Exhibit 4.2
SECURITIES PURCHASE AGREEMENT
dated as of
October 15, 1997
by and among
AMERICAN INTERNATIONAL PETROLEUM CORPORATION,
as the Issuer,
and
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of October 15, 1997, among American International
Petroleum Corporation (the "Company") and the Purchasers listed on Schedule I
attached hereto (each a "Purchaser" and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company is currently contemplating raising up to $10,000,000
in a private placement of debt securities pursuant to Regulation S ("Regulation
S") promulgated under the Securities Act of 1933, as amended (the "Securities
Act") (the "Offering"); and
WHEREAS, the Company desires to sell and issue to the Purchasers, and the
Purchasers wish to purchase from the Company, $10,000,000 aggregate principal
amount of the Company's 14% Convertible Notes due October 15, 1998 (the
"Convertible Notes"), with terms and conditions as set forth in the form of
Convertible Note attached hereto as Exhibit A (with such changes and
modifications as may be approved by the Purchasers) as a part of the Offering;
and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, par value $.08 per share (the "Common Stock"); and
WHERAS, the Purchasers will have certain registration rights with respect
to such shares of Common Stock issuable upon conversion of the Convertible Notes
(the "Conversion Shares"); and
WHEREAS, in order to induce the Purchasers to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchasers an
aggregate of 1,500,000 warrants to purchase shares of Common Stock on the terms
and conditions described in the form of the common stock purchase warrant
attached hereto as Exhibit B (with such changes and modifications as may be
approved by the Purchasers) (the "Warrants"); and
WHEREAS, the Purchasers and other holders of Warrants will have certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
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(American International Petroleum Corporation) 85478.4
I. DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"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 8.5.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"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.
"Call Date" means the date with is six (6) months following the Closing
Date; specifically April 10, 1998.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Closing Bid Price" shall mean the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. on the Nasdaq Market or, if not
reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other
exchange or market where the Common Stock is then traded.
"Closing Date" means the date on which all of the conditions set forth in
Sections 6.1 and 6.2 shall have been satisfied and the Securities have been
issued by the Company and the Purchase Price paid by the Purchasers.
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(American International Petroleum Corporation) 85478.4
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $.08 par value per share, of the
Company.
"Company" means American International Petroleum Corporation, a Nevada
corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation
and by-laws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person any
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise .
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible Note
by the holder thereof to the Company as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's 14% Convertible Notes
substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
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(American International Petroleum Corporation) 85478.4
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in the Section 10.4.
"Derivative Securities" has the meaning set forth in Section 10.5.
"Discounted Equity Offerings" has the meaning set forth in Section 10.5.
"Directors" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"Disposition" has the meaning set forth in Section 7.13.
"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.
"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" shall mean $25,000 to be paid by the Company
to the Purchasers as reimbursement for the fees and expenses incurred by the
Purchasers in connection with the preparation, negotiation and delivery of the
Transaction Agreements.
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(American International Petroleum Corporation) 85478.4
"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" shall mean a dollar amount equal to the greater of (i) the
aggregate principal amount of the Convertible Notes then outstanding, together
with all accrued and unpaid interest thereon, and (ii) the sum of (A) the
product of (x) the number of shares of Common Stock into which the Convertible
Notes being redeemed are then convertible at the then current Conversion Price
and (y) the Market Price as reported by Bloomberg, L.P. on the applicable date
the Convertible Notes are redeemed, plus (B) accrued and unpaid interest on the
Convertible Notes through the date of repayment.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Initial Conversion Price" has the meaning set forth in the Convertible
Notes.
"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
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(American International Petroleum Corporation) 85478.4
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Liquidity Event" has the meaning set forth in Section 10.4(b).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible Notes;
specifically, October 15, 1998.
"Maximum Number of Shares" shall mean 19.9% of the then issued and
outstanding shares of Common Stock of the Company as of the applicable date of
determination, which, as of the date hereof, is 9,397,477 shares of Common
Stock, or such greater number of shares as the stockholders of the Company may
have previously approved pursuant to Section 4.3 of each Convertible Note.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"Nasdaq Redemption Event" has the meaning set forth in Section 3.3.
"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.
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(American International Petroleum Corporation) 85478.4
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit B attached hereto.
"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 C attached hereto.
"Offering" has the meaning set forth in the Recitals.
"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 G attached hereto.
"Other Taxes" has the meaning set forth in Section 3.5(b).
"Par Value Redemption Price" means a price equal to 100% of the aggregate
principal amount of the Convertible Notes then outstanding, together with all
accrued and unpaid interest thereon through and including the date of receipt of
payment.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry n the business of the Company and the Subsidiaries.
"Permitted Debt" has the meaning set forth in Section 8.1.
