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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
of 1934
Date of Report (Date of earliest event reported) February 18, 1999
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION
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(Exact name of registrant as specified in charter)
Nevada 0-14905 13-3130236
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
440 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-3333
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N/A
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
On February 18, 1999, the Registrant issued and sold
$10,000,000 principal amount of its 5% convertible secured debentures due 2004
(the "Debentures") and warrants to purchase 2,000,000 shares of common stock to
an institutional investor for a purchase price of $10,000,000. The net proceeds
from the sale were used primarily to repay certain indebtedness, including
$3,500,000 principal amount of our 14% convertible notes due April 21, 2000. The
Debentures and warrants were issued pursuant to the exemption from the
registration requirements of the Securities Act provided by Section 4(2) of the
Securities Act and Rules 506 of the Regulation D promulgated by the SEC under
that Section.
The Debentures bear interest at the rate of 5% per annum,
payable on the last day of each calendar quarter, commencing March 31, 1999, and
are payable on February 18, 2004, or earlier upon acceleration following the
occurrence of an event of default. Payment of the Debentures is secured by a
mortgage and first priority security interest on specified fixed assets located
at the Lake Charles, Louisiana refinery of the Company's wholly owned
subsidiary, American International Refinery, Inc. The mortgage and security
interest will be released at such time as the outstanding principal amount of
the Debentures is less than $3,000,000. The Debentures are senior in right of
payment to all indebtedness of the Company and its subsidiaries, other than the
Company's 14% convertible notes due April 21, 2000, which rank pari passu with
the Debentures, and indebtedness secured by accounts receivable, inventory or
other assets of the Company and its subsidiaries, other than the fixed assets
subject to the mortgage and security interest.
The Debentures are convertible into shares of the Company's
common stock, at the option of the holder thereof, commencing August 17, 1999,
subject to the limitations stated below. The conversion price is equal to the
lesser of $1.288 and 85% of the average of the lowest three daily weighted
average sales prices of the common stock for the 20 trading days prior to the
date upon which the holder gives notice of conversion. The right of conversion
is subject to the following limitations:
1. The holder may convert the Debentures prior to
August 17, 1999 if the closing bid price of the
common stock is at least $1.55 per share for five
consecutive trading days, except that the number
of shares converted and sold on any one day prior
to August 17, 1999 may not exceed 10% of the
daily sales volume of the common stock.
2. The number of shares of common stock that the
holder may acquire upon conversion of the
Debentures, together with shares beneficially
owned by the holder and its affiliates, may not
exceed 4.9% of the total outstanding shares of
common stock. The holder may change this
limitation upon 61
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days prior notice to the Company or immediately
following a change in control of the Company.
3. The conversion price will be reduced if at any
time prior to January 18, 2000 the Company issues
shares of common stock (or securities
convertible, exercisable or exchangeable for
common stock) in a private placement at less than
$1.288 per share, if a fixed price, or less than
the discount specified in the Debentures. In
addition, the discount used to determine he
conversion rate will be increased by 1% during
the first 30 day period and an additional 1.5%
during each subsequent 30 day period following
June 18, 1999 that the registration statement,
referred to below, is not effective.
The Company has agreed to file a registration statement for
the resale of the shares of common stock that the holder may acquire upon
conversion of the Debentures and the warrants.
The Company may redeem up to $5,000,000 principal amount of
the Debentures during any 90 day period, commencing August 17, 1999, provided
that during the 90 day period preceding notice of redemption there has not been
an event of default and the Company's registration statement for the resale of
the common stock has remained effective. The redemption price for the Debentures
will be equal to the greater of (x) 115% of the principal amount, plus accrued
but unpaid interest and default payments and (y) the product of the conversion
rate and the closing bid price of the common stock on the first trading day
after the date a holder notifies the Company that the redemption will be
effective.
The holder has the right to require redemption of the
Debentures, in whole or in part, following a change in control of the Company at
a redemption price equal to 130% of the principal amount, plus accrued but
unpaid interest and penalties, or if the registration statement has not been
declared effective by August 17, 1999, to sell the Debentures to the Company at
a purchase price equal to 125% of the principal amount, plus accrued but unpaid
interest and penalties.
The warrants may be exercised at any time before February 18,
2004, at an exercise price of $2.061 per share, subject to the following
limitations:
1. The number of shares of common stock that the
holder may acquire upon exercise of the warrants,
together with shares beneficially owned by the
holder and its affiliates, may not exceed 4.9% of
the total outstanding shares of common stock. The
holder may change this limitation upon 61 days
prior notice to the Company or immediately
following a change in control of the Company.
2. The expiration date of the warrants will be
extended if the registration statement is not
declared effective by August 17, 1999, or the
effectiveness of the registration statement is
not continuously maintained thereafter, or if the
Company does not obtain and maintain the listing
of the shares of common stock that the holder may
acquire upon conversion
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of the Debentures and the exercise of the
warrants, or if the Company fails to issue shares
of common stock upon conversion of the
Debentures.
The holder has the right to sell the warrants to the Company
if the registration statement is not declared effective by August 17, 1999, for
a purchase price equal to (x) the product of the number of shares that the
holder may acquire upon exercise (without regard to any limitation concerning
beneficial ownership) and the average of the closing bid prices for the common
stock during the 10 trading days preceding the notice of redemption, minus (y)
the product of the number of shares that the holder may acquire upon exercise
(without regard to any limitation concerning beneficial ownership) and the
exercise price.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
4.1 Convertible Debenture Purchase Agreement dated
February 11, 1999.
4.2 Form of 5% Convertible Secured Debenture.
4.3 Form of Warrant.
4.4 Form of Registration Rights Agreement.
4.5 Form of Mortgage and Security Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
Dated: March 1, 1999 By: s/ Denis J. Fitzpatrick
New York, New York ------------------------------
Denis J. Fitzpatrick
Vice President and
Chief Financial Officer
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EXHIBIT 4.1
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement") dated as of
February 11, 1999 between American International Petroleum Corp., a Nevada
corporation (the "Company"), and each person or entity listed as an investor on
Schedule I to this Agreement (each individually an "Investor" and collectively
the "Investors").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and
the Investors wish to purchase from the Company, 5% Convertible Secured
Debentures Due February __, 2004 (the "Debentures"), in the aggregate principal
amount of $10,000,000 at an aggregate price of $10,000,000, having the rights
and privileges set forth in the Debentures in the form of Exhibit 1.1A attached
hereto, on the terms and conditions set forth herein;
WHEREAS, the Debentures will be convertible into shares ("Common
Shares") of common stock, $0.08 par value per share, of the Company ("Common
Stock"), pursuant to the terms of the Debentures, and the Investors will have
registration rights with respect to such Common Shares and the Warrant Shares
(as defined herein) pursuant to the terms of that certain Registration Rights
Agreement to be entered into between the Company and the Investors substantially
in the form of Exhibit 4.2(f) hereto ("Registration Rights Agreement");
WHEREAS, to induce the Investors to purchase the Debentures, the
Company has agreed to issue to the Investors warrants exercisable for an
aggregate 2,000,000 shares of Common Stock, in the form attached as Exhibit 1.1B
(the "Warrants");
WHEREAS, American International Refinery, Inc. ("AIRI") is a wholly
owned subsidiary of the Company, and AIRI will derive substantial benefit from
the transaction contemplated hereby; and
WHEREAS, to induce the Investors to purchase the Debentures, AIRI has
agreed to grant to the Investors a first priority mortgage in the land and
improvements of AIRI's refinery located at 4646 Highway 2059, Old Town Road,
Lake Charles, Louisiana 70615 and a first priority security interest in certain
equipment and other personal property used at the refinery pursuant to the terms
of a Mortgage and Security Agreement to be entered into between AIRI and the
Investors substantially, which is satisfactory in form and substance to the
Investors;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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ARTICLE I.
Purchase and Sale of Debentures and Warrants
Section 1.1 Issuance of Debentures and Warrants. Upon the following
terms and conditions, the Company shall issue and sell to each Investor
severally, and each Investor severally shall purchase from the Company, the
outstanding principal amount of Debentures indicated next to such Investor's
name on Schedule I attached hereto.
(a) Issuance. Upon the following terms and conditions, the Company
shall issue and sell to each Investor, and each Investor severally shall
purchase from the Company, the principal amount of Debentures and the number of
Warrants indicated next to such Investor's name on Schedule I attached hereto.
(b) Purchase Price. The purchase price for the Debentures to be
acquired by each Investor (the "Purchase Price") shall be the Purchase Price set
forth next to such Investor's name on Schedule I.
(c) The Closing.
(i) The closing of the purchase and sale of the Debentures and the
Warrants (the "Closing"), shall take place at the offices of Arnold &
Porter ("Investors' Counsel"), at 10:00 a.m., local time on the later of
the following: (x) the date on which the last of the conditions set forth
in Article IV hereof and applicable to the Closing shall be fulfilled or
waived in accordance herewith, or (y) such other time and place and/or on
such other date as the Investors and the Company may agree. The date on
which the Closing occurs is referred to herein as the "Closing Date".
(ii) On the Closing Date, the Company shall deliver to each Investor
(x) a certificate or certificates (with the number of and outstanding
principal amount of such certificates requested by such Investor)
representing the Debentures purchased hereunder by such Investor at the
Closing registered in the name of the Investor or its nominee and (y) the
Warrants registered in the name of such Investor or its nominee in such
denominations as reasonably requested by such Investor, and such Investor
shall deliver to the Company the Purchase Price for the Debentures
purchased by such Investor hereunder by wire transfer in immediately
available funds to an account designated in writing by the Company. The
delivery of payment by such Investor of the Purchase Price applicable to
it as set forth in this paragraph shall constitute a payment delivered to
the Company in satisfaction of such Investor's obligation to pay the
Purchase Price hereunder. In addition, each of the Company and each
Investor shall deliver all documents, instruments and writings required to
be delivered by such party pursuant to this Agreement at or prior to the
applicable Closing.
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ARTICLE II.
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Investors as of the date hereof and on each Closing Date:
(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Nevada and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any direct or indirect subsidiaries other than the subsidiaries listed
on Schedule 2.1(a) attached hereto. Except where specifically indicated to the
contrary, all references in this Agreement to subsidiaries shall be deemed to
refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means (i) any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and its subsidiaries or other entities controlled by
such entity, taken as a whole, and which is (either alone or together with all
other adverse effects) material to such entity and its subsidiaries or other
entities controlled by such entity taken as a whole, and (ii) any condition or
situation, whether or not a material adverse effect, which would prohibit or
otherwise adversely interfere with or affect the ability of any party to this
Agreement to enter into or perform its obligations under, or to consummate the
transactions contemplated by, this Agreement, the Registration Rights Agreement,
the Mortgage and Security Agreement, the Debentures or the Warrants or any other
agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company or AIRI, as the case
may be, has all requisite corporate power and authority to enter into and
perform this Agreement, the Warrants, the Mortgage and Security Agreement and
the Registration Rights Agreement and to issue the Debentures and Warrants in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Warrants, the Mortgage and Security Agreement and the
Registration Rights Agreement by the Company or AIRI, as the case may be, and
the consummation by the Company or AIRI, as the case may be, of the transactions
contemplated hereby and thereby, including the issuance of the Debentures, the
Warrants, the Common Shares and the Warrant Shares have been duly authorized by
all necessary corporate action, and no further consent or authorization of the
Company, AIRI or their Boards of Directors (or any committee or subcommittee
thereof) or stockholders is required, (iii) this Agreement has been, and on the
Closing Date the Warrants, the Debentures, the Mortgage and Security Agreement
and the Registration Rights Agreement will be, duly executed and delivered by
the Company or AIRI, as the case may be, and (iv) this Agreement constitutes,
and upon execution, issuance and delivery thereof the Warrants, the Debentures,
the Mortgage and Security Agreement and the Registration Rights Agreement shall
constitute, valid and binding obligations of the Company or AIRI, as the case
may be enforceable against the Company or AIRI, as the case may be, in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
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(c) Capitalization; Indebtedness. (i) The authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock and 7,000,000 shares
of preferred stock, par value $0.01 per share (the "Preferred Stock"); there are
66,216,889 shares of Common Stock and no shares of Preferred Stock issued and
outstanding. All of the outstanding shares of the Company's Common Stock have
been validly authorized and issued and are fully paid and nonassessable. No
shares of capital stock are entitled to preemptive rights; and there are as of
the date hereof outstanding options for 4,122,750 shares of Common Stock and
6,758,746 outstanding warrants for shares of Common Stock (excluding the
Warrants). Except as set forth in Schedule 2.1(c)(i), there are no other scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights exchangeable for or convertible into, any
shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, or commitments to purchase or acquire, any
shares, or securities or rights convertible or exchangeable into shares, of
capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is a true and
correct copy of the Company's Articles of Incorporation (the "Charter"), as in
effect on the date hereof, an attached hereto as Exhibit 2.1(c)(ii) is a true
and correct copy of the Company's By-Laws (the "By-Laws"), as in effect on the
date hereof.
(ii) Set forth on Schedule 2.1(c)(ii) is a complete and accurate
listing of (i) all of the outstanding indebtedness of the Company, except
for trade payables incurred in the ordinary course of business (the
"Company Debt"), (ii) all of the principal documents that evidence the
Company Debt, including, without limitation any Uniform Commercial Code
financing statements filed showing the Company or any subsidiary as debtor
and (iii) any collateral which has been pledge by the Company to secure
any of the Company Debt. The Company has provided to Investors a correct
and complete copy of, or given Investors access to, each of the documents
representing such Company Debt and all amendments thereto. All of the
documents representing any Company Debt are in full force and effect in
accordance with their terms. There exists no material default on the part
of the Company under any document evidencing any Company Debt or any event
or condition which after notice or passage o time or both would constitute
such a default. Except as set forth on Schedule 2.1(c)(ii), the documents
evidencing the Company Debt do not require the consent of any party
thereto to the consummation of the transactions contemplated by this
Agreement.
(d) Issuance of Common Shares. The Common Shares and the shares of
Common Stock issuable upon the exercise of the Warrants (the "Warrant Shares")
are duly authorized and reserved for issuance and, upon such conversion in
accordance with the Debentures and/or exercise in accordance with the Warrants,
such Common Shares and Warrant Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
and the holders of such Common Shares and Warrant Shares shall be entitled to
all rights and preferences accorded to a holder of Common Stock. The outstanding
shares of Common Stock are currently listed, and are entitled to be traded, on
the Nasdaq National Market System ("Nasdaq NMS," and collectively with the
American Stock Exchange and the New York Stock Exchange, the "Approved Markets")
and the Company has not received any notice (written or oral) from the Nasdaq
NMS (or any other Approved Market where they are currently listed) to which the
Company has not made a satisfactory response indicating that delisting of the
Common Stock is under consideration.
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(e) No Conflicts. The execution, delivery and performance by the
Company or AIRI, as the case may be, of this Agreement, the Registration Rights
Agreement, the Mortgage and Security Agreement, the Warrants and the Debentures,
including the issuance of the Debentures and the Warrants, the conversion of the
Debentures into the Common Shares and the exercise of the Warrants, and the
consummation by the Company or AIRI, as the case may be, of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's or AIRI's, as the case may be, Charter or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or AIRI, as the case may be,
or any of its subsidiaries is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to the Company or AIRI, as the case may be, or any of its subsidiaries or by
which any property or asset of the Company or AIRI, as the case may be, or any
of its subsidiaries is bound or affected. The business of the Company and its
direct and indirect subsidiaries is not being conducted in violation of, and is
in compliance in all material respects with, all applicable material laws,
ordinances and regulations of any governmental entity. The Company or AIRI, as
the case may be, is not required under Federal, state, local or foreign law,
rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
(x) to execute, deliver or perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Mortgage and Security Agreement, the
Debentures or the Warrants, (y) to issue and sell the Debentures and the
Warrants in accordance with the terms hereof, to issue the Common Shares upon
conversion of the Debentures or to issue the Warrant Shares on exercise of the
Warrants or (z) for the registration provisions provided in the Registration
Rights Agreement.
(f) SEC Documents; No Non-Public Information; Financial Statements. The
Common Stock of the Company is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Company
is in compliance with and has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Securities and Exchange
Commission ("SEC") pursuant to the Exchange Act, in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
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therein being referred to herein as the "SEC Documents"). The Company has
delivered or made available to the Investors true and complete copies of all SEC
Documents (including, without limitation, proxy information and solicitation
materials and registration statements) filed with the SEC since December 31,
1997 and all annual SEC Documents filed with the SEC since December 31, 1996.
The Company has not provided to the Investors any material non-public
information or any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed. As of their respective dates, the SEC Documents complied (and
as of its effective date, the Registration Statement (as defined in the
Registration Rights Agreement) will comply) in all material respects with the
requirements of the Exchange Act (or, in the case of such Registration
Statement, the Securities Act of 1933, as amended (the "Act") and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained (and, as of its effective date, such Registration
Statement will not contain) any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The SEC Documents contain (and, as of its effective date,
such Registration Statement will contain) all material information concerning
the Company, and no event or circumstance has occurred which would require the
Company to disclose such event or circumstance in order to make the statements
in the SEC Documents not misleading on the date hereof or on the Closing Date
but which has not been so disclosed. The financial statements of the Company
included (or to be included) in the SEC Documents (or the Registration
Statement) comply (or will comply) as to form and substance in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been (or will be) prepared in accordance
with United States generally accepted accounting principles applied on
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present (or will fairly
present) in all material respects the financial position of the Company as of
the dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(g) Principal Exchange/Market. The principal market on which the Common
Stock is currently traded is the Nasdaq NMS.
(h) No Material Adverse Change. Since December 31, 1997, no Material
Adverse Effect has occurred or exists with respect to the Company or any of its
subsidiaries, and no event or circumstance has occurred that with notice or the
passage of time or both is reasonably likely to result in a Material Adverse
Effect with respect to the Company or any of its subsidiaries.
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(i) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the SEC Documents, other than
those liabilities incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since December 31, 1997, which liabilities,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its direct or indirect
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
(k) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf, has
engaged in or conducted any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) with respect to or in
connection with the offer or sale of the Debentures, the Warrants, the Common
Shares or the Warrant Shares.
(l) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor, to its knowledge, any person acting on its or their behalf,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the Debentures, the Warrants, the Common Shares or Warrant
Shares under the Act.
The issuance of the Debentures, Warrants, Common Shares or Warrant
Shares to the Investors will not be integrated with any other issuance of the
Company's securities which requires stockholder approval under the rules of the
Nasdaq NMS.
(m) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Act and the rules promulgated thereunder, and Form S-3 is permitted to be
used for the transactions contemplated hereby under the Act and the rules
promulgated thereunder.
(n) Intellectual Property. The Company (and/or its wholly-owned
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted or as proposed to be conducted as disclosed in the SEC Documents.
Neither the Company nor any of its subsidiaries has any reason to believe that
the intellectual property rights which it owns are invalid or unenforceable or
that the use of such intellectual property by the Company or its subsidiaries
infringes upon or conflicts with any right of any third party, and neither the
Company nor any of its subsidiaries has received notice of any such infringement
or conflict. Neither the Company nor any of its subsidiaries has knowledge of
any infringement of its intellectual property by any third party.
(o) No Litigation. Except as set forth in the SEC Documents, no
litigation, arbitration, proceeding or claim (including those for unpaid taxes)
against the Company or any of its subsidiaries is pending or, to the Company's
knowledge, threatened, and no other event has occurred, which if determined
adversely could singly or in the aggregate reasonably be expected to have a
Material Adverse Effect. The legal proceedings described in the SEC Documents,
if adversely determined, will not have a Material Adverse Effect.
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(p) Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or any Investor relating to this Agreement or the
transactions contemplated hereby, except that the Company may pay to JWGenesis
Securities ("JWG") an amount equal to two percent (2%) of the aggregate Purchase
Price and issue to JWG (or its designees) a warrant to purchase 250,000 shares
of Common Stock.
(q) Acknowledgement of Dilution. The number of shares of Common Stock
constituting Common Shares or Warrant Shares may increase substantially in
certain circumstances, including the circumstance where the trading price of the
Common Stock declines. The Company acknowledges that its obligation to issue
Common Shares upon conversion of the Debentures and Warrant Shares upon exercise
of the Warrants is absolute and unconditional, regardless of the dilution that
such issuance may have on other shareholders of the Company.
(r) Other Investors. Except as set forth on Schedule 2.1(r), there are
no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth in Schedule 2.1(r), there
are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, that have anti-dilution, preemptive or similar
rights that would be affecte or triggered by the issuance of the Debentures, the
Common Shares, the Warrant Shares or the Warrants.
(s) Certain Transactions. Except as disclosed in the SEC Documents,
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(t) Permits; Compliance. Each of the Company and each of its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"). There is no action or proceeding pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits, except with respect to such Company Permits the failure of which to
possess, or the cancellation or suspension of which, would not, individually or
in the aggregate, have a Material Adverse Effect. Neither the Company nor any of
its subsidiaries is in material conflict with, or in material default or
material violation of, any of the Company Permits. Since December 31, 1997,
neither the Company nor any of its subsidiaries has received any notification
with respect to possible material conflicts, material defaults or material
violations of applicable laws.
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(u) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its direct and indirect
subsidiaries are engaged. Neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(v) Internal Accounting Controls. Each of the Company and each of its
subsidiaries maintains 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 generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(w) Margin Accounts. At no time since December 31, 1997 has any
director or executive officer of the Company maintained more than 15% of such
individual's Common Stock in a margin account or placed more than 15% of such
individual's Common Stock in a situation which could have resulted in an
involuntary sale thereof.
(x) Environmental Matters. Except as otherwise disclosed in the SEC
Documents, each of the Company and each of its subsidiaries is in compliance in
all material respects with all applicable state and federal environmental laws,
and no event or condition has occurred that may interfere with the compliance by
the Company or any of its subsidiaries with any environmental law or that may
give rise to any liability under any environmental law that, individually or in
the aggregate, would have a Material Adverse Effect.
(y) Solvency.
(i) The Company's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including contingent liabilities) as
they mature.
(ii) The Company's assets do not constitute unreasonably small
capital to carry out its business as now conducted and as proposed to be
conducted including the Company's capital needs taking into account the
particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof.
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(iii) The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The cash flow
together with the proceeds received from the liquidation of the Company's
assets after taking into account all anticipated uses of the cash will at
all times be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid
(iv) The Company does not believe that final judgments against the
Company in pending actions for money damages will be rendered at a time
when, or in an amount such that, the Company will be unable to satisfy any
such judgments promptly in accordance with their terms The Company's cash
flow, after taking into account all other anticipated uses of the cash
(including the payments on or in respect of debt referred to in paragraph
(iii) above), will at all times be sufficient to pay all such judgments
promptly in accordance with their terms.
(v) Neither the Company nor any of its subsidiaries is subject to
any bankruptcy, insolvency or similar proceeding.
(z) Taxes. All federal, state, city and other tax returns, reports and
declarations required to be filed by or on behalf of the Company or any of its
subsidiaries have been filed and such returns are complete and accurate and
disclose all taxes (whether based upon income, operations, purchases, sales,
payroll, licenses, compensation, business, capital, properties or assets or
otherwise) required to be paid in the periods covered thereby (other than set
forth on Schedule 2.1(z)). Copies of all such returns have been provided to the
Investors. All taxes shown on such returns and any deficiency assessments,
penalties and interest have been paid. All taxes required to be withheld by or
on behalf of the Company in connection with amounts paid or owing to any
employees, independent contractor, creditor or other party have been withheld,
and such withheld taxes have either been duly and timely paid to the proper
governmental authorities or set aside and reserved in accounts for such
purposes.
(aa) Title to Properties; Encumbrances. Schedule 2.1(aa) contains a
complete and accurate list of all real property, leaseholds, or other interests
therein owned by the Company. The Company owns (with good and marketable title
in the case of real property) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that it purports to own.
All material properties and assets listed on Schedule 2.1(aa) are free and clear
of all encumbrances (other than as set forth on Schedule 2.1(aa)) and are not,
in the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature,
except with respect to all such properties and assets, (a) mortgages or security
interests shown on Schedule 2.1(aa) as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) liens for current
taxes not yet due, and (c) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value, or impairs the use, of the property subject
thereto, or impairs the operations the Company or any of its subsidiaries, and
(ii) zoning laws and other land use restrictions that do not impair the present
or anticipated use of the property subject thereto. All buildings, plans, and
structures owned by th Company or any of its subsidiaries lie wholly within the
boundaries of the real property owned by the Company or such subsidiaries, and
do not encroach upon the property of, or otherwise conflict with the property
rights of, any other person.
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(bb) No Violation of Creditor Covenants. No event of default has
occurred and is continuing (or event which with lapse of time or notice of both
would constitute such an event) under any of the revolving credit facilities or
other financing arrangements of the Company or any of its subsidiaries.
(cc) Effectiveness of SEC Filings. The SEC has not issued any stop
order or other order suspending the effectiveness of any registration involving
the Company or any of its subsidiaries.
Section 2.2 Representations and Warranties of the Investors. Each of
the Investors, severally (as to itself) and not jointly, hereby makes the
following representations and warranties to the Company as of the date hereof
and on the Closing Date:
(a) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement and to purchase the Debentures being sold
hereunder and to acquire the Warrants, (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by such Investor and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and (iii) this
Agreement constitutes, and upon execution, issuance and delivery thereof, the
Registration Rights Agreement and the Mortgage and Security Agreement will
constitute, valid and binding obligations of such Investor enforceable against
such Investor in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(b) No Conflicts. The execution, delivery and performance by such
Investor of this Agreement, the Mortgage and Security Agreement and the
Registration Rights Agreement, the performance by such Investor under the
Debentures and Warrants, and the consummation by such Investor of the
transactions contemplated hereby and thereby do not and will not (i) result in a
violation of such Investor's organizational documents, (ii) materially conflict
with any agreement, indenture or instrument to which such Investor is a party,
or (iii) result in a material violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Investor. Such Investor is not required to obtain any consent or authorization
of any governmental agency in order for it to perform its obligations under this
Agreement, the Registration Rights Agreement, the Mortgage and Security
Agreement, the Warrants or the Debentures.
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(c) Investment Representation. Such Investor is purchasing the
Debentures and the Warrants for its own account and not with a view to
distribution thereof in violation of any securities laws. Such Investor has no
present intention to sell the Debentures, Warrants, Common Shares or Warrant
Shares in violation of Federal or state securities laws and such Investor has no
present arrangement (whether or not legally binding) to sell the Debentures,
Warrants, Common Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, such Investor does
not agree to hold the Debentures, Warrants, Common Shares or Warrant Shares for
any minimum or other specific term and reserves the right to dispose of the
Debentures, Warrants, Common Shares or Warrant Shares at any time in accordance
with Federal and state securities laws applicable to such disposition.
(d) Accredited Investor. Such Investor is an "accredited investor" as
defined in Rule 501 of Regulation D promulgated under the Act. Such Investor has
such knowledge and experience in financial and business matters in general and
investments in particular that it is able to evaluate the merits and risks of an
investment in the Debentures and the Warrants and to protect its own interests
in connection with such investment. In addition (but without limiting the effect
of the Company's representations and warranties contained herein), such Investor
has received such information as it considers necessary or appropriate for
deciding whether to purchase the Debentures and the Warrants pursuant hereto.
(e) Rule 144. Such Investor understands that there is no public trading
market for the Debentures or the Warrants, that none is expected to develop, and
that the Debentures and the Warrants must be held indefinitely unless such
Debentures or Warrants are converted or exercised, as the case may be, and the
Common Shares or Warrant Shares, as the case may be, are registered under the
Act or an exemption from registration is available. Such Investor has been
advised or is aware of the provisions of Rule 144 promulgated under the Act.
(f) Brokers. Such Investor has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby.
(g) Not an Affiliate. Such Investor is not an officer, director or
"affiliate" (as that term in defined in Rule 405 of the Act) of the Company.
(h) Reliance by the Company. Such Investor understands that the
Debentures and Warrants are being offered and sold in reliance on a
transactional exemption from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Investor set forth herein in order to determine the applicability of
such exemptions and the suitability of such Investor to acquire the Debentures
and Warrants.
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ARTICLE III.
Covenants
Section 3.1 Registration and Listing; Effective Registration. Until
such time as no Debentures or Warrants are outstanding, the Company will cause
the Common Stock to continue at all times to be registered under Section 12(g)
of the Exchange Act, will comply in all material respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations. Until
such time as no Debentures or Warrants are outstanding, the Company shall
continue the listing or trading of the Common Stock on the Nasdaq NMS or one of
the other Approved Markets and shall comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the Nasdaq
NMS or such other Approved Market on which the Common Stock is listed and the
National Association of Securities Dealers ("NASD"). The Company shall cause the
Common Shares and the Warrant Shares to be listed on the Nasdaq NMS (or, if the
Common Stock is listed on another of the Approved Markets, on such other
Approved Market) no later than the registration of the Common Shares or the
Warrant Shares under the Act, and at all times shall continue such listing(s) on
one of the Approved Markets on which the Common Stock is listed. As used herein
and in the Registration Rights Agreement, the Debenture and the Warrants, the
term "Effective Registration" shall mean that (a) all registration obligations
of the Company pursuant to the Registration Rights Agreement and this Agreement
have been satisfied, (b) such registration is not subject to any suspension or
stop order, (c) the prospectus for each of the Common Shares issuable upon
conversion of the Debentures and the Warrant Shares issuable upon exercise of
the Warrants is current, (d) such Common Shares and Warrant Shares are listed
for trading on one of the Approved Markets and such trading has not bee
suspended for any reason, (e) none of the Company or any direct or indirect
subsidiary of the Company is subject to any bankruptcy, insolvency or similar
proceeding, and (f) no Interfering Event (as defined in Section 2(b) of the
Registration Rights Agreement) exists.
Section 3.2 Debentures on Conversion and Warrants on Exercise.
(a) Upon any conversion by an Investor (or then holder of Debentures)
of the Debentures pursuant to the terms thereof, the Company shall issue and
deliver to such Investor (or holder) within three (3) Trading Days of the Holder
Conversion Date (as defined in the Debenture) a new certificate or certificates
for the principal amount of Debentures which such Investor (or holder) has not
yet elected to convert but which are evidenced in part by the certificate(s)
submitted to the Company in connection with such conversion (with the principal
amount of and denomination of such new certificate(s) designated by such
Investor or holder).
(b) Upon any partial exercise by an Investor (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to such Investor
(or holder) within three (3) days of the date on which such Warrants are
exercised, a new Warrant or Warrants representing the number of adjusted Warrant
Shares, in accordance with the terms of Section 2 of the Warrants.
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Section 3.3 Replacement Debentures and Warrants.
