Exhibit 4.43
SECURITIES PURCHASE AGREEMENT
dated as of
April 24, 2001
by and between
American International Petroleum Corporation
as the Issuer,
and
GCA Strategic Investment Fund Limited
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS...........................................................................1
Section 1.1 Definitions.................................................................1
Section 1.2 Accounting Terms and Determinations.........................................7
ARTICLE II. PURCHASE AND SALE OF SECURITIES......................................................7
Section 2.1 Purchase and Sale of Convertible Debentures.................................7
Section 2.2 Purchase Price..............................................................8
Section 2.3 Closing and Mechanics of Payment............................................8
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES.............................................8
Section 3.1 Payment of Principal and Interest; Payment Mechanics........................8
Section 3.2 Payment of Interest.........................................................8
Section 3.3 Voluntary Prepayment........................................................8
Section 3.4 Mandatory Prepayments.......................................................9
Section 3.5 Prepayment Procedures.......................................................9
Section 3.6 Payment of Additional Amounts..............................................10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES......................................................11
Section 4.1 Organization and Qualification.............................................11
Section 4.2 Authorization and Execution................................................11
Section 4.3 Capitalization ............................................................12
Section 4.4 Governmental Authorization.................................................12
Section 4.5 Issuance of Shares.........................................................12
Section 4.6 No Conflicts...............................................................13
Section 4.7 Financial Information......................................................13
Section 4.8 Litigation.................................................................13
Section 4.9 Compliance with ERISA and other Benefit Plans..............................13
Section 4.10 Environmental Matters.....................................................14
Section 4.11 Taxes.....................................................................14
Section 4.12 Investments, Joint Ventures...............................................14
Section 4.13 Not an Investment Company.................................................14
Section 4.14 Full Disclosure...........................................................14
Section 4.15 No Solicitation; No Integration with Other Offerings......................14
Section 4.16 Permits...................................................................15
Section 4.17 Leases....................................................................15
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls...................15
Section 4.19 Public Utility Holding Company............................................15
Section 4.20 Intellectual Property Rights..............................................15
Section 4.21 Insurance.................................................................15
Section 4.22 Title to Properties.......................................................15
Section 4.23 Internal Accounting Controls..............................................15
Section 4.24 Reserved...................................................................16
Section 4.25 Foreign Practices.........................................................16
Section 4.26 Title to Certain Assets...................................................16
Section 4.27 Subsidiaries..............................................................16
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................16
Section 5.1 Purchaser..................................................................16
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES......................................17
Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase................17
Section 6.2 Conditions to the Company's Obligations....................................19
ARTICLE VII. AFFIRMATIVE COVENANTS..............................................................19
Section 7.1 Information.................................................................19
Section 7.2 Payment of Obligations.....................................................20
Section 7.3 Maintenance of Property; Insurance..........................................20
Section 7.4 Maintenance of Existence....................................................20
Section 7.5 Compliance with Laws........................................................20
Section 7.6 Inspection of Property, Books and Records..................................20
Section 7.7 Investment Company Act.....................................................20
Section 7.8 Use of Proceeds.............................................................20
Section 7.9 Compliance with Terms and Conditions of Material Contracts.................21
Section 7.10 Reserved Shares and Listings..............................................21
Section 7.11 Transfer Agent Instructions...............................................21
Section 7.12 Maintenance of Reporting Status; Supplemental Information.................22
Section 7.13 Form D; Blue Sky Laws.....................................................22
Section 7.14 Certain Payments...........................................................22
Section 7.15 Amendment to Existing Warrants.............................................22
Section 7.16 Amendment to Existing Bridge Notes Issued to Purchaser.....................22
ARTICLE VIII. NEGATIVE COVENANTS................................................................22
Section 8.1 Limitations on Debt or Other Liabilities...................................22
Section 8.2 Transactions with Affiliates...............................................23
Section 8.3 Merger or Consolidation....................................................23
Section 8.4 Limitation on Asset Sales..................................................23
Section 8.5 Restrictions on Certain Amendments.........................................23
Section 8.6 Prohibition on Discounted Equity Offerings.................................24
Section 8.7 Limitation on Stock Repurchases............................................24
ARTICLE IX. RESTRICTIVE LEGENDS.................................................................24
Section 9.1 Restrictions on Transfer...................................................24
Section 9.2 Notice of Proposed Transfers...............................................24
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES..............................................25
Section 10.1 Liquidated Damages........................................................25
Section 10.2 Conversion Notice.........................................................25
Section 10.3 Conversion Limit..........................................................25
Section 10.4 Registration Rights.......................................................26
Section 10.5 Restriction on Issuance of Securities.....................................26
ARTICLE XI. ADJUSTMENT OF FIXED PRICE...........................................................27
Section 11.1 Reorganization............................................................27
Section 11.2 Share Reorganization......................................................27
Section 11.3 Rights Offering...........................................................28
Section 11.4 Special Distribution......................................................29
Section 11.5 Capital Reorganization.....................................................30
Section 11.6 Purchase Price Adjustments................................................30
Section 11.7 Adjustment Rules..........................................................30
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Section 11.8 Certificate as to Adjustment..............................................30
Section 11.9 Notice to Holders.........................................................30
ARTICLE XII. EVENTS OF DEFAULT..................................................................31
Section 12.1 Events of Default.........................................................31
Section 12.2 Powers and Remedies Cumulative............................................32
ARTICLE XIII. MISCELLANEOUS.....................................................................33
Section 13.1 Notices...................................................................33
Section 13.2 No Waivers; Amendments....................................................33
Section 13.3 Indemnification...........................................................35
Section 13.4 Expenses: Documentary Taxes..............................................35
Section 13.5 Payment...................................................................35
Section 13.6 Successors and Assigns....................................................35
Section 13.7 Brokers...................................................................35
Section 13.8 New York Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent......................................................35
Section 13.9 Entire Agreement..........................................................36
Section 13.10 Survival; Severability....................................................36
Section 13.12 Reporting Entity for the Common Stock. ..................................36
Section 13.13 Publicity.................................................................36
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LIST OF SCHEDULES
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 4.27 Subsidiaries
Schedule 7.8 Use of Proceeds
Schedule 7.16 Bridge Notes Issued to Purchaser
Schedule 8.2 Transactions with Affiliates
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LIST OF EXHIBITS
Exhibit A Form of Convertible Debentures
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer's Certificate
Exhibit E Form of Escrow Agreement
Exhibit F Form of Common Stock Purchase Warrant
Exhibit G Pledge and Security Agreement
Exhibit H Mortgage and Security Agreement
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SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of April 24, 2001, between American International
Petroleum Corporation (the "Company"), a Nevada corporation, and GCA Strategic
Investment Fund Limited ("Purchaser"), a Bermuda Corporation.
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser
desires to purchase from the Company, $3,340,000 aggregate principal amount of
the Company's 3% Convertible Debentures due April 24, 2002 (the "Convertible
Debentures"), with terms and conditions as set forth in the form of Convertible
Debenture attached hereto as Exhibit A;
WHEREAS, the Convertible Debentures will be convertible into shares of the
Company's common stock, $0.08 par value per share (the "Common Stock");
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchaser a
warrant to purchase 1,500,000 shares of Common Stock upon the Closing (as
defined herein) on the terms and conditions described in the form of the common
stock purchase warrant attached hereto as Exhibit F (the "Warrants"); and
WHEREAS, Purchaser will have certain registration rights with respect to
such shares of Common Stock issuable as interest under, and upon conversion of,
the Convertible Debentures (the "Debenture Shares") and upon exercise of the
Warrants (the "Warrant Shares," the Debenture Shares and the Warrant Shares
being collectively referred to herein as the "Conversion Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit B;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1. DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Additional Shares of Common Stock" has the meaning set forth in Section
11.6.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
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"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the
Company; (ii) any sale or other disposition (other than by reason of death or
disability) to any Person by any executive officers and/or employee directors of
the Company within ten Trading Days following the dates on which the
Registration Statement Amendment and the Registration Statement (as such terms
are defined in Section 10.4 of this Agreement) are declared effective by the
Commission. (iii) individuals constituting the Board of Directors of the Company
on the date hereof (together with any new Directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of at least 50.1% of the Directors still in office who
are either Directors as of the date hereof or whose election or nomination for
election was previously so approved), cease for any reason to constitute at
least two-thirds of the Board of Directors of the Company then in office.
"Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such securities as reported in the "Pink Sheets" by the
National Quotation Bureau, Inc. If the lowest closing bid price cannot be
calculated for such security on such date on any of the foregoing bases, the
lowest closing bid price of such security on such date shall be the fair market
value as mutually determined by Purchaser and the Company for which the
calculation of the closing bid price requires, and in the absence of such mutual
determination, as determined by the Board of Directors of the Company in good
faith.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $0.08 par value per share, of the
Company.
"Company" means American International Petroleum Corporation, a Nevada
corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
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"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible
Debenture by the holder thereof to the Company as specified in each Convertible
Debenture.
"Conversion Price" has the meaning set forth in the Convertible Debentures.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Debentures" means the Company's 3% Convertible Debentures due
April 24, 2002 substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
3
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 13.4.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"Formula Price" has the meaning set forth in Section 3.4 (a).
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at
any time thereafter, the holders of more than 50% in aggregate principal amount
of the 3% Convertible Debentures due April 24, 2002 outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Maturity Date" shall mean the date of maturity of the Convertible
Debentures.
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"Maximum Number of Shares" shall mean that percentage that the Company may
issue without shareholder approval under the applicable rules of the National
Market or the applicable OTC Bulletin Board or equivalent entity, of the then
issued and outstanding shares of Common Stock of the Company as of the
applicable date of determination, or such greater number of shares as the
shareholders of the Company may have previously approved.
"Mortgage" means the agreement between St. Marks Refinery, Inc., the
Company and Purchaser dated the date hereof substantially in the form of Exhibit
H attached hereto.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the
New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Debenture.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the Warrant.
"Officer's Certificate" shall mean a certificate executed by the president,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock Company, government
(or any agency or political subdivision thereof) or other entity of any kind.
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"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
Group for employees of any member of the ERISA Group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchaser" means GCA Strategic Investment Fund Limited and its successors
and assigns, including holders from time to time of the Convertible Debentures.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section 10.4(e).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" shall have the meaning set forth in Section 7.1(a).
"Security Agreement" means the Pledge and Security Agreement between the
Company and Purchaser dated the date hereof substantially in the form of Exhibit
G attached hereto.
"Securities" means the Convertible Debentures, the Warrants and, as
applicable, the Conversion Shares.
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"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Debentures and the completion of the
offering (including without limitation the payment of any fees or expenses in
connection therewith), which such Solvency Certificate shall be in the form of
Exhibit C attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" has the meaning set forth in Section 4.27.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Convertible Debentures,
the Warrant, the Registration Rights Agreement, the Security Agreement, the
Mortgage and the other agreements contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant substantially in the form
set forth in Exhibit F hereto.
Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company's independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II. PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale of Convertible Debentures.
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the
Company, Convertible Debentures in the aggregate principal amount of Three
Million Three Hundred Forty Thousand Dollars ($3,340,000.00).
7
(b) In connection with the Purchaser's agreement to purchase the
Convertible Debentures specified in this Article II, the Company shall issue and
deliver to the Purchaser on the Closing Date a Warrant to purchase an aggregate
of 1,500,000 shares of Common Stock.
Section 2.2 Purchase Price. The purchase price for the Convertible
Debentures on the Closing Date (as defined herein) shall be 95% of the principal
amount thereof. No part of the purchase price of the Convertible Debentures
shall be allocated to the Warrant. Therefore, the aggregate consideration
payable by Purchaser to the Company for the Convertible Debentures and Warrants
on the Closing Date shall be Three Million One Hundred Seventy Three Thousand
Dollars ($3,173,000.00) (the "Purchase Price").
Section 2.3 Closing and Mechanics of Payment.
(a) The Purchase Price, less any transaction fees set forth herein and in
the Transaction Agreements, shall be paid on the Closing Date by wire transfer
of immediately available funds.
(b) The Convertible Debentures and Warrants issued on the Closing Date
shall be dated the date hereof and interest shall begin to accrue on the
Convertible Debentures as of the date hereof.
ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES
Section 3.1 Payment of Principal and Interest; Payment Mechanics. The
Company will pay all amounts due on each Convertible Debenture by the method and
at the address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Convertible Debenture or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Debenture, the holder shall surrender the Convertible Debenture
for cancellation, reasonably promptly after any such request, to the Company at
its principal executive office. Prior to any sale or other disposition of any
Convertible Debenture, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Debenture to the Company in
exchange for a new Convertible Debenture or Convertible Debentures. The Company
will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Convertible Debenture purchased under this Agreement and that
has made the same agreement relating to this Convertible Debenture as Purchaser
has in this Section 3.1; provided that such transferee is an "accredited
investor" under Rule 501 of the Securities Act.
Section 3.2 Payment of Interest. Interest shall accrue on the outstanding
principal amount of each Convertible Debenture and shall be payable as specified
therein.
Section 3.3 Voluntary Prepayment. For so long as no Event of Default shall
have occurred and is continuing, the Company may, at its option, repay, in whole
or in part, the Convertible Debentures, in accordance with Sections 3 and 5.1 of
Exhibit A hereto, following at least five (5) Business Days prior written notice
to Purchaser (the expiration date of such five (5) Business Day period being
referred to as the "prepayment date"); provided, however, that if such date is
not a Business Day, the prepayment date shall be the next Business Day
thereafter.
8
Section 3.4 Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change in Control of the Company, (ii) a
transfer of all or substantially all of the assets of the Company to any Person
in a single transaction or series of related transactions, (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger which is
effected solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock) (each of items (i), (ii) and
(iii) being referred to as a "Sale Event"), or (iv) the occurrence of a
Registration Default which continues uncured for a period of twenty (20) days,
then, in each case, the Company shall, upon request of the Majority Holders,
redeem the Convertible Debentures and Warrants, subject to the provisions of
Section 5 of the Convertible Debentures and Section 13 of the Warrants,
respectively. The redemption price payable upon any such redemption shall be the
Redemption Price in Section 5 of the Convertible Debentures and Section 13 of
the Warrants, respectively (referred to herein as the "Formula Price").
(b) At the option of Purchaser, upon the consummation of one or more
Financings except a Permitted Financing, the Company shall use 25% of the Net
Cash Proceeds therefrom (unless such Net Cash Proceeds from each such Financing
is less than $250,000) to redeem the Convertible Debentures.
(c) Upon the issuance of the Maximum Number of Shares and the failure
within 40 days of such issuance to obtain shareholder approval to issue
additional shares of Common Stock (the "Redemption Event"), the Company shall
redeem the outstanding balance of each Convertible Debenture and Warrant for the
Formula Price.
(d) In the event that there is an insufficient number of authorized,
issuable, unlegended and freely tradeable shares of Common Stock registered
under the Registration Statement filed by the Company to fully convert the
Convertible Debentures and exercise all Warrants held by Purchaser and sell such
shares issued thereon, then the Company shall immediately file an amendment to
the then current registration statement to register a sufficient number of such
shares to convert said Convertible Debentures and Warrants. Upon the failure
within twenty (20) Trading Days to register a sufficient number of such shares,
the Company shall redeem the outstanding balance of each Convertible Debenture
and Warrant for the Formula Price. In addition, failure of the Company to
register a sufficient number of such shares to fully convert said Convertible
Debentures and exercise such Warrants shall be a Registration Default under
Section 10.4(e) from the date of the Notice of Conversion to the date of the
earlier of (i) the redemption of the outstanding balance of the Convertible
Debentures and exercise of all such Warrants or (ii) full conversion of the
Convertible Debentures and exercise of all such Warrants.