"Permitted Financings" shall mean (i) Permitted Debt, (ii) any Financing
(other than Discounted Equity Offerings) incurred after the Closing Date not to
exceed $20,000,000 in the aggregate, (iii) the issuance of equity securities in
connection with (I) the acquisition (including by merger) of a business or of
assets otherwise permitted under this Agreement or (II) stock options or other
compensatory plans, and (iv) any Financing or Debt associated with the
acquisition and/or operation of the ________________.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA group.
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"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchasers" means, collectively, those entities listed on the signature
page hereto and their successors and assigns, including holders from time to
time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company
and the Purchasers dated the date hereof substantially in the form set forth in
Exhibit D attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section
10.4(b).
"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.
"Restricted Period" means the period from the Closing Date through and
including the fortieth (40th) day after the Closing Date.
"Rights Offering" has the meaning set forth in Section 11.3.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Convertible Notes, the Warrants and, as applicable,
the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth Section 11.2.
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"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Notes and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith), which such Solvency Certificate shall be in the form of Exhibit F
attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary, "Subsidiary"
means a Subsidiary of the Company.
"Subsidiary Corporate Documents" means the certificates of
incorporation and by-laws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.5.
"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 Warrants, the
Registration Rights Agreement, and the Convertible Notes.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers for 1,500,000 shares of Common Stock in the aggregate on the Closing
Date in the form of Exhibit I hereto.
"Warrant Restricted Period" has the meaning set forth in Section 5.1(f).
"Warrant Shares" has the meaning set forth in Section 4.5.
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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"); provided that if the Company notifies
each of the Purchasers that it wishes to amend any covenant in Article VII to
eliminate the effect of any change in GAAP on the operation of such covenant (or
if any of the Purchasers notify the Company that the Majority Holders wish to
amend Article VII for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Majority Holders. All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Purchase and Sale of Convertible Notes. Subject to the terms
and conditions set forth herein, the Company agrees to issue and sell to each
Purchaser, and each Purchaser severally agrees to purchase from the Company,
such principal amount of Convertible Notes as is set forth opposite each
Purchaser's name on Schedule 2.1 attached hereto.
SECTION 2.2. Purchase Price. The purchase price for the Convertible Notes
shall be 99% of the principal amount thereof. No part of the purchase price of
the Notes shall be allocated to the Warrants. Therefore, the aggregate
consideration payable by the Purchasers to the Company for the Convertible Notes
and the Warrants shall be $____________________ (the "Purchase Price").
SECTION 2.3. Closing and Mechanics of Payment.
(a) On the Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, each of the Purchasers shall deliver by
wire transfer to the Company immediately available funds in an amount
equal to the portion of the Purchase Price of the Convertible Notes to be
purchased by such Purchaser on the Closing Date, in the proportions as set
forth on Schedule 2.1 attached hereto, less such Purchaser's ratable share
of Expense Reimbursement Fee.
(b) On the Closing Date, against payment as set forth in subsection
2.3(a) above, the Company shall deliver to each Purchaser (i) a single
Convertible Note for each Purchaser representing the principal amount of
such Convertible Note issued to such
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Purchaser as of the Closing Date, and (ii) a single Warrant for each
Purchaser representing the aggregate Warrants issued to such Purchaser as
of the Closing Date.
(c) The Company and the Purchasers hereby agree to consummation of
the closing and deliveries set forth herein in accordance with the terms
of the Escrow Agreement attached hereto as Exhibit G, with Xxxxxxxxxx,
Xxxxxx & Xxxxxxx as escrow agent.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. Payment of Principal and Interest; Payment Mechanics. The
Company will pay all sums becoming due on each Convertible Note by the method
and at the address specified for such purpose as the applicable Purchaser shall
have from time to time specified to the Company in writing for such purpose,
without the presentation or surrender of any Convertible Note or the making of
any notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Note, the holder shall surrender the Convertible Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office. Prior to any sale or other disposition of any
Convertible Note, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the Company in
exchange for a new Convertible Note or Convertible Notes. The Company will
afford the benefits of this Section 3.1 to any direct or indirect transferee of
the Convertible Note purchased under this Agreement and that has made the same
agreement relating to this Convertible Note as the Purchaser has in this Section
3.1; provided that such transferee is an "accredited investor" under Rule 501 of
the Securities Act.
SECTION 3.2. Voluntary Prepayment. The Company shall have the one time
right, exercisable by delivery of written notice to the Purchaser on the Call
Date, to redeem the remaining unpaid balance of each Convertible Note in its
entirety at the Par Value Redemption Price. Except as provided in this Section
3.2, the Company shall not have the unilateral right to voluntarily repay the
Convertible Notes.
SECTION 3.3. Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change of Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company
to any Person in a single transaction or series of related transactions,
(iii) a consolidation or merger of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger (x)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or (y) which is
effected solely to change the jurisdiction of incorporation of the Company
and results in a
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reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of Common Stock), or (iv) the occurrence of a
Registration Default which continues uncured for a period of thirty (30)
days, then, in each case, the Company shall redeem this Convertible Note
in cash for the Par Value Redemption Price.