(a) The certificate(s) representing the Debentures held by any Investor
(or then holder) may be exchanged by such Investor (or such holder) at any time
and from time to time for certificates with different denominations representing
an equal aggregate principal amount of Debentures, as requested by such Investor
(or such holder) upon surrendering the same. No service charge will be made for
such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of any Investor (or
then holder of the Warrants) at the office of the Company for other Warrants of
different denominations entitling such Investor (or the holder thereof) to
purchase in the aggregate the same number of Warrant Shares as are purchasable
under such Warrants. No service charge will be made for such transfer or
exchange.
Section 3.4 Expenses. The Company shall pay in immediately available
funds, at the Closing and promptly upon receipt of any further invoices relating
to same, all reasonable due diligence fees and expenses and attorneys' fees and
expenses of the Investors' Counsel, incurred by the Investors in connection with
the preparation, negotiation, execution and delivery of this Agreement, the
Registration Rights Agreement, the Mortgage and Security Agreement, the
Debentures, the Warrants and the related agreements and documents and the
transactions contemplated hereunder and thereunder (not to exceed $20,000 in the
aggregate). At Closing, the Company shall pay the amount due for such fees and
expenses (which may include fees and expenses estimated to be incurred for
completion of the transaction including post-closing matters). In the event such
amount is ultimately less than the actual fees and expenses, the Company shall
promptly pay such deficiency upon receipt of an invoice regarding same.
Section 3.5 Securities Compliance. The Company shall notify the SEC and
the Nasdaq NMS, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Debentures, the Registration Rights
Agreement and the Warrants, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation for the legal and valid issuance of the Debentures hereunder, the
Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
Section 3.6 Dividends or Distributions. So long as any Debentures or
Warrants remain outstanding, the Company agrees that it shall not (a) declare or
pay any dividends or make any distributions to any holder or holders of Common
Stock, or (b) purchase or otherwise acquire for value, directly or indirectly,
any Common Stock or other equity security of the Company.
Section 3.7 Notices. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
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Section 3.8 Use of Proceeds. The Company agrees that the proceeds
received by the Company from the sale of the Debentures hereunder shall be used
(i) to redeem a minimum of $3,500,000 principal amount of the Company's
outstanding 14% Convertible Notes due April 21, 2000 (the "Convertible Notes"),
(ii) to redeem all of the Company's outstanding Bridge Notes due June 22, 1999
(the "Bridge Notes"), (iii) to pay off the Company's Mortgage Note held by the
Internal Revenue Service, and (iv) for working capital purposes.
Section 3.9 Private Placement of Company Securities.
(a)(i) For so long as any Debentures are outstanding, the Company shall
not sell or offer to sell any securities other than pursuant to a registration
statement under the Act without (x) first providing to all Investors still
holding Debentures a written notice (a "First Offer Notice") stating the price
at which it would like to sell such securities, the maximum number of securities
it would like to sell and the other material terms of the proposed sale and (y)
otherwise complying with the provisions of this Section 3.9(a).
(ii) The First Offer Notice shall contain an offer to sell to such
Investors such securities at the same price and on substantially the same
terms as are contained in the First Offer Notice.
(iii) Each of the Investors receiving a First Offer Notice shall
have 10 business days to indicate in writing (a "Purchase Notice") to the
Company whether any of them wishes to accept such offer as to all or less
than all of such securities. In the event that the Investors indicate that
they wish to purchase a total amount of securities in excess of the amount
described in the First Offer Notice, the amount of securities that each
Investor may purchase shall be proportionately reduced according to their
holdings at such time of Debentures.
(iv) If any of the Investors sends a Purchase Notice to the Company,
the closing for the sale of the securities to be purchased pursuant to a
Purchase Notice shall occur at the offices of the Company within 30 days
of the date of the Purchase Notice. The purchase price to be paid at such
closing shall be made in immediately available funds (if the purchase
price is for cash), and such payment shall be made against delivery of the
securities. The Company and the Investor shall make such representations,
warranties and other agreements customary for similar transactions at the
Closing as each party shall reasonably request, that in no event shall be
more onerous than those proposed in the transaction described in the First
Offer Notice.
(v) If any or all of the Investors do not timely send the Company
one or more Purchase Notices, the Company shall have 60 days after the
expiration of the 10 day period described in Section 3.9(a)(iii) in which
to sell to third parties such securities, in amounts, at prices and on
terms not more favorable than were contained in the First Offer Notice.
Promptly after any such sale, the Company shall provide to the Investors
such evidence of such sale as the Investors shall reasonably request. If
at the end of such 60 day period the Company has not completed the sale of
such securities, it shall no longer be permitted to sell such securities
pursuant to this Section 3.9(a) without again fully complying with the
provisions of this Section 3.9(a).
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(b) If at any time within twelve (12) months from the Closing Date the
Company sells or issues Common Stock (or other equity securities or rights
exercisable or exchangeable for, or convertible into, Common Stock or such other
equity securities) in a private placement at a discount greater (or in the
Investor's judgment more favorable to the purchaser thereof) than the discount
specified in Section 5(c) of the Debentures or at a ceiling price less than the
Conversion Price (as defined in the Debentures and as adjusted pursuant to the
terms thereof), then the Debentures will automatically (at the Investor's
request) be adjusted to provide for such greater discount or lower or more
favorable Conversion Price, as applicable.
Section 3.10 Reservation of Stock Issuable Upon Conversion of
Debentures and Upon Exercise of the Warrants. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the Debentures and
the exercise of the Warrants, free of preemptive rights, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Debentures an the full exercise of the Warrants,
and, if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the then outstanding
Debentures and the full exercise of the Warrants, the Company will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including without limitation engaging in best efforts to obtain the
requisite shareholder approval. Without limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of the Debentures and the exercise of the Warrants such number of
authorized but unissued shares of Common Stock that is at least equal to the
lesser of (i) 200% of the aggregate shares issuable upon conversion of the
Debentures and 100% of the aggregate shares issuable upon exercise of the
Warrants, which number may be reduced by the number of Common Shares and Warrant
Shares actually delivered pursuant to conversion of the Debentures or exercise
of the Warrants and shall be appropriately adjusted for any stock split, reverse
split, stock dividend or reclassification of the Common Stock and (ii) 19.9%
multiplied by the number of shares of Common Stock that are outstanding from
time to time. If the Company falls below the reserves specified in the
immediately preceding sentence and does not cure such noncompliance within 30
days of its start, then the Investors will be entitled to the discount
adjustments specified in Section 2(b)(i) of the Registration Rights Agreement.
If at any time the number of authorized but unissued shares of Common Stock is
not sufficient to effect the conversion of all the then outstanding Debentures
or the full exercise of the Warrants, the Investors shall be entitled to, inter
alia, the premium price redemption rights provided in the Registration Rights
Agreement.
Section 3.11 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article IV of this Agreement.
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Section 3.12 Form D; Blue Sky Laws; No Integrated Offering. The Company
agrees to file a Form D with respect to the Debentures, Warrants, Common Shares
and Warrant Shares, as required under Regulation D, and to provide a copy
thereof to each Investor promptly after such filing. The Company shall, on or
before each Closing Date, take such action as the Company shall have reasonably
determined is necessary to qualify the Debentures, Warrants, Common Shares and
Warrant Shares for sale to the Investors at the applicable 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 Investor on or prior to the
Closing Date. The Company will not undertake any offering of securities that
would be integrated with the offering of the Debentures, Warrants, Common Shares
and Warrant Shares.
Section 3.13 No Senior Indebtedness; Limitation on Issuance of Equity.
(a) The Debentures will be senior in all respects to any other
indebtedness of the Company outstanding as of the Closing Date, except (i) the
Convertible Notes which rank pari passu with the Debentures and (ii)
indebtedness which is secured by accounts receivable and inventory, provided
that the amount of such indebtedness shall not exceed the value of the accounts
receivable and inventory securing such indebtedness. So long as any Debentures
remain outstanding, the Compan agrees that neither the Company nor any direct or
indirect subsidiary of the Company shall create, incur, assume, guarantee,
secure or in any manner become liable in respect of any indebtedness, unless
junior to the Debentures in all respects, or, so long as the outstanding
principal amount of the Debentures is $3 million or greater, permit any liens,
claims or encumbrances to exist against the Company or any direct or indirect
subsidiary of the Company or any of their assets, except for (i) trade payable
incurred in the ordinary course of business consistent with past practices, (ii)
indebtedness which may be secured by accounts receivable and/or inventory, or by
the assets of the Company or its subsidiaries other than the Collateral (as
defined in the Mortgage and Security Agreement); provided that the amount of any
such indebtedness may not exceed the value of the assets securing such
indebtedness, and (iii) the Convertible Notes. The mortgage and security
interest granted to Investors pursuant to the Mortgage and Security Agreement
shall be released at such time as the outstanding principal amount of the
Debentures is less than $3 million.
(b) Until the Registration Statement (as defined in the Registration
Rights Agreement) has been declared effective by the SEC and the Common Shares
are subject to Effective Registration, neither the Company nor any of its
subsidiaries will issue any equity securities or instruments or rights
convertible into or exchangeable or exercisable for any equity securities.
Section 3.14 Margin Accounts. The Company agrees that it will obtain
from the directors and executive officers of the Company written commitments
covering the period from the date of this Agreement until a date which is 180
days following the date on which all Common Shares and Warrant Shares become
subject to Effective Registration, to the effect that they will not margin more
than 15% of each such individual's Common Stock or place more than 15% of each
individual's Common Stock in a situation which could result in an involuntary
sale thereof.
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Section 3.15 Delisting; Best Efforts. If a conversion of a Debenture
for Common Shares by an Investor could result in the Company being delisted from
the Nasdaq NMS for issuing in excess of 20% of its outstanding Common Stock to
the Investors without the approval of the Company's shareholders, then the
Company must redeem any and all Debentures covered by the applicable Conversion
Notice (as defined in the Debentures) and any and all Debentures that would, if
a Conversion Notice for all Debentures were then delivered, result in the
Company being subject to such delisting, at a price equal to 125% of the
Outstanding Principal Amount (as defined in the Debentures) plus accrued but
unpaid interest and default payments in effect at that time.
Section 3.16 Registration Rights. The Company shall file and use its
best efforts to cause to become effective, as promptly as possible, a
registration statement on Form S-3 under the Act (or in the event that the
Company becomes ineligible to use such form, such other form as the Company is
eligible to use under the Act) covering the resale of the Common Shares and the
Warrant Shares issuable upon the conversion of the Debentures and the exercise
of the Warrants, respectively, and shall take all action necessary to qualify
the Common Shares and the Warrant Shares under all applicable state securities
laws, all in accordance with the Registration Rights Agreement to be entered
into by the Company and the Investors at the Closing.
Section 3.17 Legends. Upon effectiveness of the Registration Statement
(as defined in the Registration Rights Agreement), the Common Shares and the
Warrant Shares and certificates evidencing the same shall at all times be free
of legends (except as otherwise provided herein or in the Debentures, Warrants,
or Registration Rights Agreement), "stop transfers", "stock transfer
restrictions" or other restrictions.
Section 3.18 Withholding. It is the intent of the Company that the
Debentures be treated as "registered obligations" under Section 871(h)(2)(B) of
the Internal Revenue Code of 1986, as amended (the "Code") and that the interest
payments thereon be treated as "portfolio interest" within the meaning of
Section 871(h) of the Code. Assuming no changes in the current law applicable
hereto, so long as the Subscriber (or any transferee thereof who is a "Holder"
under the Debenture) complies with th requirements for exemption from taxation
under the Code (including any compliance with any documentation requirements
reasonably requested by the Company to establish and support such exemption) and
the interest on the Debentures is not determined to be other than "portfolio
interest", the Company agrees that it shall not withhold federal income taxes in
respect of interest payments on the Debentures.
Section 3.19 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence and solvency of the
Company.
Section 3.20 Redemption of Convertible Notes; Repayment of Bridge Loan;
Payment of IRS Note. As part of the Closing, a portion of the Purchase Price
shall be used (i) to redeem a minimum of $3,500,000 aggregate principal amount
of the Convertible Notes, (ii) to repay the outstanding Bridge Notes and (iii)
to satisfy the Company's Mortgage Note held by the Internal Revenue Service.
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Section 3.21 Short Sales of Common Stock by Investors. For so long as
an Investor holds any Warrants or Debentures, such Investor shall not engage in
any short selling of Common Stock except for such short sales transactions as
such Investor reasonably deems is appropriate to hedge the risks to Investor of
holding Warrants.
ARTICLE IV.
Conditions to Closings
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Debentures. The obligation hereunder of the Company to issue and/or
sell the Debentures to the Investors at the Closing (unless otherwise specified)
is subject to the satisfaction, at or before the Closing, of each of the
applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor will be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which will be true and correct in all material respects as of such date).
(b) Performance by the Investors. Each Investor shall have performed
all agreements and covenants and satisfied all conditions required to be
performed or satisfied by it at or prior to the 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
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Debentures or the
Warrants.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Debentures. The obligation hereunder of each Investor to acquire
and pay for the Debentures at the Closing (unless otherwise specified) is
subject to the satisfaction, at or before the Closing, of each of the applicable
conditions set forth below. These conditions are for each Investor's benefit and
may be waived by each Investor at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
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(b) Performance by the Company. The Company shall have performed all
agreements and covenants and satisfied all conditions required to be performed
or satisfied by the Company at or prior to the Closing.
(c) Nasdaq NMS. From the date hereof to the Closing Date, trading in
the Company's Common Stock shall not have been suspended by the SEC, the Nasdaq
NMS (or other Approved Market) or the NASD, and trading in securities generally
as reported by the Nasdaq NMS (or other Approved Market) shall not have been
suspended or limited or minimum prices shall not have been established on
securities whose trades are reported by the Nasdaq NMS, and the Common Stock
shall not have been delisted from the Nasdaq NMS (or any other Approved Market
where they are currently listed), and the Company shall not have received any
notice (written or oral) from the Nasdaq NMS (or any other Approved Market where
they are currently listed) indicating that delisting of the Common Stock is
under consideration.
(d) No Injunction. No statute, rule, regulation, executive, judicial or
administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement, the Registration Rights Agreement
or the Mortgage and Security Agreement or the Debentures or the Warrants.
(e) Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of counsel to the Company addressing such matters as the
Investors may reasonably request and such other opinions, certificates and
documents as the Investors or their counsel shall reasonably require incident to
the Closing.
(f) Registration Rights Agreement. The Company and the Investors shall
have executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.
(g) Mortgage and Security Agreement. AIRI and the Investors shall have
executed and delivered the Mortgage and Security Agreement, which shall be
satisfactory in form and substance to the Investors, and any related UCC
financing statements.
(h) Adverse Changes. Since December 31, 1997, no event shall have
occurred which had or is likely to have, in the reasonable judgment of the
Investors, a Material Adverse Effect.
(i) Officer's Certificate. The Company shall have delivered to the
Investors a certificate in form and substance satisfactory to the Investors and
the Investors' Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Charter, By-Laws, good standing of and
authorizing resolutions of the Company.
(j) Debentures and Warrants. The Investors shall have received
certificates representing the Debentures and the Warrants in the form and
substance of Exhibit 1.1A and Exhibit 1.1B hereto.
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(k) Due Diligence. Each Investor shall have completed its financial,
accounting, operational and legal due diligence in a manner satisfactory to such
Investor in its sole discretion.
(l) Consents. The Company shall have received and delivered to the
Investors (i) the consent of all applicable lenders to the issuance of the
Debentures, including, without limitation, the consent of the holders of the
Convertible Notes, and (ii) the waiver of any and all pending events of default
(or pending events which with the lapse of time or notice or both would
constitute an event of default) thereunder.
(m) Satisfaction of Indebtedness; Evidence of Same. (i) As part of the
Closing, a portion of the Purchase Price shall be used (1) to redeem a minimum
of $3,500,000 aggregate principal amount of the Convertible Notes, (2) to repay
the outstanding Bridge Notes and (3) to satisfy the Company's Mortgage Note held
by the Internal Revenue Service.
(ii) The Company shall have delivered to the Investors documentation
satisfactory to the Investors that: (1) the Bridge Notes will be paid in
full immediately following the Closing and (2) $3,500,000 principal amount
of the Convertible Notes will be redeemed immediately following the
Closing.
(n) Title Policy. First American Title Insurance Company shall have
issued a lender's title insurance policy on a 1992 ALTA form, dated the Closing
Date, insuring Investors have a first priority mortgage on the real property
described on Exhibit A to the Mortgage and Security Agreement.
ARTICLE V.
Legend and Stock
The Company will issue one or more certificates representing the
Debentures and the Warrants in the name of the applicable Investor and in such
denominations to be specified by such Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Debentures and the
Warrants and any shares of Common Stock issued upon conversion or exercise
thereof initially shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
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The Company agrees to reissue the Debentures and the Warrants without
the legend set forth above at such time as (i) the holder thereof is permitted
to dispose of such Debentures and/or Warrants and Common Stock issuable upon
conversion or exercise thereof pursuant to Rule 144(k) under the Act, or (ii)
such Debentures and/or Warrants are sold to a purchaser or purchasers who (in
the opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to the Company and its counsel) are able to dispose of
such shares publicly without registration under the Act.
Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant to
conversion of the Debentures or Warrant Shares issued upon exercise of the
Warrants shall bear a legend in the same form as the legend indicated above.
Upon such Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) business days thereafter, issue new
certificates representing such Common Shares and Warrant Shares without such
legend. Any Common Shares issued pursuant to conversion of the Debentures or
Warrant Shares issued upon exercise of the Warrants after the Registration
Statement has become effective shall be free and clear of any legends, transfer
restrictions and stop orders. Notwithstanding the removal of such legend, each
Investor agrees to sell the Common Shares and Warrant Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to such Investor by
the Company) or in accordance with an exception from the registration
requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE VI.
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the unanimous written consent of
the Company and each of the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors of the Company or by any of the Investors at
any time if the Closing shall not have been consummated by the tenth business
day following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to sue for any
breach by the other party (or parties).
ARTICLE VII.
Miscellaneous
Section 7.1 Stamp Taxes. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Debentures and
the Warrants pursuant hereto, the Common Shares issued upon conversion of the
Debentures and the Warrant Shares issued upon exercise of the Warrants.
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Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The Company and each of the Investors (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court, the
New York State Courts and other courts of the United States sitting in New York
County, New York for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement and (ii) hereby waives, and agrees not to
assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. To the extent permitted by applicable law, the
Company and each of the investors consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process an notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by applicable law.
(c) The Company and each of the Investors hereby waives all rights to a
trial by jury.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with
the Registration Rights Agreement, the Mortgage and Security Agreement, the
Warrants, the Debentures and the agreements and documents executed in connection
herewith and therewith, contains the entire understanding of the parties with
respect to the matters covered hereby and thereby and, except as specifically
set forth herein or therein, neither the Company nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
American International Petroleum Corp.
444 Madison Avenue
New York, New York 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
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with copies to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Charles Snow, Esq.
Facsimile: (212) 949-7052
to the Investors:
To each Investor at the address and/or fax number
set forth on Schedule I of this Agreement.
with copies to:
Arnold & Porter
555 Twelfth Street, NW
Washington, D.C. 20004
Attention: L. Stevenson Parker, Esq.
Facsimile: (202) 942-5999
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees but
excluding consequential damages) incurred as a result of such parties' breach of
any representation, warranty, covenant or agreement in this Agreement.
Section 7.6 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.7 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
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Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion), except that the Company may assign this
Agreement in connection with the sale of all or substantially all of its assets
provided that the Company is not released from any of its obligations hereunder,
such assignee assumes all obligations of the Company hereunder, and appropriate
adjustment of the provisions contained in this Agreement, the Registration
Rights Agreement, the Mortgage and Security Agreement, the Debentures and the
Warrants is made, in form and substance satisfactory to the Investors, to place
the Investors in the same position as they would have been but for such
assignment, in accordance with the terms of the Debentures and the Warrants. Any
Investor may assign this Agreement (in whole or in part) or any rights or
obligations hereunder without the consent of the Company in connection with any
sale or transfer of all or any portion of the Debentures or Warrants held by
such Investor, provided that such Investor may not assign this Agreement prior
to the Closing Date withou the Company's prior written consent except to an
affiliate or affiliates of such Investor.
Section 7.9 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to Agreements executed and to be performed entirely within such
State.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the Closing so long as any of the Debentures and Warrants remain
outstanding. If 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 no such severability shall be effective if it were to materially
change the economic benefit of this Agreement to any party.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement. The
Company agrees that it will deliver a copy of any public announcement regarding
the matters covered by this Agreement, the Registration Rights Agreement, the
Mortgage and Security Agreement, the Debentures or the Warrants or any agreement
and document executed herewith and therewith to each Investor and any public
announcement including the name of an Investor to such Investor, reasonably in
advance of the release of such announcements.
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Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warranties, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 Like Treatment of Holders; Redemption. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of the Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or the Warrants, for or as
an inducement to, or in connection with the solicitation of, any consent, waiver
or amendment of any terms or provisions of the Debentures, this Agreement, the
Registration Rights Agreement, the Mortgage and Security Agreement or the
Warrants, unless such consideration is required to be paid to all holders of
Debentures and Warrants bound by such consent, waiver or amendment whether or
not such holders so consent, waive or agree to amend and whether or not such
holders tender their Debentures or Warrants for redemption, conversion or
exercise. The Company shall not, directly or indirectly, redeem any portion of
the Debentures unless such offer of redemption is made pro rata to all holders
of Debentures on identical terms.
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Section 7.16
No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN INTERNATIONAL PETROLEUM CORP.
By: _____________________________________
Name: __________________________
Title:__________________________
INVESTOR:
HALIFAX FUND, L.P.
By: The Palladin Group
Attorney-in-Fact and Investment
Advisor
By: ____________________________
Jeffrey E. Devers
[Signature page to American International Petroleum Corp. Convertible
Debenture Purchase Agreement]
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
No. 1 $10,000,000
AMERICAN INTERNATIONAL PETROLEUM CORP.
5% CONVERTIBLE SECURED DEBENTURE DUE FEBRUARY 18, 2004
THIS DEBENTURE ("Debenture") is one of a duly authorized issue of
Debentures of AMERICAN INTERNATIONAL PETROLEUM CORP., a corporation duly
organized and existing under the laws of the State of Nevada (the "Company"),
designated as the Company's 5% Convertible Secured Debentures Due February 18,
2004, in an aggregate principal amount not exceeding TEN MILLION U.S. DOLLARS
(U.S.$10,000,000) (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to HALIFAX FUND, L.P.,
a Cayman Islands limited partnership, the initial holder hereof, or its order
(including successors-in-interest, the "Holder"), the principal sum of TEN
MILLION U.S. DOLLARS (U.S.$10,000,000) on February 18, 2004 (the "Maturity
Date") and to pay interest on the principal sum outstanding under this Debenture
("Outstanding Principal Amount"), at the rate of 5% per annum due and payable
each March 31, June 30, September 30 and December 31 (each an "Interest Payment
Date") commencing March 31, 1999, or, at the option of the Company, at the
Maturity Date. Interest shall accrue and compound daily commencing on the date
hereof and shall continue until payment in full of all amounts due under this
Debenture. The interest so payable will be paid to the person in whose name this
Debenture is registered on the records of the Company regarding registration and
transfers of the Debenture (the "Debenture Register"). Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Convertible Debenture Purchase Agreement dated as of February 11, 1999 between
the Company and the Holder and the other parties thereto (the "Purchase
Agreement") or the Registration Rights Agreement dated as of February 18, 1999
between the Company and the Holder and the other parties thereto (the
"Registration Rights Agreement").
The principal of, interest on, and default payments (referred to below)
in respect of this Debenture are payable in such coin or currency of the United
States that as of the time of payment is legal tender for payment of public and
private debts at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder hereof from time to time. Any
interest when added to the Outstanding Principal Amount due under this Debenture
shall, for all purposes of this Debenture, be deemed to have been part
<PAGE>
of the principal indebtedness originally evidenced by this Debenture including,
without limitation, for purposes of determining amounts convertible into Common
Shares hereunder.
The Company will pay any principal due and all accrued and unpaid
interest due upon this Debenture to the person that is the Holder of this
Debenture on the records of the Company as of the Maturity Date and addressed to
such Holder at the last address appearing on the Debenture Register.
The Outstanding Principal Amount and interest due hereunder shall bear
interest, from and after the 31st day following the occurrence and during the
continuance of an Event of Default hereunder, at the rate equal to the lower of
the Citibank Prime Rate per annum plus 8% or the highest rate permitted by law.
Additional cash payments (referred to as "default payments") may be
required pursuant to the Registration Rights Agreement if there occurs an
"Interfering Event" (as defined therein). Such default payments, if not paid in
cash when due, may be treated by the Holder in its sole discretion as being
added to the Outstanding Principal Amount due under this Debenture.
Subject to applicable law, any interest otherwise payable that is not
paid because it would exceed the highest rate permitted by law shall become
payable whenever the payment thereof, together with other interest due would not
exceed such highest legal rate.
The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Purchase Agreement and Registration Rights Agreement, including
without limitation provisions requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.
The payment of this Debenture is secured by a pledge by the Company's
wholly owned subsidiary, American International Refinery, Inc. ("AIRI") to
Holder of certain collateral pursuant to the Mortgage and Security Agreement by
and between AIRI and Holder dated even date herewith (the "Mortgage and Security
Agreement"). The Company agrees to cause AIRI to perform all obligations under
the Mortgage and Security Agreement strictly in accordance with their terms. Any
default or event of default under the Mortgage and Security Agreement
constitutes a default under this Debenture. The mortgage and security interest
granted to Holder pursuant to the Mortgage and Security Agreement shall be
released as at such time as the Outstanding Principal Amount of this Debenture
is less than $3,000,000.
The Debentures shall rank senior in right to payment to (i) all classes
of equity
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securities of the Company and (ii) any debt securities issued by, or
other indebtedness of, the Company or any of its subsidiaries, other than (x)
the Company's 14% Convertible Notes due April 21, 2000, which rank pari passu
with the Debentures and (y) indebtedness which is secured by accounts receivable
and/or inventory, or by the assets of the Company or its subsidiaries other than
the Collateral (as defined in th Mortgage and Security Agreement); provided that
the amount of any such indebtedness may not exceed the value of the assets
security such indebtedness.
This Debenture is subject to the following additional provisions:
1. Denomination. Subject to applicable law, the Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. Transfers. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Act"), and applicable state securities laws, or applicable exemptions
therefrom. Prior to due presentment for transfer of this Debenture, the Company
may treat the person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided, whether or not this Debenture is overdue.
3. Definitions. For purposes hereof the following definitions shall
apply:
"Change in Control Transaction" shall mean (x) any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation) or any other
corporate reorganization or transaction or series of related transactions
pursuant to which in excess of 50% of the Company's voting securities
outstanding immediately prior thereto is transferred through a merger,
consolidation, tender offer or similar transaction or otherwise, or (y) any
person or group of persons (as defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), together with
its affiliates and associates (as such terms are defined in Rule 405 under the
Act), becoming the beneficial owner (as described in Rule 13d-3 under the
Exchange Act), directly or indirectly, or being deemed to have become the
beneficial owner, of in excess of 50% of the Company's then outstanding voting
securities.
"Closing Date" shall mean February 18, 1999.
"Closing Price" shall mean $1.0305.
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"Common Stock" shall mean the common stock, par value $.08 per
share, of the Company.
"Conversion Notice" shall have the meaning set forth in Paragraph
5(d).
"Conversion Price" shall have the meaning set forth in Paragraph
5(c).
"Conversion Rate" shall have the meaning set forth in Paragraph
5(b).
"Holder Conversion Date" shall have the meaning set forth in
Paragraph 5(d).
"Market Price for Shares of Common Stock" shall mean the price of
one share of Common Stock determined as follows:
(i) If the Common Stock is listed on Nasdaq NMS, the closing bid
price on the date of valuation;
(ii) If the Common Stock is listed on the New York Stock Exchange or
the American Stock Exchange, the closing bid price on such exchange
on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock is quoted
in the over-the-counter market, another recognized exchange, on the
pink sheets or bulletin board, the lesser of (A) the lowest sales
price on the date of valuation or (B) the mean between the last
reported "bid" and "asked" prices thereof on the date of valuation;
and
(iv) If neither clause (i), (ii) or (iii) above applies, the market
value as determined by a nationally recognized investment banking
firm or other nationally recognized financial advisor retained by
the Company for such purpose, taking into consideration, among other
factors, the earnings history, book value and prospects for the
Company, and the prices at which shares of Common Stock recently
have been traded. Such determination shall be conclusive and binding
on all persons.
"Trading Day" shall mean a day on which the Common Stock is traded
on the NASDAQ or principal exchange on which the Common Stock has been listed
(or any similar organization or agency succeeding such market or exchange's
functions of reporting prices).
4. Change in Control, Etc. If at any time there occurs any Change in
Control Transaction, Holder shall be entitled to have the Company redeem this
Debenture in whole or in part at a redemption price equal to 130% of the
Outstanding Principal Amount of this Debenture plus all accrued but unpaid
interest and penalties on this Debenture. Such Holder
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shall be entitled to make such election at any time after commencement of the
Change in Control Transaction and up to 10 days after the effective date of the
Change in Control Transaction. For purposes of this Paragraph 4, the
commencement date shall be the day upon which the Change in Control Transaction
was publicly announced.
5. Conversion at the Option of the Holder. The Holder of this Debenture
shall have the following conversion rights.
(a) Holder's Right to Convert. This Debenture shall be convertible in
full at any time on or after the 181st day after the Closing Date, in whole or
in part, at the option of the Holder hereof, into fully paid, validly issued and
nonassessable shares of Common Stock; provided, however, if the Market Price for
Shares of Common Stock is 150% or more of the Closing Price for five consecutive
Trading Days prior to the 181st day following the Closing Date, this Debenture
shall be convertible at the option of the Holder hereof into fully paid, validly
issued and nonassessable shares of Common Stock, provided, however, that, in
such instance, Holder shall not convert and sell a number of shares of Common
Stock on any one day prior to the 181st day following the Closing Date that is
greater than ten percent (10%) of the daily volume of sales of Common Stock as
reported by Bloomberg on that date. If this Debenture is converted in part, the
remaining portion of this Debenture not so converted shall remain entitled to
the conversion rights provided herein.
(b) Conversion Rate for Holder Converted Shares. The Outstanding
Principal Amount of this Debenture that is converted into shares of Common Stock
at the option of the Holder shall be convertible into the number of shares of
Common Stock which results from application of the following formula:
P + I + D
------------------------------
Conversion Price
P = Outstanding Principal Amount of this Debenture
submitted for conversion
I = accrued but unpaid interest (not previously added
to principal) on P as of the Holder Conversion Date
D = default payments (not previously added to principal)
as of the Holder Conversion Date
The number of shares of Common Stock into which each $1,000
principal amount of this Debenture hereto may be converted pursuant to this
paragraph hereof is hereafter referred to as the "Conversion Rate."
