure such Registration Default. Failure to cure a Registration
Default within ten (10) business days shall result in the Company paying to
Purchaser liquidated damages at the rate of $1,000 per day from the date of
such Registration Default until the Registration Default is cured.
Section 10.5 Restriction on Issuance of Securities. Beginning on the Closing
Date and continuing for a period of 180 days following the Effective Date or
until the Convertible Debentures have been fully converted into shares of Common
Stock, whichever is later to occur, the Company will not sell, or offer to sell,
any securities (including credit facilities which are convertible into
securities which may be issued at a discount to the then current Market Price)
other than borrowings that provide for the payment of the Convertible
Debentures, or the Company's 5% Convertible Secured Debenture issued to the
Halifax Fund, L.P., borrowings under conventional credit facilities existing as
of the date hereof, stock issued or credit facilities to be established in
connection with acquisitions, employee and director stock options of the
Company, existing rights and warrants of the Company and securities issued under
the Convertible Debentures. In addition, the Company shall not issue any
securities in connection with a strategic alliance entered into by the Company
unless such securities are the subject of a one year statutory or contractual
hold period or, if not subject to such a hold period, unless the Purchaser has
fully converted all outstanding Convertible Debentures. Notwithstanding the
foregoing, the Company may enter into the following types of transactions
(collectively referred to as "Permitted Financings"): (1) "permanent financing"
transactions, which would include any
34
form of debt or equity financing (other than an underwritten offering), which is
followed by a reduction of the said financing commitment to zero and payment of
all related fees and expenses; (2) "project financing" which provide for the
issuance of recourse debt instruments in connection with the operation of the
Company's business as presently conducted or as proposed to be conducted; (3) an
underwritten offering of Common Stock, provided that such offering provides for
the registration of the Common Stock to be received by Purchaser as a result of
the conversion of the Convertible Debentures held by the Purchaser to the extent
there is not an effective Registration Statement for the sale of the Conversion
Shares in place at the time of such offering; and (4) other financing
transactions specifically consented to in writing by the Purchaser.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
Section 11.1 Reorganization. The Conversion Price the ("Fixed Price") shall be
adjusted, as applicable, as hereafter provided.
Section 11.2 Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a smaller
number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the Fixed Price shall be adjusted, effective immediately after the
record date at which the holders of Common Stock are determined for the purposes
of the Share Reorganization or, if no record date is fixed, the effective date
of the Share Reorganization, by multiplying the Fixed Price in effect on such
record or effective date, as the case may be, by a fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
35
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in
the case of a distribution of securities convertible into or exchangeable
for shares of Common Stock, the number of shares of Common Stock that would
have been outstanding if such securities had been converted into or
exchanged for Common Stock on such record or effective date.
Section 11.3 Rights Offering. If and whenever the Company shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants under
which such holders are entitled, during a period expiring not more than 45 days
after the record date of such issue, to subscribe for or purchase Common Stock
(or Derivative Securities), at a price per share (or, in the case of securities
convertible into or exchangeable for Common Stock, at an exchange or conversion
price per share at the date of issue of such securities) of less than 95% of the
Market Price of the Common Stock on such record date (any such event being
herein called a "Rights Offering"), then in each such case the Fixed Price shall
be adjusted, effective immediately after the record date at which holders of
Common Stock are determined for the purposes of the Rights Offering, by
multiplying the Fixed Price in effect on such record date by a fraction of
which:
(i) the numerator shall be the sum of:
(i) the number of shares of Common Stock outstanding on such record
date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common Stock so
offered for subscription or purchase and the price at which such
shares are so offered, or
(y) the product of the maximum number of shares of Common Stock
into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and
the conversion or exchange price of such securities, or, as the case
may be, by
(B) the Market Price of the Common Stock on such record date; and
(ii) the denominator shall be the sum of:
(i) the number of shares of Common Stock outstanding on such record
date; and
(II) the number of shares of Common Stock so offered for subscription
or purchase (or, in the case of Derivative Securities, the maximum number
of shares of
36
Common Stock for or into which the securities so offered for subscription
or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the Fixed Price shall be readjusted effective
immediately after such expiry time to the Fixed Price which would then have been
in effect upon the number of shares of Common Stock (or Derivative Securities)
actually delivered upon the exercise of such rights, options or warrants.
Section 11.4 Special Distribution. If and whenever the Company shall issue or
distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the Fixed Price shall be adjusted,
effective immediately after the record date at which the holders of Common Stock
are determined for purposes of the Special Distribution, by multiplying the
Fixed Price in effect on such record date by a fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock outstanding on
such record date and the Market Price of the Common Stock on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other
assets issued or distributed in the Special Distribution (net of any
consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
37
Section 11.5 Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common Stock
or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Debentures
after the effective date of such Capital Reorganization shall be entitled to
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
Section 11.6 Purchase Price Adjustments. In case at any time and from time to
time the Company shall issue any shares of Common Stock or Derivative Securities
convertible or exercisable for shares of Common Stock (the number of shares so
issued, or issuable upon conversion or exercise of such Derivative Securities,
as applicable, being referred to as "Additional Shares of Common Stock") for
consideration less than the then Market Price at the date of issuance of such
shares of Common Stock or such Derivative Securities, in each such case the
Conversion Price shall, concurrently with such issuance, be adjusted by
multiplying the Conversion Price immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
38
Section 11.7 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) no adjustment in the Fixed Price shall be required unless such
adjustment would result in a change of at least 1% in the Fixed Price then
in effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent
adjustment;
(b) if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such
provisions, the Company will give notice of such event as provided herein,
and the Company's board of directors will make an appropriate adjustment in
the Fixed Price so that the rights of the holders of the applicable
Security shall not be diminished by such event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the Fixed Price, such dispute shall be conclusively
determined by the auditors of the Company or, if they are unable or
unwilling to act, by a firm of independent chartered accountants selected
by the Directors and any such determination shall be binding upon the
Company and Purchaser.
Section 11.8 Certificate as to Adjustment. The Company shall from time to time
promptly after the occurrence of any event which requires an adjustment in the
Fixed Price deliver to Purchaser a certificate specifying the nature of the
event requiring the adjustment, the amount of the adjustment necessitated
thereby, the Fixed Price after giving effect to such adjustment and setting
forth, in reasonable detail, the method of calculation and the facts upon which
such calculation is based.
Section 11.9 Notice to Holders. If the Company shall fix a record date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
39
(e) Sale Event; or
(f) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
Section 12.1 Events of Default. If one or more of the following events (each an
"Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any part
of the principal on any of the Convertible Debentures (whether by virtue of
the agreements specified in this Agreement or the Convertible Debentures);
(b) failure by the Company to pay (i) within five (5) Business Days of
the due date thereof any interest on any Convertible Debentures or (ii)
within five (5) Business Days following the delivery of notice to the
Company of any fees or any other amount payable (not otherwise referred to
in (a) above or this clause (b)) by the Company under this Agreement or any
other Transaction Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 7.11 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(d) failure on the part of the Company to observe or perform any
covenant contained in Section 7.10 or Article VIII of this Agreement, which
failure is not cured within five business days of such failure;
(e) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than
those covered by clauses (a), (b), (c) or (d) above) for 30 days from the
date of such occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission, any National Market or the OTC Bulletin Board (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the time there
is any suspension on any National
40
Market or the OTC Bulletin Board, the Common Stock is then listed and
approved for trading on another National Market within ten (10) Trading
Days thereof);
(g) failure of the Company to file the Listing Applications required
to be filed within twenty (20) Business Days of the Closing Date, which
failure is not cured within five (5) Business Days of such failure;
(h) the Company shall have its Common Stock delisted from a National
Market or the OTC Bulletin Board for at least ten (10) consecutive Trading
Days and is unable to obtain a listing on a National Market or the OTC
Bulletin Board within such ten (10) Trading Days;
(i) the Registration Statement shall not have been declared effective
by the Commission by the Required Effectiveness Date, or such effectiveness
shall not be maintained for the Registration Maintenance Period, in each
case which results in the Company incurring the Default Fee for a period in
excess of 10 days;
(j) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
has consented to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or has made a general assignment for the benefit of
creditors, or has failed generally to pay its debts as they become due, or
has taken any corporate action to authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced against
the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days, or an order for relief
has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(l) default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess
of $500,000, which has not been cured within any applicable period of grace
associated therewith;
41
(m) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 60 days; or
(n) any representation, warranty, certification or statement made by
the Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with any Transaction Agreement shall prove to have
been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Debentures to be, and the Convertible Debentures shall thereon
become immediately due and payable; provided that in the case of any of the
Events of Default specified in paragraph (j) or (k) above with respect to the
Company or any Subsidiary, then, without any notice to the Company or any other
act by Purchaser, the entire amount of the Convertible Debentures shall become
immediately due and payable, provided, further, if any Event of Default has
occurred and is continuing, and irrespective of whether any Convertible
Debenture has been declared immediately due and payable hereunder, any Purchaser
of Convertible Debentures may proceed to protect and enforce the rights of
Purchaser by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Convertible Debenture, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise, and provided further, in the case of any
Event of Default, the amount declared due and payable on the Convertible
Debentures shall be the Formula Price thereof.
Section 12.2 Powers and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to Purchaser is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Every power and remedy given by the Convertible Debentures or by law may be
exercised from time to time, and as often as shall be deemed expedient, by
Purchaser.