(b) Upon the consummation of one or more Financings other than
Permitted Financings, the Company shall use 100% of the Net Cash Proceeds
therefrom (unless such Net Cash Proceeds from each such Financing is less
than $250,000) to redeem the Convertible Notes. The redemption price
payable upon any such redemption shall be the Formula Price.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days of such issuance to obtain shareholder approval to
issue additional shares of Common Stock (the "Nasdaq Redemption Event"),
the Company shall redeem each Convertible Note as set forth in Section 4.3
of the Convertible Notes.
SECTION 3.4. Prepayment Procedures.
(a) Any prepayment or redemption of the Convertible Notes pursuant
to Sections 3.2 or 3.3 above shall be deemed to be effective and
consummated (for purposes of determining the Formula Price and the time at
which the Purchasers shall thereafter not be entitled to deliver a Notice
of Conversion for the Convertible Notes) as follows:
(I) A redemption pursuant to Section 3.2, on the tenth (10th)
Trading Day after the Call Date;
(II) A redemption pursuant to Section 3.3(a), the date of
consummation of the applicable Change of Control, merger, asset
sale, or the Registration Default; and
(III) A redemption pursuant to Section 3.3(b), three (3)
Business Days following the date of consummation of the applicable
Financing (meaning closing and funding).
(b) On the Maturity Date and on the effective date of a repayment
or redemption of the Convertible Notes as specified in Section 3.4(a)
above, the Company shall deliver by wire transfer of funds the
repayment/redemption price to each Purchaser of the Convertible Notes
subject to redemption. Should any Purchaser not receive payment of any
amounts due on redemption of its Convertible Notes by reason of the
Company's failure to make payment at the times prescribed above for any
reason, the Company shall pay to the applicable holder on demand (x)
interest on the sums not paid when due at an annual rate equal to the
lesser of (I) the maximum lawful rate and (II) the
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then applicable interest rate on the Convertible Notes being redeemed plus
four percent (4%) compounded at the end of each thirty (30) days, until
the applicable holder is paid in full and (y) all costs of collection,
including, but not limited to, reasonable attorneys' fees and costs,
whether or not suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed in
any redemption in which not all of the Convertible Notes are to be
redeemed so that the ratio of the Convertible Notes of each holder
selected for redemption to the total Convertible Notes owned by that
holder shall be the same as the ratio of all such Convertible Notes
selected for redemption bears to the total of all then outstanding
Convertible Notes. Should any Convertible Notes required to be redeemed
under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Convertible Notes shall be redeemed on the
earliest possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a redemption specified in Section 3.4(a) above,
shall be honored by the Company and the conversion of the Convertible
Notes shall be deemed effected on the Conversion Date. In addition,
between the effective date of redemption specified in Section 3.4(a) above
and the date the Company is required to deliver the redemption proceeds to
the Purchasers, the Purchasers may deliver a Notice of Conversion to the
Company. Such notice will be (x) of no force or effect if the Company
timely pays the redemption proceeds to the Purchasers when due or (y)
honored on or as of the date the Notice of Conversion if the Company fails
to timely pay the redemption proceeds to the Purchasers when due.
SECTION 3.5 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee" thereof
shall be made free and clear of and without deduction or withholding for
any and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless such Taxes are required by law
or the administration thereof to be deducted or withheld. If the Company
shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the
Convertible Notes (i) the holders of convertible Notes subject to such
Taxes shall have the right, but not the obligation, following the
Restricted Period, and for a period of thirty (30) days commencing upon
the day it shall have received written notice form the Company that it is
required to withhold Taxes to transfer all or any portion of the
Convertible Notes to a qualified assignee to the extent such transfer can
be effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or
withholdings; (iii) the sum payable
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(American International Petroleum Corporation) 85478.4
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 3.5) such
Purchaser receives an amount equal to the sum it would have received if no
such deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law. A
"qualified assignee" of a Purchaser is a Person that is organized under
the laws of (I) the United States or (II) any jurisdiction other than the
United States or any political subdivision thereof and that (y) represents
and warrants to each of the Company that payments of the company to such
assignee under the laws in existence on the date of this Agreement would
not be subject to any Taxes and (z) from time to time, as and when
requested by the company, executes and delivers to the Company and the
Internal Revenue Service forms, and provides the Company with any
information necessary to establish such assignee's continued exemption
from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter referred to
as "Other Taxes") which arise from any payment made under any of the
Transaction Agreements or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement other than Taxes payable
solely as a result of the transfer from the Purchasers to a Person of any
Security.
(c) The Company shall indemnify each Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.5) paid by each 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 such
Purchaser or assignee makes written demand therefor. A certificate as to
the amount of such Taxes or Other Taxes submitted to the Company by such
Purchaser or assignee shall be conclusive evidence of the amount due from
the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to each Purchaser the original or a certified copy of
a receipt evidencing payment thereof.