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(c) Conversion Price. Subject to adjustment as provided herein, this
Debenture will have a conversion price (the "Conversion Price") equal to the
lesser of (i) $1.288 or (ii) 85% of the average of the lowest three daily
weighted average sales prices, as reported by Bloomberg, for the 20 Trading Days
prior to the Holder Conversion Date.
(d) Mechanics of Conversion. In order to convert this Debenture (in
whole or in part) into full shares of Common Stock, the Holder shall surrender
this Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company, and shall give written notice in the form
of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with the original of
such notice forwarded with the foregoing courier) to the Company at such office
that the Holder elects t convert the principal amount (plus accrued but unpaid
interest and default payments) specified therein, which such notice and election
shall be revocable by the Holder at any time prior to its receipt of the Common
Stock upon conversion; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of the Common Stock
issuable upon such conversion unless either the Debenture evidencing the
principal amount is delivered to the Company as provided above, or the Holde
notifies the Company that such Debenture(s) has been lost, stolen or destroyed
and promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such lost,
stolen or destroyed Debenture(s).
Within three (3) Trading Days ("T+3") after delivery to the Company of
such Conversion Notice, the Company shall issue and deliver to such Holder of
Debenture(s) at the address of the Holder, or to its designee, a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid, together with a calculation of the Conversion Rate and
a Debenture or Debentures for the principal amount of Debentures not submitted
for conversion. The date on which the Conversion Notice is given (the "Holder
Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice duly executed by the Holder, and the Holder
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at the close of business on the Holder Conversion Date.
In lieu of delivering physical certificates representing the Common
Shares issuable upon conversion of Debentures or the Warrant Shares (as defined
in the Purchase Agreement) deliverable upon exercise of Warrants (as defined in
the Purchase Agreement), provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the Holder, the Company shall use its best
efforts to cause its transfer agent to electronically transmit the Common Shares
and Warrant Shares issuable upon conversion or exercise of Debentures or
Warrants to the Holder, by crediting the account of Holder's prime broker with
DTC through
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its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic transmittals
through the DWAC system. The parties agree to coordinate with DTC to accomplish
this objective. The conversions pursuant to Sections 5 and 6 shall be deemed to
have been made immediately prior to the close of business on the Holder
Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Shares at the close of business on the Holder
Conversion Date.
6. Redemption at the Option of the Company.
Commencing on the 181st day after the Closing Date, the Company shall
have the option, on 10 days' prior written notice to the holders of the
Debentures ("Redemption Notice"), to redeem up to 50% of the original
Outstanding Principal Amount of the Debentures during any 90 day period, at the
"Redemption Price" (as defined in Section 6(b)); provided, however, that, for
the 90 days prior to the Redemption Notice, there has been (i) Effective
Registration and (ii) no Event of Default.
The "Redemption Price" shall be equal to the greater of (i) the sum of
(A) 115% of the Outstanding Principal Amount plus (B) accrued but unpaid
interest and default payments; or (ii) the product of (I) the Conversion Rate
and (II) the Market Price for Shares of Common Stock on the date on which a
holder notifies the Company that the redemption shall be deemed effective during
the period beginning on the date of the Redemption Notice and ending on the date
which is the first Trading Day following ten (10) days after the date of the
Redemption Notice (the "Redemption Date") (provided, that if a holder does not
provide notice to the Company specifying a Redemption Date, the first Trading
Day following ten (10) days after the date of the Redemption Notice shall be the
Redemption Date).
Any Redemption Notice must be given by facsimile or by overnight
courier to the holders of the Debentures. The Redemption Notice shall be
addressed to each such holder at the facsimile number or address of such holder
appearing on the books of the Company or given by such holder to the Company for
the purpose of notice. The Redemption Notice shall state the amount of cash that
the Company will deliver to the holders (or, in the event the Company will
redeem the entire Outstanding Principal Amoun of Debentures, that the Company
will deliver the full Redemption Price to the holders) to redeem Debentures (the
"Redemption Amount"). Each holder of Debentures that receives a Redemption
Notice shall surrender its Debenture to the Company at the place designated in
such notice, or to such holder's agent, and shall thereupon be entitled to
receive payment of the such holder's pro rata share of the Redemption Amount. If
less than all of the Outstanding Principal Amount of Debentures is to be
redeemed for any reason, then the Company shall offer to deliver a pro rata
portion of the Redemption Amount to each holder of Debentures according to the
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respective Outstanding Principal Amount of Debentures held by such holder.
The Company shall issue an amount equal to a holder's pro rata portion
of the Redemption Amount to any holder whose Debentures are redeemed, by wire
transfer or in cash by overnight courier within three (3) business days of
receipt by the Company or the holder's agent of Debentures tendered for
redemption, with delivery of certificates to be made by the holder's agent
against delivery of the holder's pro rata portion of the Redemption Amount.
Unless default shall be made by the Company in duly paying the
Redemption Amount (which default shall be deemed a breach of the terms of this
Debenture by the Company), in which case all the rights of the holders of such
Debentures shall continue, the holders of the Debentures sent to the Company by
the holder for redemption shall, from and after the date of the Redemption
Notice, cease to have any rights relating to such Debentures, except (i) the
right to receive a holder's pro rata portion of the Redemption Amount and (ii)
if less than all of the Outstanding Principal Amount of the Debentures
surrendered by the holder for redemption are actually redeemed, the right to
receive forthwith from the Company a new Debenture for the Unredeemed Principal
Amount (as defined below), and the redeemed Debenture shall not thereafter be
transferred on the books of the Company and shall not be deemed outstanding for
any purpose whatsoever. The "Unredeemed Principal Amount" shall equal (i) the
Outstanding Principal Amount prior to redemption, multiplied by (ii) the
quotient of (x) the Redemption Amount, divided by (y) the Redemption Price.
There shall be no redemption of any Debentures of the Company where
such action would be in violation of applicable law.
7. Stock Splits; Dividends; Adjustments; Reorganizations.
(a) If the Company, at any time while the Debentures are outstanding,
(i) shall pay a stock dividend or otherwise make a distribution or distributions
on any equity securities (including investments or securities convertible into
or exchangeable for such equity securities) in shares of Common Stock, (ii)
issue any securities payable in shares of Common Stock, (iii) subdivide
outstanding Common Shares into a larger number of shares or (iv) combine
outstanding Common Stock into a smaller number of shares, then the Conversion
Price shall be multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Paragraph 7(a) shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination.
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(b) Notwithstanding anything else herein to the contrary, if at any
time within twelve (12) months after the Closing Date the Company issues or
sells any Common Stock (or other equity securities or rights exercisable or
exchangeable for, or convertible into, its Common Stock or such other equity
securities) in a private placement at a discount greater (or in the Holder's
judgment more favorable to the purchaser thereof) than the discount specified in
Paragraph 5(c) hereof or at a ceiling price less than the Conversion Price, the
Conversion Price shall be reduced effective concurrently with such issue or sale
to provide the Holder such greater discount or lower Conversion Price.
For the purposes of the foregoing adjustment, in the case
of the issuance of any convertible or exchangeable securities, warrants, options
or other rights to subscribe for or to purchase or exchange for, shares of
Common Stock ("Exchangeable Securities"), the maximum number of shares of Common
Stock issuable upon exercise, conversion or exchange of such Exchangeable
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon exercise,
exchange or conversion of such Exchangeable Securities.
In the event of any such issuance for a consideration that
provides a discount greater than the discount specified in Paragraph 5(c) hereof
and that also is at a ceiling price less than the Conversion Price then in
effect, then there shall be only one such adjustment by reason of such issuance,
such adjustment to be that which results in the greatest reduction of the
Purchase Price computed as aforesaid.
(c) If the Company, at any time while the Debentures are outstanding,
shall distribute to all holders of Common Shares evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security
(excluding those referred to in Paragraph 7(b) above), then in each such case
the Conversion Price at which the Debenture shall thereafter be convertible
shall be adjusted by multiplying the Conversion Price in effect immediately
prior to the record date fixed for determination of shareholders entitled to
receive such distribution by a fraction, the numerator of which shall be such
Market Price for Shares of Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding Common Stock as
determined by the Board of Directors in good faith and the denominator of which
shall be the Market Price for Shares of Common Stock determined as of such
record date; provided, however that in the event of a distribution exceeding 25%
of the net assets of the Company, such fair market value shall be determined by
a nationally recognized or major regional investment banking firm or firm of
independent chartered accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Board of Directors and Holders of a
majority in interest of the Debentures. In either case the adjustments shall be
described in a statement to be provided to all holders of Debentures
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<PAGE>
regarding the portion of assets or evidences of indebtedness so distributed.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned in this
subparagraph.
(d) (1) In the event that at any time or from time to time after the
Closing Date, the Common Stock issuable upon the conversion of the Debentures is
changed into the same or a different number of shares of any class or classes of
stock, whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Paragraph 7), then, as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the Holders of Debentures so that each Holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of stock
receivable upon such recapitalization, reclassification or other change by
holders of shares of Common Stock, all subject to further adjustment as provided
herein. In such event, the formulae set forth herein for conversion and
redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Conversion Price) issued in connection with the above described
transaction.
(2) If at any time or from time to time after the Closing Date
there is a capital reorganization of the Common Stock, including by way of a
sale of all or substantially all of the assets of the Company (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Paragraph 7), then, as a part of and a
condition to such reorganization, provision shall be made in a manner reasonably
acceptable to the Holders of the Debentures so that the Holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Paragraph 7 with respect to the rights of the Holders of the Debentures
after the reorganization to the end that the provisions of this Paragraph 7
shall be applicable after that event and be as nearly equivalent as may be
practicable, including, by way of illustration and not limitation, by equitably
adjusting the formulae set forth herein for conversion and redemption to reflect
the market price of the securities or property (applying the same factors used
in determining the Market Price for Shares of Common Stock) issued in connection
with the above described transaction.
(e) Whenever the Conversion Price is adjusted pursuant to Section
7(a), (b), (c) or (d), the Company shall promptly mail to each Holder of the
Debentures, a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
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<PAGE>
(f) In the event of any taking by the Company of a record date of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
security or right convertible or exchangeable into or entitling the holder
thereof to receive additional Common Shares, 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 for any other purpose,
the Company shall deliver to each Holder of Debentures at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution, security,
right or purpose and the amount and character of such dividend, distribution,
security, right or purpose.
8. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up to the nearest whole share.
9. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of the Debenture as herein
provided, free from preemptive rights or any other present or contingent
purchase rights of persons other than the Holders of the Debentures, a
sufficient number of Common Shares as shall be issuable (taking into account the
adjustments and restrictions of Paragraphs 5 and 7 hereof) upon the conversion
of all of the Debentures pursuant hereto. The Company covenants that all Common
Shares that shall be so issuable upon the conversion of all of the Debentures
pursuant hereto shall, upon issue, be duly and validly authorized and issued and
fully paid and nonassessable. So long as any Debentures remain outstanding the
Company agrees to reserve and at all times keep available solely for purposes of
conversion of Debentures such number of authorized but unissue shares of Common
Stock that is set forth in the Purchase Agreement, which shall be at least that
number of authorized but unissued shares of Common Stock sufficient to effect
the conversion of all outstanding Debentures.
(b) Deficiency. If the Company does not have a sufficient number of
shares of Common Stock available to satisfy the Company's obligations to a
Holder of Debentures upon receipt of a Conversion Notice or is otherwise unable
to issue such shares of Common Stock in accordance with the terms of this
Agreement, then such Holder shall be entitled to the rights and remedies set
forth in the Registration Rights Agreement.
10. No Reissuance of the Debenture. No Debentures acquired by the
Company by reason of redemption, purchase, exchange or otherwise shall be
reissued, and all such
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Debentures shall be retired.
11. No Impairment. The Company shall not intentionally take any
action which would impair the rights and privileges of the Debentures set forth
herein or the Holders thereof.
12. Limitations on Holder's Right to Convert.
(a) Notwithstanding anything to the contrary contained herein, no
Debenture may be converted, to the extent that, after giving effect to the
conversion and issuing the Common Shares to be issued pursuant to the applicable
Conversion Notice, the total number of shares of Common Stock deemed
beneficially owned by such Holder (other than by virtue of the ownership of
Debentures or ownership of other securities that have limitations on a Holder's
rights to exchange, convert or exercise similar to those limitations set forth
herein), together with all shares of Common Stock deemed beneficially owned by
such Holder's "affiliates" (as defined in Rule 405 of the Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended, exists, would exceed 4.9% (the
"Restricted Ownership Percentage") of the total issued and outstanding shares of
the Company's Common Stock; provided that (w) each Holder shall have the right
at any time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company, (x) each Holder shall have the right at
any time and from time to time, to increase its Restricted Ownership Percentage
and otherwise waive in whole or in part the restrictions of this Paragraph 12(a)
upon 61 days' prior notice to the Company or immediately in the event of the
announcement of a pending or proposed Change in Control Transaction, (y) each
Holder may make any number o subsequent adjustments pursuant to clauses (w) or
(x) of this Paragraph 12(a) from time to time (which adjustment shall be
effective immediately if it results in a decrease in the percentage or shall be
effective upon 61 days' prior written notice or immediately in the event of the
announcement of a pending or proposed Change in Control Transaction if it
results in an increase in the percentage) and (z) each Holder may eliminate or
reinstate this limitation at any time and from time to time (which elimination
will be effective upon 61 days' prior notice and which reinstatement will be
effective immediately). Without limiting the foregoing, in the event of the
announcement of a pending or proposed Change in Control Transaction, any Holder
may reinstate immediately (in whole or in part) the requirement that any
increase in its Restricted Ownership Percentage be subject to 61 days' prior
written notice, notwithstanding such Change in Control Transaction, without
imposing such requirement on, or otherwise changing such Holder's rights with
respect to, any other Change in Control Transaction. For this purpose, any
material modification of the terms of a Change in Control Transaction will be
deemed to result in a new Change in Control Transaction. The term "deemed
beneficially owned" as used in this Debenture shall exclude shares that might
otherwise be deemed beneficially owned by reason of the convertibility of the
Debentures.
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The Company shall provide all Holders with the earlier of (i) 20
days' prior written notice of any such Change in Control Transaction, to the
extent the Company has prior knowledge of a Change in Control Transaction; or
(ii) notice on the day immediately following the Company's learning of any such
transaction, but only after, in the case of (i) and (ii), such Change in Control
Transaction has been publicly disclosed.
(b) Under certain circumstances specified in Section 3.15 of the
Purchase Agreement, certain Debentures that are the subject of a Conversion
Notice must be converted for cash.
13. Obligations Absolute. No provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest and default payments on,
this Debenture at the time, place and rate, and in the manner, herein
prescribed.
14. Waivers of Demand, Etc. The Company hereby expressly and
irrevocably waives demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of acceleration or intent
to accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder, and will be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
15. Replacement Debenture. In the event that any Holder notifies
the Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original Debenture(s)
(except for registration number and Outstanding Principal Amount, if different
than that shown on the original Debenture(s)), shall be issued to the Holder,
provided that the Holder executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such Debenture.
16. Payment of Expenses; Issue Taxes. The Company agrees to pay all
debts and expenses, including reasonable attorneys' fees, which may be incurred
by the Holder in enforcing the provisions of this Debenture and/or collecting
any amount due under this Debenture, the Purchase Agreement, any Warrant or the
Registration Rights Agreement. The Company shall pay any and all issue and other
taxes (excluding any income, franchise or similar taxes) that may be payable in
respect of any issue or delivery of Common Shares on conversion of any Debenture
pursuant hereto.
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17. Defaults. If one or more of the following described "Events of
Default" shall occur:
The Company shall default in the timely payment of (i) interest on
this Debenture or (ii) the principal of this Debenture, and in each case such
default shall not have been cured within five (5) days; or
Any of the representations or warranties made by the Company or
AIRI, as the case may be, herein, in the Purchase Agreement, the Mortgage and
Security Agreement, the Registration Rights Agreement, any Warrant or in any
certificate or financial or other statements heretofore or hereafter furnished
by or on behalf of the Company or AIRI, as the case may be, in connection with
the execution and delivery of this Debenture or such other documents shall be
false or misleading in any material respect at the time made; or
The Company or AIRI, as the case may be, shall fail to perform or
observe in any material respect any covenant or agreement in the Purchase
Agreement or the Registration Rights Agreement, the Mortgage and Security
Agreement or any other material covenant, term, provision, condition, agreement
or obligation of the Company under this Debenture and such failure shall
continue uncured for a period of five (5) business days after notice from the
Holder of such failure; or
The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; or (4)
apply for or consent to the appointment of a trustee, liquidator or receiver for
it or for a substantial part of its property or business; or
A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (60) days after such
appointment; or
Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within thirty (30) days thereafter; or
The Company shall sell or otherwise transfer all or substantially
all of its assets; or
Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings or relief under any bankruptcy law or any law for the
relief of debt shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within thirty (60) days after such
institution, or the Company shall by any action or answer
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approve of, consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in any such
proceeding; or
The Company shall be in default of any of its indebtedness
(excluding indebtedness incurred in the ordinary course of business such as
trade debt and accounts payable and indebtedness secured by accounts receivable
and inventory) that gives the holder thereof the right to accelerate such
indebtedness; or
A "going private" transaction under Rule 13e-3 promulgated pursuant to
the Exchange Act shall have been announced; or
A tender offer by the Company under Rule 13e-4 promulgated pursuant
to the Exchange Act shall have been announced; or
An event of default shall have occurred under the Mortgage and
Security Agreement;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default), at the option of
the Holder and in the Holder's sole discretion the Holder may consider the
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any other instruments to the contrary notwithstanding, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price per Debenture equal to 125% of the Outstanding Principal Amount
of the Debenture, plus accrued but unpaid interest and default payments on the
Debenture.
18. Savings Clause. In case any provision of this Debenture is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby, and such provision shall remain
effective in all other jurisdictions.
19. Entire Agreement. This Debenture, the Warrants and the
agreements referred to in this Debenture constitute the full and entire
understanding and agreement between the Company and the Holder with respect to
the subject hereof. Neither this Debenture nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the Company and the Holder.
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20. Assignment, Etc. The Holder (but not the Company) may, without
notice, transfer or assign this Debenture or any interest herein and may
mortgage, encumber or transfer any of its rights or interest in and to this
Debenture or any part hereof and, without limitation, each assignee, transferee
and mortgagee (which may include any affiliate of the Holder) shall have all of
the rights of the Holder under this Debenture and shall have the right to
transfer or assign its interest. The Company agrees that, subject to compliance
with the Purchase Agreement, after receipt by the Company of written notice of
assignment from the Holder or from the Holder's assignee, all principal,
interest and other amounts which are then and thereafter become due under this
Debenture shall be paid to such assignee at the place of payment designated in
such notice. This Debenture shall be binding upon the Company and its successors
and affiliates and shall inure to the benefit of the Holder and its successors
and assigns.
21. No Waiver. No failure on the part of the Holder to exercise,
and no delay in exercising any right, remedy or power hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
22. Certificate for Conversion Price Adjustment. The Company shall,
upon the written request at any time of any Holder of this Debenture, furnish or
cause to be furnished to such Holder a certificate prepared by the chief
financial officer of Company setting forth any adjustments or readjustments of
the Conversion Price pursuant to this Debenture.
23. Notices. The Company shall distribute to the Holder of this
Debenture copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Company, at such times and by
such method as such documents are distributed to such holders of such Common
Stock, but shall not directly or indirectly provide material non-public
information to the Holder without such Holder prior written consent.
24. Specific Enforcement. The Company agrees that irreparable
damage would occur in the event that any of the provisions of this Debenture
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Holder of this Debenture shall be
entitled to swift specific performance, injunctive relief or other equitable
remedies to prevent or cure breaches of the provisions of this Debenture and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which any of them may be entitled under agreement, at law or
in equity.
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25. Miscellaneous. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered, facsimiled or mailed to said party by
certified mail, return receipt requested, at its address set forth herein or
such other address as either may designate for itself in such notice to the
other and communications shall be deemed to have been received when delivered
personally or, if sent by mail or facsimile, then when actually received by the
party to whom it is addressed. Whenever the sense of this Debenture requires,
words in the singular shall be deemed to include the plural and words in the
plural shall be deemed to include the singular. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
26. GOVERNING LAW; CONSENT TO JURISDICTION. THIS DEBENTURE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO AGREEMENTS TO BE EXECUTED AND PERFORMED ENTIRELY
WITHIN SUCH STATE. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW
YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATED TO THIS DEBENTURE AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS PROVIDED
HEREIN AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE
OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT
ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
[Signature Page Follows ]
17 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:
--------------------------
AMERICAN INTERNATIONAL PETROLEUM CORP.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
--------------------------
[Signature page to 5% Convertible Secured Debenture of American
International Petroleum Corp.]
<PAGE>
EXHIBIT 1
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
5% CONVERTIBLE SECURED DEBENTURE DUE FEBRUARY 18, 2004
The undersigned, as Holder of the 5% Convertible Secured Debenture Due February
18, 2004 of AMERICAN INTERNATIONAL PETROLEUM CORP. (the "Company"), in the
outstanding principal amount of U.S$10,000,000 (the "Debenture"), hereby elects
to convert that portion of the outstanding principal amount of the Debenture
shown on the next page into shares of Common Stock, par value $.08 per share
(the "Common Stock"), of the Company according to the conditions of the
Debenture, as of the date written below. The undersigned hereby requests that
share certificates for the Common Stock to be issued to the undersigned pursuant
to this Conversion Notice be issued in the name of, and delivered to, the
undersigned or its designee as indicated below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
Conversion Information: NAME OF HOLDER:
By: ____________________________________________
Print Name:_____________________________________
Print Title: ___________________________________
Print Address of Holder:
________________________________________________
________________________________________________
Issue Common Stock to:__________________________
at: ____________________________________________
Electronically transmit and credit Common Stock
to: ____________________________________________
at:_____________________________________________
________________________________________________
Holder Conversion Date
________________________________________________
Applicable Conversion Rate
THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE
<PAGE>
Page 2 to Conversion Notice for: ______________________________________________
(Name of Holder)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
A. Outstanding Principal Amount to be converted: $______
B. Accrued, unpaid interest on Outstanding Principal Amount to
be converted: $______
C. Default payments due Holder: $______
Total dollar amount converted (total of A + B + C) $
======
Conversion Price $______
Number of Shares of Common Stock = Total dollar amount Converted $______
= $______
Conversion Price
Number of shares of Common Stock = ___________
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please issue and deliver _____ new Debenture(s) in the following amounts:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2 -
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
------------------
February 18, 1999
AMERICAN INTERNATIONAL PETROLEUM CORP.
------------------
Common Stock Purchase Warrant
American International Petroleum Corp., a Nevada corporation (the
"Company"), hereby certifies that for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Halifax Fund, L.P.,
having an address at c/o Palladin Group, L.P., 195 Maplewood Avenue, Maplewood,
New Jersey 07040 ("Purchaser") or any other Warrant Holder, as defined below, is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time beginning on the date hereof and ending on the fifth
anniversary of the Closing Date, as defined below, as extended 1.5 times the
number of days between the Effective Date, as defined in the Registration Rights
Agreement, and such anniversary on which there had been no Effective
Registration, as defined below, 2,000,000 fully paid and nonassessable shares of
Common Stock, $.08 par value, of the Company (the "Common Stock") at a purchase
price per share of Common Stock of $2.061 (the "Exercise Price"). Such Exercise
Price may from time to time be adjusted pursuant to the terms of the Purchase
Agreement and the same may be adjusted pursuant to Section 5 herein.
Definitions.
The term "Purchase Agreement" shall mean the Convertible
Debenture Purchase Agreement dated as of February 11, 1999, between the Company
and the Purchaser.
The term "Effective Registration" shall have the meaning
specified in the Purchase Agreement.
The term "Closing Date" shall mean February 18, 1999.
The term "Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of February 18, 1999, between the
Company and Purchaser.
<PAGE>
The term "Warrant Holder" shall mean the Purchaser or any
assignee of all or any portion of this Warrant.
The term "Warrant Shares" shall mean the shares of Common
Stock or other securities issuable upon exercise of this Warrant.
Capitalized terms used but not defined in this Warrant shall have the
meanings specified in the Purchase Agreement.
Exercise of Warrant.
--------------------
This Warrant may be exercised by the Warrant Holder, in whole
or in part, at any time and from time to time by either of the following
methods:
The Warrant Holder may surrender this Warrant, together with
the form of subscription at the end hereof duly executed by such Warrant Holder
("Subscription Notice"), at the offices of the Company or any transfer agent for
the Common Stock; together with payment in cash of the aggregate Exercise Price
for all Warrant Shares exercised; or
The Warrant Holder may also exercise this Warrant, in whole or
in part, in a "cashless" or "net-issue" exercise by delivering to the offices of
the Company or any transfer agent for the Common Stock this Warrant, together
with a Subscription Notice specifying the number of Warrant Shares to be
delivered to such Warrant Holder ("Deliverable Shares") and the number of
Warrant Shares with respect to which this Warrant is being surrendered in
payment of the aggregate Exercise Price for the Deliverable Shares ("Surrendered
Shares"); provided that the Exercise Price multiplied by the number of
Deliverable Shares shall not exceed the value of the Surrendered Shares; and
provided further that the sum of the number of Deliverable Shares and the number
of Surrendered Shares so specified shall not exceed the aggregate number of
Warrant Shares represented by this Warrant. For the purposes of this provision,
each Warrant Share as to which this Warrant is surrendered will be attributed a
value equal to the fair market value (as defined below) of the Warrant Share
minus the Exercise Price of the Warrant Share (the "Spread"). The number of
Deliverable Shares shall be equal to (i) the number of Surrendered Shares
multiplied by the Spread; divided by (ii) the fair market value of a Warrant
Share.
In the event that the Warrant is not exercised in full, the
number of Warrant Shares shall be reduced by the number of such Warrant Shares
for which this Warrant is exercised and/or surrendered, and the Company, at its
expense, shall within three (3) Trading Days (as defined below) issue and
deliver or upon the order of Warrant Holder a new Warrant of like tenor in the
name of Warrant Holder or as Warrant Holder (upon payment by Warrant Holder of
any applicable transfer taxes) may request, reflecting such adjusted Warrant
Shares.
-2-
<PAGE>
Delivery of Stock Certificates.
-------------------------------
Subject to the terms and conditions of this Warrant, as soon
as practicable after notice of exercise of this Warrant in full or in part, and
in any event within three (3) Trading Days ("T+3") thereafter, certificates in
such denominations and registered in such names as the Warrant Holder may
request, shall be delivered by or on behalf of the Company to the Warrant Holder
against payment by the Warrant Holder of the Exercise Price. If the closing for
such exercise does not occur within T+3, then the Warrant Holder will be
entitled to revoke and withdraw its exercise of its Warrant.
In lieu of delivering physical certificates representing the
Warrant Shares deliverable upon exercise of Warrants, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Warrant
Holder, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares issuable upon exercise to the Warrant
Holder, by crediting the account of Warran Holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic transmittals
through the DWAC system. The parties agree to coordinate with DTC to accomplish
this objective. The exchange pursuant to this Section 3 shall be deemed to have
been made immediately prior to the close of business on the date of the
Subscription Notice. The person or persons entitled to receive the Warrant
Shares issuabl upon such exercise shall be treated for all purposes as the
record holder or holders of such Warrant Shares at the close of business on the
date of the Subscription Notice.
The term "Trading Day" means (x) if the Common Stock is listed
on the New York Stock Exchange or the American Stock Exchange, a day on which
there is trading on such stock exchange, (y) if the Common Stock is not listed
on either of such stock exchanges but sale prices of the Common Stock are
reported on an automated quotation system, a day on which trading is reported on
the principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(A) Representations and Covenants of the Company.
The Company shall comply with its obligations under
the Registration Rights Agreement with respect to the Warrant Shares, including,
without limitation, the Company's obligation to have filed and declared and
maintained effective a registration statement registering the Warrant Shares
under the Securities Act of 1933, as amended (the "Act").
The Company shall take all necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation, the notification of the Approved
Market which is the principal trading exchange or market for the Common Stock
(the "Principal Market"), for the legal and valid issuance of this Warrant and
the Warrant Shares to the Warrant Holder under this Warrant.
-3-
<PAGE>
From the date hereof through the last date on which
this Warrant is exercisable, the Company shall take all steps necessary to
insure that the Common Stock remains listed on the Principal Market.
(a) The Warrant Shares, when issued in accordance
with the terms hereof, will be duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to Warrant
Holder the requisite number of shares of Common Stock to be issued pursuant to
this Warrant.
(b) The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, 100% of
such number of shares of Common Stock as shall from time to time be issuable
hereunder.
(c) With a view to making available to the Warrant
Holder the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the Securities and Exchange Commission ("SEC") that may at any
time permit Warrant Holder to sell securities of the Company to the public
without registration, the Company agrees to use its best efforts to:
make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
and
furnish to any Warrant Holder forthwith upon request
a written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Warrant
Holder to take advantage of any rule or regulation of the SEC
permitting the selling of any such securities without registration.
(B) Representations and Covenants of the Purchaser.
The Purchaser shall not resell Warrant Shares, unless
such resale is pursuant to an effective registration statement under the Act or
pursuant to an applicable exemption from such registration requirements.
-4-
<PAGE>
Adjustment of Exercise Price and Number of Shares. The number of and kind
of securities purchasable upon exercise of this Warrant shall be subject to
adjustment from time to time as follows:
Subdivisions, Combinations and other Issuances. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate proportional adjustments
(decrease in the case of subdivision, increase in the case of combination) shall
also be made to the Exercise Price payable per share, so that the aggregate
Exercise Price payable for the total number of Warrant Shares or Warrants
purchasable under this Warrant as of such date shall remain the same as it would
have been before such subdivision or combination.
Stock Dividend. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable for
Common Stock ("Common Stock Equivalents") without payment of any consideration
by holders of Common Stock for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock for which this Warrant may be exercised shall be increased as of
the record date (or the date of such dividend distribution if no record date is
set) for determining which holders of Common Stock shall be entitled to receive
such dividends, in proportion to the increase in the number of outstanding
shares (and shares of Common Stock issuable upon conversion of all such
securities convertible into Common Stock) of Common Stock as a result of such
dividend, and the Exercise Price payable per share shall be proportionately
reduced so that the aggregate Exercise Price for all the Warrant Shares issuable
hereunder immediately after the record date (or on the date of such
distribution, if applicable), for such dividend shall equal the aggregate
Exercise Price so payable immediately before such record date (or on the date of
such distribution, if applicable).