42
ARTICLE XIII. MISCELLANEOUS
Section 13.1 Notices. All notices, demands and other communications to any party
hereunder shall be in writing (including telecopier or similar writing) and
shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
Section 13.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Majority Holders; provided, that
without the consent of each holder of any Convertible Debenture affected
thereby, an amendment or waiver may not (a) reduce the aggregate principal
amount of Convertible Debentures whose holders must consent to an amendment
or waiver, (b) reduce the rate or extend the time for payment of interest
on any Convertible Debenture, (c) reduce the principal amount of or extend
the stated maturity of any Convertible Debenture or (d) make any
Convertible Debenture payable in money or property other than as stated in
such Convertible Debenture. In determining whether the holders of the
requisite principal amount of Convertible Debentures have concurred in any
direction, consent, or waiver as provided in any Transaction Agreement,
Convertible Debentures which are owned by the Company or any other obligor
on or guarantor of the convertible Debentures, or by any Person
Controlling, Controlled by, or under common Control with any of the
foregoing, shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; and provided further that no such
amendment, supplement or waiver which affects the rights of Purchaser and
their affiliates otherwise than solely in their capacities as holders of
Convertible Debentures shall be effective with respect to them without
their prior written consent.
43
Section 13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act
(each, a "Controlling Person"), and the respective partners, agents,
employees, officers and Directors of Purchaser, their Affiliates and any
such Controlling Person (each an "Indemnified Party") and collectively, the
"Indemnified Parties"), from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any
such claim or action, whether or not such Indemnified Party is a party
thereto, provided that the Company shall not be obligated to advance such
costs to any Indemnified Party other than Purchaser unless it has received
from such Indemnified Party an undertaking to repay to the Company the
costs so advanced if it should be determined by final judgment of a court
of competent jurisdiction that such Indemnified Party was not entitled to
indemnification hereunder with respect to such costs) which may be incurred
by such Indemnified Party in connection with any investigative,
administrative or judicial proceeding brought or threatened that relates to
or arises out of, or is in connection with any activities contemplated by
any Transaction Agreement or any other services rendered in connection
herewith; provided that the Company will not be responsible for any claims,
liabilities, losses, damages or expenses that are determined by final
judgment of a court of competent jurisdiction to result from such
Indemnified Party's gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Party, unless (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Company, and such
Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or
additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have
the right to assume the defense of such action or proceeding on behalf of
such Indemnified Party,
44
provided, however, that the Company shall not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate
counsel, in addition to any local counsel, which counsel shall be
designated by Purchaser. The Company shall not be liable for any settlement
of any such action effected without the written consent of the Company
(which shall not be unreasonably withheld) and the Company agrees to
indemnify and hold harmless each Indemnified Party from and against any
loss or liability by reason of settlement of any action effected with the
consent of the Company. In addition, the Company will not, without the
prior written consent of Purchaser, settle or compromise or consent to the
entry of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express unconditional release of
Purchaser and the other Indemnified Parties, satisfactory in form and
substance to Purchaser, from all liability arising out of such action,
claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and by Purchaser on the other from the
transactions contemplated by this Agreement or (ii) if the allocation
provided by clause (i) is not permitted under applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and Purchaser on the other, but
also the relative fault of the Company and Purchaser as well as any other
relevant equitable considerations. Notwithstanding the provisions of this
Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state a
material fact related to information supplied by the Company or by
Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
45
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Debentures and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Purchaser or any
other Indemnified Party.
Section 13.4 Reserved.
Section 13.5 Payment. The Company agrees that, so long as Purchaser shall own
any Convertible Debentures purchased by it from the Company hereunder, the
Company will make payments to Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (E.S.T.).
Section 13.6 Successors and Assigns. This Agreement shall be binding upon the
Company and upon Purchaser and its respective successors and assigns; provided
that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
Section 13.7 Reserved.
Section 13.8 New York Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY FEDERAL DISTRICT COURT SITTING IN NEW
YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY
AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES
ITS RIGHT TO A TRIAL BY JURY.
46
Section 13.9 Entire Agreement. This Agreement, the Exhibits or Schedules hereto,
which include, but are not limited to the Convertible Debenture, the
Registration Rights Agreement, Mortgage, and the Security Agreement, set forth
the entire agreement and understanding of the parties relating to the subject
matter hereof and supercedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Schedules to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
Section 13.10 Survival; Severability. The representations, warranties, covenants
and agreements of the parties hereto shall survive the Closing hereunder. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
such severability shall be ineffective if it materially changes the economic
benefit of this Agreement to any party.
Section 13.11 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.12 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
Section 13.13 Publicity. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By: __________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
Address: American International Petroleum
Corporation
2950 North Loop West
Suite 1000
Houston, TX 77092
Fax: 713-682-7278
Tel.: 713-802-0087
GCA STRATEGIC INVESTMENT FUND LIMITED
By: __________________________________________
Name: Lewis N. Lester
Title: Director
Address: c/o Prime Management Limited
Mechanics Building
12 Church Street
Hamilton HM II, Bermuda
Fax: 441-295-3926
Tel.: 441-295-0329
48
Schedule 1.1
Bridge Notes
1. $1,850,000 Principal Amount Bridge Note of the Company, dated February 28,
2000
2. $2,500,000 Principal Amount Bridge Note of the Company, dated December 1,
1999.
3. $3,000,000 Principal Amount Secured Bridge Note dated May 8, 2000, (of which
$1,437,500.00 principal amount plus $148,628 accrued interest remains
outstanding.
49
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS........................................................1
Section 1.1 Definitions .00...............................................1
Section 1.2 Accounting Terms and Determinations...........................9
ARTICLE II. EXCHANGE OF SECURITIES............................................9
Section 2.1 Exchange of Securities........................................9
Section 2.2 Closing.....................................................10
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES.........................10
Section 3.1 Payment of Principal and Interest; Payment Mechanics........10
Section 3.2 Payment of Interest.........................................10
Section 3.3 Voluntary Prepayment........................................10
Section 3.4 Mandatory Prepayments.......................................11
Section 3.5 Prepayment Procedures.......................................12
Section 3.6 Payment of Additional Amounts...............................13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES...................................14
Section 4.1 Organization and Qualification..............................14
Section 4.2 Authorization and Execution.................................15
Section 4.3 Capitalization .............................................15
Section 4.4 Governmental Authorization..................................16
Section 4.5 Issuance of Shares..........................................16
Section 4.6 No Conflicts................................................16
Section 4.7 Financial Information.......................................16
Section 4.8 Litigation..................................................17
Section 4.9 Compliance with ERISA and other Benefit Plans...............17
Section 4.10 Environmental Matters.......................................18
Section 4.11 Taxes.......................................................18
Section 4.12 Investments, Joint Ventures.................................18
Section 4.13 Not an Investment Company...................................18
Section 4.14 Full Disclosure.............................................18
Section 4.15 No Solicitation; No Integration with Other Offerings........19
Section 4.16 Permits.....................................................19
Section 4.17 Leases......................................................19
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls.....19
Section 4.19 Public Utility Holding Company..............................19
Section 4.20 Intellectual Property Rights................................20
Section 4.21 Insurance...................................................20
i
Section 4.22 Title to Properties.........................................20
Section 4.23 Internal Accounting Controls................................20
Section 4.24 Reserved....................................................20
Section 4.25 Foreign Practices...........................................20
Section 4.26 Title to Certain Assets.....................................20
Section 4.27 Subsidiaries................................................21
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................21
Section 5.1 Purchaser...................................................21
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES...................22
Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase.22
Section 6.2 Conditions to the Company's Obligations.....................24
ARTICLE VII. AFFIRMATIVE COVENANTS...........................................24
Section 7.1 Information.................................................25
Section 7.2 Payment of Obligations......................................25
Section 7.3 Maintenance of Property; Insurance..........................26
Section 7.4 Maintenance of Existence....................................26
Section 7.5 Compliance with Laws........................................26
Section 7.6 Inspection of Property, Books and Records...................26
Section 7.7 Investment Company Act......................................26
Section 7.8 Reserved....................................................26
Section 7.9 Compliance with Terms and Conditions of Material Contracts..27
Section 7.10 Reserved Shares and Listings................................27
Section 7.11 Transfer Agent Instructions.................................27
Section 7.12 Maintenance of Reporting Status; Supplemental Information...28
Section 7.13 Form D; Blue Sky Laws.......................................28
Section 7.14 Certain Payments............................................28
ARTICLE VIII. NEGATIVE COVENANTS.............................................28
Section 8.1 Limitations on Debt or Other Liabilities....................29
Section 8.2 Transactions with Affiliates................................29
