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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
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) August 19, 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 August 19, 1999, the Registrant issued and sold $4,750,000
principal amount of its 6% secured convertible debentures due 2004 (the
"Debentures") and warrants to purchase 712,500 shares of common stock to two
accredited institutional investors (the "Purchasers") for a total purchase price
of $4,750,000 under a Secured Convertible Debenture Purchase Agreement dated as
of August 19, 1999 (the "Purchase Agreement"). The net proceeds from the sale
have been used to repay $750,000 of a $1,875,000 bridge note. An additional
$1,149,038 has been deposited in escrow to redeem the Registrant's 14%
Convertible Notes due April 21, 2000, including premium and accrued interest. As
of September 3, 1999, approximately $613,000 principal amount of these notes was
outstanding. The 14% notes may be converted prior to redemption and to the
extent they are converted, less than the amount deposited in escrow will be
required to redeem the outstanding 14% notes, with any excess to be repaid to
the Registrant. The remainder of the net proceeds from the sale will be
available for drilling and exploration activities in Kazakstan and for the
Registrant's refining operations in the gulf coast of the U.S.
The Registrant has agreed to sell to the Purchasers, and the
Purchasers have agreed to purchase, an additional $2,250,000 principal amount of
Debentures and warrants to purchase an additional 337,500 shares of common stock
ten business days after the date upon which a registration statement for the
resale of the shares of common stock that may be acquired upon conversion of the
Debentures and the exercise of the warrants sold on August 19, 1999 is declared
effective by the SEC. The second closing is subject to notification from the
Registrant to the Purchasers, within five business days after the registration
statement has been declared effective by the SEC, that certain conditions to
closing have been satisfied, including compliance with all applicable
requirements for continued listing of the common stock on the Nasdaq National
Market and the absence of (1) any state of facts or events that would have a
material adverse effect on (a) the business, operations, properties, prospects
or financial condition of the Registrant, (b) the closing bid price or trading
volume of the common stock, or (2) any condition, circumstance or situation
that would prohibit or otherwise in any material respect interfere with the
ability of the Registrant to perform its obligations under, or contemplated by,
the Purchase Agreement. If a second closing occurs, a portion of the net
proceeds from that sale will be used to pay the remaining principal balance of
the bridge note. The balance of the net proceeds will be available for drilling
and exploration activities in Kazakstan and for the Registrant's refining
operations in the gulf coast of the U.S.
The Debentures are payable on August 19, 2004, or earlier upon
acceleration following the occurrence of an event of default. Payment of the
Debentures is secured by a security interest in specified equipment of the
Registrant's wholly owned subsidiary, St. Mark's Refinery, Inc. Except to the
extent payment of the Debentures is secured by the security interest in the
collateral, payment of the Debentures is junior and subordinate in right of
payment to the Registrant's convertible secured debentures due February 19, 2004
in the principal amount of $10,000,000.
The Debentures bear interest at the rate of 6% per annum,
payable on the last day of each calendar quarter, commencing December 31, 1999.
Interest is payable in cash, or at the Registrant's option, in shares of common
stock, calculated in accordance with the conversion price formula, described
below.
The Debentures are convertible into shares of the Registrant's
common stock, at the option of the holder thereof, subject to the limitations
stated below. The conversion price is equal to 85% of the average of the lowest
three closing bid prices of the common stock for the 20 trading days prior to
the date upon which the holder gives notice of conversion. The maximum
conversion price is $1.214. Since there is no minimum conversion price, except
for the limitation set forth below required by the rules of The Nasdaq Stock
Market, Inc., there is no limitation on the number of shares of common stock
that may be acquired upon conversion. The right of conversion is subject to the
following limitations:
1. The Debentures are convertible upon the earliest
of
a. November 17, 1999
b. The date upon which a registration
statement for the resale of the shares of
common stock that may be acquired upon
conversion of the Debentures and the
exercise of the warrants issued on August
19, 1999 is declared effective by the SEC.
c. After the closing bid price of the common
stock has been at least $2.50 per share on
any trading date commencing August 19,
1999.
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.
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3. The number of shares of common stock that the
holder may acquire upon conversion of the
Debentures may not exceed 19.9% of the shares of
common stock outstanding on August 19, 1999, the
date upon which the convertible debentures were
issued, until stockholders approve the issuance
upon conversion of more than that number of
shares. This limitation is required by the rules
of The Nasdaq Stock Market, Inc.
The Registrant may redeem the Debentures at a redemption price
equal to the product of the number of shares of common stock that the holder
could have acquired upon conversion on the date the redemption notice is
delivered to the holder and the closing bid price of a share of common stock on
the trading day immediately preceding that date.
The warrants may be exercised at any time before August 19,
2004, at an exercise price of $1.453 per share. 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 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 Rule 506 of Regulation D promulgated by
the SEC under that Section. The Company has agreed to file a registration
statement for the resale of the shares of common stock that may be acquired upon
conversion of the Debentures and the warrants.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
4.1 Form of Secured Convertible Debenture Purchase
Agreement dated as of August 19, 1999.
4.2 Form of 6% Secured Convertible Debenture (included as
Exhibit A to Exhibit 4.1)
4.3 Form of Registration Rights Agreement (included as
Exhibit C to Exhibit 4.1)
4.4 Form of Security Agreement (included as Exhibit D to
Exhibit 4.1)
4.5 Form of Common Stock Purchase Warrant (included as
Exhibit E to Exhibit 4.1)
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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: September 9, 1999 By: s/ Denis J. Fitzpatrick
New York, New York ------------------------------
Denis J. Fitzpatrick
Vice President and
Chief Financial Officer
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SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
among
American International Petroleum Corp.
and
The entities listed on Schedule A
August 19, 1999
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SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
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THIS SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of
August , 1999 (the "Agreement"), among the entities listed on Schedule A annexed
hereto (hereinafter referred to as the "Investors"), and American International
Petroleum Corp., a corporation organized and existing under the laws of the
State of Nevada (Nasdaq National Market symbol "AIPN", the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase up to $7,250,000 principal amount of Debentures
(as defined below) and Warrants to purchase up to an aggregate of that number of
Warrant Shares as set forth in Section 2.3 below, in two separate tranches as
set forth below; and
WHEREAS, such investment will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
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Certain Definitions
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Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.4 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and
any day that shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to subscribe for, any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
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Section 1.6 "Closing" shall mean the one of the closings of the
purchase and sale of the Debentures and Warrants pursuant to Article II below.
Section 1.7 "Closing Date" shall mean the date each of the conditions
precedent to First Tranche Closing Date and the Second Tranche Closing Date as
set forth in Section 2.6 below, have been satisfied or waived in writing, and
each such Closing Occurs.
Section 1.8 "Collateral" shall have the definition as set forth in the
Security Agreement.
Section 1.9 "Common Stock" shall mean the Company's common stock, $0.08
par value per share.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.11 "Debentures" shall mean the Secured Convertible Debentures
of the Company to be issued in the two tranches in the form annexed hereto as
Exhibit A.
Section 1.12 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of (i)
150% of the Underlying Shares (of the Debentures issued on the First Tranche
Closing Date) as of the Trading Day immediately preceding the filing date of the
Registration Statement, and (ii) 100% of the Warrant Shares (of the Warrants
issued on the First Tranche Closing Date).
Section 1.13 "Escrow Agent" shall mean the law firm of The Goldstein
Law Group, P.C., pursuant to the terms of the Escrow Agreement.
Section 1.14 "Escrow Agreement" shall mean the Escrow Agreement
attached hereto as Exhibit B.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.16 "First Tranche Purchase Price" shall mean $4,750,000.
Section 1.17 "Legend" shall have the meaning set forth in Article VIII
below.
Section 1.18 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, trading volume of the Common Stock, operations, properties,
prospects, or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise in any
material respect interfere with the ability of the Company to enter into and
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perform any of its obligations under this Agreement, the Escrow Agreement, the
Security Agreement, the Registration Rights Agreement, the Debentures, or
Warrants in any material respect.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "Outstanding" when used with reference to shares of Common
Stock, preferred stock of the Company, or Capital Shares (collectively the
"Shares"), shall mean, at any date as of which the number of such Shares is to
be determined, all issued and outstanding Shares, and shall include all such
Shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in such Shares; provided, however, that Outstanding shall
not mean any such Shares then directly or indirectly owned or held by or for the
account of the Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.22 "Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the principal New York City office of
the Chase Manhattan bank, or its successor, as its prime rate (which rate shall
change when and as such prime rate changes).
Section 1.23 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small Cap Market, the American Stock Exchange, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.24 "Purchase Price" shall mean collectively the First Tranche
Purchase Price and the Second Tranche Purchase Price.
Section 1.25 "Registrable Securities" shall have the definition set
forth in the Registration Rights Agreement.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company, and the Investors on
the Subscription Date annexed hereto as Exhibit C.
Section 1.27 "Registration Statement" shall mean a registration
statement on Form S-3 or other available form, for the registration of the
resale by the Investors of the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission.
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Section 1.30 "Second Tranche Purchase Price" shall mean $2,500,000.
Section 1.31 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.32 "Securities" shall mean the Debentures, Underlying Shares,
Warrants, Warrant Shares, and Additional Shares.
Section 1.33 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34 "Security Agreement" shall mean the agreement regarding
the Investors security interest in the Collateral, entered into between the
Company, and the Investors on the Subscription Date in the form annexed hereto
as Exhibit D.
Section 1.35 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto are executed and delivered by
the parties hereto.
Section 1.36 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.37 "Underlying Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to conversion of the Debentures.
Section 1.38 "Warrants" shall mean the Common Stock Purchase Warrants
to be issued in the two tranches in the form annexed hereto as Exhibit E.
Section 1.39 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
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Purchase and Sale of the Debentures and Warrant
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Section 2.1 Closings.
(a) First Tranche Closing Date. On the Business Day that all of
the conditions in Section 2.6(a)(i) have been complied and a Closing occurs, the
Company will sell and the Investors will buy, in reliance upon the
representations and warranties contained in this Agreement, and upon the terms
and satisfaction of each of the conditions set forth in Section 2.7 below, Four
Million Seven Hundred Fifty ($4,750,000) Dollars principal amount of Debentures
and Warrants to purchase 712,500 Warrant Shares for the First Tranche Purchase
Price.
(b) Second Tranche Closing Date. On the Business Day that all
of the conditions in Section 2.6(a)(ii) have been complied and a Closing occurs,
the Company will sell and the Investors will buy, in reliance upon the
representations and warranties contained in this Agreement, and upon the terms
and satisfaction of each of the conditions set forth in Section 2.7 below, Two
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Million Five Hundred Thousand ($2,500,000) Dollars principal amount of
Debentures and Warrants to purchase 375,000 Warrant Shares for the Second
Tranche Purchase Price.
Section 2.2 Form of Payment. The Investors shall pay the applicable
Purchase Price by delivering good funds in United States Dollars by wire
transfer to the Escrow Agent, against delivery of the original Debentures and
the Warrants.
Section 2.3 Warrants. The Company will issue to the Investors on the
First Tranche Closing Date Warrants, exercisable beginning on the First Tranche
Closing Date and then exercisable any time over the five year period there
following, to purchase an aggregate 712,500 Warrant Shares (in the designations
as set forth on Schedule A) at an exercise price equal to 150% of the Bid Price
on the Trading Day immediately preceding the First Tranche Closing Date. On the
Second Tranche Closing Date the Company will issue to the Investors a Warrants
to purchase an aggregate 375,000 Warrant Shares (pro rata based upon each
Investor's portion of the First Tranche Purchase Price). The exercise price for
the Warrants to be issued in the Second Tranche shall be equal to 150% of the
Bid Price on the Trading Day immediately preceding the Second Tranche Closing
Date. The Warrants shall be delivered by the Company to the Escrow Agent, and
delivered to the Investors pursuant to the terms of this Agreement and the
Escrow Agreement. All of the aforementioned Warrant Shares shall be registered
for resale pursuant to the Registration Rights Agreement.
Section 2.4 Additional Shares. If a "blackout period" occurs, which is
defined as any period in which the effectiveness of the Registration Statement
is suspended for a reason other than a suspension of the Registration Statement
arising because the Company possesses material non-public information, and the
Bid Price on the Trading Day immediately preceding such "blackout period" (the
"Old Bid Price") is greater than the Bid Price on the first Trading Day
following such "blackout period" (the "New Bid Price"), the Company shall issue
to the Investors the number of additional shares of Common Stock equal to the
difference between (y) the product of (i) the number of Underlying Shares and
Warrant Shares held by the Investors during such "blackout period" that are or
were not otherwise freely tradable and (ii) the Old Bid Price, divided by the
New Bid Price and (z) the number of Underlying Shares and Warrant Shares held by
the Investors during such blackout period that were not otherwise freely
tradable during such blackout period.
Section 2.5 Liquidated Damages. In addition to any other provisions for
liquidated damages in this Agreement or any Exhibit annexed hereto, if that the
Company does not deliver unlegended, freely tradable Common Stock in connection
with the sale of such Common Stock by the Investors as set forth in Article VIII
below within five Business Days of surrender by the Investors of the Common
Stock certificate in accordance with the terms and conditions set forth in
Article VIII below (such date of receipt is referred to as the "Receipt Date"),
the Company shall pay to the Investors, in immediately available funds, upon
demand, as liquidated damages for such failure and not as a penalty, for every
day thereafter for the first ten days, one percent of the product of (i) the
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number of shares of Common Stock undelivered and (ii) the Bid Price on the
Receipt Date, and two percent of the product of (i) the number of shares of
Common Stock undelivered and (ii) the Bid Price on the Receipt Date, for every
day thereafter that the unlegended shares of Common Stock are not delivered,
which liquidated damages shall accrue from the sixth Business Day after the
Receipt Date. The parties hereto acknowledge and agree that the sums payable
pursuant to the Registration Rights Agreement and as set forth above, and the
obligation to issue Additional Shares under Section 2.4 above, shall constitute
liquidated damages and not penalties. The parties further acknowledge that the
amount of loss or damages likely to be incurred in the event of a failure to
deliver unlegended, freely tradable shares of Common Stock cannot be precisely
estimated, and the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length. Notwithstanding the above, in the event that the
Company does not deliver unlegended Common Stock in connection with the sale of
such Common Stock by the Investors as set forth in Article VIII below within
five Business Days of the Receipt Date, the Company shall also pay to the
Investors, in immediately available funds, interest (at the then current Prime
Rate), based upon the product of (i) the number of undelivered unlegended freely
tradable shares, and (ii) the Bid Price of the Common Stock on the Receipt Date,
undelivered for every day thereafter that the unlegended shares of Common Stock
are not delivered. Any and all payments required pursuant to this paragraph
shall be payable only in cash, and any payment hereunder shall not relieve the
Company of its delivery obligations under this Section or elsewhere in this
Agreement or any Exhibit annexed hereto.
Section 2.6 Conditions to Closing.
(a) Closings. The Company agrees to sell and the Investors
agrees to purchase up to an aggregate of $7,250,000 principal amount of
Debentures and Warrants to purchase that number of Warrant Shares as set forth
in Section 2.3 above, in two separate tranches, as is more fully set forth in
(i) and (ii) below.
(i) First Tranche. On the Subscription Date, The Company
will sell and the Investors will buy that principal amount of
Debentures and Warrants to purchase that number of Warrant Shares as
set forth on Schedule A, in reliance upon the representations and
warranties contained in this Agreement, and upon the terms and
satisfaction of each of the following conditions:
(A) Acceptance by the Investors of a satisfactory Secured
Convertible Debenture Purchase Agreement (including all Exhibits
annexed hereto) and due execution by all parties of this Agreement and
the Exhibits annexed hereto;
(B) Delivery into escrow by the Company of the original
Debentures, and the original Warrants to be issued in the First
Tranche, as more fully set forth in the Escrow Agreement;
(C) All representations and warranties of the Company
contained herein shall remain true and correct in all material respects
as of the First Tranche Closing Date;
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(D) The Investors shall have received an opinion of counsel
substantially in the form of Exhibit F annexed hereto;
(E) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Debentures, and Warrants, or shall have the availability of exemptions
therefrom. At the First Tranche Closing Date, all laws and regulations
to which the Company and the Investors are subject shall legally permit
the sale and issuance of the Debentures and Warrants;
(F) Receipt of proof that the Company has filed and
recorded the financing statements and Security Agreement (as set forth
in Section 4.37 below) with the proper state authorities in the states
of Nevada and Florida giving notice of the Investors' exclusive
security interest in the Collateral; and
(G) The Company shall have obtained consents for the
Company to participate in this transaction from GCA Strategic
Investment Fund Limited ("GCA") and any other party necessary to
complete this transaction.