Other Distributions. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
Common Stock), then the number of Warrant Shares for which this Warrant is
exercisable shall be increased to equal: (i) the number of Warrant Shares for
which this Warrant is exercisable immediately prior to such event, (ii)
multiplied by a fraction, (A) the numerator of which shall be the fair market
value per share of Common Stock on the record date for the dividend or
distribution, and (B) the denominator of which shall be the fair market value
price per share of Common Stock on the record date for the dividend or
distribution minus the amount allocable to one share of Common Stock of the
value (as determined in good faith by the Board of Directors of the Company and
not reasonably
-5-
<PAGE>
objected to by the Warrant Holder, provided, however, if the Warrant Holder
shall reasonably object, the determination of the value shall be made by the
Company's independent auditors) of any and all such evidences of indebtedness,
shares of capital stock, other securities or property, so distributed. The
Exercise Price per share shall be reduced to equal: (i) the Exercise Price per
share in effect immediately before the occurrence of any event (ii) multiplied
by a fraction, (A) the numerator of which is the number of Warrant Shares for
which this Warrant is exercisable immediately before the adjustment, and (B) the
denominator of which is the number of Warrant Shares for which this Warrant is
exercisable immediately after the adjustment.
Merger, etc. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon or after such transfer, merger
or consolidation becoming effective, and upon payment of the Exercise Price then
in effect, the number of shares or other securities or property of the Company
or of the successor corporation resulting from such merger or consolidation,
which would have been received by Warrant Holder for the shares of stock subject
to this Warrant had this Warrant been exercised just prior to such transfer,
merger or consolidation becoming effective or to the applicable record date
thereof, as the case may be. The Company will not merge or consolidate with or
into any other corporation, or sell or otherwise transfer its property, assets
and business substantially as an entirety to another corporation, unless the
corporation resulting from such merger or consolidation (if not the Company), or
such transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement reasonably satisfactory in form and substance to the
Warrant Holder, the due and punctual performance and observance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company.
Reclassification, etc. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Exercise Price then in
effect, the number of shares or other securities o property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
No Impairment. The Company will not, by amendment of its Articles 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 o the Warrant Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
-6-
<PAGE>
Notice of Adjustments. Whenever the Exercise Price or number of Shares
purchasable hereunder shall be adjusted pursuant to Section 5 hereof, the
Company shall execute and deliver to the Warrant Holder a certificate setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Warrant Holder.
Rights As Shareholder. Prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions thereon or be notified of
shareholder meetings. However, in the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitle to receive any dividend (other than a cash
dividend) or other distribution, 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, the Company shall mail to each Warrant
Holder, at least 10 Trading Days prior to the date specified therein, a notice
specifying the date on which any such record date is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of suc
dividend, distribution or right.
Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, this Warrant may not be exercised by the Warrant Holder to the extent
that, after giving effect to Warrant Shares to be issued pursuant to a
Subscription Notice, the total number of shares of Common Stock deemed
beneficially owned by such holder (other than by virtue of ownership of this
Warrant, or ownership of other securities that have limitations on the holder's
rights to convert or exercise similar to the limitations set forth herein),
together with all shares of Common Stock deemed beneficially owned by the
holder's "affiliates" (as defined in Rule 144 of the Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Exchange Act exists, would exceed 4.9% (the "4.9% Limit"); provided that (x)
each Warrant Holder shall have the right at any time and from time to time to
waive in whole or in part the 4.9% Limit upon 61 days' prior notice to the
Company or immediatel in the event of a Change in Control Transaction and (y)
each Warrant Holder may eliminate or reinstate the 4.9% Limit at any time and
from time to time (which elimination will be effective upon 61 days' prior
notice and which reinstatement will be effective immediately). Without limiting
the foregoing, in the event of a Change in Control Transaction, any holder may
reinstate immediately (in whole or in part) the 4.9% Limit, notwithstanding such
Change in Control Transaction, without imposing such requirement on, or
otherwise changing such holder's rights with respect to, any other Change in
Control Transaction. For this purpose, any material modification of the terms of
a Change in Control Transaction will be deemed to create a new Change in Control
Transaction. A "Change in Control Transaction" will be deemed to have occurred
upon the earlier of the announcement or consummation of a transaction or series
of transactions involving (x) any consolidation or merger of the Company with or
into any other corporation or other entity or person (whether or not the Company
is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in excess of 50% of the
Company's voting power is transferred
-7-
<PAGE>
through a merger, consolidation, tender offer or similar transaction, or (y) in
excess of 50% of the Corporation's Board of Directors consists of directors not
nominated by the prior Board of Directors of the Company, or (z) any person (as
defined i Section 13(d) of the Exchange Act, together with its affiliates and
associates (as such terms are defined in Rule 405 under the Act), beneficially
owns or is deemed to beneficially own (as described in Rule 13d-3 under the
Exchange Act without regard to the 60-day exercise period) in excess of 50% of
the Company's voting power. The delivery of a Subscription Notice by the Warrant
Holder shall be deemed a representation by such holder that it is in compliance
with this paragraph.
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 such Warrant, the Company at its expense promptly will execute
and deliver, in lieu thereof a new Warrant of like tenor.
Specific Performance; Consent to Jurisdiction; Choice of Law
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) THE COMPANY AND THE WARRANT HOLDER IRREVOCABLY WAIVE THEIR
RIGHT TO TRIAL BY JURY.
(c) THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE
AND, WHERE APPLICABLE, FEDERAL LAW.
Entire Agreement; Amendments. This Warrant, the Exhibits hereto and the
provisions contained in the Agreement or the Registration Rights Agreement
contain the entire understanding of the parties with respect to the matters
covered hereby and thereby and, except as specifically set forth herein and
therein, neither the Company nor the Warrant Holder makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or waiver is
sought.
Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile at the address or number designated
-8-
<PAGE>
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
to the Company:
American International Petroleum Corp.
444 Madison Avenue
New York, New York 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
with copies to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Charles Snow, Esq.
Facsimile: (212) 949-7052
to the Warrant Holder:
Halifax Fund, L.P.
c/o Palladin Group, L.P.
195 Maplewood Avenue
Maplewood, New Jersey 07040
Attention: Robert L. Chender
Facsimile: (973) 313-6491
with copies to:
Arnold & Porter
555 Twelfth Street, NW
Washington, D.C. 20004
Attention: L. Stevenson Parker, Esq.
Facsimile: (202) 942-5999
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days' prior written notice of such changed
address to the other party hereto.
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. The headings in this Warrant are
-9-
<PAGE>
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.
Assignment. This Warrant may be transferred or assigned, in whole or in
part, at any time and from time to time by the then Warrant Holder by submitting
this Warrant to the Company together with a duly executed Assignment in
substantially the form and substance of the Form of Assignment which accompanies
this Warrant and, upon the Company's receipt hereof, and in any event, within
three (3) business days thereafter, the Company shall issue a Warrant to the
Warrant Holder to evidence that portion of this Warrant, if any as shall not
have been so transferred or assigned; provided, however, that if at the time of
a transfer, a registration statement is not in effect to register the Warrant,
the Company may require the Warrant Holder to make such representations, and may
place such legends on certificates representing this Warrant, as may be
reasonably required in the opinion of counsel to the Company to permit a
transfer without such registration.
Successors and Assigns. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
[Signature Page Follows]
-10-
<PAGE>
Dated:
AMERICAN INTERNATIONAL
PETROLEUM CORP.
By:___________________________
Name:______________________
Title:_____________________
[CORPORATE SEAL]
Attest:
By:___________________________
Its
(Signature Page of American International Petroleum Corp. Common Stock Purchase
Warrant)
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<PAGE>
(SUBSCRIPTION NOTICE)
FORM OF WARRANT EXERCISE
(To be signed only on exercise of Warrant)
TO: AMERICAN INTERNATIONAL PETROLEUM CORP.
ATTN: SECRETARY
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant:
_____ (A) for, and to purchase thereunder, __________shares of
Common Stock of American International Petroleum
Corp., a Nevada corporation (the "Common Stock"), and
by wire transfer will make payment of $_______
therefor; or
_____ (B) in a "cashless" or "net-issue exercise" for, and to
purchase thereunder , ________ shares of Common
Stock, and will make payment therefor with
___________ Surrendered Shares.
The undersigned requests that the certificates for such shares be
issued in the name of, and
_____ (A) delivered to _________________________________, whose
address is
___________________________________________________;
or
_____ (B) electronically transmitted and credited to the
account of ____________, undersigned's prime broker
(Account No. __________) with Depository Trust
Company through its Deposit Withdrawal Agent
Commission system.
Dated:
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
Tax Identification Number:
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REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
February 18, 1999 between AMERICAN INTERNATIONAL PETROLEUM CORP., a Nevada
corporation with offices at 444 Madison Avenue, Suite 3203, New York, New York
10022 (the "Company") and HALIFAX FUND, L.P., with offices at c/o the Palladin
Group, 195 Maplewood Avenue, Maplewood, New Jersey 07040 (the "Investor").
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to that certain Convertible Secured Debenture
Purchase Agreement by and between the Company and the Investor dated as of
February 11, 1999 (the "Purchase Agreement"), the Company has agreed to sell and
issue to the Investor, and the Investor has agreed to purchase from the Company,
$10,000,000 principal amount of 5% Convertible Secured Debentures Due February
18, 1999 (the "Debentures"), on the terms and conditions set forth therein;
WHEREAS, the Purchase Agreement contemplates that the Debentures may be
converted into shares (the "Common Shares") of common stock, $0.08 par value, of
the Company ("Common Stock") pursuant to the terms and conditions set forth in
the Debentures; and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Purchase Agreement, the Company has
agreed to issue to the Investor warrants exercisable for shares of Common Stock
in the form attached as Exhibit 1.1B to the Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Agreement, the Company and the Investor agrees as follows:
Certain Definitions. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement,
Warrants or the Debentures. As used in this Agreement, the following terms shall
have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed
to such terms in the Purchase Agreement.
"Commission" or "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Registrable Securities" shall mean: (i) the Common Shares and
Warrant
<PAGE>
Shares issued to each Holder or its permitted transferee or designee
upon conversion of the Debentures or exercise of the Warrants, as applicable, or
upon any stock split, stock dividend, recapitalization or similar event with
respect to such Common Shares or Warrant Shares; (ii) any securities issued or
issuable to each Holder upon the conversion, exercise or exchange of any
Debentures, Warrants, Warrant Shares, or Common Shares; and (iii) any other
security of the Company issued as a dividend or other distribution with respect
to, or upon conversion or exchange of or in replacement of Registrable
Securities.
The terms "register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses to be incurred
by the Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, and the expense of any audited financial statements incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holders not included within "Registration
Expenses".
"Holder" and "Holders" shall include the Investor and any
transferee of the Debentures, Warrants, Warrant Shares or Common Shares or
Registrable Securities which have not been sold to the public to whom the
registration rights conferred by this Agreement have been transferred in
compliance with this Agreement.
"Registration Statement" shall have the meaning set forth in
Section 2(a)(i) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant
to the Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of
1933, as amended.
"Warrants" shall mean the warrants in form and substance of
Exhibit 1.1B to the Purchase Agreement between the Company and the Investor
dated as of the date hereof.
"Warrant Shares" shall mean shares of Common Stock of the
Company issued and issuable upon exercise of the Warrants.
Registration Requirements. The Company shall use reasonable commercial
efforts to effect the registration of the Registrable Securities (including
without limitation the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable
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<PAGE>
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act) as would permit or
facilitate the sale or distribution of all the Registrable Securities in the
manner (including manner of sale) and in all states reasonably requested by the
Holder on an Approved Market. Such reasonable commercial efforts by the Company
shall include the following:
(a) The Company shall, as expeditiously as reasonably possible
after the Closing Date:
(i) But in any event within 60 days thereafter, prepare
and file a registration statement with the Commission pursuant to Rule 415 under
the Securities Act on Form S-3 under the Securities Act (or in the event that
the Company is ineligible to use such form, such other form as the Company is
eligible to use under the Securities Act) covering the Registrable Securities
("Registration Statement") which Registration Statement (including any
amendments or supplements thereto an prospectuses contained therein) shall not
contain any 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. Such Registration Statement shall, in addition and without
limitation, register (pursuant to Rule 416 under the Securities Act, or
otherwise) such additional indeterminate number of Registrable Securities as
shall be necessary to permit the conversion in full of the Debentures or
exercise of th Warrants to prevent dilution resulting from stock splits, stock
dividends or similar transactions. Thereafter, the Company shall use reasonable
commercial efforts to cause such Registration Statement and other filings to be
declared effective as soon as possible, and in any event prior to 180 days
following the Closing Date (the "Effective Date"). The number of shares of
Common Stock initially included in such Registration Statement shall be no less
than 13,177,160, without regard to any limitation on the Investor's ability to
convert the Debentures or exercise the Warrants.
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement until
such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement and notify the Holders of the
filing and effectiveness of such Registration Statement and any amendments or
supplements. In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities issued or issuable upon conversion of the Debentures and
exercise of the Warrants, the Company shall amend the Registratio Statement, or
file a new Registration Statement (on the short form available therefore, if
applicable), or both, so as to cover all of the Registrable Securities, in each
case, as soon as practicable, but in any event within twenty (20) business days
after the necessity therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably elects to
rely). The Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as reasonably practicable
following the filing thereof. The provisions of Section 2(b)(i) below
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<PAGE>
shall be applicable with respect to such obligation, with the Effective Date (as
defined in Section 2(b)(i) below) running from the day after the date on which
the Company reasonably first determines (or reasonably should have determined)
the need therefor.
(iii) Furnish to each Holder such numbers of copies of a
current prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any documents
incorporated by reference therein and such other documents as such Holder may
reasonably require in order to facilitate the disposition of Registrable
Securities owned by such Holder and, in the case of the Registration Statement
referred to in Section 2(a)(i), each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of correspondence from
the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment). The Company will
immediately notify the Investor by facsimile of the effectiveness of the
Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC, with a view
towards causing any Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as reasonably practicable and shall
promptly file an acceleration request as soon as practicable following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that the Registration Statement or any amendment thereto
will not be subject to review.
(iv) (a) Register and qualify, or obtain an appropriate
exemption from registration or qualification, the securities covered by such
Registration Statement under such other securities or "Blue Sky" laws of such
jurisdictions as shall be reasonably requested by each Holder (b) prepare and
file in those jurisdictions such supplements (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof, (c) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times, and (d) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and shall not be required to
register or qualify in any jurisdiction where such registration or qualification
is not permitted or approved by such jurisdiction following the Company's best
efforts to obtain such permission or approval.
(v) Notify each Holder immediately of the happening of any
event as a result of which the prospectus (including any supplements thereto or
thereof) included in such Registration Statement, as then in effect, includes an
untrue statement of material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Holder as such Holder may reasonably request.
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<PAGE>
(vi) Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose. The Company shall prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting thereof at
the earliest possible time.
(vii) Permit a single firm of counsel, designated as
Holders' counsel by the Holders of a majority of the Registrable Securities
included in the Registration Statement, to review the Registration Statement and
all amendments and supplements thereto within a reasonable period of time prior
to each filing, and shall not file any document in a form to which such counsel
reasonably objects and will not request acceleration of the Registration
Statement without prior notice to suc counsel. The sections of the Registration
Statement covering information with respect to the Investor, the Investor's
beneficial ownership of securities of the Company or the Investor's intended
method of disposition of Registrable Securities shall conform to the information
provided to the Company by the Investor.
(viii) List the Registrable Securities covered by such
Registration Statement with all securities exchange(s) and/or markets on which
the Common Stock is then listed and prepare and file any required filings with
the National Association of Securities Dealers, Inc. or any exchange or market
where the Common Shares are traded.
(ix) If applicable, take all steps necessary to enable
Holders to avail themselves of the prospectus delivery mechanism set forth in
Rule 153 (or successor thereto) under the Act.
(x) The Company shall hold in confidence and not make any
disclosure of information concerning the Investor provided to the Company unless
(a) disclosure of such information is necessary to comply with federal or state
securities laws, (b) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (c) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmenta body of competent jurisdiction, or (d) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or obtain a protective order for,
such information.
(xi) The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement.
(xii) The Company shall cooperate with the Investor who
holds Registrable Securities being offered to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be offered
pursuant to the Registration
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<PAGE>
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investor may reasonably request and registered in
such names as the Investor may request, and, within three (3) business days afte
a Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investor whose Registrable Securities are
included in such Registration Statement) an instruction in the form attached
hereto as Exhibit 1 and an opinion of such counsel in the form attached hereto
as Exhibit 2.
(xiii) From and after the date of this Agreement, except
for shares of Common Stock listed on Schedule 2.1(a), the Company shall not, and
shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority-in-interest of the Registrable
Securities.
(xiv) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investor of Registrable
Securities pursuant to the Registration Statement.
(b) Set forth below in this Section 2(b) are (I) events that
may arise that the Investor considers will interfere with the full enjoyment of
their rights under the the Purchase Agreement and this Agreement (the
"Interfering Events"), and (II) certain remedies applicable in each of these
events.
Paragraphs (i) through (iv) of this Section 2(b) describe
the Interfering Events, provide a remedy to the Investor if an Interfering Event
occurs and provide that the Investor may require that the Company convert
outstanding shares of Debentures at a specified price if certain Interfering
Events are not timely cured.
Paragraph (v) provides, inter alia, that if cash payments
required as the remedy in the case of certain of the Interfering Events are not
paid when due, the Company may be required by the Investor to convert
outstanding shares of Debentures at a specified price.
Paragraph (vi) provides, inter alia, that the Investor has
the right to specific performance.
The preceding paragraphs in this Section 2(b) are meant to
serve only as an introduction to this Section 2(b), are for convenience only,
and are not to be considered in applying, construing or interpreting this
Section 2(b).
(i) Delay in Effectiveness of Registration Statement. The
Company agrees that it shall file the Registration Statement complying with the
requirements of this Agreement promptly and shall use its best efforts to cause
such Registration Statement to become effective as soon as possible and in any
event prior to 120 days following the initial closing of the purchase (the
"Closing Date") (the "Effective Date"). In the event that such
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Registration Statement has not been declared effective within 120 days from the
Closing Date, then the percentage (initially 125% or 85%, as the case may be)
employed to determine the "Conversion Price" pursuant to Section 5(c) of the
Debentures (the "Agreed Percentage") shall be reduced by 1% during and after the
first 30-day period from and after the 120th day following the Closing Date
during any part of which such Registration Statement is not effective, and such
Agreed Percentage shall be further reduced by an additional 1.5% during and
after each subsequent 30-day period thereafter during any part of which the
Registration Statement is not effective. In each case, the Agreed Percentage and
the Conversion Price shall be subject to further adjustment as set forth in the
Debenture and the Purchase Agreement. If the Registration Statement has not been
declared effective within 180 days after the Closing Date, then each Holder
shall have the right in its sole discretion (i) to sell its Debentures to the
Company (in whole or in part) at a price in immediately available funds (the
"Premium Conversion Price") equal to 1.25 times (i.e., 125% of) the Outstanding
Principal Amount of the Debentures plus any accrued but unpaid or unrecognized
interest or default payments, and/or (ii) require the Company to redeem the
Warrants for cash in an amount (the "Warrant Redemption Price") equal to (x) the
product of (I) the number of shares exercisable under the Warrants (without
regard to any beneficial ownership limitations contained therein), multiplie by
(II) the average closing bid price for the ten (10) consecutive trading days
immediately preceding the notice of redemption of such Warrants, minus (y) the
product of (I) the number of shares exercisable under the Warrants (without
regard to any beneficial ownership limitations contained therein), multiplied by
(II) the Exercise Price (as defined in the Warrants). Payment of such amount
shall be due and payable within 3 business days of demand therefor, which demand
shall be revocable by the Holder at any time prior to its actual receipt of the
Premium Conversion Price.
(ii) No Listing; Premium Price Conversion for Delisting of
Class of Shares.
(A) In the event that the Company fails, refuses or
is unable to cause the Registrable Securities covered by the Registration
Statement to be listed with the Approved Market and each other securities
exchange and market on which the Common Stock is then traded at all times during
the period ("Listing Period") commencing the earlier of the effective date of
the Registration Statement or the 120th day following the Closing Date, and
continuing thereafter for so long a the Debentures are outstanding, then the
Company shall pay in cash to each Holder a default payment at a rate (the
"Default Payment Rate") equal to one and one half percent (1.5%) of the sum of
(x) the Outstanding Principal Amount of, (y) the accrued but unpaid interest on,
plus (z) the accrued but unpaid or unrecognized default payments on the
Debentures (the "Debenture Amount") held by such Holder for each 30-day period
(or portion thereof) during the Listing Period from and after such failure,
refusal or inability to so list the Registrable Securities until the Registrable
Securities are so listed. Alternatively, at any time five (5) days after the
commencement of the running of the first 30-day period described above, a holder
shall have the right to (1) require the Company to purchase the Debentures for
cash in an amount equal to the Premium Conversion Price, and/or (2) require the
Company to redeem the Warrants for cash in an amount equal to the Warrant
Redemption Price.
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(B) In the event that shares of Common Stock of the
Company are delisted from the Approved Market at any time following the Closing
Date and remain delisted for five (5) consecutive trading days, then at the
option of each Holder and to the extent such Holder so elects, the Holder will
be entitled to (i) require the Company to purchase the Debentures for cash in an
amount equal to the Premium Conversion Price, and/or (ii) require the Company to
convert the Warrants for cash in an amount equal to the Warrant Redemption
Price.
(iii) Blackout Periods. In the event any Holder's ability
to sell Registrable Securities under the Registration Statement is suspended for
more than (i) five (5) consecutive days or (ii) fifteen (15) days in any 360-day
period ("Suspension Grace Period"), including without limitation by reason of a
suspension of trading of the Common Stock on the Approved Market, any suspension
or stop order with respect to the Registration Statement or the fact that an
event has occurred as aresult of which the prospectus (including any supplements
thereto) included in such Registration Statement then in effect includes an
untrue statement of material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, then the Company shall pay in cash to
each Holder a default payment at the Default Payment Rate of the Debenture
Amount for the Debentures held by such Holder for each 30-d period (or portion
thereof) from and after the expiration of the Suspension Grace Period.
Alternatively, a holder shall have the right to (i) require the Company to
purchase the Debentures for cash in an amount equal to the Premium Conversion
Price, and/or (ii) require the Company to redeem the Warrants for cash in an
amount equal to the Warrant Redemption Price.
(iv) Conversion Deficiency; Premium Price Conversion for
Conversion Deficiency. In the event that the Company does not have a sufficient
number of Common Shares available to satisfy the Company's obligations to any
Holder upon receipt of a Conversion Notice (as defined in the Debenture) or is
otherwise unable or unwilling to issue such Common Shares (including without
limitation by reason of the limit described in Section 10 below) in accordance
with the terms of the Debenture for any reason after receipt of a Conversion
Notice, then:
(A) The Company shall pay in cash to each Holder a
default payment at the Default Payment Rate on the Outstanding Amount for the
Debentures held by such Holder for each 30-day period (or portion thereof) that
the Company fails or refuses to issue Common Shares in accordance with the
Debenture terms; and
(B) At any time five days after the commencement of
the running of the first 30-day period described above in clause (A) of this
paragraph (iv), (1) at the request of any Holder pursuant to a redemption
notice, the Company promptly (aa) shall purchase from such Holder, at a purchase
price equal to the Premium Conversion Price, the Outstanding Amount of
Debentures equal to such Holder's pro rata share of the "Deficiency", as such
terms are defined below, if the failure to issue Common Shares results from the
lack of a sufficient number thereof and (bb) shall purchase all (or such portion
as such Holder may elect) of such Holder's Debentures at such Premium Conversion
Price if the failure to issue
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Common Shares results from any other cause, and/or (2) at the request of any
Holder, redeem the Warrants for cash in an amount equal to the Warrant
Redemption Price. The "Deficiency" shall be equal to the Outstanding Amount of
Debentures that would not be able to be converted for Common Shares, due to an
insufficient number of Common Shares available, if all the outstanding
Debentures were submitted for conversion at the Conversion Price set forth in
the Debentures as of the date such Deficiency is determined. Any request by a
Holder pursuant to this paragraph (iv)(B) shall be revocable by that Holder at
any time prior to its receipt of the Premium Conversion Price and/or the Warrant
Redemption Price.
(v) Premium Price Conversion for Cash Payment
Defaults.
(A) The Company acknowledges that any failure, refusal or
inability by the Company described in the foregoing paragraphs (i) through (iv)
will cause the Holders to suffer damages in an amount that will be difficult to
ascertain, including without limitation damages resulting from the loss of
liquidity in the Registrable Securities and the additional investment risk in
holding the Registrable Securities. Accordingly, the parties agree that it is
appropriate to include in this Agreement the foregoing provisions for default
payments, discounts and mandatory conversions in order to compensate the Holders
for such damages. The parties acknowledge and agree that the default payments,
discounts and mandatory conversions set forth above represent the parties' good
faith effort to quantify such damages and, as such, agree that the form and
amount of such default payments, discounts and mandatory conversions are
reasonable and will not constitute a penalty.
(B) Each default payment provided for in the foregoing
paragraphs (ii) through (iv) shall be in addition to each other default payment.
All default payments (which payments shall be pro rata on a per diem basis for
any period of less than 30 days) required to be made in connection with the
above provisions shall be paid in cash at any time upon demand, and whether or
not a demand is made, by the tenth (10th) day of each calendar month for each
partial or full 30-da period occurring prior to that date.
(C) In the event that the Company fails or refuses to pay any
default payment or honor any penalty or similar amounts when due, at any
Holder's request and option the Company shall purchase (1) all or a portion of
the Debentures, Common Shares and/or Warrant Shares held by such Holder (with
default payments accruing through the date of such purchase), within five (5)
days of such request, at a purchase price equal to the Premium Conversion Price,
and/or (2) all or a portion of the Warrants, within five (5) days of such
request, held by such Holder at a purchase price equal to the Warrant Redemption
Price, provided that such Holder may revoke either such request at any time
prior to receipt of such payment of such purchase price. Until such time as the
Company purchases such Debentures at the request of such Holder pursuant to the
preceding sentence, at any Holder's request and option the Company shall as to
such Holder pay such amount by adding and including the amount of such default
payment to the Outstanding Principal Amount of a Holder's Debentures.
(vi) Cumulative Remedies. The default payments and mandatory
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conversions provided for above are in addition to and not in lieu or limitation
of any other rights the Holders may have at law, in equity or under the terms of
the Debentures, the Purchase Agreement, the Warrants or this Agreement,
including without limitation the right to specific performance. Each Holder
shall be entitled to specific performance of any and all obligations of the
Company in connection with the registration rights of the Holders hereunder.
(vii) Deferral of Maturity Date. In the event of a failure of
Effective Registration or in the event of any of the circumstances described in
the foregoing clauses (i) through (iv) above, then the Maturity Date shall be
deferred by 1.5 days for each day that any of the circumstances in clauses (i),
(ii), (iii) (without regard to the applicability of the Suspension Grace
Period), or (iv) exist.
(c) Subject to Section 2(b) above, the Company may suspend the use
of any prospectus used in connection with the Registration Statement only in the
event, and for such period of time as, such a suspension is required by the
rules and regulations of the Commission. The Company will use reasonable
commercial efforts to cause such suspension to terminate at the earliest
possible date.
(d) The Company shall file a Registration Statement with respect to
any newly authorized and/or reserved shares, if necessary to fulfill its
obligations under this Agreement within fifteen (15) business days of any
shareholders meeting authorizing same and shall use reasonable commercial
efforts to cause such Registration Statement to become effective within ninety
(90) days of such shareholders meeting. If the Holders become entitled, pursuant
to an event described in clause (iii) of the definition of Registrable
Securities, to receive any securities in respect of Registrable Securities that
were already included in a Registration Statement, subsequent to the date such
Registration Statement is declared effective, and the Company is unable under
the securities laws to add such securities to the then effective Registration
Statement, the Company shall promptly file, in accordance with the procedures
set forth herein, an additional Registration Statement with respect to such
newly Registrable Securities. The Company shall use reasonable commercial
efforts to (i) cause any such additional Registration Statement, when filed, to
become effective under the Securities Act, and (ii) keep such additional
Registration Statement effective during the period described in Section 5 below.
All of the registration rights and remedies under this Agreement shall apply to
the registration of such newly reserved shares and such new Registrable
Securities, including without limitation the provision providing for default
payments contained herein.
Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses of a Holder shall be borne by such Holder.
Registration on Form S-3. The Company shall seek to qualify for
registration on Form S-3 or any comparable or successor form or forms, or in the
event that the Company is ineligible to use such form, such form as the Company
is eligible to use under the Securities Act.
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Registration Period. In the case of the registration effected by
the Company pursuant to this Agreement, the Company will use its best efforts to
keep such registration effective until all the Holders have completed the sales
or distribution described in the Registration Statement relating thereto or, if
earlier, until such Registrable Securities may be sold under Rule 144(k)
(provided that the Company's transfer agent has accepted an instruction from the
Company to such effect).
Indemnification.
(a) The Company Indemnity. The Company will indemnify each
Holder, each of its officers, directors and partners, and each person
controlling each Holder, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on 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, or any violation by the Company of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each Holder, each of its officers, directors and partners, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to a Holder to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by such Holder or the
underwriter (if any) therefor and stated to be specifically for use therein. The
indemnity agreement contained in this Section 6(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
(b) Holder Indemnity. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers, partners, and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, each other Holder (if any), and each of their officers, directors
and partners, and each person controlling such other Holder(s) against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading,
-11-
<PAGE>
and will reimburse the Company and such other Holder(s) and their directors,
officers and partners, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein, and provided that the maximum
amount for which such Holder shall be liable under this indemnity shall not
exceed the net proceeds received by such Holder from the sale of the Registrable
Securities. The indemnity agreement contained in this Section 6(b shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld).
(c) Procedure. Each party entitled to indemnification under
this Article (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is prejudiced by such failure
to provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement 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 in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
Contribution. If the indemnification provided for in Section 6 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such 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 losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder 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 or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.
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<PAGE>
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Holders or the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraphs. 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 paragraphs shall be deemed to include, subject to the
limitations set forth above, 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 section, no Holder or
underwriter shall be required to contribute any amount in excess of the amount
by which (i) in the case of any 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
or alleged omission. No person liable for or 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 liable for or
guilty of such fraudulent misrepresentation.
Survival. The indemnity and contribution agreements contained in
Sections 6 and 7 shall remain operative and in full force and effect regardless
of any termination of this Agreement or the Purchase Agreement.
Information by Holders. Each Holder shall furnish to the Company such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement. The intended method or methods of
disposition and/or sale (Plan of Distribution) of such securities as so provided
by such Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of such Holder or its designated representative.