Section 8.3 Merger or Consolidation.....................................29
Section 8.4 Limitation on Asset Sales...................................29
Section 8.5 Restrictions on Certain Amendments..........................30
Section 8.6 Prohibition on Discounted Equity Offerings..................30
ii
Section 8.7 Limitation on Stock Repurchases.............................31
ARTICLE IX. RESTRICTIVE LEGENDS..............................................31
Section 9.1 Restrictions on Transfer....................................31
Section 9.2 Notice of Proposed Transfers................................31
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES...........................32
Section 10.1 Liquidated Damages.........................................32
Section 10.2 Conversion Notice..........................................32
Section 10.3 Conversion Limit...........................................32
Section 10.4 Registration Rights........................................33
Section 10.5 Restriction on Issuance of Securities......................34
ARTICLE XI. ADJUSTMENT OF FIXED PRICE........................................35
Section 11.1 Reorganization.............................................35
Section 11.2 Share Reorganization.......................................35
Section 11.3 Rights Offering............................................36
Section 11.4 Special Distribution.......................................37
Section 11.5 Capital Reorganization.....................................38
Section 11.6 Purchase Price Adjustments.................................38
Section 11.7 Adjustment Rules...........................................39
Section 11.8 Certificate as to Adjustment...............................39
Section 11.9 Notice to Holders..........................................39
ARTICLE XII. EVENTS OF DEFAULT...............................................40
Section 12.1 Events of Default..........................................40
Section 12.2 Powers and Remedies Cumulative.............................42
ARTICLE XIII. MISCELLANEOUS..................................................43
Section 13.1 Notices....................................................43
Section 13.2 No Waivers; Amendments.....................................43
Section 13.3 Indemnification............................................44
Section 13.4 Reserved...................................................46
Section 13.5 Payment....................................................46
Section 13.6 Successors and Assigns.....................................46
Section 13.7 Reserved...................................................46
Section 13.8 New York Law; Submission to Jurisdiction;
Waiver of Jury Trial; Appointment of Agent...............46
Section 13.9 Entire Agreement...........................................47
Section 13.10 Survival; Severability.....................................47
Section 13.12 Reporting Entity for the Common Stock. ...................47
Section 13.13 Publicity..................................................47
iii
LIST OF SCHEDULES
Schedule 1.1
Bridge Notes
Schedule 4.3
Capitalization
Schedule 4.7
Financial Information
Schedule 4.8
Litigation
Schedule 4.12
Investments, Joint Ventures
Schedule 4.27
Subsidiaries
Schedule 7.8
Use of Proceeds
Schedule 8.2
Transactions with Affiliates
iv
LIST OF EXHIBITS
Exhibit A Form of Convertible Debentures
Exhibit B Form of Registration Rights
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Pledge and Security Agreement
Exhibit F Mortgage and Security Agreement
v
EXCHANGE AGREEMENT
dated as of
April 28, 2001
by and between
American International Petroleum Corporation
as the Issuer,
and
GCA Strategic Investment Fund Limited
Exhibit 4.50
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 $5,936,128
3% CONVERTIBLE DEBENTURE
of
American International Petroleum Corporation, a Nevada corporation
(together with its successors, the "Company"), for value received hereby
promises to pay to:
GCA Strategic Investment Fund Limited
(The "Holder") and registered assigns, the principal sum of Five Million Nine
Hundred Thirty Six Thousand One Hundred Twenty Eight Dollars ($5,936,128) or, if
less, the principal amount of this Debenture then outstanding, on the Maturity
Date by wire transfer of immediately available funds to the Holder in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest
which shall accrue beginning the date hereof, quarterly in arrears, on (i) the
last day of March, June, September and December of each year until the Maturity
Date, commencing June 30, 2001 (unless such day is not a Business Day, in which
event on the next succeeding Business Day) (each an "Interest Payment Date"),
(ii) the Maturity Date, (iii) each Conversion Date, as hereafter defined, and
(iv) the date the principal amount of the Convertible Debentures shall be
declared to be or shall automatically become due and payable, on the principal
sum hereof outstanding in like coin or currency, at the rates per annum set
forth below, from the most recent Interest Payment Date to which interest has
been paid on this Convertible Debenture, or if no interest has been paid on this
Convertible Debenture, from the date of this Convertible Debenture until payment
in full of the principal sum hereof has been made. The Maturity Date is April
28, 2002.
The interest rate shall be three percent (3%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Debenture will be calculated on the basis of a
360-day year of twelve 30 day months. All payments of principal and interest
hereunder shall be made for the benefit of the Holder pursuant to the terms of
the Agreement (hereafter defined). At the option of the Company, interest may be
paid in cash or in shares of Common Stock. If the Company determines to pay
interest in shares of Common Stock, it shall be required to notify the Holder of
such election on the Closing Date. On each Conversion Date, interest shall be
paid in shares of Common Stock on the portion of the principal balance of the
Convertible Debenture then being converted. The number of shares of Common Stock
issued as interest shall be determined by dividing the dollar amount of interest
due on the applicable Interest Payment Date by the Conversion Price then in
effect.
This Convertible Debenture (this "Convertible Debenture") is a duly
authorized issuance of Convertible Debentures of the Company referred to in that
certain Exchange Agreement dated as of the date hereof between the Company and
the Purchaser named therein (the "Agreement"). The Agreement contains certain
additional agreements among the parties with respect to the terms of this
Convertible Debenture, including, without limitation, provisions which (A) limit
the conversion rights of the Holder, (B) specify voluntary and mandatory
repayment, prepayment and redemption rights and obligations and (C) specify
Events of Default following which the remaining balance due and owing hereunder
may be accelerated. All such provisions are an integral part of this Convertible
Debenture and are incorporated herein by reference. This Convertible Debenture
is transferable and assignable to one or more Persons, in accordance with the
limitations set forth in the Agreement.
This Convertible Debenture shall be secured by Pledge and Security
Agreements (the "Security Agreements") made by the Company and Holder creating a
security interest in favor of the Holder in certain of the Company's assets
described in the Security Agreements, and a Mortgage and Security Agreement, as
amended (the "Mortgage") made by St. Marks Refinery, Inc., a wholly-owned
subsidiary of the Company, creating a security interest in favor of holder in
certain real property described in the Mortgage.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Debenture and particulars of this Convertible Debenture held by such holder and
of all transfers of this Convertible Debenture. References to the Holder or
"Holders" shall mean the Person listed in the Register as registered holder of
such Convertible Debentures. The ownership of this Convertible Debenture shall
be proven by the Register.
ARTICLE 1. Certain Terms Defined. All terms defined in the Agreement and
not otherwise defined herein shall have for purposes hereof the meanings
provided for in the Agreement.
ARTICLE 2. Covenants. The Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings contained in the
Agreement, which obligations and undertakings are expressly assumed herein by
the Company and made for the benefit of the holder hereof.
ARTICLE 3. Payment of Principal; Prepayment. The Company shall repay the
remaining unpaid balance of this Convertible Debenture on the Maturity Date. For
so long as no Event of Default or Default has occurred, the Company may prepay
all of the outstanding principal amount and accrued interest of this Convertible
Debenture in accordance with this Section 3. Prepayment may occur on or before
the 120th day following the date of this Convertible Debenture for a prepayment
price equal to 115% of the original outstanding principal amount of this
Convertible Debenture plus all accrued interest thereon (the "Prepayment
Price"). If Prepayment is made between the 121st day and the 150th day following
the date of this Convertible Debenture, the Prepayment Price is equal to 118% of
the original outstanding principal amount of this Convertible Debenture plus all
accrued interest thereon. If Prepayment is made between the 151st day and the
180th day following the date of this Convertible Debenture, the Prepayment Price
is equal to 120% of the original outstanding principal of this Convertible
Debenture plus all accrued interest thereon. The Company's right to Prepay this
Convertible Debenture shall expire on the 181st day following the date of this
Convertible Debenture. Notwithstanding the foregoing, the Company may or shall
be obligated under certain circumstances, to redeem all or a portion of this
Convertible Debenture on the terms specified in the Agreement in accordance with
Section 5 of this Convertible Debenture.
ARTICLE 4. Conversion.
ARTICLE 4.1 Conversion of Convertible Debenture. Subject to Section 5
hereof, the Holder shall have the right, at its option, at any time following
the date of issuance of this Convertible Debenture, to convert the principal
amount of this Convertible Debenture, or any portion of such principal amount,
into that number of fully paid and nonassessable shares of Common Stock (as such
shares shall then be constituted) determined pursuant to this Section 4.1. The
number of shares of Common Stock to be issued upon each conversion of this
Convertible Debenture shall be determined by dividing the Conversion Amount (as
defined below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion
2
is delivered to the Company, as applicable, by the Holder by facsimile or other
reasonable means of communication dispatched prior to 5:00 p.m., E.S.T. The term
"Conversion Amount" means, with respect to any conversion of this Convertible
Debenture, the sum of (1) the principal amount of this Convertible Debenture to
be converted in such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Convertible
Debenture to the Conversion Date plus (3) Default Interest, if any, on the
interest referred to in the immediately preceding clause (2) plus (4) at the
Holder's option, any amounts owed to the Holder pursuant to Section 4.3 hereof,
Sections 10.1 and 10.4 of the Agreement.
ARTICLE 4.2 Conversion Price. At the option of the Holder, any portion or
all of the outstanding principal amount of this Convertible Debenture shall be
converted into a number of shares of Common Stock at the conversion price (the
"Conversion Price") equal to 90% of the average of the three (3) lowest Closing
Bid Prices of the Common Stock as reported by Bloomberg L.P. during the twenty
(20) Trading Days immediately preceding but not including the date of the
related Notice of Conversion.
ARTICLE 4.3 Authorized Shares.
(a) Consistent with Section 7.11 of the Agreement, the Company (i) shall
promptly irrevocably instruct the Company's transfer agent to issue certificates
for the Common Stock issuable upon conversion of this Convertible Debenture and
(ii) agrees that its issuance of this Convertible Debenture shall constitute
full authority to its officers and agents who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock in accordance with the terms and conditions of this
Convertible Debenture.