Section 3.5 Prepayment Procedures
(a) Any permitted prepayment or redemption of the Convertible Debentures
and Warrants, as applicable pursuant to Sections 3.3 or 3.4 above shall be
deemed to be effective and consummated (for purposes of determining the Formula
Price and the time at which Purchaser shall thereafter not be entitled to
deliver a Notice of Conversion for the Convertible Debentures) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment date"
specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of consummation
of the applicable Sale Event or the Registration Default;
(iii) A redemption pursuant to Section 3.4(b), three (3) Business Days
following the date of consummation of the applicable Financing (meaning
closing and funding); and
(iv) A redemption pursuant to Section 3.4(c), the date specified in
each Convertible Debenture.
9
(b) On the Maturity Date and on the effective date of a prepayment or
redemption of the Convertible Debentures and Warrants as specified in Section
3.5(a) above, the Company shall deliver by wire transfer of funds the
prepayment/redemption price to Purchaser of the Convertible Debentures and
Warrants subject to prepayment or redemption. Should Purchaser not receive
payment of any amounts due on prepayment or redemption of its Convertible
Debentures and Warrants by reason of the Company's failure to make payment at
the times prescribed above for any reason, the Company shall pay to the
applicable holder on demand (x) interest on the sums not paid when due at an
annual rate equal to the greater of (I) the maximum lawful rate and (II) 18% per
annum, compounded at the end of each thirty (30) days, until the applicable
holder is paid in full and (y) all costs of collection, including, but not
limited to, reasonable attorneys' fees and costs, whether or not suit or other
formal proceedings are instituted.
(c) The Company shall select the Convertible Debentures and Warrants to be
redeemed in any redemption in which not all of the Convertible Debentures and
Warrants are to be redeemed so that the ratio of the Convertible Debentures and
Warrants of each holder selected for redemption to the total Convertible
Debentures and Warrants owned by that holder shall be the same as the ratio of
all such Convertible Debentures and Warrants selected for redemption bears to
the total of all then outstanding Convertible Debentures and Warrants. Should
any Convertible Debentures and Warrants required to be redeemed under the terms
hereof not be redeemed solely by reason of limitations imposed by law, the
applicable Convertible Debentures and Warrants shall be redeemed on the earliest
possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by Purchaser (including delivery via
telecopy) to the Company prior to the (x) Maturity Date or (y) effective date of
a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above), shall be honored
by the Company and the conversion of the Convertible Debentures shall be deemed
effected on the Conversion Date. In addition, between the effective date of a
voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment pursuant
to Section 3.4 as specified in Section 3.5(a) above and the date the Company is
required to deliver the redemption proceeds in full to Purchaser, Purchaser may
deliver a Notice of Conversion to the Company. Such notice will be (x) of no
force or effect if the Company timely pays the prepayment or redemption proceeds
to Purchaser when due or (y) honored on or as of the date of the Notice of
Conversion if the Company fails to timely pay the prepayment or redemption
proceeds to Purchaser when due.
Section 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the Convertible
Debentures to Purchaser and each "qualified assignee" thereof shall be made free
and clear of and without deduction or withholding for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto (all such taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to be
deducted or withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of any
sum payable under the Convertible Debentures (i) the holders of the Convertible
Debentures subject to such Taxes shall have the right, but not the obligation,
for a period of thirty (30) days commencing upon the day it shall have received
written notice from the Company that it is required to withhold Taxes to
transfer all or any portion of the Convertible Debentures to a qualified
assignee to the extent such transfer can be effected in accordance with the
other provisions of this Agreement and applicable law; (ii) the Company shall
make such deductions or withholdings; (iii) the sum payable shall be increased
as may be necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this Section 3.6) Purchaser receives an amount equal to the sum it would
have received if no such deduction or withholding had been made; and (iv) the
Company shall forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with
10
applicable. A "qualified assignee" of a Purchaser is a Person that is organized
under the laws of (i) the United States or (II) any jurisdiction other than the
United States or any political subdivision thereof and that (y) represents and
warrants to the Company that payments of the Company to such assignee under the
laws in existence on the date of this Agreement would not be subject to any
Taxes and (z) from time to time, as and when requested by the Company, executes
and delivers to the Company and the Internal Revenue Service forms, and provides
the Company with any information necessary to establish such assignee's
continued exemption from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement other than Taxes payable solely as a result of the
transfer from Purchaser to a Person of any Security.
(c) The Company shall indemnify Purchaser, or qualified assignee, for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
3.6) paid by Purchaser, or qualified assignee, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
Purchaser or assignee makes written demand therefor. A certificate as to the
amount of such Taxes or Other Taxes submitted to the Company by Purchaser or
qualified assignee shall be conclusive evidence of the amount due from the
Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the Company will
furnish to Purchaser the original or a certified copy of a receipt evidencing
payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating that it is a
non-U.S. person, together with any additional tax forms which may be required
under the Code, as amended after the date hereof, to allow interest payments to
be made to it without deduction.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser as of the Closing Date the
following:
Section 4.1 Organization and Qualification. The Company and each Subsidiary
is a corporation (or other legal entity) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with full
power and authority to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company and each subsidiary is qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect. A "Material Adverse
Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
Section 4.2 Authorization and Execution.
(a) The Company and each Subsidiary, as applicable, has all requisite
corporate power and authority to enter into and perform each Transaction
Agreement and to consummate the transactions contemplated hereby and thereby and
to issue the Securities in accordance with the terms hereof and thereof.
11
(b) The execution, delivery and performance by the Company and each
Subsidiary, as applicable, of each Transaction Agreement and the issuance by the
Company of the Securities, have been duly and validly authorized by the Board of
Directors of the Company and each Subsidiary, as applicable, and no further
consent or authorization of the Company or its Subsidiaries, their Board of
Directors or the Company's shareholders is required.
(c) This Agreement has been duly executed and delivered by the Company.
(d) This Agreement constitutes, and upon execution and delivery thereof by
the Company, each of the Transaction Agreements will constitute, a valid and
binding agreement of the Company and each Subsidiary, as applicable, in each
case enforceable against the Company and each Subsidiary, as applicable, in
accordance with its respective terms.
Section 4.3 Capitalization . As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and except as set forth on Schedule 4.3 no other shares of capital stock
of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
shareholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Convertible Debentures or Conversion Shares. The Company has
furnished to Purchaser true and correct copies of the Company's Corporate
Documents, and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
Section 4.4 Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Conversion Shares issuable
upon conversion of the Convertible Debentures and the Warrants, if applicable,
and (d) the filing of a "Form D" as described in Section 7.13 below.
Section 4.5 Issuance of Shares. Upon conversion in accordance with the
terms of the Convertible Debentures and exercise of the Warrants, the Conversion
Shares shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any Taxes, Liens and charges with respect to
issuance other than those created by Purchaser and shall not be subject to
preemptive rights or similar rights of any other shareholders of the Company.
Assuming the representations and warranties of Purchaser herein are true and
correct in all material respects, each of the Securities will have been issued
in material compliance with all applicable U.S. federal and state securities
laws. The Company understands and acknowledges that, in certain circumstances,
the issuance of Conversion Shares could dilute the ownership interests of other
shareholders of the Company. The Company further
12
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Debentures and exercise of the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
Section 4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation known by the
Company to be applicable to it, (ii) the Company Corporate Documents, (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary except those created by the Transaction Agreements. The Company and
each Subsidiary is in compliance with and conforms to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any instrumentality
thereof having jurisdiction over the conduct of its businesses or the ownership
of its properties, except where such failure would not have a Material Adverse
Effect.