Nasdaq Limit on Stock Issuances. Notwithstanding anything to the
contrary herein, the Company shall not be obligated to issue or register with
the SEC any shares of Common Stock to the extent that such issuance or
registration is prohibited by any rule, regulation or policy of Nasdaq or any
exchange or market upon which the Common Stock may be traded.
Replacement Certificates. The certificate(s) representing the Common
Shares or Warrant Shares held by the Investor (or then Holder) may be exchanged
by the Investor (or such Holder) at any time and from time to time for
certificates with different denominations
-13-
<PAGE>
representing an equal aggregate number of Common Shares or Warrant Shares, as
reasonably requested by the Investor (or such Holder) upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
Transfer or Assignment. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investor by
the Company under this Agreement to cause the Company to register Registrable
Securities may be transferred or assigned (in whole or in part) to a transferee
or assignee of at least $500,000 aggregate principal amount of Debentures or
Warrants which transfer has been effected in compliance with the Debentures and
Warrants, and all other rights granted to the Investor by the Company hereunder
may be transferred or assigned to any transferee or assignee of any Debentures
or Warrants; provided in each case that the Company must be given written notice
by the such Investor at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
right are being transferred or assigned; and provided further that the
transferee or assignee of such rights agrees in writing to be bound by the
registration provisions of this Agreement.
Miscellaneous.
(c) Remedies. The Company and the Investor acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity.
(b) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by facsimile, mail or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
American International Petroleum Corp.
444 Madison Avenue
New York, New York 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
-14-
<PAGE>
with copies to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Charles Snow, Esq.
Facsimile: (212) 949-7052
to the Warrant Holder:
Halifax Fund, L.P.
c/o Palladin Group, L.P.
195 Maplewood Avenue
Maplewood, New Jersey 07040
Attention: Robert L. Chender
Facsimile: (973) 313-6491
with copies to:
Arnold & Porter
555 Twelfth Street, NW
Washington, D.C. 20004
Attention: L. Stevenson Parker, Esq.
Facsimile: (202) 942-5999
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
(d) Waivers. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. The representations and warranties and
the agreements and covenants of the Company and each Investor contained herein
shall survive the Closing.
(e) Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
(f) Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
(g) Entire Agreement. This Agreement, together with the
Purchase Agreement, the Debentures and the Warrants and the agreements and
documents
-15-
<PAGE>
contemplated hereby and thereby, contains the entire understanding and
agreement of the parties, and may not be modified or terminated except by a
written agreement signed by both parties.
(h) Governing Law; Consent of Jurisdiction. THIS AGREEMENT AND
THE VALIDITY AND PERFORMANCE OF THE TERMS HEREOF SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED ENTIRELY IN SUCH STATE
AND, WHERE APPLICABLE, FEDERAL LAW.
(i) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL
BY JURY.
(j) Titles. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
[Signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN INTERNATIONAL PETROLEUM CORP.:
By:______________________________________________
Name: George N. Faris
Title: President
INVESTOR:
________________________________________________
HALIFAX FUND, L.P.
By: The Palladin Group, as Attorney-in-Fact
and Investment Advisor
By: Jeffrey E. Devers
-17-
<PAGE>
EXHIBIT 1
To Registration Rights Agreement
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you (1) to issue shares (the "Common Shares") of Common Stock, par value
$0.08 per share (the "Common Stock"), of American International Petroleum Corp.,
a Nevada corporation (the "Company"), to or upon the order of the registered
holder from time to time of 5% Convertible Secured Debentures Due February 18,
2004 of the Company (the "Debentures") upon surrender to you of the Debentures
and (2) to issue shares (the "Warrant Shares") of Common Stock to or upon the
order of the registered holder from time to time of the Warrants of the Company
(the "Warrants") upon surrender to you of a properly completed and duly executed
Exercise Agreement and such Warrants notwithstanding the legend appearing on
such Warrants. Certificates for the Common Shares and Warrant Shares should not
bear any restrictive legend and should not be subject to any stop-transfer
restriction.
Pursuant to applicable securities laws or certain agreements between
the Company and Halifax Fund, L.P. (the "Investor"), the Investor may be
prohibited during certain limited periods of time from selling its shares of
Common Stock issuable upon conversion of the Debentures and exercise of the
Warrants under the Registration Statement; provided, however, that such Investor
may continue to sell such securities pursuant to an exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
may, during such periods, deliver a notice to you advising you to refrain from
transferring any Common Shares or Warrant Shares pursuant to such Registration
Statement, provided that such notice shall not prohibit the transfer of such
shares pursuant to an exemption from registration under the Securities Act
during such periods.
Contemporaneous with the delivery of this letter, the Company is
delivering to you a letter of ___________________________ as to registration of
the Common Shares and the Warrant Shares under the Securities Act of 1933, as
amended.
<PAGE>
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
AMERICAN INTERNATIONAL PETROLEUM
CORP.
By: _____________________________
Title:___________________________
Enclosures
cc: Halifax Fund, L.P.
-2-
<PAGE>
EXHIBIT 2
To Registration Rights
Agreement
[Date]
[Name and address
of Transfer Agent]
Re: American International Petroleum Corp.
Ladies and Gentlemen:
We are counsel to American International Petroleum Corp., a Nevada
corporation (the "Company"), and we understand that Halifax Fund, L.P. (the
"Holder") has purchased from the Company a 5% Convertible Secured Debenture Due
February 18, 2004 of the Company (the "Debenture") and warrants (the "Warrants")
that are convertible into or exercisable into the Company's Common Stock, par
value $0.08 per share (the "Common Stock"). The Debentures and Warrants were
purchased by the Holder pursuant to a Convertible Debenture Purchase Agreement,
dated as of February 11, 1999, between the Holder and the Company (the
"Agreement"). Pursuant to a Registration Rights Agreement, dated as of February
18, 1999, between the Company and the Holder (the "Registration Rights
Agreement"), the Company agreed with the Holder, among other things, to register
the Registrable Securities (as that term is defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the "Securities Act"),
upon the terms provided in the Registration Rights Agreement. In connection with
the Company's obligations under the Registration Rights Agreement, on
______________, 1999, the Company filed a Registration Statement on Form S-3
(File No. 333-___________) (the "Registration Statement") with the Securities
and Exchange Commission relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder.
[Other introductory language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: Halifax Fund, L.P.
<PAGE>
WHEN RECORDED, RETURN TO:
-------------------------
- --------------------------------------------------------------------------------
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made as of
the ____ day of February 1999, by AMERICAN INTERNATIONAL REFINERY, INC., a
Louisiana corporation ("Mortgagor"), having an address at 444 Madison Avenue,
Suite 3203, New York, New York 10022 for the benefit of HALIFAX FUND, L.P., a
Cayman Islands limited partnership ("Mortgagee"), whose address is c/o Palladin
Group, L.P., 195 Maplewood Avenue, Maplewood, New Jersey 07040.
RECITALS:
A. Mortgagor is a wholly-owned subsidiary of American International
Petroleum Corporation, a Nevada corporation ("AIPC").
B. AIPC desires to sell and issue to certain investors ("Investors") 5%
Convertible Secured Debentures due February __, 2004 (together with any and all
renewals, modifications, amendments, restatements, consolidations,
substitutions, and extensions thereof, the "Debentures"), in the aggregate
principal amount of $10,000,000 at an aggregate price of $10,000,000, on the
terms and conditions set forth in the Debentures.
C. The Debentures will be convertible into shares of common stock,
$0.08 par value per share, of AIPC ("Common Stock"), pursuant to the terms of
the Debentures, and the holders of the Debentures will have registration rights
with respect to such Common Stock and certain other securities of AIPC pursuant
to the terms of that certain Registration Rights Agreement to be entered into
between AIPC and the Investors of even date herewith ("Registration Rights
Agreement").
D. To induce the Investors to purchase the Debentures, AIPC has agreed
to cause Mortgagor to grant to the Mortgagee pursuant to the terms of this
Mortgage a first priority mortgage on the Real Estate and Improvements
(hereinafter defined), and a first priority security interest in the fixed
assets and other equipment comprising Mortgagor's petroleum refinery.
<PAGE>
E. Mortgagor will derive substantial benefit from the transactions
contemplated by this
Mortgage.
W I T N E S S E T H:
--------------------
THAT FOR VALUABLE CONSIDERATION, INCLUDING THE INDEBTEDNESS HEREIN
RECITED AND THE MORTGAGE HEREIN GRANTED, THE RECEIPT AND SUFFICIENCY OF WHICH IS
HEREBY ACKNOWLEDGED, MORTGAGOR HEREBY MORTGAGES, AFFECTS AND HYPOTHECATES AND
ASSIGNS AND GRANTS A SECURITY INTEREST, TO AND IN FAVOR OF MORTGAGEE, ITS
SUCCESSORS AND ASSIGNS, in all of Mortgagor's estate, right, title and interest
in, to and under any and all of the following described property, whether now
owned or hereafter acquired (collectively, the "Property"):
GRANTING CLAUSES
(A) All that certain real property situated in the State of Louisiana,
located at 4646 Highway 2059, Old Town Road, Lake Charles, Louisiana, as more
particularly described on Exhibit A attached hereto and incorporated herein by
this reference (the "Real Estate"), together with all of the easements, rights,
privileges, franchises, tenements, hereditaments and appurtenances now or
hereafter thereunto belonging or in any way appertaining and all of the estate,
right, title, interest, claim and demand whatsoever of Mortgagor therein or
thereto, either at law or in equity, in possession or in expectancy, now or
hereafter acquired;
(B) All structures, buildings and improvements of every kind and
description now or at any time hereafter located or placed on the Real Estate
(the "Improvements");
(C) All easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, and other similar rights now or
hereafter located on the Real Estate or under or above the same or any part or
parcel thereof, and all estates, rights, titles, interests, tenements,
hereditaments and appurtenances, reversions and remainders whatsoever, in any
way belonging, relating or appertaining to the Real Estate or any part thereof,
or which hereafter shall in any way belong, relate or be appurtenant thereto,
whether now owned or hereafter acquired by Mortgagor;
(D) All furniture, furnishings, fixtures, goods, equipment and personal
property owned by Mortgagor and now or hereafter located on, attached to or used
in or about the Improvements, including, but not limited to, all items listed on
Exhibit B attached hereto, all machines, engines, boilers, dynamos, elevators,
stokers, tanks, cabinets, awnings, screens, shades, blinds, carpets, draperies,
lawn mowers, and all appliances, plumbing, heating, air conditioning, lighting,
ventilating, refrigerating, disposal and incinerating equipment, and all
fixtures and appurtenances thereto, and such other goods and chattels and
personal property owned by Mortgagor as are now
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<PAGE>
or hereafter used or furnished in operating the Improvements, or the activities
conducted therein, and all building materials and equipment hereafter situated
on or about the Real Estate or Improvements, and all warranties and guaranties
relating thereto, and all additions thereto and substitutions and replacements
therefor (exclusive of any of the foregoing owned or leased by tenants of space
in the Improvements);
(E) All water, water courses, ditches, wells, reservoirs and drains and
all water, ditch, well, reservoir and drainage rights and powers which are
appurtenant to, located on, under or above or used in connection with the Real
Estate or the Improvements, or any part thereof, together (i) with all
utilities, utility lines, utility commitments, utility capacity, capital
recovery charges, impact fees and other fees paid in connection with same, (ii)
reimbursements or other rights pertaining to utility or utility services
provided to the Real Estate and/or Improvements and (iii) the present or future
use or availability of waste water capacity, or other utility facilities to the
extent same pertain to or benefit the Real Estate and/or Improvements,
including, without limitation, all reservations of or commitments or letters
covering any such use in the future, whether now existing or hereafter created
or acquired;
(F) All minerals, crops, timber, trees, shrubs, flowers and landscaping
features now or hereafter located on, under or above the Real Estate;
(G) All leases, licenses, tenancies, concessions and occupancy
agreements of the Real Estate or the Improvements now or hereafter entered into
and all rents, royalties, issues, profits, revenue, income and other benefits
(collectively, the "Rents" or "Rents and Profits") of the Real Estate, the
Improvements, or the fixtures or equipment, now or hereafter arising from the
use or enjoyment of all or any portion thereof or from any lease, license,
tenancy, concession, occupancy agreement or other agreement pertaining thereto
or arising from any of the Contracts (as hereinafter defined);
(H) All contracts and agreements now or hereafter entered into covering
any part of the Real Estate or the Improvements (collectively, the "Contracts")
and all revenue, income and other benefits thereof, including, without
limitation, management agreements, service contracts, maintenance contracts,
equipment leases, personal property leases and any contracts or documents
relating to construction on any part of the Real Estate or the Improvements
(including plans, specifications, studies, drawings, surveys, tests, operating
and other reports, bonds and governmental approvals) or to the management or
operation of any part of the Real Estate or the Improvements;
(I) All present and future monetary deposits given to any public or
private utility with respect to utility services furnished to any part of the
Real Estate or the Improvements;
(J) All general intangibles (including, without limitation, trademarks,
trade names, servicemarks and symbols) now or hereafter used in connection with
any part of the Real Estate or the Improvements, all names by which the Real
Estate or the Improvements may be operated or known, all rights to carry on
business under such names, and all rights, interests and privileges
3
<PAGE>
which Mortgagor has or may have as developer or declarant under any covenants,
restrictions or declarations now or hereafter relating to the Real Estate or the
Improvements) and all notes or chattel paper now or hereafter arising from or by
virtue of any transactions related to the Real Estate or the Improvements
(collectively, the "General Intangibles");
(K) All water taps, sewer taps, certificates of occupancy, permits,
special permits, uses, licenses, franchises, certificates, consents, approvals
and other rights and privileges now or hereafter obtained in connection with the
Real Estate or the Improvements and all present and future warranties and
guaranties relating to the Improvements or to any equipment, fixtures,
furniture, furnishings, personal property or components of any of the foregoing
now or hereafter located or installed on the Real Estate or the Improvements;
(L) All building materials, supplies and equipment now or hereafter
placed on the Real Estate or in the Improvements and all architectural
renderings, models, drawings, plans, specifications, studies and data now or
hereafter relating to the Real Estate or the Improvements;
(M) All right, title and interest of Mortgagor in any insurance
policies or binders now or hereafter relating to the Property including any
unearned premiums thereon;
(N) All proceeds, products, substitutions and accessions (including
claims and demands therefor) of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation awards; and
(O) All other or greater rights and interests of every nature in the
Real Estate or the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Mortgagor.
FOR THE PURPOSE OF SECURING:
(1) The debt evidenced by the Debentures issued by AIPC of even date
with this Mortgage, together with interest and any fees as therein provided;
(2) The full and prompt payment and performance of all of the
provisions, agreements, covenants and obligations herein contained and contained
in any other agreements, documents or instruments now or hereafter evidencing,
securing or otherwise relating to the indebtedness evidenced by the Debentures
(the Debentures, this Mortgage and such other agreements, documents and
instruments, together with any and all renewals, amendments, extensions and
modifications thereof, are hereinafter collectively referred to as the
"Transaction Documents") and the payment of all other sums therein covenanted to
be paid;
(3) Any and all future or additional advances (whether or not
obligatory) made by Mortgagee to protect or preserve the Property, or the lien
or security interest created hereby on the Property, or for taxes, assessments
or insurance premiums as hereinafter provided or for
4
<PAGE>
performance of any of Mortgagor's obligations hereunder or under the other
Transaction Documents or for any other purpose provided herein or in the other
Transaction Documents (whether or not the original Mortgagor remains the owner
of the Property at the time of such advances), together with interest per annum
thereon at the Citibank Prime Rate (as defined in the Debentures) plus 8% (the
"Default Interest Rate");
(4) The obligations of AIPC to make any payment of money under the
terms of the Registration Rights Agreement.
(5) Any and all other indebtedness now owing or which may hereafter be
owing by Mortgagor to Mortgagee, up to a maximum amount of $20,000,000, however
and whenever incurred or evidenced, whether express or implied, direct or
indirect, absolute or contingent, or due or to become due, and all renewals,
modifications, consolidations, substitutions, replacements and extensions
thereof.
(All of the sums referred to in Paragraphs (1) through (5) above are herein
sometimes referred to as the "secured indebtedness" or the "indebtedness secured
hereby").
TO HAVE AND TO HOLD the Property unto Mortgagee, its successors and
assigns, forever, for the purposes and uses herein set forth.
PROVIDED, HOWEVER, that at such time as the face amount of the
outstanding Debentures is equal to less than $3,000,000, and all other sums due
under the Debentures shall have been paid at the time and in the manner
stipulated therein or converted to shares of Common Stock, and all other sums
payable under this Mortgage shall have been paid and all other covenants
contained in the Transaction Documents shall have been performed, then, in such
case, this Mortgage shall be satisfied and the estate, right, title and interest
of Mortgagee in the Property shall cease, and upon payment to Mortgagee of all
costs and expenses incurred for the preparation of the release hereinafter
referenced and all recording costs if allowed by law, Mortgagee shall release
this Mortgage and the lien hereof by proper instrument.
ARTICLE I.
COVENANTS OF MORTGAGOR
For the purpose of further securing the indebtedness secured hereby and
for the protection of the security of this Mortgage, for so long as the
indebtedness secured hereby or any part thereof remains unpaid; Mortgagor
represents, covenants and agrees as follows:
1.1. Warranties of Mortgagor. Mortgagor, for itself and its successors
and assigns, does hereby represent, warrant and covenant to and with Mortgagee,
its successors and assigns, that:
(a) Mortgagor has good, marketable and indefeasible fee simple
title to the
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Property, subject only to those matters expressly set forth on Exhibit C
attached hereto and by this reference incorporated herein (the "Permitted
Exceptions"), and has full power and lawful authority to assign and encumber its
interest in the Property in the manner and form hereby done or intended.
Mortgagor will preserve its interest in and title to the Property and will
forever warrant and defend the same to Mortgagee against any and all claims
whatsoever and will forever warrant and defend the validity and priority of the
lien and security interest created herein against the claims of all persons and
parties whomsoever, subject to the Permitted Exceptions. The foregoing warranty
of title shall survive the foreclosure or other enforcement of this Mortgage and
shall inure to the benefit of and be enforceable by Mortgagee in the event
Mortgagee acquires title to the Property pursuant to any foreclosure or
otherwise;
(b) No bankruptcy or insolvency proceedings are pending or
contemplated by Mortgagor or, to the best knowledge of Mortgagor, against
Mortgagor;
(c) All reports, certificates, affidavits, statements and
other data furnished by Mortgagor to Mortgagee in connection with the Debentures
are true and correct in all material respects and do not omit to state any fact
or circumstance necessary to make the statements contained therein not
misleading;
(d) The execution, delivery and performance of this Mortgage
and all of the other Transaction Documents have been duly authorized by all
necessary action to be, and are, binding and enforceable against Mortgagor in
accordance with the respective terms thereof and do not contravene, result in a
breach of or constitute (upon the giving of notice or the passage of time or
both) a default under the certificate or articles of incorporation or other
organizational documents of Mortgagor or any contract or agreement of any nature
to which Mortgagor is a party or by which Mortgagor or any of its property may
be bound and do not violate or contravene any law, order, decree, rule or
regulation to which Mortgagor is subject;
(e) Mortgagor is not required to obtain any consent, approval
or authorization from or to file any declaration or statement with, any
governmental authority or agency in connection with or as a condition to the
execution, delivery or performance of this Mortgage or the other Transaction
Documents which has not been so obtained or filed;
(f) Mortgagor has obtained or made all necessary (i) consents,
approvals and authorizations and registrations and filings of or with all
governmental authorities or agencies and (ii) consents, approvals, waivers and
notifications of partners, stockholders, members, creditors, lessors and other
non-governmental persons and/or entities, in each case, which are required to be
obtained or made by Mortgagor in connection with the execution and delivery of,
and the performance by Mortgagor of its obligations under, the Transaction
Documents;
(g) Mortgagor is not an "investment company", or a company
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended;
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(h) Mortgagor is not an "employee benefit plan", as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to Title I of ERISA and the assets of Mortgagor do
not constitute "plan assets" of one or more such plans within the meaning of 29
C.F.R. Section 2510.3-101;
(i) The Real Estate, the Improvements and the other Property,
and the intended use thereof by Mortgagor comply with all applicable restrictive
covenants, zoning ordinances, subdivision and building codes, flood disaster
laws, applicable health and environmental laws and regulations and all other
ordinances, orders or requirements issued by any local, state, federal or
municipal authorities having or claiming jurisdiction over the Property. The
Real Estate and Improvements constitute a separate tax parcel for purposes of ad
valorem taxation. The Real Estate and Improvements do not require any rights
over, or restrictions against, other property in order to comply with any of the
aforesaid governmental ordinances, orders or requirements;
(j) All utility services necessary and sufficient for the full
use, occupancy, operation and disposition of the Real Estate, the Improvements
and the other Property for their intended purposes are available to the
Property, including water, storm sewer, sanitary sewer, gas, electric, cable and
telephone facilities, through public rights-of-way or perpetual private
easements reflected in the title insurance policy insuring the lien of this
Mortgage and approved by Mortgagee (the "Title Insurance Policy");
(k) All streets, roads, highways, bridges and waterways
necessary for access to and full use, occupancy, operation and disposition of
the Real Estate and the Improvements have been completed, have been dedicated to
and accepted by the appropriate municipal authority and are open and available
to the Real Estate and the Improvements without further condition or cost to
Mortgagor;
(l) There are no judicial, administrative, mediation or
arbitration actions, suits or proceedings pending or, to Mortgagor's knowledge,
threatened against or affecting Mortgagor (and, if Mortgagor is a partnership,
any of its general partners) or the Property which, if adversely determined,
would materially impair either the Property or Mortgagor's ability to perform
the covenants or obligations required to be performed under the Transaction
Documents;
(m) As of the date of this Mortgage (i) the Property is free
from delinquent water charges, vault charges, sewer rents, taxes and
assessments, and from unrepaired damage caused by fire, flood, accident or other
casualty, and (ii) no part of the Real Estate or the Improvements has been taken
in condemnation, eminent domain or like proceeding nor is any such proceeding
pending or to Mortgagor's knowledge and belief, threatened or contemplated;
(n) Except as set forth on Exhibit B, no improvements on
adjoining properties encroach upon the Property. The Improvements are
structurally sound, in good repair and free of defects in materials and
workmanship and have been constructed and installed in substantial compliance
with the plans and specifications relating thereto. All major building systems
located within the Improvements, including without limitation the heating and
air conditioning systems and the electrical and plumbing systems, are in good
working order and condition;
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(o) Except as set forth on Exhibit C, there are no security
agreements or financing statements affecting any of the Property other than the
security agreements and financing statements created in favor of or for the
benefit of Mortgagee;
(p) Except for that certain Oil, Gas and Mineral Lease dated
July 26, 1996, between Mortgagor and Total Minatome Corporation, there are no
leases presently affecting the Property;
(q) The Property is free and clear of any mechanics' or
materialmen's liens or liens in the nature thereof, and no rights are
outstanding that under law would give rise to any such liens, any of which liens
are or may be prior to, or equal with, the lien of this Mortgage;
(r) No lease or Contract or easement, right of way, permit or
declaration (collectively, "Property Agreements") provides any party with the
right to obtain a lien or encumbrance upon the Property superior to the lien of
this Mortgage;
(s) Mortgagor has delivered to Mortgagee true, correct and
complete copies of all Property Agreements and no default exists or which the
passing of time or the giving of notice or both would exist under any Property
Agreement which would, in the aggregate, have a material adverse effect on (a)
the Property or (b) the ability of Mortgagor to perform any obligations under
any Transaction Document (collectively, a "Material Adverse Effect");
(t) The Property is taxed separately without regard to any
other real estate and constitutes a legally subdivided lot under all applicable
legal requirements (or, if not subdivided, no subdivision or platting of the
Property is required under applicable legal requirements), and for all purposes
may be mortgaged, conveyed, pledged, hypothecated, assigned or otherwise dealt
with as an independent parcel;
(u) The Property forms no part of any property owned, used or
claimed by Mortgagor as a residence or business homestead and is not exempt from
forced sale under the laws of the State of Louisiana. Mortgagor hereby disclaims
and renounces each and every claim to all or any portion of the Property as a
homestead and the Debentures are issued and transacted solely for business,
investment, commercial or other similar purposes;
(v) There are no outstanding options or rights of first offer
or refusal to purchase all or any portion of the Property or Mortgagor's
interest therein or ownership thereof;
(w) There are no actions, suits, proceedings or orders of
record or of which Mortgagor has notice, and, to the best of Mortgagor's
knowledge, there are no inquiries or investigations, pending or threatened, in
any such case against, involving or affecting the Property, at law or in equity,
or before or by any federal, state, municipal or other governmental
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department, commission, board, bureau, agency or instrumentality, domestic or
foreign, alleging the violation of any federal, state or local law, statute,
ordinance, rule or regulation relating to Environmental Laws. Furthermore,
Mortgagor has not received any written claim, notice or opinion that the
ownership or operation of the Property violates any federal, state or local law,
statute, ordinance, rule, regulation, decree, order, and/or permit relating to
Environmental Laws, and, to the best of the Mortgagor's knowledge, no valid
basis for any proceeding, action or claim of such nature exists;
1.2. Defense of Title. If, while this Mortgage is in force, the title
to the Property or the interest of Mortgagee therein shall be the subject,
directly or indirectly, of any action at law or in equity, or be attached
directly or indirectly, or endangered, clouded or adversely affected in any
manner, Mortgagor, at Mortgagor's expense, shall take all necessary and proper
steps for the defense of said title or interest, including the employment of
counsel reasonably approved by Mortgagee, the prosecution or defense of
litigation, and the compromise or discharge of claims made against said title or
interest.
1.3. Performance of Obligations. Mortgagor shall pay when due the
principal of and the interest on the indebtedness secured hereby including all
charges, fees and other sums required to be paid by Mortgagor as provided in the
Transaction Documents, and shall observe, perform and discharge all obligations
and conditions, and comply with all prohibitions, covenants and agreements to be
observed, performed or discharged by Mortgagor set forth in the Transaction
Documents in accordance with their terms. In the event that Mortgagee reasonably
determines that Mortgagor is not adequately performing any of its obligations
under this Mortgage or under any of the other Transaction Documents, Mortgagee
may, without limiting or waiving any other rights or remedies of Mortgagee
hereunder, take such steps with respect thereto as Mortgagee shall deem
necessary or proper and any and all costs and expenses reasonably incurred by
Mortgagee in connection therewith, together with interest thereon at the Default
Interest Rate from the date incurred by Mortgagee until actually paid by
Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured
by this Mortgage.
1.4. Insurance. Mortgagor shall, at Mortgagor's expense, maintain in
force and effect on the Property at all times while this Mortgage continues in
effect the following insurance:
(a) "All-risk" coverage insurance against loss or damage to
the Property from all-risk perils. The amount of such insurance shall be not
less than one hundred percent (100%) of the maximum probable loss from such
perils to the Improvements, furniture, furnishings, fixtures, equipment and
other items (whether personalty or fixtures) included in the Property and owned
by Mortgagor from time to time, without reduction for depreciation. The
determination of the replacement cost amount shall be adjusted annually to
comply with the requirements of the insurer issuing such coverage or, at
Mortgagee's election, by reference to such indexes, appraisals or information as
Mortgagee determines in its reasonable discretion. Full replacement cost, as
used herein, means, with respect to the Improvements, the cost of replacing the
Improvements without regard to deduction for depreciation, exclusive of the cost
of excavations, foundations and footings below the lowest basement floor, and
means, with respect to such furniture, furnishings, fixtures, equipment and
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other items, the cost of replacing the same. Each policy or policies shall
contain a replacement cost endorsement and either an agreed amount endorsement
(to avoid the operation of any co-insurance provisions) or a waiver of any
co-insurance provisions, all subject to Mortgagee's approval.
(b) Commercial general liability insurance for personal
injury, bodily injury, death and property damage liability in amounts not less
than $2,000,000.00 per occurrence, $3,000,000.00 aggregate (inclusive of
umbrella coverage) or such lesser amount as Mortgagee in Mortgagee's sole
discretion may accept, for bodily injury, personal injury and property damage.
Mortgagee hereby retains the right to periodically review the amount of said
liability insurance being maintained by Mortgagor and to require an increase in
the amount of said liability insurance should Mortgagee deem an increase to be
reasonably prudent under then existing circumstances.
(c) Insurance covering the major components of the oil
refinery equipment described on Exhibit B attached hereto, central heating, air
conditioning and ventilating systems, boilers, other pressure vessels, high
pressure piping and machinery, elevators and escalators, if any, and other
equipment installed in the Improvements, in an amount equal to one hundred
percent (100%) of the maximum probable loss to such components, which policies
shall insure against physical damage to and loss of occupancy and use of the
Improvements arising out of an accident or breakdown covered thereunder.
(d) If the Real Estate or any part thereof is identified by
the Secretary of Housing and Urban Development as being situated in an area now
or subsequently designated as having special flood hazards (including, without
limitation, those areas designated as Zone A or Zone V), flood insurance in an
amount equal to one hundred percent (100%) of the maximum probable loss to the
Improvements as a result of such hazards or the maximum amount of flood
insurance available, whichever is the lesser.
(e) During the period of any construction on the Real Estate
or renovation or alteration of the Improvements, a so-called "Builder's All-Risk
Completed Value" or "Course of Construction" insurance policy in non-reporting
form for any Improvements under construction, renovation or alteration in an
amount approved by Mortgagee and Worker's Compensation Insurance covering all
persons engaged in such construction, renovation or alteration.
(f) Such other insurance on the Property or on any
replacements or substitutions thereof or additions thereto as may from time to
time be required by Mortgagee against other insurable hazards or casualties
which at the time are commonly insured against in the case of property similarly
situated, due regard being given to the height and type of buildings, their
construction, location, use and occupancy.
All such insurance shall (i) be with insurers authorized to do business
in the State of Louisiana and who have and maintain a Best Rating of A-V or
better, (ii) contain the complete address of the Real Estate (or a complete
legal description), (iii) be for term of at least one year, (iv) contain
deductibles no greater than $100,000, and (v) be subject to the approval of
Mortgagee as to insurance companies, amounts, content, forms of policies, method
by which premiums are paid and expiration dates.
