EXHIBIT 4.1
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement") dated as of
February 11, 1999 between American International Petroleum Corp., a Nevada
corporation (the "Company"), and each person or entity listed as an investor on
Schedule I to this Agreement (each individually an "Investor" and collectively
the "Investors").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and
the Investors wish to purchase from the Company, 5% Convertible Secured
Debentures Due February __, 2004 (the "Debentures"), in the aggregate principal
amount of $10,000,000 at an aggregate price of $10,000,000, having the rights
and privileges set forth in the Debentures in the form of Exhibit 1.1A attached
hereto, on the terms and conditions set forth herein;
WHEREAS, the Debentures will be convertible into shares ("Common
Shares") of common stock, $0.08 par value per share, of the Company ("Common
Stock"), pursuant to the terms of the Debentures, and the Investors will have
registration rights with respect to such Common Shares and the Warrant Shares
(as defined herein) pursuant to the terms of that certain Registration Rights
Agreement to be entered into between the Company and the Investors substantially
in the form of Exhibit 4.2(f) hereto ("Registration Rights Agreement");
WHEREAS, to induce the Investors to purchase the Debentures, the
Company has agreed to issue to the Investors warrants exercisable for an
aggregate 2,000,000 shares of Common Stock, in the form attached as Exhibit 1.1B
(the "Warrants");
WHEREAS, American International Refinery, Inc. ("AIRI") is a wholly
owned subsidiary of the Company, and AIRI will derive substantial benefit from
the transaction contemplated hereby; and
WHEREAS, to induce the Investors to purchase the Debentures, AIRI has
agreed to grant to the Investors a first priority mortgage in the land and
improvements of AIRI's refinery located at 4646 Highway ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and a first priority security interest in certain
equipment and other personal property used at the refinery pursuant to the terms
of a Mortgage and Security Agreement to be entered into between AIRI and the
Investors substantially, which is satisfactory in form and substance to the
Investors;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
Purchase and Sale of Debentures and Warrants
Section 1.1 Issuance of Debentures and Warrants. Upon the following
terms and conditions, the Company shall issue and sell to each Investor
severally, and each Investor severally shall purchase from the Company, the
outstanding principal amount of Debentures indicated next to such Investor's
name on Schedule I attached hereto.
(a) Issuance. Upon the following terms and conditions, the Company
shall issue and sell to each Investor, and each Investor severally shall
purchase from the Company, the principal amount of Debentures and the number of
Warrants indicated next to such Investor's name on Schedule I attached hereto.
(b) Purchase Price. The purchase price for the Debentures to be
acquired by each Investor (the "Purchase Price") shall be the Purchase Price set
forth next to such Investor's name on Schedule I.
(c) The Closing.
(i) The closing of the purchase and sale of the Debentures and the
Warrants (the "Closing"), shall take place at the offices of ▇▇▇▇▇▇ &
▇▇▇▇▇▇ ("Investors' Counsel"), at 10:00 a.m., local time on the later of
the following: (x) the date on which the last of the conditions set forth
in Article IV hereof and applicable to the Closing shall be fulfilled or
waived in accordance herewith, or (y) such other time and place and/or on
such other date as the Investors and the Company may agree. The date on
which the Closing occurs is referred to herein as the "Closing Date".
(ii) On the Closing Date, the Company shall deliver to each Investor
(x) a certificate or certificates (with the number of and outstanding
principal amount of such certificates requested by such Investor)
representing the Debentures purchased hereunder by such Investor at the
Closing registered in the name of the Investor or its nominee and (y) the
Warrants registered in the name of such Investor or its nominee in such
denominations as reasonably requested by such Investor, and such Investor
shall deliver to the Company the Purchase Price for the Debentures
purchased by such Investor hereunder by wire transfer in immediately
available funds to an account designated in writing by the Company. The
delivery of payment by such Investor of the Purchase Price applicable to
it as set forth in this paragraph shall constitute a payment delivered to
the Company in satisfaction of such Investor's obligation to pay the
Purchase Price hereunder. In addition, each of the Company and each
Investor shall deliver all documents, instruments and writings required to
be delivered by such party pursuant to this Agreement at or prior to the
applicable Closing.
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ARTICLE II.
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Investors as of the date hereof and on each Closing Date:
(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Nevada and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any direct or indirect subsidiaries other than the subsidiaries listed
on Schedule 2.1(a) attached hereto. Except where specifically indicated to the
contrary, all references in this Agreement to subsidiaries shall be deemed to
refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means (i) any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and its subsidiaries or other entities controlled by
such entity, taken as a whole, and which is (either alone or together with all
other adverse effects) material to such entity and its subsidiaries or other
entities controlled by such entity taken as a whole, and (ii) any condition or
situation, whether or not a material adverse effect, which would prohibit or
otherwise adversely interfere with or affect the ability of any party to this
Agreement to enter into or perform its obligations under, or to consummate the
transactions contemplated by, this Agreement, the Registration Rights Agreement,
the Mortgage and Security Agreement, the Debentures or the Warrants or any other
agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company or AIRI, as the case
may be, has all requisite corporate power and authority to enter into and
perform this Agreement, the Warrants, the Mortgage and Security Agreement and
the Registration Rights Agreement and to issue the Debentures and Warrants in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Warrants, the Mortgage and Security Agreement and the
Registration Rights Agreement by the Company or AIRI, as the case may be, and
the consummation by the Company or AIRI, as the case may be, of the transactions
contemplated hereby and thereby, including the issuance of the Debentures, the
Warrants, the Common Shares and the Warrant Shares have been duly authorized by
all necessary corporate action, and no further consent or authorization of the
Company, AIRI or their Boards of Directors (or any committee or subcommittee
thereof) or stockholders is required, (iii) this Agreement has been, and on the
Closing Date the Warrants, the Debentures, the Mortgage and Security Agreement
and the Registration Rights Agreement will be, duly executed and delivered by
the Company or AIRI, as the case may be, and (iv) this Agreement constitutes,
and upon execution, issuance and delivery thereof the Warrants, the Debentures,
the Mortgage and Security Agreement and the Registration Rights Agreement shall
constitute, valid and binding obligations of the Company or AIRI, as the case
may be enforceable against the Company or AIRI, as the case may be, in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
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(c) Capitalization; Indebtedness. (i) The authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock and 7,000,000 shares
of preferred stock, par value $0.01 per share (the "Preferred Stock"); there are
66,216,889 shares of Common Stock and no shares of Preferred Stock issued and
outstanding. All of the outstanding shares of the Company's Common Stock have
been validly authorized and issued and are fully paid and nonassessable. No
shares of capital stock are entitled to preemptive rights; and there are as of
the date hereof outstanding options for 4,122,750 shares of Common Stock and
6,758,746 outstanding warrants for shares of Common Stock (excluding the
Warrants). Except as set forth in Schedule 2.1(c)(i), there are no other scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights exchangeable for or convertible into, any
shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, or commitments to purchase or acquire, any
shares, or securities or rights convertible or exchangeable into shares, of
capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is a true and
correct copy of the Company's Articles of Incorporation (the "Charter"), as in
effect on the date hereof, an attached hereto as Exhibit 2.1(c)(ii) is a true
and correct copy of the Company's By-Laws (the "By-Laws"), as in effect on the
date hereof.