Section 4.7 Financial Information. Since December 31, 2000 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and to the knowledge
of the Company no fact or condition exists or is contemplated or threatened
which might cause such a change in the future. The audited consolidated balance
sheets of the Company and its Subsidiaries for the period ending December 31,
2000, and the related consolidated statements of income, changes in
shareholders' equity and changes in cash flows for the periods then ended,
including the footnotes thereto, except as indicated therein, (i) complied in
all material respects with applicable accounting requirements and (ii) have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated, except that the unaudited financial statements do not contain notes
and may be subject to normal audit adjustments and normal annual adjustments.
Such financial statements fairly present the financial condition of the Company
and its Subsidiaries at the dates indicated and the consolidated results of
their operations and cash flows for the periods then ended and, except as
indicated therein, reflect all claims against and all Debts and liabilities of
the Company and its Subsidiaries, fixed or continency required to be reflected
therein.
Section 4.8 Litigation. Except as set forth on Schedule 4.8, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could be reasonably expected to have a
Material Adverse Effect or which challenges the validity of any Transaction
Agreements.
Section 4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
13
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
Section 4.10 Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
Section 4.11 Taxes. All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
Section 4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no other direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
Section 4.13 Not an Investment Company. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
Section 4.14 Full Disclosure. The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
Section 4.15 No Solicitation; No Integration with Other Offerings. No form
of general solicitation or general advertising was used by the Company or, to
the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to
14
Purchaser and their Affiliates) will sell or offer for sale any such security
to, or solicit any offers to buy any such security from, or otherwise approach
or negotiate in respect thereof with, any Person or Persons so as thereby to
cause the issuance or sale of any of the Securities to be in violation of any of
the provisions of Section 5 of the Securities Act. The issuance of the
Securities to Purchaser will not be integrated with any other issuance of the
Company's securities (past, current or future) which requires stockholder
approval under the rules of the any National Market.
Section 4.16 Permits. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit, except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.
Section 4.17 Leases. Neither the Company nor any Subsidiary is a party to
any capital lease obligation with a value greater than $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 during the
life of such lease.
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There
are no liabilities of the Company or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
would reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
Section 4.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
Section 4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
to the knowledge of the Company, patents, trademarks, trade names, copyrights,
technology, know-how and processes (collectively, "Intellectual Property") used
in, or necessary for the conduct of its business; no claims have been asserted
by any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of Company's and its Subsidiaries' knowledge, there is no
valid basis for any such claim and the use of such Intellectual Property by the
Company and its Subsidiaries will not infringe upon the rights of any Person.
Section 4.21 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
Section 4.22 Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7, free and clear of all Liens.
The property designated as collateral in the Mortgage is owned by the Company or
its Subsidiaries free and clear of all Liens except as set forth therein.
Section 4.23 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements'
general or specific
15
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 4.24 Reserved.
Section 4.25 Foreign Practices. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of any
law, rule or regulation.
Section 4.26 Title to Certain Assets. The Company owns the assets
designated as collateral and described on Exhibit A to that certain Security
Agreement, free and clear of any lien.
Section 4.27 Subsidiaries. Except for the directly and indirectly owned
subsidiaries of the Company as set forth on Schedule 4.27 (the "Subsidiaries"),
the Company does not own or hold any shares of stock or any other security or
interest in any other equity, or any rights to acquire any such security or
interest. Except for the Subsidiaries disclosed on Schedule 4.27, the Company
has never had any subsidiary corporation of which the securities having a
majority of voting power in electing the board of directors or representing a
majority of the economic interests were, at the time as of which any
determination was made, owned by the Company either directly or indirectly. The
number of authorized, issued and outstanding shares of capital stock of the
Subsidiaries is as set forth on Schedule 4.27. All outstanding shares of the
Subsidiaries capital stock are validly issued, fully paid and nonassessable, are
free from, and were not issued in violation of any preemptive rights, and are
owned of record and beneficially by the Company.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1 Purchaser. Purchaser hereby represents and warrants to the
Company that:
(a) Purchaser is an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act and the Securities to be acquired by it pursuant to
this Agreement are being acquired for its own account and, as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and state
securities law; provided that the disposition of Purchaser's property shall at
all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant thereto are within Purchaser's corporate or
partnership powers, as applicable, and have been duly and validly authorized by
all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by Purchaser;
(d) the execution and delivery by Purchaser of the Transaction Agreements
to which it is a party does not, and the consummation of the transactions
contemplated hereby and thereby will not, contravene or constitute a default
under or violation of (i) any provision of applicable law or regulation, or (ii)
any agreement, judgment, injunction, order, decree or other instrument binding
upon Purchaser;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as specified
in this Agreement or the remaining Transaction Agreements;
(f) this Agreement constitutes a valid and binding agreement of Purchaser
enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency or similar laws affecting the enforceability of creditors rights
generally and (ii) equitable principles of general applicability;
(g) Purchaser has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Securities and Purchaser is capable of bearing the economic risks of such
investment;
16
(h) Purchaser is knowledgeable, sophisticated and experienced in business
and financial matters; Purchaser has previously invested in securities similar
to the Securities and fully understands the limitations on transfer described
herein; Purchaser has been afforded access to information about the Company and
the financial condition, results of operations, property, management and
prospects of the Company sufficient to enable it to evaluate its investment in
the Securities; Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and the risks of investing in the
Securities; and Purchaser has been afforded the opportunity to obtain such
additional information which the Company possesses or can acquire that is
necessary to verify the accuracy and completeness of the information given to
Purchaser concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall not
limit Purchaser's ability to rely thereon;
(i) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
Purchaser in which any employee benefit plan (or its related trust) has any
interest; and
(j) Purchaser is a corporation organized under the laws of Bermuda.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 6.1 Conditions Precedent to Purchaser's Obligations to Purchase.
The obligation of Purchaser hereunder to purchase the Convertible Debentures at
the Closing is subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, provided that these conditions are for
Purchaser's sole benefit and may be waived by Purchaser at any time in its sole
discretion:
(a) The Company and each Subsidiary, as required, shall have duly
executed this Agreement, the Warrant, the Registration Rights Agreement,
and the Security Agreement, the Mortgage and all other appropriate
financing statements, and delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser a duly executed
certificate representing the Convertible Debenture in accordance with
Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company and its
Subsidiaries contained in each Transaction Agreement shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specified date) and the Company and its
Subsidiaries shall have performed, satisfied and complied with all
covenants, agreements and conditions required by such Transaction
Agreements to be performed, satisfied or complied with by them at or prior
to the Closing Date. Purchaser shall have received an Officer's Certificate
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by Purchaser, including but not limited to
certificates with respect to the Company and Subsidiary Corporate
Documents, resolutions relating to the transactions contemplated hereby and
the incumbencies of certain officers and Directors of the Company. The form
of such certificate is attached hereto as Exhibit -------- D;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities and
the consummation of the transactions contemplated by the Transaction
Agreements;
17
(f) All applicable waiting periods in respect to the issuance and sale
of the Securities shall have expired without any action having been taken
by any competent authority that could restrain, prevent or impose any
materially adverse conditions thereon or that could seek or threaten any of
the foregoing;
(g) No law or regulation shall have been imposed or enacted that, in
the judgment of Purchaser, could adversely affect the transactions set
forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchaser could reasonably have any such effect;
(h) Purchaser shall have received an opinion, dated the Closing Date,
of counsel to the Company, in form and substance satisfactory to Purchaser;
(i) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of Purchaser;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since December 31,
2000;
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or Purchaser hereunder;
(m) Purchaser shall have confirmed the receipt of the Convertible
Debentures and the Warrants to be issued, duly executed by the Company in
the denominations and registered in the name of Purchaser;
(n) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which
Purchaser reasonably deems material in connection with the purchase of the
Securities;
(o) As of the Closing Date, no Default or Event of Default shall have
occurred and be continuing;
(p) Company shall have executed and delivered the Agreement described
in Section 7.15 of this Agreement; and
(q) An Escrow Agreement, substantially in the form of Exhibit E, by
and between the Company and Purchaser, and accepted by the Law Offices of
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ as escrow agent (the "Escrow Agent"), shall have been duly
executed by the said parties.