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Mortgagor shall as of the date hereof deliver to Mortgagee evidence
that said insurance policies have been paid current as of the date hereof and
certified copies of such insurance policies and original certificates of
insurance signed by an authorized agent evidencing such insurance satisfactory
to Mortgagee. Mortgagor shall renew all such insurance and deliver to Mortgagee
certificates evidencing such renewals at least thirty (30) days before any such
insurance shall expire. Without limiting the required endorsements to insurance
policies, Mortgagor further agrees that all such policies shall provide that
proceeds thereunder shall be payable to Mortgagee, its successors and assigns,
pursuant and subject to a Mortgagee clause (without contribution) of standard
form attached to, or otherwise made a part of, the applicable policy and that
Mortgagee, its successors and assigns, shall be named as an additional insured
under all liability insurance policies. Mortgagor further agrees that all such
insurance policies: (i) shall provide for at least thirty (30) days' prior
written notice to Mortgagee prior to any cancellation or termination thereof and
prior to any modification thereof which affects the interest of Mortgagee; (ii)
shall contain an endorsement or agreement by the insurer that any loss shall be
payable to Mortgagee in accordance with the terms of such policy notwithstanding
any act or negligence of Mortgagor which might otherwise result in forfeiture of
such insurance; and (iii) shall either name Mortgagee as an additional insured
or waive all rights of subrogation against Mortgagee. The delivery to Mortgagee
of the insurance policies or the certificates of insurance as provided above
shall constitute an assignment of all proceeds payable under such insurance
policies by Mortgagor to Mortgagee as further security for the indebtedness
secured hereby. In the event of foreclosure of this Mortgage, or other transfer
of title to the Property in extinguishment in whole or in part of the secured
indebtedness, all right, title and interest of Mortgagor in and to all proceeds
payable under such policies then in force concerning the Property shall
thereupon vest in the purchaser at such foreclosure, or in Mortgagee or other
transferee in the event of such other transfer of title. In the event Mortgagor
fails to provide, maintain, keep in force or deliver and furnish to Mortgagee
the policies of insurance required by this Mortgage or evidence of their renewal
as required herein, Mortgagee may, but shall not be obligated to, procure such
insurance and Mortgagor shall pay all amounts advanced by Mortgagee, together
with interest thereon at the Default Interest Rate from and after the date
advanced by Mortgagee until actually repaid by Mortgagor, promptly upon demand
by Mortgagee. Any amounts so advanced by Mortgagee, together with interest
thereon, shall be secured by this Mortgage.
1.5. Payment of Taxes. Mortgagor shall pay or cause to be paid, except
to the extent provision is actually made therefor pursuant to Section 1.6 of
this Mortgage, all taxes and assessments which are or may become a lien on the
Property or which are assessed against or imposed upon the Property. Upon
request of Mortgagee, Mortgagor shall furnish Mortgagee with receipts (or if
receipts are not immediately available, with copies of canceled checks
evidencing payment with receipts to follow promptly after they become available)
showing payment of such taxes and assessments at least fifteen (15) days prior
to the applicable delinquency date therefor. Notwithstanding the foregoing,
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Mortgagor may in good faith, by appropriate proceedings and upon notice to
Mortgagee, contest the validity, applicability or amount of any asserted tax or
assessment so long as (a) such contest is diligently pursued, (b) Mortgagee
determines, in its subjective opinion, that such contest suspends the obligation
to pay the tax or assessment and that nonpayment of such tax or assessment will
not result in the sale, loss, forfeiture or diminution of the Property or any
part thereof or any interest of Mortgagee therein, and (c) prior to the earlier
of the commencement of such contest or the delinquency date of the asserted tax
or assessment, Mortgagor deposits in the Impound Account (as hereinafter
defined) an amount determined by Mortgagee to be adequate to cover the payment
of such tax or assessment and a reasonable additional sum to cover possible
interest, costs and penalties; provided, however, that Mortgagor shall promptly
cause to be paid any amount adjudged by a court of competent jurisdiction to be
due, with all interest, costs and penalties thereon, promptly after such
judgment becomes final; and provided further that in any event each such contest
shall be concluded and the taxes, assessments, interest, costs and penalties
shall be paid prior to the date any writ or order is issued under which the
Property may be sold, lost or forfeited.
1.6. Casualty and Condemnation. Mortgagor shall give Mortgagee prompt
written notice of the occurrence of any casualty affecting, or the institution
of any proceedings for eminent domain or for the condemnation of, the Property
or any portion thereof (collectively, an "Insured Event"). All insurance
proceeds on the Property, and all causes of action, claims, compensation, awards
and recoveries for any damage, condemnation or taking of all or any part of the
Property or for any damage or injury to it for any loss or diminution in value
of the Property, are hereby assigned to and shall be paid to Mortgagee.
Mortgagee may participate in any suits or proceedings relating to any such
proceeds, causes of action, claims, compensation, awards or recoveries and
Mortgagee is hereby authorized, in its own name or in Mortgagor's name, to
adjust any loss covered by insurance or any condemnation claim or cause of
action, and to settle or compromise any claim or cause of action in connection
therewith, and Mortgagor shall from time to time deliver to Mortgagee any
instruments required to permit such participation; provided, however, that
Mortgagee shall not have the right to participate in the adjustment of any loss
which is not in excess of $500,000.00. Provided no default is then continuing
hereunder or under any of the other Transaction Documents and no event has
occurred which, with the giving of notice or the passage of time or both, would
constitute a default hereunder or under any of the other Transaction Documents,
Mortgagee shall apply any sums received by it under this Section first to the
payment of all of its costs and expenses (including, but not limited to,
reasonable legal fees and disbursements) incurred in obtaining those sums, and
then, as follows:
(a) In the event that Mortgagee receives insurance proceeds or
condemnation awards upon the occurrence of an Insured Event in an amount not in
excess of $500,000.00 (the "Threshold Amount"), Mortgagee shall advance such
funds to Mortgagor in accordance with and satisfaction of, the following terms
and conditions:
(i) The work will be performed (i) by a reputable
general contractor satisfactory to Mortgagee in the good faith exercise of
Mortgagee's business judgment, (ii) pursuant to plans and specifications
satisfactory to Mortgagee, in the good faith exercise of Mortgagee's business
judgment, and (iii) in compliance with all applicable permits and
authorizations, with all building and zoning laws then in effect and applicable
to the Property all other requirements of all governmental authorities having
jurisdiction and of any national or local board of fire underwriters or any
other body hereafter exercising functions similar to those of any of the
foregoing.
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(ii) The insurance proceeds will be held by Mortgagee
(or an escrowee satisfactory to Mortgagee) in trust, to be disbursed
periodically as the work progresses in amounts not exceeding 90% of the value of
labor and materials incorporated into the work. The remaining 10% will be
released to Mortgagor (i) upon final completion of the work in accordance with
the aforesaid plans and specifications, as determined by Mortgagee's inspector
or independent consulting architect or engineer, (ii) upon a receipt of a
release of liens from all contractors and subcontractors engaged in the work,
and (iii) upon issuance of all governmental permits and approvals required for
lawful occupancy of the Improvements and operation of the Property.
(iii) If the restoration can be completed to Mortgagee's
satisfaction without use of the entire amount of the insurance proceeds, the
excess proceeds shall be returned to Mortgagor. If the cost of the work is
reasonably anticipated by Mortgagee to exceed the available insurance proceeds,
Mortgagor will deposit the amount of the excess with Mortgagee (or the aforesaid
escrowee) to be disbursed prior to disbursement of the insurance proceeds.
(b) In the event any proceeds or awards from an Insured Event
exceed the Threshold Amount but are less than 25% of the value of the
Improvements and equipment located on the Real Estate, then if:
(1) the Property can, in Mortgagee's reasonable judgment,
with diligent restoration or repair, be returned to a condition at least equal
to the condition thereof that existed prior to the casualty or partial taking
causing the loss or damage within six (6) months after the receipt of insurance
proceeds or condemnation awards by either Mortgagor or Mortgagee, and
(2) all necessary governmental approvals can be obtained
to allow the rebuilding of the Property as described in subsection (b)(1) above,
and
(3) there are sufficient sums available (through insurance
proceeds or condemnation awards and contributions by Mortgagor, the full amount
of which shall at Mortgagee's option have been deposited with Mortgagee) for
such restoration or repair (including, without limitation, for any reasonable
costs and expenses of Mortgagee to be incurred in administering said restoration
or repair) and for payment of principal and interest to become due and payable
under the Debentures during such restoration or repair, and
(4) the economic feasibility of the Improvements after
such restoration or repair will be such that income from their operation is
reasonably anticipated to be sufficient to pay operating expenses of the
Property and debt service on the indebtedness secured hereby in full, and
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(5) in the event that the insurance proceeds or
condemnation awards received as a result of such Insured Event exceed the
Threshold Amount, Mortgagor shall have delivered to Mortgagee, at Mortgagor's
sole cost and expense, an appraisal report from an appraiser, in form and
substance, satisfactory to Mortgagee appraising the value of the Property as
proposed to be restored or repaired to be not less than $20,000,000; and
(6) Mortgagor so elects by written notice delivered to
Mortgagee within five (5) days after settlement of the aforesaid insurance or
condemnation claim,
then, Mortgagee shall, solely for the purposes of such
restoration or repair, advance so much of the remainder of such sums as may be
required to facilitate such restoration or repair, and any funds deposited by
Mortgagor therefor, to Mortgagor in the manner and upon such terms and
conditions as would be required by a prudent interim construction lender,
including, but not limited to, the prior approval by Mortgagee of plans and
specifications, contractors and the form of construction contracts and the
furnishing to Mortgagee of permits, bonds, lien waivers, invoices, receipts and
affidavits from contractors and subcontractors in form and substance reasonably
satisfactory to Mortgagee. Any remaining proceeds shall be returned to
Mortgagor. Any disbursement pursuant to this clause (b) of sums by Mortgagee
shall, subject to Mortgagor's satisfaction of the provisions hereof, be in a
manner to promptly facilitate the restoration or repair of the Property.
(c) In the event the proceeds or awards from an Insured Event
exceed 25% of the value of the Improvements and equipment located on the Real
Estate, or in the event Mortgagor fails to meet the requirements of clause (b),
then Mortgagee shall in its sole discretion have the option to (i) elect to
cause AIPC to redeem, at the Redemption Price (as defined in Section 6(a) of the
Debentures), 100% of the then outstanding principal amount of Debentures, and
AIPC shall be deemed to have delivered a Redemption Notice (as defined in the
Debentures) on the date of Mortgagee's election or (ii) elect to make insurance
or condemnation proceeds available to Mortgagor for repair or restoration on
such terms and conditions as Mortgagee may determine in its absolute discretion.
(d) Any reduction in the indebtedness secured hereby resulting
from Mortgagee's application of any sums received by it hereunder shall take
effect only when Mortgagee actually receives such sums and elects to apply such
sums to the indebtedness secured hereby and, in any event, the unpaid portion of
the indebtedness secured hereby shall remain in full force and effect and
Mortgagor shall not be excused in the payment thereof. If Mortgagor undertakes
to restore or repair the Property after the occurrence of a casualty or partial
taking of the Property as provided above, Mortgagor shall promptly and
diligently, at Mortgagor's sole cost and expense and regardless of whether the
insurance proceeds or condemnation award, as appropriate, shall be sufficient
for the purpose, restore, repair, replace and rebuild the Property as nearly as
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possible to its value, condition and character immediately prior to such
casualty or partial taking in accordance with the foregoing provisions and
Mortgagor shall pay to Mortgagee all costs and expenses of Mortgagee incurred in
administering said rebuilding, restoration or repair, provided that Mortgagee
makes such proceeds or award available for such purpose. Mortgagor agrees to
execute and deliver from time to time such further instruments as may be
requested by Mortgagee to confirm the foregoing assignment to Mortgagee of any
award, damage, insurance proceeds, payment or other compensation. Mortgagor
hereby irrevocably constitutes and appoints Mortgagee the attorney-in-fact of
Mortgagor (which power of attorney shall be irrevocable so long as any
indebtedness secured hereby is outstanding, shall be deemed coupled with an
interest, shall survive the voluntary or involuntary dissolution of Mortgagor
and shall not be affected by any disability or incapacity suffered by Mortgagor
subsequent to the date hereof), with full power of substitution, subject to the
terms of this Section, to settle for, collect and receive any such awards,
damages, insurance proceeds, payments or other compensation from the parties or
authorities making the same, to appear in and prosecute any proceedings therefor
and to give receipts and acquittance therefor.
1.7. Mechanics' Liens. Mortgagor shall pay when due all claims and
demands of mechanics, materialmen, laborers and others for any work performed or
materials delivered for the Real Estate or the Improvements; provided, however,
that Mortgagor shall have the right to contest in good faith any such claim or
demand, so long as it does so diligently, by appropriate proceedings and without
prejudice to Mortgagee and provided that neither the Property nor any interest
therein would be in any danger of sale, loss or forfeiture as a result of such
proceeding or contest. In the event Mortgagor shall contest any such claim or
demand, Mortgagor shall promptly notify Mortgagee of such contest and thereafter
shall, upon Mortgagee's request, promptly provide a bond, cash deposit or other
security satisfactory to Mortgagee to protect Mortgagee's interest and security
should the contest be unsuccessful. If Mortgagor shall fail to immediately
discharge or provide security against any such claim or demand as aforesaid,
Mortgagee may do so and any and all expenses incurred by Mortgagee, together
with interest thereon at the Default Interest Rate from the date incurred by
Mortgagee until actually paid by Mortgagor, shall be immediately paid by
Mortgagor on demand and shall be secured by this Mortgage.
1.8. Leases and Licenses. Mortgagor shall submit to Mortgagee for
Mortgagee's approval, which approval may be withheld in Mortgagee's sole and
absolute discretion, prior to the execution thereof, any proposed lease, license
or occupancy agreement with respect to the Property or any portion thereof.
Mortgagee may condition its consent to any such lease on Mortgagor executing and
delivering a collateral assignment of such lease in form and substance
satisfactory to Mortgagee. Mortgagor shall furnish to Mortgagee, within ten (10)
days after a request by Mortgagee to do so, a current rent roll certified by
Mortgagor as being true and correct containing the names of all tenants, lessees
and licensees with respect to the Property, the terms of their respective
leases, licenses or occupancy agreements, the spaces occupied and the rentals or
fees payable thereunder and the amount of each tenant's security deposit. Upon
the request of Mortgagee, Mortgagor shall deliver to Mortgagee a copy of each
such lease, license and occupancy agreement. Mortgagor shall not do or suffer to
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be done any act that might result in a default by the landlord, lessor or
licensor under any such lease, license or occupancy agreement or allow the
tenant, lessee or licensee thereunder to withhold payment or rent and, Section
1.10 hereof, shall not further assign any such lease, license or occupancy
agreement or any such rents. Mortgagor, at no cost or expense to Mortgagee,
shall enforce, short of termination, the performance and observance of each and
every condition and covenant of each of the parties under such leases. Mortgagor
shall not, without the prior written consent of Mortgagee, modify any of the
leases, terminate or accept the surrender of any leases, waive or release any
other party from the performance or observance of any obligation or condition
under such leases except in the normal of course of business in a manner which
is consistent with sound and customary leasing and management practices for
similar properties in the community in which the Property is located. Mortgagor
shall not permit the prepayment of any rents under any of the leases for more
than one (1) month prior to the due date thereof.
1.9 Alienation and Further Encumbrances. In the event that the Property
or any part thereof or interest therein shall be sold (including any installment
sales agreement), conveyed, disposed of, alienated, hypothecated, leased,
assigned, pledged, mortgaged, further encumbered or otherwise transferred or
Mortgagor shall be divested of its title to the Property or any interest
therein, in any manner or way, whether voluntarily or involuntarily, without the
prior written consent of Mortgagee being first obtained, which consent may be
withheld in Mortgagee's sole discretion, then, the same shall constitute a
default hereunder and Mortgagee shall have the right, at its option, to exercise
any of its other rights and remedies contained in Article III hereof.
1.10. Payment of Utilities, Assessments, Charges, Etc. Mortgagor shall
pay when due all utility charges which are incurred by Mortgagor or which may
become a charge or lien against any portion of the Property for gas,
electricity, water and sewer services furnished to the Real Estate and/or the
Improvements and all other assessments or charges of a similar nature, or
assessments payable pursuant to any restrictive covenants, whether public or
private, affecting the Real Estate and/or the Improvements or any portion
thereof, whether or not such assessments or charges are or may become liens
thereon.
1.11 Access Privileges and Inspections. Mortgagee and the agents,
representatives and employees of Mortgagee shall have full and free access to
the Real Estate and the Improvements and any other location where books and
records concerning the Property are kept at all reasonable times for the
purposes of inspecting the Property and of examining, copying and making
extracts from the books and records of Mortgagor relating to the Property.
Mortgagor shall lend assistance to all such agents, representatives and
employees of Mortgagee.
1.12. Waste; Alteration of the Property. Mortgagor shall not commit,
suffer or permit any waste on the Property nor take any actions that might
invalidate any insurance carried on the Property. Mortgagor shall maintain the
Property in good condition and repair. No part of the Improvements may be
removed, demolished or materially altered, without the prior written consent of
Mortgagee. Without the prior written consent of Mortgagee, Mortgagor shall not
commence construction of any improvements on the Real Estate other than
improvements required for the maintenance or repair of the Property. Mortgagor
shall not permit any of the Property to be removed from or located in any place
not identified as the location of such Property to the Mortgagee, except after
written notice to and with written consent of Mortgagee and compliance with such
procedures as Mortgagee may reasonably impose to prevent any interruptions or
discontinuity in the security interest granted pursuant to this Mortgage.
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1.13. Zoning; Use. Without the prior written consent of Mortgagee,
Mortgagor shall not seek, make, suffer, consent to or acquiesce in any change in
the zoning or conditions of use of the Real Estate or the Improvements.
Mortgagor shall comply with and make all payments required under the provisions
of any covenants, conditions or restrictions affecting the Real Estate or the
Improvements. Mortgagor shall comply with all existing and future requirements
of all governmental authorities having jurisdiction over the Property. Mortgagor
shall keep all licenses, permits, franchises, certificates of occupancy,
consents, and other approvals necessary for the operation of the Property in
full force and effect.
1.14. Financial Statements and Books and Records. Mortgagee and its
duly authorized representatives shall have the right to examine, copy and audit
Mortgagor's records and books of account at all reasonable times.
1.15 Further Documentation. Mortgagor shall, on the request of
Mortgagee in its reasonable discretion and at the expense of Mortgagor, promptly
correct any defect, error or omission which may be discovered in the contents of
this Mortgage or in any of the other Transaction Documents and promptly execute,
acknowledge, deliver and record or file such further instruments and do such
further acts as may be necessary, desirable or proper to carry out more
effectively the purposes of this Mortgage and the other Transaction Documents or
as may be deemed advisable by Mortgagee to protect, continue or preserve the
liens and security interests hereunder including, without limitation, security
instruments, financing statements and continuation statements.
1.16. (a) Payment of Costs. Mortgagor shall pay all reasonable costs
and expenses of every character incurred in connection with this Mortgage or
attributable or chargeable to Mortgagor as the owner of the Property, including,
without limitation, appraisal fees, recording fees, documentary, stamp, mortgage
or intangible taxes, brokerage fees and commissions, title policy premiums and
title search fees, uniform commercial code/tax lien/litigation search and filing
fees, escrow fees and reasonable attorneys' fees.
(b) Advances to Protect Property. Without limiting or waiving
any other rights and remedies of Mortgagee hereunder, if Mortgagee determines
that Mortgagor is not adequately performing or has failed to perform any of its
obligations, covenants or agreements contained in this Mortgage and such
inadequacy or failure is not cured within any applicable grace or cure period,
or if any action or proceeding of any kind (including, but not limited to, any
bankruptcy, insolvency, arrangement, reorganization or other debtor relief
proceeding) is commenced which might affect Mortgagee's interest in the Property
or Mortgagee's right to enforce its security, then Mortgagee may, at it option,
with or without notice to Mortgagor, make any appearances, disburse or advance
any sums and take any actions as may be necessary or desirable to protect or
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enforce the security of this Mortgage or to remedy the failure of Mortgagor to
perform its covenants and agreements (without, however, waiving any default of
Mortgagor). Mortgagor agrees to pay on demand all expenses of Mortgagee
reasonably incurred with respect to the foregoing (including, but not limited
to, fees and disbursements of counsel), together with interest thereon at the
Default Interest Rate from and after the date on which Mortgagee incurs such
expenses until reimbursement thereof by Mortgagor. Any such expenses so incurred
by Mortgagee, together with interest thereon as provided above, shall be
additional indebtedness of Mortgagor secured by this Mortgage. The necessity for
any such actions and of the amounts to be paid shall be determined by Mortgagee
in its sole and absolute discretion. Mortgagee is hereby empowered to enter and
to authorize others to enter upon the Property or any part thereof for the
purpose of performing or observing any such defaulted term, covenant or
condition without thereby becoming liable to Mortgagor or any person in
possession holding under Mortgagor.
1.17. Security Interest. This Mortgage is also intended to encumber and
create a security interest in, and Mortgagor hereby grants to Mortgagee a
security interest in, all fixtures, chattels, equipment, contract rights and
other personal property included within the Property, all renewals, replacements
of any of the aforementioned items, or articles in substitution therefor or in
addition thereto or the proceeds thereof (said property is hereinafter referred
to collectively as the "Collateral"), whether or not the same shall be attached
to the Real Estate or the Improvements in any manner. It is hereby agreed that
to the extent permitted by law, all of the foregoing property is to be deemed
and held to be a part of and affixed to the Real Estate and the Improvements.
The foregoing security interest shall also cover Mortgagor's leasehold interest
in any of the foregoing property which is leased by Mortgagor. Notwithstanding
the foregoing, all of the foregoing property shall be owned by Mortgagor and no
leasing or installment sales or other financing or title retention agreement in
connection therewith shall be permitted without the prior written approval of
Mortgagee. Mortgagor shall promptly replace all of the Collateral subject to the
lien or security interest of this Mortgage when worn or obsolete with Collateral
comparable to the worn out or obsolete Collateral when new and will not, without
the prior written consent of Mortgagee, remove from the Real Estate or the
Improvements any of the Collateral subject to the lien or security interest of
this Mortgage except such as is replaced by an article of equal suitability and
value as above provided, owned by Mortgagor free and clear of any lien or
security interest except that created by this Mortgage and the other Transaction
Documents and except as otherwise expressly permitted by the terms of this
Mortgage. All of the Collateral shall be kept at the location of the Real Estate
except as otherwise required by the terms of the Transaction Documents.
Mortgagor shall not use any of the Collateral in violation of any applicable
statute, ordinance or insurance policy.
1.18. Security Agreement. This Mortgage constitutes both a real
property Mortgage and a "security agreement" between Mortgagor and Mortgagee
with respect to the Collateral in which Mortgagee is granted a security interest
hereunder, and, cumulative of all other rights and remedies of Mortgagee
hereunder, Mortgagee shall have all of the rights and remedies of a secured
party under Chapter 9 of the Louisiana Security Laws (i.e., Article 9 of the
Uniform Commercial Code as in effect in the State of Louisiana). Mortgagor
hereby agrees
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to execute and deliver on demand and hereby irrevocably constitutes and appoints
Mortgagee the attorney-in-fact of Mortgagor to execute and deliver and, if
appropriate, to file with the appropriate filing officer or office such security
agreements, financing statements, continuation statements or other instruments
as Mortgagee may request or require in order to impose, perfect or continue the
perfection of the lien or security interest created hereby. Mortgagor agrees to
furnish Mortgagee with notice of any permitted change in the name, identity,
corporate structure, residence, or principal place of business or mailing
address of Mortgagor within ten (10) days of the effective date of any such
change. Expenses of retaking, holding, preparing for sale, selling or the like
(including, without limitation, Mortgagee's reasonable attorneys' fees and legal
expenses), together with interest thereon at the Default Interest Rate from the
date incurred by Mortgagee until actually paid by Mortgagor, shall be paid by
Mortgagor on demand and shall be secured by this Mortgage. If notice is required
by law, Mortgagee shall give Mortgagor at least ten (10) days' prior written
notice of the time and place of any public sale of such property or of the time
of or after which any private sale or any other intended disposition thereof is
to be made, and if such notice is sent to Mortgagor, as the same is provided for
the mailing of notices herein, it is hereby deemed that such notice shall be and
is reasonable notice to Mortgagor. No such notice is necessary for any such
property which is perishable, threatens to decline speedily in value or is of a
type customarily sold on a recognized market. Any sale made pursuant to the
provisions of this Section 1.18 shall be deemed to have been a public sale
conducted in a commercially reasonable manner if held contemporaneously with the
foreclosure sale as provided in Section 3.1(e) hereof upon giving the same
notice with respect to the sale of the Property hereunder as is required under
said Section 3.1(e). Furthermore, to the extent permitted by law, in conjunction
with, in addition to or in substitution for the rights and remedies available to
Mortgagee pursuant to any applicable Uniform Commercial Code:
(a) In the event of a foreclosure sale, the Property may, at
the option of Mortgagee, be sold as a whole; and
(b) It shall not be necessary that Mortgagee take possession of
the aforementioned Collateral, or any part thereof, prior to the time that any
sale pursuant to the provisions of this Section 1.18 is conducted and it shall
not be necessary that said Collateral, or any part thereof, be present at the
location of such sale; and
(c) Mortgagee may appoint or delegate any one or more persons
as agent to perform any act or acts necessary or incident to any sale held by
Mortgagee, including the sending of notices and the conduct of the sale, but in
the name and on behalf of Mortgagee.
The name and address of Mortgagor (as Debtor under any applicable Uniform
Commercial Code) are:
American International Refinery, Inc.
c/o American International Petroleum Corporation
444 Madison Avenue, Suite 3203,
New York, New York 10022
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The name and address of Mortgagee (as Secured Party under any applicable Uniform
Commercial Code) are:
Halifax Fund, L.P.
c/o Palladin Group, L.P.
195 Maplewood Avenue
Maplewood, New Jersey 07040
(d) This Mortgage shall constitute a financing statement for
all purposes and may be filed with the appropriate officer or office in
accordance with any applicable Uniform Commercial Code.
1.19. Easements and Rights-of-Way. Mortgagor shall not grant any
easement or right-of-way with respect to all or any portion of the Real Estate
or the Improvements without the prior written consent of Mortgagee. The
purchaser at any foreclosure sale hereunder may, at its discretion, disaffirm
any easement or right-of-way granted in violation of any of the provisions of
this Mortgage and may take immediate possession of the Property free from, and
despite the terms of, such grant of easement or right-of-way. If Mortgagee
consents to the grant of an easement or right-of-way, Mortgagee agrees to grant
such consent without charge to Mortgagor other than reasonable expenses,
including, without limitation, reasonable attorneys' fees, incurred by Mortgagee
in the review of Mortgagor's request and, if applicable, in the preparation of
documents relating to the subordination of this Mortgage to such easement or
right-of-way.
1.20. Compliance with Laws. (a) Mortgagor shall at all times comply
with all statutes, ordinances, regulations and other governmental or
quasi-governmental requirements and private covenants now or hereafter relating
to the ownership, construction, use or operation of the Property, including, but
not limited to, those concerning employment and compensation of persons engaged
in operation and maintenance of the Property and any environmental or ecological
requirements, even if such compliance shall require structural changes to the
Property; provided, however, that Mortgagor may, upon providing Mortgagee with
security satisfactory to Mortgagee, proceed diligently and in good faith to
contest the validity or applicability of any such statute, ordinance, regulation
or requirement so long as during such contest the Property shall not be subject
to any lien, charge, fine or other liability and shall not be in danger of being
forfeited, lost or closed. Mortgagor shall not use or occupy, or allow the use
or occupancy of, the Property in any manner which violates any lease of or any
other agreement applicable to the Property or any applicable law, rule,
regulation or order or which constitutes a public or private nuisance or which
makes void, voidable or cancelable, or increases the premium of, any insurance
then in force with respect thereto.
(b) Mortgagor agrees that the Property shall at all times
comply to the extent applicable with the requirements of the Americans with
Disabilities Act of 1990, and all other state and local laws and ordinances
related to handicapped access and all rules, regulations, and orders issued
pursuant thereto. Mortgagor agrees to give prompt notice to Mortgagee of the
receipt by Mortgagor of any complaints related to violations of any such laws
and of the commencement of any proceedings or investigations which relate to
compliance with such laws.
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1.21. Additional Taxes. In the event of the enactment after this date
of any law of the State of Louisiana or of any other governmental entity
deducting from the value of the Property for the purpose of taxation any lien or
security interest thereon, or imposing upon Mortgagee the payment of the whole
or any part of the taxes or assessments or charges or liens herein required to
be paid by Mortgagor, or changing in any way the laws relating to the taxation
of mortgages or security agreements or debts secured by mortgages or security
agreements or the interest of the Mortgagee or secured party in the property
covered thereby, or the manner of collection of such taxes, so as to adversely
affect this Mortgage or the indebtedness secured hereby or Mortgagee, then, and
in any such event, Mortgagor, upon demand by Mortgagee, shall pay such taxes,
assessments, charges or liens, or reimburse Mortgagee therefor; provided,
however, that if in the opinion of counsel for Mortgagee (a) it might be
unlawful to require Mortgagor to make such payment, or (b) the making of such
payment might result in the imposition of interest beyond the maximum amount
permitted by law, then and in either such event, Mortgagee may elect, by notice
in writing given to Mortgagor, to declare all of the indebtedness secured hereby
to be and become due and payable in full, thirty (30) days from the giving of
such notice.
1.22. Mortgagor's Waivers. To the full extent permitted by law,
Mortgagor agrees that Mortgagor shall not at any time insist upon, plead, claim
or take the benefit or advantage of any law now or hereafter in force providing
for any appraisement, valuation, stay, moratorium or extension, or any law now
or hereafter in force providing for the reinstatement of the indebtedness
secured hereby prior to any sale of the Property to be made pursuant to any
provisions contained herein or prior to the entering of any decree, judgment or
order of any court of competent jurisdiction, or any right under any statute to
redeem all or any part of the Property so sold. To the full extent permitted by
law, Mortgagor shall not have or assert any right under any statute or rule of
law pertaining to the exemption of homestead or other exemption under any
federal, state or local law now or hereafter in effect, the administration of
estates of decedents or any other matters whatsoever to defeat, reduce or affect
the right of Mortgagee under the terms of this Mortgage to a sale of the
Property, for the collection of the secured indebtedness without any prior or
different resort for collection, or the right of Mortgagee under the terms of
this Mortgage to the payment of the indebtedness secured hereby out of the
proceeds of sale of the Property in preference to every other claimant whatever.