(ii) Second Tranche. Upon written notice (certifying
compliance with all of the conditions set forth below, referred to as
the "Second Tranche Notice", which notice shall be sent by the Company
to each of the Investors at least five Business Days within five
Business Days after the Effective Date), the Company will sell and the
Investors will buy, in reliance upon the representations and warranties
contained in this Agreement, and upon the terms and satisfaction of
each of the conditions set forth below, $2,500,000 principal amount of
Debentures and Warrants to purchase 375,000 Warrant Shares. Assuming
the Company serves the Second Tranche Notice as indicated above the
Second Tranche Closing Date shall occur on the tenth Business Day after
the Effective Date. The conditions precedent to the Second Tranche
Closing Date are as follows:
(A) Delivery into escrow by the Company of the original
Debentures and Warrants to be issued on the Second Tranche Closing
Date, as more fully set forth in the Escrow Agreement attached hereto;
(B) The Investors shall have received an opinion of counsel
of the Company in the form as set forth in Exhibit F annexed to this
Agreement, dated on the Second Tranche Closing Date;
(C) The Registration Statement (which includes at 150% of
the total number of Underlying Shares underlying the Debentures issued
in the First Tranche, and 100% of the Warrant Shares underlying the
Warrants that were issued in the First Tranche) has previously become
effective and remains effective immediately prior to the Second Tranche
Notice and the Second Tranche Closing Date, and (A) neither the Company
nor any of the Investors shall have received notice that the SEC has
issued or intends to issue a stop order with respect to the
Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either
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temporarily or permanently, or intends or has threatened to do so, and
(B) no other suspension of the use or withdrawal of the effectiveness
of the Registration Statement or related prospectus shall exist;
(D) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Warrants and Debentures issuable in connection with the Second Tranche,
or shall have the availability of exemptions therefrom. All laws and
regulations to which the Company is subject shall legally permit the
sale and issuance of the Warrants and Debentures issuable in connection
with the Second Tranche;
(E) The Investors shall have received written certification
that the representations, covenants, and warranties of the Company
contained in this Agreement and all Exhibits annexed hereto are true
and correct in all material respects as of the Second Tranche Closing
Date as though made at each such time (except for representations and
warranties specifically made as of a particular date) with respect to
all periods, and as to all events and circumstances occurring or
existing to and including the Second Tranche Closing Date;
(F) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement (including all Exhibits annexed
hereto), to be performed, satisfied or complied with by the Company at
or prior to the Second Tranche Closing Date;
(G) 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 that prohibits or directly and adversely affects any of
the transactions contemplated by this Agreement or the Exhibits annexed
hereto, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement or the Exhibits annexed hereto;
(H) The SEC or the Principal Market has not suspended the
trading of the Common Stock, and the Common Stock shall not have been
delisted from the Nasdaq National Market. The Company, as of the Second
Tranche Closing Date meets all applicable listing requirements of the
Nasdaq National Market;
(I) No "Change of Control" in the Company shall have
occurred since the First Tranche Closing Date. Change of Control shall
mean the occurrence of any of (a) an acquisition after the Subscription
Date by a Person of in excess of 50% of the voting securities of the
Company, (b) a replacement of more than one half of the board of
directors in place as of the Subscription Date which is not approved by
those individuals who are members of the board of directors on the
Subscription Date in one or a series of transactions, (c) the merger of
the Company with, or into another entity, consolidation or sale of all
or substantially all of the assets of the Company in one or a series of
related transactions, or (d) the execution by the Company of an
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agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth in (a), (b) or (c) herein;
(J) None of the Investors, in the event of the Closing of
the Second Tranche would own or be beneficially be deemed to own, more
than 4.99% of the outstanding shares of Common Stock;
(K) No Material Adverse Effect shall have occurred since
the First Tranche Closing Date;
(L) The Company shall not have breached a material term of
this Agreement or any Exhibit annexed hereto;
(M) The Company shall be in full compliance with the bridge
note (the "Bridge Note") held by GCA due October 12, 1999, shall not be
in default of any agreement it may have with GCA, and GCA shall not
have moved to enforce its interest on the Collateral; and
(N) Receipt of proof that the financing statements and
Security Agreement (as set forth in Section 4.37 below) remain in full
force and effect (as originally filed on or prior to the First Tranche
Closing Date) with the proper state authorities in the states of Nevada
and Florida.
Notwithstanding the foregoing, the Investors will not be obligated to
purchase the Debentures and Warrants issuable in connection with the Second
Tranche in the event the SEC has not declared the Registration Statement
covering the Securities in the First Tranche effective within six months after
the First Tranche Closing Date.
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ARTICLE III
-----------
Representations and Warranties of the Investors
-----------------------------------------------
The Investors represent and warrant to the Company that:
Section 3.1 Intent. Without limiting its ability to resell the
Securities pursuant to an effective registration statement or an exemption from
registration, the Investors are entering into this Agreement for its own account
and has no present arrangement (whether or not legally binding) at any time to
sell the Securities to or through any person or entity; provided, however, that
by making the representations herein, the Investors do not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with federal and state
securities laws applicable to such disposition. Without limiting their ability
to resell the Securities, the Investors represent that the Debentures and
Warrants are purchased for each Investors own account, for investment purposes
only and not for distribution or resale to others. The Investors agree that they
will not sell the Securities unless they are registered under the Securities Act
or unless an exemption from such registration is available.
Section 3.2 Accredited Investor/Investment Experience. Each of the
Investors is an accredited investor (as defined in Rule 501 of Regulation D),
and has such experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Debentures and Warrants.
As of the First Tranche Closing Date, each of the Investors (i) has adequate
means of providing for its current need and possible personal contingencies,
(ii) has no need for liquidity in this investment, (iii) is able to bear the
substantial economic risk of an investment in the Debentures and Warrant for an
indefinite period, and (iv) can afford the complete loss of his investment. The
Investors recognize the highly speculative nature of this investment. The
Investors acknowledge that they have carefully read the SEC Documents and the
terms and conditions of the Debentures and Warrants and fully understand the
contents thereof.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investors and is a valid and binding
agreement of the Investors enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The decision to invest and
the execution and delivery of this Agreement by the Investors, the performance
by the Investors of their obligations hereunder and the consummation by the
Investors of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investors. This Agreement has
been duly executed and delivered by the Investors and, assuming the due
execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Investors,
enforceable against the Investors in accordance with its terms.
Section 3.4 Not an Affiliate. None of the Investors is either an
officer, director or "affiliate" (as that term is defined in Rule 405 of the
Securities Act) of the Company.
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Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements thereof, will not (a) violate the
organizational documents of the Investors; (b) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investors, or, to the knowledge of each Investor; (c) violate any provision of
any indenture, instrument or agreement to which any Investor is a party or are
subject, or by which any Investor or any of its assets is bound; (d) conflict
with or constitute a material default thereunder; (e) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by any Investor
to any third party; or (f) require the approval of any third-party (which has
not been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any Investor is subject or to which
any of their assets, operations or management may be subject.
Section 3.6 Disclosure; Access to Information. The Investors have
received all documents, records, books and other information pertaining to
Investors' investment in the Company that have been requested by the Investors.
The Investors have had the opportunity to ask questions of, and receive answers
from, the Company.
Section 3.7 Manner of Sale. At no time were the Investors presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising in connection with the offer and sale of the Debentures and
Warrants.
Section 3.8 Exemption from Registration. The Investors acknowledge and
understand that the Debentures and Warrant have not been registered under the
Securities Act by reason of an exemption under the provisions of the Securities
Act.
Section 3.9 No Legal, Tax or Investment Advice. The Investors
understand that nothing in this Agreement or any other materials presented to
the Investors in connection with the purchase and sale of the Debentures and
Warrants constitutes legal, tax or investment advice. The Investors have relied
on, and has consulted with, such legal, tax and investment advisors as it, in
its sole discretion, have deemed necessary or appropriate in connection with its
purchase of the Debentures and Warrants.
Section 3.10 No Advertisements. The Investors are not purchasing the
Debentures and Warrants as a result of, or subsequent to, any advertisement,
article, notice or other communication published in any newspaper, magazine, or
similar media or broadcast over television or radio, or presented at any seminar
or meeting.
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ARTICLE IV
----------
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants that:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Nevada and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. 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 (individually or in the aggregate) in which the failure so to
qualify would not reasonably be expected to have a Material Adverse Effect. The
Company is not in violation of any material terms of its Articles of
Incorporation (as defined below) or Bylaws (as defined below).
Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, and all Exhibits annexed hereto, and to issue the Securities, (ii)
the execution, issuance and delivery of this Agreement, and all Exhibits annexed
hereto by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company, its
shareholders, or its Board of Directors is necessary, and (iii) this Agreement,
and all Exhibits annexed hereto, have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application. Upon their
issuance and delivery pursuant to this Agreement, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances other than those created hereunder or by the actions of the
Investors; provided, however, that the Securities are subject to restrictions on
transfer under state and/or federal securities laws. The issuance and sale of
the Securities will not give rise to any preemptive right or right of first
refusal or right of participation on behalf of any person other than the
Investors pursuant to the terms of this Agreement.
Section 4.3 Capitalization. As of August 13, 1999, the authorized
capital stock of the Company consists of 200,000,000 shares of Common Stock,
$0.08 par value, of which 74,531,859 shares are outstanding, and 7,000,000
shares of preferred stock, none of which are outstanding. All of the outstanding
shares of the Company's capital stock have been duly and validly authorized and
issued and are fully paid and nonassessable. No shares of Common Stock or
preferred stock of the Company are entitled to preemptive or similar rights.
Except as disclosed in the SEC Documents, there are no outstanding options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and Warrants, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
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exchangeable into shares of Common Stock. Except as disclosed in the SEC
Documents, to the knowledge of the Company, no Person or group of Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) or has the right to acquire by agreement with or by obligation
binding upon the Company beneficial ownership of in excess of five percent of
the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted, and trades, on the Nasdaq National Market, and the Company is
in full compliance with the rules and regulations of the Nasdaq National Market.
Section 4.5 SEC Documents. The Company has delivered or made available
to the Investors true and complete copies of the SEC Documents filed by the
Company with the SEC during the twelve months immediately preceding the date
hereof. The Company has not provided to the Investors any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed. The SEC Documents comply in all material respects with the
requirements of the Securities Act and/or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder and none of the
SEC Documents contain any untrue statement of a material fact or omit 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 financial statements of the Company included in the SEC
Documents comply as to form 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 prepared in accordance with generally accepted accounting principles
applied on a 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 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).
Section 4.6 Valid Issuances. Neither the issuance of the Securities,
nor the Company's performance of its obligations under this Agreement, and all
Exhibits annexed hereto, will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the Securities,
issued or issuable hereunder, or any of the assets of the Company other than the
security interest granted under the Security Agreement, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire any Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates, nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
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or general advertising in connection with the offer and sale of the Debentures
and Warrants, or (ii) has made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Debentures and Warrants under the Securities Act, except as
contemplated by this Agreement.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investors true and correct copies of the Company's Articles of
incorporation, as amended and in effect on the date hereof (the "Articles of
Incorporation"), and the Company's bylaws, as amended and in effect on the date
hereof (the "ByLaws"). The Articles of Incorporation and ByLaws are in full
force and effect as of the First Tranche Closing Date, without change or
amendment.
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement (including all Exhibits annexed hereto) by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Securities, do not and will not
(i) result in a violation of the Articles of Incorporation or ByLaws or (ii)
conflict with, or constitute a material default (or an event that 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, patent, patent license, indenture, instrument or any "lock-up" or
similar provision of any underwriting or similar agreement to which the Company
is a party, subject Section 4.39, or (iii) result in a violation of any federal,
state or local law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, nor is the
Company otherwise in violation of, in conflict with, or in default under, any of
the foregoing except as would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect. The business of the Company is
not being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
Except for the filing of a Form D within 15 days after the Closing Date (which
the Company agrees it will file), and such other form(s) required by "blue sky"
laws, the Company is not required under federal, state or local 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 to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Debenture, or Warrant, in accordance with the terms hereof;
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
Section 4.10 No Material Adverse Change. Since January 1, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations, known or unknown, absolute or otherwise (individually or in the
aggregate), which are not disclosed in the SEC Documents or otherwise publicly
announced, or as incurred in the ordinary course of the Company's businesses
since January 1, 1999, or which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
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Section 4.12 No Undisclosed Events or Circumstances. Since January 1,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company, but which
has not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.14 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has
complied in all material respects and to the extent applicable with all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the
Subscription Date.
Section 4.15 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Common Stock upon the conversion of the Debentures
and/or exercise of the Warrants, may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Additional Shares in accordance with the terms herein, Underlying Shares in
accordance with the Debentures, and Warrant Shares in accordance with the
Warrant is unconditional and absolute regardless of the effect of any such
dilution.
Section 4.16 Employee Relations. The Company is not involved in any
labor dispute, nor, to the knowledge of the Company, is any such dispute
threatened which could reasonably be expected to have a Material Adverse Effect.
None of the Company's employees is a member of a union and the Company believes
that its relations with its employees are good.
Section 4.17 Insurance. The Company is 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 is engaged. The Company has no notice to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires, or obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
Section 4.18 Board Approval. The Board of Directors of the Company has
concluded, in its good faith business judgment that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
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Section 4.19 Integration. The Company, any of its affiliates, or any
person acting on its or their behalf has not, shall not, and shall use its best
efforts to ensure that no affiliate shall, directly or indirectly, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Debentures and Warrants in a manner that would require the registration under
the Securities Act of the issue, offer or sale of the Debentures and Warrants to
the Investors. The Debentures and Warrants are being offered and sold pursuant
to the terms hereunder, are not being offered and sold as part of a previously
commenced private placement of securities.
Section 4.20 Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.21 Use of Proceeds. The net proceeds from the First Tranche
are to be used for the repayment of $500,000 principal amount of the Bridge
Note, $1,149,038 to be held in escrow as per the terms of Section 4.39 (and the
Escrow Agreement), and for general working capital and not for the repayment of
any judgment. The net proceeds from the Second Tranche are to be used for the
repayment of the final $1,300,000 principal amount of the Bridge Note, and for
general working capital and not for the repayment of any judgment.
Section 4.22 Subsidiaries. Except as disclosed in the SEC Documents,
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, partnership, association or other business
entity. St. Marks Refinery Inc. is a wholly owned subsidiary of the Company, and
St. Marks Refinery Inc. is authorized to, and has the power to, enter into, and
perform its obligations as set forth in this Agreement and all Exhibits annexed
hereto.
Section 4.23 No Private Placements. Except as disclosed in the SEC
Documents, the Company has not conducted a private placement of its Common Stock
or of any debt or equity instrument convertible into Common Stock within one
year prior to the Closing Date. Except for the transactions contemplated hereby,
there are no outstanding securities issued by the Company that are entitled to
registration rights under the Securities Act. Except as disclosed in the SEC
Documents, 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, that have anti-dilution or similar rights that would be
affected by the issuance of the Securities.
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Section 4.24 Permits; Compliance. The Company and each of its
subsidiaries is in possession of and operating in compliance with 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") all of which are valid and in
full force and effect, and there is no action pending or, to the knowledge of
the Company, threatened regarding the suspension or cancellation of any of the
Company Permits except for 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. To the Company's knowledge,
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
January 1, 1999 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.
Section 4.25 Taxes. All federal, state, city and other tax returns,
reports and declarations required to be filed by or on behalf of the Company
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.
Section 4.26 No Bankruptcy. The Company is aware of no facts or claims
against it that would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
Section 4.27 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound
Section 4.28 Absence of Events of Default. Except as set forth in the
SEC Documents and this Agreement, no Event of Default, as defined in any
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a Material Adverse
Effect.
Section 4.29 Governmental Consent, etc. Except for the filing of the
Form D and any state securities filings, no consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Securities, or
the consummation of any other transaction contemplated hereby.
Section 4.30 Consents. The Company has obtained consents for the
Company to participate in this transaction from GCA and any other party in which
the Company is obligated to obtain such consent, subject to Section 4.39 below.
Section 4.31 Intellectual Property Rights. Except as disclosed in the
SEC Documents, the Company has sufficient trademarks, trade names, patent
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rights, copyrights and licenses to conduct its business. To the Company's
knowledge, neither the Company nor its products is infringing or will infringe
any trademark, trade name, patent right, copyright, license, trade secret or
other similar right of others currently in existence; and there is no claim
being made against the Company regarding any trademark, trade name, patent,
copyright, license, trade secret or other intellectual property right which
could have a Material Adverse Effect.
Section 4.32 Material Contracts. Except as set forth in the SEC
Documents, the agreements to which the Company is a party described in the SEC
Documents are valid agreements, in full force and effect the Company is not in
material breach or material default (with or without notice or lapse of time, or
both) under any of such agreements and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
Section 4.33 Title to Assets. Except as set forth in SEC Documents, the
Company has good and marketable title to all properties and material assets
described in the SEC Documents as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Company.
Section 4.34 [Intentionally Omitted]
Section 4.35 Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been publicly disclosed by the Company or disclosed in writing to the
Investors which could reasonably be expected to have a Material Adverse Effect,
or could reasonably be expected to materially and adversely affect the ability
of the Company to perform its obligations pursuant to this Agreement.
Section 4.36 Absence of Undisclosed Liabilities. [Intentionally
Omitted]
Section 4.37 Security Interest. The Company agrees to cause its wholly
owned subsidiary St. Marks Refinery, Inc. ("St. Marks"), to give the Investors a
security interest on the Collateral during the time that any portion of the
Debentures remains outstanding. The Company represents and warrants that as of
the First Tranche Closing Date there are no liens, encumbrances, claims or
security interests on the Collateral, other than the security interest of GCA
and the security interest given to the Investors pursuant to this Agreement.
Prior to the First Tranche Closing Date the Company shall cause St. Marks to
file a UCC-1 Financing Statement on the Collateral in favor of the Investors,
has entered into the Security Agreement with the Investors covering the
Collateral. Except for the security interest granted to GCA and as contemplated
hereby, the Company agrees that it will not, and will not cause St. Marks to,
encumber the Collateral in any way during the time the Debentures remain
outstanding. The Company is not in default of any agreement it may have with
GCA, and GCA shall not have moved to enforce its interest in the Collateral, and
the Company is not aware of any event or events that would cause GCA to enforce
its interest in the Collateral.
Section 4.38 Bridge Note. The Company is in full compliance with, and
is not in default with the terms of the Bridge Note. Entering into this
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transaction will not in any way cause the Company to be in default with the
Bridge Note, cause GCA to accelerate payment on the Bridge Note, and/or shall
not enable GCA to any preemptive rights or right of first refusal. Upon payment
of the proceeds of the Second Tranche to GCA as set forth in Section 4.21 above,
the Company will have fully satisfied its obligations under the Bridge Note and
upon such payment the Bridge Note will be marked cancelled, paid in full.
Section 4.39 Redemption Obligation. Notwithstanding anything herein to
the contrary, pursuant to the written agreement between the Company and the
holders of the 14% Convertible Notes Due April 21, 2000 (of which $888,206
principal amount is presently outstanding), the Company is obligated to redeem
the outstanding principal of such notes upon the closing of this transaction.
The Company agrees that $1,149,038 of the proceeds from the First Tranche
Purchase Price shall remain in the escrow account of the Escrow Agent subsequent
to the First Tranche Closing Date. These funds shall only be released as
follows: (a) to the Company upon receipt by the Escrow Agent of a written
release by the holders of the 14% Convertible Notes Due April 21, 2000 and
authorization that such funds may be returned to the Company, (b) to the Company
upon receipt by the Escrow Agent of written proof that such notes are no longer
outstanding, from the holders thereof and the Company, or (c) to the holders of
the 14% Convertible Notes Due April 21, 2000 as payment by the Company of its
full obligations under such notes.
ARTICLE V
---------
Covenants of the Investors
--------------------------
Section 5.1 4.99% Limitation. The number of shares of Common Stock
which may be acquired by any of the Investors pursuant to the terms of this
Agreement shall not exceed the number of such shares which, when aggregated with
all other shares of Common Stock then owned by any Investor, would result in any
Investor owning more than 4.99% of the then issued and outstanding Common Stock
at any one time. The preceding sentence shall not interfere with any Investor's
right to convert any portion of the Debentures and/or exercise the Warrant over
time which in the aggregate totals more than 4.99% of the then outstanding
shares of Common Stock so long as no Investor owns more than 4.99% of the then
outstanding Common Stock at any given time.