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Section 6.2 Conditions to the Company's Obligations. The obligations of the
Company to issue and sell the Securities to Purchaser pursuant to this Agreement
are subject to the satisfaction, at or prior to any Closing Date, of the
following conditions:
(a) The representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on the Closing Date and
Purchaser shall have performed and complied in all material respects with
all agreements required by this Agreement to be performed or complied with
by Purchaser at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by Purchaser;
(d) The Company shall have received payment of Purchase Price, less
the Expense Reimbursement Fee and any escrow agent fee.
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
Section 7.1 Information. The Company will deliver to each holder of the
Convertible Debentures:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q
and 8-K (or other equivalents) which the Company or any Subsidiary has
filed with the Commission (collectively, "SEC Reports");
(b) simultaneously with the delivery of each item referred to in
clause (a) above, a certificate from the chief financial officer of the
Company stating that no Default or Event of Default has occurred and is
continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting forth
the details of such Default or Event of Default and the action which the
Company is taking or proposes to take with respect thereto;
(c) within two (2) days after any officer of the Company obtains
knowledge of a Default or Event of Default, or that any Person has given
any notice or taken any action with respect to a claimed Default hereunder,
a certificate of the chief financial officer of the Company setting forth
the details thereof and the action which the Company is taking or proposed
to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(e) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible
Debentures under Section 3.4, notice thereof together with a summary of all
material terms thereof and copies of all documents and instruments
associated therewith;
19
(f) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the sum of (i) 1.5 times the maximum
number of Conversion Shares issuable pursuant to the Transaction
Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any Subsidiary is a party in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought.
Section 7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate proceedings and
will maintain, in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
Section 7.3 Maintenance of Property; Insurance. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. In
addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
Section 7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
Section 7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
Section 7.6 Inspection of Property, Books and Records. The Company will,
and will cause each Subsidiary to, keep proper books of record and account in
which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser' Representative or an affiliate
thereof, as representatives of Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants (and by this provision the Company
authorizes its independent public accountants to disclose and discuss with
Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
in the presence of a representative of the Company; provided, however, that such
discussions will not result in any unreasonable expense to the Company, without
Company consent), all at such reasonable times.
Section 7.7 Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
Section 7.8 Use of Proceeds. The proceeds from the issuance and sale of the
Convertible Debentures by the Company shall be used in accordance with Schedule
7.8 attached hereto. None of the proceeds from the issuance and sale of the
Convertible Debentures by the Company pursuant to this Agreement will be used
directly or
20
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
Section 7.9 Compliance with Terms and Conditions of Material Contracts. The
Company will, and will cause each Subsidiary to, comply, in all respects, with
all terms and conditions of all material contracts to which it is subject.
Section 7.10 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Convertible Debentures and exercise
of the Warrants and issuance of the Conversion Shares (based on the conversion
price of the Convertible Debentures in effect from time to time and the exercise
price of the Warrants, respectively) (the "Reserved Amount"). The Company shall
not reduce the Reserved Amount without the prior written consent of Purchaser.
With respect to all Securities which contain an indeterminate number of shares
of Common Stock issuable in connection therewith (such as the Convertible
Debentures), the Company shall include in the Reserve Amount, no less than two
(2) times the number of shares that is then actually issuable upon conversion or
exercise of such Securities. If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
issued or issuable upon conversion of the Convertible Debentures and exercise of
the Warrants, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, either (x) calling a special meeting of shareholders to authorize
additional shares, in the case of an insufficient number of authorized shares or
(y) in lieu thereof, consummating the immediate repurchase of the Convertible
Debentures and the Warrants contemplated in Sections 3.4(c) and 10.3 hereof,
respectively. In addition to the foregoing, the Company shall undertake to
authorize an additional 50,000,000 shares of its Common Stock at its Annual
Meeting of Shareholders not later than July 15, 2001, in the event the number of
shares included in the Company's Registration Statement No. 333-55484 is not
sufficient to cover the resale of all of the Conversion Shares pursuant to this
Agreement.
(b) The Company shall promptly file the Listing Applications and secure the
listing of the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion or exercise of the
Convertible Debentures and Warrants, respectively. The Company will maintain the
listing and trading of its Common Stock on the OTC Bulletin Board. The Company
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall
promptly provide to Purchaser copies of any notices it receives from Nasdaq
regarding the continued eligibility of the Common Stock for listing on the OTC
Bulletin Board or any National Market, as applicable.
Section 7.11 Transfer Agent Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
direct the Company's transfer agent to issue certificates, registered in the
name of Purchaser or its nominee, for the Conversion Shares, in such amounts as
specified from time to time by Purchaser to the Company upon proper conversion
of the Convertible Debentures or exercise of the Warrants. Upon conversion of
any Convertible Debentures in accordance with their terms and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the Registration Rights Agreement shall remain effective, the shares of
Common Stock issuable upon conversion of any Convertible Debentures or exercise
of the Warrants shall be issued to any transferee of such shares from Purchaser
without any restrictive legend upon appropriate evidence of transfer in
compliance with the Securities Act and the rules and regulations of the
Commission; provided that for so long as the Registration Statement is
effective, no opinion of counsel will be required to effect any such transfer.
The Company further warrants and agrees that no instructions other than these
instructions have been or will be
21
given to its transfer agent. Nothing in this Section 7.11 shall affect in any
way a Purchaser's obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
Section 7.12 Maintenance of Reporting Status; Supplemental Information. So
long as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
Section 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D"
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
Purchaser at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.
Section 7.14 Certain Payments. The Company agrees to pay all title
insurance, filing, recordation or other fees, including any taxes, relating to
the execution and perfection of the security interest evidenced by the Mortgage,
and to cooperate with Purchaser in connection with filing the appropriate
documents for the perfection of such security interest.
Section 7.15 Amendment to Existing Warrants. The Company hereby agrees to
execute and deliver at Closing an agreement between the Company, Purchaser and
LKB Financial, LLC, ("LKB") pursuant to which all outstanding warrants to
purchase Common Stock of the Company owned by Purchaser and LKB shall be amended
to have an exercise price of $0.19.
Section 7.16 Amendment to Existing Bridge Notes Issued to Purchaser. The
Company hereby covenants and agrees that in the event the Bridge Notes set forth
on Schedule 7.16 hereto (the "Bridge Notes") are not repaid in full by the
Company on or before April 28, 2001, each Bridge Note shall be canceled and the
Company shall issue a convertible debenture to replace each Bridge Note, which
convertible debenture shall have the same terms as set forth in Exhibit A hereto
and shall be for a principal amount equal to the aggregate outstanding principal
amount plus all accrued and unpaid interest on such Bridge Note.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that from and after the date hereof for so long
as any Convertible Debentures remain outstanding and for the benefit of
Purchaser:
Section 8.1 Limitations on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities) (i) any Debt except (x) Debt incurred in a
Permitted Financing, (y) Debt incurred in connection with equipment leases to
which the Company or its Subsidiaries are a party incurred in the ordinary
course of business; and (z) Debt incurred in connection with trade accounts
payable, imbalances and refunds arising in the ordinary course of business and
(ii) any equity securities (including Derivative Securities) (other than those
securities that are issuable (x) under or pursuant to stock option plans,
warrants or other rights programs that exist as of the date hereof, (z) in
connection with the acquisition (including by merger) of a business or of assets
otherwise permitted under this Agreement), unless the Company complies with the
mandatory prepayment terms of Section 3.4(b) hereof.
22
Section 8.2 Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition or stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, and Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
(with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
Section 8.3 Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer's Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
Section 8.4 Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business;
provided, however, Asset Sale shall not include the sale of a portion of the
Company's ownership interest in License 1551 or License 953 relating to the
development of certain oil and gas fields in Kazakhstan and the sale of any oil
or gas resulting from the development of such property under License 1551 or
License 953 owned by the Company provided that such Asset Sale does not require
the release of any collateral pledged pursuant to the Security Agreement.