(ii) Set forth on Schedule 2.1(c)(ii) is a complete and accurate
listing of (i) all of the outstanding indebtedness of the Company, except
for trade payables incurred in the ordinary course of business (the
"Company Debt"), (ii) all of the principal documents that evidence the
Company Debt, including, without limitation any Uniform Commercial Code
financing statements filed showing the Company or any subsidiary as debtor
and (iii) any collateral which has been pledge by the Company to secure
any of the Company Debt. The Company has provided to Investors a correct
and complete copy of, or given Investors access to, each of the documents
representing such Company Debt and all amendments thereto. All of the
documents representing any Company Debt are in full force and effect in
accordance with their terms. There exists no material default on the part
of the Company under any document evidencing any Company Debt or any event
or condition which after notice or passage o time or both would constitute
such a default. Except as set forth on Schedule 2.1(c)(ii), the documents
evidencing the Company Debt do not require the consent of any party
thereto to the consummation of the transactions contemplated by this
Agreement.
(d) Issuance of Common Shares. The Common Shares and the shares of
Common Stock issuable upon the exercise of the Warrants (the "Warrant Shares")
are duly authorized and reserved for issuance and, upon such conversion in
accordance with the Debentures and/or exercise in accordance with the Warrants,
such Common Shares and Warrant Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
and the holders of such Common Shares and Warrant Shares shall be entitled to
all rights and preferences accorded to a holder of Common Stock. The outstanding
shares of Common Stock are currently listed, and are entitled to be traded, on
the Nasdaq National Market System ("Nasdaq NMS," and collectively with the
American Stock Exchange and the New York Stock Exchange, the "Approved Markets")
and the Company has not received any notice (written or oral) from the Nasdaq
NMS (or any other Approved Market where they are currently listed) to which the
Company has not made a satisfactory response indicating that delisting of the
Common Stock is under consideration.
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(e) No Conflicts. The execution, delivery and performance by the
Company or AIRI, as the case may be, of this Agreement, the Registration Rights
Agreement, the Mortgage and Security Agreement, the Warrants and the Debentures,
including the issuance of the Debentures and the Warrants, the conversion of the
Debentures into the Common Shares and the exercise of the Warrants, and the
consummation by the Company or AIRI, as the case may be, of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's or AIRI's, as the case may be, Charter or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or AIRI, as the case may be,
or any of its subsidiaries is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to the Company or AIRI, as the case may be, or any of its subsidiaries or by
which any property or asset of the Company or AIRI, as the case may be, or any
of its subsidiaries is bound or affected. The business of the Company and its
direct and indirect subsidiaries is not being conducted in violation of, and is
in compliance in all material respects with, all applicable material laws,
ordinances and regulations of any governmental entity. The Company or AIRI, as
the case may be, is not required under Federal, state, local or foreign law,
rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
(x) to execute, deliver or perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Mortgage and Security Agreement, the
Debentures or the Warrants, (y) to issue and sell the Debentures and the
Warrants in accordance with the terms hereof, to issue the Common Shares upon
conversion of the Debentures or to issue the Warrant Shares on exercise of the
Warrants or (z) for the registration provisions provided in the Registration
Rights Agreement.
(f) SEC Documents; No Non-Public Information; Financial Statements. The
Common Stock of the Company is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Company
is in compliance with and has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Securities and Exchange
Commission ("SEC") pursuant to the Exchange Act, in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
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therein being referred to herein as the "SEC Documents"). The Company has
delivered or made available to the Investors true and complete copies of all SEC
Documents (including, without limitation, proxy information and solicitation
materials and registration statements) filed with the SEC since December 31,
1997 and all annual SEC Documents filed with the SEC since December 31, 1996.
The Company has not provided to the Investors any material non-public
information or any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed. As of their respective dates, the SEC Documents complied (and
as of its effective date, the Registration Statement (as defined in the
Registration Rights Agreement) will comply) in all material respects with the
requirements of the Exchange Act (or, in the case of such Registration
Statement, the Securities Act of 1933, as amended (the "Act") and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained (and, as of its effective date, such Registration
Statement will not contain) any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The SEC Documents contain (and, as of its effective date,
such Registration Statement will contain) all material information concerning
the Company, and no event or circumstance has occurred which would require the
Company to disclose such event or circumstance in order to make the statements
in the SEC Documents not misleading on the date hereof or on the Closing Date
but which has not been so disclosed. The financial statements of the Company
included (or to be included) in the SEC Documents (or the Registration
Statement) comply (or will comply) as to form and substance in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been (or will be) prepared in accordance
with United States generally accepted accounting principles applied on
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present (or will fairly
present) in all material respects the financial position of the Company as of
the dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(g) Principal Exchange/Market. The principal market on which the Common
Stock is currently traded is the Nasdaq NMS.