(b) If at any time a Holder of this Convertible Debenture submits a Notice
of Conversion (x) the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in full in accordance
with the provisions of this Article 4 or (y) the Company is prohibited by the
applicable rules of the OTC Bulletin Board or the National Market on which the
Common Shares are listed and traded at that time to effect such conversion in
full as provided in subsection (d) below, without stockholder approval (each, a
"Conversion Default"), the Company shall issue to the Holder all of the shares
of Common Stock which are then available to effect such conversion. The portion
of this Convertible Debenture which the Holder included in its Conversion Notice
and which exceeds the amount which is then convertible into available shares of
Common Stock (the "Excess Amount") shall, notwithstanding anything to the
contrary contained herein, not be convertible into Common Stock in accordance
with the terms hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the Company, or its
stockholders, as applicable, at which time the Conversion Price in respect
thereof shall be the lower of (i) the Conversion Price on the Conversion Default
Date (as defined below) and (ii) the Conversion Price on the Conversion Date
thereafter elected by the Holder in respect thereof. The Company shall pay to
the Holder payments ("Conversion Default Payments") for a Conversion Default in
the amount of (N/365) x .24 x the Excess Amount on the Conversion Date in
respect of the Conversion Default (the "Conversion Default Date"), where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company, or its stockholders, as applicable, authorizes a
sufficient number of shares of Common Stock to effect conversion of the full
outstanding principal balance of this Convertible Debenture. The Company shall
use its best efforts to authorize, or cause its stockholders to authorize within
40 days of the occurrence of a Conversion Default, as applicable, a sufficient
number of shares of Common Stock as soon as practicable following the earlier of
(i) such time that the Holder notifies the Company or that the Company otherwise
becomes aware that there are or likely will be insufficient shares to allow full
conversion thereof and (ii) a Conversion Default. The Company shall send notice
to the Holder of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock) at the Market Price, at the
Holder's option, as follows:
3
(i) In the event the Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth Business Day of the month
following the month in which it has accrued; and
(ii) In the event the Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after
the fifth Business Day of the month following the month in which it has
accrued (at such time as there are sufficient authorized shares of Common
Stock) in accordance with the terms of this Article 4.
(c) The Holder's election pursuant to this Section 4.3 shall be made in
writing to the Company at any time prior to 5:00 p.m., E.S.T., on the third
Business Day of the month following the month in which Conversion Default
payments have accrued. If no election is made, the Holder shall be deemed to
have elected to receive cash. Nothing herein shall limit the Holders right to
pursue actual damages (to the extent in excess of the Conversion Default
Payments) due to the Company's failure to maintain a sufficient number of
authorized shares of Common Stock.
(d) In no event shall the Company issue more than the Maximum Number of
Shares upon conversion of this Convertible Debenture, unless the Company shall
have obtained approval by the stockholders of the Company ("Stockholder
Approval") or a waiver of such requirement by the OTC Bulletin Board or the
National Market on which the Common Shares are listed and traded at that time.
Once the Maximum Number of Shares has been issued (the date of which is
hereinafter referred to as the "Maximum Conversion Date"), unless the Company
shall have obtained Stockholder Approval or a waiver of such requirement by the
OTC Bulletin Board or the National Market on which the Common Shares are listed
and traded at that time within 40 days of the Maximum Conversion Date, the
Company shall pay to the Holder within five (5) Business Days of the Maximum
Conversion Date (or, if the Company is, in good faith, using its best efforts to
obtain Stockholder Approval, then the earlier of (x) 40 days following the
Maximum Conversion Date, and (y) such date that it becomes reasonably apparent
that Stockholder Approval will not be obtained within such 40 days period), the
Formula Price plus accrued and unpaid Default Interest, if any. The Maximum
Number of Shares shall be subject to adjustment from time to time for stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the date hereof as
contemplated by Article XI of the Agreement. With respect to each Holder of
Convertible Debentures, the Maximum Number of Shares shall refer to such
Holder's pro rata share thereof based upon the aggregate principal balance of
the Convertible Debentures then outstanding. In the event that the Company
obtains Stockholder Approval, approval of the OTC Bulletin Board or the National
Market on which the Common Shares are listed and traded at that time, or
otherwise is able to increase the number of shares to be issued above the
Maximum Number of Shares (such increased number being the "New Maximum Number of
Shares"), the references to Maximum Number of Shares above shall be deemed to
be, instead, references to the New Maximum Number of Shares.
4
ARTICLE 4.4 Method of Conversion.
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Debenture in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Convertible
Debenture to the Company unless the entire unpaid principal amount of this
Convertible Debenture is so converted. Rather, records showing the principal
amount converted (or otherwise repaid) and the date of such conversion or
repayment shall be maintained on a ledger substantially in the form of Annex A
attached hereto (a copy of which shall be delivered to ------- the Company or
transfer agent with each Notice of Conversion). It is specifically contemplated
that the Holder hereof shall act as the calculation agent for conversions and
repayments. In the event of any dispute or discrepancies, such records
maintained by the Holder shall be controlling and determinative in the absence
of manifest error or failure of Holder to record the principal amount converted
(or otherwise repaid) from time to time, in which events the record of the
Company shall be controlling and determinative. The Holder and any assignee, by
acceptance of this Convertible Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following a conversion of a portion of this
Convertible Debenture, the principal amount represented by this Convertible
Debenture will be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof). -------
(b) The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock or other securities or property on conversion of this Convertible
Debenture in a name other than that of the Holder (or in street name), and the
Company shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to the Company
the amount of any such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(c) Subject to Section 5 hereof, upon receipt by the Company of a Notice of
Conversion, the Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal amount and the
amount of accrued and unpaid interest on this Convertible Debenture shall be
deemed reduced to reflect such conversion, and, unless the Company defaults on
its obligations under this Article 4, all rights with respect to the portion of
this Convertible Debenture being so converted shall forthwith terminate except
the right to receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. Subject to Section 5 hereof, if the
Holder shall have given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of Common Stock
shall be absolute and unconditional, irrespective of the absence of any action
by the Holder to enforce the same, any waiver or consent with respect to any
provisions thereof, the recovery of any judgment against any person or any
action by the Holder to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder of any obligation to the Company, and subject to
Section 4.4(a) irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with such
conversion. The date of receipt (including receipt via telecopy) of such Notice
of Conversion shall be the Conversion Date so long as it is received before 5:00
p.m., E.S.T., on such date.
(d) Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the expiration of the
Deadline with respect to a conversion of any portion of this Convertible
Debenture for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Company), the Holder
shall regain the rights of a Holder of this Convertible Debenture with respect
to such unconverted portions of this Convertible Debenture and the Company
shall, as soon as practicable, return such unconverted Convertible Debenture to
the holder or, if the Convertible Debenture has not been surrendered, adjust its
records to reflect that such portion of this Convertible Debenture not been
converted. In all cases, the Holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion Default
Payments to the extent
5
required thereby for such Conversion Default and any subsequent Conversion
Default and (ii) the right to have the Conversion Price with respect to
subsequent conversions determined in accordance with Section 4.3 for the
Company's failure to convert this Convertible Debenture.
(e) In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the
provisions contained in Section 4.1 and in this Section 4.4, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
System.
ARTICLE 5. Redemption by Company.
ARTICLE 5.1 Company's Right to Redeem. In accordance with the provisions of
the Purchase Agreement and subject to the provisions of Section 3 hereof, the
Company may elect at any time following the 180th day following the date of
issuance of this Convertible Debenture, or be required under certain
circumstances to redeem in whole or in part, the remaining unpaid principal
amount of this Convertible Debenture, for cash at a redemption price (the
"Redemption Price") equal to (x) the number of shares of Common Stock into which
this Convertible Debenture is then convertible, times (y) the average Closing
Bid Price of Common Stock for the five (5) trading days as reported by Bloomberg
L.P. immediately prior to the date that this Convertible Debenture is called for
redemption, plus accrued and unpaid interest.
ARTICLE 5.2 Mechanics of Redemption. The Company shall effect each such
redemption within three business days of giving notice of its election to redeem
by facsimile with a copy by either overnight or 2-day courier to the Holder of
this Convertible Debenture to be redeemed at the address and facsimile number of
such Holder appearing in the Company's register for the Convertible Debentures.
Such redemption notice shall indicate whether the Company will redeem all or
part of such portion of the Convertible Debenture to be redeemed and the
applicable Redemption Price. The Company shall not be entitled to send any
notice of redemption and begin the redemption procedure unless it has (i) the
full amount of the Redemption Price, in cash, available in a demand or other
immediately available account in a bank or similar financial institution or (ii)
immediately available credit facilities, in the full amount of the Redemption
Price, with a bank or similar financial institution on the date the redemption
notice is sent to the Holders of this Convertible Debenture. Provided, however,
the Company will process any Notice of Conversion received prior to the issuance
of a notice of redemption; and further provided that, after a notice of
redemption has been issued, the Holder may issue a Notice of Conversion which
will not be honored unless the Company fails to make the redemption payment when
due. In the event of such failure, the Notice of Conversion will be honored as
of the date of the Notice of Conversion. Additionally, if the Company fails to
make full payments of the Redemption Price of this Convertible Debenture being
redeemed by the third business day following the notice or redemption, then the
Company waives its right to redeem any of the remaining then outstanding
Debentures, unless approved by the Holder.