(e) Each Purchaser shall provide to the Company a Form W-8, stating
that it is a non-U.S. person, together with any additional tax forms which
may be required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
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(American International Petroleum Corporation) 85478.4
SECTION 3.6 Ranking.
(a) The Convertible Notes will rank as unsecured obligations of the
Company senior in right of payment to all indebtedness of the Company
except as hereafter provided.
(b) The rights of any Purchaser to receive the principal sum or any
part thereof, and to receive the interest due, on each Convertible Note,
other than by conversion into Common Stock or receipt of Common Stock as
interest, is and shall remain subordinate in priority to the payment of
the principal and interest on (i) all future obligations and guarantees of
the Company for money borrowed from any bank, trust company, insurance
company or other financial institution engaged in the business of lending
money, for which the Company is at the time of determination responsible
or liable as obligor or guarantor; (ii) all existing or future obligations
of the Company secured by a lien, mortgage, pledge or other encumbrance
against real or personal property (including Common Stock of the Company
or any of its Subsidiaries) of the Company; (iii) any modifications,
renewals, extensions or refunding of the foregoing, except for any of such
obligations of the Company the payment of which is made expressly
subordinate and junior to the Convertible Notes; (iv) Debt incurred in
connection with the acquisition and/or operation of the ________________;
or (v) other Debt of the Company existing on the Closing Date.
Notwithstanding the foregoing, the subordination provisions of this
Section 3.6(b) shall be of no force or effect so long as none of the
Company's obligations described above have been accelerated by their
terms.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of them,
as of the Closing Date the following:
SECTION 4.1. Organization and Qualification. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. Schedule 4.1 sets forth a list of all Subsidiaries and
the jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified to conduct business as a foreign corporation and
is in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where such failure
would not have a Material Adverse Effect. A "Material Adverse Effect" means any
material adverse effect on the operations, results of operations, properties,
assets, condition (financial or otherwise) or prospects of the Company or the
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(American International Petroleum Corporation) 85478.4
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith.
SECTION 4.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities
in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its shareholders
is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective terms.
SECTION 4.3. Capitalization. As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and no other shares of capital stock of the Company will be outstanding
as of the Closing Date. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to act of the
Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Convertible Notes, Conversion Shares, Warrants or Warrant Shares. The Company
has furnished to Purchasers true and correct copies of the Company's Corporate
Documents, and the
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(American International Petroleum Corporation) 85478.4
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 and
(c) listing applications ("Listing Applications") to be filed relating to the
Conversion Shares and Warrant Shares of Common Stock issuable upon conversion of
the Convertible Notes and exercise of the Warrants.
SECTION 4.5. Issuance of Shares. Upon conversion in accordance with the
terms of the Convertible Notes, or upon exercise in accordance with the terms of
the Warrants (assuming the payment of the exercise price set forth in the
Warrants), the Conversion Shares and Warrant Shares shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers herein are true
and correct in all material respects, each of the Securities will have been
issued in material compliance with all applicable U.S. federal and state
securities laws. The Company understands and acknowledges that, in certain
circumstances, the issuance of Conversion Shares and Warrant Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Notes, and Warrant Shares upon exercise of the
Warrants, is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 4.6. No Conflicts. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the
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(American International Petroleum Corporation) 85478.4
conduct of its businesses or the ownership of its properties, except where such
failure would not have a Material Adverse Effect.
SECTION 4.7. Financial Information and SEC Reports. Since January 1, 1996,
the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered to each
Purchaser true and complete copies of the SEC Reports, except for such exhibits
and incorporated documents. Such SEC Reports, at the time filed, complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such SEC Reports. None of
the SEC Reports, including without limitation, any financial statements or
schedules included therein, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. There
have been no material adverse changes in the Company's business, properties,
results of operations, condition (financial or otherwise) or prospects since the
date of the Company's most recent Report on Form 10-K for the year ended
December 31, 1996 which have not been disclosed to the Purchasers in writing.
The audited and unaudited consolidated balance sheets of the Company and its
Subsidiaries contained in the SEC Reports, and the related consolidated
statements of income, changes in stockholders' equity and changes in cash flows
for the periods then ended, including the footnotes thereto, except as indicated
therein, (i) complied in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto and (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods indicated, except that the unaudited financial
statements do not contain notes and may be subject to normal audit adjustments
and normal annual adjustments. Such financial statements fairly present the
financial condition of the Company and its Subsidiaries at the dates indicated
and the consolidated results of their operations and cash flows for the periods
then ended and, except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company and its Subsidiaries, fixed or contingent.
Since June 30, 1997 (the "Balance Sheet Date"), except as disclosed in the SEC
Reports, there has been (x) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Company and its Subsidiaries, whether
as a result of any legislative or regulatory change, revocation of any license
or rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects, of the Company and its Subsidiaries except in the ordinary course
of business; and no fact or condition exists or is contemplated or threatened
which might cause such a change in the future.
