SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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Commission File number No. 0-14905
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 13-3130236
- --------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 688-3333
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of shares outstanding of the registrant's Common Stock, $.08 par
value, as of May 14, 1998 is 51,573,761 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 226,013 $ 3,721,350
Marketable securities, at market 735,958 735,958
Accounts and notes receivable, net 586,356 1,831,008
Inventory 2,649,967 755,720
Deferred financing costs 248,227 353,490
Prepaid expenses 256,879 1,244,277
------------- -------------
Total current assets 4,703,400 8,641,803
------------- -------------
Property, plant and equipment:
Unevaluated oil and gas property 12,851,141 11,724,477
Oil and gas properties -- --
Refinery property and equipment 25,619,282 22,816,897
Other 277,599 216,803
------------- -------------
38,748,022 34,758,177
Less - accumulated depreciation, depletion,
amortization and impairments (4,048,980) (3,894,015)
------------- -------------
Total property, plant and equipment 34,699,042 30,864,162
Notes receivable, less current portion 2,384,045 2,333,895
------------- -------------
Total assets $ 41,786,487 $ 41,839,860
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt 7,315,111 6,075,931
Accounts payable 1,822,615 1,452,642
Accrued liabilities 2,006,397 1,806,906
------------- -------------
Total current liabilities 11,144,123 9,335,479
Long-term debt -- --
------------- -------------
Total liabilities 11,144,123 9,335,479
------------- -------------
Stockholders' equity:
Preferred stock, par value $0.01, 7,000,000 shares
authorized, none issued -- --
Common stock, par value $.08, 100,000,000 shares
authorized, 48,910,522 shares issued and outstanding
at March 31, 1998 and 48,436,576 shares at December 31, 1997 3,912,842 3,874,926
Additional paid-in capital 107,256,640 106,689,337
Stock purchase warrants 1,297,754 1,297,754
Accumulated deficit (81,824,872) (79,357,636)
------------- -------------
Total stockholders' equity 30,642,364 32,504,381
------------- -------------
Commitments and contingent liabilities -- --
------------- -------------
Total liabilities and stockholders' equity $ 41,786,487 $ 41,839,860
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
1998 1997
------------ ------------
Revenues:
Oil and gas production and $ -- $ 260,579
Refinery product sales 437,620 --
Other 68,425 35,250
------------ ------------
Total revenues 506,045 295,829
------------ ------------
Expenses:
Operating 303,148 98,765
General and administrative 818,883 1,648,538
Depreciation, depletion and
amortization 154,965 250,743
Interest 1,696,285 573,041
Unrealized loss on marketable securities -- 1,753,750
Provision for bad debts -- 5,118
Loss on sale of subsidiaries -- 563,667
------------ ------------
Total expenses 2,973,281 4,893,622
------------ ------------
Net loss $ (2,467,236) $ (4,597,793)
============ ============
Net loss per share of common stock $ (0.05) $ (0.13)
============ ============
Weighted-average number of shares
of common stock outstanding 48,694,657 36,281,693
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,467,236) $(4,597,793)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization and accretion of
discount on debt 1,499,408 586,247
Accretion of premium on notes receivable (50,150) --
Realized and unrealized loss on marketable securities -- 1,753,750
Provision for bad debts -- 5,118
Loss on sale of subsidiaries -- 563,667
Non-cash provision for services 196,900 --
Changes in assets and liabilities:
Accounts and notes receivable 1,244,652 316,906
Inventory (1,894,247) 56,974
Prepaid and other 987,398 56,155
Accounts payable and accrued liabilities 569,464 99,665
----------- -----------
Net cash provided by (used in) operating activities 86,189 (1,159,311)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (1,126,664) (331,349)
Additions to refinery property and equipment (2,802,385) (561,268)
Proceeds from sale of marketable securities -- --
Proceeds from sale of subsidiaries -- --
Other (60,796) (101,098)
----------- -----------
Net cash used in investing activities (3,989,845) (993,715)
----------- -----------
Cash flows from financing activities:
Cash - restricted, loan collateral -- 9,414
Net increase (decrease) in notes payable -- (237,162)
Proceeds from long-term debt -- 1,746,820
Repayments of long-term debt -- (1,536,614)
Proceeds from issuance of common stock and
warrants, net -- 439,770
Proceeds from exercise of stock warrants
and options 408,319 560
Proceeds from sale of subsidiaries 1,729,287
----------- -----------
Net cash provided by financing activities 408,319 2,152,075
----------- -----------
Net increase (decrease) in cash and
cash equivalents (3,495,337) (951)
Cash and cash equivalents at beginning of year 3,721,350 11,058
----------- -----------
Cash and cash equivalents at end of year $ 226,013 $ 10,107
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common stock Additional Stock
--------------------------- paid-in purchase Accumulated
Shares Amount capital warrants deficit Total
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 48,436,576 $ 3,874,926 $106,689,337 $ 1,297,754 $(79,357,636) $ 32,504,381
Issuance of stock for compensation 50,000 4,000 192,900 -- -- 196,900
Options and warrants exercised 423,946 33,916 374,403 -- -- 408,319
Net loss for the period -- -- -- -- (2,467,236) (2,467,236)
---------- ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1998 48,910,522 $ 3,912,842 $107,256,640 $ 1,297,754 $(81,824,872) $ 30,642,364
========== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1998
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements of American
International Petroleum Corporation and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1998, the results of operations for the three month period ended March 31, 1998
and 1997 and cash flows for the three months ended March 31, 1998 and 1997.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's 1997 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1997 Annual Report on Form 10-K.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
During the quarter ended March 31, 1998, the Company utilized $2,467,000 for
operations, which reflects approximately $1,646,000 in non-cash provisions,
including $1,344,000 in certain loan costs, issuance of stock as compensation
for services of $197,000, and depreciation, depletion and amortization of
$155,000. Approximately $1,894,000 was used during the period to increase
product and feedstock inventory and $2,802,000 was provided by an increase in
current assets other than cash and in accounts payable and accrued liabilities.
Additional uses of funds during the first quarter of 1998 included additions to
oil and gas properties and Refinery property and equipment of $3,929,000. Cash
for operations was provided, in part, by approximately $408,000 in proceeds from
the exercise of certain warrants.
Since the sale of its South American oil and gas assets (the "Transaction") and
the termination of its Lease Agreement with Gold Line in the first quarter of
1997, the Company has had no revenues from operations until late in the first
quarter of 1998 when it implemented product sales at the Refinery. Although it
has utilized some of the proceeds from the Transaction, and $794,000 from the
exercise of the Company's warrants during the first quarter of 1998, to repay
convertible and conventional debt, fund the Refinery expansion and start-up
processes, fund its activities in Kazakstan and other operations, such proceeds
were inadequate to satisfy all of the Company's debt obligations and anticipated
capital requirements. Therefore, in April 1998, the Company reached an agreement
with certain institutional investors which provides it with up to $52 million in
private debt and equity financing (the "Facility") to be used by the Company on
an as needed basis over a two year period. Initial funding of $5 million took
place in April 1998 (See Item 2. "Changes in Securities"). Depending on its
needs, the Company could use a portion or all of the Facility.
On March 16, 1998, the Company signed an agreement for the Exploration of the
Mamourinskoye and Saratovskoye oil fields, with Zao Nafta ("Nafta") a Russian
closed stock company. This agreement gave the Company 90 days in which to
perform technical and legal due diligence evaluations of the Nafta properties.
These oil fields are included in 17 oil and gas licenses (the "Licenses") held
by Nafta, covering about 877,000 acres in the Samara and Saratov regions of
Southwestern Russia, approximately 600 to 800 kilometers north of the Caspian
Sea and southeast of Moscow. Upon favorable completion of the due diligence
evaluation, a joint venture will be formed to operate these 17 Licenses with the
Company, as Operator, holding a 75% working interest.
7
<PAGE>
The Company agreed to pay $11 million for the 75% working interest in the joint
venture, $5.0 million in cash and $6.0 million in crude oil from 25% of the
Company's future net production. The Company made a refundable advance on the
purchase price of $300,000 to Nafta for their use in assisting the Company in
completing all legal and contractual conditions required by the Company.
Proven recoverable reserves, assigned by governmental authorities for these
Licenses, are estimated at approximately 34 million barrels of oil.
The joint venture agreement will provide for the Company, as Operator, to
develop and execute an investment program to activate 16 wells available for
re-entry in the Mamourinskoye License. The Company will also commit to expend at
least $25 million during the first 24 months of the joint venture on this
program and other exploration and production activities within the respective
License areas, as long as work can be technically and economically justified.
However, the Company's commitments are determined by, and limited to, the joint
venture programs to be established by the Company, so Nafta will be responsible
for contractual License commitments which may exceed these levels. All work
programs for Licenses are determined annually by the respective area
governmental agencies controlling the Licenses and therefore are subject to
change and revisions based on the results of the prior year's activity.
Should the Company decide to complete the Nafta transaction, based on existing
information, it plans to immediately implement a development program which
should establish production from at least 7 of the 16 wells located in the
Mamourinskoye License. This program is estimated to cost approximately $1 to $2
million and should allow for the trucking of crude production of about 3,000
barrels of oil per day to local refineries within 120 days of the establishment
of the joint venture. However, there can be no assurance, at this time, that
this level of production will be reached. The License area is approximately 60
to 80 kilometers from some of the largest refineries located in Russia, and the
main export pipelines pass within 50 kilometers of each of the 17 License areas.
Also in March 1998, the Company signed an agreement, subject to certain
conditions, to purchase St. Marks Refinery, a 20,000 barrels per day refinery
and product storage terminal located on the St. Marks River near Tallahassee,
Florida in a tax free exchange of stock, or combination of stock and cash, worth
up to $4.5 million. If the Company decides not to purchase the 55-acre facility,
it has agreed to an annual evergreen lease of the Refinery under specific terms
and conditions.
The primary advantage to the Company of the St. Marks acquisition or lease, is
the immediate increase of its retail presence from two to
8
<PAGE>
five states along the U.S. Gulf Coast, plus a 50% increase in storage tank
capacity by adding 33 more tanks totaling more than 460,000 barrels to the
Company assets. This transaction provides an opportunity for the Company to
double the retail sales capacity of petroleum products manufactured at its Lake
Charles, Louisiana Refinery through access to new asphalt product markets, and
jet fuel, diesel and industrial fuel oil sales in Florida, Georgia and Alabama.
The Company recently reached an agreement to settle an ongoing dispute with the
IRS, which calls for the Company to pay $646,633 in excise taxes, plus interest
incurred for the applicable periods dating back to 1989. The Company has
submitted a proposal to the IRS which would enable the Company to pay the tax
and interest due over a period of approximately one year; the tax would be paid
in four equal quarterly installments and the interest would be paid in a lump
sum at the end of the annual payment period. Should the Company utilize the
entire proposed pay-off period to pay the tax and interest, the total amount
paid would be approximately $1.5 million.
During the next 12 months, the Company expects to expend approximately $14
million, of which approximately $2 million will fund the capital equipment
expansion and startup costs of its refinery; approximately $10 million is
expected to be spent on costs associated with its Kazakstan project, and
approximately $2 million for other corporate uses. However, in the event the
Company obtains a joint venture partner in Kazakstan, its capital requirements
there should be significantly less than $10 million during the next 12 months.
In the event the Company decides to complete the Nafta transaction, a minimum of
$6 to $7 million would be initially required in Russia, approximately $5 million
in acquisition cost, and $1 to $2 million in workover and facility costs on
certain of the existing 16 wells in the Mamourinskoye License. As of March 31,
1998, the Company's existing working capital was insufficient to provide the
Company with all of the capital it requires to complete its obligations.
However, the Company believes that the capital available under the Facility,
together with projected cash flows from the Refinery, will satisfy its capital
requirements during at least the next two years.
With the expected cash flow from the Refinery and the production and cash flow
anticipated from the Nafta transaction, management believes the Company is
nearing the point in time where more conventional, non-equity financing will
become available. To the extent possible, management will seek to utilize these
methods, as an alternative or supplement to the Facility, to finance the needs
of the Company in the future.
9
<PAGE>
Results of Operations
For the Three Months Ended March 31, 1998 as compared to the Three Months Ended
March 31, 1997
Oil and Gas Operations:
The Company's South American operations in Colombia and Peru, which were sold in
February 1997, had approximately $261,000 in oil revenue in 1997 prior to the
sale. During the first quarter of 1998, the Company had no operating or
producing oil fields and consequently had no revenues or related cost
attributable to oil and gas operations in this period.
Refinery Operations:
The Company, which had previously leased it's refining facility to Gold Line
Refining on a processing fee basis, evicted Gold Line in March 1997 for defaults
under several clauses of its lease agreement, the most prevalent being
non-payment of lease fees. Due to Gold Line's subsequent filing of bankruptcy in
1997, the Company did not recognize any of the $443,000 in lease fees earned
during the first quarter of 1997.
During 1997, the Company expanded the Refinery and converted the crude unit to a
heavy crude processing unit to enable the manufacture of asphalt and other
products. During the first quarter of 1998, the Company performed several test
operations on the Refinery's crude unit, which resulted in $384,000 in revenues
from the sale of certain light-end products during March 1998. During the first
quarter of 1998, the Company also began testing its asphalt operating units
resulting in approximately $84,000 in revenues from sales of asphalt. The
operating costs of $303,000 associated with these testing processes should not
be considered to be indicative of the upcoming unit operating cost expected in
the future from normal operations. Costs, and likewise, revenues and margins,
will vary depending upon a number of factors, including but not limited to
feedstock prices, and from the Company's product mix, which will be determined
over time as the Company's markets are developed in the different areas it
services.
Other Revenue:
Other revenues increased approximately $33,000, or 94%, during the first quarter
of 1998 compared to the first quarter of 1997. The increase is primarily due to
an increase in interest income from substantially more funds being on deposit
during the first quarter of 1998 compared to the same period last year.
10
<PAGE>
General and Administrative:
General and Administrative expenses declined by approximately $830,000, or 50%,
in the first quarter of 1998 as compared to the same period in 1997. This
decline is primarily attributable to a non-recurring charge of $695,000 during
1997 for compensation adjustments. In addition, $200,000 of the decrease is
attributable to the sale of the Company's South American properties in February
1997.
Depreciation, Depletion, and Amortization:
Depreciation, depletion, and amortization decreased approximately $96,000 during
the current period compared to the same period last year due totally to the lack
of any depletion costs in the first quarter of 1998 resulting from the sale of
those operations as previously discussed.
Interest Expense:
Interest expense increased to approximately $1,696,000 during the first quarter
of 1998, from $573,000 in the first quarter of 1997. The total for 1998 includes
a non-cash charge of approximately $1,344,000 for costs associated with the
issuance of the Company's $10,000,000, 14% debenture (the "Debenture"),
outstanding at March 31, 1998. In addition, $350,000 of accrued interest expense
is also related to the Debenture at March 31, 1998.
Item 2. Changes in Securities
On April 21, 1998, the Company issued and sold $5,000,000 aggregate principal
amount of its 14% Convertible Notes due April 21, 2002 (the "Convertible Notes")
to certain institutional buyers (the "Holders") for a total purchase price of
$4,950,000 (the "Initial Closing") pursuant to a Securities Purchase Agreement
dated as of April 21, 1998 (the "Securities Purchase Agreement"). The Securities
Purchase Agreement provides for the issuance and sale to the Holders of an
additional $7,000,000 principal amount of Convertible Notes (the "Second
Tranche") for a purchase price of $6,930,000 on May 15, 1998 or such later date
upon which certain conditions precedent to closing have been satisfied or waived
by the Holders. A significant portion of the proceeds from the Second Tranche is
expected to be used by the Company to purchase the Nafta working interest and
for related initial development costs. The obligation of the Holders to purchase
the additional Convertible Notes shall terminate if such conditions to closing
have not been satisfied prior to May 31, 1998. The Convertible Notes are
convertible into shares of Common Stock at the option of the holder thereof,
commencing upon the earliest of (x) June 30, 1998, (y) the date the related
Registration Statement (filed on May 15, 1998) has been declared effective by
the Securities and
11
<PAGE>
Exchange Commission, or (z) the date immediately preceding the occurrence of a
"Sale Event") (as defined), at a conversion price equal to 85% of the average of
the lowest five consecutive daily Weighted Average Sales Price (as defined) for
the 40 trading days ending on the date prior to the conversion date. Interest on
the Convertible Notes is payable quarterly on the last day of March, June,
September and December of each year commencing June 30, 1998, in cash or
additional shares of Common Stock, at the option of the Company, except that
interest payable upon conversion of the Convertible Notes is payable in
additional shares of Common Stock. The Company paid a commission of two percent
of the net proceeds, one-half in cash and one-half in warrants ($49,250 in cash
and a warrant to purchase 49,250 shares of the Company's Common Stock at $2.76
per share).
In connection with the Holders agreement to purchase the Convertible Notes
pursuant to the Securities Purchase Agreement, the Company issued to the Holders
at the Initial Closing, warrants to purchase an aggregate of 1,400,000 shares of
Common Stock, exercisable at any time prior to April 21, 2003, at an exercise
price of $2.76 per share (110% of market as of the Effective Date)(the
"Securities Purchase Agreement Warrants"). Should the Second Tranche not occur,
only five-twelfth's of the Security Purchase Agreement Warrants will be issued
to the Holders (583,333).
Contemporaneously with the execution of the Securities Purchase Agreement, the
Company entered into an Equity Financing Agreement dated as of April 21, 1998
(the "Equity Financing Agreement") pursuant to which the Holders agreed to
purchase from the Company, commencing upon the later of (x) 30 days after the
Effective Date and (y) August 1, 1998, shares of Common Stock from time to time
on or prior to April 21, 2000, for an aggregate purchase price of up to
$40,000,000, subject to the satisfaction of certain specified conditions. The
Holders are obligated to purchase shares of Common Stock (i) upon request of the
Company or (ii) if the ratio of the closing bid price of the Common Stock to the
average of the closing bid prices of the Common Stock over the preceding five
trading days (the "Average Closing Price") equals or exceeds 1.2 to 1.0.
Purchases may not occur more frequently than once every 20 trading days. The
purchase price of shares of Common Stock purchased pursuant to the Equity
Financing Agreement is 85% of the Average Closing Price. The minimum purchase is
$1,000,000 and the maximum is $5,000,000.
In connection with the Holders agreement to purchase shares of Common Stock
pursuant to the Equity Financing Agreement, the Company issued to the Holders,
additional warrants to purchase an aggregate of 1,595,978 shares (the "Closing
Warrants") and 2,000,000 shares (the "Commitment Fee Warrants") of Common Stock,
respectively. The Closing Warrants are exercisable at any time prior to April
21, 2003, at an exercise price of $2.76 per share, subject to adjustment in
certain events. The Commitment Fee Warrants become exercisable on April 21,
2000, or such earlier date upon which (i) the aggregate purchase price
12
<PAGE>
of shares of Common Stock purchased by the Holders pursuant to the Equity
Financing Agreement equals $40,000,000, less the amount of any commitment
reductions (in the minimum amount of $5,000,000) effected by the Company, (ii)
the termination of the Equity Financing Agreement, or (iii) upon certain other
specified events. In addition, if the Company elects to reduce the commitment,
500 Commitment Fee Warrants will become exercisable for each $1,000,000
reduction in the commitment. The Commitment Fee Warrants may be exercised prior
to April 21, 2003 at any exercise price of $2.76 per share, subject to
adjustment in certain events.
The net proceeds from the issuance and sale of the Convertible Notes and the
shares of Common Stock pursuant to the Equity Financing Agreement (if any),
together with amounts received upon exercise of the warrants issued in
connection with the Securities Purchase Agreement dated as of October 9, 1997,
as amended, and April 21, 1998, respectively (collectively, the "Securities
Purchase Agreements"), and the Equity Financing Agreement will be used to
finance the Company's efforts in Russia, as discussed above, as well as in
Kazakstan and for other working capital requirements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of 14% Convertible Note due April 21, 2000.
4.2 Form of Warrant issued pursuant to the Securities Purchase and
Equity Agreements, associated with Exhibits 4.4 and 4.6.
4.3 Registration Rights Agreement associated with the Convertible
Note in Exhibit 4.1.
4.4 Securities Purchase Agreement associated with the Convertible
Note in Exhibit 4.1.
4.5 Agreement and First Amendment dated as of April 21, 1998 to
Securities Purchase Agreement dated as of October 9, 1997.
4.6 Equity Financing Agreement dated April 21, 1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
13
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 1998
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
-------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Form of 14% Convertible Note due April 21, 2000.
4.2 Form of Warrant issued pursuant to the Securities Purchase and
Equity Agreements, associated with Exhibits 4.4 and 4.6.
4.3 Registration Rights Agreement associated with the Convertible Note
in Exhibit 4.1.