(h) No Material Adverse Change. Since December 31, 1997, no Material
Adverse Effect has occurred or exists with respect to the Company or any of its
subsidiaries, and no event or circumstance has occurred that with notice or the
passage of time or both is reasonably likely to result in a Material Adverse
Effect with respect to the Company or any of its subsidiaries.
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(i) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the SEC Documents, other than
those liabilities incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since December 31, 1997, which liabilities,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its direct or indirect
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
(k) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf, has
engaged in or conducted any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) with respect to or in
connection with the offer or sale of the Debentures, the Warrants, the Common
Shares or the Warrant Shares.
(l) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor, to its knowledge, any person acting on its or their behalf,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the Debentures, the Warrants, the Common Shares or Warrant
Shares under the Act.
The issuance of the Debentures, Warrants, Common Shares or Warrant
Shares to the Investors will not be integrated with any other issuance of the
Company's securities which requires stockholder approval under the rules of the
Nasdaq NMS.
(m) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Act and the rules promulgated thereunder, and Form S-3 is permitted to be
used for the transactions contemplated hereby under the Act and the rules
promulgated thereunder.
(n) Intellectual Property. The Company (and/or its wholly-owned
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted or as proposed to be conducted as disclosed in the SEC Documents.
Neither the Company nor any of its subsidiaries has any reason to believe that
the intellectual property rights which it owns are invalid or unenforceable or
that the use of such intellectual property by the Company or its subsidiaries
infringes upon or conflicts with any right of any third party, and neither the
Company nor any of its subsidiaries has received notice of any such infringement
or conflict. Neither the Company nor any of its subsidiaries has knowledge of
any infringement of its intellectual property by any third party.
(o) No Litigation. Except as set forth in the SEC Documents, no
litigation, arbitration, proceeding or claim (including those for unpaid taxes)
against the Company or any of its subsidiaries is pending or, to the Company's
knowledge, threatened, and no other event has occurred, which if determined
adversely could singly or in the aggregate reasonably be expected to have a
Material Adverse Effect. The legal proceedings described in the SEC Documents,
if adversely determined, will not have a Material Adverse Effect.
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(p) Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or any Investor relating to this Agreement or the
transactions contemplated hereby, except that the Company may pay to JWGenesis
Securities ("JWG") an amount equal to two percent (2%) of the aggregate Purchase
Price and issue to JWG (or its designees) a warrant to purchase 250,000 shares
of Common Stock.
(q) Acknowledgement of Dilution. The number of shares of Common Stock
constituting Common Shares or Warrant Shares may increase substantially in
certain circumstances, including the circumstance where the trading price of the
Common Stock declines. The Company acknowledges that its obligation to issue
Common Shares upon conversion of the Debentures and Warrant Shares upon exercise
of the Warrants is absolute and unconditional, regardless of the dilution that
such issuance may have on other shareholders of the Company.
(r) Other Investors. Except as set forth on Schedule 2.1(r), there are
no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth in Schedule 2.1(r), there
are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, that have anti-dilution, preemptive or similar
rights that would be affecte or triggered by the issuance of the Debentures, the
Common Shares, the Warrant Shares or the Warrants.
(s) Certain Transactions. Except as disclosed in the SEC Documents,
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(t) Permits; Compliance. Each of the Company and each of its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"). There is no action or proceeding pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits, except with respect to such Company Permits the failure of which to
possess, or the cancellation or suspension of which, would not, individually or
in the aggregate, have a Material Adverse Effect. Neither the Company nor any of
its subsidiaries is in material conflict with, or in material default or
material violation of, any of the Company Permits. Since December 31, 1997,
neither the Company nor any of its subsidiaries has received any notification
with respect to possible material conflicts, material defaults or material
violations of applicable laws.
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(u) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its direct and indirect
subsidiaries are engaged. Neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(v) Internal Accounting Controls. Each of the Company and each of its
subsidiaries maintains a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(w) Margin Accounts. At no time since December 31, 1997 has any
director or executive officer of the Company maintained more than 15% of such
individual's Common Stock in a margin account or placed more than 15% of such
individual's Common Stock in a situation which could have resulted in an
involuntary sale thereof.
(x) Environmental Matters. Except as otherwise disclosed in the SEC
Documents, each of the Company and each of its subsidiaries is in compliance in
all material respects with all applicable state and federal environmental laws,
and no event or condition has occurred that may interfere with the compliance by
the Company or any of its subsidiaries with any environmental law or that may
give rise to any liability under any environmental law that, individually or in
the aggregate, would have a Material Adverse Effect.
(y) Solvency.
(i) The Company's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including contingent liabilities) as
they mature.
(ii) The Company's assets do not constitute unreasonably small
capital to carry out its business as now conducted and as proposed to be
conducted including the Company's capital needs taking into account the
particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof.
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(iii) The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The cash flow
together with the proceeds received from the liquidation of the Company's
assets after taking into account all anticipated uses of the cash will at
all times be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid
(iv) The Company does not believe that final judgments against the
Company in pending actions for money damages will be rendered at a time
when, or in an amount such that, the Company will be unable to satisfy any
such judgments promptly in accordance with their terms The Company's cash
flow, after taking into account all other anticipated uses of the cash
(including the payments on or in respect of debt referred to in paragraph
(iii) above), will at all times be sufficient to pay all such judgments
promptly in accordance with their terms.
(v) Neither the Company nor any of its subsidiaries is subject to
any bankruptcy, insolvency or similar proceeding.
(z) Taxes. All federal, state, city and other tax returns, reports and
declarations required to be filed by or on behalf of the Company or any of its
subsidiaries have been filed and such returns are complete and accurate and
disclose all taxes (whether based upon income, operations, purchases, sales,
payroll, licenses, compensation, business, capital, properties or assets or
otherwise) required to be paid in the periods covered thereby (other than set
forth on Schedule 2.1(z)). Copies of all such returns have been provided to the
Investors. All taxes shown on such returns and any deficiency assessments,
penalties and interest have been paid. All taxes required to be withheld by or
on behalf of the Company in connection with amounts paid or owing to any
employees, independent contractor, creditor or other party have been withheld,
and such withheld taxes have either been duly and timely paid to the proper
governmental authorities or set aside and reserved in accounts for such
purposes.