SECTION 4.8. Litigation. Except as set forth in the SEC Reports, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the
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(American International Petroleum Corporation) 85478.4
Company or any Subsidiary, before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Company or which challenges the validity of any Transaction Agreements.
SECTION 4.9. Plans. The Company and the Subsidiaries do not have any
Plans.
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 or other governmental charges have been established in accordance with
GAAP.
SECTION 4.12. Investments, Joint Ventures. Other than Med Shipping Usturt
Petroleum Limited, in which the Company owns 70% of the equity interests, the
Company has no Subsidiaries or other direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
SECTION 4.13. Not an Investment Company. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.14. Full Disclosure. The information heretofore furnished by the
Company to the Purchasers for purposes of or in connection with this Agreement
or any transaction contemplated hereby does not, and all such information
hereafter furnished by the Company or any Subsidiary to the Purchasers will not
(in each case taken together and on the date as of which such information is
furnished), contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they are made, not misleading.
SECTION 4.15. No Solicitation; No Integration with Other Offerings. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual
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(American International Petroleum Corporation) 85478.4
knowledge, any other Person acting on behalf of the Company, in connection with
the offer and sale of the Securities. Neither the Company, nor, to its
knowledge, any Person acting on behalf of the Company, has, either directly or
indirectly, sold or offered for sale to any Person (other than the Purchasers)
any of the Securities or, within the six months prior to the date hereof, any
other similar security of the Company except as contemplated by this Agreement,
and the Company represents that neither itself nor any Person authorized to act
on its behalf (except that the Company makes no representation as to the
Purchasers and their Affiliates) will sell or offer for sale any such security
to, or solicit any offers to buy any such security from, or otherwise approach
or negotiate in respect thereof with, any Person or Persons so as thereby to
cause the issuance or sale of any of the Securities to be in violation of any of
the provisions of Section 5 of the Securities Act. The issuance of the
Securities to the Purchasers will not be integrated with any other issuance of
the Company's securities (past, current or future) which requires stockholder
approval under the rules of the Nasdaq Market.
SECTION 4.16. Permits. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; (c) no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
SECTION 4.17. Leases. Except as disclosed on Schedule 4.17 hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 4.18. Absence of Any Undisclosed Liabilities or Capital Calls.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 4.7 hereof and (ii) other undisclosed liabilities which, individually or
in the aggregate, would not have a Material Adverse Effect.
SECTION 4.19. Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Transaction
Agreement.
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(American International Petroleum Corporation) 85478.4
SECTION 4.20. Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 4.21. Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
SECTION 4.22. Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7.
SECTION 4.23. Current Public Information. The Company is a "reporting
issuer" as defined in Rule 902(l) of Regulation S and it has a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act.
SECTION 4.24. No Directed Selling Efforts in Regard to this Transaction;
Compliance with Regulation S. The Company has not, and to the best of the
Company's knowledge no Purchaser nor any distributor, if any, participating in
the Offering of the Securities nor any Person acting for the Company or any such
distributor has conducted any "directed selling efforts" in connection wit the
Offering as that term is defined in Rule 902 of Regulation S. The Company has
not offered the Securities to the Purchaser in the United States or to any
Person in the United States or any U.S. person (as defined in Regulation S). The
Company represents and warrants that the Offering by the Company of the
Securities to the Purchaser as contemplated in this Agreement is not part of a
plan or scheme to evade the registration provisions of the Securities Act.
SECTION 4.25. No Action. The Company has not taken and will not take any
action that will affect in any way the running of the Restricted Period or
Warrant Restricted Period (each as hereafter defined) or the ability of any
Subscriber to resell freely the Securities in accordance with applicable
securities laws and this Agreement.
SECTION 4.26. 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
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(American International Petroleum Corporation) 85478.4
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. Purchase for Investment; Authority; Binding Agreement. Each
Purchaser severally (and not jointly) hereby represents and warrants to the
Company solely as to such Purchaser that:
(a) the Purchaser is not a "U.S. person" as that term is defined in
Rule 902(o) of Regulation S, and no Purchaser is an entity organized or
incorporated under the laws of any foreign jurisdiction by any U.S. person
principally for the purpose of investing in securities not registered
under the Securities Act, unless the Purchaser is or was organized or
incorporated by "U.S. persons" who are accredited investors (as defined in
Rule 501(a) under the Securities Act) and who are not natural persons,
estates or trusts;
(b) the Convertible Notes and Warrants were not offered to the
Purchaser in the United States and at the time of execution of this
Agreement and at the time the buy order was originated, and of any offer
to such Purchaser to purchase the Convertible Notes and Warrants
hereunder, such Purchaser was outside the United States;
(c) the Purchaser is purchasing the Convertible Notes and Warrants
for its own account and not on behalf of or for the benefit of any U.S.