4.4 Securities Purchase Agreement associated with the Convertible Note
in Exhibit 4.1.
4.5 Agreement and First Amendment dated as of April 21, 1998 to
Securities Purchase Agreement dated as of October 9, 1997.
4.6 Equity Financing Agreement dated April 21, 1998.
27.1 Financial Data Schedule.
15
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 $2,000,000
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
14% Convertible Note due April 21, 2000
AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
(together with its successors, the "Company"), for value received hereby
promises to pay to:
INFINITY EMERGING OPPORTUNITIES LIMITED
(the "Holder") and registered assigns, the principal sum of Two Million Dollars
($2,000,000) or, if less, the principal amount of this Note 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, quarterly in arrears, on (i) the last day of March, June,
September and December of each year until the Maturity Date, commencing June 30,
1998 (unless such day is not a Business Day, in
- --------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 1
<PAGE>
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 Notes 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 Note, or if no interest has been paid
on this Convertible Note, from the date of this Convertible Note until payment
in full of the principal sum hereof has been made.
The interest rate shall be fourteen percent (14%) 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 Note 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 at least five (5) Business Days prior to the applicable Interest
Payment Date. On each Conversion Date, interest shall be paid in shares of
Common Stock on the portion of the principal balance of the Convertible Note
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 product of 85% multiplied by the
Conversion Price then in effect.
This Convertible Note (this "Convertible Note") is one of a duly
authorized issuance of $12,000,000 aggregate principal amount of Convertible
Notes of the Company referred to in that certain Securities Purchase Agreement
dated as of the date hereof between the Company and the Purchasers named therein
(the "Agreement"). The Agreement contains certain additional agreements among
the parties with respect to the terms of this Convertible Note, 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 Note and are incorporated
herein by reference. This Convertible Note is transferable and assignable to one
or more Persons, in accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as the registered holder of such
Convertible Notes. The ownership of this Convertible Note shall be proven by the
Register.
- --------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 2
<PAGE>
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.
2. Covenants. Unless the Majority Holders otherwise consent in writing,
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.
3. Payment of Principal. The Company shall repay the remaining unpaid
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreement.
4.1 Conversion of Convertible Note. The Holder shall have the right, at
its option, at any time from and after the earlier to occur of (x) June 30,
1998, (y) the date the Registration Statement has been declared effective by the
Commission or (z) immediately preceding the occurrence of a Sale Event, convert
the principal amount of this Convertible Note, 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 Note 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 is delivered to the Company by the Holder by
facsimile or other reasonable means of communication dispatched prior to 5:00
p.m., New York City Time. The term "Conversion Amount" means, with respect to
any conversion of this Convertible Note, the sum of (1) the principal amount of
this Convertible Note 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 Note 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, Section 10.1 of the Agreement or Section 10.4 of the Agreement.
4.2 Conversion Price. This Convertible Note shall be converted into a
number of shares of Common Stock at a conversion price (the "Conversion Price")
based on a formula F/P, where F = the principal amount of the Convertible Note
being converted plus accrued and unpaid interest thereon through the date of
conversion plus Default Interest, if any, on such interest, and P = the product
of 85% multiplied by the average of the lowest five (5) consecutive DWASP for
the Common Stock for the forty (40) Trading Days ending on the day prior to the
Conversion Date (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Company relating to the
Company's securities or the securities of any subsidiary of the Company,
combinations, recapitalization, reclassifications, extraordinary distributions
and similar
- --------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 3
<PAGE>
events as contemplated by Article XI of the Agreement). The term "DWASP" means,
for any security as of any date, the daily-weighted average sales price on the
Nasdaq Market as reported by Bloomberg or, if the Nasdaq Market is not the
principal trading market for such security, the dailyweighted average sales
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the daily-weighted average sales 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 daily-weighted average sales price
is reported for such security by Bloomberg, then the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the DWASP cannot be calculated for such
security on such date on any of the foregoing bases, the DWASP of such security
on such date shall be the fair market value as mutually determined by the
Company and the Holders of a majority in interest of Convertible Notes being
converted for which the calculation of the closing bid price is required in
order to determine the Conversion Price of such Convertible Notes.
4.3 Authorized Shares.
(a) Consistent with Section 7.11 of the Agreement, the Company (i)
shall promptly irrevocably instruct its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this Convertible
Note 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 Note.
(b) If at any time a Holder of this Convertible Note 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 Nasdaq Market 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 Note
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
- --------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 4
<PAGE>
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 Note. The Company shall use its best efforts to authorize, or
cause its stockholders to authorize within 90 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:
(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., New York City
Time, 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 Note, unless the Company
shall have obtained Stockholder Approval (as defined below) or a waiver of
such requirement by the Nasdaq
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14% CONVERTIBLE NOTE - Page 5
<PAGE>
Market. As used herein, Stockholder Approval means approval by the
stockholders of the Company in accordance with Rule 4460(i) of the rules
of the Nasdaq Market. 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 Nasdaq Market within 90 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) 90 days following the Maximum Conversion Date, and (y)
such date that it becomes reasonably apparent that Stockholder Approval
will not be obtained within such 90 day 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 Notes, the Maximum Number of Shares shall refer to such
Holder's pro rata share thereof based upon the aggregate principal balance
of the Convertible Notes then outstanding. In the event that the Company
obtains Stockholder Approval, the approval of the Nasdaq Market 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.
4.4 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Convertible Note in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Convertible Note to the Company unless the entire
unpaid principal amount of this Convertible Note 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. The
Holder and any assignee, by acceptance of this Convertible Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will
be the amount indicated on Annex A attached hereto (which may be
less than the amount stated on the face hereof).
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14% CONVERTIBLE NOTE - Page 6
<PAGE>
(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 Note 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) 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 Note shall be 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 Note
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. 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 provision 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 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., New York
City Time, 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 Note 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 Note with respect to such
unconverted portions of this Convertible Note and the Company shall,
as soon as practicable, return such unconverted Convertible Note to
the holder or, if the Convertible Note has not been
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14% CONVERTIBLE NOTE - Page 7
<PAGE>
surrendered, adjust its records to reflect that such portion of this
Convertible Note has 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 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 Note.
(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.
5. Miscellaneous. This Convertible Note 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 Note,
except as specifically provided herein, and assent 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 state court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Convertible Note. 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 Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[Signature page follows]
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14% CONVERTIBLE NOTE - Page 8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: April 21, 1998
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: s/ George N. Faris
----------------------------
Name: George N. Faris
Title: Chief Executive Officer
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14% CONVERTIBLE NOTE - Page 9
<PAGE>
ANNEX A
CONVERSION AND REPAYMENT LEDGER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Interest Principal New
Principal Converted or Converted or Principal
Date Balance Paid Paid Balance Issuer Initials Holder Initials
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS COMMON STOCK PURCHASE WARRANT, 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 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 LIMIT THE EXERCISE RIGHTS OF THE
HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY.
AMERICAN INTERNATIONAL PETROLEUM
CORPORATION
COMMON STOCK PURCHASE WARRANT
- --------------------------------------------------------------------------------
No. 1
Number of Shares: 560,000 Holder: Infinity Emerging Opportunities
Limited
38 Hertford Street
Purchase Price: $2.76 London, England W1Y 7TG
Expiration Date: April 21, 2003
For identification only.
The governing terms of this Warrant are set forth below.
- --------------------------------------------------------------------------------
AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the
"Company"), hereby certifies that, for value received, INFINITY EMERGING
OPPORTUNITIES LIMITED or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time after the
date hereof and prior to the fifth anniversary hereof (the "Exercise Period"),
at the Purchase Price hereinafter set forth, five hundred sixty thousand
(560,000) shares of the fully paid and nonassessable shares of Common Stock of
the Company. The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any warrants issued in
substitution therefor) is one of a series of 1,400,000 Common Stock Purchase
Warrants issued in connection with that certain Securities Purchase Agreement
(the "Purchase Agreement") dated of even date herewith among the initial Holder
hereof, the Company and certain other parties thereto.
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall initially be $2.76; provided, however,
that the Purchase Price shall be adjusted from time to time as provided herein.
<PAGE>
Capitalized terms used herein not otherwise defined shall have the
meanings ascribed thereto in the Purchase Agreement. As used herein the
following terms, unless the context otherwise requires, have the following
respective meanings:
(a) The term "Company" shall include American International
Petroleum Corporation and any corporation that shall succeed or assume the
obligations of such corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's common stock,
par value $.08 per share, (b) any other capital stock of any class or
classes (however designated) of the Company, authorized on or after such
date, the Holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends
and liquidating dividends after the payment of dividends and distributions
on any shares entitled to preference, and the Holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even though the right
so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities
described in (a) or (b) may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) that the Holder of this Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or that at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise.
1. Exercise of Warrant.
1.1. Method of Exercise.
(a) This Warrant may be exercised in whole or in part (but not as to
a fractional share of Common Stock), at any time and from time to time
during the Exercise Period by the Holder hereof by delivery of a notice of
exercise (a "Notice of Exercise") substantially in the form attached
hereto as Exhibit A via facsimile to the Company. Promptly thereafter the
Holder shall surrender this Warrant to the Company at its principal
office, accompanied by payment of the Purchase Price multiplied by the
number of shares of Common Stock for which this Warrant is being exercised
(the "Exercise Price"). Payment of the Exercise Price shall be made, at
the option of the Holder, (i) by check or bank draft payable to the order
of the Company, (ii) by wire transfer to the account of the Company, (iii)
in shares of Common Stock having a Market Value on the Exercise Date (as
hereinafter defined) equal to the
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 2
<PAGE>
aggregate Exercise Price or (iv) by presentation and surrender of this
Warrant to the Company for cashless exercise (a "Cashless Exercise"), with
such surrender being deemed a waiver of the Holder's obligation to pay all
or any portion of the Exercise Price. In the event the Holder elects a
Cashless Exercise (which such election shall be irrevocable) the Holder
shall exchange this Warrant for that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock being
exercised by a fraction, the numerator of which shall be the difference
between the then current Market Value of the Common Stock and the Purchase
Price, and the denominator of which shall be the then current Market Value
of the Common Stock. If the amount of the payment received by the Company
is less than the Exercise Price, the Holder will be notified of the
deficiency and shall make payment in that amount within five (5) business
days. In the event the payment exceeds the Exercise Price, the Company
will promptly refund the excess to the Holder. Upon exercise, the Holder
shall be entitled to receive, promptly after payment in full, one or more
certificates, issued in the Holder's name or in such name or names as the
Holder may direct, subject to the limitations on transfer contained
herein, for the number of shares of Common Stock so purchased. The shares
of Common Stock so purchased shall be deemed to be issued as of the close
of business on the date on which the Company shall have received from the
Holder payment in full of the Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the terms
hereof, the Holder shall not be required to physically surrender this
Warrant to the Company. Rather, records showing the amount so exercised
and the date of exercise shall be maintained on a ledger substantially in
the form of Annex B attached hereto (a copy of which shall be delivered to
the Company or transfer agent with each Notice of Exercise). It is
specifically contemplated that the Holder hereof shall act as the
calculation agent for all exercises of this Warrant. In the event of any
dispute or discrepancies, such records maintained by the Holders shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following an exercise
of a portion of this Warrant, the number of shares of Common Stock
represented by this Warrant will be the amount indicated on Annex B
attached hereto (which may be less than the amount stated on the face
hereof).
1.2. Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and anticipates
acquiring the shares of Common Stock issuable upon exercise of the Warrant
solely for its own account for investment purposes and not with a view to
or for resale of such securities unless such resale has been registered
with the Commission or an applicable exemption is available therefor. At
the time this Warrant is exercised, the Company may require the Holder to
state in the Notice of Exercise such representations concerning the Holder
as are necessary or appropriate to assure compliance by the Holder with
the Securities Act.
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 3
<PAGE>
1.3. Company Acknowledgment. The Company will, at the time of the
exercise of this Warrant, upon request of the Holder hereof, acknowledge
in writing its continuing obligation to afford to such Holder the
registration rights to which such Holder shall continue to be entitled
after such exercise in accordance with the provisions of a Registration
Rights Agreement dated the date hereof (the "Registration Rights
Agreement"). If the Holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to
afford such Holder any such rights.
1.4. Limitation on Exercise.. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described herein,
such exercise rights shall be limited, solely to the extent set forth in
the Purchase Agreement as if such provisions were specifically set forth
herein. In addition, the number of shares of Common Stock issuable upon
exercise of this Warrant is subject to reduction as specified in Section
6.2 of the Purchase Agreement.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within five (5)
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue, stamp or transfer taxes) will cause to be issued in
the name of and delivered to the Holder thereof, or, to the extent permissible
hereunder, to such other person as such Holder may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
applicable Purchase Price, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Extraordinary Events. The Purchase Price to be paid by
the Holder upon exercise of this Warrant, and the consideration to be received
upon exercise of this Warrant, shall be adjusted in case at any time or from
time to time pursuant to Article XI of the Purchase Agreement as if such
provisions were specifically set forth herein.
4. No Impairment. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant, and (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate
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COMMON STOCK PURCHASE WARRANT - Page 4
<PAGE>
or otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly assume in
writing and will be bound by all the terms of this Warrant.
5. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause independent certified public accountants of national standing
selected by the Company to compute such adjustment or readjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to the Holder of this Warrant, and will, on the written request at
any time of the Holder of this Warrant, furnish to such Holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
6. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the Holders of
any class or securities for the purpose of determining the Holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to or consolidation or merger of the Company with or
into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take
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COMMON STOCK PURCHASE WARRANT - Page 5
<PAGE>
place, and the time, if any, as of which the Holders of record of Common Stock
(or Other Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 days prior to the date specified in such notice on which any action is
to be taken.
7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
8. Exchange of Warrant.
(a) On surrender for exchange of this Warrant, properly endorsed and
in compliance with the restrictions on transfer set forth in the legend on the
face of this Warrant, to the Company, the Company at its expense will issue and
deliver to or on the order of the Holder thereof a new Warrant of like tenor, in
the name of such Holder or as such Holder (on payment by such Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
the Warrant so surrendered.
(b) Upon written notice from the Purchasers pursuant to Section
2.1(d) of the Purchase Agreement that the Purchasers have elected to transfer
amongst each other a portion of this Warrant, and on surrender for amendment and
restatement of this Warrant, the Company at its expense will issue and deliver
to or on the order of the Holder hereof a new Warrant of like tenor, in the name
of such Holder, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock as set forth in such notice reflecting such
transfer.
9. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
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COMMON STOCK PURCHASE WARRANT - Page 6
<PAGE>
11. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each Holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by endorsement
and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice
to the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be
sold, transferred or assigned except pursuant to an effective
registration statement under the Securities Act or pursuant to an
applicable exemption therefrom.
12. Registration Rights. The Company is obligated to register the shares
of Common Stock issuable upon exercise of this Warrant in accordance with the
terms of the Registration Rights Agreement.
13. Notices, etc. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Nevada. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[Signature Page Follows]
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COMMON STOCK PURCHASE WARRANT - Page 7
<PAGE>
DATED as of April 21, 1998.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: s/ George N. Faris
----------------------------
Name: George N. Faris
Title: Chief Executive Officer
[Corporate Seal]
Attest:
By: s/ Denis J. Fitzpatrick
----------------------------
Secretary
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COMMON STOCK PURCHASE WARRANT - Page 8
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To American International Petroleum Corporation
The undersigned registered Holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
______________(1) shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor in the amount and manner set forth below, as of
the date written below. The undersigned requests that the certificates for such
shares of Common Stock be issued in the name of, and delivered to,
_________________________________ whose address is _____________________________
_______________________________________________________________________________.
The Exercise Price is paid as follows:
Bank draft payable to the Company in the amount of $__________. Wire
transfer to the account of the Company in the amount of $________.
Delivery of ___________ previously held shares of Common Stock having an
aggregate
Market Value of $_________.
Cashless exercise. Surrender of __________ shares purchasable under this
Warrant for such shares of Common Stock issuable in exchange therefor
pursuant to the Cashless Exercise provisions of the Warrant, as
provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the Holder will be in
compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Dated: _______________ _________________________________________________
(Name must conform to name of Holder as specified
on the face of the Warrant)
By:______________________________
Name:________________________
Title:_______________________
Address of Holder:_______________
_______________
_______________
Date of exercise:______________
- ----------
(1) Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the accompanying Warrant, to the holder surrendering the same.
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 21, 1998,
among AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the
"Company"), and the other undersigned parties hereto (collectively, the
"Funds").
1. Introduction.
(a) Securities Purchase Agreement. The Company and the Funds
have today executed that certain Securities Purchase Agreement (the "Securities
Purchase Agreement"), pursuant to which the Company has agreed, among other
things, to issue an aggregate of $12,000,000 (U.S.) principal amount of 14%
Convertible Notes of the Company (the "Notes") to the Funds or their successors,
assigns or transferees (collectively, the "Holders"). The Notes are convertible
into an indeterminable number of shares (the "Note Conversion Shares") of the
Company's common stock, par value $.08 per share (the "Common Stock"), pursuant
to the terms of the Notes. In addition, pursuant to the terms of the Securities
Purchase Agreement and the transactions contemplated thereby, the Company has
issued to the Funds Common Stock Purchase Warrants exercisable for an aggregate
of 1,400,000 shares of Common Stock (the "Warrant Shares"). The number of Note
Conversion Shares and Warrant Shares is subject to adjustment upon the
occurrence of stock splits, recapitalizations and similar events occurring after
the date hereof.
(b) Equity Financing Agreement. The Company and the Funds have
today executed that certain Equity Financing Agreement (the "Equity Agreement"),
pursuant to which the Company has agreed, among other things, to issue shares of
Common Stock for an aggregate consideration of up to $40,000,000 (the "Equity
Shares") to the Funds. In addition, pursuant to the terms of the Equity
Agreement and the transactions contemplated thereby, the Company has issued to
the Funds (x) Common Stock Purchase Warrants exercisable for an aggregate of
1,595,978 shares of Common Stock (the "Initial Warrant Shares") and (y) Common
Stock Purchase Warrants exercisable, subject to the vesting schedule therein,
for a maximum aggregate of 2,000,000 shares of Common Stock (the "Additional
Warrant Shares"). The number of Equity Shares, Initial Warrant Shares and
Additional Warrant Shares is subject to adjustment upon the occurrence of stock
splits, recapitalizations and similar events occurring after the date hereof.
(c) October Financing. The Company and certain of the Funds
entered into that certain Securities Purchase Agreement dated October 9, 1997,
pursuant to which, among other items, the Company issued to the Funds listed
therein Common Stock Purchase Warrants exercisable for an aggregate of 1,500,000
shares of Common Stock (the "October Warrant Shares"). The number
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REGISTRATION RIGHTS AGREEMENT - Page 1
<PAGE>
of October Warrant Shares is subject to adjustment upon the occurrence of stock
splits, recapitalizations and similar events occurring after the date hereof.
(d) Definition of Securities. The Note Conversion Shares,
Warrant Shares, Equity Shares, Initial Warrant Shares, Additional Warrant Shares
and October Warrant Shares are collectively herein referred to as the
"Securities."
(e) National Market Representation. The Company represents and
warrants that the Company's Common Stock is currently eligible for trading on
the Nasdaq Stock Market's National Market ("National Market") 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. Within twenty one
(21) days of the date hereof, the Company shall prepare and file a registration
statement to effect the registration under the Securities Act of all, but not
less than all, of the Registrable Securities which relate (or, because of the
indeterminable number thereof, which could reasonably be deemed to relate) to
the Securities; all to the extent requisite to permit the public disposition of
such Registrable Securities so to be registered. The Company shall use its best
efforts to cause the Registration Statement which is the subject of this Section
2.1(a) (the "Registration Statement") to be declared effective by the Commission
upon the earlier to occur of (i) 111 days after the date hereof, (ii) 90 days
following the filing of the Registration Statement contemplated by this Section
2.1, or (iii) ten (10) business days after 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 Notes,
issuance of the Equity Shares, 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 such
separate registration statement as if it were an amendment to the Registration
Statement.
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REGISTRATION RIGHTS AGREEMENT - Page 2
<PAGE>
(b) Registration Statement Form. Registrations under this
Section 2.1 shall be on Form S-3 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
Funds; provided, however, such intended method of disposition 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 has 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 ninety (90)
days.
(e) Plan of Distribution. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section reasonably
acceptable to the Funds and substantially in the form annexed hereto; provided,
however, such plan of distribution section shall be modified by the Company so
as to not provide for the disposition of the Registrable Securities on the basis
of an underwritten offering.
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
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REGISTRATION RIGHTS AGREEMENT - Page 3
<PAGE>
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 and the intended method of disposition thereof), the Company
will, subject to the terms of this Agreement, 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
giving 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 its 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
(ii) 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 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.