ARTICLE 5.3 Payment of Redemption Price. The Redemption Price shall be paid
to the Holder of this Convertible Debenture within three business days of the
delivery of the notice of such redemption to such Holder.
ARTICLE 6. Holder's Right to Advance Notice of Election Redeem.
ARTICLE 6.1 Holder's Right to Elect to Receive Notice of Cash Redemption by
Company. The Holder of this Convertible Debenture shall have the right to
require Company to provide advance notice
6
stating whether the Company will elect to redeem all or part of the redeemable
portion in cash, pursuant to the Company's redemption rights discussed in
Section 5.1 above.
ARTICLE 6.2 Mechanics of Holder's Election Notice. Holder shall give notice
to the Company by facsimile (the "Election Notice"), requiring that the Company
disclose whether the Company would elect to redeem the redeemable portion of
this Convertible Debenture (in whole or in part) if the Holder were to provide a
Notice of Conversion and sought to convert the Convertible Debenture in such
principal amount as is specified in the Notice of Election.
ARTICLE 6.3 Company's Response. Company must respond, disclosing its
election, within two (2) business days of receipt of Holder's Election Notice
via facsimile. If Company does not respond to Holder within two (2) business
days (by 12:00 noon, if required above) via facsimile, Company shall be deemed
to have forfeited its right to exercise redemption pursuant to Section 5(a) upon
its receipt of (but only with respect to) that Notice of Conversion.
ARTICLE 7. Miscellaneous. This Convertible Debenture shall be deemed to be
a contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible Debenture, except as specifically provided herein, and asset to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York,
New York state court sitting in New York for purposes of all legal proceedings
arising out of or relating to this Convertible Debenture. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. The Company hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Convertible Debenture.
The Holder of this Convertible Debenture by acceptance of this Convertible
Debenture agrees to be bound by the provisions of this Convertible Debenture
which are expressly binding on such Holder.
7
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: April 28, 2001
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:_________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
8
ANNEX A
CONVERSION AND REPAYMENT LEDGER
Interest Converted Principal Converted
Date Principal Balance or Paid or Paid New Principal Balance Issuer Initials Holder Initials
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
- ----------- ------------------ -------------------- --------------------- ----------------------- ---------------- -----------------
9
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS: _________________________________________________
_________________________________________________
10
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Debenture)
The undersigned hereby irrevocably elects to convert $________ of the
principal balance of the Convertible Debenture into shares of Common Stock, .08
par value per share (the "Common Stock"), of American International Petroleum
Corporation (the "Company") according to the conditions hereof, as of the date
written below. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. The undersigned, as contemplated by Section 5.1 of
the Securities Purchase Agreement pursuant to which the Convertible Debenture
was issued, hereby states that the representations and warranties of the
undersigned set forth therein are true and correct in all material respects as
of the date hereof (provided, the undersigned makes no representations
concerning its investment intent with respect to the Common Stock received upon
this conversion).
Conversion calculations:
____________________________________
Date of Conversion
____________________________________
Applicable Conversion Price
____________________________________
Number of Shares
____________________________________
Name/Signature
Address:
____________________________________
____________________________________
Exhibit 4.51
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 28,
2001, between American International Petroleum Corporation, a Nevada corporation
(the "Company"), and GCA Strategic Investment Fund Limited (the "Fund").
1. Introduction.
1.1 Exchange Agreement. The Company and the Fund have today executed
that certain Exchange Agreement (the "Exchange Agreement"), pursuant to which
the Company and the Fund have agreed, among other things, to exchange the Bridge
Notes for an aggregate of Five Million Nine Hundred Thirty Six Thousand One
Hundred Twenty Eight Dollars ($5,936,128.00) (U.S.) principal amount of 3%
Convertible Debentures of the Company (the "Debentures") to the Fund or its
successors, assigns or transferees (collectively, the "Holders"). The Debentures
are convertible into an indeterminable number of shares (the "Debenture
Conversion Shares") of the Company's common stock, $.08 per share (the "Common
Stock") pursuant to the terms of the Debentures. The number of Debenture
Conversion Shares is subject to adjustment upon the occurrence of stock splits,
recapitalizations and similar events occurring after the date hereof.
1.2 Definition of Securities. The Debenture Conversion Shares are
herein referred to as the "Securities."
1.3 Trading Representation. The Company represents and warrants that
the Company's Common Stock is currently eligible for trading on OTC Bulletin
Board under the symbol "AIPN." Certain capitalized terms used in this Agreement
are defined in Section 3 hereof; references to sections shall be to sections of
this Agreement.
2. Registration under Securities Act, etc.
2.1 Mandatory Registration.
(a) Registration of Registrable Securities. The Company shall prepare
and file within seven (7) days following the Company's Annual Meeting of
Shareholders for 2001 (the "Filing Date"), a registration statement (the
"Registration Statement") to register
not less than 30,000,000 shares of the Company's Common Stock to cover the
resale of the Registrable Securities. In the event the Company fails to
file the Registration Statement by the Filing Date, the Company will pay to
the Fund liquidated damages in the amount of 1% of the outstanding
principal amount of then outstanding Debentures per day until such
Registration Statement has been filed. The Company shall use its best
efforts to cause the Registration Statement to be declared effective by the
Commission on the earlier of (i) 60 days following the Filing Date or (ii)
ten (10) days following the receipt of a "No Review" or similar letter from
the Commission (the "Required Effectiveness Date"). Nothing contained
herein shall be deemed to limit the number of Registrable Securities to be
registered by the Company hereunder. As a result, should the Registration
Statement not relate to the maximum number of Registrable Securities
acquired by (or potentially acquirable by) the holders thereof upon
conversion of the Debentures, or exercise of the Common Stock Purchase
Warrants described in Section 1 above, the Company shall be required to
promptly file a separate registration statement (utilizing Rule 462
promulgated under the Exchange Act, where applicable) relating to such
Registrable Securities which then remain unregistered. The provisions of
this Agreement shall relate to any such Registration Statement and any such
separate registration statement as if it were an amendment to the
Registration Statement.
(b) Registration Statement Form. Registrations under this Section 2.1
shall be on Form S-1 or such other appropriate registration form of the
Commission as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified
by the Fund; provided, however, such intended method of deposition shall
not include an underwritten offering of the Registrable Securities.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective
within the time period specified herein, provided that a registration which
does not become effective after the Company filed a registration statement
with respect thereto solely by reason of the refusal to proceed of any
holder of Registrable Securities (other than a refusal to proceed based
upon the advice of counsel in the form of a letter signed by such counsel
and provided to the Company relating to a disclosure matter unrelated to
such holder) shall be deemed to have been effected by the Company unless
the holders of the Registrable Securities shall have elected to pay all
Registration Expenses in connection with such registration, (ii) if, after
it has become effective, such registration becomes subject to any stop
order, injunction or other order or extraordinary requirement of the
Commission or other governmental agency or court for any reason or (iii)
if, after it has become effective, such registration ceases to be effective
for more than an aggregate of twenty (20) days.
(e) Plan of Distribution. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section
reasonably acceptable to the Fund.
2
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If at any time after the
date hereof but before the third anniversary of the date hereof, the
Company proposes to register any of its securities under the Securities Act
(other than by a registration in connection with an acquisition in a manner
which would not permit registration of Registrable Securities for sale to
the public, on Form S-8, or any successor form thereto, on Form S-4, or any
successor form thereto and other than pursuant to Section 2.1), on an
underwritten basis (either best-efforts or firm-commitment), then, the
Company will each such time give prompt written notice to all Holders of
its intention to do so and of such Holders" rights under this Section 2.2.
Upon the written request of any such Holder made within twenty (20) days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Holder an and the
intended method of disposition thereof), the Company will, subject to the
terms of this Agreement, use its commercially reasonable best efforts to
effect the registration under the Securities Act of the Registrable
Securities, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of such
Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the Company proposes to register, provided that if, at any
time after written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason either not to register or to delay registration of such securities,
the Company may, at its election, give written notice of such determination
to each Holder and, thereupon, (i) in the case of a determination not to
register, shall be relieved of this obligation to register any Registrable
Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or holders of
Registrable Securities entitled to do so to request that such registration
be effected as a registration under Section 2.1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering
such other securities. No registration effected under this Section 2.2
shall relieve the Company of its obligation to effect any registration upon
request under Section 2.1, nor shall any such registration hereunder be
deemed to have been effected pursuant to Section 2.1. The Company will pay
all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 2.2. The right
provided the Holders of the Registrable Securities pursuant to this Section
shall be exercisable at their sole discretion and will in no way limit any
of the Company's obligations to pay the Securities according to their
terms.
(b) Priority in Incidental Registrations. If the managing underwriter
of the underwritten offering contemplated by this Section 2.2 shall inform
the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities
requested to be included in such registration exceeds the number which can
be sold in such offering, then the Company will include in such
registration, to the extent of the number which the Company is so advised
can be sold in such offering, (i) first securities proposed by the Company
to be sold for its own account, and (iii) second Registrable Securities and
securities of other selling security holders requested to be included in
such registration pro rata on the basis of the number of shares of such
securities so proposed to be sold and so
3
requested to be included; provided, however, the holders of Registrable
Securities shall have priority to all shares sought to be included by
officers and directors of the Company as well as holders of ten percent
(10%) or more of the Company's Common Stock.