Mortgagor, for Mortgagor and Mortgagor's successors and assigns, and for any and
all persons ever claiming any interest in the Property, to the full extent
permitted by law, hereby knowingly, intentionally and voluntarily with and upon
the advice of competent counsel waives, releases, relinquishes and forever
forgoes: (a) all rights of valuation, appraisement, stay of execution,
reinstatement and notice of election or intention to mature or declare due the
secured indebtedness (except such notices as are specifically provided for
herein); (b) all right to a marshalling of the assets of Mortgagor, including
the Property, to a sale in the inverse order of alienation, or to direct the
order in which any of the Property shall be sold in the event of foreclosure of
the liens and security interests hereby created and agrees that any court having
jurisdiction to foreclose such liens and security interests may order the
Property sold as an entirety; (c) all rights and periods of redemption provided
under applicable law; (d) all present and future dower, curtesy or other marital
rights or
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interest in the Property; and (e) all present and future statutes of limitations
as a defense to any action to enforce the provisions of this Mortgage or to
collect any of the indebtedness secured hereby the fullest extent permitted by
law and agrees that it shall not solicit or aid the solicitation of the filing
of any Petition (as hereinafter defined) against the Mortgagor, whether acting
on its own behalf or on behalf of any other party. Without limiting the
generality of the foregoing, Mortgagor shall not (i) provide information
regarding the identity of creditors or the nature of creditors' claims to any
third party unless compelled to do so by Order of a court of competent
jurisdiction or by regulation promulgated by a governmental agency; or (ii) pay
the legal fees or expenses of any creditor of or interest holder in Mortgagor
with respect to any matter whatsoever.
1.23. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
COUNSEL, (i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF LOUISIANA OVER ANY
SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS
MORTGAGE OR ANY OTHER OF THE TRANSACTION DOCUMENTS, (ii) AGREES THAT ANY SUCH
ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION SITTING IN THE STATE OF LOUISIANA, (iii) SUBMITS TO THE
JURISDICTION OF SUCH COURTS, AND, (iv) TO THE FULLEST EXTENT PERMITTED BY LAW,
AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM
(BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO BRING ANY ACTION,
SUIT OR PROCEEDING IN ANY OTHER FORUM). MORTGAGOR FURTHER CONSENTS AND AGREES TO
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO
THE MORTGAGOR AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 4.4 HEREOF, AND
CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID
AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR
EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).
(b) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING
TO THE INDEBTEDNESS SECURED HEREBY OR ANY CONDUCT, ACT OR OMISSION OF MORTGAGEE
OR MORTGAGOR, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES,
AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH MORTGAGEE OR
MORTGAGOR, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
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1.24. Hazardous Materials and Environmental Concerns.
(a) Mortgagor hereby represents and warrants to Mortgagee that,
except as set forth on the Environmental Disclosure Statement dated February 12,
1999 previously delivered to Mortgagee, and except as noted in the public record
files maintained by the Louisiana Department of Environmental Quality, the
Louisiana Department of Natural Resources and the U.S. Environmental Protection
Agency, as of the date hereof: (i) the Property is not, and to the best of
Mortgagor's knowledge, information and belief, after due inquiry and
investigation, the Property has not been, in direct or indirect violation of any
local, state or federal law, rule or regulation pertaining to environmental
regulation, contamination or remediation (including the regulation or
remediation of Hazardous Substances as defined below) (collectively,
"Environmental Laws"), all as amended; (ii) no hazardous, toxic or harmful
substances, wastes, materials, pollutants or contaminants (including, without
limitation, asbestos, polychlorinated biphenyls, petroleum products, radon,
lead-based paint, flammable explosives, radioactive materials, infectious,
substances or raw materials which include hazardous constituents) or any other
substances or materials which are included under or regulated by Environmental
Laws (collectively, "Hazardous Substances") are located on or have been handled,
manufactured, generated, stored, processed, transported to or from, or disposed
of on or released or discharged from the Property (including underground
contamination) except for those substances used by Mortgagor in the ordinary
course of its business and in compliance with all Environmental Laws; (iii) the
Property is not subject to any private or governmental lien or judicial or
administrative notice or action relating to Hazardous Substances or
noncompliance with Environmental Laws, nor is Mortgagor aware of any basis for
such lien, notice or action; (iv) there are no underground storage tanks or
other underground storage receptacles (whether active or abandoned) for
Hazardous Substances on the Property; (v) Mortgagor has received no notice of,
and to the best of Mortgagor's knowledge and belief, after due inquiry and
investigation, there does not exist any, investigation, action, proceeding or
claim by any agency, authority or unit of government or by any third party which
could result in any liability, penalty, sanction or judgment under any
Environmental Laws with respect to any condition, use or operation of the
Property, nor does Mortgagor know of any basis for such investigation, action,
proceeding or claim; (vi) Mortgagor has received no notice that, and to the best
of Mortgagor's knowledge and belief after due inquiry and investigation, there
has been no claim by any party that, any use, operation or condition of the
Property has caused any nuisance or any other liability or adverse condition on
any other property nor does Mortgagor know of any basis for such notice or
claim; and (vii) there are no present environmental conditions or events, or to
Mortgagor's best knowledge, after due inquiry and investigation, past
environmental conditions or events, on or near the Property that could be
reasonably anticipated to materially adversely affect the value of the Property.
(b) Mortgagor shall keep or cause the Property to be kept free
from being used for the disposal of Hazardous Substances (except those
substances used by Mortgagor in the ordinary course of its business and in
compliance with all Environmental Laws) and in
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compliance with all Environmental Laws, shall not install or use any underground
storage tanks, unless such underground storage tanks are registered with the
Louisiana Department of Environmental Quality, shall expressly prohibit the use,
generation, handling, storage, production, processing and disposal of Hazardous
Substances by all tenants of space in the Improvements, (except those substances
used by tenants in the ordinary course of their activities and in compliance
with all Environmental Laws) and, without limiting the generality of the
foregoing, during the term of this Mortgage, shall not install in the
Improvements or permit to be installed in the Improvements asbestos or any
substance containing asbestos, except in compliance with applicable laws and
regulations applicable to asbestos. If required by Mortgagee or under any
Environmental law, Mortgagor shall maintain an operation and maintenance program
("O&M Program") for the management of asbestos, lead-based paint, radon or any
other Hazardous Substances at the Property.
(c) Mortgagor shall promptly notify Mortgagee if Mortgagor
shall become aware of (i) any Hazardous Substances at, on, under or affecting
the Property (except those substances used by Mortgagor or tenants in the
ordinary course of their business or activities, respectively, and in compliance
with all Environmental Laws), (ii) any lien, action or notice affecting the
Property or Mortgagor resulting from any violation or alleged violation of
Environmental Law, (iii) any investigation, inquiry or proceeding concerning
Mortgagor on the Property pursuant to any Environmental Law or otherwise
relating to Hazardous Substances, or (iv) any occurrence, condition or state of
facts which would render any representation or warranty in this Section
incorrect in any respect if made at the time of such discovery. Further,
immediately upon receipt of the same, Mortgagor shall deliver to Mortgagee
copies of any and all orders, notices, permits, applications, reports, and other
communications, documents and instruments pertaining to the actual, alleged or
potential non-compliance with any Environmental Laws in connection with the
Property or presence or existence of any Hazardous Substances at, on, about,
under, within, near or in connection with the Property (except those substances
used in the ordinary course of its business and in compliance with all
Environmental Laws). Mortgagor shall, promptly and when and as required, at
Mortgagor's sole cost and expense, take all actions as shall be necessary or
advisable for compliance with the terms of this Section or for the remediation
of any and all portions of the Property or other affected property, including,
without limitation, all investigative, monitoring, removal, containment and
remedial actions in accordance with all applicable Environmental Laws (and in
all events in a manner satisfactory to Mortgagee), and shall further pay or
cause to be paid, at no expense to Mortgagee, all remediation, administrative
and enforcement costs of applicable governmental agencies which may be asserted
against the Property. In the event Mortgagor fails to do so within sixty (60)
days after written notice from Mortgagee, (i) Mortgagee may, but shall not be
obligated to, undertake remediation at the Property or other affected property
necessary to bring the Property into conformance with the terms of the
applicable Environmental Laws, and (ii) Mortgagor hereby grants to Mortgagee and
its agents and employees access to the Property and a license to do all things
Mortgagee shall deem necessary to bring the Property into conformance with
Environmental Laws. Any and all costs and expenses reasonably incurred by
Mortgagee in connection therewith, together with interest thereon at the Default
Interest Rate from the date incurred by Mortgagee until actually paid by
Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured
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by this Mortgage. Mortgagor covenants and agrees, at Mortgagor's sole cost and
expense, to indemnify, defend (at trial and appellate levels, and with
attorneys, consultants and experts acceptable to Mortgagee), and hold Mortgagee
harmless from and against any and all liens, damages, losses, liabilities,
obligations, settlement payments, penalties, assessments, citations, directives,
claims, litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses of any kind or of any nature whatsoever (including,
without limitation, reasonable attorneys', consultants' and experts' fees and
disbursements actually incurred in investigating, defending, settling or
prosecuting any claim, litigation or proceeding) which may at any time be
imposed upon, incurred by or asserted or awarded against Mortgagee or the
Property, and arising directly or indirectly from or out of: (i) the presence,
release or threat of release of any Hazardous Substances on, in, under or
affecting all or any portion of the Property or any surrounding areas,
regardless of whether or not caused by or within the control of Mortgagor; (ii)
the violation of any Environmental Laws relating to or affecting the Property,
whether or not caused by or within the control of Mortgagor; (iii) the failure
by Mortgagor to comply fully with the terms and conditions of this Section
1.24(c); (iv) the breach of any representation or warranty contained in this
Section; or (v) the enforcement of this Section, including, without limitation,
the cost of assessment, containment and/or removal of any and all Hazardous
Substances from all or any portion of the Property or any surrounding areas, the
cost of any actions taken in response to the presence, release or threat of
release of any Hazardous Substances on, in, under or affecting any portion of
the Property or any surrounding areas to prevent or minimize such release or
threat of release so that it does not migrate or otherwise cause or threaten
danger to present or future public health, safety, welfare or the environment,
and costs incurred to comply with the Environmental Laws in connection with all
or any portion of the Property or any surrounding areas. The indemnity set forth
in this Section 1.24(c) shall also include any diminution in the value of the
security afforded by the Property or any future reduction in the sales price of
the Property by reason of any matter set forth in this Section 1.24(c).
Mortgagee's rights under this Section shall survive payment in full of the
indebtedness secured hereby and shall be in addition to all other rights of
Mortgagee under this Mortgage and the other Transaction Documents.
(d) Upon Mortgagee's written request, at any time after the
occurrence of a default hereunder or at such other time as Mortgagee has
reasonable grounds to believe that Hazardous Substances are or have been
handled, generated, stored, processed, transported to or from, or released or
discharged from or disposed of on or around the Property (other than in the
normal course of Mortgagor's or the tenants' business or activities,
respectively, and in compliance with all Environmental Laws) or that the
Property may be in violation of Environmental Laws, Mortgagor shall provide, at
Mortgagor's sole cost and expense, an inspection or audit of the Property
prepared by a hydrogeologist or environmental engineer or other appropriate
consultant reasonably approved by Mortgagee indicating the presence or absence
of Hazardous Substances on the Property (including asbestos-containing material
or lead-based paint). If Mortgagor fails to provide such inspection or audit
within sixty (60) days after such request, Mortgagee may order the same, and
Mortgagor hereby grants to Mortgagee and its employees and agents access to the
Property and a license to undertake such inspection or audit. The cost of such
inspection or audit, together with interest thereon at the Default Interest Rate
from the date incurred by Mortgagee until actually paid by Mortgagor, shall be
immediately paid by Mortgagor on demand and shall be secured by this Mortgage.
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(e) Without limiting the foregoing, Mortgagee and its
authorized representatives may, during normal business hours and at its own
expense, inspect the Property and Mortgagor's records related thereto for the
purpose of determining compliance with Environmental Laws and the terms and
conditions of this Section 1.24.
1.25 Indemnification; Subrogation.
(a) Mortgagor shall indemnify, defend and hold Mortgagee
harmless against: (i) any and all claims for brokerage, leasing, finder's or
similar fees which may be made relating to the Property or the secured
indebtedness, (ii) any and all liability, obligations, losses, damages,
penalties, claims, actions, suits, liens, charges, encumbrances, costs and
expenses (including Mortgagee's attorneys' fees, together with appellate counsel
fees, if any) of whatever kind or nature which may be asserted against, imposed
on or incurred by Mortgagee under any lease or occupancy agreement, this
Mortgage, the Property, or any part thereof, or the exercise by Mortgagee of any
rights or remedies granted to it under this Mortgage, and any default under this
Mortgage, and (iii) any liens (whether judgments, mechanics', materialmen's or
otherwise), charges and encumbrances filed against the Property, and from any
claims and demands for damages or injury, including claims for property damage,
personal injury or wrongful death, arising out of or in connection with any
accident or fire or other casualty on the Real Estate or the Improvements or any
nuisance made or suffered thereon, including, in any case, attorney's fees,
costs and expenses as aforesaid, whether at pretrial, trial or appellate level.
Should Mortgagee incur any liability under this Mortgage or any of the other
Transaction Documents, the amount thereof, including, without limitation, costs,
expenses and reasonable attorneys' fees, together with interest thereon at the
Default Interest Rate from the date incurred by Mortgagee until actually paid by
Mortgagor, shall be immediately due and payable to Mortgagee by Mortgagor on
demand and shall be secured hereby. However, nothing herein shall be construed
to obligate Mortgagor to indemnify, defend and hold harmless Mortgagee from and
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs and expenses enacted against, imposed on or
incurred by Mortgagee by reason of Mortgagee's willful misconduct or gross
negligence. This indemnity shall survive payment in full of the indebtedness
secured hereby.
Mortgagee may engage the services of attorneys if it is made a party
defendant to any litigation (or threatened claim) or to enforce the terms of
this Mortgage or to protect its rights hereunder, and in the event of any such
engagement, Mortgagor shall pay Mortgagee's attorneys' fees (together with
reasonable appellate counsel fees, if any) and expenses reasonably incurred by
Mortgagee, whether or not an action is actually commenced against Mortgagor. All
references to "attorneys" in this Subsection and elsewhere in this Mortgage
shall include without limitation any attorney or law firm engaged by Mortgagee
and Mortgagee's in-house counsel, and all references to "fees and expenses" in
this Subsection and elsewhere in this Mortgage shall include without limitation
any fees of such attorney or law firm and any allocation charges and allocation
costs of Mortgagee's in-house counsel.
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(c) A waiver of subrogation shall be obtained by Mortgagor from
its insurance carrier and, consequently, Mortgagor waives any and all right to
claim or recover against Mortgagee, its officers, employees, agents and
representatives, for loss of or damage to Mortgagor, the Property, Mortgagor's
property or the property of others under Mortgagor's control from any cause
insured against or required to be insured against by the provisions of this
Mortgage.
1.26. Litigation. Mortgagor will give prompt written notice to
Mortgagee of any litigation or governmental proceedings pending or threatened
(in writing) against Mortgagor which might have a material adverse effect on the
Property, the business, prospects, profits, operations or condition (financial
or otherwise) of Mortgagor, the enforceability, validity, perfection or priority
of the lien of any Transaction Document, or the ability of Mortgagor to perform
any obligation under any Transaction Document.
1.27. ERISA. (a) Mortgagor shall not engage in any transaction which
would cause any obligation, or action taken or to be taken, hereunder (or the
exercise by Mortgagee of any of its rights under this Mortgage or any of the
other Transaction Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under ERISA.
(b) Mortgagor further covenants and agrees to deliver to
Mortgagee such certifications or other evidence from time to time throughout the
term of this Mortgage, as requested by Mortgagee in its sole discretion, that
(i) Mortgagor is not an "employee benefit plan" as defined in Section 3(3) of
ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(3) of ERISA; (ii) Mortgagor is not subject to state
statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is
true:
(x) Equity interests in Mortgagor are publicly offered
securities within the meaning of 29 C.F.R. Section 2510.3-101(b)(2)
(1998) as amended from time to time or any successor provision;
(y) Less than 25 percent of each outstanding class of equity
interests in Mortgagor are held by "benefit plan investors" within the
meaning of 29 C.F.R. Section 2510.3- 101(f)(2) (1998) as amended from
time to time or any successor provision; or
(z) Mortgagor qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R. Section
2510.3-101(c) or (e) or an investment company registered under the
Investment Company Act of 1940.
(c) Mortgagor shall indemnify Mortgagee and defend and hold
Mortgagee harmless from and against all civil penalties, excise taxes, or other
loss, cost damage and expense (including, without limitation, reasonable
attorneys' fees and disbursements and costs incurred in
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the investigation, defense and settlement of claims and losses incurred in
correcting any prohibited transaction or in the sale of a prohibited loan, and
in obtaining any individual prohibited transaction exemption under ERISA that
may be required, in Mortgagee's sole discretion) that Mortgagee may incur,
directly or indirectly, as a result of a default under this Section. This
indemnity shall survive any termination, satisfaction or foreclosure of this
Mortgage.
1.28 To the extent permitted by law, Mortgagor hereby expressly waives
(a) the benefit of appraisement provided for in Articles 2332, 2336, 2723 and
2724, Louisiana Code of Civil Procedure, and all other laws conferring such
benefits; (b) the demand and three (3) days delay accorded by Articles 2639 and
2721, Louisiana Code of Civil Procedure; (c) the notice of seizure required by
Articles 2293 and 2721, Louisiana Code of Civil Procedure; (d) the three (3)
days delay provided by Articles 2331 and 2722, Louisiana Code of Civil
Procedure; (e) the benefit of the other provisions of Articles 2331, 2722, and
2723, Louisiana Code of Civil Procedure; (f) the benefit of the provisions of
any other articles of the Louisiana Code of Civil Procedure not specifically
mentioned above; (g) all rights of division and discussion with respect to any
obligation secured by this mortgage; and (h) all homestead and other exemptions
relating to the Property.
ARTICLE II
EVENTS OF DEFAULT
2.1 Events of Default. The occurrence of any of the following events
shall be a default hereunder:
(a) The occurrence of an Event of Default (as such term is
defined in the Debentures).
(b) Mortgagor fails to punctually perform any covenant,
agreement, obligation, term or condition hereof which requires payment of any
money to Mortgagee.
(c) Mortgagor fails to provide insurance as required by Section
1.4 hereof or fails to perform any covenant, agreement obligation, term or
condition set forth herein other than those otherwise described in this Section
2.1 and, to the extent such failure or default is susceptible of being cured,
the continuance of such failure or default for thirty (30) days after written
notice thereof from Mortgagee to Mortgagor; provided, however, that if such
default is susceptible of cure but such cure cannot be accomplished with
reasonable diligence within said period of time, and if Mortgagor commences to
cure such default promptly after receipt of notice thereof from Mortgagee, and
thereafter prosecutes the curing of such default with reasonable diligence, such
period of time shall be extended for such period of time as may be necessary to
cure such default with reasonable diligence, but not to exceed an additional
sixty (60) days.
(d) Any representation or warranty made herein, in or in
connection with any of the other Transaction Documents to Mortgagee by
Mortgagor, is determined by Mortgagee to have been false or misleading in any
material respect at the time made.
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(e) There shall be a sale, conveyance, disposition,
alienation, hypothecation, leasing, assignment, pledge, Mortgage, granting of a
security interest in or other transfer or further encumbering of the Property.
(f) A default occurs under any of the other Transaction
Documents which has not been cured within any applicable grace or cure period
therein provided.
(g) Mortgagor becomes insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of creditors,
shall file a petition in bankruptcy, shall voluntarily be adjudicated insolvent
or bankrupt or shall admit in writing the inability to pay debts as they mature,
shall petition or apply to any tribunal for or shall consent to or shall not
contest the appointment of a receiver, trustee, custodian or similar officer for
Mortgagor, or for a substantial part of the assets of Mortgagor, or shall
commence any case, proceeding or other action under any bankruptcy,
reorganization, arrangement, readjustment or debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect.
(h) A petition ("Petition") is filed or any case, proceeding
or other action is commenced against Mortgagor, seeking to have an order for
relief entered against it as debtor or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts or other
relief under any law relating to bankruptcy, insolvency, arrangement,
reorganization, receivership or other debtor relief under any law or statute of
any jurisdiction, whether now or hereafter in effect, or a court of competent
jurisdiction enters an order for relief against Mortgagor, or an order, judgment
or decree is entered appointing, with or without the consent of Mortgagor, or
for any substantial part of any of the properties of Mortgagor, and if any such
event shall occur, such petition, case, proceeding, action, order, judgment or
decree shall not be dismissed within sixty (60) days after being commenced.
(i) Mortgagor solicits or aids the solicitation of the filing
of any Petition against Mortgagor including, without limitation: (i) providing
information regarding the identity of creditors or the nature of creditors'
claims to any third party unless compelled to do so by Order of a court of
competent jurisdiction or by regulation promulgated by a governmental agency, or
(ii) paying the legal fees or expenses of any creditor of or interest holder in
Mortgagor with respect to any matter whatsoever.
(j) The Property or any part thereof shall be taken on
execution or other process of law in any action against Mortgagor.
(k) Mortgagor abandons all or a portion of the Property.
(l) The holder of any lien or security interest on the
Property (without implying the consent of Mortgagee to the existence or creation
of any such lien or security interest), whether superior or subordinate to this
Mortgage or any of the other Transaction Documents, declares a default and such
default is not cured within any applicable grace or cure period set forth in the
applicable document or such holder institutes foreclosure or other proceedings
for the enforcement of its remedies thereunder.
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(m) The Property, or any part thereof, is subjected to actual
or threatened waste or to removal, demolition or material alteration so that the
value of the Property is materially diminished thereby and Mortgagee determines
(in its subjective determination) that it is not adequately protected from any
loss, damage or risk associated therewith.
(n) Any dissolution, termination, partial or complete
liquidation, merger or consolidation of Mortgagor.
ARTICLE III.
A. REMEDIES
3.1 Remedies Available. If there shall occur a default under this
Mortgage, and such default has not been cured within any applicable grace or
cure period, then this Mortgage is subject to foreclosure as provided by law and
Mortgagee may, at its option and by or through a trustee, nominee, assignee or
otherwise, to the fullest extent permitted by law, exercise any of its rights or
remedies at law or in equity and, in addition, any or all of the following
rights, remedies and recourses, either successively or concurrently.
(a) Exercise of Remedies Under the Debentures. Mortgagee shall
have the right to exercise any remedy available to it under Section 17 of the
Debentures.
(b) Entry on the Property. Without in any way curing or
waiving any default of Mortgagor, either in person, by agent or by
court-appointed receiver, with or without bringing any action or proceeding, or
by a receiver appointed by a court and without regard to the adequacy of its
security, enter upon and take possession of the Property, or any part thereof,
in its own name, without force or with such force as is permitted by law and
without notice or process or with such notice or process as is required by law
unless such notice and process is waivable, in which case Mortgagor hereby
waives such notice and process, and do any and all acts and perform any and all
work which may be desirable or necessary in Mortgagee's judgment to complete any
unfinished construction on the Real Estate, to preserve and/or enhance the
value, marketability or rentability of the Property, to increase the income
therefrom, to manage and operate the Property or to protect the security hereof
and all sums expended by Mortgagee therefor, together with interest thereon at
the Default Interest Rate, shall be immediately due and payable to Mortgagee by
Mortgagor on demand and shall be secured hereby.
(c) Collect Rents and Profits. With or without taking
possession of the Property, sue for or otherwise collect the Rents and Profits,
including those past due and unpaid, and apply the same, less costs and expenses
of operation and collection, including reasonable attorney's fees, upon any
indebtedness secured hereby, all in such order as Mortgagee in its discretion
may determine.
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(d) Appointment of Receiver. Upon, or at any time prior or
after, initiating the exercise of any power of sale, instituting any judicial
foreclosure or instituting any other foreclosure of the liens and security
interests provided for herein or any other legal proceedings hereunder, make
application, ex-parte, to a court of competent jurisdiction for appointment of a
receiver for all or any part of the Property, as a matter of strict right and
without notice to Mortgagor and without regard to the adequacy of the Property
for the repayment of the indebtedness secured hereby or the solvency of
Mortgagor or any person or persons liable for the payment of the indebtedness
secured hereby, and Mortgagor does hereby irrevocably consent to such
appointment, waives any and all notices of and defenses to such appointment and
agrees not to oppose any application therefor by Mortgagee, but nothing herein
is to be construed to deprive Mortgagee of any other right, remedy or privilege
Mortgagee may now have under the law to have a receiver appointed. Any such
receiver shall have all of the usual powers and duties of receivers in similar
cases, including, without limitation, the full power to hold, develop, rent,
lease, manage, maintain, operate and otherwise use or permit the use of the
Property upon such terms and conditions as said receiver may deem to be prudent
and reasonable under the circumstances as more fully set forth in Section 3.3
below. Such receivership shall, at the option of Mortgagee, continue until full
payment of all of the indebtedness secured hereby or until title to the Property
shall have passed by foreclosure sale under this Mortgage or deed in lieu of
foreclosure.
(e) Foreclosure.
(i) Cause all or any part of the Property to be seized
and sold under executory or other legal process without appraisement, which is
hereby expressly waived, as an entirety or in parcels, as Mortgagee may
determine, to the highest bidder for cash, or on such terms as are acceptable to
Mortgagee. For purposes of executory process, Mortgagor hereby confesses
judgment in favor of Mortgagee for the full amount of the indebtedness secured
hereby.
(ii) Immediately sell the Property at public auction (to
the extent not prohibited by law, without regard to the right of any party to
the marshalling of assets), and at such time and place, upon such terms and
conditions and, after the giving of such previous notice as is required by law.
Such notice shall contain such information regarding the sale or sales as
required by Louisiana law and shall be sufficiently given if (unless otherwise
specifically required by Louisiana law in which case only the specific
requirements of Louisiana law need be complied with and shall prevail and govern
in all cases), mailed by certified mail, return receipt requested, to the
Mortgagor at the Mortgagor's address provided for herein and an original thereof
recorded with the Recorder of Mortgages of Calcasieu Parish, State of Louisiana
(if and to the extent required by Louisiana law) and published as required by
Louisiana law. In furtherance of the foregoing, pursuant to Louisiana Revised
Statutes 9:5136, et seq., Mortgagor hereby designates Mortgagee, or any
employee, agent or other person named by Mortgagee at the time any seizure of
the Mortgaged Property is effected by Mortgagee, to serve as a keeper of the
Mortgaged Property pending the judicial sale thereof. The keeper's fees shall be
determined by a court of competent jurisdiction and the payment of such fees
shall be secured by this Mortgage.
(iii) Cause the conveyance to Mortgagee by special
warranty deed of the fee simple title to the Property, or the state or interest
therein so sold, to and at the cost of the purchaser, free and discharged of and
from all estate, right, title or interest of Mortgagor, its successors or
assigns, at law or in equity, such purchaser being hereby discharged from all
liability to see to the application of the purchase money.
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(iv) The Mortgagor hereby (a) declares its assent to the
passing of a decree for the sale of any or all of the Property or any estate or
interest therein by any equity court having jurisdiction over the sale of the
Property upon the occurrence of default under this Mortgage, and (b) authorizes
and empowers Mortgagee, upon the occurrence of such a default, to take
possession of any or all of the Security and to sell any or all of it or any
estate or interest therein in accordance with the legal rights relating to or
affecting deeds of trust or security agreements in the State of Louisiana.
Neither the foregoing assent to decree nor the foregoing power of sale shall be
exhausted if such proceeding or sale is dismissed or cancelled before the
indebtedness secured by this Mortgage is paid in full.
(v) In the event foreclosure proceedings are filed by
Mortgagee, all expenses incident to such proceeding, including, but not limited
to, attorneys' fees and costs, shall be paid by Mortgagor and secured by this
Mortgage.
(vi) The secured indebtedness and all other obligations
secured by this Mortgage, including, without limitation, interest at the Default
Interest Rate, any prepayment charge, fee or premium required to be paid under
the Debentures in order to prepay principal (to the extent permitted by
applicable law), attorneys' fees and any other amounts due and unpaid to
Mortgagee under the Transaction Documents, may be bid by Mortgagee in the event
of a foreclosure sale hereunder. In the event of a sale pursuant to foreclosure
as provided herein, it is understood and agreed that Mortgagee or its assigns
may become the purchaser of the Property or any part thereof.
(f) Remediesof Secured Party. Exercise any or all of the
remedies available to a secured party under the Uniform Commercial Code as in
effect in the State of Louisiana.
(g) Other. Exercise any other right or remedy available
hereunder, under any of the other Transaction Documents or at law or in equity.
3.2. Application of Proceeds. To the fullest extent permitted by law,
the proceeds of any sale or sales under this Mortgage shall be held by the
Mortgagee and applied to the extent funds are so available to the following
items in such order as Mortgagee in its discretion may determine:
(a) To payment of the costs, expenses and fees of taking
possession of the Property, and of holding, operating, maintaining, using,
leasing, repairing, improving, marketing and selling the same and of otherwise
enforcing Mortgagee's right and remedies hereunder and under the other
Transaction Documents, including, but not limited to, receivers' fees, court
costs, attorneys', accountants', appraisers', auctioneers', managers' and other
professional fees, title charges and transfer taxes.
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(b) To payment of all sums expended by Mortgagee under the
terms of any of the Transaction Documents and not yet repaid, together with
interest on such sums at the Default Interest Rate.
(c) To payment of the secured indebtedness and all other
obligations secured by this Mortgage, including, without limitation, interest at
the Default Interest Rate and, to the extent permitted by applicable law, any
prepayment fee, charge or premium required to be paid under the Debentures.
(d) The remainder, if any, of such funds shall be disbursed to
Mortgagor or to the person or persons legally entitled thereto.