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REGISTRATION RIGHTS AGREEMENT - Page 4
<PAGE>
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 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 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 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
(including, without limitation, any amendment to the selling stockholder table
to reflect any transfers among the Funds of the Securities or Registrable
Securities as a result of the provisions contained in Section 2.1(d) of the
Securities Purchase Agreement or Section 2.5(b)(iii) of the Equity Agreement),
until the earlier to occur of six (6) 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 six (6)
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;
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REGISTRATION RIGHTS AGREEMENT - Page 5
<PAGE>
(iv) use its reasonable 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 subdivision (iv) be
obligated to be so qualified or to consent to general service of process in any
such jurisdiction;
(v) use its 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 such
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 statements 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,
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REGISTRATION RIGHTS AGREEMENT - Page 6
<PAGE>
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:
(v) 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;
(w) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus or for
additional information;
(x) 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
(y) 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 fact 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 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
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REGISTRATION RIGHTS AGREEMENT - Page 7
<PAGE>
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 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.
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
document 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 Securities Purchase Agreement.
Each 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, such Fund will forthwith discontinue such Fund's disposition of
Registrable Securities pursuant to the Registration Statement relating to such
Registrable Securities until such 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
such Fund's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
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REGISTRATION RIGHTS AGREEMENT - Page 8
<PAGE>
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 reasonable 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
a Fund's Registrable Securities in the registration statement, each 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 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 any 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.
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REGISTRATION RIGHTS AGREEMENT - Page 9
<PAGE>
In connection with the preparation and filing of each
registration statement 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 Funds the Default Fee specified in Section 10.4 of
the Securities Purchase Agreement. In addition, if the Registration Statement
contemplated in Section 2.1 is not declared effective by the Required
Effectiveness Date, then, as specified in Section 2.5 of the Equity Agreement,
the Commitment Period (as defined therein) shall expire and twenty five percent
(25%) of the Initial Warrant Shares shall be fully vested. In such event, the
remainder of such Initial Warrant Shares, and all Additional Warrant Shares,
shall not vest and shall be cancelled.
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REGISTRATION RIGHTS AGREEMENT - Page 10
<PAGE>
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, 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, 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.
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REGISTRATION RIGHTS AGREEMENT - Page 11
<PAGE>
(b) Indemnification by the Sellers. The Company may require,
as a condition to including any Registrable Securities in any registration
statement 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 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.
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REGISTRATION RIGHTS AGREEMENT - Page 12
<PAGE>
(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
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 subdivisions 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 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 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.
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REGISTRATION RIGHTS AGREEMENT - Page 13
<PAGE>
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
alleged 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:
"Additional Warrant Shares": As defined in Section 1.
"Agreement": As defined in Section 1.
"Commission": The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this
Agreement.
"Conversion Shares": As defined in Section 1.
"Equity Shares": As defined in Section 1.
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REGISTRATION RIGHTS AGREEMENT - Page 14
<PAGE>
"Exchange Act": The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"Initial Warrant Shares": As defined in Section 1.
"National Market": As defined in Section 1.
"Notes": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Notes.
"October Warrant Shares": 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 National Market
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 $25,000) 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
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REGISTRATION RIGHTS AGREEMENT - Page 15
<PAGE>
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 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.
"Securities Purchase Agreement": As defined in Section 1.
"Sellers' Representative": Infinity Investors Limited or such Person
designated by Infinity Investors Limited (or subsequent Sellers' Representative)
at the time of disposition of the last of the Notes held by one or more of the
Funds (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.
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REGISTRATION RIGHTS AGREEMENT - Page 16
<PAGE>
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 is 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 other action by any holder or holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any 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 of 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
Securities Purchase 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.
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REGISTRATION RIGHTS AGREEMENT - Page 17
<PAGE>
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.
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
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REGISTRATION RIGHTS AGREEMENT - Page 18
<PAGE>
of such provision to Persons or circumstances other than those to which it is
held invalid, shall not be affected thereby.
[Signature Page Follows]
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REGISTRATION RIGHTS AGREEMENT - Page 19
<PAGE>
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: s/ Denis J. Fitzpatrick
-----------------------------------
Name: Denis J. Fitzpatrick
-----------------------------------
Title: Vice President and
Chief Financial Officer
-----------------------------------
Address: 444 Madison Avenue
New York, New York 10022
Telephone: (212) 688-3333
-------------------------------
Fax: (212)688-6657
Attn: George Faris
INFINITY INVESTORS LIMITED
By: s/ James A. Loughran
-----------------------------------
Name: James A. Loughran
-----------------------------------
Title: Director
-----------------------------------
Address: 38 Hertford Street
London, England WIY 7TG
Telephone: 011-44-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
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REGISTRATION RIGHTS AGREEMENT - Page 20
<PAGE>
INFINITY EMERGING
OPPORTUNITIES LIMITED
By: s/ James A. Loughran
-----------------------------------
Name: James A. Loughran
-----------------------------------
Title: Director
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Telephone: 011-44-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
GLACIER CAPITAL LIMITED
By: s/ James E. Martin
-----------------------------------
Name: James E. Martin
-----------------------------------
Title: President
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Telephone: 011-44-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
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REGISTRATION RIGHTS AGREEMENT - Page 21
<PAGE>
SUMMIT CAPITAL LIMITED
By: s/ James E. Martin
-----------------------------------
Name: James E. Martin
-----------------------------------
Title: President
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Telephone: 011-44-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
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REGISTRATION RIGHTS AGREEMENT - Page 22
Exhibit 4.4
SECURITIES PURCHASE AGREEMENT
dated as of
April 21, 1998
by and among
AMERICAN INTERNATIONAL PETROLEUM CORPORATION,
as the Issuer,
and
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of April 21, 1998, among American International
Petroleum Corporation (the "Company") and the Purchasers listed on Schedule I
attached hereto (each a "Purchaser" and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to the Purchasers, and the
Purchasers desire to purchase from the Company, $12,000,000 aggregate principal
amount of the Company's 14% Convertible Notes due April 21, 2000 (the
"Convertible Notes"), with terms and conditions as set forth in the form of
Convertible Note attached hereto as Exhibit A; and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, par value $.08 per share (the "Common Stock"); and
WHEREAS, in order to induce the Purchasers to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchasers an
aggregate of 1,400,000 warrants to purchase shares of Common Stock on the terms
and conditions described in the form of the common stock purchase warrant
attached hereto as Exhibit B (the "Warrants"); and
WHEREAS, the Purchasers will have certain registration rights with respect
to such shares of Common Stock issuable (i) as interest under, and upon
conversion of, the Convertible Notes (collectively, the "Conversion Shares"),
and (ii) upon exercise of the Warrants (the "Warrant Shares") as set forth in
the Registration Rights Agreement in the form attached hereto as Exhibit C; and
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
hereby agree as follows:
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
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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 Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Amendment Agreement" has the meaning set forth in Section 6.1(r).
"Asset Sale" has the meaning set forth in Section 8.5.
"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).
"Budget" has the meaning set forth in Section 4.27.
"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 of 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 the Purchasers 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 33?% 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 of more than 25,000 shares of Common Stock of the
Company by any executive officers and/or directors of the Company (including,
but not limited to, George Faris, William Tracy and Denis Fitzpatrick) within
ten (10) Trading Days following the delivery of any Purchase Notice pursuant to
the terms of the Equity Agreement (as such term is defined therein); (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 stockholders 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
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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.
"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 the Purchasers 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 First Closing Date or the Second Closing Date, as
applicable, and "Closing Date" or "Closings" means both of such dates.
"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, $.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
by-laws 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.
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"Consolidated Subsidiary" means at any date with respect to any Person any
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 Note
by the holder thereof to the Company as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's 14% Convertible Notes
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.
"Default Fee" has the meaning set forth in the Section 10.4.
"Derivative Securities" has the meaning set forth in Section 8.7.
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"Discounted Equity Offerings" has the meaning set forth in Section 8.7.
"Directors" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"Disposition" has the meaning set forth in Section 7.15.
"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.
"Equity Agreement" has the meaning set forth in Section 6.1(q).
"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.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"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.
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"First Closing Date" means the date on which all of the conditions set
forth in Sections 6.1 and 6.3 shall have been satisfied and Convertible Notes in
the aggregate principal amount of $5,000,000 and Warrants to acquire 1,400,000
shares of Common Stock are issued by the Company to the Purchasers.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"Formula Price" shall mean a dollar amount equal to the greater of (i) the
aggregate principal amount of the Convertible Notes then outstanding, together
with all accrued and unpaid interest thereon, and (ii) the sum of (A) the
product of (x) the number of shares of Common Stock into which the Convertible
Notes being redeemed are then convertible at the then current Conversion Price
and (y) the Market Price as reported by Bloomberg, L.P. on the applicable date
the Convertible Notes are redeemed, plus (B) accrued and unpaid interest on the
Convertible Notes through the date of repayment.
"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.
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SECURITIES PURCHASE AGREEMENT - Page 6
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"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 Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Liquidity Event" has the meaning set forth in Section 10.4(b).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Market Price Test" has the meaning set forth in Section 6.2.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Material Transaction" has the meaning set forth in Section 10.3(b).
"Maturity Date" shall mean the date of maturity of the Convertible Notes;
specifically, April 21, 2000.
"Maximum Number of Shares" shall mean 19.9% 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 stockholders of the
Company may have previously approved pursuant to Section 4.3 of each Convertible
Note.
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SECURITIES PURCHASE AGREEMENT - Page 7
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"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"Nasdaq Redemption Event" has the meaning set forth in Section 3.4.
"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.
"Non-Recourse Financing" means Debt of the Company or any Subsidiary
which, by its terms, bars the lender thereof from any 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.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Note.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the form of Warrant.
"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 F attached hereto.
"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 n the business of the Company and the Subsidiaries.
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SECURITIES PURCHASE AGREEMENT - Page 8
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"Permitted Financings" shall mean (i) any Financing which is followed by
(x) a reduction of the Commitment (as such term is defined in the Equity
Agreement) to zero and (y) the payment of all amounts and consideration due and
owing to the Purchasers upon the occurrence of such event as contemplated by the
Equity Agreement, (ii) a Non-Recourse Financing transaction for a specific
project or asset of the Company, (iii) an underwritten offering of the Common
Stock, provided such offering provides for the registration as part of the
underwritten offering of all shares of Common Stock which are Registrable
Securities, and (iv) Financings associated with the projects described on
Schedule 4.1 hereof.
"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 any
Person which was at such time a member of the ERISA group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchasers" means, collectively, those entities listed on the signature
page hereto and their successors and assigns, including holders from time to
time of the Convertible Notes.
"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(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company
and the Purchasers dated the date hereof substantially in the form set forth in
Exhibit C attached hereto.
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"Required Effectiveness Date" has the meaning set forth in Section
10.4(b).
"Reserve Amount" has the meaning set forth in Section 7.10.
"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 in Section 3.4.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Second Closing Date" means the date that all conditions set forth in
Sections 6.2 and 6.3 have been satisfied and the Company has issued an
additional $7,000,000 of Convertible Notes to the Purchasers.
"Securities" means the Convertible Notes, the Warrants and, as applicable,
the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth 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 Notes 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 E
attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
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"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and by-laws 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 Notes, the
Warrants, and the Registration Rights 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 such 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.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers for 1,400,000 shares of Common Stock in the aggregate on the First
Closing Date in the form of Exhibit B hereto.
"Warrant Shares" has the meaning set forth in the Recitals.
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
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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
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Purchase and Sale of Convertible Notes.
(a) Subject to the terms and conditions set forth herein, the
Company agrees to issue and sell to each Purchaser, and each Purchaser
severally agrees to purchase from the Company, Convertible Notes in the
aggregate principal amount of up to $12,000,000.
(b) Each Purchaser shall acquire a portion of the Convertible Notes
on the applicable Closing Date in an aggregate principal amount as set
forth on a schedule to be delivered by such Purchasers to the Company on
the applicable Closing Date. Five million dollars ($5,000,000) principal
amount of Convertible Notes will be acquired on the First Closing Date and
seven million dollars ($7,000,000) principal amount of Convertible Notes
will be acquired on the Second Closing Date, subject, however, to
satisfaction of all conditions precedent to each such Closing, unless the
Purchasers agree otherwise, in their sole discretion.
c) In connection with the Purchasers agreement to purchase the
Convertible Notes specified in this Article II, the Company shall issue
and deliver to the Purchasers on the First Closing Date Warrants to
purchase an aggregate of 1,400,000 shares of Common Stock.
(d) The portion of the Convertible Notes and Warrants to be acquired
by each Purchaser on the First Closing Date is set forth on Schedule I
attached hereto. The Purchasers may, by mutual agreement, and by written
notice to the Company, determine to acquire the Convertible Notes to be
issued on the Second Closing Date in different proportions than as set
forth on Schedule I. In such event, the Company shall, if directed in
writing by all Purchasers, amend and restate the Warrants issued on the
First Closing Date to the Purchasers to reflect an ownership thereof based
upon the aggregate pro rata portion of all Convertible Notes held by the
applicable Purchasers after the Second Closing Date.
SECTION 2.2. Purchase Price. The purchase price for the Convertible Notes
shall be 99% of the principal amount thereof. No part of the purchase price of
the Convertible Notes shall be allocated to the Warrants. Therefore, the
aggregate
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consideration payable by the Purchasers to the Company for the Convertible Notes
and the Warrants shall be (x) $4,950,000 on the first Closing Date and (y)
$6,930,000 on the Second Closing Date (the "Purchase Price").
SECTION 2.3 Closing and Mechanics of Payment.
(a) On each Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, each of the Purchasers shall deliver by
wire transfer to the Company immediately available funds in an amount
equal to the portion of the Purchase Price of the Convertible Notes to be
purchased by such Purchaser on such Closing Date. On the First Closing
Date, each Purchaser shall subtract from such Purchase Price such
Purchaser's ratable share of $25,000, representing an estimate of the
Expense Reimbursement Fee. Within ten (10) days of the receipt of notice
from the Purchasers, the Company shall pay any funds due and owing as the
Expense Reimbursement Fee in excess of the estimated Expense Reimbursement
Fee withheld from the Purchase Price as described herein.
(b) Subject to satisfaction of the conditions set forth in Sections
6.1 and 6.3 hereof, the First Closing Date shall occur on April 21, 1998.
(c) The Second Closing Date shall occur on a date selected by the
Purchasers no later than (x) May 15, 1998 or (y) the date all conditions
precedent of the Company set forth in Section 6.2 shall have been
satisfied, whichever shall be the latter to occur.
(d) On each Closing Date, against payment as set forth in subsection
2.3(a) above, the Company shall deliver to each Purchaser (i) a single
Convertible Note for each Purchaser representing the principal amount of
such Convertible Note issued to such Purchaser as of each Closing Date,
and (ii) on the First Closing Date a single Warrant for each Purchaser
representing the number of Warrants issued to such Purchaser as of the
First Closing Date.
(e) The Warrants and the Convertible Notes issued on both the First
Closing Date and the Second Closing Date shall be dated the date hereof;
provided; however, interest shall accrue on the applicable Convertible
Notes only from and after the date of funding thereof.
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ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. Payment of Principal and Interest; Payment Mechanics. The
Company will pay all amounts due on each Convertible Note by the method and at
the address specified for such purpose by the applicable Purchaser in writing,
without the presentation or surrender of any Convertible Note 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 Note, the holder shall surrender the Convertible Note 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 Note, 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 Note to the Company in
exchange for a new Convertible Note or Convertible Notes. The Company will
afford the benefits of this Section 3.1 to any direct or indirect transferee of
the Convertible Note purchased under this Agreement and that has made the same
agreement relating to this Convertible Note as the 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 Note 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 Notes at the Formula Price thereof following
at least five (5) Business Days prior written notice to the Purchasers (the
expiration 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. Partial
prepayments shall be in an aggregate principal amount of at least $500,000 or a
multiple of $100,000 thereof.
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SECTION 3.4. Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change of 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 forty-five (45) days, then, in each
case, the Company shall, upon request of the Majority Holders, redeem this
Convertible Note in cash for the Formula Price.
(b) Upon the consummation of one or more Financings, the Company
shall use 100% of the Net Cash Proceeds therefrom (unless such Net Cash
Proceeds from each such Financing is less than $250,000) to redeem the
Convertible Notes. The redemption price payable upon any such redemption
shall be the Formula Price.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days of such issuance to obtain shareholder approval to
issue additional shares of Common Stock (the "Nasdaq Redemption Event"),
the Company shall redeem the outstanding balance of each Convertible Note
for the Formula Price as set forth in Section 4.3 of the Convertible
Notes.
SECTION 3.5. Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Convertible Notes
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 the Purchasers shall thereafter not be entitled to deliver a Notice
of Conversion for the Convertible Notes) 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
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(IV) A redemption pursuant to Section 3.4(c), the date
specified in each Convertible Note.
(b) On the Maturity Date and on the effective date of a repayment or
redemption of the Convertible Notes as specified in Section 3.5(a) above,
the Company shall deliver by wire transfer of funds the
repayment/redemption price to each Purchaser of the Convertible Notes
subject to redemption. Should any Purchaser not receive payment of any
amounts due on redemption of its Convertible Notes 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
lesser 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 Notes to be redeemed in
any redemption in which not all of the Convertible Notes are to be
redeemed so that the ratio of the Convertible Notes of each holder
selected for redemption to the total Convertible Notes owned by that
holder shall be the same as the ratio of all such Convertible Notes
selected for redemption bears to the total of all then outstanding
Convertible Notes. Should any Convertible Notes required to be redeemed
under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Convertible Notes shall be redeemed on the
earliest possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a voluntary repayment 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 Notes 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 the Purchasers, the Purchasers 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 redemption proceeds to
the Purchasers when due or (y) honored on or as of the date the Notice of
Conversion if the Company fails to timely pay the redemption proceeds to
the Purchasers when due.
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SECTION 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any 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 Notes (i) the holders of Convertible Notes 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
form the Company that it is required to withhold Taxes to transfer all or
any portion of the Convertible Notes 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) such 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 law. 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.
(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 the Purchasers to a Person of any
Security.
(c) The Company shall indemnify each 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 each Purchaser, or
qualified assignee, and any liability (including penalties, interest and
expenses)
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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 such Purchaser
or assignee makes written demand therefor. A certificate as to the amount
of such Taxes or Other Taxes submitted to the Company by such Purchaser or
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 each Purchaser the original or a certified copy of
a receipt evidencing payment thereof.
(e) Each 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 OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of them,
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. Schedule 4.1 sets forth a list of all Subsidiaries and
the country or jurisdiction in which each is incorporated. The Company and each
of its Subsidiaries is duly 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.
SECTION 4.2. Authorization and Execution.
(a) The Company 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.
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(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its 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 other Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company 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 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
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or similar rights of the stockholders 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 Notes, Conversion Shares, Warrants or Warrant Shares. The Company
has furnished to Purchasers 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.
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
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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 Nasdaq Market relating to the Conversion
Shares and Warrant Shares of Common Stock issuable upon conversion of the
Convertible Notes and exercise of the Warrants, 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 Notes or upon exercise in accordance with the terms of
the Warrants (assuming the payment of the exercise price set forth in the
Warrants), the Conversion Shares and Warrant 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 and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers 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 and Warrant Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Notes, and Warrant Shares upon exercise of the
Warrants, is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders 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, (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. 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 and SEC Reports. Since January 1, 1996,
the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered to each
Purchaser true and
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complete copies of the SEC Reports, except for such exhibits and incorporated
documents. Such SEC Reports, at the time filed, complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the Commission thereunder applicable to such SEC Reports. None of the SEC
Reports, including without limitation, any financial statements or schedules
included therein, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading. There have been
no material adverse changes in the Company's business, properties, results of
operations, condition (financial or otherwise) or prospects since the date of
the Company's most recent Report on Form 10-K for the year ended December 31,
1997 which have not been disclosed in the Company's SEC Reports or to the
Purchasers in writing. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries contained in the SEC Reports, and the related
consolidated statements of income, changes in stockholders' 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 the published rules and regulations of
the Commission with respect thereto 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 contingent. Since December 31, 1997 (the "Balance Sheet
Date"), except as disclosed in the SEC Reports, there has been (x) 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, 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 no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future.
SECTION 4.8. Litigation. Except as set forth in the SEC Reports, 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 materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
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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 has
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 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
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adequate reserves have been established. The charges, accruals and reserves on
the books of the Company and each Subsidiary in respect of taxes or other
governmental charges have been established in accordance with GAAP.
SECTION 4.12. Investments, Joint Ventures. Other than as set forth on
Schedule 4.1, , the Company has no Subsidiaries or 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 the Investment
Company Act of 1940, as amended.
SECTION 4.14. Full Disclosure. The information heretofore furnished by the
Company to the Purchasers 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 the Purchasers 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.