2.3 Registration Procedures. If and whenever the Company is required
to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 2.1 and, as applicable, 2.2, the
Company shall, as expeditiously as possible:
(i) prepare and file with the Commission the Registration
Statement or amendments thereto, to effect such registration
(including such audited financial statements as may be required by the
Securities Act or the rules and regulations promulgated thereunder)
and thereafter use its commercially reasonable best efforts to cause
such registration statement to be declared effective by the
Commission, as soon as practicable, but in any event no later than the
Required Effectiveness Date (with respect to a registration pursuant
to Section 2.1); provided, however, that before filing such
registration statement or any amendments thereto, the Company will
furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration, copies of
all such documents proposed to be filed;
(ii) with respect to any registration statement or registration
statement amendment pursuant to Section 2.1, prepare and file with the
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement until the earlier to occur of five (5) years after the date
of this Agreement(subject to the right of the Company to suspend the
effectiveness thereof for not more than 10 consecutive days or an
aggregate of 30 days in such five (5) years period) or such time as
all of the securities which are the subject of such registration
statement cease to be Registrable Securities (such period, in each
case, the "Registration Maintenance Period");
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller and underwriter, if any, may reasonably
request in order to facilitate the public sale or other disposition of
the Registrable Securities owned by such seller;
(iv) use its commercially reasonable best efforts to register or
qualify all Registrable Securities and other securities covered by
such registration statement under such other securities laws or blue
sky laws as any seller thereof shall reasonably request, to keep such
registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this
4
subdivision (iv) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(v) use its commercially reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, and the underwriters, if any,
of:
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting
agreement),reasonably satisfactory in form and substance to such
seller) including that the prospectus and any prospectus
supplement forming a part of the Registration Statement does not
contain an untrue statement of a material fact or omits a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading, and
(B) a "comfort" letter (or, in the case of any Person which
does not satisfy the conditions for receipt of a "comfort" letter
specified in Statement on Auditing Standards No. 72, an "agreed
upon procedures" letter), dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, a letter of like kind dated the
date of the closing under the underwriting agreement), signed by
the independent public accountants who have certified the
Company's financial statement included in such registration
statement, covering substantially the same matters with respect
to such registration statement (and the prospectus included
therein) and, in the case of the accountants" letter, with
respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's
counsel and in accountants" letters delivered to the underwriters
in underwritten public offerings of securities (with, in the case
of an "agreed upon procedures" letter, such modifications or
deletions as may be required under Statement on Auditing
Standards No. 35) and, in the case of the accountants" letter,
such other financial matters, and, in the case of the legal
opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
(vii) notify the Sellers" Representative and its counsel promptly and
confirm such advice in writing promptly after the Company has knowledge
thereof:
(A) when the Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the Registration Statement has been filed, and, with respect to the
Registration Statement or any post-effective amendment thereto, when
the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus or for
additional information;
5
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings by any Person for that purpose; and
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(viii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material facts
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and at the
request of any such seller promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(ix) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(x) otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but not
more than eighteen months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder;
(xi) enter into such agreements and take such other actions as the
Sellers' Representative shall reasonably request in writing (at the expense
of the requesting or benefiting sellers) in order to expedite or facilitate
the disposition of such Registrable Securities; and
(xii) use its commercially reasonable best efforts to list all
Registrable Securities covered by such registration statement on any
securities exchange on which any of the Registrable Securities are then
listed.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
6
The Company will not file any registration statement pursuant to Section
2.1, or amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference and proposed to be filed after the
initial filing of the Registration Statement to which the Sellers"
Representative shall reasonably object, provided that the Company may file such
documents in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Exchange Agreement.
The Fund agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, the Fund will forthwith discontinue the Fund's disposition of
Registrable Securities pursuant to the Registration Statement relating to such
Registrable Securities until the Fund's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in the
Fund's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
2.4 Underwritten Offerings.
(a) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
holder of Registrable Securities as provided in Section 2.2 and subject to
the provisions of Section 2.2(a), use its commercially reasonable best
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters.
(b) Holdback Agreements. Subject to such other reasonable requirements
as may be imposed by the underwriter as a condition of inclusion of the
Fund's Registrable Securities in the registration statement, the Fund
agrees by acquisition of Registrable Securities, if so required by the
managing underwriter, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of, except as part of such underwritten registration, any
equity securities of the Company, during such reasonable period of time
requested by the underwriter; provided however, such period shall not
exceed the 120 day period commencing 30 days prior to the commencement of
such underwritten offering and ending 90 days following the completion of
such underwritten offering.
(c) Participation in Underwritten Offerings. No holder of Registrable
Securities may participate in any underwritten offering under Section 2.2
unless such holder of Registrable Securities (i) agrees to sell such
Person's securities on the basis provided in any underwriting arrangements
approved, subject to the terms and conditions hereof, by the
7
holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other agreement in
connection with such offering) shall require any holder of Registrable
Securities to make an representations or warranties to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such holder expressly for use in the related
registration statement or representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement and registration statement
amendment under the Securities Act pursuant to this Agreement, the Company will
give the holders of Registrable Securities registered under such registration
statement, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the reasonable opinion of such holders" and
such underwriters" respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6 Registration Default Fee. If the Registration Statement contemplated in
Section 2.1 is (x) not declared effective by the Required Effectiveness Date or
(y) such effectiveness is not maintained for the Registration Maintenance
Period, then the Company shall pay to the Fund the Default Fee specified in
Section 10.4 of the Exchange Agreement.
2.7 Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act, the Company
will, and hereby does agree to indemnify and hold harmless the holder of
any Registrable Securities covered by such registration statement or
registration statement amendment, its directors and officers, each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such holder or any
such underwriter within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which such
holder or any such director or officer or underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse such
holder and each such director,
8
officer, underwriter and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding, provided
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage, liability, (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
holder or underwriter stating that it is for use in the preparation thereof
and, provided further that the Company shall not be liable to any Person
who participates as an underwriter in the offering or sale of Registrable
Securities or to any other Person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or
give a copy of the final prospectus, as the same may be then supplemented
or amended, within the time required by the Securities Act to the Person
asserting the existence of an untrue statement or alleged untrue statement
or omission or alleged omission at or prior to the written confirmation of
the sale of Registrable Securities to such Person if such statement or
omission was corrected in such final prospectus or an amendment or
supplement thereto. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any
such director, officer, underwriter or controlling person and shall survive
the transfer of such securities by such holder.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration
statement or amendment thereto filed pursuant to this Agreement, that the
Company shall have received an undertaking satisfactory to it from the
prospective seller of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 2.7) the Company, each director of the
Company, each officer of the Company and each other Person, if any, who
controls the Company within the meaning of the Securities Act, with respect
to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such seller specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Any such indemnity shall
remain in full force and effect, regardless of any investigation made by or
on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding
9
subdivisions of this Section 2.7, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice.
In case any such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that the indemnifying party may wish,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
other than reasonable costs of investigation. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability, or a
covenant not to sue, in respect to such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter into any settlement
of any such action the defense of which has been assumed by an indemnifying
party without the consent of such indemnifying party.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities (but only if and to the extent required pursuant to the terms of
Section 2.7(b)) with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of
any governmental authority, other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received
or expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in the preceding
subdivision of this Section 2.7 is unavailable to an indemnified party in
respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such expense, loss, claim, damage or
liability (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the holder or
underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of
the holder or underwriter, as the case may be, on the other in connection
with the statements or omissions which resulted in such expense, loss,
damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the holder or underwriter, as the case may be, on the other in
connection with the distribution of the Registrable Securities shall be
deemed to be in the same proportion as the total net proceeds received by
the Company from the initial sale of the Registrable Securities by the
Company to
10
the purchasers bear to the gain, if any, realized by all selling holders
participating in such offering or the underwriting discounts and
commissions received by the underwriter, as the case may be. The relative
fault of the Company on the one hand and of the holder or underwriter, as
the case may be, on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or omission to state a material fact relates to information supplied
by the Company, by the holder or by the underwriter and the parties"
relative intent, knowledge, access to information supplied by the Company,
by the holder or by the underwriter and the parties" relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, provided that the foregoing contribution agreement
shall not inure to the benefit of any indemnified party if indemnification
would be unavailable to such indemnified party by reason of the provisions
contained in the first sentence of subdivision (a) of this Section 2.7, and
in no event shall the obligation of any indemnifying party to contribute
under this subdivision (f) exceed the amount that such indemnifying party
would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (b) of this Section 2.7 had
been available under the circumstances.
The Company and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (f) were
determined by pro rata allocation (even if the holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
Section 2.7, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
allege untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
"Agreement": As defined in Section 1.
"Commission": The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
11
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this Agreement.
"Conversion Shares": As defined in Section 1.
"Debentures": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Debentures.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"Exchange Agreement": As defined in Section 1.
"Person": A corporation, association, partnership, organization,
business, individual, governmental or political subdivision thereof or a
governmental agency.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. Once issued
such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (b)
they shall have been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law
then in force, (d) they shall have ceased to be outstanding, (e) on the
expiration of the applicable Registration Maintenance Period or (f) any and
all legends restricting transfer thereof have been removed in accordance
with the provisions of Rule 144(k) (or any successor provision) under the
Securities Act.