(aa) Title to Properties; Encumbrances. Schedule 2.1(aa) contains a
complete and accurate list of all real property, leaseholds, or other interests
therein owned by the Company. The Company owns (with good and marketable title
in the case of real property) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that it purports to own.
All material properties and assets listed on Schedule 2.1(aa) are free and clear
of all encumbrances (other than as set forth on Schedule 2.1(aa)) and are not,
in the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature,
except with respect to all such properties and assets, (a) mortgages or security
interests shown on Schedule 2.1(aa) as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) liens for current
taxes not yet due, and (c) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value, or impairs the use, of the property subject
thereto, or impairs the operations the Company or any of its subsidiaries, and
(ii) zoning laws and other land use restrictions that do not impair the present
or anticipated use of the property subject thereto. All buildings, plans, and
structures owned by th Company or any of its subsidiaries lie wholly within the
boundaries of the real property owned by the Company or such subsidiaries, and
do not encroach upon the property of, or otherwise conflict with the property
rights of, any other person.
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(bb) No Violation of Creditor Covenants. No event of default has
occurred and is continuing (or event which with lapse of time or notice of both
would constitute such an event) under any of the revolving credit facilities or
other financing arrangements of the Company or any of its subsidiaries.
(cc) Effectiveness of SEC Filings. The SEC has not issued any stop
order or other order suspending the effectiveness of any registration involving
the Company or any of its subsidiaries.
Section 2.2 Representations and Warranties of the Investors. Each of
the Investors, severally (as to itself) and not jointly, hereby makes the
following representations and warranties to the Company as of the date hereof
and on the Closing Date:
(a) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement and to purchase the Debentures being sold
hereunder and to acquire the Warrants, (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by such Investor and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and (iii) this
Agreement constitutes, and upon execution, issuance and delivery thereof, the
Registration Rights Agreement and the Mortgage and Security Agreement will
constitute, valid and binding obligations of such Investor enforceable against
such Investor in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(b) No Conflicts. The execution, delivery and performance by such
Investor of this Agreement, the Mortgage and Security Agreement and the
Registration Rights Agreement, the performance by such Investor under the
Debentures and Warrants, and the consummation by such Investor of the
transactions contemplated hereby and thereby do not and will not (i) result in a
violation of such Investor's organizational documents, (ii) materially conflict
with any agreement, indenture or instrument to which such Investor is a party,
or (iii) result in a material violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Investor. Such Investor is not required to obtain any consent or authorization
of any governmental agency in order for it to perform its obligations under this
Agreement, the Registration Rights Agreement, the Mortgage and Security
Agreement, the Warrants or the Debentures.
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(c) Investment Representation. Such Investor is purchasing the
Debentures and the Warrants for its own account and not with a view to
distribution thereof in violation of any securities laws. Such Investor has no
present intention to sell the Debentures, Warrants, Common Shares or Warrant
Shares in violation of Federal or state securities laws and such Investor has no
present arrangement (whether or not legally binding) to sell the Debentures,
Warrants, Common Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, such Investor does
not agree to hold the Debentures, Warrants, Common Shares or Warrant Shares for
any minimum or other specific term and reserves the right to dispose of the
Debentures, Warrants, Common Shares or Warrant Shares at any time in accordance
with Federal and state securities laws applicable to such disposition.
(d) Accredited Investor. Such Investor is an "accredited investor" as
defined in Rule 501 of Regulation D promulgated under the Act. Such Investor has
such knowledge and experience in financial and business matters in general and
investments in particular that it is able to evaluate the merits and risks of an
investment in the Debentures and the Warrants and to protect its own interests
in connection with such investment. In addition (but without limiting the effect
of the Company's representations and warranties contained herein), such Investor
has received such information as it considers necessary or appropriate for
deciding whether to purchase the Debentures and the Warrants pursuant hereto.
(e) Rule 144. Such Investor understands that there is no public trading
market for the Debentures or the Warrants, that none is expected to develop, and
that the Debentures and the Warrants must be held indefinitely unless such
Debentures or Warrants are converted or exercised, as the case may be, and the
Common Shares or Warrant Shares, as the case may be, are registered under the
Act or an exemption from registration is available. Such Investor has been
advised or is aware of the provisions of Rule 144 promulgated under the Act.
(f) Brokers. Such Investor has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby.
(g) Not an Affiliate. Such Investor is not an officer, director or
"affiliate" (as that term in defined in Rule 405 of the Act) of the Company.
(h) Reliance by the Company. Such Investor understands that the
Debentures and Warrants are being offered and sold in reliance on a
transactional exemption from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Investor set forth herein in order to determine the applicability of
such exemptions and the suitability of such Investor to acquire the Debentures
and Warrants.
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ARTICLE III.
Covenants
Section 3.1 Registration and Listing; Effective Registration. Until
such time as no Debentures or Warrants are outstanding, the Company will cause
the Common Stock to continue at all times to be registered under Section 12(g)
of the Exchange Act, will comply in all material respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations. Until
such time as no Debentures or Warrants are outstanding, the Company shall
continue the listing or trading of the Common Stock on the Nasdaq NMS or one of
the other Approved Markets and shall comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the Nasdaq
NMS or such other Approved Market on which the Common Stock is listed and the
National Association of Securities Dealers ("NASD"). The Company shall cause the
Common Shares and the Warrant Shares to be listed on the Nasdaq NMS (or, if the
Common Stock is listed on another of the Approved Markets, on such other
Approved Market) no later than the registration of the Common Shares or the
Warrant Shares under the Act, and at all times shall continue such listing(s) on
one of the Approved Markets on which the Common Stock is listed. As used herein
and in the Registration Rights Agreement, the Debenture and the Warrants, the
term "Effective Registration" shall mean that (a) all registration obligations
of the Company pursuant to the Registration Rights Agreement and this Agreement
have been satisfied, (b) such registration is not subject to any suspension or
stop order, (c) the prospectus for each of the Common Shares issuable upon
conversion of the Debentures and the Warrant Shares issuable upon exercise of
the Warrants is current, (d) such Common Shares and Warrant Shares are listed
for trading on one of the Approved Markets and such trading has not bee
suspended for any reason, (e) none of the Company or any direct or indirect
subsidiary of the Company is subject to any bankruptcy, insolvency or similar
proceeding, and (f) no Interfering Event (as defined in Section 2(b) of the
Registration Rights Agreement) exists.