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 the Purchasers) 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 the Purchasers 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 the Purchasers 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 Nasdaq 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 or lapse of time would allow, revocation or
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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.
SECTION 4.17. Leases. Except as disclosed on Schedule 4.17 hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 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 could 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 hereof 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 the 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.
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
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 the
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,
other than Liens set forth on Schedule 4.22.
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SECTION 4.23. Eligibility to Use Form S-3. As of the date hereof, the
Company meets the "registrant eligibility" requirements set forth in the general
instructions applicable to registration statements on Form S-3 covering the
resale of the Registrable Securities.
SECTION 4.24. 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 management's
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 4.25. Year 2000 Compliance.
(a) Computer and Other Systems. All software programs and computer
hardware that are owned, leased or licensed by the Company and each Subsidiary,
or used by third parties on behalf of the Company and each Subsidiary ("Computer
Systems"), are designated to be used prior to, during and after the calendar
year 2000 A.D., including leap years; (b) all other operational systems that use
software or equipment that are owned, leased, or licensed by the Company and
each Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Other Systems"), are designated to be used prior to, during and
after the calendar year 2000 A.D., including leap years; (c) the Computer
Systems and Other Systems will properly operate during each such period without
error or degradation of performance caused by a lack of Year 2000 Capabilities,
and (d) the Computer Systems and Other Systems will properly operate during each
such period without requiring intervention or modification to Date Data.
(b) Capabilities of Suppliers, Vendors and Landlords. To the best of the
Company's knowledge after specific inquiry of all of its material suppliers,
vendors and landlords, the Company and each Subsidiary will not suffer a loss
from interruption or cessation of business operations, in whole or in part, as a
result of such suppliers, vendors or landlords failing to provide materials,
labor, supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having Year 2000
Capabilities.
(c) For purposes of this Agreement, (x) "Year 2000 Capabilities" means the
ability to: (i) manage and manipulate data involving dates, including single
century formulas and multi-century formulas, in a manner that will not cause an
abnormally ending scenario or generate incorrect values or invalid results
involving such dates, (ii) include the indication of proper century dates in all
date-related user interface functions and date fields, and (iii) operate with
proper century dates in date-related software or hardware interface functions
and (y) "Date Data" means any existing data or input of date which includes an
indication of or reference to date.
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SECTION 4.26. 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 any
Subsidiary, or received or retained any funds, in each case (x) in violation of
any law, rule or regulation or (y) of a character required to be disclosed by
the Company in any of the SEC Reports.
SECTION 4.27 Future Outside Capital. Attached hereto as Schedule 4.27 is a
copy of the Company's Budget (the "Budget"), detailing the proposed use of the
proceeds obtained from this financing transaction and the Equity Agreement. The
Budget has not been materially altered since the date listed therein. As of the
date hereof, and for a period of twenty-four (24) months from the date hereof,
based on the Budget, the Company and its Subsidiaries will have no further need
for outside capital other than (i) Purchase Price to be paid by the Funds on the
Second Closing Date, (ii) Non-Recourse Financings for specific projects not
expected to exceed $20,000,000 in the aggregate as contemplated by the Budget
and (iii) net proceeds from draws pursuant to the Equity Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. Purchasers. Each Purchaser severally (and not jointly) hereby
represents and warrants to the Company solely as to such Purchaser that:
(a) the 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
the Purchaser's property shall at all times be and remain within its
control;
(b) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant hereto are within the 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 the
Purchaser.
(d) the execution and delivery by the 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
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provision of applicable law or regulation, or (ii) any agreement,
judgment, injunction, order, decree or other instrument binding upon such
Purchaser;
(e) such 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 Transition
Agreements;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
(g) the 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 the Purchaser is capable of bearing
the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the 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; the 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 the 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 the 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 any Purchaser's ability to rely thereon;
(i) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or its
related trust) has any interest; and
(j) the Purchaser is a corporation organized under the laws of the
Nevis West Indies.
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ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. Conditions Precedent to the Purchasers' Obligation to
Purchase. The obligation of each Purchaser hereunder to purchase the Convertible
Notes 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
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Purchasers;
(b) The Company shall have delivered to the Purchasers duly executed
certificates representing the Convertible Notes and the Warrants in
accordance with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company 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 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 it
at or prior to the Closing Date. The Purchasers' 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 the Purchasers,
including but not limited to certificates with respect to the Company
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 F;
(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 sale of the Securities;
(f) All applicable waiting periods in respect to the issuance and
sale 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;
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(g) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchasers, 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
Purchasers could reasonably have any such effect;
(h) Each of the Purchasers shall have received an opinion, dated the
Closing Date, of counsel to the Company, substantially in the form
attached as Exhibit G hereto;
(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 the Purchasers;
(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, 1997;
(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 the Purchasers hereunder;
(m) The Purchasers shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in the
denominations and registered in the names of the Purchasers specified in
or pursuant to Schedule I;
(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 the Purchasers reasonably deem material in connection with the
purchase of the Securities;
(o) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing;
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(p) The Purchasers shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as
they shall reasonably request;
(q) An Equity Financing Agreement in the form attached as Exhibit D
hereto between certain of the Purchasers and the Company (the "Equity
Agreement") shall be executed by the Company; and
(r) An Amendment Agreement in the form attached hereto as Exhibit H
hereto between certain of the Purchasers and the Company amending certain
of the terms of a Securities Purchase Agreement (and the related documents
executed in connection therewith) dated October 9, 1997 (the "Amendment
Agreement") shall be executed by the Company.
SECTION 6.2. Conditions Precedent to Second Closing Date. The obligation
of the Purchasers to purchase Convertible Notes pursuant to this Agreement on
the Second Closing Date is subject to the satisfaction, on or before the Second
Closing Date, of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion:
(a) The Company shall have delivered to each of the Purchasers, with
respect to the Second Closing Date, the agreements, certificates,
evidences, assurances and related documents as are required by Section 6.1
to be delivered on the First Closing Date, including the certificates
specified in Sections 6.1(c), (d) and (p);
(b) 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 the First
Closing Date;
(c) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects as of
the date when made at such time (except for representations and warranties
that speak as of a specified date), and as of the Second Closing Date as
though made on and as of such date;
(d) The Convertible Notes being purchased by the Purchaser on the
Second Closing Date shall have been executed and delivered to the
Purchasers by the Company;
(e) The Company shall have timely performed, satisfied and complied
in all material respects with the covenants, agreements and conditions
required by each Transaction Agreement (without incurring any liquidated
damage penalties contemplated by any Transaction Document) to be
performed, satisfied or complied with by the Company at or prior to the
Second Closing Date and no Default or Event of Default shall have occurred
and then be continuing;
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(f) The trading in the Common Stock shall not have been suspended by
the Commission or the Nasdaq Market (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company);
(g) No event requiring redemption of the Convertible Notes as
specified in Section 3.4 shall have occurred;
(h) The Registration Statement covering resales of the Registrable
Securities shall have been filed with the Commission; and
(i) The average of the DWASP (as such term is defined in the
Convertible Notes) for the five (5) Trading Days immediately preceding the
Second Closing Date shall be equal to or grater than $2.00 per share of
Common Stock (the "Market Price Test").
The failure of the Company to satisfy each of the foregoing conditions prior to
May 31, 1998 shall result in the termination of the Purchasers' obligation to
purchase Convertible Notes on the Second Closing Date. If the Second Closing
Date has not occurred prior to May 31, 1998 and the Purchasers have elected to
terminate their obligation to purchase the Convertible Notes on the Second
Closing Date solely as a result of the failure of the Company to satisfy the
Market Price Test specified in Section 6.2(i) above, then the number of Warrants
shall be reduced to an amount equal to the product of 1,400,000 multiplied by a
fraction, the numerator of which is the aggregate stated principal amount of the
Convertible Notes as funded by the Purchasers as of the date of such termination
of such commitment and the denominator of which is $12,000,000.
SECTION 6.3. Conditions to the Company's Obligations. The obligations of
the Company to issue and sell the Securities to the Purchasers 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 the Purchasers contained
herein shall be true and correct in all material respects on the Closing
Date and the Purchasers shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by the Purchasers at or prior to the Closing Date;
(b) The issue and sale 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 the Purchasers;
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(d) The Company shall have received payment of the Purchase Price,
less the Expense Reimbursement Fee;
(e) The Equity Agreement shall have been executed and delivered by
the Purchasers named therein; and
(f) The Amendment Agreement shall have been executed and delivered
by the Purchasers named therein.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding (except for Sections 7.1(a) and (d),
7.10, 7.11, 7.12 and 7.13, which shall apply for so long as any Convertible
Notes or Warrants remain outstanding) and for the benefit of the Purchasers:
SECTION 7.1. Information. The Company will deliver to each holder of the
Convertible Notes:
(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 on Forms
10-K, 10-Q and 8-K (or their equivalents) which the Company or any
Subsidiary has filed with the Commission;
(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 proposes to take with respect thereto;
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(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 Notes
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, plus (ii) the maximum number of Warrant
Shares, in each case issuable pursuant 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 or which the Company is required to disclose in
its SEC Reports.
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 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
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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, the Purchasers' Representative or an
affiliate thereof, as representatives of the Purchasers, 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 the
Purchasers the affairs, finances and accounts of the Company and its
Subsidiaries), 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. Use of Proceeds. The proceeds from the issuance and sale of
the Convertible Notes by the Company shall be used to finance the Company's
expansion efforts in Kazakstan and Russia and for other working capital purposes
as described in the Budget. None of the proceeds from the issuance and sale of
the Convertible Notes by the Company pursuant to this Agreement will be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
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.
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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 Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time) and the exercise in full of the
Warrants and the issuance of the Warrant Shares (based on the exercise price of
the Warrants) (collectively, the "Reserved Amount"). The Company shall not
reduce the Reserved Amount without the prior written consent of each Purchaser.
With respect to all Securities which contain an indeterminate number of shares
of Common Stock issuable in connection therewith (such as the Convertible
Notes), 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 Notes and exercise of the
Warrants, 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
Notes and Warrants contemplated in Section 4.3 of each Convertible Note and
Sections 3.4(c) and 10.3 hereof, respectively.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Conversion Shares and Warrant 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 and Warrant Shares from time to
time issuable upon conversion or exercise of the Convertible Notes and Warrants.
The Company will obtain and maintain the listing and trading of its Common Stock
on the Nasdaq Market, the Nasdaq SmallCap Market, the New York Stock Exchange,
Inc., or the American Stock Exchange Inc., and 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 each Purchaser
copies of any notices it receives from Nasdaq regarding the continued
eligibility of the Common Stock for listing on the Nasdaq Market.
SECTION 7.11. Irrevocable Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares or Warrant Shares, as applicable, in such amounts as specified from time
to time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of any
Convertible Notes in accordance with their terms and/or
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exercise of any Warrants in accordance with 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 or
Notice of Exercise, as the case may be. 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 Notes or
exercise of any Warrants shall be issued to any transferee of such shares from a
Purchaser without any restrictive legend. 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
such 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 each 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
sale to the Purchasers 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 each Purchaser on or prior to the First Closing
Date.
SECTION 7.14. [Intentionally Omitted]
SECTION 7.15. Shareholder Restrictions. Attached hereto as Schedule 7.15
is a list of all executive officers and directors of the Company. Each of George
Faris, Denis Fitzpatrick and William Tracy covenants and agrees that he will not
(and the Company agrees to ensure that such persons will not) directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of (a "disposition") more than an aggregate of 25,000 shares
of Common Stock legally or beneficially owned by them for a period of ten (10)
Trading Days following each draw date under the Equity Agreement. The Company
shall obtain the agreement of each executive officer and director of the Company
within thirty (30) days of the date hereof to the restriction set
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forth in this Section 7.15, other than George Faris, Denis Fitzpatrick and
William Tracy, each of whom shall have agreed to this restriction on the date
hereof by their countersignature to this Agreement.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding and for the benefit of the
Purchasers:
SECTION 8.1. Limitation 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 and as are
described on Schedule 8.1, (y) pursuant to the Equity Agreement or (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. Restricted Payments. Neither the Company nor any Subsidiary
will declare or make Restricted Payments in excess of $50,000 during any
calendar year, except Restricted Payments from the Subsidiaries listed on
Schedule 4.1 to the stockholders thereof (including the Company) pro rata in
relation to the percentage ownership of such Subsidiary as disclosed thereon.
SECTION 8.3. 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 of stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any 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 8.3 attached hereto
(with a copy of such agreements annexed to such Schedule 8.3) 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
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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 8.4. 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 giving 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 the
Purchasers 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 8.5 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 the Purchasers, which
consent shall not be unreasonably withheld; provided, no consent of the
Purchasers will be required for the disposition or farm-out all or a portion of
the Company's working interest in Med Shipping Usturt Petroleum Limited and any
disposition of the NAFTA project described on Schedule 4.1. 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 purposes 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 course of business.
SECTION 8.6. 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, 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 the Purchasers or the holders of the Securities without the prior written
consent of the Purchasers.
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SECTION 8.7 Prohibition on Discounted Equity Offerings; Registration
Rights.
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above, until such time as all of the Convertible Notes have
been either redeemed or converted into Conversion Shares in full, 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) Until such time as all of the Convertible Notes have been either
redeemed or converted into Conversion Shares in full, 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 either pursuant to an
exemption from registration under the Securities Act or pursuant to a
registration statement filed by the Company with the Commission, in each
case prior to twelve (12) months following the date of issuance of such
securities.
(c) The restrictions contained in this Section 8.7 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, (ii) stock option or other compensatory plans, or (iii)
issuance of Common Stock pursuant to the terms of the Equity Agreement.
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SECTION 8.8. Limitation on Stock Repurchases. 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.
SECTION 8.9. Pension Plans. The Company shall not, without the written
consent of the Majority Holders, which shall not be unreasonably withheld,
create any Plan.
SECTION 8.10. Consolidated Net Worth. Beginning with the fiscal quarter
ending December 31, 1997, the Company will not permit its Consolidated Net Worth
at the end of any fiscal quarters to be less than $25 million.
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. Restrictive Legends.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.11 and Section
9.1 hereof) include a legend in substantially the following form:
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 CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. 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)
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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 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 five (5) New York Stock Exchange Trading
Days of delivery of a Notice of Conversion or Notice of Exercise, as
applicable (the "Deadline") to the Purchaser (or any party receiving
Securities by transfer from such Purchaser) at the address of the
Purchaser set forth in the Notice of Conversion or Notice of Exercise, 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 the
Purchaser.
(b) Without in any way limiting the Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the
Company agrees that if delivery of the Conversion Shares or Warrant 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
Notes, which failure shall be governed by such Section) the Company shall
pay to each Purchaser, as liquidated damages and not as a penalty, $500
for each $100,000 of Convertible Notes then outstanding per day in cash,
for each of the first ten (10) days beyond the Deadline, and $1,000 for
each $100,000 of Convertible Notes then outstanding per day in cash for
each day thereafter that the Company fails to deliver such Common Stock.
Such cash amount shall be paid to each Purchaser by the fifth day of the
month following the month in which it has accrued or, at the option of the
Purchaser (by written notice to the
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Company by the first day of the month following the month in which it has
accrued), shall be added to the principal amount of the Convertible Note
(if then outstanding) payable to such Purchaser, in which event interest
shall accrue thereon in accordance with the terms of the Convertible Notes
and such additional principal amount shall be convertible into Common
Stock in accordance with the terms of the Convertible Notes.
SECTION 10.2. Conversion Notice. The Company agrees that, in addition to
any other remedies which may be available to the Purchasers, 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 Notes or exercise of any Warrant, such Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion or Notice of Exercise, as applicable, by delivering a notice to such
effect to the Company whereupon the Company and the Purchaser shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion or Notice of Exercise.
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SECTION 10.3 Conversion Limit.
(a) Notwithstanding the conversion rights under the Convertible
Notes and exercise rights under the Warrants, unless the Purchaser
delivers a waiver in accordance with the immediately following sentence,
in no event shall the Purchaser be entitled to convert any portion of the
Convertible Notes or exercise any portion of the Warrants, in excess of
that portion of the Convertible Notes or Warrants upon conversion and
exercise, as applicable, of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Purchaser 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 Note and
unexercised portion of the Warrants, 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 Note or issuable upon exercise the portion of
the Warrants with respect to which this determination is being made, would
result in beneficial ownership by the Purchaser and its Affiliates of more
than 9.99% of the outstanding shares of Common Stock. For purposes of this
Section 10.3(a), 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(a). 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 Notes, (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 within the greater of the applicable time
period specified in either (A) such written notice of Purchaser or (B)
Section 12.1 hereof.
(b) Upon the occurrence of a Nasdaq Redemption Event, if the Company
is obligated to repay the Convertible Notes at the Formula Price as
described in Section 4.3 thereof, the Company shall, in addition thereto,
redeem the Warrants contemporaneous with the repayment of the Convertible
Notes at the Warrant Redemption Price. The term "Warrant Redemption Price"
shall mean the greater of (x) the appraised value of the Warrants on the
date they are called for redemption (determined with reference to the
"Black Scholes" or similar option pricing model) and (y) the product of
the excess of (i) the Market Value of the Common Stock on the date that
the Warrants are redeemed over (ii) the exercise price of the Warrants.
SECTION 10.4 Registration Rights.
(a) The Company shall grant the Purchasers registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable
Securities") on the terms set forth in the Registration Rights Agreement
and herein.
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(b) The Company shall prepare and file within 21 days of the First
Closing Date a registration statement (the "Registration Statement") on
Form S-3 (or such other form as is then available for registration)
covering the sale of the Registrable Securities. The Company shall use its
best efforts to cause the Registration Statement to be declared effective
by the Commission no later than the earlier to occur of (x) 111 days
following the First Closing Date, (y) 90 days following the filing of the
Registration Statement or (z) ten (10) Business Days after 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 the Purchasers).
(c) If the Registration Statement is (x) not declared effective by
the Commission by the Required Effectiveness Date, or (y) such
effectiveness is not maintained for a period of six (6) years after the
Closing (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 in which they were made, not misleading)
(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 during
such six (6) year period) (the "Registration Maintenance Period"), the
Company shall pay to the Purchasers monthly, as liquidated damages and not
as a penalty, an aggregate amount of $500 for each day the Registration
Statement is not declared effective by the Commission by the Required
Effectiveness Date or such effectiveness is not maintained for the
Required Maintenance Period (the "Default Fee") for so long as more than
10,000 shares of Common Stock are held, directly or beneficially as a
result of the terms of the Convertible Notes, Warrants, Equity Agreement
or the Common Stock Purchase Warrants issued pursuant to the terms of the
Equity Agreement, by any of the Purchasers.
(d) Any such Default Fee shall be paid in cash by the Company to the
Purchasers by wire transfer in immediately available funds on the last day
of each calendar week following the event requiring its payment.
(e) If, for any reason (including but not limited to the issuance of
all shares of Common Stock covered by the prospectus included in the
Registration Statement), the Default Fee is incurred for a period of
forty-five (45) days (a "Registration Default"), the holders of a majority
of the Convertible Notes then outstanding may elect to cause the Company
to repay the Convertible Notes in full at the Formula Price.
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ARTICLE XI
ADJUSTMENT OF FIXED PRICE
SECTION 11.1. Reorganization. The exercise price of the Warrants. the
Conversion Price and the dollar amount set forth in Section 6.2(h)
(collectively, the "Fixed Prices") 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 applicable 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 applicable 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
(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.
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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 applicable 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 applicable 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 Common Stock for or into which the securities
so offered for subscription or purchase may be converted or exchanged).
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To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable 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 applicable 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 applicable 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.
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;
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(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 Notes or
exercise the Warrants 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.
SECTION 11.7. Adjustment Rules. The following rules and procedures shall
be applicable to adjustments made in this Article XI:
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(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable 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 applicable 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 Purchasers.
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 applicable Fixed Price deliver to the Purchasers a certificate specifying
the nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable 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 Noteholders. 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),
(e) Sale Event; or
(f) any cash dividend,
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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 the
Purchasers 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 prepay when due, all or any
part of the principal on any of the Convertible Notes (whether by virtue
of the agreements specified in this Agreement or the Convertible Notes);
(b) failure by the Company to pay (i) within five (5) Business Days
of the due date thereof any interest on any Convertible Notes 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 or pursuant to the Equity 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 Sections 7.10, 7.11, 7.14, 7.15 or Article VIII of
this Agreement;
(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), (d) or (e) above) for 30 days from
the date of such occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission or by the Nasdaq Market (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 the Nasdaq Market, the Common Stock is then listed and approved for
trading on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock market's Small Cap Market, or the Nasdaq
National Market within ten (10) Trading Days thereof);
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(g) failure of the Company to file the Listing Applications 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 the Nasdaq
Market for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock market's Small Cap Market or the Nasdaq Stock
Market's National Market 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 45 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) of any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess
of $1,000,000, which has not been cured within any applicable period of
grace associated therewith;
(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
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 51
<PAGE>
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, any 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 Notes to be, and the Convertible Notes shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (k) or (l) above with respect the Company or any
Subsidiary, then, without any notice to the Company or any other act by any
Purchaser, the entire amount of the Convertible Notes shall become immediately
due and payable, provided further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible Note has been declared
immediately due and payable hereunder, any Purchaser of Convertible Notes may
proceed to protect and enforce the rights of such 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 Note, 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 Notes shall be the Formula Price
thereof.