3.3.Right and Authority of Receiver or Mortgagee in the Event of
Default; Power of Attorney. Upon the occurrence of a default hereunder, which
default is not cured within any applicable grace or cure period, and entry upon
the Property pursuant to Section 3.1(b) hereof or appointment of a receiver
pursuant to Section 3.1(d) hereof, and under such terms and conditions as may be
prudent and reasonable under the circumstances in Mortgagee's or the receiver's
sole discretion, all at Mortgagor's expense, Mortgagee or said receiver, or such
other persons or entities as they shall hire, direct or engage, as the case may
be, may do or permit one or more of the following, successively or concurrently:
(a) enter upon and take possession and control of any and all of the Property;
(b) take and maintain possession of all documents, books, records, papers and
accounts relating to the Property; (c) exclude Mortgagor and its agents,
servants and employees wholly from the Property; (d) manage and operate the
Property; (e) preserve and maintain the Property; (f) make repairs and
alterations to the Property; (g) complete any construction or repair of the
Improvements, with such changes, additions or modifications of the plans and
specifications or intended disposition and use of the Improvements as Mortgagee
may in its sole discretion deem appropriate or desirable to place the Property
in such condition as will, in Mortgagee's sole discretion, make it or any part
thereof readily marketable or rentable; (h) conduct a marketing or leasing
program with respect to the Property, or employ a marketing or leasing agent or
agents to do so, directed to the leasing or sale of the Property under such
terms and conditions as Mortgagee may in its sole discretion deem appropriate or
desirable; (i) employ such contractors, subcontractors, materialmen, architects,
engineers, consultants, managers, brokers, marketing agents, or other employees,
agents, independent contractors or professionals, as Mortgagee may in its sole
discretion deem appropriate or desirable to implement and effectuate the rights
and powers herein granted; (j) execute and deliver, in the name of Mortgagor as
attorney-in-fact and agent of Mortgagor or in its own name, such documents and
instruments asare necessary or appropriate to consummate authorized
transactions; (k) enter into such leases, whether of real or personal property,
or tenancy agreements, under such terms and conditions as Mortgagee may in its
sole discretion deem appropriate or desirable; (l) collect and receive the Rents
and Profits from the Property; (m) eject tenants or repossess personal property,
as provided by law, for breaches of the conditions of their leases or other
agreements; (n) sue for unpaid Rents and Profits, payments, income or proceeds
in the name of Mortgagor or Mortgagee; (o) maintain actions in forcible entry
and detainer, ejectment for possession and actions in distress
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for rent; (p) compromise or give acquittance for Rents and Profits, payments,
income or proceeds that may become due; (q) delegate or assign any and all
rights and powers given to Mortgagee by this Mortgage; and (r) do any acts which
Mortgagee in its sole discretion deems appropriate or desirable to protect the
security hereof and use such measures, legal or equitable, as Mortgagee may in
its sole discretion deem appropriate or desirable to implement and effectuate
the provisions of this Mortgage. This Mortgage shall constitute a direction to
and full authority to any lessee, or other third party who has heretofore dealt
or contracted or may hereafter deal or contract with Mortgagor or Mortgagee, at
the request of Mortgagee, to pay all amounts owing under any lease, contract,
concession, license or other agreement to Mortgagee without proof of the default
relied upon. Any such lessee or third party is hereby irrevocably authorized to
rely upon and comply with (and shall be fully protected by Mortgagor in so
doing) any request, notice or demand by Mortgagee for the payment to Mortgagee
of any Rents and Profits or other sums which may be or thereafter become due
under its lease, contract, concession, license or other agreement, or for the
performance of any undertakings under any such lease, contract, concession,
license or other agreement, and shall have no right or duty to inquire whether
any default under this Mortgage or under any of the other Transaction Documents
has actually occurred or is then existing. Mortgagor hereby constitutes and
appoints Mortgagee, its assignees, successors, transferees and nominees, as
Mortgagor's true and lawful attorney-in-fact and agent, with full power of
substitution in the Property, in Mortgagor's name, place and stead, to do or
permit any one or more of the foregoing described rights, remedies, powers and
authorities, successively or concurrently, and said power of attorney shall be
deemed a power coupled with an interest and irrevocable so long as any
indebtedness secured hereby is outstanding. Any money advanced by Mortgagee in
connection with any action taken under this Section 3.3, together with interest
thereon at the Default Interest Rate from the date of making such advancement by
Mortgagee until actually paid by Mortgagor, shall be a demand obligation owing
by Mortgagor to Mortgagee and shall be secured by this Mortgage and by every
other instrument securing the secured indebtedness.
3.4. Occupancy After Foreclosure. In the event there is a sale or sales
pursuant to Section 3.2 hereof and at the time of such sale or sales, Mortgagor
or Mortgagor's representatives, successors or assigns, or any other persons
claiming any interest in the Property by, through or under Mortgagor (except
tenants of space in the Improvements subject to leases entered into prior to the
date hereof), are occupying or using the Property, or any part thereof, then, to
the extent not prohibited by applicable law, each and all shall, at the option
of Mortgagee or the purchaser at such sale, as the case may be, immediately
become the tenant of the purchaser at such sale, which tenancy shall be a
tenancy from day-to-day, terminable at the will of either landlord or tenant, at
a reasonable rental per day based upon the value of the Property occupied or
used, such rental to be due daily to the purchaser. Further, to the extent
permitted by applicable law, in the event the tenant fails to surrender
possession of the Property upon the termination of such tenancy, the purchaser
shall be entitled to institute and maintain an action for unlawful detainer of
the Property in the appropriate court of the State of Louisiana.
3.5. Notice to Account Debtors. Mortgagee may, at any time after a
default hereunder, which default is not cured within any applicable grace or
cure period, notify the account debtors and obligors of any accounts, chattel
paper, negotiable instruments or other evidences of indebtedness to Mortgagor
included in the Property to pay Mortgagee directly. Mortgagor shall at any time
or from time to time upon the request of Mortgagee provide to Mortgagee a
current list of all such account debtors and obligors and their addresses.
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3.6. Cumulative Remedies. All remedies contained in this Mortgage are
cumulative, and Mortgagee shall also have all other remedies provided at law and
in equity or in any other Transaction Documents. Such remedies may be pursued
separately, successively or concurrently at the sole subjective direction of
Mortgagee and may be exercised in any order and as often as occasion therefor
shall arise. No act of Mortgagee shall be construed as an election to proceed
under any particular provisions of this Mortgage to the exclusion of any other
provision of this Mortgage or as an election of remedies to the exclusion of any
other remedy which may then or thereafter be available to Mortgagee. No delay or
failure by Mortgagee to exercise any right or remedy under this Mortgage shall
be construed to be a waiver of that right or remedy or of any default hereunder.
Mortgagee may exercise any one or more of its rights and remedies at its option
without regard to the adequacy of its security.
3.7. Payment of Expenses. Mortgagor shall pay on demand all of
Mortgagee's expenses reasonably incurred in any efforts to enforce any terms of
this Mortgage, whether or not any lawsuit is filed and whether or not
foreclosure is commenced but not completed, including, but not limited to,
reasonable legal fees and disbursements, foreclosure costs and title charges,
together with interest thereon from and after the date incurred by Mortgagee
until actually paid by Mortgagor at the Default Interest Rate, and the same
shall be secured by this Mortgage.
ARTICLE IV.
MISCELLANEOUS TERMS AND CONDITIONS
4.1. Time of Essence. Time is of the essence with respect to all
provisions of this Mortgage.
4.2. Release of Mortgage. At such time as the face amount of the
outstanding Debentures is equal to less than $3,000,000, and all other sums due
under the Debentures shall have been paid at the time and in the manner
stipulated therein or converted to shares of common stock, par value $.08 per
share of AIPC, and all other sums payable under this Mortgage shall have been
paid and all other covenants contained in the Transaction Documents shall have
been performed then, and in such event only, all rights under this Mortgage
shall terminate except for those provisions hereof which by their terms survive,
and the Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, which shall be released by
Mortgagee in due form at Mortgagor's cost. Mortgagor shall be responsible for
the recordation of such release and payment of any recordation costs associated
therewith.
4.3. Certain Rights of Mortgagee. Without affecting Mortgagor's
liability for the payment of any of the indebtedness secured hereby, Mortgagee
may from time to time and without notice to Mortgagor: (a) release any person
liable for the payment of the indebtedness secured hereby; (b) extend or modify
the terms of payment of the indebtedness secured hereby; (c) accept additional
real or personal property of any kind as security or alter, substitute or
release any property securing the indebtedness secured hereby; (d) recover any
part of the Property; (e) consent in writing to the making of any subdivision
map or plat thereof; (f) join in granting any easement therein; or (g) join in
any extension agreement of this Mortgage or any agreement subordinating the lien
hereof.
35
<PAGE>
4.4. Notices. All notices, demands, requests or other communications to
be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery of
the same in person to the intended addressee, or by depositing the same with
Federal Express or another reputable private courier service for next business
day delivery, or by depositing the same in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, in any event
addressed to the intended addressee at its address set forth on the first page
of this Mortgage or at such other address as may be designated by such party as
herein provided. All notices, demands and requests shall be effective upon such
personal delivery, or one (1) business day after being deposited with the
private courier service, or two (2) business days after being deposited in the
United States mail as required above. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice was given
as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least fifteen (15) days'
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
4.5. Successors and Assigns. The terms, provisions, indemnities,
covenants and conditions hereof shall be binding upon Mortgagor and the
successors and assigns of Mortgagor, including all successors in interest in and
to all or any part of the Property, and shall inure to the benefit of Mortgagee,
and its successors and assigns and shall constitute covenants running with the
land. If Mortgagor consists of more than one person or entity, each will be
jointly and severally liable to perform the obligations of Mortgagor.
4.6. Severability. A determination that any provision of this Mortgage
is unenforceable or invalid shall not affect the enforceability or validity of
any other provision.
4.7. Gender. Within this Mortgage, words of any gender shall be held
and construed to include any other gender, and words in the singular shall be
held and construed to include the plural, and vice versa, unless the context
otherwise requires.
4.8. Waiver; Discontinuance of Proceedings. Mortgagee may waive any
default by Mortgagor hereunder without waiving any other prior or subsequent
default, and may remedy any default by Mortgagor hereunder without waiving the
default remedied. Neither the failure or delay by Mortgagee in exercising, any
right, power or remedy upon any default by Mortgagor hereunder shall be
construed as a waiver of such default or as a waiver of the right to exercise
any such right, power or remedy at a later date. No single or partial exercise
by Mortgagee of any right, power or remedy hereunder shall exhaust the same or
shall preclude any other or further exercise thereof, and every such right,
power or remedy hereunder may be exercised at any time and from time to time. No
modification or waiver of any provision hereof nor consent to any departure by
Mortgagor therefrom shall in any event be effective unless the same shall be in
writing and signed by Mortgagee, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose given. No
notice to nor demand on Mortgagor in any case shall of itself entitle Mortgagor
to any other or further notice or demand in similar or other circumstances.
Acceptance by Mortgagee of any payment in an amount less than the amount then
due on any of the secured indebtedness shall be deemed an acceptance on account
only and shall not in any way affect the existence of a default hereunder.
36
<PAGE>
4.9. Section Headings. The headings of the sections and paragraphs of
this Mortgage are for convenience of reference only, are not to be considered a
part hereof and shall not limit or otherwise affect any of the terms hereof.
4.10 Governing Law. This Mortgage will be governed by and construed in
accordance with the laws of the State of Louisiana, provided that to the extent
that any of such laws may now or hereafter be preempted by Federal law, in which
case such Federal law shall so govern and be controlling. References in this
Mortgage and the Transaction Documents to any state, county, local or municipal
government, court, regulation, law or ordinance shall, where applicable,
constitute references to any government, court, regulation, law or ordinance of
the State of Louisiana.
4.11. Counting of Days. The term "days" when used herein shall mean
calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the State of Louisiana, the period shall be deemed to
end on the next succeeding business day. The term "business day" or "Business
Day" when used herein shall mean a weekday, Monday through Friday, except a
legal holiday or a day on which banking institutions in New York, New York are
authorized by law to be closed.
4.12. Application of the Proceeds of the Debentures. To the extent that
proceeds of the Debentures are used to pay indebtedness secured by any
outstanding lien, security interest, charge or prior encumbrance against the
Property, such proceeds have been advanced by Mortgagee at Mortgagor's request
and Mortgagee shall be subrogated to any and all rights, security interests and
liens owned by any owner or holder of such outstanding liens, security
interests, charges or encumbrances, irrespective of whether said liens, security
interests, charges or encumbrances are released.
4.13. Unsecured Portion of Indebtedness. If any part of the secured
indebtedness cannot be lawfully secured by this Mortgage or if any part of the
Property cannot be lawfully subject to the lien and security interest hereof to
the full extent of such indebtedness, then all payments made shall be applied on
said indebtedness first in discharge of that portion thereof which is unsecured
by this Mortgage.
4.14. Cross Default. A default hereunder which has not been cured
within any applicable grace or cure period shall be a default under each of the
other Transaction Documents.
4.15. Interest After Sale. In the event the Property or any part
thereof shall be sold upon foreclosure as provided hereunder, to the extent
permitted by law, the sum for which the same shall have been sold shall, for
purposes of redemption (pursuant to the laws of the State of Louisiana), bear
interest at the Default Interest Rate.
37
<PAGE>
4.16. Construction of this Document. This document may be construed as
a mortgage, security deed, Mortgage, chattel mortgage, conveyance, assignment,
security agreement, pledge, financing statement, hypothecation or contract, or
any one or more of the foregoing, in order to fully effectuate the liens and
security interests created hereby and the purposes and agreements herein set
forth.
4.17. No Merger. It is the desire and intention of the parties hereto
that this Mortgage and the lien hereof shall not merge in fee simple title to
the Property.
4.18. Rights With Respect to Junior Encumbrances. Any person or entity
purporting to have or to take a junior mortgage or other lien upon the Property
or any interest therein shall be subject to the rights of Mortgagee to amend,
modify, increase, vary, alter or supplement this Mortgage or any of the other
Transaction Documents and to extend the maturity date of the indebtedness
secured hereby and to increase the amount of the indebtedness secured hereby and
to waive or forebear the exercise of any of its rights and remedies hereunder or
under any of the other Transaction Documents and to release any collateral or
security for the indebtedness secured hereby, in each and every case without
obtaining the consent of the holder of such junior lien and without the lien or
security interest of this Mortgage losing its priority over the rights of any
such junior lien.
4.19. Mortgagee May File Proofs of Claim. In the case of any
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Mortgagor or the principals or
general partners in Mortgagor, or their respective creditors or property,
Mortgagee, to the extent permitted by law, shall be entitled to file such proofs
of claim and other documents as may be necessary or advisable in order to have
the claims of Mortgagee allowed in such proceedings for the entire secured
indebtedness at the date of the institution of such proceedings and for any
additional amount which may become due and payable by Mortgagor hereunder after
such date.
4.20. After-Acquired Property. All property acquired by Mortgagor after
the date of this Mortgage which by the terms of this Mortgage shall be subject
to the lien and the security interest created hereby, shall immediately upon the
acquisition thereof by Mortgagor and without further Mortgage, conveyance or
assignment become subject to the lien and security interest created by this
Mortgage.
4.21. No Representation. By accepting delivery of any item required to
be observed, performed or fulfilled or to be given to Mortgagee pursuant to the
Transaction Documents, including, but not limited to, any officer's certificate,
balance sheet, statement of profit and loss or other financial statement,
survey, appraisal or insurance policy, Mortgagee shall not be deemed to have
warranted, consented to, or affirmed the sufficiency, legality, effectiveness or
legal effect of the same, or of any term, provision or condition thereof, and
such acceptance of delivery thereof shall not be or constitute any warranty,
consent or affirmation with respect thereto by Mortgagee.
38
<PAGE>
4.22. Counterparts. This Mortgage may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page.
4.23. Recording and Filing. Mortgagor will cause the Transaction
Documents and all amendments and supplements thereto and substitutions therefor
to be recorded, filed, re-recorded and re-filed in such manner and in such
places as Mortgagee shall reasonably request, and will pay on demand all such
recording, filing, re-recording and re-filing taxes, fees and other charges.
Mortgagor shall reimburse Mortgagee, or its servicing agent, for the costs
incurred in obtaining a tax service company to verify the status of payment of
taxes and assessments on the Property.
4.24 Entire Agreement and Modifications. This Mortgage and the other
Transaction Documents contain the entire agreements between the parties and
supersede any prior agreements (oral or written), and may not be amended,
revised, waived, discharged, released or terminated orally but only by a written
instrument or instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is asserted.
4.26. Application of Default Interest Rate Not a Waiver. Application of
the Default Interest Rate shall not be deemed to constitute a waiver of any
default or any rights or remedies of Mortgagee under this Mortgage, any other
Transaction Document or applicable Legal Requirements, or a consent to any
extension of time for the payment or performance of any obligation with respect
to which the Default Interest Rate may be invoked.
4.27. Relationship of the Parties. The relationship between Mortgagor
and Mortgagee is that of a borrower and a lender only and neither of those
parties is, nor shall it hold itself out to be, the agent, employee, joint
venturer or partner of the other party.
4.28. Fixture Filing. This Mortgage shall be effective from the date of
its recording as a financing statement filed as a fixture filing with respect to
all goods constituting part of the Property which are or are to become fixtures.
4.29 Joinder of AIPC. AIPC hereby does appear and joins and consents to
the foregoing Mortgage for any and all purposes necessary to give effect to the
provisions of the Mortgage, including without limitation the terms of Section
1.6 and Section 3.1(a). In addition, AIPC does hereby declare that it does not
own any right, title and interest in and to the Property. To the extent that
AIPC does now or hereafter owns any of the Property, AIPC hereby mortgages,
affects and hypothecates, and assigns and grants a security interest, to and in
favor of Mortgagee, its successors and assigns, in all of AIPC's estate, right,
title and interest in, to and under any and all of the Property on the terms and
conditions hereinabove set forth.
39
<PAGE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
40
<PAGE>
THUS DONE AND PASSED, in multiple originals at
_________________________, on the day, month and year first above written, in
the presence of ________________________ and _________________________, the
undersigned competent witnesses, who sign their names with the appearers and the
undersigned Notary Public.
MORTGAGOR:
WITNESSES: AMERICAN INTERNATIONAL REFINERY, INC.
By:_____________________________By:__________________________[SEAL]
Name:___________________________Name:______________________________
Title: President/Vice President
By:_____________________________
Name:___________________________
_____________________________
Notary Public
My commission expires:
______________________________
<PAGE>
THUS DONE AND PASSED, in multiple originals at _________________________,
on the day, month and year first above written, in the presence of
________________________ and _________________________, the undersigned
competent witnesses, who sign their names with the appearers and the undersigned
Notary Public.
MORTGAGEE:
HALIFAX FUND, L.P.
By:_____________________________By:__________________________[SEAL]
Name:___________________________Name:______________________________
Title: ______________________________
By:_____________________________
Name:___________________________
_____________________________
Notary Public
My commission expires:
______________________________
<PAGE>
JOINDER
The undersigned is executing this Mortgage for the purpose of appearing
herein and ratifying and confirming its agreement to the terms of this Mortgage,
including without limitation the terms of Section 4.29 of this Mortgage.
THUS DONE AND PASSED, in multiple originals at _________________________,
on the day, month and year first above written, in the presence of
________________________ and _________________________, the undersigned
competent witnesses, who sign their names with the appearers and the undersigned
Notary Public.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:_____________________________ By:__________________________[SEAL]
Name:___________________________
Name:___________________________
Title: ______________________________
By:_____________________________
Name:___________________________
____________________________________
Notary Public
My commission expires:
______________________
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Tract No. 1:
- ------------
The East Half of the North Half of the Northeast Quarter of Section 14, Township
9 South, Range 8 West, Calcasieu Parish, Louisiana, LESS and EXCEPT the
following:
That certain tract or parcel of land, containing five (5) acres, more or less,
beginning at a set pk nail marking the Northwest Corner of the Northwest Quarter
of the Northeast Quarter of Section 14, Township 9 South, Range 8 West,
Louisiana Meridian, Calcasieu Parish, Louisiana, thence North 89(degree)0'01"
East along the North line of said Northeast Quarter of the Northeast Quarter for
a distance of 75.0 feet to a set pk nail, the Northeast Corner of herein
described tract, thence South 00(degree)13'59" East for a distance of 714.0 feet
to a set 1/2 inch pipe, thence North 89(degree)50'01" East for a distance of
290.0 feet to a set 1/2 inch pipe, thence South 00(degree)13'59" East for a
distance of 450.0 feet to a set 1/2 inch pipe, the Southeast Corner of herein
described tract, thence South 89(degree)50'01" West for a distance of 365.0 feet
to a set 1/2 inch pipe in the West line of the aforesaid Northeast Quarter of
the Northeast Quarter, the Southwest Corner of herein described tract, thence
North 00(degree)13'50" West along the said West line, for a distance of 1164.0
feet to the point of beginning. Leaving a balance of 35 acres, more or less.
Tract No. 2:
- ------------
The West 30 acres of all that part or parcel of Lots 13 and 14 of Section 12,
Township 9 South, Range 8 West (LESS AND EXCEPT the East 495 feet of Lot 14 sold
to O.H. Castle on May 22, 1912, and a strip adjoining the same on the West being
690 feet wide sold to Fay H. Mertz on August 15, 1919) lying East of a private
shell road whose East line is located on and may be described as commencing at
the Southwest Corner of Lot 13 of Section 12, Township 9 South, Range 8 West,
thence running North 19(degree)36'10" East a distance of 771.13 foot to a point,
thence North 5(degree)38'0" East to the Calcasieu River and Old Town Bay, a
distance of 554.29 feet, more or less.
Tract No. 3:
- ------------
I. The East Half of Southeast Quarter of the Southeast Quarter of Section 11,
Township 9 South, Range 8 West, Calcasieu Parish, Louisiana, LESS AND EXCEPT:
(1) A one acre square in the Southwest Corner sold to Virgil L. Donham, recorded
in Conveyance Book 305 at Page 615 of the records of Calcasieu Parish,
Louisiana;
<PAGE>
(2) 1.03 acres sold to Stockwall, recorded in Conveyance Book 236 at Page 280 of
the records of Calcasieu Parish, Louisiana;
(3) Two acres, more or less, described in that surface lease in favor of Union
Texas Natural Gas Corporation, recorded in Conveyance Book 775 at Page 584 of
the records of Calcasieu Parish, Louisiana.
II. All that tract in Lot 13 of Section 12, Township 9 South, Range 8 West, West
of a line described as commencing at the Southwest Corner of Lot 13 of Section
12, Township 9 South, Range 8 West, thence North 19 degrees 36 minutes 10
seconds East a distance of 771.13 feet to a point; thence North 5(degree)38'00"
East to the Calcasieu River and Old Town Bay, a distance of 554.29 foot, more or
less.
Tract No. 4
- -----------
An easement and/or servitude for a pipeline, which easement and/or servitude
shall be 30 feet in width, together with all rights of ingress and egress which
the law affords across the following described property, to-wit:
The East 29 acres of all that part or parcel of Lots 13 and 14 of
Section 12, Township 9 South, Range 8 West (less and except the east 495 feet of
Lot 14 sold to O.H. Castle on May 22, 1912, and a strip adjoining same on the
west being 690 feet wide sold to Fay H. Mertz on August 15, 1919 lying east of a
private shell road whose east line is located upon and may be described as
commencing at the southwest corner of Lot 13 of Section 12, Township 9 South,
Range 8 West, thence running North 19 degrees 36 minutes 10 seconds east a
distance of 771.13 feet to a point, thence North 5 degrees 38 minutes 00 seconds
east to the Calcasieu River and Old Town Bay a distance of 554.29 feet, more or
less, which tract contains 59 acres, more or less.
<PAGE>
EXHIBIT B
REFINERY DESCRIPTION
1.0 Onsite Processing Equipment
1.1 One 38,000 barrel per day crude unit containing significant alloy materials
suitable for adaptation to process sour crude oil. The 12 percent chrome
alloy- lined fractionator, which has 36 alloy trays, is capable of
producing light naphtha overhead, and as side cuts:
- Heavy naphtha, kerosene (either JP-4 or Jet A-1), No. 2 diesel and
atmospheric gas oil. Reduced crude oils, may be sold as special No. 5
fuel oil, is produced from the fractionator bottom.
The fractionator has four steam side strippers, one each for heavy naphtha,
kerosene, No.2 diesel and atmospheric gas oil.
1.2 In addition to the main fractionator, there is a 5-foot diameter
debutanizer containing 24 trays complete with pumps, exchangers, etc.
1.3 A 10, 000 barrel a day naphtha Bender treater capable of treating either
fight naphtha or a combined stream of light and heavy naphtha.
1.4 A 6,000 barrel a day kerosene Bender treater capable of treating JP-4 or
Jet A-1 produced directly from the main fractionator. This Bender also
contains a salt drier and two clay filters.
1.5 One 16,500 barrel a day vacuum distillation unit complete with an 11 -foot
ID column and 54 MM BTU/Hr alloy vacuum heater.
1.6 An 8,500 barrel per day heavy naphtha hydrotreater (approximately 85
percent complete) now under construction.
1.7 An 8,500 barrel per day, 250 psi separator pressure, magnaformer (85
percent complete) now under construction.
2.0 Offsite Equipment
2.1 One 30,000 Lb/Hr, 250 psig steam boiler (gas or oil fired).
2.2 One 60,000 Lb/Hr, 135 psig steam boiler rated at 750 psig with superheater
(boiler needs to be retubed).
<PAGE>
2.3 One water treating system consisting of sand filters, Zeolite water
softeners, 1,000 barrel treated water tank, deaerating feed water pumps
(two pumps; one steam turbine driven, one electric driven), 90,000 Lb/Hr
steam deaerating feed water heater, boiler feed water pumps (two electric
and two steam turbine driven).
Note: Boilers have automatic controls and are capable of furnishing full
rated steam load during electric power failure.
2.4 Non-lubricating instrument air system consisting of one electric rotary air
compressor and drier and one electric reciprocating air compressor with
drier spared by one steam engine driven air compressor.
2.5 One utility air system consisting of one 40 HP reciprocating electric
driven air compressor, surge drum and necessary galvanized air piping.
2.6 One river barge dock capable of loading two barges at a time or, as an
alternate, loading one barge and unloading crude oil at the same time.
Lines to and from the river are as follows:
1 - 10" crude loading or loading line
1 - 10" steam traced and insulated resid loading line
1 - 10" diesel and/or gas oil loading line
1 - 10" kerosene and/or jet fuel loading line
1 - 10" naphtha loading line
1 - 4" slop line
1 - 2" steam fine
1 - 10" steam traced and insulated asphalt loading line
All products are capable of being loaded at an average of 4,500 barrels per
hour.
2.7 One four-spot bottom loading truck- rack equipped with underground vapor
recovery fines to a vapor recovery unit.
2.8 Five water-cooling towers; four rated at 500 GPM and one which is new and
has never been used rated at 10,000 GPM.
The four 500 GPM towers are connected in parallel and are served by two
water pumps rated at 2,000 GPM each, one electric driven and one steam
turbine driven. The pumps for the10,000 GPM cooling tower are in storage.
These pumps, while new, have never been installed.
<PAGE>
3.0 Waste Water Systems
The refinery handles process water and stormwater at two permitted
Outfalls.
Outfall 001
-----------
The influent flow to the Wastewater Treatment System consists of Cooling
Tower Blowdown, Boiler Blowdown, and Process Stormwater run off. These
streams lead into a collection sump, then pumped into an Oikl Water
Separator, which consists of a pressurized corrugated plate interceptor.
Recovered oil from this unit is pumped to Tank- 102 the Recovered Oil Tank
for reuse. The wastewater discharge from the oil water separator then flows
into Tank 20-16, a 20,000 barrel Equilization Tank. The wastewater is
pumped into a Biological Treatment System. The treated water is then pumped
through a sandfilter as a precaution, then is discharged at our permitted
outfall 001, which consists of a continuous flow meter, continuous pH
meter, and an automatic sampler.
Outfall 002
-----------
This permitted Outfall handles all Stormwater run off in the Tankfarm.
Samples are taken from this outfall prior to discharge. After receiving
analytical data, the water is then pumped through an Oil Water Separator as
a precaution, then discharged.
4.0 Flare System
4.1 One John Zink smokeless flare system complete with 90-foot tower and
blowdown drum. All relief valves are connected to this system.
5.0 Fire Water System
5.1 One looped fire water system capable of pumping 1,800 GPM, fire plugs with
2 - 2/12 hose connections and one 6 inch pumper connections are spaced
every 200 feet around the tank farm and process area. Currently a new 1,000
GPM- 150 psi diesel fire pump is on order. Pump has recently been
installed.
6.0 Buildings
6.1 Office building 40' x 100' complete with control laboratory made of
concrete block.
6.2 One combination bathhouse and maintenance warehouse 30' x 60' of
prefabricated steel.
6.3 One maintenance and welding shop 30' x 60' of prefabricated steel.
<PAGE>
6.4 One construction warehouse 30' x 60' of prefabricated steel complete with
construction offices.
6.5 One control room and electric switch room 20' x 72' made of concrete block.
6.6 One reformer control room 16'6" x 30'0" of concrete construction.
6.7 One vacuum unit switch house 16' x 30' made of concrete block.
7.0 Storage Tanks
1 - 55,000 barrel pontoon floating roof tank for crude
1 - 80,000 barrel cone roof with steam coil tank for fuel oil/Asphalt sales
1 - 40,000 barrel cone roof tank for crude
1 - 30,000 barrel cone roof tank for gas oil sales
1 - 10,000 barrel cone roof with steam coils tank for ATB rundown for
vacuum unit feed
2 - 110,000 barrel pontoon floating roof crude tanks
2 - 15,000 barrel internal steel pan floating roof tanks for jet
fuel/Naphtha sales
2 - 10,000 barrel pontoon floating roof tanks for naphtha rundown
2 - 10,000 barrel cone roof tanks for kerosene and/or jet fuel rundown
1 - 55,000 barrel cone roof tank/Asphalt sales
1 - 55,000 barrel cone roof tank/Gas Oil sales
2 - 10,000 barrel cone roof diesel rundown tanks
8.0 Asphalt Terminal
8.1 Eight coiled and insulated cone roof tanks complete with in-tank mixers as
follows:
8.la 30,000 barrel Tank 30-20 for heavy base asphalt
8.lb 30,000 barrel Tank 30-25 for light base asphalt
8.lc 5,000 barrel Tank 5-31 for polymer asphalt base stock
8.ld 5,000 barrel Tank 5-35 for polymer asphalt base stock
8.le 2,500 barrel Tank 2-28 for blended polymer asphalt loading tank
8.le 2,500 barrel Tank 2-29 for blended polymer asphalt loading tank
8.le 2,500 barrel-Tank 2-37 for blended polymer asphalt loading tank
8.le 2,500 barrel Tank 2-38 for blended polymer asphalt loading tank
8.2 Two - 6 inch jacketed Viking asphalt pumps, each complete with 60 H.P.
electric motors to transfer base asphalt to polymer terminal area from
Tanks 30-20 and 30-25.
8.3 One 15 million BTU/Hr gas fired asphalt heater connected to Tanks 30-20 and
30-25.
<PAGE>
8.4 One 100 H.P. 135 psig gas fired steam boiler connected to the steam coils
in Tanks 30-20 and 30-25. This boiler is also used for steam tracing of
asphalt.
8.5 One 5 million BTU/Hr gas fired cycle oil heater for heating asphalt Tanks
5- 31, 5-35, 2-28, 2-29, 2-37, and 2-38, plus heat tracing.
8.6 One combination polymer emulsion mill housed under 40' x 100' metal open
sided building.
8.7 One 4-inch Viking jacketed asphalt pump complete with 25 H.P. electric
motor for polymer asphalt transfer.
8.8 Two 4-inch Viking jacketed asphalt pump complete with 25 H.P. electric
motors for asphalt truck loading.
8.9 Asphalt Lab and Office building with $600,000 worth of lab furniture and
SFW asphalt testing equipment.
8.10 One - two spot, roofed, top loading rack complete with one set of truck
scales and loading office.
8.11 One concrete block motor control building, complete with 1,500 KVA
transformer, 2,000 amp circuit breaker and two motor control centers to
control all existing three phase electric motors.
<PAGE>
EXHIBIT C
Permitted Exceptions