person and the resale of the Convertible Notes and Warrants has not been
prearranged with any buyer in the United States;
(d) the Purchaser agrees that all offers and sales of the
Convertible Notes and Conversion Shares prior to the expiration of the
Restricted Period shall not be made to U.S. persons or for the account or
benefit of U.S. persons or within the United States and shall otherwise be
made in compliance with the provisions of Regulation S;
(e) Purchaser has been engaged or acted as or on behalf of a
distributor or dealer (and is not an affiliate of a distributor or dealer)
with respect to the Offering;
(f) the Purchaser agrees that all offers and sales of the Warrant
Shares prior to the expiration of a period commencing on the date of
issuance of the Warrant Shares following the exercise of the Warrant and
payment to the Company of the exercise price
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(American International Petroleum Corporation) 85478.4
associated therewith and ending forty (40) days thereafter (the "Warrant
Restricted Period") shall not be made to U.S. persons or for the account
or benefit of U.S. persons and shall otherwise be made in compliance with
provisions of Regulation S;
(g) the Purchaser shall take all reasonable steps to ensure its
compliance with Regulation S and shall promptly send to each Person who
acts as a distributor, dealer or a Person receiving a selling concession,
fee or other remuneration in respect of any of the Convertible Notes and
Warrants, who purchases prior to the expiration of the Restricted Period
or Warrant Restricted Period, as applicable, a confirmation or other
notice to the Person stating that the Person is subject to the same
restrictions on offers and sales as the Person pursuant to Section
901(c)(2)(iv) of Regulation S;
(h) the Purchaser has no present plan or intention of selling the
Securities in the United States, has made no predetermined arrangements to
sell the Securities (other than the registration provisions contained in
the Registration Rights Agreement, which pertain only to a potential
method of disposing of the shares of Common Stock) and that the Offering,
together with any subsequent resale by any Purchaser of the Securities, is
not part of a plan or scheme on the part of Purchaser to evade the
registration provisions of the Securities Act;
(i) the Purchaser currently does not have a short position in the
Company's Common Stock, including any short call position or any long put
position or any contract or arrangement that has the effect of eliminating
or substantially diminishing the risk of ownership of the Securities, nor
has any Purchaser engaged in any hedging transaction with respect to the
Securities;
(j) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act;
(k) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant hereto are within the Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(l) this Agreement and the remaining Transaction Agreement have been
duly executed and delivered in London, England by the Purchaser.
(m) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon such Purchaser;
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(American International Petroleum Corporation) 85478.4
(n) the 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;
(o) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
(p) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing
the economic risks of such investment; and
(q) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient
to enable it to evaluate its investment in the Securities; the Purchaser
has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and the Purchaser
has been afforded the opportunity to obtain such additional information
which the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to the Purchaser
concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. Conditions Precedent to the Purchasers' Obligation to
Purchase. The obligation of each Purchaser hereunder to purchase the Convertible
Notes at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Purchasers;
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(b) The Company shall have delivered to the Purchasers duly executed
certificates representing the Convertible Notes and the Warrants in
accordance with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as
of a specified date) and the Company shall have performed, satisfied and
complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it
at or prior to the Closing Date. The Purchasers shall have received a
certificate, executed by the chief executive officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Purchasers, including but
not limited to certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated hereby
and the incumbencies of certain officers and Directors of the Company. The
form of such certificate is attached hereto as Exhibit G;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary
or desirable in connection with the issuance and sale of the Securities;
(f) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been
taken by any competent authority that could restrain, prevent or impose
any materially adverse conditions thereon or that could seek or threaten
any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchasers, could adversely affect the transactions
set forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchasers could reasonably have any such effect;
(h) Each of the Purchasers shall have received an opinion, dated the
Closing Date, of counsel to the Company, substantially in the form
attached as Exhibit J hereto;
(i) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall
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(American International Petroleum Corporation) 85478.4
have been amended, waived or otherwise modified without the prior written
consent of the Purchasers;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since June 30,
1997;
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports
to affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or the Purchasers hereunder;
(m) The Purchasers shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in the
denominations and registered in the names of the Purchasers specified in
or pursuant to Schedule 2.1;
(n) There shall not have occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for the
Common Stock (including but not limited to any suspension or delisting),
which the Purchasers reasonably deem material in connection with the
purchase of the Securities;
(o) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing; and
(p) The Purchasers shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as
they shall reasonably request.