SECTION 12.2. Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchasers 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 or 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 Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Purchasers.
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SECURITIES PURCHASE AGREEMENT - Page 52
<PAGE>
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 Note affected
thereby, an amendment or waiver may not (a) reduce the aggregate principal
amount of Convertible Notes whose holders must consent to an amendment or
waiver, (b) reduce the rate or extend the time for payment of interest on
any Convertible Note, (c) reduce the principal amount of or extend the
stated maturity of any Convertible Note or (d) make any Convertible Note
payable in money or property other than as stated in such Convertible
Note. In determining whether the holders of the requisite principal amount
of Convertible Notes have concurred in any direction, consent, or waiver
as provided in any Transaction Agreement, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the
Convertible Notes, 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 the Purchasers and their affiliates otherwise than
solely in their capacities as holders of Convertible Notes shall be
effective with respect to them without their prior written consent.
SECTION 13.3. Indemnification.
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SECURITIES PURCHASE AGREEMENT - Page 53
<PAGE>
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
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 each 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 the
Purchasers 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, 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
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 54
<PAGE>
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 the
Purchasers. 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 the Purchasers, 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 the Purchasers
and the other Indemnified Parties, satisfactory in form and substance to
the Purchasers, 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 the Purchasers 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 the Purchasers on the
other, but also the relative fault of the Company and the Purchasers 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 the Purchasers pursuant to this Agreement. It is
hereby further agreed that the relative benefits to the Company on the one
hand and the Purchasers 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 the Purchasers 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.
(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
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 55
<PAGE>
Agreement and the other Transaction Agreements and the payment in full of
the Convertible Notes and (iii) shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of the
Purchasers or any other Indemnified Party.
SECTION 13.4. Expenses: Documentary Taxes. The Company agrees to pay (i)
the greater of $25,000 or all actual reasonable out-of-pocket expenses of the
Purchasers, including fees and disbursements of counsel (the "Expense
Reimbursement Fee"), in connection with (x) the negotiation and preparation of
the Transaction Agreements and (y) any waiver or consent hereunder or under any
other Transaction Agreement or any amendment hereof or thereof and (ii) all
reasonable out-of-pocket expenses of the Purchasers and each holder of
Securities, including fees and disbursements of counsel, in connection with any
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom. In addition, the Company agrees to pay any and all stamp, transfer
and other similar taxes, assessments or charges payable in connection with the
execution and delivery of any Transaction Agreement or the issuance of the
Securities to the Purchasers, excluding their assigns.
SECTION 13.5. Payment. The Company agrees that, so long as a Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to such Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (New York City time).
SECTION 13.6. Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchasers and their 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 Purchasers and their affiliates or to holders of Securities are for
the express benefit of such Persons and their successors and assigns.
SECTION 13.7. Brokers. Except for a cash fee of one percent (1%) of the
aggregate funded amount of the Convertible Notes (and Warrants equal to one
percent (1%) of the funded amount of the Convertible Notes) payable to LKB
Financial, LLC, the Company represents and warrants that it has not employed any
broker, finder, financial advisor or investment banker who would be entitled to
any brokerage, finder's or other fee or commission payable by the Company or the
Purchasers in connection with the sale of the Securities.
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 NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 56
<PAGE>
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 HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 13.9. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a failure
of consideration would result thereby.
SECTION 13.10 Survival. All provisions contained in this Agreement (unless
specifically noted to the contrary) shall survive the payment in full of the
Convertible Notes and shall remain operative and in full force and effect.
SECTION 13.11. Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[Signature page follows]
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SECURITIES PURCHASE AGREEMENT - Page 57
<PAGE>
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: s/ Denis J. Fitzpatrick
-----------------------------------
Name: Denis J. Fitzpatrick
-----------------------------------
Title: Vice President and
Chief Financial Officer
-----------------------------------
Address: 444 Madison Avenue
New York, New York 10022
Fax: (212) 688-6657
Attn: George Faris
INFINITY INVESTORS LIMITED
By: s/ James A. Loughran
-----------------------------------
Name: James A. Loughran
-----------------------------------
Title: Director
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-33-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
INFINITY EMERGING
OPPORTUNITIES LIMITED
By: s/ James A. Loughran
-----------------------------------
Name: James A. Loughran
-----------------------------------
Title: Director
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
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SECURITIES PURCHASE AGREEMENT - Page 58
<PAGE>
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
SUMMIT CAPITAL LIMITED
By: s/ James E. Martin
-----------------------------------
Name: James E. Martin
-----------------------------------
Title: President
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
GLACIER CAPITAL LIMITED
By: s/ James E. Martin
-----------------------------------
Name: James E. Martin
-----------------------------------
Title: President
-----------------------------------
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
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SECURITIES PURCHASE AGREEMENT - Page 59
<PAGE>
ACKNOWLEDGMENT OF SECTION 7.15
The undersigned persons hereby acknowledge Section 7.15 of this Agreement
and agree to be bound by the restrictions imposed by such Section in their
individual capacities.
s/ Denis J. Fitzpatrick
------------------------------
Denis J. Fitzpatrick
s/ George N. Faris
- ---------------------------
George N. Faris
s/ William Tracy
- ---------------------------
William Tracy
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 60
<PAGE>
SCHEDULES
I. Allocation of Securities Among Purchasers
4.1 List of Subsidiaries; Description of NAFTA and St. Mark's Projects
4.3 Capitalization
4.17 Leases
4.22 Liens
4.27 Budget
7.15 List of Executive Officers and Directors
8.1 Stock Option Plans
8.3 Affiliates Agreements
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Equity Agreement
Exhibit E - Form of Solvency Certificate
Exhibit F - Form of Officer's Certificate
Exhibit G - Form of Company Counsel's Opinion
Exhibit H - Form of Amendment Agreement
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SECURITIES PURCHASE AGREEMENT - Page 61
<PAGE>
SCHEDULE 2.1
SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Aggregate Principal Number of
Name/Address Amount of Notes Purchase Price Warrant Shares
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Glacier Capital Limited $1,500,000 1,485,000 420,000
- ------------------------------------------------------------------------------------------
Summit Capital Limited $1,500,000 1,485,000 420,000
- ------------------------------------------------------------------------------------------
Infinity Emerging Opportunities Limited $2,000,000 1,980,000 560,000
- ------------------------------------------------------------------------------------------
TOTAL $5,000,000 $4,950,000 1,400,000
- ------------------------------------------------------------------------------------------
</TABLE>
AGREEMENT AND FIRST AMENDMENT TO
SECURITIES PURCHASE AGREEMENT AND RELATED DOCUMENTS
THIS AGREEMENT AND FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT AND
RELATED DOCUMENTS (the "Amendment") dated as of April 21, 1998 among AMERICAN
INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the "Company"),
INFINITY INVESTORS LIMITED and INFINITY EMERGING OPPORTUNITIES LIMITED
(collectively, the "Purchasers").
R E C I T A L S:
A. The Company and the Purchasers have entered into that certain
Securities Purchase Agreement dated as of October 9, 1997 (the "Initial Purchase
Agreement").
B. The Company and the Purchasers have entered into that certain
Securities Purchase Agreement dated as of April 21, 1998 (the "Subsequent
Securities Purchase Agreement").
C. The Company and the Purchasers now desire to amend the Initial
Purchase Agreement and certain of the related Transaction Agreements (as defined
in the Initial Purchase Agreement) executed and delivered in connection
therewith in order to (i) make certain amendments to the Transaction Agreements
and (ii) confirm the continued legality, validity and binding effect of the
Transaction Agreements, as amended by this Amendment.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE D.
Definitions
Section
0.1 Definitions. Capitalized terms used in this Amendment, to the extent
not otherwise defined herein, shall have the same meanings as in the Initial
Purchase Agreement.
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 1
(American International Petroleum Corporation)
<PAGE>
ARTICLE
I.
Agreements
The Company and the Purchasers hereby agree as follows:
Section
1 Purchasers Conversion Restrictions.
(a) Section 4.1 of all Convertible Notes held by the Purchaser
pursuant to the Initial Purchase Agreement (the "October Notes") shall be
amended to add the following:
"(c) The Company shall have the option to require that the
Holder forego its option to convert an amount not to exceed
two-thirds (2/3) of the aggregate outstanding principal amount of
this Convertible Note during the month of April, 1998 (the "April
Lockout Option"). The April Lockout Option may be exercised by
written notice furnished by the Company to the Holder, specifying
the principal amount of this Convertible Note subject to the April
Lockout Option (the "April Lockout Amount"). In the event the
Company exercises its April Lockout Option, the Company will pay the
Holder in cash a fee of one-third of one percent of the April
Lockout Amount at the time the April Lockout Option is exercised.
(d) The Company shall have the option to require that the
Holder forego its option to convert during the month of May, 1998,
an amount not to exceed one-third (1/3) of the aggregate principal
amount of this Convertible Note which remains outstanding as of the
latter to occur of (x) May 1, 1998 or (y) the date of receipt of the
May Notice (as hereafter defined) (the "May Lockout Option"). The
May Lockout Option may be exercised by written notice (the "May
Notice") furnished by the Company to the Holder, specifying the
principal amount of the Convertible Note subject to the May Lockout
Option. In the event that the Company exercises its May Lockout
Option, the Company will pay the Holder in cash a fee of one percent
(1%) of the May Lockout Amount at the time such May Lockout Option
is exercised."
(b) The Company and the Purchasers hereby acknowledge and agree that
(x) the Company has exercised the April Lockout Option for $6,666,666
principal amount of the Convertible Notes and (y) the Company shall pay in
cash to the Purchasers contemporaneous herewith the sum of $22,222
associated therewith (the "April Fee").
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 2
(American International Petroleum Corporation)
<PAGE>
Section 2.2 Voluntary Prepayment. Effective as of the date hereof,
Section 3.2 of the Initial Purchase Agreement is amended to read in its entirety
as follows:
"Section 3.2.Voluntary Prepayment. The Company may, at its option,
repay, in whole or in part, the Convertible Notes at the Formula Price
thereof following five (5) Business Days prior written notice to the
Purchasers (the expiration 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. Any partial prepayment shall be in an aggregate principal
amount of at least Five Hundred Thousand Dollars ($500,000) or a multiple
of One Hundred Thousand Dollars ($100,000) thereof."
Section 2.3 Prepayment Procedures. Effective as of the date hereof,
Section 3.4(a)(I) is amended to read in its entirety as follows:
"(I) A prepayment pursuant to Section 3.2, the "prepayment date"
specified therein;"
Section 2.4 October Warrant Registration Rights. The Company acknowledges
that the shares of Common Stock issuable upon exercise of the Common Stock
Purchase Warrants issued to the Purchasers pursuant to the Initial Purchase
Agreement (the "October Warrants") shall be registered for resale pursuant to a
registration statement to be filed with the Commission on the terms set forth in
the Registration Rights Agreement attached as an exhibit to the Subsequent
Securities Purchase Agreement.
Section 2.5 October Warrant Repricing. The October Warrants are hereby
amended by changing the exercise price set forth therein from $6.25 per share to
$3.00 per share.
Section 2.6 Mandatory Prepayments. Effective as of the date hereof,
Section 3.3(a) of the Initial Purchase Agreement is amended to read in its
entirety as follows:
"(a) Upon (i) the occurrence of a Change of 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
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 3
(American International Petroleum Corporation)
<PAGE>
for a period of thirty (30) days, then, in each case, the Company shall,
upon request of the Majority Holders, redeem this Convertible Note in
cash for the Formula Price."
Section 2.7 Conversion Limit. Effective as of the date hereof, Section
10.3(a) of the Initial Purchase Agreement is amended to read in its entirety as
follows:
"SECTION 10.3 Conversion Limit.
(a) Notwithstanding the conversion rights under the Convertible
Notes and exercise rights under the Warrants, unless the Purchaser
delivers a waiver in accordance with the immediately following sentence,
in no event shall the Purchaser be entitled to convert any portion of the
Convertible Notes or exercise any portion of the Warrants, in excess of
that portion of the Convertible Notes or Warrants upon conversion and
exercise, as applicable, of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Purchaser 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 Note and
unexercised portion of the Warrants, 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 Note or issuable upon exercise the portion of
the Warrants with respect to which this determination is being made, would
result in beneficial ownership by the Purchaser and its Affiliates of more
than nine and nine-tenths percent (9.9%) of the outstanding shares of
Common Stock. For purposes of this Section 10.3(a), (i) beneficial
ownership shall be determined in accordance with Rule 13d-3 and Regulation
13 D-G promulgated under the Exchange Act, except as otherwise provided in
this Section 10.3(a) and (ii) the Holder may waive the limitations set
forth therein by written notice to the Company upon not less than
sixty-one (61) days prior notice (with such waiver taking effect only upon
the expiration of such 61 day notice period). The foregoing limitation
shall not apply and shall be of no further force or effect (i) upon the
occurrence of any voluntary or mandatory redemption or repayment
transaction described herein or in the Convertible Notes, (ii) any Sale
Event, (iii) on the Maturity Date or (iv) following the occurrence of any
Event of Default which is not cured within the greater of the applicable
time period specified in either (A) such written notice of Purchaser or
(B) Section 12.1 hereof."
ARTICLE
I.
Conditions Precedent
- --------------------------------------------------------------------------------
AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 4
(American International Petroleum Corporation)
<PAGE>
Section
0.1 Conditions Precedent. The obligation of the Purchasers to enter into
this Amendment is subject to the conditions precedent that on or before the date
hereof the Purchasers shall have received all of the following in form and
substance acceptable to it and its counsel: (a) this Amendment dated as of the
date hereof duly executed by the Company; (b) a certificate of the secretary of
the Company setting forth resolutions of its board of directors with respect to
the authorization, execution, delivery and performance of this Amendment and the
other transactions contemplated hereby (collectively, the "Amendment
Agreements"), as the case may be, the officers of the Company authorized to sign
such agreements and instruments, and specimen signatures of the officers so
authorized; and (c) payment of the April Fee.
ARTICLE
I.
Ratifications: Representations and Warranties
Section
0.1 Ratifications. The terms and provisions of the Transaction
Agreements, as modified by this Amendment, are ratified and confirmed and shall
continue in full force and effect. The Company acknowledges and agrees that each
of the Transaction Agreements, as amended hereby, is and shall remain in full
force and effect and is and shall continue to be the legal, valid and binding
obligation of the Company, enforceable against it in accordance with their
respective terms.
Section 0.1.0.1 Representations and Warranties. The Company hereby
represents and warrants to the Purchasers that (a) the execution, delivery and
performance of each of the Amendment Agreements and all other documents executed
and/or delivered in connection herewith and all transactions and documents
contemplated hereby and thereby have been authorized by all requisite corporate
action on the part of the Company; (b) each of the Amendment Agreements and all
other documents executed and/or delivered in connection herewith constitute
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with its terms, subject to or limited by liquidation,
bankruptcy, conservatorship, insolvency, reorganization, rearrangement,
moratorium, or other similar laws relating to or affecting the rights of
creditors generally and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law); (c) there is
no provision of law, in the charter or bylaws of the Company, and no provision
of any existing mortgage, contract, lease, indenture or agreement binding on any
of them, which would be contravened by the making or delivery of any of the
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 5
(American International Petroleum Corporation)
<PAGE>
Amendment Agreements or any other document executed and/or delivered in
connection herewith, or by the performance or observance of any of the terms
hereof or thereof; and (d) the execution, delivery and performance of the
Amendment Agreements and the transactions contemplated hereby and thereby do not
require any approval or consent of, or filing or registration with, any
governmental or any other agency or authority, of stockholders, or of any other
party or, if such approval or consent is required, the same has been obtained.
ARTICLE
I.
Miscellaneous
Section
0.1 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants made in this Amendment or any other
document furnished in connection with this Amendment shall survive the execution
and delivery of this Amendment, and no investigation by the Purchasers or any
closing shall affect the representations, warranties and covenants or the right
of the Purchasers to rely upon them.
Section 0.1.0.1 References to Transaction Agreements. The Transaction
Agreements and any and all other agreements, documents or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Transaction Agreements, as amended hereby, are hereby amended so
that any reference therein to the Transaction Agreements shall mean a reference
to the Transaction Agreements as amended hereby.
Section 0.1.0.2 Further Assurances. The Company agrees that at any time
and from time to time, upon the written request of the Purchasers, it will
execute and deliver such further documents and do such further acts and things
as the Purchasers may reasonably request in order to fully effect the purposes
of this Amendment and to provide for the continued perfection and priority of
the security interests granted to the Purchasers in the Transaction Agreements.
Section 0.1.0.3 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 6
(American International Petroleum Corporation)
<PAGE>
Section 0.1.0.4 Applicable Law. This Amendment and all other documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule that would cause the application of the laws
of any jurisdiction other than the State of New York.
Section 0.1.0.5 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Purchasers and the Company, and their
respective successors and assigns, except the Company may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Purchasers.
Section 0.1.0.6 Effect of Waiver. No consent or waiver, express or
implied, by the Purchasers to or for any breach of or deviation from any
covenant, condition or duty by the Company shall be deemed a consent or waiver
to or of any other breach of the same or any other covenant, condition or duty.
Section 0.1.0.7 ENTIRE AGREEMENT. THE PURCHASE AGREEMENT AS AMENDED
HEREBY, THE OTHER TRANSACTION AGREEMENTS AND ALL AGREEMENTS EXECUTED IN
CONNECTION WITH THIS AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
WITH RESPECT TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 0.1.0.8 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
[Signature page follows]
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 7
(American International Petroleum Corporation)
<PAGE>
EXECUTED as of the date first written above.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: s/ Denis J. Fitzpatrick
-----------------------------------
Name: Denis J. Fitzpatrick
-----------------------------------
Title: Vice President and
Chief Financial Officer
-----------------------------------
INFINITY INVESTORS LIMITED
By: s/ James A. Loughran
-----------------------------------
Name: James A. Loughran
-----------------------------------
Title: Director
-----------------------------------
INFINITY EMERGING OPPORTUNITIES
LIMITED
By: s/ James A. Loughran
-----------------------------------
Name: James A. Loughran
-----------------------------------
Title: Director
-----------------------------------
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AGREEMENT AND FIRST AMENDMENT TO SECURITIES
PURCHASE AGREEMENT - Page 8
(American International Petroleum Corporation)
Exhibit 4.6
EQUITY FINANCING AGREEMENT
Between
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
And
THE PURCHASERS LISTED ON SCHEDULE 1 ATTACHED HERETO
Dated as of April 21, 1998
<PAGE>
EQUITY FINANCING AGREEMENT
THIS EQUITY FINANCING AGREEMENT (this "Agreement") is dated as of April
21, 1998, between AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada
corporation (the "Company"), and the purchasers listed on Schedule 1 attached
hereto (each a "Purchaser" and collectively, the "Purchasers").
RECITALS:
A. The parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue to the Purchasers, and the Purchasers
shall purchase from the Company, from time to time as provided herein, shares of
common stock, par value $. 08 per share, of the Company (the "Common Stock") for
an aggregate Purchase Price (as defined herein) of up to $40,000,000.
B. Such investments will be made in reliance upon the provisions of
Section 4(2) of the United States Securities Act of 1933, as amended (the
"Securities Act"), Rule 506 of Regulation D of the Securities and Exchange
Commission (the "Commission") promulgated thereunder ("Regulation D"), and/or
upon such other exemption from the registration requirements of the Securities
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
Certain Definitions
"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 any Subsidiary of the Subject Person) which is
Controlled by, or is under Control with, a Controlling Person.
"Average Closing Price" means, as of any date of determination, the
average of the closing bid prices of the Common Stock over the five Trading Days
preceding (but not including) such date, as reported on the Principal Market by
Bloomberg, L.P. or such other reporting service mutually acceptable to the
Purchasers and the Company.
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EQUITY FINANCING AGREEMENT - Page 1
<PAGE>
"Closing" shall mean the consummation of each purchase and sale of Common
Stock pursuant to Section 2.1.