Section 3.2 Debentures on Conversion and Warrants on Exercise.
(a) Upon any conversion by an Investor (or then holder of Debentures)
of the Debentures pursuant to the terms thereof, the Company shall issue and
deliver to such Investor (or holder) within three (3) Trading Days of the Holder
Conversion Date (as defined in the Debenture) a new certificate or certificates
for the principal amount of Debentures which such Investor (or holder) has not
yet elected to convert but which are evidenced in part by the certificate(s)
submitted to the Company in connection with such conversion (with the principal
amount of and denomination of such new certificate(s) designated by such
Investor or holder).
(b) Upon any partial exercise by an Investor (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to such Investor
(or holder) within three (3) days of the date on which such Warrants are
exercised, a new Warrant or Warrants representing the number of adjusted Warrant
Shares, in accordance with the terms of Section 2 of the Warrants.
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Section 3.3 Replacement Debentures and Warrants.
(a) The certificate(s) representing the Debentures held by any Investor
(or then holder) may be exchanged by such Investor (or such holder) at any time
and from time to time for certificates with different denominations representing
an equal aggregate principal amount of Debentures, as requested by such Investor
(or such holder) upon surrendering the same. No service charge will be made for
such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of any Investor (or
then holder of the Warrants) at the office of the Company for other Warrants of
different denominations entitling such Investor (or the holder thereof) to
purchase in the aggregate the same number of Warrant Shares as are purchasable
under such Warrants. No service charge will be made for such transfer or
exchange.
Section 3.4 Expenses. The Company shall pay in immediately available
funds, at the Closing and promptly upon receipt of any further invoices relating
to same, all reasonable due diligence fees and expenses and attorneys' fees and
expenses of the Investors' Counsel, incurred by the Investors in connection with
the preparation, negotiation, execution and delivery of this Agreement, the
Registration Rights Agreement, the Mortgage and Security Agreement, the
Debentures, the Warrants and the related agreements and documents and the
transactions contemplated hereunder and thereunder (not to exceed $20,000 in the
aggregate). At Closing, the Company shall pay the amount due for such fees and
expenses (which may include fees and expenses estimated to be incurred for
completion of the transaction including post-closing matters). In the event such
amount is ultimately less than the actual fees and expenses, the Company shall
promptly pay such deficiency upon receipt of an invoice regarding same.
Section 3.5 Securities Compliance. The Company shall notify the SEC and
the Nasdaq NMS, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Debentures, the Registration Rights
Agreement and the Warrants, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation for the legal and valid issuance of the Debentures hereunder, the
Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
Section 3.6 Dividends or Distributions. So long as any Debentures or
Warrants remain outstanding, the Company agrees that it shall not (a) declare or
pay any dividends or make any distributions to any holder or holders of Common
Stock, or (b) purchase or otherwise acquire for value, directly or indirectly,
any Common Stock or other equity security of the Company.
Section 3.7 Notices. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
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Section 3.8 Use of Proceeds. The Company agrees that the proceeds
received by the Company from the sale of the Debentures hereunder shall be used
(i) to redeem a minimum of $3,500,000 principal amount of the Company's
outstanding 14% Convertible Notes due April 21, 2000 (the "Convertible Notes"),
(ii) to redeem all of the Company's outstanding Bridge Notes due June 22, ▇▇▇▇
(▇▇▇ "▇▇▇▇▇▇ ▇▇▇▇▇"), (▇▇▇) to pay off the Company's Mortgage Note held by the
Internal Revenue Service, and (iv) for working capital purposes.
Section 3.9 Private Placement of Company Securities.
(a)(i) For so long as any Debentures are outstanding, the Company shall
not sell or offer to sell any securities other than pursuant to a registration
statement under the Act without (x) first providing to all Investors still
holding Debentures a written notice (a "First Offer Notice") stating the price
at which it would like to sell such securities, the maximum number of securities
it would like to sell and the other material terms of the proposed sale and (y)
otherwise complying with the provisions of this Section 3.9(a).
(ii) The First Offer Notice shall contain an offer to sell to such
Investors such securities at the same price and on substantially the same
terms as are contained in the First Offer Notice.
(iii) Each of the Investors receiving a First Offer Notice shall
have 10 business days to indicate in writing (a "Purchase Notice") to the
Company whether any of them wishes to accept such offer as to all or less
than all of such securities. In the event that the Investors indicate that
they wish to purchase a total amount of securities in excess of the amount
described in the First Offer Notice, the amount of securities that each
Investor may purchase shall be proportionately reduced according to their
holdings at such time of Debentures.
(iv) If any of the Investors sends a Purchase Notice to the Company,
the closing for the sale of the securities to be purchased pursuant to a
Purchase Notice shall occur at the offices of the Company within 30 days
of the date of the Purchase Notice. The purchase price to be paid at such
closing shall be made in immediately available funds (if the purchase
price is for cash), and such payment shall be made against delivery of the
securities. The Company and the Investor shall make such representations,
warranties and other agreements customary for similar transactions at the
Closing as each party shall reasonably request, that in no event shall be
more onerous than those proposed in the transaction described in the First
Offer Notice.
(v) If any or all of the Investors do not timely send the Company
one or more Purchase Notices, the Company shall have 60 days after the
expiration of the 10 day period described in Section 3.9(a)(iii) in which
to sell to third parties such securities, in amounts, at prices and on
terms not more favorable than were contained in the First Offer Notice.