Section 8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing Debt, except for the Company's 5% Secured
Convertible Debentures due February 18, 2004, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect Purchaser or the holders of the Securities without the prior written
consent of Purchaser.
23
Section 8.6 Prohibition on Discounted Equity Offerings.
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above, beginning on the Closing Date and continuing until 180
days following the date on which the Registration Statement is declared
effective by the Commission (the "Effective Date") or until such time as
all of the Convertible Debentures have been either redeemed or converted
into Conversion Shares in full, whichever is later to occur, the Company
agrees that it will not issue any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities (the
"Derivative Securities")) on terms that allow a holder thereof to acquire
such equity securities (or Derivative Securities) at a discount to the
Market Price of the Common Stock at the time of issuance or, in the case of
Derivative Securities at a conversion price based on any formula (other
than standard anti-dilution provisions) based on the Market Price on a date
later than the date of issuance so long as such conversion is not below the
Market Price on the date of issuance (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be limited
to, (i) any warrant, right or other security granted or offered in
connection with such issuance which, on the applicable date of grant, is
offered with an exercise or conversion price, as the case may be, at less
than the then current Market Price of the Common Stock or, if such security
has an exercise or conversion price based on any formula (other than
standard anti-dilution provisions) based on the Market Price on a date
later than the date of issuance, then at a price below the Market Price on
such date of exercise or conversion, as the case may be, or (ii) any
commissions, fees or other allowances paid in connection with such
issuances (other than customary underwriter or placement agent commissions,
fees or allowances). For the purposes of determining the Market Price at
which Common Stock is acquired under this Section, normal underwriting
commissions and placement fees (including underwriters' warrants) shall be
excluded.
(b) Beginning on the Closing Date and continuing until 180 days
following the Effective Date or until such time as all of the Convertible
Debentures have been either redeemed or converted into Conversion Shares in
full, whichever is later to occur, the Company agrees it will not issue any
of its equity securities (or Derivative Securities), unless any shares of
Common Stock issued or issuable in connection therewith are "restricted
securities." As used herein "restricted securities" shall mean securities
which may not be sold by virtue of contractual restrictions imposed by the
Company or otherwise, in each case prior to twelve (12) months following
the date of issuance of such securities.
(c) The restrictions contained in this Section 8.6 shall not apply to
the issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this
Agreement, or (ii) stock option or other compensatory plans.
Section 8.7 Limitation on Stock Repurchases. Except as otherwise set forth
in the Convertible Debentures and the Warrants, the Company shall not, without
the written consent of the Majority Holders, redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other securities or
otherwise) any shares of capital stock of the Company or any warrants, rights or
options to purchase or acquire any such shares.
ARTICLE IX. RESTRICTIVE LEGENDS
Section 9.1 Restrictions on Transfer. From and after their respective dates
of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
Section 9.2 Notice of Proposed Transfers. Prior to any proposed Transfer of
the Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which
24
is an "accredited investor" within the meaning of Rule 501(a) under the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee's agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 10.1 Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause its transfer
agent to, issue and deliver shares of Common Stock consistent with Section 7.11
hereof within three (3) New York Stock Exchange Trading Days of delivery of a
Notice of Conversion or Notice of Exercise, as applicable (the "Deadline") to
Purchaser (or any party receiving Securities by transfer from Purchaser) at the
address of Purchaser set forth in the Notice of Conversion or Notice of
Exercise, as the case may be. The Company understands that a delay in the
issuance of such certificates after the Deadline could result in economic loss
to Purchaser.
(b) Without in any way limiting Purchaser's right to pursue other remedies,
including actual damages and/or equitable relief, the Company agrees that if
delivery of the Conversion Shares is more than one (1) Business Day after the
Deadline (other than a failure due to the circumstances described in Section 4.3
of the Convertible Debentures, which failure shall be governed by such Section)
the Company shall pay to Purchaser, as liquidated damages and not as a penalty,
$500 for each $100,000 principal amount of Convertible Debentures then
outstanding per day in cash, for each of the first ten days following the
Deadline that the Company fails to deliver such Common Stock, and $1,000 for
each $100,000 principal amount of Convertible Debentures then outstanding per
day in cash, for each day thereafter the Company fails to deliver such Common
Stock. Such cash amount shall be paid to Purchaser upon demand.
Section 10.2 Conversion Notice. The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this Agreement) to effect delivery to a Purchaser of certificates with or
without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Debentures or exercise of the Warrants, Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion or Notice of Exercise, as applicable, by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion or Notice of Exercise, as the case may be.
Section 10.3 Conversion Limit. Notwithstanding the conversion rights under
the Convertible Debentures, unless Purchaser delivers a waiver in accordance
with the immediately following sentence, in no event shall Purchaser be entitled
to convert any portion of the Convertible Debentures, in excess of that portion
of the Convertible Debentures, as applicable, of which the sum of (i) the number
of shares of Common Stock beneficially owned by Purchaser and its Affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Convertible Debenture or
other Derivative Securities convertible into or exchangeable for shares of
Common Stock which contain a limitation similar to that set forth in
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this Section 10.3), and (ii) the number of shares of Common Stock issuable upon
the conversion of the portion of the Convertible Debenture with respect to which
this determination is being made, would result in beneficial ownership by
Purchaser and its Affiliates of more than 4.99% of the outstanding shares of
Common Stock. For purposes of Section 10.3(i) beneficial ownership shall be
determined in accordance with Rule 13d-3 of the Exchange Act and Regulations 13
D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing
limitation shall not apply and shall be of no further force or effect (i)
immediately preceding and upon the occurrence of any voluntary or mandatory
redemption or repayment transaction described herein or in the Convertible
Debentures, (ii) immediately preceding and upon any Sale Event, (iii) on the
Maturity Date or (iv) following the occurrence of any Event of Default which is
not cured for a period of ten (10) calendar days.
Section 10.4 Registration Rights.
(a) The Company shall grant Purchaser registration rights covering the
Conversion Shares (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
(b) The Company shall file within ten (10) days of the date hereof
(the "Amendment Filing Date") an amendment to its currently effective S-1
Registration Statement No. 333-55484 (the "Registration Statement
Amendment") to register the resale of the Debenture Conversion Shares and
Warrant Shares. In event the Company fails to file the Registration
Statement Amendment by the Amendment Filing Date, the Company will pay
liquidated damages to the Fund in the amount of 1% of the principal amount
of the then outstanding Debentures per day until the Registration Statement
Amendment has been filed.
If the Registration Statement Amendment does not include a number of
shares to register the resale of all of the Debenture Conversion Shares and
Warrant Shares, the Company shall prepare and file within seven (7) days
following the Company's Annual Meeting of Shareholders' for 2001, which
meeting shall not take place later than July 15, 2001 (the "Filing Date"),
a registration statement (the "Registration Statement") to register not
less than 30,000,000 of Common Stock to cover the resale of the Registrable
Securities and the shares of Common Stock issuable upon conversion of the
restructured Bridge Notes in accordance with Section 7.16 of this
Agreement. In the event the Company fails to file the Registration
statement by the Filing Date, the Company shall pay Purchaser as liquidated
damages, and not as a penalty, an amount of cash equal to one percent of
the aggregate principal amount of Convertible Debentures then outstanding
per day until the Registration Statement is filed with the Commission. The
Company shall use its best efforts to cause the Registration Statement to
be declared effective by the Commission or the earlier of (i) 60 days
following the Filing Date or (ii) ten days following the receipt of a "no
review" or similar letter from the Commission (the "Required Effectiveness
Date"). The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such registration statement by
Purchaser).