"Registration Expenses": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without
limitation, all registration, filing and NASD fees, all stock exchange and
OTC Bulletin Board or other NASD or stock exchange listing fees, all fees
and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, the reasonable fees and disbursements of not
more than one law firm (not to exceed $20,000) retained by the holder or
holders of more than 50% of the Registrable Securities, premiums and other
costs of policies of insurance of the Company against liabilities arising
out of the public offering of the Registrable Securities being registered
and any fees and disbursements of underwriters customarily paid by issuers
or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any, provided that, in any case where
Registration Expenses are not to be borne by the Company, such expenses
shall
12
not include salaries of Company personnel or general overhead expenses of
the Company, auditing fees, premiums or other expenses relating to
liability insurance required by underwriters of the Company or other
expenses for the preparation of financial statements or other data normally
prepared by the Company in the ordinary course of its business or which the
Company would have incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Required Effectiveness Date": As defined in Section 2.1.
"Securities Act": The Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Sellers" Representative": Global Capital Advisors Ltd. or such Person
designated by Global Capital Advisors Ltd. as of the time of disposition of
the last of the Debentures held by the Fund (or subsequent Sellers"
Representative).
4. Rule 144. The Company shall timely file the reports required to be filed
by it under the Securities Act and the Exchange Act (including but not limited
to the reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act)
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with the requirements of this
Section 4.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent if sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or
13
other action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number of percentage of shares of
Registrable Securities held by an holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership or such Registrable Securities.
7. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case of a party hereto
other than the Company, addressed to such party in the manner set forth in the
Exchange Agreement or at such other address as such party shall have furnished
to the Company in writing, or (b) in the case of any other holder of Registrable
Securities, at the address that such holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company, or (c) in the case of
the Company, at the address set forth on the signature page hereto, to the
attention of its President, or at such other address, or to the attention of
such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by fax or air courier), when delivered at the address specified
above, provided that any such notice, request or communication shall not be
effective until received.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities. Each of the Holders of the Registrable Securities
agrees, by accepting any portion of the Registrable Securities after the date
hereof, to the provisions of this Agreement including, without limitation,
appointment of the Sellers" Representative to act on behalf of such Holder
pursuant to the terms hereof which such actions shall be made in the good faith
discretion of the Sellers" Representative and be binding on all persons for all
purposes.
9. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. Counterparts. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
14
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
13. Severability. If any provision of this Agreement, or the application of
such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
15
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By: ______________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
Address: 2950 North Loop West, Suite 1000
Houston, Texas 77092
Fax: 713-682-7278
Tel.: 713-802-0087
GCA STRATEGIC INVESTMENT FUND LIMITED
By: ______________________________________
Name: Lewis N. Lester
Title: Director
Address: c/o Prime Management Limited
Mechanics Building
12 Church Street
Hamilton HM II, Bermuda
Fax: 441-295-3926
Tel.: 441-295-0329
Registration Rights Agreement
16
TABLE OF CONTENTS
1. Introduction.............................................................1
1.1 Exchange Agreement..............................................1
1.2 Definition of Securities........................................1
1.3 Trading Market Representation...................................1
2. Registration under Securities Act, etc...................................1
2.1 Mandatory Registration..........................................1
(a) Registration of Registrable Securities.................1
(b) Registration Statement Form............................2
(c) Expenses...............................................2
(d) Effective Registration Statement.......................2
(e) Plan of Distribution...................................2
2.2 Incidental Registration.........................................3
(a) Right to Include Registrable Securities................3
(b) Priority in Incidental Registrations...................3
2.3 Registration Procedures.........................................4
2.4 Underwritten Offerings..........................................7
(a) Incidental Underwritten Offerings......................7
(b) Holdback Agreements....................................7
(c) Participation in Underwritten Offerings................7
2.5 Preparation; Reasonable Investigation...........................8
2.6 Registration Default Fee........................................8
2.7 Indemnification.................................................8
(a) Indemnification by the Company.........................8
(b) Indemnification by the Sellers.........................9
(c) Notices of Claims, etc.................................9
(d) Other Indemnification.................................10
(e) Indemnification Payments..............................10
(f) Contribution..........................................10
3. Definitions.............................................................11
4. Rule 144................................................................13
5. Amendments and Waivers..................................................13
6. Nominees for Beneficial Owners..........................................14
7. Notices.................................................................14
8. Assignment..............................................................14
9. Descriptive Headings....................................................14
10. Governing Law...........................................................14
11. Counterparts............................................................14
12. Entire Agreement........................................................15
13. Severability............................................................15
i
Registration Rights Agreement
dated as of
April 28, 2001
by and between
American International Petroleum Corporation,
and
GCA Strategic Investment Fund Limited
EXHIBIT C
FORM OF SOLVENCY CERTIFICATE
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
SOLVENCY CERTIFICATE
I, Denis J. Fitzpatrick, the Chief Financial Officer of American
International Petroleum Corporation, a Nevada corporation (the "Company"), on
behalf of the Company, hereby certify that:
1. I am the duly elected and qualified Chief Financial Officer of the
Company and am familiar with the business and financial matters and things
hereinafter described.
2. This Certificate is made and delivered to GCA Strategic Investment Fund
Limited (the "Purchaser") pursuant to Section 6.1(c) of that certain Exchange
Agreement among the Company and the Purchaser (the "Agreement"). All terms not
defined herein shall have the meanings given them in the Agreement.
3. As of the Closing Date and after giving effect to the issuance of
Convertible Debentures under the Agreement and to the transactions contemplated
under the Agreement and the other Transaction Agreements:
(a) The aggregate value of the Company and its Subsidiaries,
collectively and individually, as a going concern, at their present fair
market value as reasonably determined by the undersigned assuming normal
market conditions (i.e., the amount which may be realized within a
reasonable time, considered to be six months to one year, through sale at
the going concern value as the amount which could be obtained for the
property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under
ordinary selling conditions), exceeds the amount of all the debts and
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of the Company and its Subsidiaries, collectively and
individually.
(b) The aggregate value of all liabilities of the Company and its
Subsidiaries, collectively and individually, is less than the aggregate
value of all assets (including goodwill and other intangible assets) at a
fair valuation of the Company and its Subsidiaries, collectively and
individually.
(c) The Company and its Subsidiaries, collectively and individually,
do not have an unreasonably small capital with which to conduct their
business operations as heretofore conducted.
(d) The Company and each of its Subsidiaries, collectively and
individually, have no reason to believe that they will not have sufficient
cash flow to enable them to pay their liabilities as such liabilities
become absolute and mature.
(e) No final judgments against the Company or any Subsidiary,
collectively or individually, in actions for money damages with respect to
pending or threatened
litigation could reasonably be expected to be rendered at a time when, and
in an amount such that, the Company or any Subsidiary, collectively or
individually, will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable
amount of such judgments in any such actions and the earliest reasonable
time at which such judgments might be rendered) and the cash available to
the Company and its Subsidiaries, collectively and individually, after
taking into account all other anticipated uses of the cash of the Company
and its Subsidiaries, collectively and individually (including the payments
on or in respect of debt), is anticipated to be sufficient to pay all such
judgments promptly in accordance with their terms.
4. The Company and its Subsidiaries, collectively and individually, have
not incurred, do not intend to incur, and believe that they will not incur,
liabilities beyond their ability to pay such liabilities as such liabilities
become absolute and mature.
5. The Company and its Subsidiaries, collectively and individually, do not
contemplate filing a petition in bankruptcy or for an arrangement or
reorganization under the Federal Bankruptcy Code, not, to the best of my
knowledge, are there any threatened bankruptcy or insolvency proceedings against
the Company or its Subsidiaries.
[Signature page follows]
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed.
Dated: April 28, 2001
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:__________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
EXHIBIT D
FORM OF OFFICER'S CERTIFICATE
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
OFFICER'S CERTIFICATE
I, Denis J. Fitzpatrick, Chief Financial Officer of American International
Petroleum Corporation (the "Company") DO HEREBY CERTIFY as follows:
(a) Attached hereto as Annex 1 is a true, correct and complete copy of the
Certificate of Incorporation of the Company, in effect on the date hereof. No
amendment or other document relating to or affecting the Certificate of
Incorporation has been filed in the office of any Secretary of State of the
State of Nevada, after the last date of any document included therein, and no
such action has been taken by the Company or officers, directors or shareholders
of the Company to effect or authorize any further amendment thereto.
(b) Attached hereto as Annex 2 is a true, correct and complete copy of the
Bylaws of the Company, amended and in effect on the date hereof, and such
Bylaws, as amended, have been in full force and effect at all times since
adoption, through the date hereof.
(c) Attached hereto as Annex 3 are true, correct and complete copies of
those resolutions adopted by the Board of Directors of the Company; said
resolutions have not been amended, rescinded or modified since their adoption
and remain in full force and effect as of the date hereof, and said resolutions
are the only resolutions adopted by the Board of Directors of the Company, or
any committee thereof, relating in any way to the Exchange Agreement dated as of
April 28, 2001, among the Company and the Purchaser (the "Exchange Agreement")
and any Transaction Agreement.
(d) As of the date hereof, no Default has occurred and been continuing.
(e) The representations and warranties of the Company and each subsidiary
contained in each Transaction Agreement are true and correct on and as of the
date hereof as if made on and as of such date and the Company has performed and
complied with all covenants and agreements required by the Transaction Agreement
to be performed or complied with at or prior to the date hereof.