Promptly after any such sale, the Company shall provide to the Investors
such evidence of such sale as the Investors shall reasonably request. If
at the end of such 60 day period the Company has not completed the sale of
such securities, it shall no longer be permitted to sell such securities
pursuant to this Section 3.9(a) without again fully complying with the
provisions of this Section 3.9(a).
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(b) If at any time within twelve (12) months from the Closing Date the
Company sells or issues Common Stock (or other equity securities or rights
exercisable or exchangeable for, or convertible into, Common Stock or such other
equity securities) in a private placement at a discount greater (or in the
Investor's judgment more favorable to the purchaser thereof) than the discount
specified in Section 5(c) of the Debentures or at a ceiling price less than the
Conversion Price (as defined in the Debentures and as adjusted pursuant to the
terms thereof), then the Debentures will automatically (at the Investor's
request) be adjusted to provide for such greater discount or lower or more
favorable Conversion Price, as applicable.
Section 3.10 Reservation of Stock Issuable Upon Conversion of
Debentures and Upon Exercise of the Warrants. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the Debentures and
the exercise of the Warrants, free of preemptive rights, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Debentures an the full exercise of the Warrants,
and, if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the then outstanding
Debentures and the full exercise of the Warrants, the Company will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including without limitation engaging in best efforts to obtain the
requisite shareholder approval. Without limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of the Debentures and the exercise of the Warrants such number of
authorized but unissued shares of Common Stock that is at least equal to the
lesser of (i) 200% of the aggregate shares issuable upon conversion of the
Debentures and 100% of the aggregate shares issuable upon exercise of the
Warrants, which number may be reduced by the number of Common Shares and Warrant
Shares actually delivered pursuant to conversion of the Debentures or exercise
of the Warrants and shall be appropriately adjusted for any stock split, reverse
split, stock dividend or reclassification of the Common Stock and (ii) 19.9%
multiplied by the number of shares of Common Stock that are outstanding from
time to time. If the Company falls below the reserves specified in the
immediately preceding sentence and does not cure such noncompliance within 30
days of its start, then the Investors will be entitled to the discount
adjustments specified in Section 2(b)(i) of the Registration Rights Agreement.
If at any time the number of authorized but unissued shares of Common Stock is
not sufficient to effect the conversion of all the then outstanding Debentures
or the full exercise of the Warrants, the Investors shall be entitled to, inter
alia, the premium price redemption rights provided in the Registration Rights
Agreement.
Section 3.11 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article IV of this Agreement.
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Section 3.12 Form D; Blue Sky Laws; No Integrated Offering. The Company
agrees to file a Form D with respect to the Debentures, Warrants, Common Shares
and Warrant Shares, as required under Regulation D, and to provide a copy
thereof to each Investor promptly after such filing. The Company shall, on or
before each Closing Date, take such action as the Company shall have reasonably
determined is necessary to qualify the Debentures, Warrants, Common Shares and
Warrant Shares for sale to the Investors at the applicable Closing pursuant to
this Agreement under applicable securities or "blue sky" laws of the states of
the United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Investor on or prior to the
Closing Date. The Company will not undertake any offering of securities that
would be integrated with the offering of the Debentures, Warrants, Common Shares
and Warrant Shares.
Section 3.13 No Senior Indebtedness; Limitation on Issuance of Equity.
(a) The Debentures will be senior in all respects to any other
indebtedness of the Company outstanding as of the Closing Date, except (i) the
Convertible Notes which rank pari passu with the Debentures and (ii)
indebtedness which is secured by accounts receivable and inventory, provided
that the amount of such indebtedness shall not exceed the value of the accounts
receivable and inventory securing such indebtedness. So long as any Debentures
remain outstanding, the Compan agrees that neither the Company nor any direct or
indirect subsidiary of the Company shall create, incur, assume, guarantee,
secure or in any manner become liable in respect of any indebtedness, unless
junior to the Debentures in all respects, or, so long as the outstanding
principal amount of the Debentures is $3 million or greater, permit any liens,
claims or encumbrances to exist against the Company or any direct or indirect
subsidiary of the Company or any of their assets, except for (i) trade payable
incurred in the ordinary course of business consistent with past practices, (ii)
indebtedness which may be secured by accounts receivable and/or inventory, or by
the assets of the Company or its subsidiaries other than the Collateral (as
defined in the Mortgage and Security Agreement); provided that the amount of any
such indebtedness may not exceed the value of the assets securing such
indebtedness, and (iii) the Convertible Notes. The mortgage and security
interest granted to Investors pursuant to the Mortgage and Security Agreement
shall be released at such time as the outstanding principal amount of the
Debentures is less than $3 million.
(b) Until the Registration Statement (as defined in the Registration
Rights Agreement) has been declared effective by the SEC and the Common Shares
are subject to Effective Registration, neither the Company nor any of its
subsidiaries will issue any equity securities or instruments or rights
convertible into or exchangeable or exercisable for any equity securities.
Section 3.14 Margin Accounts. The Company agrees that it will obtain
from the directors and executive officers of the Company written commitments
covering the period from the date of this Agreement until a date which is 180
days following the date on which all Common Shares and Warrant Shares become
subject to Effective Registration, to the effect that they will not margin more
than 15% of each such individual's Common Stock or place more than 15% of each
individual's Common Stock in a situation which could result in an involuntary
sale thereof.
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Section 3.15 Delisting; Best Efforts. If a conversion of a Debenture
for Common Shares by an Investor could result in the Company being delisted from
the Nasdaq NMS for issuing in excess of 20% of its outstanding Common Stock to
the Investors without the approval of the Company's shareholders, then the
Company must redeem any and all Debentures covered by the applicable Conversion
Notice (as defined in the Debentures) and any and all Debentures that would, if
a Conversion Notice for all Debentures were then delivered, result in the
Company being subject to such delisting, at a price equal to 125% of the
Outstanding Principal Amount (as defined in the Debentures) plus accrued but
unpaid interest and default payments in effect at that time.