"Closing Date" shall mean, with respect to each purchase and sale of
Common Stock pursuant to this Agreement, the third Trading Day following an
Optional Purchase Date or a Mandatory Purchase Date, as the case may be,
provided all conditions to the Closing have been satisfied; provided, however,
that if the Purchasers shall notify the Company by the second Trading Day
following such Option Purchase Date or Mandatory Purchase Date that they do not
expect to be able to complete their due diligence by such third Trading Day
following such Option Purchase Date or Mandatory Purchase Date, the Closing Date
shall be the fifth Trading Day following such Optional Purchase Date or
Mandatory Purchase Date, as the case may be.
"Closing Price" means, on any Trading Day, the closing bid price of the
Common Stock as reported on the Principal Market by Bloomberg, L. P. or such
other reporting service mutually acceptable to the Purchasers and the Company.
"Closing Warrant(s)" shall have the meaning set forth in Section 2.5.
"Code" means the Internal Revenue Code of 1986, as amended
"Control" (including, with the 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.
"Commitment Amount" means $40,000,000 minus the aggregate amount of all
Commitment Reductions.
"Commitment Fee Warrant(s)" shall have the meaning set forth in Section
2.5.
"Commitment Period" shall mean the period commencing on the Effective Date
and expiring on the earlier to occur of (x) the date on which the Purchasers
shall have purchased Common Stock pursuant to this Agreement for an aggregate
Purchase Price equal to the Commitment Amount, (y) the date this Agreement is
terminated or (z) the date occurring two years from the Effective Date; provided
that the Commitment Period shall terminate on the Final Registration Date if the
Registration Statement is not declared effective by the SEC by the Final
Registration Date.
"Commitment Reduction" means a reduction in the Commitment Amount in
accordance with Section 2.5.
"Condition Satisfaction Date" shall have the meaning set forth in Section
3.2.
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EQUITY FINANCING AGREEMENT - Page 2
<PAGE>
"Corporate Documents" means, with respect to the Company and each
Subsidiary, the Articles of Incorporation, Bylaws or similar organizational
documents for such entity.
"Effective Date" means the date of the execution of this Agreement by all
parties.
"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.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Final Registration Date" has the meaning set forth in Section 2.5(b).
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a consistent basis.
"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 5.20.
"Investment Amount" shall mean the amount invested by the Purchasers with
respect to any Optional Purchase Date or Mandatory Purchase Date, as the case
may be, as notified by the Company to the Purchasers in accordance with Section
2.3 hereof.
"Irrevocable Instructions and Escrow Agreement" means that certain
Irrevocable Instructions and Escrow Agreement entered into among the Company,
the Purchasers and the Transfer Agent executed contemporaneous herewith in the
form of Exhibit F hereto.
"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
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EQUITY FINANCING AGREEMENT - Page 3
<PAGE>
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of any
of the foregoing).
"Mandatory Purchase Date" means any Trading Day on which the ratio of the
Closing Price to the Average Closing Price equals or exceeds 1.2 to 1.0.
"Mandatory Purchase Notice" shall have the meaning set forth in Section
2.3(b).
"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.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"Optional Purchase Date" means the date on which the Company delivers to
Purchasers written notice pursuant to Section 2.3(a) hereof of its election to
sell Common Stock to the Purchasers under this Agreement, subject to the
conditions precedent to Purchasers' obligation to purchase shares of Common
Stock hereunder set forth in Section 3.2.
"Optional Purchase Notice" shall have the meaning set forth in Section
2.3(a).
"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.
"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 any
Person which was at such time a member of the ERISA group.
"Principal Market" shall mean the Nasdaq Market, the Nasdaq SmallCap
Market, the American Stock Exchange or the New York Stock Exchange, whichever is
at the time the principal trading exchange or market for the Common Stock.
"Purchase Eligibility Date" means the date which is thirty days following
the date that the Registration Statement described in Section 6.17 is declared
effective by the SEC.
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EQUITY FINANCING AGREEMENT - Page 4
<PAGE>
"Purchase Date" means the date of the Company's delivery of an Optional
Purchase Notice pursuant to Section 2.3(a) or delivery or deemed delivery of a
Mandatory Purchase Notice pursuant to Section 2.3(b).
"Purchase Notice" means a Mandatory Purchase Notice or Optional Purchase
Notice, as applicable.
"Purchase Price" means, as of any Purchase Date, an amount per share of
Common Stock equal to eighty five percent (85%) of the Average Closing Price.
"Purchased Shares" means any shares of Common Stock purchased or
purchasable hereunder, excluding any Warrant Shares.
"Reduction Notice" shall have the meaning set forth in Section 2.5(a).
"Registration Rights Agreement" means that certain Registration Rights
Agreement entered into among the Company and the Purchasers on the date of
execution of this Agreement in the form of Exhibit A hereto pursuant to which
the Company shall be obligated to file the Registration Statement.
"Registration Statement" shall have the meaning set forth in Section 6.17.
"Sale Event" means the occurrence of any event described in Subclause (i),
(iii), (iv), (v) or (vi) of the definition of Vesting Event.
"Securities" means the shares of Common Stock issuable hereunder, Warrants
and the shares of Common Stock issuable thereunder.
"Securities Act" shall have the meaning set forth in Recital B hereto.
"Securities Purchase Agreement" means the Agreement executed
contemporaneous herewith between the Company and certain of the Purchasers
providing for, among other items, the purchase and sale of the Company's 14%
Convertible Notes due in April, 2000.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" shall have the meaning set forth in Section 5.7.
"Subsidiary" means, with respect to any Person, a corporation or other
entity of which (x) a majority of the capital stock or other ownership interest
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions, is owned, directly or indirectly, by
such Person or (y) the results of operations, the assets and the liabilities are
required to be consolidated with such Person under GAAP.
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EQUITY FINANCING AGREEMENT - Page 5
<PAGE>
"Trading Day" shall mean any day during which the Principal Market shall
be open for business.
"Termination Event" shall have the meaning set forth in Section 3.3
"Transaction Agreements" means this Agreement, the Closing Warrant,
Commitment Fee Warrant and the Registration Rights Agreement and any Irrevocable
Instructions and Escrow Agreement.
"Transfer Agent" means Oxford Transfer & Registrar.
"Vesting Event" means the occurrence of any of the following:
(i) After the Effective Date, any person or group of persons (within
the meanings of Sections 13 and 14 of the Exchange Act and the rules and
regulations of the SEC relating to such sections) other than the
Purchasers shall have acquired beneficial ownership (within the meaning of
Rules 13d-3 and 13d-5 promulgated by the SEC pursuant to the Exchange Act)
of 33-1/3% or more of the outstanding shares of Common Stock of Company;
(ii) Any sale or other disposition (other than by reason of death or
disability) to any Person of more than 25,000 shares of Common Stock of
Company by any executive officers or directors of Company (including, but
not limited to, George Faris, Denis Fitzpatrick and William Tracy) within
10 Trading Days following any Purchase Date;
(iii) Individuals constituting the Board of Directors of Company on
the date hereof (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of
the Company was approved by 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 reelection was previously so approved), cease for any
reason to constitute at least 2/3rds of the Board of Directors of the
Company then in office;
(iv) any transfer of all or substantially all of the assets of the
Company to any person in a single transaction or a series of related
transactions;
(v) a consolidation, merger or amalgamation of the Company with or
into another Person into which the Company is not the surviving entity
(other than a merger which is effected solely to change the jurisdiction
of incorporation in the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into
shares of Common Stock of the surviving entity);
(vi) the occurrence of a Registration Default (as defined in the
Securities Purchase Agreement) which continues uncured for a period of 45
days;
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EQUITY FINANCING AGREEMENT - Page 6
<PAGE>
(vii) the occurrence of an uncured Event of Default (as defined in
the Securities Purchase Agreement); or
(viii) the occurrence of a Termination Event.
"Warrant Redemption Price" shall have the meaning set forth in Section
3.2(n).
"Warrants" means collectively the Closing Warrants and Commitment Fee
Warrants.
"Warrant Shares" means any shares of Common Stock issued or issuable upon
the exercise (in whole or in part) of the Warrants.
ARTICLE II
Purchase and Sale of Common Stock
2.1 Investments.
(a) Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article III hereof), during the
Commitment Period the Company may, on any Optional Purchase Date, and
shall, on any Mandatory Purchase Date, issue and sell to the Purchasers,
and the Purchasers shall purchase from the Company, the number of shares
of Common Stock to be sold pursuant to the provisions hereof at the
Purchase Price per share determined pursuant to Section 2.2 below.
(b) The Company may in its sole discretion on any Optional Purchase
Date, and must on any Mandatory Purchase Date, sell to the Purchasers the
number of shares of Common Stock determined by dividing the Investment
Amount by the Purchase Price. In the case of an Optional Purchase Date or
a Mandatory Purchase Date, the Investment Amount shall be as determined by
the Company and shall be in the minimum amount of $1,000,000 and may be in
increments of $100,000 in excess thereof and shall not exceed $5,000,000,
subject to the limitations set forth in Section 3.2(m), 3.2(n), 3.2(o) and
3.2(p) and elsewhere in this Agreement.
2.2 Closing Procedures.
(a) Closings. On each Closing Date (i) the Company shall cause the
Transfer Agent to deliver to the Purchasers one or more certificates,
consistent with the Irrevocable Instructions and Escrow Agreement to be
delivered pursuant to Section 6.11, representing the number of shares of
Common Stock to be purchased by the Purchasers pursuant to Section 2.1
herein, registered in the name of the Purchasers or, at the Purchasers'
option, deposit such certificate(s) into such account or accounts
previously designated by the Purchasers and (ii) the Purchasers shall
deliver to the Transfer Agent such portion of the
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EQUITY FINANCING AGREEMENT - Page 7
<PAGE>
Investment Amount (less fees and expenses to be offset against such amount
pursuant to Section 8.5) by wire transfer of immediately available funds
to an account designated by the Transfer Agent on or before the Closing
Date, which amounts shall be held in escrow pursuant to the applicable
Irrevocable Instructions and Escrow Agreement. In addition, on or prior to
each Closing Date, each of the Company and the Purchasers shall deliver
all documents, instruments and writings required to be delivered or
reasonably requested by either of them pursuant to each Transaction
Agreement in order to implement and effect the transactions contemplated
herein.
(b) Payment for the Common Stock Purchased by the Purchasers. On the
Closing Date, after the Transfer Agent delivers to the Purchasers
certificates representing a number of shares of Common Stock determined by
dividing the Investment Amount by the Purchase Price (rounded to the next
highest number), the Company shall be entitled to receive from the
Transfer Agent the Investment Amount (less any fees and expenses offset
against such amount pursuant to Section 8.5), each as further provided in
the Irrevocable Instructions and Escrow Agreement.
(c) Allocation Among Purchasers. Upon the receipt of an Optional
Purchase Notice or a Mandatory Purchase Notice, the Purchasers shall,
within two (2) Trading Days of the receipt thereof, deliver to the Company
a notice specifying the allocation among the Purchasers of the shares of
Common Stock to be received, and the portion of the Purchase Price to be
paid, by each applicable Purchaser on the Closing Date.
2.3 Mechanics of Exercise.
(a) Delivery of Optional Purchase Notice. At any time during the
Commitment Period following the Purchase Eligibility Date, the Company may
deliver written notices to the Purchasers (each such notice hereinafter
referred to as an "Optional Purchase Notice") setting forth the Investment
Amount, subject to the limitations imposed by Sections 3.2(m), 3.2(n),
3.2(o) and 3.2(p) herein, which the Company intends to sell to the
Purchasers. The Company may not deliver an Optional Purchase Notice to the
Purchasers (i) prior to the Purchase Eligibility Date, (ii) if the events
described in Section 2.4 occur, or (iii) if any of the conditions set
forth in Article III are not satisfied. If any of the events described in
Section 2.4 occur on or after the date on which an Optional Purchase
Notice is given, but prior to the closing of the transaction on the
Closing Date associated with such Optional Purchase Notice, or if the
conditions set forth in Article III are not satisfied, such Optional
Purchase Notice shall be null, void and of no further force or effect.
(b) Delivery of Mandatory Purchase Notice. At any time during the
Commitment Period following the Purchase Eligibility Date, the Company
shall, on a Mandatory Purchase Date, deliver a written notice to the
Purchasers (each such notice hereinafter referred to as a "Mandatory
Purchase Notice") setting forth the Investment
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EQUITY FINANCING AGREEMENT - Page 8
<PAGE>
Amount, subject to the limitations imposed by Sections 3.2(m), 3.2(n),
3.2(o) and 3.2(p) herein, which the Company is required to sell to the
Purchasers; provided, however, that in the event the Company fails to
deliver a Mandatory Purchase Notice, such notice shall be deemed delivered
as of the Mandatory Purchase Date and the Investment Amount shall be
deemed to be the maximum dollar amount which the Company could specify at
the applicable time in any Optional Purchase Notice. The Company may not
deliver, and shall not be deemed to have delivered, a Mandatory Purchase
Notice to the Purchasers (i) prior to the Purchase Eligibility Date, (ii)
if the events described in Section 2.4 occur, or (iii) if any of the
conditions set forth in Article III are not satisfied or waived in the
sole discretion of the Purchasers. If any of the events described in
Section 2.4 occur on or after the date on which an Mandatory Purchase
Notice is given, but prior to the closing of the transaction on the
Closing Date associated with such Mandatory Purchase Notice, or if the
conditions set forth in Article III are not satisfied or waived in the
sole discretion of the Purchasers, such Mandatory Purchase Notice shall be
null, void and of no further force or effect.
(c) Date of Delivery of Optional Purchase Notice or Mandatory
Purchase Notice. An Optional Purchase Notice shall be deemed delivered on
(i) the Trading Day it is received by facsimile or otherwise by the
Purchasers if such notice is received prior to 5:00 P.M. New York time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile
or otherwise after 5:00 P.M. New York time (in which case the conditions
precedent of Article III must be satisfied as of such immediately
succeeding Trading Day). A Mandatory Purchase Notice shall be deemed
delivered (regardless of whether it is actually delivered) on the Trading
Day on which a Mandatory Purchase Date occurs. No Optional Purchase Notice
or Mandatory Purchase Notice may be delivered or deemed delivered on a day
which is not a Trading Day.
2.4 Termination or Suspension of Investment Obligation. The Purchasers
shall not be required to purchase any shares of Common Stock from the Company on
any Closing Date nor may an Optional Purchase Notice or Mandatory Purchase
Notice be delivered (or deemed to have been delivered) at any time during the
Commitment Period that there shall exist any one or more of the following: (i)
the withdrawal of the effectiveness of the Registration Statement, (ii) the
Company's failure to satisfy the requirements in Section 3.2, (iii) during the
pendency of the due diligence review process specified in Section 3.3, or (iv)
any failure or interruption in the full compliance with the Company's covenants
provided in Article VI; provided, however that the obligation of the Purchasers
to purchase shares of Common Stock shall be terminated (including with respect
to a Closing Date which has not yet occurred) in the event that (x) there shall
occur any stop order or suspension of the effectiveness of the Registration
Statement or any withdrawal of the effectiveness of the Registration Statement
for any reason other than as a result of subsequent corporate developments which
would require such Registration Statement to be amended to reflect such event in
order to maintain its compliance with the disclosure requirements of the
Securities Act, or (y) the Company shall at any time fail to comply with the
requirements of Section 6.4 (Maintenance of Existence), 6.10 (Reserved Shares
and Listings), 6.11 (Irrevocable Instructions),
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EQUITY FINANCING AGREEMENT - Page 9
<PAGE>
6.12 (Maintenance of Reporting Status; Supplemental Information) or 6.13 (Form
D; Blue Sky Laws), or Article VII (Legends).
2.5 Reduction of Commitment; Commitment Fee.
(a) Reduction of Commitment. The Company may reduce all or a portion
of the unused aggregate Commitment Amount at any time during the
Commitment Period. Any such reduction shall be in the minimum amount of
$5,000,000, with additional increments of $1,000,000 or lesser amount if
necessary to reduce all of the unused portion of the Commitment Amount.
The reduction of the Commitment Amount shall be effective upon the tenth
day following the delivery of written notice to the Purchasers of the
Company's intent to reduce the Commitment Amount (the "Reduction Notice").
(b) Commitment Fee.
(i) Closing Warrants. The Company will issue to the Purchasers
a warrant exercisable from time to time within five (5) years from
the date of issuance (the "Closing Warrants") to purchase 1,595,978
shares of Common Stock at an exercise price of $2.76 per share,
subject to adjustment as provided therein. If the Commitment Period
expires as a result of the Company's failure to cause the
Registration Statement to be declared effective by the SEC within
the earlier to occur of (x) 111 days from the Effective Date (y) 90
days following the date of filing of the Registration Statement with
the SEC and (z) ten (10) business days after receipt of a "no
review" or similar letter from the SEC (the "Final Registration
Date"), the number of shares of Common Stock issuable upon the
exercise of the Closing Warrant shall be reduced by 75% with
remaining terms and conditions of the Closing Warrant being
unaffected.
(ii) Commitment Fee Warrant. In addition to the Closing
Warrants, the Company shall issue to the Purchasers warrants
exercisable from time to time within five years from the date of
issuance (the "Commitment Fee Warrants") to purchase up to 2.0
million shares of Common Stock at an exercise price of $2.76 per
share subject to adjustment as provided therein. The Commitment Fee
Warrants shall vest as follows: (A) upon any Commitment Reduction,
Purchasers' rights shall vest to acquire a number of shares of
Common Stock calculated as follows: (x) two (2) million shares of
Common Stock multiplied by (y) the quotient of the amount of the
Commitment Reduction divided by $40.0 million, and (B) upon the
expiration of the Commitment Period or a Vesting Event, Purchasers'
rights shall vest to acquire the number of shares of Common Stock
calculated as follows: (I) two (2) million shares of Common Stock
multiplied by (II) the quotient obtained by dividing any unused
portion of the Commitment Amount by $40,000,000. If the Commitment
Period expires as a result of the Company's failure to cause the
Registration Statement to be
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declared effective by the SEC by the Final Registration Date, the
Commitment Fee Warrant shall be null and void.
(iii) Delivery of Warrants; Registration of Warrant Shares.
The Closing Warrants and Commitment Fee Warrants shall be executed
and delivered by the Company to the Purchasers upon the Effective
Date in the forms of Exhibit B and Exhibit C, respectively, hereto.
The shares of Common Stock to be issued upon exercise of the Closing
Warrants or Commitment Fee Warrants shall be registered for resale
pursuant to the Registration Statement. The Purchasers shall have
the right to transfer among each other, without the written consent
or approval of the Company, all or any portion of the Closing
Warrants or Commitment Fee Warrants, including, without limitation,
transfers to reflect the aggregate prorata portion of the aggregate
Purchase Price paid by the Purchasers on each Closing Date. The
Company shall, as necessary from time to time, in connection with
any such transfers amend the prospectus contained within the
Registration Statement to reflect, as selling shareholders
thereunder, the number of Warrant Shares issuable to each Purchaser
upon exercise of the Closing Warrants or Commitment Fee Warrants.
ARTICLE III.
Conditions to Delivery of Optional Purchase Notices
and Mandatory Purchase Notices and Conditions to Closing
3.1 Conditions Precedent to the Obligation of the Company to Issue and
Sell Common Stock. The obligation hereunder of the Company to issue and sell
Common Stock to the Purchasers incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct
in all material respects as of the date of this Agreement and as of the
date of each such Closing as though made at each such time.
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchasers at or prior to such Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which, in the reasonable opinion of the Company and its legal
counsel, prohibits or adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been
commenced which may
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EQUITY FINANCING AGREEMENT - Page 11
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have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
3.2 Conditions Precedent to the Right of the Company to Deliver an
Optional Purchase Notice, the Obligation of the Company to Deliver a Mandatory
Purchase Notice and the Obligation of the Purchasers to Purchase Common Stock.
The right of the Company to deliver an Optional Purchase Notice, the obligation
of the Company to deliver a Mandatory Purchase Notice and the obligation of the
Purchasers to acquire and pay for Common Stock incident to any Closing is
subject to the satisfaction, on the date of delivery of such Optional Purchase
Notice or Mandatory Purchase Notice, as applicable, and on the applicable
Closing Date (each a "Condition Satisfaction Date") of each of the following
conditions.
(a) First Purchase Date. With respect to the first Optional Purchase
Date or Mandatory Purchase Date, as the case may be, the Registration
Statement shall have been declared effective by the SEC, and continuously
remained effective, for a period of at least thirty (30) days.
(b) Continued Effectiveness of Registration Statement. The
Registration Statement shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor the Purchasers shall
have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise
has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened
to do so, and (ii) no other suspension of the use of the Registration
Statement or prospectus shall exist pursuant to the Registration Rights
Agreement.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company in the Transaction
Agreements shall be true and correct as of each Condition Satisfaction
Date as though made at each such time (except for representations and
warranties specifically made as of a particular date) with respect to all
periods, and as to all events and circumstances occurring or existing to
and including each Condition Satisfaction Date.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction
Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits or adversely affects any
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EQUITY FINANCING AGREEMENT - Page 12
<PAGE>
of the transactions contemplated by this Agreement, and no proceeding
shall have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(f) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the National Association of Securities Dealers, Inc.