(c) If the Registration Statement is not declared effective by the
Commission by the Required Effectiveness Date, the Company shall pay to
Purchaser, as liquidated damages and not as a penalty, an amount equal to
2% of the outstanding principal amount of the Convertible Debentures,
prorated, for each 30 day period the Registration Statement is not declared
effective by the Commission, which amount will be increased to 3% of the
outstanding principal amount of the Convertible Debentures in the event
that the Registration Statement is not declared effective by the Commission
within 90 days of the Filing Date. In the event the Company fails to obtain
an effective registration statement by the 120th day following the Filing
Date, the Company will redeem the Convertible Debentures and the Warrants
as set forth in Section 5 of the Convertible Debentures and Section 13 of
the Warrants, respectively. Additionally, the Company will grant to
Purchaser certain piggyback registration rights in the event the Company
proposes to effect a registered offering of Common Stock or warrants or
both prior to the filing of the Registration Statement referenced above.
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(d) Any such liquidated damages shall be paid in cash by the Company
to Purchaser by wire transfer in immediately available funds on the last
day of each calendar week following the event requiring its payment.
(e) If, following the declaration of effectiveness of the Registration
Statement, such registration statement (or any prospectus or supplemental
prospectus contained therein) shall cease to be effective for any reason
(including but not limited to the occurrence of any event that results in
any prospectus or supplemental prospectus containing an untrue statement of
a material fact or omitting a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading) for the period
required in the Registration Rights Agreement (the "Registration
Maintenance Period"), the Company fails to file required amendments to the
Registration Statement in order to allow the Purchaser to exercise its
rights to receive unrestricted, unlegended, freely tradeable shares of
Common Stock, or if for any reason there are insufficient shares of such
shares of Common Stock registered under the then current Registration
Statement to effect full conversion of the Convertible Debentures or
exercise of the Warrants (a "Registration Default"), the Company shall
immediately take all necessary steps to cause the Registration Statement to
be amended or supplemented so as to cure such Registration Default. Failure
to cure a Registration Default within ten (10) business days shall result
in the Company paying to Purchaser liquidated damages at the rate of $1,000
per day from the date of such Registration Default until the Registration
Default is cured.
Section 10.5 Restriction on Issuance of Securities. Beginning on the
Closing Date and continuing for a period of 180 days following the Effective
Date or until the Convertible Debentures have been fully converted into shares
of Common Stock, whichever is later to occur, the Company will not sell, or
offer to sell, any securities (including credit facilities which are convertible
into securities which may be issued at a discount to the then current Market
Price) other than borrowings that provide for the payment of the Convertible
Debentures, the Bridge Notes set forth on Schedule 7.16 hereto, or the Company's
5% Convertible Secured Debenture issued to the Halifax Fund, L.P., borrowings
under conventional credit facilities existing as of the date hereof, stock
issued or credit facilities to be established in connection with acquisitions,
employee and director stock options of the Company, existing rights and warrants
of the Company and securities issued under the Convertible Debentures or
Warrants. In addition, the Company shall not issue any securities in connection
with a strategic alliance entered into by the Company unless such securities are
the subject of a one year statutory or contractual hold period or, if not
subject to such a hold period, unless the Purchaser has fully converted all
outstanding Convertible Debentures and exercised all Warrants. Notwithstanding
the foregoing, the Company may enter into the following types of transactions
(collectively referred to as "Permitted Financings"): (1) "permanent financing"
transactions, which would include any form of debt or equity financing (other
than an underwritten offering), which is followed by a reduction of the said
financing commitment to zero and payment of all related fees and expenses; (2)
"project financing" which provide for the issuance of recourse debt instruments
in connection with the operation of the Company's business as presently
conducted or as proposed to be conducted; (3) an underwritten offering of Common
Stock, provided that such offering provides for the registration of the Common
Stock to be received by Purchaser as a result of the conversion of the
Convertible Debentures and the exercise of the Warrants held by the Purchaser to
the extent there is not an effective Registration Statement for the sale of the
Conversion Shares in place at the time of such offering; and (4) other financing
transactions specifically consented to in writing by the Purchaser.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
Section 11.1 Reorganization. The Conversion Price and the exercise price of
the Warrants (collectively, the "Fixed Prices") shall be adjusted, as
applicable, as hereafter provided.
Section 11.2 Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
27
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all
or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to
the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible
into or exchangeable for shares of Common Stock, the number of shares
of Common Stock that would have been outstanding if such securities
had been converted into or exchanged for Common Stock on such record
or effective date.
Section 11.3 Rights Offering. If and whenever the Company shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of securities convertible into or exchangeable for Common Stock, at an
exchange or conversion price per share at the date of issue of such securities)
of less than 95% of the Market Price of the Common Stock on such record date
(any such event being herein called a "Rights Offering"), then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which holders of Common Stock are determined for the purposes of
the Rights Offering, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(i) the numerator shall be the sum of:
(i) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price
at which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or
exchangeable securities so offered for subscription or
purchase may be converted or exchanged and the conversion or
exchange price of such securities, or, as the case may be,
by
(B) the Market Price of the Common Stock on such record
date; and
(v) the denominator shall be the sum of:
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(i) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative
Securities, the maximum number of shares of Common Stock for or
into which the securities so offered for subscription or purchase
may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
Section 11.4 Special Distribution. If and whenever the Company shall issue
or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share
Reorganization or a Rights Offering (any such event being herein called a
"Special Distribution"), then in each such case the applicable Fixed Price
shall be adjusted, effective immediately after the record date at which the
holders of Common Stock are determined for purposes of the Special
Distribution, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of
the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of
any consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
Section 11.5 Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common Stock
or any change of the shares of Common Stock into other shares, other than
in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Debentures
after the effective date of such Capital Reorganization shall be entitled to
29
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Company or of the body corporate resulting from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital Reorganization if, on the effective date thereof,
such holders had been the holder of the number of shares of Common Stock to
which such holder was theretofore entitled upon conversion; provided, however,
that no such Capital Reorganization shall be consummated in effect unless all
necessary steps shall have been taken so that such holders shall thereafter be
entitled to receive such number of shares or other securities of the Company or
of the body corporate resulting from such Capital Reorganization, subject to
adjustment thereafter in accordance with provisions the same, as nearly as may
be possible, as those contained above.
Section 11.6 Purchase Price Adjustments. In case at any time and from time
to time the Company shall issue any shares of Common Stock or Derivative
Securities convertible or exercisable for shares of Common Stock (the number of
shares so issued, or issuable upon conversion or exercise of such Derivative
Securities, as applicable, being referred to as "Additional Shares of Common
Stock") for consideration less than the then Market Price at the date of
issuance of such shares of Common Stock or such Derivative Securities, in each
such case the Conversion Price shall, concurrently with such issuance, be
adjusted by multiplying the Conversion Price immediately prior to such event by
a fraction: (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.
Section 11.7 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would otherwise
have been required to be made, shall be carried forward and taken into
account in any subsequent adjustment;
(b) adjustment in the Fixed Price so that the rights of the holders of
the applicable Security shall not be diminished by such event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding upon
the Company and Purchaser.