Section 3.16 Registration Rights. The Company shall file and use its
best efforts to cause to become effective, as promptly as possible, a
registration statement on Form S-3 under the Act (or in the event that the
Company becomes ineligible to use such form, such other form as the Company is
eligible to use under the Act) covering the resale of the Common Shares and the
Warrant Shares issuable upon the conversion of the Debentures and the exercise
of the Warrants, respectively, and shall take all action necessary to qualify
the Common Shares and the Warrant Shares under all applicable state securities
laws, all in accordance with the Registration Rights Agreement to be entered
into by the Company and the Investors at the Closing.
Section 3.17 Legends. Upon effectiveness of the Registration Statement
(as defined in the Registration Rights Agreement), the Common Shares and the
Warrant Shares and certificates evidencing the same shall at all times be free
of legends (except as otherwise provided herein or in the Debentures, Warrants,
or Registration Rights Agreement), "stop transfers", "stock transfer
restrictions" or other restrictions.
Section 3.18 Withholding. It is the intent of the Company that the
Debentures be treated as "registered obligations" under Section 871(h)(2)(B) of
the Internal Revenue Code of 1986, as amended (the "Code") and that the interest
payments thereon be treated as "portfolio interest" within the meaning of
Section 871(h) of the Code. Assuming no changes in the current law applicable
hereto, so long as the Subscriber (or any transferee thereof who is a "Holder"
under the Debenture) complies with th requirements for exemption from taxation
under the Code (including any compliance with any documentation requirements
reasonably requested by the Company to establish and support such exemption) and
the interest on the Debentures is not determined to be other than "portfolio
interest", the Company agrees that it shall not withhold federal income taxes in
respect of interest payments on the Debentures.
Section 3.19 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence and solvency of the
Company.
Section 3.20 Redemption of Convertible Notes; Repayment of Bridge Loan;
Payment of IRS Note. As part of the Closing, a portion of the Purchase Price
shall be used (i) to redeem a minimum of $3,500,000 aggregate principal amount
of the Convertible Notes, (ii) to repay the outstanding Bridge Notes and (iii)
to satisfy the Company's Mortgage Note held by the Internal Revenue Service.
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Section 3.21 Short Sales of Common Stock by Investors. For so long as
an Investor holds any Warrants or Debentures, such Investor shall not engage in
any short selling of Common Stock except for such short sales transactions as
such Investor reasonably deems is appropriate to hedge the risks to Investor of
holding Warrants.
ARTICLE IV.
Conditions to Closings
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Debentures. The obligation hereunder of the Company to issue and/or
sell the Debentures to the Investors at the Closing (unless otherwise specified)
is subject to the satisfaction, at or before the Closing, of each of the
applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor will be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which will be true and correct in all material respects as of such date).
(b) Performance by the Investors. Each Investor shall have performed
all agreements and covenants and satisfied all conditions required to be
performed or satisfied by it at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Debentures or the
Warrants.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Debentures. The obligation hereunder of each Investor to acquire
and pay for the Debentures at the Closing (unless otherwise specified) is
subject to the satisfaction, at or before the Closing, of each of the applicable
conditions set forth below. These conditions are for each Investor's benefit and
may be waived by each Investor at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
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(b) Performance by the Company. The Company shall have performed all
agreements and covenants and satisfied all conditions required to be performed
or satisfied by the Company at or prior to the Closing.
(c) Nasdaq NMS. From the date hereof to the Closing Date, trading in
the Company's Common Stock shall not have been suspended by the SEC, the Nasdaq
NMS (or other Approved Market) or the NASD, and trading in securities generally
as reported by the Nasdaq NMS (or other Approved Market) shall not have been
suspended or limited or minimum prices shall not have been established on
securities whose trades are reported by the Nasdaq NMS, and the Common Stock
shall not have been delisted from the Nasdaq NMS (or any other Approved Market
where they are currently listed), and the Company shall not have received any
notice (written or oral) from the Nasdaq NMS (or any other Approved Market where
they are currently listed) indicating that delisting of the Common Stock is
under consideration.
(d) No Injunction. No statute, rule, regulation, executive, judicial or
administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement, the Registration Rights Agreement
or the Mortgage and Security Agreement or the Debentures or the Warrants.
(e) Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of counsel to the Company addressing such matters as the
Investors may reasonably request and such other opinions, certificates and
documents as the Investors or their counsel shall reasonably require incident to
the Closing.
(f) Registration Rights Agreement. The Company and the Investors shall
have executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.
(g) Mortgage and Security Agreement. AIRI and the Investors shall have
executed and delivered the Mortgage and Security Agreement, which shall be
satisfactory in form and substance to the Investors, and any related UCC
financing statements.
(h) Adverse Changes. Since December 31, 1997, no event shall have
occurred which had or is likely to have, in the reasonable judgment of the
Investors, a Material Adverse Effect.
(i) Officer's Certificate. The Company shall have delivered to the
Investors a certificate in form and substance satisfactory to the Investors and
the Investors' Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Charter, By-Laws, good standing of and
authorizing resolutions of the Company.
(j) Debentures and Warrants. The Investors shall have received
certificates representing the Debentures and the Warrants in the form and
substance of Exhibit 1.1A and Exhibit 1.1B hereto.
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(k) Due Diligence. Each Investor shall have completed its financial,
accounting, operational and legal due diligence in a manner satisfactory to such
Investor in its sole discretion.
(l) Consents. The Company shall have received and delivered to the
Investors (i) the consent of all applicable lenders to the issuance of the
Debentures, including, without limitation, the consent of the holders of the
Convertible Notes, and (ii) the waiver of any and all pending events of default
(or pending events which with the lapse of time or notice or both would
constitute an event of default) thereunder.
(m) Satisfaction of Indebtedness; Evidence of Same. (i) As part of the
Closing, a portion of the Purchase Price shall be used (1) to redeem a minimum
of $3,500,000 aggregate principal amount of the Convertible Notes, (2) to repay
the outstanding Bridge Notes and (3) to satisfy the Company's Mortgage Note held
by the Internal Revenue Service.