Section 5.2 Trading Restrictions. Each Investor agrees that it shall
not, in any single Trading Day exceed fifteen percent of the daily trading
volume of the Common Stock as reported by the Principal Market. Each Investor
agrees that it shall not maintain any short position in the Common Stock for so
long as they are the beneficial owners of the Common Stock issuable pursuant to
the conversion of the Debentures. However, notwithstanding the preceding
sentence, the Investors may maintain a short position in the Common Stock on the
day a Conversion Notice is sent to the Company and thereafter for the shares of
Common Stock covered by such Conversion Notice.
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ARTICLE VI
----------
Covenants of the Company
------------------------
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect so long as any
Registrable Securities remain outstanding and the Company shall comply in all
material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, no less than 150% of
the Underlying Shares assuming conversion in full of $7,250,000 principal amount
of Debentures on the Trading Day immediately preceding the First Tranche Closing
Date, plus 100% of the Warrant Shares for the purpose of enabling the Company to
satisfy any obligation to issue the Underlying Shares and Warrant Shares; such
amount of shares of Common Stock to be reserved shall be calculated based upon
the Conversion Price and Exercise Price under the terms of this Agreement, the
Debentures and Warrants on the Trading Day immediately preceding the
Subscription Date. The number of shares so reserved shall be increased to
reflect potential decreases in the Common Stock that the Company may thereafter
be so obligated to issue by reason of adjustments to the Conversion Price and/or
Exercise Price as set forth in the Debentures and Warrants, or in the event of a
reduction of the Bid Price.
Section 6.3 Listing of Common Stock. The Company shall (a) not later
than the fifth Business Day following the First Tranche Closing Date prepare and
file with the Principal Market (as well as any other national securities
exchange, market or trading facility on which the Common Stock is then listed)
an additional shares listing application covering at least the sum of (i) 1.5
times the number of Underlying Shares as would be issuable upon a conversion in
full of (and as payment of dividends in respect of) the full principal amount of
the Debentures, assuming such conversion occurred on the Subscription Date, and
(ii) the Warrant Shares issuable upon exercise in full of the Warrants, (b) take
all steps necessary to cause such shares to be approved for listing on the
Principal Market (as well as on any other national securities exchange, market
or trading facility on which the Common Stock is then listed) as soon as
possible thereafter, and (c) provide to the Investors evidence of such listing,
and the Company shall maintain the listing of its Common Stock on such exchange
or market for so long as the Securities is owned by any of the Investors. In
addition, if at any time the number of shares of Common Stock issuable on
conversion of all then outstanding principal amount of Debentures, and/or upon
exercise in full of the Warrant is greater than the number of shares of Common
Stock theretofore listed with the Principal Market (and any such other national
securities exchange, market or trading facility), the Company shall promptly
take such action (including the actions described in the preceding sentence), if
required pursuant to the rules and regulations of the Principal Market, to file
an additional shares listing application with the Principal Market (and any such
other national securities exchange, market or trading facility) covering at
least a number of shares equal to the sum of (x) 150% of the number of
Underlying Shares as would then be issuable upon a conversion in full of the
Debentures, and (y) the number of Warrant Shares as would be issuable upon
exercise in full of the Warrants. The Company warrants that it (i) has not
received any notice, oral or written, affecting it's continued listing on the
Nasdaq National Market, and (ii) is in full compliance with the requirements for
continued listing on the Nasdaq National Market. The Company will take no
action, which would impact its continued listing or the eligibility of the
Company for such listing. The Company will comply with the listing and trading
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requirements of its Common Stock on the Nasdaq National Market (and of any then
Principal Market) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
If the Company receives notification from Nasdaq or any other controlling entity
stating that the Company is not in compliance with the listing qualifications of
such Principal Market, the Company will immediately thereafter give written
notice to the Investors and take all action necessary to bring the Company into
compliance with all applicable listing standards of the Principal Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all 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 Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The securities to be sold by the Company pursuant
to this Agreement shall be free of restrictive legends, except as set forth in
Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The
Company will immediately notify the Investors upon the occurrence of any of the
following events in respect of a registration statement or related prospectus in
respect of an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate. The Company will
promptly make available to the Investors any such supplement or amendment to the
related prospectus.
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Section 6.8 Consolidation; Merger. For so long as any of the Securities
are owned by any of the Investors, the Company shall not, at any time after the
date hereof, effect any 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 (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to the Investors such shares of stock and/or securities as the Investors
are entitled to receive pursuant to this Agreement, and all Exhibits annexed
hereto.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The
issuance of the Warrant Shares and the Underlying Shares pursuant to exercise of
the Warrants and the conversion of the Debentures, shall be made in accordance
with the provisions and requirements of Section 4(2) of the Securities Act or
Regulation D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors upon execution of this Agreement, an opinion. The
Company will obtain for the Investors, at the Company's expense, any and all
opinions of counsel which may be reasonably required in order to convert the
Debentures and/or exercise the Warrants, including, but not limited to,
obtaining for the Investors an opinion of counsel, subject only to receipt of a
notice of conversion (the "Notice of Conversion") in the form of Exhibit G,
and/or subject only to a receipt of a notice of exercise in the form annexed to
the Warrant, directing the Company's transfer agent to remove the legend from
the certificate.
Section 6.11 Restrictions on Future Financing. Until the Effective Date
for the First Tranche Registration Statement (as defined in the Registration
Rights Agreement), 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. The foregoing restriction shall not
apply to any outstanding securities convertible into or exercisable into equity
securities or any existing employee benefit plans, the Company has as of the
First Tranche Closing Date.
Section 6.12 Exercise of Warrants. The Company will permit the
Investors to exercise their right to purchase shares of Common Stock upon
exercise of the Warrants as is set forth in the Warrants.
Section 6.13 Conversion of Debentures. The Company will permit the
Investors to exercise their right to convert the Debentures by telecopying an
executed and completed Notice of Conversion to the Company.
Section 6.14 Increase in Authorized Shares. At such time as the Company
would be, if a Notice of Conversion or notice of exercise (as the case may be)
were to be delivered on such date, precluded from (a) converting in full all of
the Debentures that remain unconverted at such date (and paying any accrued but
unpaid dividends in respect thereof in shares of Common Stock), or (b) honoring
the exercise in full of the Warrant, due to the unavailability of a sufficient
number of shares of authorized but unissued or re-acquired Common Stock, the
Board of Directors of the Company shall promptly (and in any case within 75
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calendar days from such date) hold a shareholders meeting in which the
shareholders would vote for authorization to amend the Articles of Incorporation
to increase the number of shares of Common Stock which the Company is authorized
to issue to at least a number of shares equal to the sum of (i) all shares of
Common Stock then outstanding, (ii) the number of shares of Common Stock
issuable on account of all outstanding warrants, options and convertible
securities (other than the Debentures and Warrants) and on account of all shares
reserved under any stock option, stock purchase, warrant or similar plan, (iii)
150% of the number of Underlying Shares as would then be issuable upon a
conversion in full of the then outstanding Debentures and as payment of all
future dividends thereon in shares of Common Stock in accordance with the terms
of this Agreement and the Debentures, and (iv) such number of Warrant Shares as
would then be issuable upon the exercise in full of the Warrant. In connection
therewith, the Board of Directors shall (x) adopt proper resolutions authorizing
such increase, (y) recommend to its shareholders, and otherwise use its best
efforts to promptly and duly obtain shareholder approval to carry out such
resolutions and (z) within five Business Days of obtaining such shareholder
authorization, file an appropriate amendment to the Articles of Incorporation to
evidence such increase. The foregoing shall not relieve the Company from any
claim for damages that the Investors may have against the Company as a result of
the Company not having a sufficient number of authorized shares of Common Stock
to satisfy its obligations under this Agreement or any Exhibit annexed hereto.
Section 6.15 Notice of Breaches. Each of the Company on the one hand,
and the Investors on the other, shall give prompt written notice to the other of
any breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in this
Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the
foregoing, the Company shall promptly notify the Investors of any notice or
claim (written or oral) that it receives from any lender of the Company to the
effect that the consummation of the transactions contemplated by this Agreement
or any Exhibit annexed hereto, violates or would violate any written agreement
or understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the Investors a copy of any written statement
in support of or relating to such claim or notice.
Section 6.16 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business or in connection with the sale of all
or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any Intellectual Property Rights, or
allow the Intellectual Property Rights to become subject to any Liens, or fail
to renew such Intellectual Property Rights (if renewable and would otherwise
expire); provided, however, the Company may license the Intellectual Property
Rights.
Section 6.17 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,
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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.
Section 6.18 Questions/Answers. The Company shall provide the Investors
with the opportunity to ask additional questions of, and receive answers (all of
which information shall be limited to information in the public domain) from the
Company concerning the Company during the period that the Investors owns the
Debentures and/or Warrants.
Section 6.19 Rule 144 Compliance. The Company will take all action as
may be required as a condition to the availability of Rule 144, and the Company
will upon request supply written confirmation that it is in compliance with the
reporting requirements of Rule 144. The Company agrees to use its best efforts
to facilitate and expedite transfers of the Securities pursuant to Rule 144,
which efforts shall include, but not be limited to, timely notice to its
transfer agent to expedite such transfers.
Section 6.20 Issuance Limitation. At no time will the Company be
obligated to issue more than 19.99% of the number of shares of Common Stock
outstanding as of the Closing Date for the First Tranche, unless the Company has
previously obtained shareholder approval. In lieu of such issuance(s) the
Company shall pay to the Investors the cash value of such shares within five
Business Days of when such issuance is due based upon the Bid Price of the
Common Stock on the Trading Date of when due (or such next Trading Day if such
day is not a Trading Day).
Section 6.21 Proceeds. In the event GCA moves to enforce its security
interest in the property, the Company agrees that any surplus proceeds from a
sale thereof shall be paid to the Investors.
Section 6.22 Rank.
So long as any portion of the Debentures remain outstanding, the
Company 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, except for indebtedness of the Company outstanding as of the First
Tranche Closing Date. The Company agrees that neither the Company nor any direct
or indirect subsidiary of the Company will 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) indebtedness of the
Company outstanding as of the First Tranche Closing Date, (ii) indebtedness
which may be secured by the assets of the Company or any of its subsidiaries
other than the Collateral, provided that such indebtedness my not exceed the
value of the assets securing such indebtedness.
ARTICLE VII
-----------
Due Diligence Review; Non-Disclosure of Non-Public Information
--------------------------------------------------------------
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investors, advisors to and representatives of the
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Investors (who may or may not be affiliated with the Investors), and any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and its respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to
the Investors, or advisors to or representatives of, the Investors unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides the Investors, and their advisors and
representatives, with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the each Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investors or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investors and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section shall be construed
to mean that such persons or entities other than the Investors (without the
written consent of the Investors prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of its opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
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ARTICLE VIII
------------
Legends
-------
Section 8.1 Legends. The Investors agree to the imprinting, so long as
is required by this Section, of the following legend (or such substantially
similar legend as is acceptable to the Investors and their counsel, the parties
agreeing that any unacceptable legended securities shall be replaced promptly by
and at the Company's cost) on each of the Securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Company agrees that it will provide the Investors, upon request,
with a certificate or certificates representing the Securities, free from such
legend at such time as such legend is no longer required hereunder. The Company
may not take any action or make any notation on its records or give instructions
to any transfer agent of the Company that enlarge the restrictions of transfer
set forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit H hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing the Warrant, Debentures, Underlying Shares
or Warrant Shares that bear the aforementioned Legend, to the extent accompanied
by a notice requesting the issuance of new certificates free of the
aforementioned legend to replace those surrendered; provided that (i) the
Registration Statement shall then be effective; (ii) the Investor(s) confirms to
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the transfer agent that it has sold, pledged or otherwise transferred or agreed
to sell, pledge or otherwise transfer such Common Stock in a bona fide
transaction to a third party that is not an affiliate of the Company; and (iii)
the Investor(s) confirms to the transfer agent that the Investor(s) has complied
with the prospectus delivery requirement; or
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered and containing representations that
(i) such Investor(s) is permitted to dispose of such Registrable Securities,
without limitation as to amount or manner of sale pursuant to Rule 144(k) under
the Securities Act (or any other similar exemption as may then be in effect), or
(ii) such Investor(s) has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Registrable Securities, in a manner
other than pursuant to an effective registration statement, to a transferee who
will upon such transfer be entitled to freely tradable securities. The Company
shall have counsel provide any and all opinions necessary for the sale under
Rule 144 (or such other applicable exemption).
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Legend or Stock Transfer Restrictions. No instructions
or "stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect to the Debentures, Warrants or Securities other than as expressly set
forth in this Article.
ARTICLE IX
----------
Choice of Law; Venue; Jurisdiction
----------------------------------
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed exclusively by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
ARTICLE X
---------
Assignment; Termination
-----------------------
Section 10.1 Assignment. Each Investors interest in this Agreement and
their ownership of the Debentures and Warrant may be assigned or transferred at
any time, in whole or in part, to any other person or entity (including any
affiliate of the Investors) who agrees to, and truthfully can, make the
representations and warranties contained in Article III, and who agrees to be
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bound by the covenants of Article V. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Debentures and/or Warrant purchased or acquired by the Investors hereunder with
respect to the Common Stock held by such person.
Section 10.2 Termination. This Agreement shall terminate upon the
earliest of (i) the date that all the Securities have been sold by the
Investors; or (ii) five years after the First Tranche Closing Date; provided,
however, that the provisions of Articles III, IV, V, VI, VII, VIII, IX, X, XI,
and XII herein and the terms of the Registration Rights Agreement shall survive
the termination of this Agreement.
ARTICLE XI
----------
Notices
-------
Section 11.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
American International Petroleum Corp.
444 Madison Avenue
New York, NY 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
Telephone: (212) 688-3333
If to the Investors at their respective addresses set forth on Schedule
A.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
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Section 11.2 Indemnification. The Company agrees to indemnify and hold
harmless the Investors and each agent and affiliate of each of the Investors
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Investors may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the breach by the Company of any term of this
Agreement. This indemnity agreement will be in addition to any liability, which
the Company may otherwise have.
Each of the Investors agree that it will indemnify and hold harmless
the Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the breach by such Person of any
term of this Agreement. This indemnity agreement will be in addition to any
liability, which the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investors, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Investors and the indemnifying party and the Investors shall have been advised
by such counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Investors (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
Investors, it being understood, however, that the indemnifying party shall, in
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connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Investors, which firm shall
be designated in writing by the Investors). No settlement of any action against
an indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury. If the Investors, or any person claimed to be
affiliated or associated with the Investors, becomes involved in any capacity in
any action, proceeding or investigation brought by or against any such person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in this Agreement or any exhibit annexed hereto, the Company
shall reimburse the Investors and/or those claimed to be affiliated or
associated with the Investors for its legal fees and expenses and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as those fees and expenses are incurred, provided, however, that if
at the conclusion of such action, proceeding or investigation it shall be
finally judicially determined by a court of competent jurisdiction that
indemnity for such fees and expenses is contrary to law, or that the Investors
is not the prevailing party then in that event, the Investors and/or any other
person having received such advances of fees and/or expenses shall reimburse the
Company in full for the sums advanced.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the Investors shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
30
<PAGE>
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
ARTICLE XII
-----------
Miscellaneous
-------------
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and the Investors on the other hand.
Section 12.2 Entire Agreement. This Agreement, and the Exhibits and
Schedules annexed hereto, set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 12.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. 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
such severability shall be ineffective if it materially changes the economic
benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investors and the Company shall be required to rely upon
any other reporting entity.
Section 12.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Securities and (ii) in the case of any such loss, theft or
destruction of such certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company, and to the
Company's transfer agent, or (iii) in the case of any such mutilation, on
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<PAGE>
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the First
Tranche Closing Date, in cash, out of escrow, to the Escrow Agent the sum of
$25,000, and $5,000 on the Second Tranche Closing Date. The Company shall as
additional fees issue shares of Common Stock on the First Tranche Closing Date
as follows: 90,000 shares of Common Stock to Paul T. Mannion, Jr., 90,000 shares
to Andrew Scott Reckles, and 20,000 to JW Genesis Financial Corporation. These
shares of Common Stock shall be included in the Registration Statement and in
the definition of Registrable Securities and Securities as used in this
Agreement.
Section 12.8 Publicity. The Company and the Investors shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Investors without the prior written consent of the
Investors, except to the extent required by law, in which case the Company shall
provide the Investors with prior written notice of such public disclosure.
Section 12.10 No Group. It is hereby agreed and acknowledged by the
parties hereto that each Investor is acting individually and for its own account
in purchasing the Debentures and Warrants, with no agreement to act together for
the purpose of acquiring, holding, voting or disposing of any equity securities
or otherwise.
EXHIBITS:
- ---------
A: Debenture
B: Escrow Agreement
C: Registration Rights Agreement
D: Security Agreement
E: Common Stock Purchase Warrant
F: Opinion of Counsel
G: Notice of Conversion
H: Instruction Letter to Transfer Agent
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Secured
Convertible Debenture Purchase Agreement to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
American International Petroleum Corp.
By: _________________________
Mount Albion LLC
By: _________________________
AMRO International, S.A.
By: _________________________
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<PAGE>
SCHEDULE A
----------
1. Mount Albion LLC
c/o Citco Fund Services
Bahamas Financial Center, 3rd Floor
Shirley & Charlotte Streets
CB 13136
Nassau, Bahamas
Telephone: (242) 356-5928
Facsimile: (242) 356-0223
First Tranche Investment Amount: $4,000,000
Number of Warrant Shares
underlying Warrants in First Tranche: 599,925
2. AMRO International, S.A.
c/o Ultra Finanz
Grossmunster Platz 6
Zurich CH 8022 Switzerland
Facsimile: 011 411 262 5515
Attention: H.U. Bachofen
First Tranche Investment Amount: $750,000
Number of Warrant Shares
underlying Warrants in First Tranche: 112,575
34
<PAGE>
EXHIBIT A
No. __ $_________ USD
AMERICAN INTERNATIONAL PETROLEUM CORP.
Secured Convertible Debenture due August , 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
This Secured Convertible Debenture is duly authorized issue of
Secured Convertible Debentures of American International Petroleum Corp., a
Nevada corporation (the "Issuer"), issued on August , 1999 (the "Issuance
Date"), and designated as its Secured Convertible Debenture due August , 2004
(the "Debenture").