(f) The Company and each subsidiary has performed and complied with all
conditions required by the Transaction Agreements to be performed and complied
with by it prior to the date hereof.
(g) The following persons are on the date hereof duly qualified and acting
officers of the Company, duly elected or appointed to the offices set forth
beside their respective names and signatures, and each such person who, as an
officer of the Company, signed the Exchange Agreement, any of the other
Transaction Agreements or any other document delivered before or on the date
hereof in connection with such agreements and documents and the transactions
contemplated therein was, at the respective times of such signing and delivery,
and is now duly elected or appointed, qualified and acting as such officers, and
the signatures of such persons appearing on such documents are their genuine
signatures.
Name Position Signature
Denis J. Fitzpatrick Chief Financial Officer _____________________
William L. Tracy Assistant Secretary _____________________
(h) The collateral described in that certain Security and Pledge Ag+
reement and that certain Mortgage and Security Agreement, each as amended date
hereof is free and clear of any liens or encumbrances except as described in
such agreements.
All terms not otherwise defined herein shall have the respective meanings
set forth in the Exchange Agreement.
[Signature page follows]
IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed.
Dated: April 28, 2001
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:
--------------------------------------------
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
Officer's Certificate
AMENDMENT NO. 1 TO SECURITY AGREEMENT
This AMENDMENT NO. 1 (this "Amendment") is made as of April 28, 2001 by and
between AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
("AIPC"), ST. MARKS REFINERY, INC., a Florida corporation ("St. Marks') (AIPC
and St. Marks are collectively referred to as the "Debtors"), and GCA Investment
Fund Limited, a Bermuda corporation ("Secured Party").
WHEREAS, Debtors and Secured Party entered into a Security Agreement dated
as of May 8, 2000 (the "Security Agreement"), pursuant to which Secured Party
was granted a security interest in certain of the Debtor's property (the
"Collateral") which secures that certain Bridge Note dated as of May 8, 2000 in
the original Principal Amount of Three Million Dollars ($3,000,000) (the "Bridge
Note"),
WHEREAS, AIPC and Secured Party have agreed, pursuant to that certain
Exchange Agreement dated of even date herewith, to exchange the Bridge Note for
a $5,936,128.00 Principal Amount 3% Convertible Debenture due April 28, 2002
(the " Convertible Debenture"); and
WHEREAS, Debtors and Secured Party desire to amend this Security Agreement
to grant Secured Party a security interest in the Collateral to secure the
Convertible Debenture.
NOW THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, Debtors and Secured Party hereby agree as follows:
1. The Security Agreement shall be amended so that the term "Note" shall be
defined as: "Note - means that certain 3% Convertible Debenture dated as of
April 28, 2001, in the original principal amount of $5,936,128, made and
executed by AIPC and issued to Secured Party, and all amendments and supplements
thereto, restatements thereof and renewals, extensions, restructurings and
refinancings thereof."
2. All other terms and provisions of the Security Agreement shall remain in
full force and effect and unchanged by this Amendment.
Duly executed and delivered by the parties on the date first written above.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By: _________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
ST. MARKS REFINERY, INC.
By: _________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
GCA STRATEGIC INVESTMENT FUND LIMITED
By: _________________________________________
Title:________________________________________
AMENDMENT NO. 2 TO SECURITY AGREEMENT
This AMENDMENT NO. 2 (this "Amendment") is made as of April 28, 2000 by and
between AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
("AIPC"), ST. MARKS REFINERY, INC., a Florida corporation ("St. Marks') (AIPC
and St. Marks are collectively referred to as the "Debtors"), and GCA Investment
Fund Limited, a Bermuda corporation ("Secured Party").
WHEREAS, Debtors and Secured Party entered into a Security Agreement dated
as of December 1, 1999 as amended by Amendment No. 1 to Security Agreement dated
February 28, 2000 (the "Security Agreement"), pursuant to which Secured Party
was granted a security interest in certain of the Debtor's property (the
"Collateral") which secures that certain Bridge Note dated as of December 1,
1999 in the original Principal Amount of Two Million Five Hundred Thousand
Dollars ($2,500,000) and that certain Bridge Note dated as of February 28, 2000
in the Principal amount of One Million Eight Hundred Fifty Thousand Dollars
($1,850,000) each made by AIPC and issued to Secured Party (the "Bridge Notes"),
WHEREAS, AIPC and Secured Party, pursuant to that certain Exchange
Agreement dated of even date herewith, have agreed to exchange the Bridge Notes
for a $5,936,128.00 Principal Amount 3% Convertible Debenture due April 28, 2002
(the "Debenture");
WHEREAS, Debtors and Secured Party desire to amend this Security Agreement
to provide for a security interest in the Collateral to secure the Debenture.
NOW THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, Debtors and Secured Party hereby agree as follows:
3. The Security Agreement shall be amended so that the term "Note" shall be
defined as "Note - means that certain 3% Convertible Debenture dated as of April
28, 2001, in the original principal amount of $5,936,128, made and executed by
AIPC and issued to Secured Party, and all amendments and supplements thereto,
restatements thereof and renewals, extensions, restructurings and refinancings
thereof."
4. All other terms and provisions of the Security Agreement shall remain in
full force and effect and unchanged by this Amendment.
Duly executed and delivered by the parties on the date first written above.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By: _________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
ST. MARKS REFINERY, INC.
By: _________________________________________
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
GCA STRATEGIC INVESTMENT FUND LIMITED
By: _________________________________________
Title:________________________________________
AMENDMENT NO. 1 TO MORTGAGE AND SECURITY AGREEMENT
This Amendment No. 1 (the "Amendment") is made as of April 28, 2001 by and
between St. Marks Refinery, Inc., a Florida corporation ("Borrower"), having an
address at 5201 Westshore Boulevard, Tampa, Florida 33611-5699, and GCA
Strategic Investment Fund Limited, a Bermuda corporation ("Lender"), having an
address at Mechanics Building, 12 Church Street, Hamilton HMII, Bermuda.
WHEREAS, Borrower and Lender entered into a Mortgage and Security Agreement
dated as of February 28, 2000 (the "Mortgage"), pursuant to which Lender was
granted a security interest in certain of Borrower's real property. The Mortgage
secures that certain Bridge Note in the Principal Amount of $1,850,000.00 made
by American International Petroleum Corporation ("AIPC"), the sole shareholder
of Borrower, in favor of Lender;
WHEREAS, AIPC and Lender, pursuant to that certain Exchange Agreement dated
of even date herewith (the "Exchange Agreement"), have agreed to exchange the
Bridge Note for a $5,936,128.00 Principal Amount 3% Convertible Debenture due
April 28, 2002 made by AIPC to Lender (the "Convertible Debenture"); and
WHEREAS, Borrower and Lender desire to amend the Mortgage to provide for a
security interest in the collateral to secure the Convertible Debenture.
NOW THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, Borrower and Lender hereby agree , as follows:
1. The Mortgage shall be amended so that the Background Statement is
deleted in its entirety and a new Background Statement is inserted in lieu
thereof which reads as follows:
"AIPC and Lender are parties to that certain Exchange Agreement dated of
even date herewith (the "Exchange Agreement") pursuant to which Lender and AIPC
agreed to exchange (i) $1,850,000.00 Principal Amount Bridge dated February 28,
2000, (ii) $2,500,000.00 Principal Amount Bridge Note dated December 1, 1999 and
(iii) $3,000,000.00 Principal Amount Bridge Note dated May 8, 2000 (the "Bridge
Notes") made by AIPC to Lender in exchange for a $5,936,128.00 Principal Amount
3% Convertible Debenture. The exchange is evidenced by that certain Convertible
Debenture dated April 28, 2001 in the Principal Amount $5,936,128.00 (the
"Note"). AIPC desires to secure the Note with a security interest in certain
real property owned by Borrower. The Exchange Agreement, the Note, this
Mortgage, and all of their instruments evidencing, securing or otherwise
relating to the Note are hereinafter referred to as the "Mortgage Documents".
2. The Mortgage shall further be amended so that the term "Securities
Purchase Agreement" used in the Mortgage shall be replaced in each instance with
the term "Exchange Agreement".
3. All other terms and provisions of the Security Agreement shall remain in
full force and effect and unchanged by this Amendment.
IN WITNESS WHEREOF, Borrower has executed this Mortgage under seal, as of
the day and year first above written.
Signed, sealed and delivered ST MARKS REFINERY, INC.
in the presence of:
_________________________________ By: _____________________________________
Witness Name: Denis J. Fitzpatrick
Print Name: Sandra Bell Title: Chief Financial Officer
Attest:__________________________________
_________________________________ Name: William L. Tracy
Witness Title: Assistant Secretary
Print Name: Sandra Bell
[CORPORATE SEAL]
STATE OF TEXAS
COUNTY OF HARRIS
The foregoing instrument was acknowledged before me on the 28th day of
April, 2001, by Denis J. Fitzpatrick and William L. Tracy, the Chief Financial
Officer and Assistant Secretary, respectively, of St. Marks Refinery, Inc., a
Florida corporation, and they acknowledged executing the foregoing instrument
under authority duly vested in them by said corporation, as the free act and
deed of said corporation, for the purposes therein expressed.
WITNESS my hand and official seal in the county and state last aforesaid,
as of the 28th day of April, 2001.
_________________________________________
Notary Public
Print Name:______________________________
My commission expires:___________________
Notary Seal