(ii) The Company shall have delivered to the Investors documentation
satisfactory to the Investors that: (1) the Bridge Notes will be paid in
full immediately following the Closing and (2) $3,500,000 principal amount
of the Convertible Notes will be redeemed immediately following the
Closing.
(n) Title Policy. First American Title Insurance Company shall have
issued a lender's title insurance policy on a 1992 ALTA form, dated the Closing
Date, insuring Investors have a first priority mortgage on the real property
described on Exhibit A to the Mortgage and Security Agreement.
ARTICLE V.
Legend and Stock
The Company will issue one or more certificates representing the
Debentures and the Warrants in the name of the applicable Investor and in such
denominations to be specified by such Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Debentures and the
Warrants and any shares of Common Stock issued upon conversion or exercise
thereof initially shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
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The Company agrees to reissue the Debentures and the Warrants without
the legend set forth above at such time as (i) the holder thereof is permitted
to dispose of such Debentures and/or Warrants and Common Stock issuable upon
conversion or exercise thereof pursuant to Rule 144(k) under the Act, or (ii)
such Debentures and/or Warrants are sold to a purchaser or purchasers who (in
the opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to the Company and its counsel) are able to dispose of
such shares publicly without registration under the Act.
Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant to
conversion of the Debentures or Warrant Shares issued upon exercise of the
Warrants shall bear a legend in the same form as the legend indicated above.
Upon such Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) business days thereafter, issue new
certificates representing such Common Shares and Warrant Shares without such
legend. Any Common Shares issued pursuant to conversion of the Debentures or
Warrant Shares issued upon exercise of the Warrants after the Registration
Statement has become effective shall be free and clear of any legends, transfer
restrictions and stop orders. Notwithstanding the removal of such legend, each
Investor agrees to sell the Common Shares and Warrant Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to such Investor by
the Company) or in accordance with an exception from the registration
requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE VI.
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the unanimous written consent of
the Company and each of the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors of the Company or by any of the Investors at
any time if the Closing shall not have been consummated by the tenth business
day following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to ▇▇▇ for any
breach by the other party (or parties).
ARTICLE VII.
Miscellaneous
Section 7.1 Stamp Taxes. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Debentures and
the Warrants pursuant hereto, the Common Shares issued upon conversion of the
Debentures and the Warrant Shares issued upon exercise of the Warrants.
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Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The Company and each of the Investors (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court, the
New York State Courts and other courts of the United States sitting in New York
County, New York for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement and (ii) hereby waives, and agrees not to
assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. To the extent permitted by applicable law, the
Company and each of the investors consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process an notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by applicable law.
(c) The Company and each of the Investors hereby waives all rights to a
trial by jury.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with
the Registration Rights Agreement, the Mortgage and Security Agreement, the
Warrants, the Debentures and the agreements and documents executed in connection
herewith and therewith, contains the entire understanding of the parties with
respect to the matters covered hereby and thereby and, except as specifically
set forth herein or therein, neither the Company nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
American International Petroleum Corp.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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with copies to:
Snow ▇▇▇▇▇▇ ▇▇▇▇▇▇ P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
to the Investors:
To each Investor at the address and/or fax number
set forth on Schedule I of this Agreement.
with copies to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees but
excluding consequential damages) incurred as a result of such parties' breach of
any representation, warranty, covenant or agreement in this Agreement.
Section 7.6 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.7 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
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Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion), except that the Company may assign this
Agreement in connection with the sale of all or substantially all of its assets
provided that the Company is not released from any of its obligations hereunder,
such assignee assumes all obligations of the Company hereunder, and appropriate
adjustment of the provisions contained in this Agreement, the Registration
Rights Agreement, the Mortgage and Security Agreement, the Debentures and the
Warrants is made, in form and substance satisfactory to the Investors, to place
the Investors in the same position as they would have been but for such
assignment, in accordance with the terms of the Debentures and the Warrants. Any
Investor may assign this Agreement (in whole or in part) or any rights or
obligations hereunder without the consent of the Company in connection with any
sale or transfer of all or any portion of the Debentures or Warrants held by
such Investor, provided that such Investor may not assign this Agreement prior
to the Closing Date withou the Company's prior written consent except to an
affiliate or affiliates of such Investor.
Section 7.9 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to Agreements executed and to be performed entirely within such
State.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the Closing so long as any of the Debentures and Warrants remain
outstanding. If any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision,
provided that no such severability shall be effective if it were to materially
change the economic benefit of this Agreement to any party.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement. The
Company agrees that it will deliver a copy of any public announcement regarding
the matters covered by this Agreement, the Registration Rights Agreement, the
Mortgage and Security Agreement, the Debentures or the Warrants or any agreement
and document executed herewith and therewith to each Investor and any public
announcement including the name of an Investor to such Investor, reasonably in
advance of the release of such announcements.
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Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warranties, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 Like Treatment of Holders; Redemption. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of the Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or the Warrants, for or as
an inducement to, or in connection with the solicitation of, any consent, waiver
or amendment of any terms or provisions of the Debentures, this Agreement, the
Registration Rights Agreement, the Mortgage and Security Agreement or the
Warrants, unless such consideration is required to be paid to all holders of
Debentures and Warrants bound by such consent, waiver or amendment whether or
not such holders so consent, waive or agree to amend and whether or not such
holders tender their Debentures or Warrants for redemption, conversion or
exercise. The Company shall not, directly or indirectly, redeem any portion of
the Debentures unless such offer of redemption is made pro rata to all holders
of Debentures on identical terms.
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Section 7.16
No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN INTERNATIONAL PETROLEUM CORP.
By: _____________________________________
Name: __________________________
Title:__________________________
INVESTOR:
HALIFAX FUND, L.P.
By: The Palladin Group
Attorney-in-Fact and Investment
Advisor
By: ____________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
[Signature page to American International Petroleum Corp. Convertible
Debenture Purchase Agreement]
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