This Debenture has been issued under the terms and provisions
of the Secured Convertible Debenture Purchase Agreement dated as of August ,
1999 between the Issuer and Holder (the "Agreement") and shall be subject to all
of the terms and conditions and entitled to all of the benefits thereof. This
Debenture has been secured by the Collateral (as defined in the Agreement) of
the Issuer pursuant to the terms of the Agreement and a security agreement (the
"Security Agreement") entered into between the Issuer and the Holder.
FOR VALUE RECEIVED, the Issuer promises to pay to
the registered holder hereof or its registered assigns, if any (the "Holder"),
the principal sum of:
United States Dollars,
on or prior to August , 2004 (the "Maturity Date") or such earlier date this
Debenture is required to be repaid by the Issuer pursuant to the terms herein,
<PAGE>
and to pay interest, as outlined below, at the rate of six (6%) percent per
annum on the principal sum outstanding for the term of this Debenture. Accrual
of interest shall commence as of the Issuance Date. Interest shall be payable by
the Issuer, at the Issuer's option, in cash or in that number of shares of
common stock of the Issuer (the "Common Stock") (at a price per share calculated
pursuant to the conversion formula contained below), upon the earlier to occur
of (i) end of each calendar quarter after the Issuance Date (payable by the
Issuer within 5 Business Days), or (ii) upon an Event of Default as defined
below, and if an Event of Default occurs interest due hereunder shall be payable
in cash or Common Stock as set forth herein at the option of the Holder);
provided, however, that any shares of Common Stock so delivered must be either
(i) registered at such time for resale under the Securities Act, or (ii)
otherwise resalable under the Securities Act without restriction to limitation
under Rule 144, and (a) the Common Stock is listed on the Nasdaq National
Market, (b) there has not been any suspension in the trading of the Common Stock
on the Nasdaq National Market during the thirty (30) Trading Days immediately
preceding such issuance, and (c) the Issuer has been in compliance in all
material respects with the terms and conditions of this Debenture and the
Agreement (including all Exhibits annexed to the Agreement). Unless otherwise
agreed in writing by both parties hereto, the interest so payable will be paid
to the person in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Issuer regarding registration
and transfers of the Debenture (the "Debenture Register"), provided, however,
that the Issuer's obligation to a transferee of this Debenture arises only if
such transfer, sale or other disposition is made in accordance with the terms
and conditions contained in the Agreement and this Debenture. In the event this
Debenture is outstanding on the Maturity Date it shall automatically be
converted into shares of Common Stock (as set forth above) as if the Holder
voluntarily elected such conversion in accordance with the procedures, terms and
conditions set forth in this Debenture, provided, that such shares of Common
Stock are either (i) registered at such time for resale under the Securities
Act, or (ii) otherwise resalable under the Securities Act without restriction to
limitation under Rule 144, and (a) the Common Stock is listed on the Nasdaq
National Market, (b) there has not been any suspension in the trading of the
Common Stock on the Nasdaq National Market, and the (c) the Issuer has been in
compliance in all material respects with the terms and conditions of this
Debenture and the Agreement (including all Exhibits annexed to the Agreement).
In the event that (a), (b), and (c) of the preceding sentence are not satisfied
then the Issuer shall be obligated to pay the Holder the cash value of the
principal amount of this Debenture outstanding on such date as if such Debenture
had been converted and sold on such date (at the Bid Price as defined below) in
accordance with the conversion provisions set forth below, plus all unpaid
interest. Principal and interest are payable at the address last appearing on
the Debenture Register as designated in writing by the Holder hereof from time
to time.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in equal aggregate
principal amount of authorized denominations, as requested by the Holder
surrendering the same, but shall not be issuable in denominations of less than
$50,000 (unless such amount represents the remaining principal balance
outstanding). No service charge will be made for such registration or transfer
or exchange.
2
<PAGE>
2. The Issuer shall be entitled to withhold from all payments of
principal and/or interest of this Debenture any amounts required to be withheld
under the applicable provisions of the U.S. Internal Revenue Code of 1986, as
amended, or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations
of the original Holder hereof and may be transferred or exchanged only in
compliance with the Securities Act and applicable state securities laws and in
compliance with the restrictions on transfer provided in the Agreement. Prior to
the due presentment for such transfer of this Debenture, the Issuer and any
agent of the Issuer may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and all other purposes, whether or not this
Debenture is overdue, and neither the Issuer nor any such agent shall be
affected by notice to the contrary. The transferee shall be bound, as the
original Holder by the same representations and terms described herein and under
the Agreement.
4. The Holder is entitled, at its option, at any time after the earlier
of: (i) 90 calendar days after the Issuance Date; (ii) the Effective Date (as
defined in the Agreement); or (iii) in the event the Bid Price on any single
Trading Day exceeds $2.50, to convert this Debenture, in whole or in part, in
minimum denominations of $50,000 (unless such amount represents the remaining
principal balance outstanding), in accordance with the following terms and
conditions:
(a) The Holder may exercise its right to convert the Debenture by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the Issuer and delivering the original Notice of Conversion
and the original Debenture to the Issuer by express courier. Each Business
Day on which a Notice of Conversion is telecopied to and received by the
Issuer in accordance with the provisions hereof shall be deemed a
"Conversion Date". The Issuer will transmit the certificates representing
shares of Common Stock issuable upon conversion of the Debenture (together
with the certificates representing the Debenture not so converted) to the
Holder via express courier, by electronic transfer (if applicable) or
otherwise within five Business Days after the Conversion Date, provided,
the Issuer has received the original Notice of Conversion and Debenture
being so converted. If the Company has not received the original Notice of
Conversion and original Debenture being converted within three Business
Days after Conversion Date, then the Issuer shall transmit the certificates
representing the shares of Common Stock issuable upon conversion of the
Debenture (together with the certificates representing the Debenture not so
converted) to the Holder via express courier, by electronic transfer (if
applicable) or otherwise within three Business Days after receipt of the
original Notice of Conversion and original Debenture being converted. In
addition to any other remedies which may be available to the Holder, in the
event that the Issuer fails to effect delivery of such shares of Common
Stock within (i) five Business Days after receipt of a Notice of Conversion
(provided the Issuer has received the original Notice of Conversion and
Debenture within three Business Days after the Conversion Date), or (ii)
three Business Days after receipt of the original Notice of Conversion and
original Debenture being converted if the Issuer has not received the
original Notice of Conversion and original Debenture being converted within
three Business Days after the Conversion Date, the Holder will be entitled
3
<PAGE>
to revoke the Notice of Conversion by delivering a notice to such effect to
the Issuer whereupon the Issuer and the Holder shall each be restored to
their respective positions immediately prior to delivery of the Notice of
Conversion. The Notice of Conversion and Debenture representing the portion
of the Debenture converted shall be delivered as follows:
To the Issuer:
American International Petroleum Corp.
444 Madison Avenue
New York, NY 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
Telephone: (212) 688-3333
or to such other address as may be communicated by the Issuer to the
Holder in writing.
In the event that the Common Stock issuable upon conversion of the
Debenture is not delivered to the Holder within (i) five Business Days
after the Conversion Date (provided the Issuer has received the original
Notice of Conversion and Debenture within three Business Days after the
Conversion Date), or (ii) three Business Days after receipt of the original
Notice of Conversion and original Debenture being converted if the Issuer
has not received the original Notice of Conversion and original Debenture
being converted within three Business Days after the Conversion Date (and
assuming the Holder has not revoked such Notice of Conversion as permitted
above), the Issuer shall pay to the Holder, in immediately available funds,
upon demand, as liquidated damages for such failure and not as a penalty,
for each $100,000 principal amount of Debenture sought to be converted,
$500 for each of the first ten calendar days, and $1,000 per calendar day
thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the sixth Business Day after the
Conversion Date up until the time that either the Conversion Notice is
revoked or the Common Stock is delivered, at which time such liquidated
damages shall cease. Any and all payments required pursuant to this
paragraph shall be payable only in cash immediately.
(b) The Holder may, at its sole option convert this Debenture
into that number of shares of fully paid and nonassessable shares of Common
Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the "Conversion Amount"
shall mean the principal dollar amount of the Debenture being converted.
The "Conversion Price" shall be equal to the lesser of: (i) 85% of the
average of the three lowest Bid Prices during the twenty consecutive
Trading Days ending on the Trading Day immediately preceding the Conversion
Date, or (ii) $_____, (price to be inserted based upon 125% of the Bid
Price on the trading day immediately preceding the Issuance Date), as such
Conversion Price shall be adjusted pursuant to the terms hereof. The "Bid
Price" shall be deemed to be the reported last bid price regular way of the
Common Stock as reported by Bloomberg LP or if unavailable, on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading, or if the Common Stock is not listed or admitted to
4
<PAGE>
trading on any national securities exchange, the closing bid price as
reported by Nasdaq or such other system then in use, or, if the Common
Stock is not quoted by any such organization, the closing bid price in the
over-the-counter market as furnished by the principal national securities
exchange on which the Common Stock is traded. The principal amount of this
Debenture shall be reduced as per that principal amount indicated on the
Notice of Conversion upon the proper receipt by the Holder of such shares
of Common Stock due upon such Notice of Conversion.
(c) Upon each adjustment of the Conversion Price, the Holder shall
thereafter be entitled to (but not obligated to) receive upon conversion of
this Debenture, at the Conversion Price resulting from such adjustment, the
number of shares of Common Stock obtained by (i) multiplying the Conversion
Price in effect immediately prior to such adjustment by the number of
shares of Common Stock receivable hereunder immediately prior to such
adjustment and (ii) dividing the product thereof by the Conversion Price
resulting from such adjustment. The Conversion Price shall be adjusted as
follows:
(i) In the case of any amendment to the Issuer's Articles of
Incorporation to change the designation of the Common Stock or the
rights, privileges, restrictions or conditions in respect to the Common
Stock or division of the Common Stock, this Debenture shall be adjusted
so as to provide that upon exercise thereof, the Holder shall receive,
in lieu of each share of Common Stock theretofore issuable upon such
conversion, the kind and amount of shares, other securities, money and
property receivable upon such designation, change or division by the
Holder issuable upon such conversion had the conversion occurred
immediately prior to such designation, change or division. This
Debenture shall be deemed thereafter to provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section. The provisions of this Subsection (i)
shall apply in the same manner to successive reclassifications,
changes, consolidations and mergers.
(ii) If the Issuer shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock,
or declare a dividend or make any other distribution upon the Common
Stock payable in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or dividend or other distribution
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
(iii) If any capital reorganization or reclassification of the
capital stock of the Issuer, or any consolidation or merger of the
Issuer with or into another corporation or other entity, or the sale of
all or substantially all of the Issuer's assets to another corporation
or other entity shall be effected in such a way that holders of shares
of Common Stock shall be entitled to receive stock, securities, other
5
<PAGE>
evidence of equity ownership or assets with respect to or in exchange
for shares of Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale (except
as otherwise provided below in this Section) lawful and adequate
provisions shall be made whereby the Holder shall thereafter have the
right to receive upon the conversion hereof upon the basis and upon the
terms and conditions specified herein, such shares of stock,
securities, other evidence of equity ownership or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of Common Stock immediately theretofore receivable upon the conversion
of this Debenture under this Section had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provisions shall be made with respect to the
rights and interests of the holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of
the Conversion Price and of the number of shares of Common Stock
receivable upon the conversion of this Debenture) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities, other evidence of equity ownership or assets thereafter
deliverable upon the exercise hereof including an immediate adjustment,
by reason of such consolidation or merger, of the Conversion Price to
the value for the Common Stock reflected, by the terms of such
consolidation or merger if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation or
merger. Subject to the terms of this Debenture, in the event of a
merger or consolidation of the Issuer with or into another corporation
or other entity as a result of which the number of shares of common
stock of the surviving corporation or other entity issuable to
investors of Common Stock, is greater or lesser than the number of
shares of Common Stock outstanding immediately prior to such merger or
consolidation, then the Conversion Price in effect immediately prior to
such merger or consolidation shall be adjusted in the same manner as
though there were a subdivision or combination of the outstanding
shares of Common Stock. The Issuer shall not effect any such
consolidation, merger or sale, unless, prior to the consummation
thereof, the successor corporation (if other than the Issuer) resulting
from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or
delivered to the Holder, the obligation to deliver to the Holder such
shares of stock, securities, other evidence of equity ownership or
assets as, in accordance with the foregoing provisions, the Holder may
be entitled to receive or otherwise acquire. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than
fifty (50%) percent of the outstanding shares of Common Stock, the
Issuer shall not effect any consolidation, merger or sale with the
person having made such offer or with any affiliate of such person,
unless prior to the consummation of such consolidation, merger or sale
the Holder shall have been given a reasonable opportunity to then elect
to receive upon the conversion of this Debenture the amount of stock,
securities, other evidence of equity ownership or assets then issuable
with respect to the number of shares of Common Stock in accordance with
such offer.
(iv) In case the Issuer shall, at any time prior to conversion
of this Debenture, consolidate or merge with any other corporation or
other entity (where the Issuer is not the surviving entity) or transfer
all or substantially all of its assets to any other corporation or
6
<PAGE>
other entity, then the Issuer shall, as a condition precedent to such
transaction, cause effective provision to be made so that the Holder
upon the conversion of this Debenture after the effective date of such
transaction shall be entitled to receive the kind and, amount of
shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Holder of the number of shares of
Common Stock as to which this Debenture was convertible immediately
prior to such transaction (without giving effect to any restriction
upon such exercise); and, in any such case, appropriate provision shall
be made with respect to the rights and interests of the Holder to the
end that the provisions of this Debenture shall thereafter be
applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness or other securities or assets
thereafter deliverable upon conversion of this Debenture. Upon the
occurrence of any event described in this Subsection (iv), the Holder
shall have the right to (i) convert this Debenture immediately prior to
such event at a Conversion Price equal to the lesser of (1) the then
Conversion Price or (2) the price per share of Common Stock paid in
such event, or (ii) retain ownership of this Debenture, in which event,
appropriate provisions shall be made so that this Debenture shall be
convertible at the Holder's option into shares of stock, securities or
other equity ownership of the surviving or acquiring entity.
(v) Whenever the Conversion Price shall be adjusted pursuant to
this Section the Issuer shall promptly mail by registered or certified
mail, return receipt requested, to the Holder a certificate signed by
its President or Vice President and by its Treasurer, or Secretary,
setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on
which the Board of Directors of the Issuer made any determination
hereunder), and the Conversion Price after giving effect to such
adjustment, and shall cause copies of such certificates to be mailed
(by first-class mail, postage prepaid) to the Holder. The Issuer shall
make such certificate and mail it to the Holder immediately after each
adjustment.
(d) In the case of any (i) consolidation or merger of the Issuer
into any entity (other than a consolidation or merger that does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Issuer), (ii) sale, transfer,
lease or conveyance of all or substantially all of the assets of the Issuer
as an entirety or substantially as an entirety, or (iii) reclassification,
capital reorganization or change of the Common Stock (other than solely a
change in par value, or from par value to no par value), in each case as a
result of which shares of Common Stock shall be converted into the right to
receive stock, securities or other property (including cash or any
combination thereof), the holder of this Debenture then outstanding shall
have the right thereafter to convert such share only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common Stock of the
Issuer into which such Debenture would have been converted immediately
prior to such consolidation, merger, sale, transfer, capital reorganization
7
<PAGE>
or reclassification, assuming such holder of Common Stock of the Issuer (A)
is not an entity with which the Issuer consolidated or into which such sale
or transfer was made, as the case may be ("constituent entity"), or an
affiliate of the constituent entity, and (B) failed to exercise his or her
rights of election, if any, as to the kind or amount of securities, cash
and other property receivable upon such consolidation, merger, sale or
transfer (provided that if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, sale or transfer is
not the same for each share of Common Stock of the Issuer held immediately
prior to such consolidation, merger, sale or transfer by other than a
constituent entity or an affiliate thereof and in respect of which the
Issuer merged into the Issuer or to which such rights or election shall not
have been exercised ("non-electing share"), then for the purpose of this
paragraph (4)(d) the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable
per share by a majority of the non-electing shares). If necessary,
appropriate adjustment shall be made in the application of the provision
set forth herein with respect to the rights and interest thereafter of the
Holder, to the end that the provisions set forth herein shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in
relation to any shares of stock or other securities or property thereafter
deliverable on the conversion of this Debenture. The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers,
capital reorganizations and reclassifications. The Issuer shall not effect
any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor issuer or entity
(if other than the Issuer) resulting from such consolidation, merger, sale
or transfer shall assume, by written instrument, the obligation to deliver
to the Holder such shares of Common Stock, securities or assets as, in
accordance with the provisions of this Debenture, such Holder may be
entitled to receive under this Debenture.
(e) The Issuer will not, by amendment of its Articles of
Incorporation or through any reorganization, recapitalization, 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 to be observed or performed hereunder by
the Issuer, but will at all times in good faith assist in the carrying out
of all the provisions of this Debenture and in taking of all such action as
may be necessary or appropriate in order to protect the conversion rights
of the Holder against impairment.
5. No provision of this Debenture shall alter or impair the obligation
of the Issuer, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Debenture at the
place, time, and rate, and in the coin or currency herein prescribed.
6. The Issuer hereby expressly waives demand and presentment for
payment, notice on nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall 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.