Section 11.8 Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the applicable Fixed Price deliver to Purchaser a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
Section 11.9 Notice to Holders. If the Company shall fix a record date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering,
30
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
Section 12.1 Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any part
of the principal on any of the Convertible Debentures (whether by virtue of
the agreements specified in this Agreement or the Convertible Debentures);
(b) failure by the Company to pay (i) within five (5) Business Days of
the due date thereof any interest on any Convertible Debentures or (ii)
within five (5) Business Days following the delivery of notice to the
Company of any fees or any other amount payable (not otherwise referred to
in (a) above or this clause (b)) by the Company under this Agreement or any
other Transaction Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 7.11 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(d) failure on the part of the Company to observe or perform any
covenant contained in Section 7.10 or Article VIII of this Agreement, which
failure is not cured within five business days of such failure;
(e) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than
those covered by clauses (a), (b), (c) or (d) above) for 30 days from the
date of such occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission, any National Market or the OTC Bulletin Board (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company and except if, at the time there
is any suspension on any National Market or the OTC Bulletin Board, the
Common Stock is then listed and approved for trading on another National
Market within ten (10) Trading Days thereof);
(g) failure of the Company to file the Listing Applications required
to be filed within twenty (20) Business Days of the Closing Date, which
failure is not cured within five (5) Business Days of such failure;
(h) the Company shall have its Common Stock delisted from a National
Market or the OTC Bulletin Board for at least ten (10) consecutive Trading
Days and is unable to obtain a listing on a National Market or the OTC
Bulletin Board within such ten (10) Trading Days;
31
(i) the Registration Statement shall not have been declared effective
by the Commission by the Required Effectiveness Date, or such effectiveness
shall not be maintained for the Registration Maintenance Period, in each
case which results in the Company incurring the Default Fee for a period in
excess of 10 days;
(j) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
has consented to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or has made a general assignment for the benefit of
creditors, or has failed generally to pay its debts as they become due, or
has taken any corporate action to authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced against
the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days, or an order for relief
has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(l) default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess
of $500,000, which has not been cured within any applicable period of grace
associated therewith;
(m) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 60 days; or
(n) any representation, warranty, certification or statement made by
the Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with any Transaction Agreement shall prove to have
been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Convertible Debentures to be, and the Convertible Debentures shall thereon
become immediately due and payable; provided that in the case of any of the
Events of Default specified in paragraph (j) or (k) above with respect to the
Company or any Subsidiary, then, without any notice to the Company or any other
act by Purchaser, the entire amount of the Convertible Debentures shall become
immediately due and payable, provided, further, if any Event of Default has
occurred and is continuing, and irrespective of whether any Convertible
Debenture has been declared immediately due and payable hereunder, any Purchaser
of Convertible Debentures may proceed to protect and enforce the rights of
Purchaser by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Convertible Debenture, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise, and provided further, in the case of any
Event of Default, the amount declared due and payable on the Convertible
Debentures shall be the Formula Price thereof.
Section 12.2 Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent
32
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Debentures or
by law may be exercised from time to time, and as often as shall be deemed
expedient, by Purchaser.
ARTICLE XIII. MISCELLANEOUS
Section 13.2 Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such communication is deposited in the mail with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.
Section 13.3 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Majority Holders; provided, that
without the consent of each holder of any Convertible Debenture affected
thereby, an amendment or waiver may not (a) reduce the aggregate principal
amount of Convertible Debentures whose holders must consent to an amendment
or waiver, (b) reduce the rate or extend the time for payment of interest
on any Convertible Debenture, (c) reduce the principal amount of or extend
the stated maturity of any Convertible Debenture or (d) make any
Convertible Debenture payable in money or property other than as stated in
such Convertible Debenture. In determining whether the holders of the
requisite principal amount of Convertible Debentures have concurred in any
direction, consent, or waiver as provided in any Transaction Agreement,
Convertible Debentures which are owned by the Company or any other obligor
on or guarantor of the convertible Debentures, or by any Person
Controlling, Controlled by, or under common Control with any of the
foregoing, shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; and provided further that no such
amendment, supplement or waiver which affects the rights of Purchaser and
their affiliates otherwise than solely in their capacities as holders of
Convertible Debentures shall be effective with respect to them without
their prior written consent.
Section 13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act
(each, a "Controlling Person"), and the respective partners, agents,
employees, officers and Directors of Purchaser, their Affiliates and any
such Controlling Person (each an "Indemnified Party") and collectively, the
"Indemnified Parties"), from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any
such claim or action, whether or not such Indemnified Party is a party
thereto, provided that the Company shall not be obligated to advance such
costs to any Indemnified Party other than Purchaser unless it has received
from such Indemnified Party an undertaking to repay to the Company the
costs so advanced if it should be determined by final judgment of a court
of competent jurisdiction that such Indemnified Party was not entitled to
indemnification hereunder with respect to such costs) which may be incurred
by such Indemnified Party in connection with any investigative,
administrative or judicial
33
proceeding brought or threatened that relates to or arises out of, or is in
connection with any activities contemplated by any Transaction Agreement or
any other services rendered in connection herewith; provided that the
Company will not be responsible for any claims, liabilities, losses,
damages or expenses that are determined by final judgment of a court of
competent jurisdiction to result from such Indemnified Party's gross
negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Party, unless (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Company, and such
Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or
additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have
the right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be responsible hereunder for the reasonable fees and expenses of more than
one such firm of separate counsel, in addition to any local counsel, which
counsel shall be designated by Purchaser. The Company shall not be liable
for any settlement of any such action effected without the written consent
of the Company (which shall not be unreasonably withheld) and the Company
agrees to indemnify and hold harmless each Indemnified Party from and
against any loss or liability by reason of settlement of any action
effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of Purchaser, settle or compromise
or consent to the entry of any judgment in or otherwise seek to terminate
any pending or threatened action, claim, suit or proceeding in respect to
which indemnification or contribution may be sought hereunder (whether or
not any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and by Purchaser on the other from the
transactions contemplated by this Agreement or (ii) if the allocation
provided by clause (i) is not permitted under applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and Purchaser on the other, but
also the relative fault of the Company and Purchaser as well as any other
relevant equitable considerations. Notwithstanding the provisions of this
Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state a
material fact related to information supplied by the Company or by
Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or
34
prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Debentures and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Purchaser or any
other Indemnified Party.
Section 13.4 Expenses: Documentary Taxes. The Company agrees to pay to
Purchaser's investment advisor a fee of $15,000.00 (the "Expense Reimbursement
Fee") in full satisfaction of all obligations of the Company to Purchaser and
its agents in connection with the negotiation and preparation of the Transaction
Agreements, relevant due diligence, and fees and disbursements of legal counsel.
In addition, the Company agrees to pay any and all stamp, transfer and other
similar taxes, assessments or charges payable in connection with the execution
and delivery of any Transaction Agreement or the issuance of the Securities to
Purchaser, excluding their assigns.
Section 13.5 Payment. The Company agrees that, so long as Purchaser shall
own any Convertible Debentures purchased by it from the Company hereunder, the
Company will make payments to Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (E.S.T.).
Section 13.6 Successors and Assigns. This Agreement shall be binding upon
the Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
Section 13.7 Brokers. Except for a cash fee payable to LKB in the form of
(i) 5% of the principal amount of the Convertible Debentures purchased on the
Closing Date by Purchaser and (ii) a warrant to purchase 1,000,000 shares of
Common Stock on the same terms as those set forth in Exhibit F attached hereto,
the Company represents and warrants that it has not employed any broker, finder,
financial advisor or investment banker who would be entitled to any brokerage,
finder's or other fee or commission payable by the Company or Purchaser in
connection with the sale of the Securities.
Section 13.8 New York Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY FEDERAL DISTRICT COURT SITTING IN
NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH
PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
35
Section 13.9 Entire Agreement. This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Convertible Debenture, the
Warrant, the Registration Rights Agreement, Mortgage, and the Security
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supercedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Schedules to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 13.10 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.11 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.12 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
Section 13.13 Publicity. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:_________________________________________
Name: _____________________________________
Title: _____________________________________
Address: American International Petroleum
Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax:______________________________
Tel.:_____________________________
GCA STRATEGIC INVESTMENT FUND LIMITED
By:_________________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
Address: c/o Prime Management Limited
Mechanics ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇ ▇▇, ▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Tel.: ▇▇▇-▇▇▇-▇▇▇▇
Securities Purchase Agreement
37
Schedule 7.16
Bridge Notes
1. $1,850,000 Principal Amount Bridge Note of the Company, original
maturity date August 31, 2000.
2. $2,500,000 Principal Amount Bridge Note of the Company, original
maturity date May 23, 2000.
3. $3,000,000 Principal Amount Secured Bridge Note, original maturity
date November 28, 2000.
38