SECTION 6.2. Conditions to the Company's Obligations. The obligations of
the Company to issue and sell the Securities to the Purchasers pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the Closing
Date and the Purchasers shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by the Purchasers at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
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(American International Petroleum Corporation) 85478.4
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by the Purchasers;
and
(d) The Company shall have received payment of the Purchase Price,
less the Expense Reimbursement Fee.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding (except for Sections 7.1(a) and (d),
7.11 and 7.12, which shall apply for so long as any Convertible Notes or
Warrants remain outstanding) and for the benefit of the Purchasers:
SECTION 7.1. Information. The Company will deliver to each holder of the
Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent), (ii) all reports on Forms 10-K,
10-Q and 8-K (or their equivalents) which the Company or any Subsidiary
has filed with the Commission and (iii) any material press releases issued
by the Company or any Subsidiary;
(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 , a certificate of the chief
financial officer of the Company setting forth the details thereof and the
action which the Company is taking or proposes to take with respect
thereto;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(e) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible Notes
under Section 3.3, notice
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(American International Petroleum Corporation) 85478.4
thereof together with a summary of all material terms thereof and copies
of all documents and instruments associated therewith; and
(f) 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 and its Subsidiaries will
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 and each
Subsidiary will 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 continue, and each
Subsidiary will 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 and each Subsidiary will
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 and
each Subsidiary will keep proper books of record and account in which full, true
and correct entries shall be made of all dealings and transactions in relation
to their respective businesses and activities; and will permit, during normal
business hours, the Purchasers' Representative or an affiliate thereof, as
representatives of the Purchasers, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with
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(American International Petroleum Corporation) 85478.4
their respective executive officers and independent public accountants, 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. Supplemental Information. If at any time 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 7.9. Use of Proceeds. The proceeds from the issuance and sale of
the Securities by the Company shall be used to provide start-up capital for the
Company's existing oil refinery in Lake Charles, Louisiana and for general
corporate purposes. None of the proceeds from the issuance and sale of
Securities by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
SECTION 7.10. Compliance with Terms and Conditions of Material Contracts.
The Company will comply, in all material respects, with all terms and conditions
of all material contracts to which it is subject.
SECTION 7.11. Reserved Shares and Listings
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time), and the exercise in full
of the Warrants and the issuance of the Warrant Shares (based on the
exercise price of the Warrants). The Company shall not reduce the number
of shares of Common Stock reserved for issuance upon conversion of the
Convertible Notes and exercise of the Warrants without the prior written
consent of each Purchaser. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for
issuance at no less than two (2) times the number that is then actually
issuable upon full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time) and full exercise of the
Warrants and the issuance of the Warrant Shares (based on the exercise
price of the Warrants). If at any time the number of shares of Common
Stock authorized and reserved for issuance is below the number of
Conversion Shares issued and issuable upon conversion of the Convertible
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(American International Petroleum Corporation) 85478.4
Notes and exercise of the Warrants, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, either (x) calling a special
meeting of shareholders to authorize additional shares, in the case of an
insufficient number of authorized shares, and using its best efforts to
obtain shareholder approval within 90 days of an increase in such
authorized number of shares or (y) in lieu thereof, consummating the
immediate repurchase of the Convertible Notes and Warrants contemplated
Section 4.3 of each Convertible Note and Section 10.3 hereof,
respectively.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Conversion Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice
of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and
Warrant Shares from time to time issuable upon conversion or exercise of
the Convertible Notes and Warrants. The Company will obtain and maintain
the listing and trading of its Common Stock on the Nasdaq Market, the
Nasdaq SmallCap Market, the New York Stock Exchange, Inc., or the American
Stock Exchange Inc., and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers and such exchanges, as
applicable. The Company shall promptly provide to each Purchaser copies of
any notices it receives regarding the continued eligibility of the Common
Stock for listing on the Nasdaq Market
SECTION 7.12. Irrevocable Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares or Warrant Shares, as applicable, in such amounts as specified from time
to time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of any
Convertible Notes in accordance with their terms, and/or 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. All such shares shall be issued with or without
restrictive legend as provided in Article IX below.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding and for the benefit of the
Purchasers:
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(American International Petroleum Corporation) 85478.4
SECTION 8.1. Limitation on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities) any Debt if, following the incurrence
thereof, the ratio of the Company's Debt to its Consolidated Net worth is
greater than 1.5 to 1.0; provided, the following items of Debt shall be excluded
from such calculation(such Debt being referred to as "Permitted Debt"):
(i) 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
(ii) Debt incurred in connection with trade accounts payable, imbalances
and refunds arising in the ordinary course of business.
(iii) Debt associated with the acquisition and/or operation of the
________________.
SECTION 8.2. Restricted Payments. Neither the Company nor any Subsidiary
will declare or make Restricted Payments in excess of $50,000 during any
calendar year.
SECTION 8.3. Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition of stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.3 attached hereto
(with a copy of such agreements annexed to such Schedule 8.3) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
SECTION 8.4. Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions, (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation.
SECTION 8.5. Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of the Purchasers, which
consent shall not be unreasonably withheld; provided, no consent of the
Purchasers will be required for the disposition or farm-out of the Company's
interest in Kazakstan. As used herein, "Asset Sale" means any sale, lease,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) of shares
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(American International Petroleum Corporation) 85478.4
of capital stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition"), including any disposition by means of a merger,
consolidation or similar transaction other than a disposition of property or
assets at fair market value in the ordinary course of business.
SECTION 8.6. Limitation on Stock Repurchases. The Company shall not,
without the written consent of the Majority Holders, redeem, repurchase or
otherwise acquire (whether for cash or in exchange for property or other
securities or otherwise) any shares of capital stock of the Company or any
warrants, rights or options to purchase or acquire any such shares.