7. If one or more of the following described "Events of Default" shall
occur,
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(a) Any of the representations, covenants, or warranties made by the
Issuer herein, or in the Agreement (including all Exhibits annexed thereto)
shall have been incorrect when made in any material respect or shall
thereafter be determined to be incorrect; or
(b) The Issuer shall breach, fail to perform, or fail to observe in
any material respect any material covenant, term, provision, condition,
agreement or obligation of the Issuer under this Debenture (or any other
debenture of the Company held by the Holder), the Security Agreement, the
Registration Rights Agreement, and the Agreement, between the parties of
even date herewith; or
(c) A trustee, liquidator or receiver shall be appointed for the
Issuer or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (30) calendar days after
such appointment; or
(d) 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
Issuer and shall not be dismissed within thirty (30) calendar days
thereafter; or
(e) Bankruptcy reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Issuer and, if
instituted against the Issuer, Issuer shall by any action or answer approve
of, consent to or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding or such proceedings shall not be dismissed within thirty (30)
calendar days thereafter; or
(f) The Common Stock is suspended and/or delisted from trading on
the Nasdaq National Market, or the Issuer has received notice of final
action concerning delisting from the Nasdaq National Market; or
(g) The effectiveness of the Registration Statement including the
shares of Common Stock underlying this Debenture (or any other debenture or
Warrant of the Company that the Holder may own) has been suspended for a
period of five (5) Business Days; or
(h) The Issuer shall have failed to pay interest within five
Business Days of when due hereunder and/or principal within three Business
Days of when due hereunder; or
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(i) The Issuer shall have failed to timely deliver shares of Common
Stock issuable upon conversion of the Debentures and/or exercise of the
Warrants issued by the Issuer pursuant to the terms of this Debenture and
the Warrants; or
(j) The occurrence of an Event of Default as defined in the security
agreement between the Company and GCA Strategic Investment Fund Limited; or
(k) The Issuer, or any other party, shall, at any time after the
Issuance Date, (1) in any way adversely alter Holder's security interest
that it has been granted in the Collateral pursuant to Section 4.37 of the
Agreement, and the Security Agreement, or (2) sell the Collateral; or
(l) The occurrence any "Event of Default" as that term is defined in
the 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) or
cured as provided herein, at the option of the Holder, and in the Holder's sole
discretion, the Holder may consider this Debenture (and all interest through
such date) immediately due and payable in cash, without presentment, demand
protest or notice of any kind, all of which are hereby expressly waived,
anything herein or in any note or other instruments contained to the contrary
notwithstanding, and 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 (including but
not limited to consequential damages if any). It is agreed that in the event of
such action, such Holder shall be entitled to receive all reasonable fees, costs
and expenses incurred, including without limitation such reasonable fees and
expenses of attorneys. Nothing contained herein shall limit the rights of the
Holder to collect liquidated damages as provided herein or in any other
agreement entered into between the Holder and the Issuer, or any other damages
that the Holder may otherwise be entitled to under the terms of this Debenture
or the Agreement (including any Exhibit annexed thereto).
8. 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.
9. In addition to the terms of the Registration Rights Agreement, and
to the extent the shares of Common Stock underlying this Debenture are not
previously registered pursuant to the Registration Rights Agreement, the Holder
shall have the right to include all of the shares of Common Stock underlying
this Debenture (the "Registrable Securities") as part of any registration of
securities filed by the Issuer (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-4 or
S-8) and must be notified in writing of such filing as soon as reasonably
practicable; provided, however, that the Holder agrees it shall not have any
piggy-back registration rights pursuant to this Debenture if the shares of
Common Stock underlying this Debenture may be sold in the United States pursuant
to the provisions of Rule 144 without any restriction on resale. Holder shall
10
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have five Business Bays after receipt of the aforementioned notice from the
Issuer, to notify the Issuer in writing as to whether the Issuer is to include
Holder or not include Holder as part of such registration; provided, however,
that if any registration pursuant to this paragraph shall be underwritten, in
whole or in part, the Issuer may require that the Registrable Securities
requested for inclusion pursuant to this paragraph be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the Holder, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. All registration expenses incurred by the Issuer in complying with the
terms of this Debenture shall be paid by the Issuer, exclusive of underwriting
discounts, commissions and legal fees and expenses for counsel to the Holder.
10. This Debenture, together with all documents referenced herein,
embody the full and entire understanding and agreement between the Issuer and
Holder with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof.
Neither this Debenture nor any terms hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the Issuer and the
Holder. All capitalized terms not otherwise defined herein shall have the same
meaning as given in the Agreement. In the event of any inconsistencies between
this Debenture and the Agreement, the Debenture shall control. No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in this Debenture shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Debenture.
11. This Debenture will be construed and enforced in accordance with
and governed exclusively by the laws of the State of New York, except for
matters arising under the Securities Act, without reference to principles of
conflicts of law. Each of the parties consents to the exclusive jurisdiction of
the U.S. District Court sitting in the Southern District of the State of New
York sitting in Manhattan in connection with any dispute arising under this
Debenture and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby agrees
that if the other party to this Debenture obtains a judgment against it in such
a proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Debenture irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law. Each party waives its right to a trial by jury.
12. The convertibility of this Debenture shall be restricted such that
that portion of the Debenture which, if otherwise converted, would result in
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Holder owning 4.99% or more of the then issued and outstanding Common Stock,
shall not be convertible until the Holder is not an owner of 4.99% or more of
the then issued and outstanding Common Stock.
13. In the event the Issuer, at any time while this Debenture is
outstanding, shall issue any shares of Common Stock (or any instrument
convertible into Common Stock), otherwise than: (i) pursuant to options,
warrants, or other obligations to issue shares of Common Stock as of the
Issuance Date as described in SEC filings made by the Issuer within six months
prior to the Issuance Date, (ii) all shares reserved for issuance pursuant to
the Issuer's stock option, incentive, or other similar plan, which plan and
which grant was in effect as of the Issuance Date and approved by the Board of
Directors of the Issuer, or (iii) all shares reserved for issuance pursuant to
the Issuer's stock option, incentive, or other similar plan, which plan and
which grant has been approved by the Board of Directors of the Issuer ((i), (ii)
and (iii) collectively referred to as the "Existing Obligations"), for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be amended to add as option number (iii) the resulting
quotient from the following formula: (y) the number of shares of Common Stock
outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any received by the Issuer upon such
issue of additional shares of Common Stock; and (z) the sum so obtained shall be
divided by the number of shares of Common Stock outstanding immediately after
such issue, with the resulting quotient being the new (iii) in the Conversion
Price. Except for the Existing Obligations, and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Issuer, for the purposes of this adjustment, the issuance of any
security of the Issuer carrying the right to convert such security into shares
of Common Stock or of any warrant, right, or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon issuance of shares of
Common Stock upon the Holder's exercise of its conversion rights.
14. In the event the Holder shall elect to convert any portion of this
Debenture as provided herein, the Issuer cannot refuse conversion based on any
claim that the Holder or anyone associated or affiliated with the Holder has
been engaged in any violation of law, unless an injunction from a court,
restraining and/or enjoining conversion of all or part of said portion of this
Debenture shall have been issued and the Issuer posts a surety bond for the
benefit of the Holder in the amount of 130% of the principal amount of the
Debenture sought to be converted plus outstanding interest through such date,
which is subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to the Holder in the event it obtains a favorable judgment (but
shall not in any way limit any additional damages the Holder may be entitled
to).
15. Upon receipt by the Issuer of evidence of the loss, theft,
destruction or mutilation of any Debenture certificate(s), and (in the case of
loss, theft or destruction) of indemnity or security reasonably satisfactory to
the Issuer, and upon the cancellation of the Debenture certificate(s), if
mutilated, the Issuer shall execute and deliver new certificates for
Debenture(s) of like tenure and date.
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16. This Debenture does not entitle the Holder hereof to any voting
rights or other rights as a shareholder of the Issuer prior to the conversion
into Common Stock thereof, except as provided by applicable law. If, however, at
the time of the surrender of this Debenture and conversion the Holder hereof
shall be entitled to convert this Debenture, the shares so issued shall be and
be deemed to be issued to such holder as the record owner of such shares as of
the close of business on the Conversion Date.
17. Except as expressly provided herein or as required by law, so long
as this Debenture remains outstanding, the Issuer shall not, without the
approval by vote or written consent by the Holder, take any action that would
adversely affect the rights, preferences or privileges of this Debenture.
18. The Issuer shall have the right to redeem this Debenture, in whole
or in part (except that portion of the principal amount of this Debenture that
is the subject of a Conversion Notice which has previously been sent to the
Issuer), in cash at the Redemption Price (as defined below) at any time by
thereafter providing written notice (the "Redemption Notice") to the Holder. The
Issuer shall wire transfer the appropriate amount of funds into an escrow
account to complete the redemption, which shall be no later than the third
Business Day after the Redemption Notice was served upon the Holder (the
"Redemption Date"). Upon facsimile receipt of the Redemption Notice, the
Holder's right to convert this Debenture shall terminate and be canceled
immediately (the right to convert shall be reinstated if the Issuer fails to
comply with the redemption provisions). In the event the Issuer does not wire
transfer the appropriate amount of funds into the escrow account, and authorize
the release of such funds to the Holder, on or before the Redemption Date, or
shall otherwise fail to comply with the redemption provisions set forth herein,
then it shall have waived its right to redeem any portion of this Debenture at
any time.
The Redemption Notice shall set forth (i) the Redemption Date,
(ii) the Redemption Price, as defined below, and (iii) the principal amount of
the Debenture being redeemed. The Redemption Notice shall be irrevocable, and it
shall be delivered by facsimile or mailed, postage prepaid, at least three
Business Days prior to the Redemption Date to the Holder at its address as the
same shall appear on the books of the Company.
The Redemption Price shall be equal to the "Economic Benefit"
Holder would have received from that portion of the principal amount of the
Debenture being redeemed. The "Economic Benefit" shall be defined as the
equivalent dollar value of the number of shares of Common Stock issuable
pursuant to the conversion privileges set forth herein had the principal amount
of Debenture being redeemed been converted on the date the Redemption Notice was
served upon the Holder, multiplied by the Bid Price on the Trading Day
immediately preceding the date the Redemption Notice was served upon the Holder.
At the close of business on the Redemption Date, subject to
the Holder's receipt of the applicable Redemption Price, the portion of this
Debenture being redeemed shall be automatically canceled and converted into a
right to receive the Redemption Price, and all rights of this Debenture,
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<PAGE>
including the right to conversion shall cease without further action.
Immediately following the Redemption Date (assuming full compliance by the
Issuer with the redemption provisions set forth herein), the Holder shall
surrender its original Debenture at the office of the Issuer, and the Issuer
shall issue to the Holder a new Debenture certificate for the principal amount
that remains outstanding, if any.
The Redemption Price shall be adjusted proportionally upon any adjustment of the
Conversion Price as set forth above.
19. The Debentures shall be junior in right of payment to the Issuer's
5% Secured Convertible Debentures due February 18, 2004, and with respect to
indebtedness to Actrade Capital Inc. solely as it relates to the Issuer's credit
facility with Actrade Capital, Inc. The Debentures shall rank pari passu with
the Bridge Note (as defined in the Agreement), except with respect to the
Collateral, and the Issuer's convertible notes due April 21, 2000. The
Debentures shall rank senior in respect to any other indebtedness of the Issuer
outstanding as of the original Issuance Date.
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IN WITNESS WHEREOF, the Issuer has caused this Convertible
Debenture to be duly executed by an officer thereunto duly authorized.
AMERICAN INTERNATIONAL PETROLEUM CORP.
By _______________________________
Name:
Title:
Date: August ___, 1999
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EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of the ___ day of August,
1999 by and among American International Petroleum Corp., a corporation
organized under the laws of the State of Nevada (hereinafter referred to as the
"Company"), the entities listed on Schedule A annexed hereto (collectively
referred to as the "Investors"), and The Goldstein Law Group, P.C. (hereinafter
the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Secured Convertible Debenture Purchase
Agreement dated August ___, 1999 (the "Purchase Agreement"), the Investors will
be purchasing Secured Convertible Debentures and Warrants of the Company (the
"Securities") in two separate tranches at purchase prices as set forth in the
Purchase Agreement; and
WHEREAS, the Company has requested that the Escrow Agent hold the funds
of the Investors in escrow until the Escrow Agent has received the original
Securities. The Escrow Agent will then immediately wire transfer or otherwise
deliver at the Company's direction immediately available funds to the Company
(subject to the funds to be kept in escrow pursuant to Section 4.39 of the
Purchase Agreement) or the Company's account and arrange for delivery of the
Securities to the Investors as per each Investors written instructions.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE I
TERMS OF THE ESCROW FOR THE FIRST TRANCHE
1.1 Upon Escrow Agent's receipt into its attorney trustee
account of the First Tranche Purchase Price from the Investors for the
Debentures and Warrants to be purchased on the First Tranche Closing Date
pursuant to the terms and conditions set forth in the Purchase Agreement, it
shall notify the Company, or the Company's designated attorney or agent, of the
amount of funds it has received into its account.
1.2 The Company, upon receipt of said notice and acceptance of
the Purchase Agreement (including all Exhibits annexed thereto) by both parties,
as evidenced by the Company, and each Investor's execution thereof, shall
deliver to the Escrow Agent the original Debentures and Warrants being purchased
by the Investors in connection with the First Tranche Closing Date.
1.3 Once Escrow Agent receives the original Debentures and
Warrants to be issued in connection with the First Tranche, he shall immediately
wire that amount of funds necessary to purchase such Debentures and Warrants in
connection with the First Tranche Closing Date (net of the $1,149,038 to remain
in the escrow account of the Escrow Agent per Section 4.39 of the Purchase
Agreement,
<PAGE>
referred to as the "Escrowed Proceeds") per the written instructions of the
Company net of all fees. The Escrowed Proceeds shall only be released as
follows: (a) to the Company upon receipt by the Escrow Agent of a written
release by the holders of the 14% Convertible Notes Due April 21, 2000 and
authorization that such funds may be returned to the Company, (b) to the Company
upon receipt by the Escrow Agent of written proof that such notes are no longer
outstanding, from the holders thereof and the Company, or (c) to the holders of
the 14% Convertible Notes Due April 21, 2000 as payment by the Company of its
full obligations under such notes. The Company will furnish Escrow Agent with a
"Net Letter" directing payment of legal, administrative, and escrow costs as per
the terms of the Purchase Agreement to The Goldstein Law Group, P.C. Such fees
are to be remitted in accordance with wire instructions that will be sent to
Escrow Agent from the Company, with the net balance payable to the Company. Once
the funds (as set forth above, net of the Escrowed Proceeds) have been received
per the Company's instructions, the Escrow Agent shall then arrange to have the
Securities delivered as per instructions from the Investors.
ARTICLE 2
TERMS OF THE ESCROW FOR THE SECOND TRANCHE
2.1 The Company shall certify in writing to the Escrow Agent
and the Investors that it has satisfied all of the terms and conditions
precedent to the Second Tranche Closing Date contained in the Purchase
Agreement. The Company shall then deliver to the Escrow Agent the original
Debentures and original Warrants being purchased by the Investors on the Second
Tranche Closing Date. Upon receipt of such notice from the Company the Investors
shall wire the Second Tranche Purchase Price to the Escrow Agent's attorney
trustee account. The Escrow Agent shall notify the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into its
attorney trustee account in connection with the Second Tranche Closing Date.
2.2 After notifying the Company as set forth in Section 2.1,
the Escrow Agent shall immediately wire that amount of funds necessary to
purchase such Debentures and Warrants per the written instructions of the
Company net of all fees. The Company will furnish Escrow Agent with a "Net
Letter" directing payment of legal, administrative, and escrow costs as per the
terms of the Purchase Agreement to The Goldstein Law Group, P.C. Such fees are
to be remitted in accordance with wire instructions that will be sent to Escrow
Agent from the Company, with the net balance payable to the Company. Once the
funds (as set forth above) have been received per the Company's instructions,
the Escrow Agent shall then arrange to have the Securities delivered as per
instructions from the Investors.
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ARTICLE 3
MISCELLANEOUS
3.1 This Agreement may be altered or amended only with the
consent of all of the parties hereto. Should any party attempt to change this
Agreement in a manner that in the Escrow Agent's discretion shall be
undesirable, or at the sole option of the Escrow Agent, the Escrow Agent may
resign as Escrow Agent by notifying the Company and the Investors in writing.
The Company and the Investors may remove the Escrow Agent as escrow agent by
serving a written notice signed by all of such parties removing Escrow Agent as
the escrow agent in this transaction. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, his only duty, until receipt
of notice from the Company and the Investors or their agent that a successor
escrow agent shall have been appointed, shall be to hold and preserve the
Securities and/or funds. Upon receipt by the Escrow Agent of said notice from
the Company and the Investors of the appointment of a successor escrow agent,
the name of a successor escrow account and a direction to transfer the
Securities and/or funds, the Escrow Agent shall promptly thereafter transfer all
of the Securities and/or funds held in escrow to said successor escrow agent.
The Escrow Agent is authorized to disregard any notices, requests, instructions
or demands received by it from the Company or the Investors after notice of
resignation or removal shall have been given, unless the same shall be the
aforementioned notice from the Company and the Investors to transfer the
Securities and funds to a successor escrow agent or to return same to the
respective parties.
3.2 The Escrow Agent shall be reimbursed by the Company and
the Investors for any reasonable expenses incurred in the event there is a
conflict between the parties and the Escrow Agent shall deem it necessary to
retain counsel.
3.3 The Escrow Agent shall not be liable for any action taken
or omitted by him in good faith in accordance with the advice of the Escrow
Agent's counsel; and in no event shall the Escrow Agent be liable or responsible
except for the Escrow Agent's own gross negligence or willful misconduct.
3.4 The Company and the Investors warrant to and agree with
the Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities
or any part thereof;
(ii) no financing statement under the Uniform
Commercial Code is on file in any jurisdiction claiming a security
interest or in describing (whether specifically or generally) the
Securities or any part thereof; and
(iii) the Escrow Agent shall have no responsibility
at any time to ascertain whether or not any security interest exists in
the Securities or any part thereof or to file any financing statement
under the Uniform Commercial Code with respect to the Securities or any
part thereof.
3.5 The Escrow Agent has no liability hereunder to either
party other than to hold the Securities and funds and to deliver them under the
terms hereof. Each party hereto agrees to indemnify and hold harmless the Escrow
Agent from and with respect to any suits, claims, actions or liabilities arising
in any way out of this transaction including the obligation to defend any legal
action brought which in any way arises out of or is related to this Escrow
Agreement.
3
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3.6 No waiver or any breach of any covenant or provision
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
3.7 All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
American International Petroleum Corp.
444 Madison Avenue
New York, NY 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
Telephone: (212) 688-3333
If to the Investors at their respective address as set forth on
Schedule A.
If to the Escrow Agent:
(ii) The Goldstein Law Group, P.C.
65 Broadway, 10th Floor
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
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<PAGE>
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 3.7 by giving at least ten
calendar days' prior written notice of such changed address or facsimile number
to the other party hereto.
3.8 This Agreement shall be binding upon and shall inure to
the benefit of the permitted successors and assigns of the parties hereto.
3.9 This Agreement is the final expression of, and contains
the entire Agreement between, the parties with respect to the subject matter
hereof and supersedes all prior understandings with respect thereto. This
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
3.10 Whenever required by the context of this Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
3.11 The Company acknowledges and confirms that it is not
being represented in a legal capacity by The Goldstein Law Group, P.C. and it
has had the opportunity to consult with its own legal advisors prior to the
signing of this Agreement.