(the "NASD") and the Common Stock shall have been approved for listing or
quotation on and shall not have been delisted from the Principal Market.
The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements
of the Principal Market.
(g) Adverse Changes. Since the date of filing of the Company's most
recent SEC Report, (i) no event which had or is reasonably likely to have
a Material Adverse Effect has occurred and (ii) neither the Company nor
any of its Subsidiaries shall have incurred any material liabilities or
obligations, direct or contingent, nor shall they have entered into any
material transactions that should be publicly disclosed in a SEC Report
under applicable federal and state securities laws.
(h) Absence of Litigation. No actions, suits or proceedings shall be
pending or threatened against or affecting the Company or any of its
Subsidiaries or any of their respective officers in their capacity as such
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding which has or is
reasonably likely to have a Material Adverse Effect.
(i) Legal Opinions. The Company shall have caused to be delivered to
the Purchasers, (i) within five (5) Trading Days of the effective date of
the Registration Statement, (ii) as of a date subsequent to the date of
the Company's filing of its most recent quarterly report on Form 10-Q (or
the date by which such report is required to be filed), (iii) as of a date
subsequent to the date on which the Company announces, whether on a
preliminary or definitive basis, its fourth quarter or full-year financial
results and (iv) to the extent provided by Section 3.3, an opinion of the
Company's independent counsel containing the opinions and statements
reasonably requested by the Purchasers, addressed to the Purchasers
stating, inter alia, that in such counsel's belief the Registration
Statement (if applicable, as so amended by such SEC Report) does not
contain an untrue statement of material fact or omits a material fact
required to make the statements contained therein, not misleading or that
the underlying prospectus (if applicable, as so amended or supplemented)
does not contain an untrue statement of material fact or omits a material
fact required to make the statements contained therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Purchasers, the Company shall
promptly revise the Registration Statement and shall not deliver an
Optional Purchase Notice or a Mandatory Purchase Notice or, if an Optional
Purchase Notice
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EQUITY FINANCING AGREEMENT - Page 13
<PAGE>
or Mandatory Purchase Notice shall have been delivered in good faith
without knowledge by the Company that an opinion of independent counsel
can not be delivered as required, postpone such Closing Date for a period
of up to five (5) Trading Days until such an opinion is delivered to the
Purchasers (or such Closing shall otherwise be canceled). In the event of
such a postponement, the Purchase Price of the Common Stock to be issued
at such Closing as determined pursuant to Section 2.2 shall be the lower
of the such Purchase Price as calculated as of the originally scheduled
Closing Date and the Purchase Price as of the actual Closing Date. The
Company's independent counsel shall also deliver to the Purchasers upon
execution of this agreement an opinion in form and substance satisfactory
to the Purchasers addressing, among other things, corporate matters and
the exemption from registration under the Securities Act of the issuance
of the Common Stock by the Company to the Purchasers under this Agreement.
(j) Accountant's Letter.
(i) The Company shall engage the Company's independent
auditors to perform certain agreed upon procedures and report
thereon in accordance with the provisions of Statement on Auditing
Standards No. 71 with respect to the Company's quarterly financial
information and, upon issuance of such reports, the Company will
provide copies thereof to the Purchasers (each, a "Quarterly Review
Report"). A copy of each Quarterly Review Report shall be delivered
to the Purchasers within five (5) Trading Days of the filing with
the SEC of each of the Company's Quarterly Reports on Form 10-Q.
(ii) The Company shall engage its independent auditors to
perform certain agreed upon procedures and report thereon as shall
have been reasonably requested by the Purchasers with respect to
certain financial information contained in the Registration
Statement and shall have delivered to the Purchasers, within five
(5) Trading Days of the effective date of the Registration
Statement, a copy of such report addressed to the Company.
(iii) In the event that no Quarterly Review Report shall have
been delivered by the Company's independent auditors to the Company
for more than ninety (90) days since the reporting date to which the
previously delivered report relates or the Purchasers shall have
requested delivery of such a report to the Company pursuant to
Section 3.3, the Company shall engage its independent auditors to
perform certain agreed upon procedures and report thereon as shall
have been reasonably requested by the Purchasers with respect to
certain financial information of the Company and the Company shall
deliver to the Purchasers a copy of such report. In the event that
the report required by this Section 3.2(j) cannot be delivered by
the Company's independent auditors, the Company shall, if necessary,
promptly revise the Registration Statement and shall not deliver an
Optional Purchase Notice
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EQUITY FINANCING AGREEMENT - Page 14
<PAGE>
or a Mandatory Purchase Notice or, if an Optional Purchase Notice or
Mandatory Purchase Notice shall have been delivered in good faith
without knowledge by the Company that a report of its independent
auditors can not be delivered as required, postpone such Closing
Date for a period of up to five (5) Trading Days until such a report
is delivered (or such Closing shall otherwise be canceled). In the
event of such a postponement, the Purchase Price of the Common Stock
to be issued at such Closing as determined pursuant to Section 2.2
shall be the lower of such Purchase Price as calculated as of the
originally scheduled Closing Date and the Purchase Price as of the
actual Closing Date.
(k) Officer's Certificate. The Company shall have delivered to the
Purchasers, on each Closing Date, a certificate in substantially the form
and substance of Exhibit D hereto, executed in either case by an executive
officer of the Company and to the effect that all the conditions to such
Closing shall have been satisfied as of the date of each such certificate.
(l) Due Diligence. No dispute between the Company and the Purchasers
shall exist pursuant to Section 3.3 as to the adequacy of the disclosure
contained in the Registration Statement.
(m) Limits on Purchases and Sales.
(i) Notwithstanding the Purchasers' rights under the Closing
Warrants and Commitment Fee Warrants, unless the Purchasers deliver
a waiver in accordance with the immediately following sentence, in
no event shall the Purchasers be entitled to exercise any portion of
the Warrants in excess of that portion of the Warrants upon
exercise, of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Purchasers and their Affiliates
(other than shares of Common Stock which may be deemed beneficially
owned as a result of the unexercised portion of the Warrants and any
other derivative securities convertible into or exchangeable for
shares of Common Stock which contain a limitation similar to that
set forth in this Section 3.2) and (ii) the number of shares of
Common Stock issuable upon exercise of the portion of the Warrants
with respect to which this determination is being made, would result
in beneficial ownership by the Purchasers and their Affiliates of
more than 9.99% of the outstanding shares of Common Stock. For
purposes of this Section 3.2(m), beneficial ownership shall be
determined in accordance with Rule 13d-3 of the Exchange Act and
Regulation 13 D-G thereunder In addition, the foregoing limitations
shall not apply and shall be of no further force or effect
immediately preceding and upon the occurrence of a Sale Event.
(ii) Notwithstanding the Company's right to deliver an
Optional Purchase Notice or obligation to deliver a Mandatory
Purchase Notice, unless the Purchasers deliver a waiver in
accordance with the immediately following sentence, in no event
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EQUITY FINANCING AGREEMENT - Page 15
<PAGE>
shall the Company be entitled to deliver any Optional Purchase
Notice or Mandatory Purchase Notice in excess of that portion of the
Optional Purchase Notice or Mandatory Purchase Notice upon the
Closing thereof, of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Purchasers and their
Affiliates (other than shares of Common Stock which may be deemed
beneficially owned as a result of the unexercised portion of the
Warrants and any other derivative securities convertible into or
exchangeable for shares of Common Stock which contain a limitation
similar to that set forth in this Section 3.2), and (ii) the number
of shares of Common Stock issuable in connection with the Closing to
which this determination is being made, would result in beneficial
ownership by the Purchasers and their Affiliates of more than 9.99%
of the outstanding shares of Common Stock. For purposes of this
Section 3.2(m), beneficial ownership shall be determined in
accordance with Rule 13d-3 of the Exchange Act and Regulation 13D-G
thereunder. In addition, the foregoing limitations shall not apply
and shall be of no force or effect immediately preceding and upon
the occurrence of a Sale Event.
(n) Principal Market Limitations. In no event shall the Company
issue more than 19.9% of the then issued and outstanding shares of Common
Stock of Company hereunder or under the Warrants as of the applicable date
of determination, or such greater number of shares as the Shareholders of
the Company may have previously approved pursuant to this Section 3.2(n)
(the "Nasdaq Share Limit"), unless the Company shall have obtained
Shareholder Approval (as defined below) or a waiver of such requirement by
the Nasdaq Market. As used herein, "Shareholder Approval" means approval
by the shareholders of the Company in accordance with Rule 4460(i) of the
rules of the Nasdaq Market. Once the Nasdaq Share Limit has been reached,
unless the Company shall have obtained Shareholder Approval to issue
shares of Common Stock in excess of the Nasdaq Share Limit (in which case
the increased amount shall be the new "Nasdaq Share Limit") or a waiver of
such requirement by the Nasdaq Stock Market within 90 days thereafter, the
Company shall (unless waived in writing by the Purchasers) be deemed to
have delivered to the Purchasers a Reduction Notice to reduce the unused
Commitment Amount to zero, and the Closing Warrant and the Commitment Fee
Warrant (to the extent vested, as determined following the actual or
deemed delivery of such Reduction Notice) shall be redeemed at the Warrant
Redemption Price (as defined below). As used herein, the term "Warrant
Redemption Price" shall mean the greater of (x) the appraised value of
each Warrant on the date they are called for redemption (determined with
reference to the "Black Scholes" or similar option pricing model) and (y)
the product of the excess of (i) the Closing Price of the Common Stock on
the date that the Closing Warrants and Commitment Fee Warrants are
redeemed over (ii) the exercise price of the Closing Warrants and
Commitment Fee Warrants.
(o) Maximum Purchase Limitations. In no event shall the Investment
Amount attributable to any Optional Purchase Notice or Mandatory Purchase
Notice exceed the lesser of (i) $5 million or (ii) 200% of the average
daily Market Trading Value calculated for the
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EQUITY FINANCING AGREEMENT - Page 16
<PAGE>
twenty (20) trading days ending on the Trading Day immediately preceding
the date of a Purchase Notice. As used herein, the term "Market Trading
Value" means, with respect to any Trading Day, the product of the reported
trading volume of the Common Stock on the Principal Market on any such
day, multiplied by the Closing Price of the Common Stock on such day.
(p) Timing Between Purchases. The Company shall not deliver any
Optional Purchase Notice, or be deemed to have delivered any Mandatory
Purchase Notice, within twenty (20) Trading Days following the preceding
Closing Date.
(q) Closing Price. The Closing Price of the Common Stock on the date
of the delivery (or deemed delivery) of a Purchase Notice must equal or
exceed the Average Closing Price of the Common Stock calculated as of such
date.
(r) Irrevocable Instructions and Escrow Agreement. The Company shall
have delivered to the Purchasers, on or before the date of delivery of any
Purchase Notice, the Irrevocable Instructions and Escrow Agreement
executed by the Company and Transfer Agent with regard to the purchase
contemplated by the Purchase Notice.
3.3 Due Diligence Review. The Company shall make available for inspection
and review by the Purchasers, advisors to and representatives of the Purchasers
(who may or may not be affiliated with the Purchasers and who are reasonably
acceptable to the Company), and any underwriter participating in any disposition
of Common Stock on behalf of the Purchasers pursuant to the Registration
Statement, any such registration statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Reports and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by the Purchasers or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Purchasers and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
The Company shall not disclose non-public information to the Purchasers or
advisors to or representatives of the Purchasers unless, prior to disclosure of
such information, the Company identifies such information as being non-public
information and provides the Purchasers, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Purchasers' advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Purchasers.
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EQUITY FINANCING AGREEMENT - Page 17
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Nothing herein shall require the Company to disclose non-public
information to the Purchasers, their advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
Purchasers who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Purchasers and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 3.3 shall be
construed to mean that such persons or entities other than the Purchasers
(without the written consent of the Purchasers prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading; provided, however, that in no event shall the
Purchasers' advisors or representatives disclose to the Purchasers the nature of
the specific event or circumstances constituting any non-public information
discovered by such advisors or representatives in the course of their due
diligence (without the written consent of the Purchasers prior to disclosure of
such information). The Purchasers' advisors or representatives shall make
complete disclosure to the Purchasers' independent counsel of all events or
circumstances constituting non-public information discovered by such advisors or
representatives in the course of their due diligence upon which such advisors or
representatives form the opinion that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in the light of the circumstances in which they were made,
not misleading. Upon receipt of such disclosure, the Purchasers' independent
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto. In the event after
such consultation the Purchasers' independent counsel believes that the
Registration Statement contains an untrue statement or a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading, (x) the Company shall file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Purchasers, as promptly as practicable
with copies of the Registration Statement and related prospectus, as so amended,
(y) if the Company disputes the existence of any such material misstatement or
omission, (i) the Company's independent counsel shall provide the Purchasers'
independent counsel with an opinion stating that nothing has come to their
attention that
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EQUITY FINANCING AGREEMENT - Page 18
<PAGE>
would lead them to believe that the Registration Statement or the related
prospectus, as of the date of such opinion contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or the related prospectus or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading and (ii) in the event the dispute relates to the adequacy of
financial disclosure, and at the reasonable request of the Purchasers, the
Company's independent auditors shall provide to the Company a letter outlining
the performance of such "agreed upon procedures" as shall be reasonably
requested by the Purchasers and the Company shall provide the Purchasers with a
copy of such letter, or (z) if the Company disputes the existence of any such
material misstatement or omission, and the dispute relates to the timing of
disclosure of a material event and the Company's independent counsel is unable
to provide the opinion referenced in clause (y) above to the Purchasers, then
this Agreement shall be suspended for a period of up to thirty (30) days, at the
end of which, if the dispute still exists between the Company's independent
counsel and the Purchasers' independent counsel, the Company shall either (i)
amend the Registration Statement as provided above, (ii) provide to the
Purchasers the opinion of the Company's independent counsel and a copy of the
letter of the Company's independent auditors referenced above, or (iii) this
Agreement shall be suspended for an additional period of up to thirty (30) days;
provided, however, that at the end of such additional thirty (30) day period, if
the dispute still exists between the Company's independent counsel and the
Purchasers' independent counsel, either (i) the Company shall amend the
Registration Statement as provided above, (ii) the Company shall provide the
Company's independent counsel opinion referenced above, or (iii) the obligation
of the Purchasers to purchase shares of Common Stock pursuant to this Agreement
shall terminate (the "Termination Event").
ARTICLE IV.
Representations and Warranties of the Purchasers
Each Purchaser severally represents and warrants to the Company that:
4.1 Intent. The Purchaser is entering into this Agreement for its own
account and the Purchaser has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Purchaser does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
4.2 Sophisticated Investors. The Purchaser is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and the Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in Common Stock. The Purchaser acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
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EQUITY FINANCING AGREEMENT - Page 19
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4.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by the Purchaser and is a valid and binding agreement of
the Purchaser enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
4.4 No Brokers. The Purchaser has taken no action which would give rise to
any claim by any person for brokerage commission, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby.
4.5 Not an Affiliate. The Purchaser is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
4.6 Organization and Standing. The Purchaser is duly organized, validly
existing, and in good standing under the laws of its state or country of
organization.
4.7 Absence of Conflicts. The execution and delivery of this Agreement and
any other document or instrument executed in connection herewith, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Purchaser, or the provision of
any indenture, instrument or agreement to which Purchaser is a party or is
subject, or by which Purchaser or any of its assets are bound, or conflict with
or constitute a material default thereunder, or result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Purchaser to
any third party, or require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which such Purchaser is subject or to which any of its
assets, operations or management may be subject.
4.8 Disclosure; Access to Information. The Purchaser has received all
documents, records, books and other information pertaining to Purchaser's
investment in the Company that have been requested by the Purchaser. Purchaser
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Exchange Act and Purchaser has reviewed
or received copies of any such reports that have been requested by it.
4.9 Manner of Sale. At no time was Purchaser presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE V.
Representations and Warranties of the Company
The Company represents and warrants to the Purchasers that:
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EQUITY FINANCING AGREEMENT - Page 20
<PAGE>
5. 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. Schedule
5.1 sets forth a list of all Subsidiaries and the country or jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries is duly
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.
5.2 Authorization and Execution.
(a) The Company 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 of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its 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 other Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective terms.
5.3 Capitalization. As of the date hereof, the authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 5.3 hereto
and 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
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or similar rights of the stockholders 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 5.3 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
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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 Purchased Shares, the
Warrants or the Warrant Shares. The Company has furnished to Purchasers 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.
5.4 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 initial 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 Nasdaq Market relating to the
shares of Common Stock issuable hereunder or upon the exercise of the Warrants,
and (d) the filing of a "Form D" as described in Section 6.13 below.
5.5 Issuance of Shares. Upon the issuance of shares of Common Stock either
pursuant to a Purchase Notice or upon the exercise of the Warrants in accordance
with the terms thereof and (assuming the payment of the exercise price set forth
in the Warrants), such shares of Common Stock 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 and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers 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 shares of Common Stock either pursuant to a
Purchase Notice or upon the exercise of the Warrants could dilute the ownership
interests of other stockholders of the Company. The Company further acknowledges
that its obligation to issue shares of Common Stock hereunder and Warrant Shares
upon exercise of the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
5.6 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, (ii) the Company
Corporate Documents, or (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
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on any asset of the Company or any Subsidiary. 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.
5.7 Financial Information and SEC Reports. Since January 1, 1996, the
Company has timely filed all forms, reports and documents with the SEC required
to be filed by it under the Exchange Act through the date hereof (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being referred to herein collectively as the
"SEC Reports"). The Company has not provided to the Purchasers any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company which has not been so
disclosed. The Company has delivered to each Purchaser true and complete copies
of the SEC Reports, except for such exhibits and incorporated documents. Such
SEC Reports, at the time filed, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
hereunder applicable to such SEC Reports. None of the SEC Reports, including
without limitation, any financial statements or schedules included therein,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. There have been no
material adverse changes in the Company's business, properties, results of
operations, condition (financial or otherwise) or prospects since the date of
the Company's most recent Report on Form 10-K for the year ended December 31,
1997 which have not been disclosed in the Company's SEC Reports or to the
Purchasers in writing. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries contained in the SEC Reports, and the related
consolidated statements of income, changes in stockholders' 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 the published rules and regulations of
the SEC with respect thereto and (ii) have been prepared in accordance with GAAP
consistently applied through-out 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 contingent. Since December 31, 1997 (the "Balance Sheet
Date"), except as disclosed in the SEC Reports, there has been (x) 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
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EQUITY FINANCING AGREEMENT - Page 23
<PAGE>
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, (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 (z) no event or circumstance with respect to the Company or its Subsidiaries
or their respective business, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Reports.
5.8 Litigation. Except as set forth in the SEC Reports, 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 materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
5.9 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 has 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 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
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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. "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.
5.10 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.
5.11 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 or
other governmental charges have been established in accordance with GAAP.
5.12 Investments, Joint Ventures. Other than as set forth on Schedule
5.12, the Company has no Subsidiaries or 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.
5.13 Not an Investment Company. Neither the Company nor any Subsidiary is
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
5.14 Full Disclosure. The information heretofore furnished by the Company
to the Purchasers 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 the Purchasers 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.
5.15 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 the
Purchasers)
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EQUITY FINANCING AGREEMENT - Page 25
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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 the
Purchasers 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 the Purchasers 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 Nasdaq Market.
5.16 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 or 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.
5.17 Leases. Except as disclosed on Schedule 5.17 hereto, neither the
Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
5.18 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 could
reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 5.7 hereof and (ii) other undisclosed liabilities which, individually or
in the aggregate, would not have a Material Adverse Effect.
5.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon the 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.
5.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
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 the
Company's and its Subsidiaries' knowledge, there is
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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.
5.21 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.
5.22 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 5.7, free and clear of all Liens, other than
Liens set forth on Schedule 5.22.
5.23 Eligibility to Use Form S-3. As of the date hereof, the Company meets
the "registrant eligibility" requirements set forth in the general instructions
applicable to registration statements on Form S-3 covering the resale of the
Securities.
5.24 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 management's
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.
5.25 "Year 2000" Compliance
(a) Computer and Other Systems. All software programs and computer
hardware that are owned, leased or licensed by the Company and each
Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Computer Systems"), are designated to be used prior to,
during and after the calendar year 2000 A.D., including leap years; (b)
all other operational systems that use software or equipment that are
owned, leased, or licensed by the Company and each Subsidiary, or used by
third parties on behalf of the Company and each Subsidiary ("Other
Systems"), are designated to be used prior to, during and after the
calendar year 2000 A.D., including leap years; (c) the Computer Systems
and Other Systems will properly operate during each such period without
error or degradation of performance caused by a lack of Year 2000
Capabilities, and (d) the Computer Systems and Other Systems will properly
operate during each such period without requiring intervention or
modification to Date Data.