3.12 The parties hereto expressly agree that this Agreement
shall be governed by, interpreted under and construed and enforced in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts for the Southern District of the State of New
York, in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
state or country having jurisdiction over the party against whom such judgment
was obtained, and each party hereby waives any defenses available to it under
local law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed as of the date first written on the first page of this
Agreement.
American International Petroleum Corp.
By: _________________________
The Goldstein Law Group, P.C.,
Escrow Agent
By: _________________________
Scott H. Goldstein
Mount Albion LLC
By: _________________________
AMRO International, S.A.
By: _________________________
6
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the __ day of
August, 1999, between the entities listed on Schedule A (referred to as the
"Investors"), Paul T. Mannion, Jr., Andrew Scott Reckles, and JW Genesis
Financial Corporation (collectively the "Finders", and also included in the
definition of Holders) and American International Petroleum Corp., a corporation
incorporated under the laws of the State of Nevada (the "Company").
WHEREAS, pursuant to the Secured Convertible Debenture
Purchase Agreement dated as of August __, 1999 (the "Purchase Agreement"), the
Investors will be purchasing Debentures and Warrants (hereinafter collectively
referred to as the "Securities" of the Company) of the Company at the Purchase
Prices as set forth in the Purchase Agreement; All capitalized terms not
hereinafter defined shall have that meaning assigned to them in the Purchase
Agreement; and
WHEREAS, pursuant to the Purchase Agreement the Company is
issuing shares of Common Stock (also included in the definition of "Securities")
to the Finders;
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Securities set forth in
the Purchase Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" shall mean the Additional Shares, Underlying Shares and
Warrant Shares: (i) in respect of which a registration statement (covering these
securities) has not been declared effective by the SEC, (ii) which have not been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) which have not been otherwise transferred to holders who
may trade such shares without restriction under the Securities Act, or (iv) the
sales of which, in the opinion of counsel to the Company, are subject to any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a Registrable Security. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section.
Section 2. Restrictions on Transfer. The Holders acknowledge
and understand that prior to the registration of the Registrable Securities as
provided herein and prior to an exemption to registration being available, the
Registrable Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act. The Holders understand that no disposition
or transfer of the Registrable Securities or the Securities may be made by the
Holders in the absence of (i) an opinion of counsel to the Company that such
transfer may be made without registration under the Securities Act and state
law, or (ii) such registration.
<PAGE>
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("SEC"), within thirty (30) of the
First Tranche Closing Date, a registration statement (on Form S-3, or other
applicable registration statement) under the Securities Act (the "First Tranche
Registration Statement"), at the sole expense of the Company (except as provided
in Section 3(c) hereof), in respect of the Holders for resales under the
Securities Act of the shares of Common Stock underlying the Debentures and the
Warrants to be issued on the First Tranche Closing Date. The Company shall use
its best efforts to cause the First Tranche Registration Statement to become
effective within ninety (90) calendar days from the First Tranche Closing Date.
The number of shares of Common Stock designated in the First Tranche
Registration Statement to be registered shall be one hundred fifty (150%)
percent of the number of shares of Common Stock that would be required if the
Debentures issued in connection with the First Tranche and Warrants issued in
connection with the First Tranche were converted and exercised on the Trading
Day immediately preceding the date the First Tranche Registration Statement was
filed. The Company agrees that it will include only the Registrable Securities
in the First Tranche Registration Statement to be filed by the Company pursuant
to the terms of this Agreement.
(b) The Company agrees that it will prepare and file
with the SEC on the Second Tranche Closing Date, a registration statement (on
Form S-3, or other applicable registration statement) under the Securities Act
(the "Second Tranche Registration Statement", along with the First Tranche
Registration Statement also referred to as the "Registration Statements"), at
the sole expense of the Company (except as provided in Section 3(d) hereof), in
respect of the Holders for resales under the Securities Act of the shares of
Common Stock underlying the Debentures and the Warrants to be issued on the
Second Tranche Closing Date. The Company shall use its best efforts to cause the
Registration Statement to become effective within ninety (90) calendar days from
the Second Tranche Closing Date. The number of shares of Common Stock designated
in the Second Tranche Registration Statement to be registered shall be one
hundred fifty (150%) percent of the number of shares of Common Stock that would
be required if the Debentures issued in connection with the Second Tranche and
Warrants issued in connection with the Second Tranche were converted and
exercised on the Trading Day immediately preceding the date the Second Tranche
Registration Statement was filed. The Company agrees that it will include only
the Registrable Securities underlying the securities issued in the Second
Tranche Closing Date in the Second Tranche Registration Statement to be filed by
the Company pursuant to the terms of this Agreement.
(c) The Company will maintain the effectiveness of
any Registration Statement or post-effective amendment filed under this Section
3 hereof under the Securities Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to a Registration Statement,
(ii) the date the holders thereof receive an opinion of counsel that all of the
Registrable Securities may be sold (without volume limitation) under the
provisions of Rule 144 or (iii) five and one half years after the filing of such
Registration Statement.
<PAGE>
(d) All fees, disbursements, out-of-pocket expenses
and costs incurred by the Company in connection with the preparation and filing
of the Registration Statements under subparagraphs 3(a) and (b) and in complying
with applicable securities and blue sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the cost,
pro rata, of underwriting discounts and commissions, if any, applicable to the
Registrable Securities being registered and the fees and expenses of their
counsel. The Company shall qualify any of the Registrable Securities for sale in
such states as the Holders reasonably designate and shall furnish
indemnification in the manner provided in Section 8 hereof. However, the Company
shall not be required to qualify in any state that will require an escrow or
other restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holders with copies of the Registration Statements and
the prospectus or offering circular included therein and other related documents
in such quantities as may be reasonably requested by the Holders.
(e) Unless otherwise agreed to in writing by the
Holders, the Company shall only be permitted to include the Registrable
Securities in the Registration Statements. The Company represents that as of the
date hereof it is not obligated to file a registration statement on behalf of
any other Person and/or entity not a party to this Agreement.
(f) In the event the First Tranche Registration
Statement to be filed by the Company pursuant to Section 3(a) above is not filed
with the SEC on or before the 30th calendar day after the First Tranche Closing
Date and/or the First Tranche Registration Statement is not declared effective
by the SEC on or before the 90th calendar day after the First Tranche Closing
Date, then the Company will pay to the Holders, as liquidated damages for such
failure and not as a penalty, two (2%) percent of the principal amount of the
then outstanding Debentures for each thirty (30) calendar day period thereafter
(pro rated on a daily basis), until the First Tranche Registration Statement has
been filed and/or declared effective. Such payment of the liquidated damages
shall be made to the Holders in cash, immediately upon written demand, provided,
however, that the payment of such liquidated damages shall not relieve the
Company from its obligations to register the Securities pursuant to this Section
and registration shall not relieve the Company from any obligation to pay
liquidated damages.
(g) In the event the Second Tranche Registration
Statement to be filed by the Company pursuant to Section 3(b) above is not
declared effective by the SEC on or before the 90th calendar day after the
Second Tranche Closing Date, then the Company will pay to the Holders (pro rated
on a daily basis), as liquidated damages for such failure and not as a penalty,
two (2%) percent of the principal amount of the then outstanding Debentures and
Warrants for each thirty (30) calendar day period thereafter (pro rated on a
daily basis), until the Second Tranche Registration Statement has been filed
and/or declared effective. Such payment of the liquidated damages shall be made
to the Holders in cash, immediately upon written demand, provided, however, that
the payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section and registration
shall not relieve the Company from any obligation to pay liquidated damages.
<PAGE>
(h) If the Company does not remit the damages to the
Holders as set forth above, the Company will pay the Holders' reasonable costs
of collection, including reasonable attorney's fees, in addition to the
liquidated damages. The registration of the Securities pursuant to this
provision shall not affect or limit Holders' other rights or remedies as set
forth in this Agreement.
(i) The Company agrees that within five calendar days
after being notified by the SEC that the Registration Statement(s) has been
cleared to go effective, the Company it will declare such Registration Statement
effective. The Company also agrees that it shall respond in writing to any
questions and/or comments from the SEC that relate to the Registration
Statement(s) within ten calendar days of receipt of such question or comment.
(j) In the event the number of shares of Common Stock
included in the Registration Statements shall be insufficient to cover the
number of Registrable Securities due to the Holder under the terms of the
Purchase Agreement and/or the Debentures and Warrants, the Company agrees that
it shall file either a new Registration Statement including such additional
shares or amend the then existing Registration Statement. The Company agrees
that in such event it will file with the SEC either an amendment to the then
existing Registration Statement or a new Registration Statement within 30 days
of when required hereunder, and use its best efforts to cause either the
amendment or such Registration Statement to become effective within 90 calendar
days from when required. If such amendment or new Registration Statement is not
filed and/or declared effective in a timely manner as set forth herein, the
Company shall be subject to liquidated damages as pursuant to the provisions of
Section 3(e).
Section 4. Cooperation with Company. Each Holder will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Securities Act, the
Company shall (except as otherwise provided in this Agreement), as expeditiously
as possible:
(a) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Holder of such securities shall desire to sell or otherwise dispose
of the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Securities Act);
(b) furnish to each Holder copies of the Registration
Statement (and any amendments thereto), a summary prospectus or other
prospectus, including a preliminary prospectus or any amendment or supplement to
any prospectus, in conformity with the requirements of the Securities Act, and
shall also furnish such other documents as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the Securities owned
by such Holder;
<PAGE>
(c) register and qualify the Registrable securities
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Holders shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, or to file therein any
general consent to service of process, or to qualify any of the securities for
sale in any state which will require an escrow or other restriction relating to
the Company and/or sellers;
(d) list such securities on the Nasdaq National
Market or other national securities exchange on which any securities of the
Company are then listed, if the listing of such securities is then permitted
under the rules of such exchange or Nasdaq;
(e) notify each Holder of Registrable Securities
covered by the Registration Statement, at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered under
the Securities Act, of the happening of any event of which the executive
officers of the Company have knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Holders, and each officer, director or person, if any, who controls each
Holder within the meaning of the Securities Act ("Distributing Holder") against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all reasonable attorneys' fees), to which the
Distributing Holder may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or any
related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company (i) will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
<PAGE>
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holder, specifically for use in the
preparation thereof, or (ii) cannot pay any amounts paid in settlement of any
loss, claim, damage or liability if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld. This
Section 6(a) shall not inure to the benefit of any Distributing Holder with
respect to any person asserting such loss, claim, damage or liability who
purchased the Registrable Securities which are the subject thereof if the
Distributing Holder failed to send or give (in violation of the Securities Act
or the rules and regulations promulgated thereunder) a copy of the prospectus
contained in such Registration Statement to such person at or prior to the
written confirmation of such person of the sale of such Registrable Securities,
where the Distributing Holder was obligated to do so under the Securities Act or
the rules and regulations promulgated thereunder. This indemnity provision will
be in addition to any liability that the Company may otherwise have.
(b) Each Distributing Holder agrees that it will
indemnify and hold harmless the Company, each officer, director, or person, if
any, who controls the Company within the meaning of the Securities Act (each a
"Company Indemnitee"), and each other Distributing Holder, against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees) to which any Company
Indemnitee or other Distributing Holder may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof. This
indemnity provision will be in addition to any liability that the Distributing
Holder may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 6. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
<PAGE>
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party,
then the Company and the applicable Distributing Holder shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
<PAGE>
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail. The addresses for such communications shall be:
If to the Company:
American International Petroleum Corp.
444 Madison Avenue
New York, NY 10022
Attention: Denis J. Fitzpatrick
Facsimile: (212) 688-6657
Telephone: (212) 688-3333
If to the Holders at their respective address as set forth on
Schedule A.
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 8 by giving at least ten
calendar days' prior written notice of such changed address or facsimile number
to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. In the event of a transfer of the rights
granted under this Agreement, the Holder agrees that the Company may require
that the transferee comply with reasonable conditions as determined in the
discretion of the Company.
Section 10. Counterparts; Facsimile; Amendments. This
Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
<PAGE>
Section 11. Termination of Registration Rights. This Agreement
shall terminate as to each Holder (and permitted transferees or assignees) upon
the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have
been registered;
(b) all of such Holder's Securities subject to this Agreement
may be sold without such registration pursuant to Rule 144 promulgated by the
SEC pursuant to the Securities Act; and
(c) all of such Holder's Securities subject to this Agreement
can be sold pursuant to Rule 144(k) without limitation.
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 13. Governing Law: Venue; Jurisdiction. This Agreement
will be exclusively construed and enforced in accordance with and governed by
the laws of the State of New York, except for matters arising under the
Securities Act, without reference to principles of conflicts of law. Each of the
parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
Section 14. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. Terms not otherwise defined herein shall be defined in
accordance with the Agreement.
<PAGE>
Section 15. Capitalized Terms. All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the
Subscription Agreement.
Section 16. Entire Agreement. This Agreement, together with
all documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
American International Petroleum Corp.
By___________________________
Name:
Title:
Mount Albion LLC
By: _________________________
AMRO International, S.A.
By: _________________________
Paul T. Mannion, Jr.
-------------------------
Andrew Scott Reckles
-------------------------
JW Genesis Financial Corporation
By: _________________________
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of
August_________, 1999, by and between America International Petroleum
Corporation., a Nevada corporation ("Debtor"), St. Marks Refinery Inc. (the
"Subsidiary") and Canadian Advantage Limited Partnership, Dominion Capital Fund,
Ltd., Sovereign Partners LP, and AMRO International, S.A. (collectively referred
to as the "Secured Party").
1. Definitions.
(a) Certain Defined Terms. The following terms, as used herein, have
the meanings set forth below:
Collateral - has the meaning assigned to that term in Section 3.
Debenture - means that certain Secured Convertible Debentures of even
date herewith, in the aggregate original principal amount of $4,750,000, made
and executed by Debtor and issued to Secured Party, and all amendments and
supplements thereto, restatements thereof and renewals, extensions,
restructuring and refinancings thereof.
Debenture Purchase Agreement - means that certain Secured Convertible
Debenture Purchase Agreement (including all Exhibits annexed thereto) of even
date herewith, by and between Debtor and Secured Party.
Equipment - means all "equipment" (as defined in the UCC), including,
without limitation, all machinery, motor vehicles, trucks, trailers, vessels,
and rolling stock and all parts thereof and all additions and accessions thereto
and replacements therefor.
Event of Default - has the meaning assigned to that term in Section 9.
Person - means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
Proceeds - means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims against third parties for
loss of, damage to or destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance with respect to any Collateral,
and any condemnation or requisition payments with respect to any Collateral, in
each case whether now existing or hereafter arising.
<PAGE>
Secured Obligations - has the meaning assigned to that term in
Section 4.
Security Interests - means the security interests granted pursuant to
Section 3, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
UCC - means the Uniform Commercial Code as in effect on the date hereof
in the State of Florida, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
(b) Other Definition Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in Section 1(a) may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. All references to statutes and related regulations shall include
(unless otherwise specifically provided herein) any amendments of same and any
successor statutes and regulations.
2. Grant of Security Interest
In order to secure the payment and performance of the Secured
Obligations in accordance with the terms thereof, Debtor and Subsidiary hereby
grants to Secured Party a continuing security interest in and to all right,
title and interest of Debtor and/or Subsidiary in all the Equipment (and any
Proceeds therefrom) described on Attachment A hereto, whether now owned or
existing or hereafter acquired or arising and located at Debtor and Subsidiary's
refinery at 627 Port Leon Dr., St Marks, Florida 32355-0265, (all being
collectively referred to as the "Collateral").
3. Security for Obligations
This Agreement secures the payment and performance of the Debenture
Purchase Agreement and the Debenture, and all renewals, extensions,
restructuring and refinancings thereof (the "Secured Obligations").
4. Representations and Warranties. Debtor and Subsidiary represents and
warrants as follows:
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<PAGE>
(a) Binding Obligation. This Agreement is the legally valid
and binding obligation of Debtor and Subsidiary, enforceable against Debtor and
Subsidiary in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable
principles relating to or limiting creditor's rights generally.
(b) Location of Equipment. All of the Equipment is located at
the places specified on Schedule 5(b) hereto.
(c) Ownership of Collateral. Subsidiary owns the Collateral
free and clear of any lien, security interest or encumbrance, except as set
forth on Schedule 5(c). Except as set forth on Schedule 5(c) no effective
financing statement or other form of lien notice covering all or any part of the
Collateral is on file in any recording office.
(d) Office Locations; Debtor Names.
(i) As of the date hereof, the chief place of business,
the chief executive office and the office where Debtor and
Subsidiary keeps its books and records is located at the
place specified on Schedule 5(d)(i) hereto. Except as set
forth on Schedule 5(d)(i), Debtor and/or Subsidiary has
not maintained any other address at any time during the
five years preceding the date hereof.
(ii) Debtor and Subsidiary do not do business nor, as of
the date hereof, have they done business during the past
five years under any corporate name, trade name or
fictitious business name except for Debtor and
Subsidiary's corporate name set forth above and except as
disclosed on Schedule 5(d)(ii) hereto.
(e) Perfection. This Agreement, together with the UCC filings
referenced herein, create to secure the Secured Obligations a valid, perfected
and priority security interest (subject to the security of GCA) in the
Collateral, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly taken.
(f) Governmental Authorizations; Consents. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or consent of any other Person is required either
(i) for the grant by Debtor and Subsidiary of the Security Interests granted
hereby or for the execution, delivery or performance of this Agreement by Debtor
and Subsidiary or (ii) for the perfection of or the exercise by Secured Party of
its rights and remedies hereunder (except as may have been taken by or at the
direction of Debtor, Subsidiary or Secured Party) other than the filing of
financing statements in connection with the perfection of the Security
Interests.
(g) Value of Collateral. The value of the Collateral as of the
date hereof is equal to not less than $7,500,000.
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(h) Accurate Information. All information heretofore, herein
or hereafter supplied to Secured Party by or on behalf of Debtor and Subsidiary
with respect to the Collateral is and will be accurate and complete in all
material respects.
5. Further Assurances; Covenants
(a) Other Documents and Actions. Debtor and Subsidiary will,
from time to time, at its expense, promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or
desirable, or that Secured Party may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Debtor and/or Subsidiary will: (i) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby; (ii) at any reasonable time, upon demand by
Secured Party exhibit the Collateral to allow inspection of the Collateral by
Secured Party or persons designated by Secured Party; and (iii) upon Secured
Party's request, appear in and defend any action or proceeding that may affect
Subsidiary's title to or Secured Party's security interest in the Collateral.
(b) Secured Party Authorized. Debtor and Subsidiary hereby
authorizes Secured Party to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of Debtor and/or Subsidiary where permitted by
law.