(b) Capabilities of Suppliers, Vendors and Landlords. To the best of
the Company's knowledge after specific inquiry of all of its material
suppliers, vendors and
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EQUITY FINANCING AGREEMENT - Page 27
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landlords, the Company and each Subsidiary will not suffer a loss from
interruption or cessation of business operations, in whole or in part, as
a result of such suppliers, vendors or landlords failing to provide
materials, labor, supplies or access to leased space for the operation of
the Company and each Subsidiary as a result of such suppliers or vendors
not having Year 2000 Capabilities.
(c) For purposes of this Agreement, (x) "Year 2000 Capabilities"
means the ability to: (i) manage and manipulate data involving dates,
including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or generate incorrect
values or invalid results involving such dates, (ii) include the
indication of proper century dates in all date-related user interface
functions and date fields, and (iii) operate with proper century dates in
date-related software or hardware interface functions and (y) "Date Data"
means any existing data or input of data which includes an indication of
or reference to date.
5.26 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 any Subsidiary, or
received or retained any funds, in each case (x) in violation of any law, rule
or regulation or (y) of a character required to be disclosed by the Company in
any of the SEC Reports.
5.27 Future Outside Capital. Attached hereto as Schedule 5.27 is a copy of
the Company's Budget (the "Budget"), detailing the proposed use of the proceeds
(a) obtained or to be obtained pursuant to this Agreement and (b) obtained or to
be obtained pursuant to the Securities Purchase Agreement. The Budget has not
been materially altered since the date listed therein. As of the date hereof,
and for a period of twenty-four (24) months from the date hereof, based on the
Budget, the Company will have no further need for outside capital other than (i)
the Investment Amounts to be paid by the Purchasers for up to the Commitment
Amount hereunder, (ii) non-recourse financings for specific projects not
expected to exceed $20,000,000 in the aggregate as contemplated by the Budget
and (iii) amounts received pursuant to the issuance of the Convertible Notes
under the Securities Purchase Agreement.
5.28 Company Status. The Company has registered its Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date hereof, the Principal Market is the Nasdaq National Market.
5.29 Market Stabilization Period. Neither the Company nor any of its
directors, officers or controlling persons has taken, directly or indirectly,
any action intended, or which might reasonably be expected, to cause or result,
under the Securities Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of shares of Common Stock.
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ARTICLE VI
Covenants of the Company
The Company hereby agrees that, during the Commitment Period (except for
Sections 6.1(a) and (d), 6.10, 6.11, 6.12 and 6.13, which shall apply for so
long as any Warrants remain outstanding) and for the benefit of the Purchasers:
6.1 Information. The Company will deliver to Purchasers:
(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 on Forms
10-K, 10-Q and 8-K (or their equivalents) which the Company or any
Subsidiary has filed with the Commission;
(b) 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;
(c) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) maximum number of shares
of Common Stock issuable hereunder and (ii) the maximum number of Warrant
Shares issuable pursuant to the Transaction Agreements; and
(d) 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 or which the Company is required to disclose in
its SEC Reports.
6.2 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 appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
6.3 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 Effective Date.
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6.4 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.
6.5 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.
6.6 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, representatives of the Purchasers 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 the
Purchasers the affairs, finances and accounts of the Company and its
Subsidiaries) all at such reasonable times.
6.7 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.
6.8 Use of Proceeds. The proceeds from the issuance and sale of the
Purchased Shares by the Company pursuant to this Agreement shall be used to
finance the Company's expansion efforts in Kazakstan and Russia and for other
working capital purposes as described in the Budget. None of the proceeds from
the issuance and sale of the Purchased Shares by the Company pursuant to this
Agreement will be used directly or indirectly for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System.
6.9 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.
6.10 Reserved Shares and Listings.
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(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 issuance of the shares contemplated hereunder (based
on the Purchase Price in effect from time to time) and the exercise in
full of the Warrants and the issuance of the Warrant Shares (based on the
exercise price of the Warrants) (collectively, the "Reserved Amount"). The
Company shall not reduce the Reserved Amount without the prior written
consent of each Purchaser. If at any time the number of shares of Common
Stock authorized and reserved for issuance is below the number of
Purchased Shares issuable hereunder and upon exercise of the Warrants, 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, delivering to the Purchasers a Reduction
Notice specifying a Reduction Amount equal to the aggregate unused
Commitment Amount and consummating the immediate repurchase of the
Warrants at the Warrant Redemption Price (the delivery of which Reduction
Notice shall be deemed to have occurred pursuant to this clause (y) if the
Company does not commence any necessary corporate action within 15 days of
the date of the occurrence of such condition.)
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Purchased Shares and Warrant 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 Purchased Shares and Warrant
Shares from time to time issuable hereunder or upon the exercise of the
Warrants. The Company will obtain and maintain the listing and trading of
its Common Stock on the Nasdaq Market, the Nasdaq SmallCap Market, the New
York Stock Exchange, Inc., or the American Stock Exchange Inc. , and 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 each Purchaser copies of any notices
it receives from Nasdaq regarding the continued eligibility of the Common
Stock for listing on the Nasdaq Market.
6.11 Irrevocable Instructions. On or before each Purchase Date or date of
Purchaser's delivery of notice to the Company of the exercise of a Warrant, the
Company (a) shall immediately issue irrevocable instructions to the Transfer
Agent to issue certificates, registered in the name of each Purchaser or its
nominee as designated by the Purchasers, for the Purchased Shares or Warrant
Shares, as applicable, in such amounts as specified from time to time by each
Purchaser to the Company upon the payment of the Purchase Price or the exercise
price of the Warrants and (b) deliver to the Purchasers a copy of the
Irrevocable Instructions and Escrow Agreement in the form attached hereto as
Exhibit E executed by the Transfer Agent and the Company with regard to the
Purchased Shares or Warrant Shares, as applicable. Upon the purchase of any
Purchased Shares hereunder or exercise of any Warrants in accordance with their
terms, the Company will, and will
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EQUITY FINANCING AGREEMENT - Page 31
<PAGE>
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. As long as the Registration
Statement contemplated by the Registration Rights Agreement shall remain
effective, the shares of Common Stock issuable hereunder upon the exercise of
any Warrants shall be issued to any transferee of such shares from a Purchaser
without any restrictive legend. The Company further warrants and agrees that no
instructions other than the instructions contained herein or in the Irrevocable
Instructions and Escrow Agreement have been or will be given to the Transfer
Agent. Nothing in this Section 6.11 shall affect in any way a Purchaser's
obligation to comply with all securities laws applicable to such Purchaser upon
resale of such shares of Common Stock, including any prospectus delivery
requirements.
6.12 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 SEC 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.
6.13 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 each Purchaser promptly after such filing. The
Company shall, on or before the initial Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to the Purchasers 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 each Purchaser on or prior to the initial Closing
Date.
6.14 Restrictions on Equity Financings. For a period of ninety (90) days
following the last to occur of (a) the Effective Date, (b) the last Purchase
Date hereunder, and (c) the end of the Commitment Term, the Company will not (i)
sell or offer to sell any of its securities other than those securities that are
issuable under or pursuant to the Securities Purchase Agreement or stock option
plans, warrants or other rights programs in existence as of the Effective Date
and which are identified on Schedule 6.14, or (ii) grant registration rights to
any holder of the Company's securities other than securities held by the
Purchasers.
6.15 Shareholder Restrictions. Attached hereto as Schedule 6.15 is a list
of all executive officers and directors of the Company. Each of George Faris,
Denis Fitzpatrick, William Tracy and the Company's other executive offices and
directors each covenant and agree that he will not (and the Company agrees to
use its best efforts to ensure that such persons will not) directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of (a "disposition")
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EQUITY FINANCING AGREEMENT - Page 32
<PAGE>
more than an aggregate of 25,000 shares of Common Stock legally or beneficially
owned by them for a period of ten (10) Trading Days following each Purchase
Date. The Company shall obtain the agreement of each executive officer and
director of the Company within thirty (30) days of the date hereof to the
restriction set forth in this Section 6.15, other than George Faris, Denis
Fitzpatrick and William Tracy, each of whom have agreed to this restriction on
the date hereof by countersignature to this Agreement.
6.16 Allowance of Certain Securities Offering. Notwithstanding the
restrictions set forth in Sections 6.14 and 6.15 above, the Company shall have
the right to pursue the following equity transactions: (a) an equity financing
(other than an unwritten offering), upon the consummation of which the Company
reduces the Commitment Amount to zero, pays all related fees and expenses and
redeems the Warrants at the Warrant Redemption Price, or (b) an underwritten
offering of the Common Stock, so long as such offering includes shares of Common
Stock to be received by the Purchasers hereunder, upon the exercise of the
Closing Warrant or Commitment Fee Warrant. Immediately prior to any such
underwritten public offering, the Company shall either reduce the Commitment
Amount to zero or draw down any remaining Commitment Amount (subject to the
Purchasers' prior written consent if the amount of such draw would exceed the
maximum amount otherwise permitted to be drawn hereunder). If the Company fails
to affirmatively exercise either such option, the Company shall be deemed to
have elected to have reduced the Commitment Amount as set forth above.
6.17 Registration Rights.
(a) The Company shall file within twenty-one (21) days of the date
hereof with the SEC a registration statement on Form S-3 (the
"Registration Statement") for the registration of the resale by the
Purchasers of Common Stock both (i) to be acquired pursuant to this
Agreement and (ii) to be issued upon exercise of the Closing Warrant or
Commitment Fee Warrant, in each case under the Securities Act, and shall
use its best lawful efforts to cause such Registration Statement to have
been declared effective by the SEC on or prior to the Final Registration
Date.
(b) The Registration Rights Agreement shall remain in full force and
effect and the Company shall comply in all respects with the terms
thereof, and the Company shall take all actions reasonably necessary to
amend or supplement the prospectus forming a part of the Registration
Statement such that such prospectus will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
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6.18 Blackout Period. The Company will immediately notify the Purchasers
upon the occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registrable
Securities; (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus, (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the registration statement or the initiation of any
proceedings for that purpose, (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in the registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the registration statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate; and the Company will promptly make available to
the Purchasers any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Purchasers any Optional Purchase Notice or
Mandatory Purchase Notice during the continuation of any of the foregoing
events.
6.19 Expectations Regarding Optional Purchase Notices and Mandatory
Purchase Notices. Within 10 days after the commencement of each calendar quarter
occurring subsequent to the commencement of the Commitment Period, the Company
undertakes to notify the Purchasers as to its reasonable expectations as to the
dollar amount it intends to raise during such calendar quarter, if any, through
the issuance of Optional Purchase Notices and Mandatory Purchase Notices. Such
notification shall constitute only the Company's good faith estimate and shall
in no way obligate the Company to raise such amount, or any amount, or otherwise
limit its ability to deliver Optional Purchase Notices or Mandatory Purchase
Notices. The failure by the Company to comply with this provision can be cured
by the Company's notifying the Purchasers at any time as to its reasonable
expectations with respect to the current calendar quarter.
6.20 Stabilization Actions. Neither the Company nor any of its directors,
officers or controlling persons shall, directly or indirectly, take any action
intended, or which might reasonably be expected, to cause a result, under the
Securities Act or otherwise, in, or which has constituted, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of shares of Common Stock.
ARTICLE VII
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EQUITY FINANCING AGREEMENT - Page 34
<PAGE>
Legends
7.1 Legends. Each of the Closing Warrant and the Commitment Fee Warrant
and, unless otherwise provided below, the Common Stock will bear the following
legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
Upon the execution and delivery hereof, the Company is issuing to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock coterminous with the Company's appointment of any such
substitute or replacement transfer agent) irrevocable instructions as set forth
in the Irrevocable Instructions and Escrow Agreement. Such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time
upon transfer of Common Stock by the Purchasers to issue certificates evidencing
Common Stock free of the Legend during the following periods and under the
following circumstances and without consultation by the transfer agent with the
Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Purchasers:
(a) At any time after the effective date of the registration
statement (provided that such registration statement shall then be
effective): (i) incident to any Closing or other issuance of shares of
Common Stock, (ii) incident to the exercise of either the Closing Warrant
or the Commitment Fee Warrant; or (iii) upon any surrender of one or more
certificates evidencing Common Stock which bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered; provided that in connection
with such event the Purchasers confirms to the transfer agent that it has
sold, pledged or otherwise transferred or agreed to sell, pledge or
otherwise transfer such Common Stock in a bona fide transaction to a third
party which is not an affiliate of the Company; and
(b) At any time upon any surrender of one or more certificates
evidencing Common Stock which bear the Legend, to the extent accompanied
by a notice requesting the
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EQUITY FINANCING AGREEMENT - Page 35
<PAGE>
issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Purchasers has a
bona fide intention to dispose of such Common Stock pursuant to Rule 144
under the Securities Act or is otherwise permitted to dispose thereof
without limitation as to amount or manner of sale pursuant to Rule 144(k)
under the Securities Act; or (ii) the Purchasers has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Common Stock in a manner other than pursuant to an effective registration
statement, to a transferee who will upon such transfer be entitled to
freely tradable securities; provided that in connection with the event
described in clause (i), the transfer agent shall be entitled to receive
an opinion of counsel to the Purchasers that in such circumstances the
Legend may be removed and that the transferee (provided that such
transferee is not an affiliate of the Company) shall be entitled to hold
freely tradable securities.
7.2 No Other Legend or Stock Transfer Restrictions. No Legend has been or
shall be placed on the share certificates representing the Common Stock and no
instructions or "stop transfers," so called, "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer agent
with respect thereto other than as expressly set forth in this Article VII.
7.3 Purchasers' Compliance. Nothing in this Article VII shall affect in
any way the Purchasers' s obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE VIII
Miscellaneous
8.1 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.
8.2 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.
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<PAGE>
(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 Purchasers.
8.3 Indemnification.
(a) Indemnification of Purchasers. The Company agrees to indemnify
and hold harmless the Purchasers and each person, if any, who controls the
Purchasers within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
of a material fact contained in the Registration Statement (or any
amendment thereto), including any prospectus, or in any offering
circular or other document, as applicable, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statement therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in any prospectus (or any amendment or
supplement thereto), or in any offering circular or other document,
as applicable, or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 8.3(c) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Purchasers), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission,
or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Purchasers expressly for use in the Registration Statement (or any amendment
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EQUITY FINANCING AGREEMENT - Page 37
<PAGE>
thereto), including any prospectus (or any amendment or supplement thereto), or
in any offering circular or other document, as applicable.
(b) Action against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of his indemnity agreement.
Counsel to the indemnified parties shall be selected by the Purchasers. An
indemnifying party may participate at its own expense in the defense of
any such action; provided, however, that counsel to the indemnifying party
shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in
addition to any local counsel) separate from their own counsel for all
indemnifies parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry or any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever in respect of
which indemnification or contribution could be sought under this Section
or Section 8.4 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party
from all liability arising out of such litigation , investigation
proceeding or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of an
any indemnified party.
(c) Settlement Without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for the fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of
the nature contemplated by Section 8.3(a)(ii) effected without its written
consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into
and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of
such settlement.
8.4 Contribution. If the indemnification provided for in Section 8.3
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to herein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred (i) in such proportion as is
appropriate to reflect the relative
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EQUITY FINANCING AGREEMENT - Page 38
<PAGE>
benefits received by the Company on the one hand and the Purchasers on the other
hand from the offering of the Common Stock pursuant to this Agreement or (ii) if
the allocation provided by clause (i) 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 Purchasers on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Purchasers on the other hand in connection with the offering of the Common Stock
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Stock
pursuant to this Agreement (before deducting expenses) received by the Company
and the total net proceeds received by the Purchasers (before deducting
expenses) bear to the aggregate public offering price.
The relative fault of the Company on the one hand and the Purchasers on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Purchasers and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8.4 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 8.4.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 8.4 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8.4, the Purchasers shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Stock purchased by it and resold to the public
exceeds the amount of any damages which the Purchasers have otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged 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.
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EQUITY FINANCING AGREEMENT - Page 39
<PAGE>
For purposes of this Section 8.4, each person, if any, who controls the
Purchasers within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act shall have the same rights to contribution as such
Purchaser, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Company.
8.5 Expenses; Documentary Taxes. The Company shall be responsible for the
Purchasers' costs and expenses (including legal fees) incurred in entering into
this Agreement, which amount shall be paid upon the Effective Date, as well as
the Purchasers' costs and expenses (including legal fees) incurred in connection
with the performance of its initial due diligence activities relating to
effectiveness of the Registration Statement. In addition, the Company agrees to
pay any and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any other agreement
executed in connection herewith or the issuance of the Securities to the
Purchasers, excluding their assigns.
8.6 Successors and Assigns. This Agreement shall be binding upon the
Company and upon the Purchasers and their 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 Purchasers. All provisions hereunder purporting to give rights to
Purchasers and their affiliates or to holders of Securities are for the express
benefit of such Persons and their successors and assigns.
8.7 Brokers. Except for a cash fee of one percent (1%) of the aggregate
Purchase Price paid at each Closing payable by the Company to LKB Financial,
L.L.C, the Company represents and warrants that it has not employed any broker,
finder, financial advisor or investment banker who would be entitled to any
brokerage, finder's or other fee or commission payable by the Company or the
Purchasers in connection with the sale of the Securities.
8.8 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 NEW YORK STATE COURT SITTING IN NEW
YORK CITY 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 HERETO HEREBY
IRREVOCABLY WAIVES ANY
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EQUITY FINANCING AGREEMENT - Page 40
<PAGE>
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
8.9 Survival; Severability. The representations, warranties, covenants and
agreements of the parties hereto shall survive each Closing hereunder. The
indemnity agreements contained in Section 8.3 hereof shall remain operative and
in full force and effect regardless of (i) any termination of this Agreement or
of the Commitment Period, (ii) any investigation made by or on behalf of any
indemnified party or by or on behalf of the Company, and (iii) the consummation
of the sale or successive resales of the Common Stock. 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.
8.10 Counterparts. This Agreement may be executed by telecopy signature
and in any number of counterparts each of which shall be an original with the
same effect as if the signatures there to and hereto were upon the same
instrument.
[Signature Page Follows]
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EQUITY FINANCING AGREEMENT - Page 41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized offices as of the date hereof.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
Address: 444 Madison Avenue
New York, New York 10022
Fax: (212) 688-6657
Attn: George Faris
INFINITY INVESTORS LIMITED
By:_______________________________
Name:_____________________________
Title:____________________________
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-33-171-355-4975
Attn: J. A. Loughran
With copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
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EQUITY FINANCING AGREEMENT - Page 42
<PAGE>
INFINITY EMERGING
OPPORTUNITIES LIMITED
By:_______________________________
Name:_____________________________
Title:____________________________
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
SUMMIT CAPITAL LIMITED
By:_______________________________
Name:_____________________________
Title:____________________________
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
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EQUITY FINANCING AGREEMENT - Page 43
<PAGE>
GLACIER CAPITAL LIMITED
By:_______________________________
Name:_____________________________
Title:____________________________
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1667
Attn.: Stuart Chasanoff, Esq.
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EQUITY FINANCING AGREEMENT - Page 44
<PAGE>
ACKNOWLEDGMENT OF SECTION 6.15
The undersigned persons hereby acknowledge Section 6.15 of this Agreement
and agree to be bound by the restrictions imposed by such Section in their
individual capacities.
_____________________________________
Dennis Fitzpatrick
_____________________________________
George Faris
_____________________________________
William Tracy
- --------------------------------------------------------------------------------
EQUITY FINANCING AGREEMENT - Page 45
<PAGE>
Exhibits:
- ---------
A Registration Rights Agreement
B Closing Warrant
C Contingent Fee Warrant
D Legal Opinion
E Certificate of Compliance
F Irrevocable Instructions
Schedules:
- ----------
- --------------------------------------------------------------------------------
EQUITY FINANCING AGREEMENT - Page 46
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 226,013
<SECURITIES> 735,958
<RECEIVABLES> 586,356
<ALLOWANCES> 0
<INVENTORY> 2,649,967
<CURRENT-ASSETS> 4,703,400
<PP&E> 38,748,022
<DEPRECIATION> 4,048,980
<TOTAL-ASSETS> 41,786,487
<CURRENT-LIABILITIES> 11,144,123
<BONDS> 0
3,912,842
0
<COMMON> 0
<OTHER-SE> 26,729,522
<TOTAL-LIABILITY-AND-EQUITY> 41,786,487
<SALES> 5
<TOTAL-REVENUES> 506,045
<CGS> 303,148
<TOTAL-COSTS> 303,148
<OTHER-EXPENSES> 973,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,696,285
<INCOME-PRETAX> (2,467,236)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,467,236)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