(c) Corporate or Name Change. Debtor and Subsidiary will
notify Secured Party promptly in writing at least 30 days prior to (a) any
change in Debtor and/or Subsidiary's name and (b) Debtor and/or Subsidiary 's
commencing the use of any trade name, assumed name or fictitious name.
(d) Business Locations. Debtor and Subsidiary will keep its
Collateral at the locations specified on Schedule 5(b) hereto. Debtor and
Subsidiary shall give Secured Party thirty (30) days' prior written notice of
any change in its chief place of business or of any new location of business or
any new location for any of the Collateral. With respect to any new location
(which in any event shall be within the continental United States), Debtor and
Subsidiary shall execute such documents and take such actions as Secured Party
reasonably deems necessary to perfect and protect the Security Interests.
(e) Bailees. No Collateral shall at any time be in the
possession or control of any warehouseman, bailee or Debtor and/or Subsidiary's
agents or processors without Secured Party's prior written consent and unless
Secured Party, if Secured Party has so requested, has received warehouse
receipts or bailee letters reasonably satisfactory to Secured Party prior to the
commencement of such storage. Debtor and Subsidiary shall, upon the request of
Secured Party, notify any such warehouseman, bailee, agent or processor of the
Security Interests.
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<PAGE>
(f) Insurance. Debtor and/or Subsidiary currently does
maintain and shall maintain insurance with respect to the Collateral of types
and in amounts that are customary for similarly situated businesses. Debtor and
Subsidiary hereby direct all insurers under such policies of insurance with
respect to its assets to pay all material proceeds of such insurance policies to
Secured Party.
(g) Taxes and Claims. Debtor and Subsidiary will pay (i) all
taxes, assessments and other governmental charges imposed upon the Collateral
before any penalty accrues thereon and (ii) all claims (including claims for
labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a lien upon any of the Collateral
before any penalty or fine is incurred with respect thereto; provided that no
such tax, charge or claim need be paid if Debtor and/or Subsidiary is contesting
same in good faith by appropriate proceedings promptly instituted and diligently
conducted and if Debtor and/or Subsidiary has established such reserve or other
appropriate provision, if any, as shall be required in conformity with generally
accepted accounting principles consistently applied.
(h) Collateral Description. Debtor and Subsidiary will furnish
to Secured Party, from time to time, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Secured Party may reasonably request, all in reasonable
detail.
(i) Use of Collateral. Debtor and Subsidiary will not use or
permit any Collateral to be used unlawfully or in violation of any provision of
this Agreement or any applicable statue, regulation or ordinance or any policy
of insurance covering any of the Collateral.
(j) Records of Collateral. Debtor and Subsidiary shall keep
full and accurate books and records relating to the Collateral and shall stamp
or otherwise mark such books and records in such manner as Secured Party may
reasonably request indicating that the Collateral is subject to the Security
Interests.
(k) Other Information. Debtor and Subsidiary will, promptly
upon request, provide to Secured Party all information and evidence it may
reasonably request concerning the Collateral to enable Secured Party to enforce
the provisions of this Agreement.
(l) Maintenance. The Debtor and Subsidiary will maintain the
condition of the Collateral in the condition as of the date hereof, and shall
take any and all actions necessary for such maintenance as are customary.
6. Secured Party Appointed Attorney-in-Fact. Debtor and Subsidiary
hereby irrevocably appoint Secured Party as its attorney-in-fact, with full
authority in the place and stead of Debtor and Subsidiary and in the name of
Debtor and Subsidiary, Secured Party or otherwise, from time to time in Secured
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<PAGE>
Party's discretion to take any action and to execute any instrument that Secured
Party may deem necessary or advisable after the occurrence and during the
continuation of an Event of Default to accomplish the purposes of this
Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
Secured Party;
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for monies due and to become due under
or in respect of any of the Collateral;
(c) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or liens, levied or placed upon
or threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Secured Party in its
sole discretion, and such payments made by Secured Party to become obligations
of Debtor and Subsidiary, due and payable immediately without demand and secured
by the Security Interests; and
(e) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and Debtor and Subsidiary's
expense, at any time or from time to time, all acts and things that Secured
Party deems necessary to protect, preserve or realize upon the Collateral.
Neither Secured Party nor any Person designated by Secured Party shall
be liable for any acts or omissions or for any error of judgment or mistake of
fact or law other than as a result of Secured Party's or such Person's gross
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable so long as this Agreement shall remain in force.
7. Transfers and Other Liens
Debtor and Subsidiary shall not, without Secured Party's prior written
consent:
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral.
(b) Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the Collateral to
secure indebtedness of any Person except for the security interest created by
this Agreement.
8. Events of Default.
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The occurrence of any one or more of the following events shall
constitute an Event of Default by Debtor and/or Subsidiary under this Agreement:
(a) General Default. Debtor and/or Subsidiary shall fail to
observe or perform any covenant, obligation, term or condition contained in the
Debenture Purchase Agreement, the Debenture, this Agreement, or any agreement
with GCA Strategic Investment Fund Limited.
(b) Nonpayment. Debtor shall fail to pay any principal,
interest or other amount owing under the Debenture or Debenture Purchase
Agreement when and as the same shall be due and payable.
(c) Material Misrepresentations. Any representation or
warranty set forth herein shall prove to be false in any material respect.
(d) Going Concern. Debtor and/or Subsidiary shall terminate
its corporate existence or shall cease to operate as a going concern.
(e) Judgments. A judgment shall be entered against Debtor
and/or Subsidiary or a warrant of execution or similar process shall be issued
or levied against its property and within thirty (30) days after such judgment,
warrant or process shall not have been paid in full or proper appeal of the same
made.
(f) Relief - Voluntary. Debtor and/or Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing.
(g) Relief - Involuntary. Any involuntary case or other
proceeding shall be commenced against Debtor and/or Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of thirty (30) days; or an order for relief shall be entered against
Debtor and/or Subsidiary under the federal bankruptcy laws as now or hereafter
in effect.
(h) Transfer. The Collateral is sold by the Debtor and/or
Subsidiary, or the Debtor and/or Subsidiary no longer owns the Collateral.
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(i) Other. The occurrence of any "Event of Default" as that
term is defined in Debenture.
9. Remedies
(a) If any Event of Default shall have occurred and be
continuing, Secured Party may declare the entire outstanding principal amount of
the Debenture immediately due and payable without any notice, demand or other
action on the part of Secured Party.
(b) If any Event of Default shall have occurred and be
continuing, Secured Party may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the UCC
(whether or not the UCC applies to the affected Collateral) and also may: (i)
require Debtor and/or Subsidiary to, and Debtor and/or Subsidiary hereby agrees
that it will, at its expense and upon request of Secured Party forthwith,
assemble all or part of the Collateral as directed by Secured Party and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties; (ii) without notice or demand or legal
process, enter upon any premises of Debtor and/or Subsidiary and take possession
of the Collateral; (iii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Secured Party's offices or elsewhere, at such time or times, for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as Secured Party may deem commercially reasonable; (iv) notify the
obligors on any Accounts or Instruments to make payments there under directly to
Secured Party; and (v) without notice to Debtor and/or Subsidiary, renew, modify
or extend any of the Accounts and Instruments or grant waivers or indulgences
with respect thereto or accept partial payment thereof, or substitute any
obligor thereon, in any manner as Secured Party may deem advisable, without
affecting or diminishing Debtor and/or Subsidiary's continuing obligations
hereunder. Debtor and/or Subsidiary agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Debtor and/or Subsidiary
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. At any sale of the
Collateral, if permitted by law, Secured Party may bid (which bid may be, in
whole or in part, in the form of cancellation of indebtedness) for the purchase
of the Collateral or any portion thereof for the account of Secured Party.
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Debtor and
Subsidiary hereby specifically waives all rights of redemption, stay or
appraisal, which it has or may have under any law now existing or hereafter
enacted.
(c) Upon the occurrence of an Event of Default hereunder,
Secured Party shall have the right to enter upon the premises of Debtor and/or
Subsidiary where the Collateral is located (or is believed to be located)
without any obligation to pay rent to Debtor and/or Subsidiary, or any other
place or places where the Collateral is believed to be located and kept, to
render the Collateral useable or saleable, to remove the Collateral therefrom to
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<PAGE>
the premises of Secured Party or any agent of Secured Party for such time as
Secured Party may desire in order to effectively collect or liquidate the
Collateral, and/or to require Debtor and/or Subsidiary to assemble the
Collateral and make it available to Secured Party at a place or places to be
designated by Secured Party. Upon the occurrence of an Event of Default
hereunder, Secured Party shall have the right to take possession of Debtor and
Subsidiary's original books and records, to obtain access to Debtor and
Subsidiary's data processing equipment, computer hardware and software relating
to the Collateral and to use all of the foregoing and the information contained
therein in any manner Secured Party deems appropriate; and Secured Party shall
have the right to notify postal authorities to change the address for delivery
of Debtor and Subsidiary's mail to an address designated by Secured Party and to
receive, open and dispose of all mail addressed to Debtor and Subsidiary.
10. Limitation on Duty of Secured Party with Respect to Collateral.
Beyond the safe custody thereof, Secured Party shall have no duty with respect
to any Collateral in its possession or control (or in the possession or control
of any agent or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which it accords its own
property. Secured Party shall not be liable or responsible for any loss or
damage to any of the Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by Secured Party in good faith.
11. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default as set forth herein or as per the terms of
the security agreement between the Debtor and GCA Strategic Investment Fund Ltd.
(the "GCA Security Agreement"), the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied: first, to
all fees, costs and expenses incurred by Secured Party with respect to the
Collateral (after the proceeds have been applied as per the terms of the above
mentioned security agreement, if an Event of Default has occurred in the GCA
Security Agreement); and second, to the Secured Obligations. Secured Party shall
pay over to Debtor and Subsidiary any surplus and Debtor and Subsidiary shall
remain liable for any deficiency.
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12. Expenses. Debtor and Subsidiary agree to pay all insurance expenses
and all expenses of protecting, storing, warehousing, appraising, insuring,
handling, maintaining and shipping the Collateral, all costs, fees and expenses
of perfecting and maintaining the Security Interests, and any and all excise,
property, sales and use taxes imposed by any state, federal or local authority
on any of the Collateral, or with respect to periodic appraisals and inspections
of the Collateral, or with respect to the sale or other disposition thereof. If
Debtor and/or Subsidiary fails promptly to pay any portion of the above expenses
when due or to perform any other obligation of Debtor and/or Subsidiary under
this Agreement, Secured Party may, at its option, but shall not be required to,
pay or perform the same, and Debtor and Subsidiary agree to reimburse Secured
Party therefor on demand. All sums so paid or incurred by Secured Party for any
of the foregoing, any and all other sums for which Debtor and Subsidiary may
become liable hereunder and all costs and expenses (including attorneys' fees,
legal expenses and court costs) incurred by Secured Party in enforcing or
protecting the Security Interests or any of their rights or remedies under this
Agreement shall be payable on demand, shall constitute Secured Obligations,
shall bear interest until paid at the rate provided in the Debenture and shall
be secured by the Collateral.
13. Termination of Security Interests; Release of Collateral. Upon
payment in full of all Secured Obligations, the Security Interests shall
terminate and all rights to the Collateral shall revert to Debtor and
Subsidiary. Upon such termination of the Security Interests or release of any
Collateral, Secured Party will, at the expense of Debtor and Subsidiary, execute
and deliver to Debtor and Subsidiary such documents as Debtor and Subsidiary
shall reasonably request to evidence the termination of the Security Interests
or the release of such Collateral, as the case may be.
14. Notices. Each notice, communication and delivery under this
Agreement: (a) shall be made in writing signed by the party giving it; (b) shall
specify the section of this Agreement pursuant to which given; (c) shall either
be delivered in person or by telecopier, a nationally recognized next business
day courier service or Express Mail; (d) unless delivered in person, shall be
given to the address specified below; (e) shall be deemed to be given (i) if
delivered in person, on the date delivered, (ii) if sent by telecopier, on the
date of telephonic confirmation of receipt, (iii) if sent by a nationally
recognized next business day courier service with all costs paid, on the next
business day after it is delivered to such courier, or (iv) if sent by Express
Mail (with postage and other fees paid), on the next business day after it is
mailed. Such notice shall not be effective unless copies are provided
contemporaneously as specified below, but neither the manner nor the time of
giving notice to those to whom copies are to be given (which need not be the
same as the addressee) shall control the date notice is given or received. The
addresses and requirements for copies are as follows:
If to Debtor or Subsidiary:
American International Petroleum Corporation
444 Madison Avenue
New York, New York 10022
Telecopier No. (212)688-6657
Confirmation No. (212) 688-3333
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15. If to Secured Party at their respective addresses set forth on
Schedule A. Except as otherwise expressly set forth in any particular provision
of this Agreement, any consent or approval required or permitted by this
Agreement to be given by Secured Party may be given, and any term of this
Agreement or of any other instrument related hereto or mentioned herein may be
amended, and the performance or observance by Debtor and/or Subsidiary of any
term of this Agreement, the Debenture Purchase Agreement or the Debenture may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written specific consent of Secured
Party. No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereon. No course of dealing or delay or
omission on the part of Secured Party in exercising any right shall operate as a
waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon
Debtor and/or Subsidiary shall entitle Debtor and/or Subsidiary to other or
further notice or demand in similar or other circumstances. The rights in this
Agreement, the Debenture Purchase Agreement and the Debenture are cumulative and
are not exclusive of any other remedies provided by law. The invalidity,
illegality or unenforceability of any provision in or obligation under this
Agreement shall not affect or impair the validity, legality or enforceability of
the remaining provisions or obligations under this Agreement.
16. Successors and Assigns. This Agreement is for the benefit of
Secured Party and its successors and assigns, and in the event of an assignment
of all or any of the Secured Obligations, the rights hereunder, to the extent
applicable to the Secured Obligations so assigned, may be transferred with such
Secured Obligations. This Agreement shall be binding on Debtor and Subsidiary
and its successors and assigns, provided that Debtor and/or Subsidiary shall not
assign this Agreement without Secured Party's prior written consent.
17. Changes in Writing. No amendment, modification, termination or
waiver of any provision of this Agreement or consent to any departure by Debtor
and/or Subsidiary therefrom, shall in any event be effective without the written
concurrence of Secured Party, Debtor, and Subsidiary.
18. Governing Law/Venue/Jurisdiction. This Agreement shall be
exclusively governed by and construed in accordance with the laws of the State
of New York, without giving effect to the conflicts of law principles thereof.
Each of the parties consents to the exclusive jurisdiction of the U.S. District
Court sitting in the Southern District of the State of New York sitting in
Manhattan in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if the other party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
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19. Headings. Cross reference pages and headings contained herein are
for convenience of reference only, do not constitute a part of this Agreement,
and shall not be deemed to limit or affect any of the provisions hereof.
20. Counterparts. This Agreement may be executed by each party upon a
separate copy, and in such case one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties. This
Agreement may be executed in two or more counterparts, each of which shall be an
original, and each of which shall constitute one and the same agreement. Any
party may deliver an executed copy of this Agreement and of any documents
contemplated hereby by facsimile transmission to another party and such delivery
shall have the same force and effect as any other delivery of a manually signed
copy of this Agreement or of such other documents.
SCHEDULES:
5(b) - Equipment Location
5(c) - Ownership of Collateral
5(d)(i) - Office Location
5(d)(ii) - Corporate Names
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DULY EXECUTED and delivered by the parties on the date first written
above.
American International Petroleum Corporation
By:
----------------------
Name:
--------------------
Title:
-------------------
Mount Albion LLC
By:
----------------------
Name:
--------------------
Title:
-------------------
AMRO International, S.A.
By:
----------------------
Name:
--------------------
Title:
-------------------
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EXHIBIT E
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
No. ___
To Purchase __________ Shares of Common Stock of
American International Petroleum Corp.
THIS CERTIFIES that, for value received, ____ (the "Holder", including
permitted assigns), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to August , 2004 (the "Termination Date") but not thereafter, to subscribe for
and purchase from American International Petroleum Corp., a _____ corporation
(the "Company"), _____________ (___) shares of Common Stock (the "Warrant
Shares"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be equal to $_____, or the Holder may exercise this
Warrant pursuant to the Cashless Exercise feature set forth in Section 3 below.
The Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with the Secured Convertible Debenture Purchase Agreement dated as
of August , 1999 (the "Agreement") entered into between the Company, and the
Holder. In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control. Any capitalized terms used herein but
not otherwise defined shall have that meaning assigned in the Agreement.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
3. Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole or in part, before the
close of business on the Termination Date, or such earlier date on which this
Warrant may terminate as provided in paragraph 11 below, by the surrender of
this Warrant and the Exercise Form annexed hereto duly executed, to the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address of
such holder appearing on the books of the Company) and upon payment of the
Exercise Price of the Warrant Shares purchased thereby. The Exercise Price may
be paid by wire transfer, or by cashless exercise as set forth below unless the
Company notifies the Holder in writing of its objection of a cashless exercise
within twenty four after receipt of a Notice of Exercise electing cashless
exercise. Upon payment of the Exercise Price the Holder shall be entitled to
receive a certificate for the number of Warrant Shares of so purchased.
Certificates for Warrant Shares purchased hereunder shall be delivered to the
Holder within three Business Days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the Warrant
Shares may be by wire transfer (of same day funds) to the Company in an amount
equal to the Exercise Price multiplied by the number of Warrant Shares being
purchased.
The Holder may pay the Exercise Price in cash or pursuant to a
cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver
immediately available funds;
(b) Cashless Exercise. The Holder may
surrender this Warrant to the Company together with a Notice of Exercise,
indicating it is utilizing the Cashless Exercise feature, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) Trading
Days immediately prior to (but not
including) the date the Company receives a
facsimile of the Notice of Exercise.
B = the Exercise Price.
2
<PAGE>
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the original issuance date of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of issuing fractional shares, the Company shall round up to the
nearest whole share the number of Warrant Shares due upon exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner that interferes with the timely exercise of this
Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant the Holder shall be entitled to exercise this Warrant, the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by
the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold except (i) in a transaction
registered under the Securities Act, or (ii) in a transaction pursuant to an
exemption, if available, from such registration and whereby, if requested by the
Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the holder of this Warrant to the effect that the transaction is so
exempt.
3
<PAGE>
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Adjustments. The Exercise Price shall be adjusted as provided for
below in this Section (the Exercise Price, and the Exercise Price, as thereafter
then adjusted, shall be included in the definition of Exercise Price) and the
Exercise Price from time to time shall be further adjusted as provided for below
in this Section. Upon each adjustment of the Exercise Price, the holder shall
thereafter be entitled to receive upon exercise of this Warrant, at the Exercise
Price resulting from such adjustment, the number of shares of Common Stock
obtained by (a) multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and (b) dividing the product thereof by the
Exercise Price resulting from such adjustment. The Exercise Price shall be
adjusted as follows:
(i) In the case of any amendment to the Company's Articles of
Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Warrant shall be adjusted so as to provide
that upon exercise thereof, the holder shall receive, in lieu of each share of
Common Stock theretofore issuable upon such exercise, the kind and amount of
shares, other securities, money and property receivable upon such designation,
change or division by the holder issuable upon such exercise had the exercise
occurred immediately prior to such designation, change or division. This Warrant
shall be deemed thereafter to provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section. The provisions of this Subsection (i) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(ii) If the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or declare a dividend or make any other distribution upon the Common
Stock payable in shares of Common Stock, the Exercise Price in effect
immediately prior to such subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased.
4
<PAGE>
(iii) If the Company shall, through either a private placement
or a public offering (but other than pursuant to options granted under the
Company's stock option plans or shares or options issued in an acquisition or
shares issuable upon conversion of shares of the Company's convertible
debentures or shares issuable pursuant to the exercise of warrant or options
outstanding on the original issuance date of this Warrant) issue shares of
Common Stock, or options to purchase Common Stock or rights to subscribe for
Common Stock or securities convertible into or exchangeable for Common Stock at
a price (such price, if other than cash, as determined by the Board of
Directors) less than the Exercise Price (the "Lower Price"), the Exercise Price
shall be automatically reduced to the Lower Price. Notwithstanding the
foregoing, in no event shall the Exercise Price ever be increased as a result of
this Subsection (iii). There will be no adjustment in the event that the Company
pays a dividend in cash to its holders of Common Stock; provided, however, the
Company will give the holder written notice at least thirty (30) days prior to
the record date for the cash dividend, that the Company intends to declare a
cash dividend.
(iv) If any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company with
or into another corporation or other entity, or the sale of all or substantially
all of the Company's assets to another corporation or other entity shall be
effected in such a way that holders of shares of Common Stock shall be entitled
to receive stock, securities, other evidence of equity ownership or assets with
respect to or in exchange for shares of Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section) lawful and adequate provisions shall
be made whereby the holder shall thereafter have the right to receive upon the
exercise hereof upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of this Warrant under this Section had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of shares of Common Stock receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, other evidence of equity ownership or assets thereafter
deliverable upon the exercise hereof including an immediate adjustment, by
reason of such consolidation or merger, of the Exercise Price to the value for
the Common Stock reflected, by the terms of such consolidation or merger if the
value so reflected is less than the Exercise Price in effect immediately prior
to such consolidation or merger. Subject to the terms of this Warrant, in the
event of a merger or consolidation of the Company with or into another
corporation or other entity as a result of which the number of shares of common
stock of the surviving corporation or other entity issuable to investors of
Common Stock, is greater or lesser than the number of shares of Common Stock
outstanding immediately prior to such merger or consolidation, then the Exercise
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock. The Company shall not effect any such
consolidation, merger or sale, unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to the Holder, the
obligation to deliver to the Holder such shares of stock, securities, other
evidence of equity ownership or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to receive or otherwise acquire. If a
purchase, tender or exchange offer is made to and accepted by the holders of
more than fifty (50%) percent of the outstanding shares of Common Stock, the
Company shall not effect any consolidation, merger or sale with the person
having made such offer or with any affiliate of such person, unless prior to the
consummation of such consolidation, merger or sale the Holder shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant the amount of stock, securities, other evidence of equity ownership
or assets then issuable with respect to the number of shares of Common Stock in
accordance with such offer.
5
<PAGE>
(v) In case the Company shall, at any time prior to exercise
of this Warrant, consolidate or merge with any other corporation or other entity
(where the Company is not the surviving entity) or transfer all or substantially
all of its assets to any other corporation or other entity, then the Company
shall, as a condition precedent to such transaction, cause effective provision
to be made so that the Holder upon the exercise of this Warrant after the
effective date of such transaction shall be entitled to receive the kind and,
amount of shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Holder of the number of shares of Common
Stock as to which this Warrant was exercisable immediately prior to such
transaction (without giving effect to any restriction upon such exercise); and,
in any such case, appropriate provision shall be made with respect to the rights
and interest of the Holder to the end that the provisions of this Warrant shall
thereafter be applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness or other securities or assets thereafter
deliverable upon exercise of this Warrant. Upon the occurrence of any event
described in this Subsection (v), the Holder shall have the right to (i)
exercise this Warrant immediately prior to such event at an Exercise Price equal
to lesser of (1) the then Exercise Price or (2) the price per share of Common
Stock paid in such event, or (ii) retain ownership of this Warrant, in which
event, appropriate provisions shall be made so that the Warrant shall be
exercisable at the Holder's option into shares of stock, securities or other
equity ownership of the surviving or acquiring entity,
(vi) Whenever the Exercise Price shall be adjusted pursuant to
this Section the Company shall issue a certificate signed by its President or
Vice President and by its Treasurer, or Secretary, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment wag calculated (including a description of the
basis on which the Board of Directors of the Company made any determination
hereunder), and the Exercise Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to the Holder. The Company shall make such certificate and mail
it to the Holder immediately after each adjustment.
12. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
6
<PAGE>
13. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the domestic securities
exchange or market upon which the Common Stock may be listed.
14. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by the Holder pursuant to the terms herein shall not exceed the number
of such shares which, when aggregated with all other shares of Common Stock then
owned by the Holder, would result in the Holder owning more than 4.99% of the
then issued and outstanding Common Stock at any one time. The preceding shall
not interfere with the Holder's right to exercise this Warrant over time which
in the aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as the Holder does not own more than 4.99% of the then outstanding
Common Stock at any given time.
15. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. The
provisions of this Warrant shall be construed and shall be given effect in all
respects as if it had been issued and delivered by the Company on the date
hereof. This Warrant shall be binding upon any successors or assigns of the
Company. This Warrant will be construed and enforced in accordance with and
governed exclusively by the laws of the State of New York, except for matters
arising under the Securities Act, without reference to principles of conflicts
of law. The parties consent to the exclusive jurisdiction of the U.S. District
Court sitting in the Southern District of the State of New York in connection
with any dispute arising under this Warrant and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if the other party to this Warrant obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
7
<PAGE>
(b) Restrictions. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered (or if no
exemption from registration exists), will have restrictions upon resale imposed
by state and federal securities laws. Each certificate representing the Warrant
Shares issued to the Holder upon exercise (if not registered or if no exemption
from registration exists) will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT."
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day between the hours of 9:00 a.m. and 5:00 p.m. where
such notice is to be received), or the first Business Day following such
delivery (if delivered other than on a Business Day between the hours of 9:00
a.m. and 5:00 p.m. where such notice is to be received), (b) on the second
Business Day following the date of mailing by reputable courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) five calendar days after sent by regular
mail.
8
<PAGE>
16. "Piggy-Back" Registration. In the event the Warrant Shares are not
previously included in registration statement filed by the Company with the SEC,
In addition to any other registration rights the Holder may have, the Holder
shall have the right to include all of the Warrant Shares (also referred to as
the "Registrable Securities") as part of any registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8) and must be notified
in writing of such filing. Holder shall have five (5) business days to notify
the Company in writing as to whether the Company is to include Holder or not
include Holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: August , 1999
American International Petroleum Corp.
By: ______________________________
<PAGE>
NOTICE OF EXERCISE
To: American International Petroleum Corp.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
American International Petroleum Corp. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price in full, together
with all applicable transfer taxes, if any.
(2) The undersigned chooses to utilize the cashless exercise feature of this
Warrant and pursuant to the terms of the Warrant is entitled to receive _____
Warrant Shares upon the cashless exercise of _____ Warrant Shares.
(3) Upon exercise pursuant to this Notice of Exercise, the undersigned will not
own 4.99% or more of the then issued and outstanding shares of Common Stock of
the Company.
(4) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as are
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
- ------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_________________________________________________________________.
__________________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
2
<PAGE>
EXHIBIT F
August , 1999
To: Investors
Re: American International Petroleum Corp./ $7,000,000
investment by certain investors
Ladies and Gentlemen:
We have acted as counsel to American International Petroleum
Corp., a ____ corporation (the "Company"), in connection with the Secured
Convertible Debenture Purchase Agreement, dated as of August , 1999 (the
"Purchase Agreement"), by and among the entities listed on Schedule A
(collectively referred to as the "Investors"), and the Company, dated as of
August , 1999, together with the executed exhibits thereto (the "Agreements"),
pursuant to which the Company will issue up to $7,500,000 principal amount of
Secured Convertible Debentures of the Company (the "Debentures") to the
Investors, a warrant to the Investors to purchase that number of shares of
common stock of the Company as set forth in Section 2.3 of the Purchase
Agreement (the "Warrant", and the shares of Common Stock issued or issuable
pursuant to exercise of the Warrant, the "Warrant Shares").
All terms used herein have the meanings defined for them in
the Purchase Agreement unless otherwise defined herein.
In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties.
Based upon and subject to the foregoing, we are of the opinion
that:
(1) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of ______ and has all
requisite corporate power and authority to carry on its business and to own,
lease and operate its properties and assets as described in the SEC Documents.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the Company owns or leases
property, other than those (individually or in the aggregate) in which the
failure so to qualify would have a Material Adverse Effect.
<PAGE>
(2) The Company has the requisite corporate power and
authority to enter into and perform its obligations under the Agreements, and to
issue the Debentures, Warrants, and Securities. The execution and delivery of
the Agreements, and the execution, issuance and delivery of the Debentures and
Warrants in connection with the First Tranche, by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or shareholders is
required. The Agreements, Warrants and Debentures have been duly executed and
delivered, and the Warrant and the Debentures to be issued in connection with
the First Tranche have been duly executed, issued and delivered, by the Company
and each of the Agreements, such Debentures and Warrants constitutes valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms.
(3) The execution, delivery and performance of the Agreements,
Debentures, and Warrant by the Company and the consummation by the Company of
the transactions contemplated thereby, including, without limitation, the
issuance of the Warrants, Debentures, and Securities, do not and will not (i)
result in a violation of the Company's Articles of Incorporation or By-Laws;
(ii) to our knowledge, conflict with, or constitute a material default (or an
event that 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 material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, except for such conflicts, defaults, terminations,
amendments, accelerations and cancellations as would not, individually or in the
aggregate, have a Material Adverse Effect; or (iii) result in a violation of any
federal or state law, rule or regulation applicable to the Company or, to our
knowledge, by which any property or asset of the Company is bound or affected,
except for such violations as would not, individually or in the aggregate, have
a Material Adverse Effect.
(4) Assuming the accuracy of the representations and
warranties in the Agreements, the issuance of the Debentures, Warrants and
Securities, in accordance with the Purchase Agreement will be exempt from
registration under the Securities Act of 1933, as amended. When so issued the
Warrants, Debentures, and Securities, will be duly and validly issued, fully
paid and nonassessable, and not subject to any preemptive or similar rights
contained in the Company's Articles of Incorporation or Bylaws or, to our
knowledge, in any agreement to which the Company is party.
(5) To our knowledge, except as disclosed in the SEC
Documents, there are no claims, actions, suits, proceedings or investigations
that are pending against the Company or its properties, or against any officer
or director of the Company in his or her capacity as such, nor has the Company
received any written threat of any such claims, actions, suits, proceedings, or
investigations which are required to be and have not been disclosed in the SEC
Documents and which reasonably can be expected to have a Material Adverse
Effect. To our knowledge, except as disclosed in the SEC Documents, the Company
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
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<PAGE>
(6) To our knowledge, there are no outstanding options,
warrants, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any right to subscribe for or acquire any shares of Common Stock or
contracts, commitments, understanding, or arrangements by which the Company is
or may become bound to issue additional shares of common stock of the Company,
or securities or rights convertible or exchangeable into shares of common stock
of the Company, except as described in the SEC Documents.
(7) As of June 30, 1999, the authorized capital stock of the
Company consisted of ______ shares of Common Stock, $____ par value and ______
shares of preferred stock, $_____ par value. All of the outstanding shares of
the Company's capital stock have been duly and validly authorized and issued and
are fully paid and nonassessable. To our knowledge, no shares of common stock of
the Company are entitled to preemptive or similar rights.
(8) To our knowledge, the Company has not received any written
or oral notification regarding the delisting of its Common Stock from the Nasdaq
National Market and the Company is currently in compliance with all of the rules
and regulations of the Nasdaq National Market.
(9) The transactions contemplated by the Agreements will not
be integrated with any previous offer or sale of securities of the Company. The
Debentures and Warrant are being offered and sold pursuant to the terms
hereunder, and are not being offered and sold as part of a previously commenced
private placement of securities.
(10) There are no outstanding securities issued by the Company
that are entitled to registration rights under the Securities Act. Except as
disclosed in the SEC Documents, 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, that have anti-dilution or similar
rights that would be affected by the issuance of the Debentures, Warrant, or
Securities.
The opinions set forth above are subject to the following
qualifications and exceptions:
(a) Our opinion is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar law
of general application affecting creditors' rights.
(b) Our opinion is subject to the effect of general principles
of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally
(regardless of whether considered in a proceeding in equity or at law).
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of _____, as currently in effect and does not include an
interpretation or statement concerning the laws of any other state or
jurisdiction.
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<PAGE>
The opinions expressed herein are given to you solely for your use in
connection with the transactions contemplated by the Agreements and may not be
relied upon by any other person or entity or for any other purpose without our
prior written consent.
Very truly yours,
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<PAGE>
EXHIBIT G
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Secured Convertible Debentures)
The undersigned hereby irrevocably elects to convert $_____ principal amount of
Secured Convertible Debenture Number ____ (the "Debenture") of American
International Petroleum Corp. (the "Company") into shares of Common Stock
according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of
the Debenture shall be made pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the
"Act"), or pursuant to registration of the Common Stock under
the Act;
(ii) the undersigned has not engaged in any transaction or series
of transaction that is a part of or a plan or scheme to evade
the registration requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own an aggregate of 4.99% or more of the
then issued and outstanding shares of Common Stock of the
Company.
------------------------------ ---------------------------------
Date of Conversion Applicable Conversion Price
------------------------------ ---------------------------------
Number of Shares Common Stock Principal amount of Debenture
due upon Conversion being converted
---------------------------------- ---------------------------------
Signature Name
Address: Delivery of Shares of Common Stock to:
<PAGE>
EXHIBIT H
IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
August , 1999
Dear Sir or Madam:
Reference is made to the Secured Convertible Debenture Purchase
Agreement and all Exhibits annexed thereto (the "Agreement") dated as of
August , 1999, between the entities listed on Schedule A (collectively
referred to as the "Investors"), and American International Petroleum Corp. (the
"Company"). Pursuant to the Agreement, and subject to the terms and conditions
set forth in the Agreement, the Investors have agreed to purchase from the
Company and the Company has agreed to sell to the Investors pursuant to the
terms of the Agreement up to $7,500,000 principal amount of Secured Convertible
Debentures of the Company (the "Debentures"), and (ii) warrants of the Company
to purchase Common Stock (the "Warrants"). As a condition to the effectiveness
of the Agreement, the Company has agreed to issue to you, as the transfer agent
for the Common Stock (the "Transfer Agent"), these instructions relating to the
shares of Common Stock underlying the Debentures and Warrants. All terms used
herein and not otherwise defined shall have the meaning set forth in the
Agreement.
1. ISSUANCE OF COMMON STOCK
The Transfer Agent shall deliver to the Investors certificates
representing Common Stock due upon conversion of the Debentures and exercise of
the Warrants not bearing any restrictive legend without requiring further advice
or instruction or additional documentation from the Company or its counsel, or
the Investors or their counsel or any other party, as per the terms of these
instructions.
At any time after the effective date of the applicable registration
statement covering the shares of Common Stock underlying the Debentures and/or
Warrants (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates which bear the Legend, to the extent accompanied by (i)
a notice requesting the issuance of new certificates free of the Legend to
replace those surrendered, (ii) a confirmation in writing to the Transfer Agent
that the Investor(s) has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Common Stock in a bona fide transaction
to a third party that is not an affiliate of the Company; and (iii) the
Investor(s) confirms to the Transfer Agent that it has complied with the
prospectus delivery requirement the Transfer Agent shall deliver to the
Investors the certificates representing the Common Stock not bearing the Legend,
in such names and denominations as the Investors shall request. In the event a
registration statement is not filed by the Company, or for any reason the
registration statement which is filed by the Company is not declared effective
by the Securities and Exchange Commission, the Investor(s), or its permitted
assignee, or its broker(s) confirms to the Transfer Agent that (i) the
Investor(s) has held the Debentures and/or Warrants for at least one year, (ii)
counting the shares surrendered as being sold upon the date the unlegended
certificates would be delivered to the Investor(s) (or the Trading Day
immediately following if such date is not a Trading Day), the Investor(s) will
not have sold more than the greater of (a) one percent of the total number of
outstanding shares of Common Stock, or (b) the average weekly trading volume of
the Common Stock for the preceding four weeks during the three months ending
upon such delivery date (or the Trading Day immediately following if such date
is not a Trading Day), and (iii) the Investor(s) has complied with the manner of
sale and notice requirements of Rule 144 under the Securities Act, and the
Company shall have furnished an opinion from its independent counsel,
authorizing the removal of the Legend.
<PAGE>
At any time prior to the effective date of the applicable registration
statement, and provided no exemption from registration exists, upon the exercise
of the Warrant by the Investor(s) and upon receipt of authorization from the
Company to the Transfer Agent, the Transfer Agent shall deliver to the
Investor(s) certificates representing Common Stock bearing the Legend without
requiring further advice or instruction or additional documentation from the
Company or its counsel or the Investor(s) or its counsel or any other party
(other than as described in such paragraphs).
Any advice, notice, or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of () .
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any issuance of Common Stock by the Transfer Agent
pursuant to which the Investor(s) acquires Common Stock under the Agreement, the
Transfer Agent shall deliver to the Investor(s) as defined in the Agreement,
certificates representing Common Stock (with or without the Legend, as
appropriate) as soon as possible.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
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<PAGE>
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investors are an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
thereof.
American International petroleum
corp.
By: __________________________
AGREED:
By:__________________________
Name:
Title:
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