SECTION 8.7. Pension Plans. The Company shall not, without the written
consent of the Majority Holders, which shall not be unreasonably withheld,
create any Plan.
SECTION 8.8. Consolidated Net Worth. Beginning with the fiscal quarter
ending September 30, 1997, the Company will not permit its Consolidated Net
Worth at the end of any of its fiscal quarters to be less than $15 million.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1. Restrictive Legends.
(a) The Convertible Notes shall bear a legend substantially as set
forth below and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law. Assuming that there
are no changes in the material facts represented by the Purchasers in
Section 5.1 of this Agreement or applicable law from the date hereof until
the date of conversion, all certificates representing the Conversion
Shares into which the Convertible Notes are converted after the Restricted
Period shall be issued without any restrictive legend.
"The Convertible Note of American International Petroleum Corporation
represented hereby has been issued pursuant to Regulation S, promulgated
under the United States Securities Act of 1933, as amended (the "Act"),
and has not been registered under the Act or any applicable state
securities laws. This Convertible Note may not be offered or sold within
the United States or to or for the account of a "U.S. Person" (as that
term is defined in Regulation S) during the period commencing on the date
of sale of this Convertible Note and ending on the fortieth (40th) day
following completion of the Regulation S offering pursuant to which this
Convertible Note has been issued (the "Restricted Period"). This
Convertible Note may first be converted into common stock on [41st day
after Closing]."
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(American International Petroleum Corporation) 85478.4
(b) The Warrant Shares, when issued, shall bear a legend
substantially as set forth below and any other legend, if such legend or
legends are reasonably required to comply with state, federal or foreign
law (provided, if as a result of any change in the applicable laws
governing Regulation S transactions, the Warrant Restricted Period is
changed, the Company may alter the legend set forth below for certificates
representing Warrant Shares issued after the effective date of such change
such that the Warrant Restricted Period conforms therewith).
"The shares of Common Stock of American International Petroleum
Corporation. represented hereby have been issued pursuant to Regulation S,
promulgated under the United States Securities Act of 1933, as amended
(the "Act"), and have not been registered under the Act or any applicable
state securities laws. These shares may not be offered or sold within the
United States or to or for the account of a "U.S. Person" (as that term is
defined in Regulation S) during the period commencing on the date of
issuance hereof and ending forty (40) days thereafter."
(c) At the request of a Purchaser, the Company shall promptly
exchange following the Warrant Restricted Period certificates representing
the Warrant Shares issued with the legend described in Section 9.1(b)
above for certificates representing the Warrant Shares issued without a
legend. The Company may place a stop transfer order on the Warrant Shares
during the Warrant Restricted Period for the duration of the Warrant
Restricted Period.
SECTION 9.2. Issuance of Common Shares; Transfers. Upon conversion of the
Convertible Debentures and/or exercise of the Warrants, 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 applicable. The shares of Common Stock to be issued upon
conversion of the Convertible Notes or exercise of the Warrants shall not bear
any restrictive legends (other than the legend set forth in Section 9.1(b) for
the Warrant Shares) and shall be freely transferable upon expiration of the
Restricted Period or Warrant Restricted Period, as applicable, subject to
compliance with Federal and state securities laws and the terms of the
Convertible Notes and Warrants. The Company agrees that no instructions other
than these instructions, and instructions for a "stop transfer" until the end of
the Restricted Period or Warrant Restricted Period, as applicable, have been or
will be given to its transfer agent and also agrees that the Convertible Notes,
Warrants, Conversion Shares and/or Warrant Shares, as applicable, shall
otherwise be freely transferable by Purchaser on the books and records of the
Company subject to compliance with Federal and state securities laws and the
terms of the Convertible Notes and Warrants. The Company will notify its
transfer agent of the date of Closing of this Offering and of the date of
expiration of the Restricted Period and of the Warrant Restricted Period upon
exercise of any Warrants. Nothing in this section shall affect in any way a
Purchaser's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities.
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(American International Petroleum Corporation) 85478.4
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 Article IX hereof within five (5) New York Stock Exchange Trading
Days of delivery of a Notice of Conversion or Notice of Exercise, as
applicable (the "Deadline") to the Purchaser (or any party receiving
Securities by transfer from such Purchaser) at the address of the
Purchaser set forth in the Notice of Conversion or Notice of Exercise, as
the case may be. The Company understands that a delay in the issuance of
such certificates after the Deadline could result in economic loss to the
Purchaser.
(b) Without in any way limiting the Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the
Company agrees that if delivery of the Conversion Shares or Warrant Shares
is more than one (1) Business Day after the Deadline (other than a failure
due to the circumstances described in Section 4.3 of the Convertible
Notes, which failure shall be governed by such Section) the Company shall
pay to each Purchaser, as liquidated damages and not as a penalty, the
greater of (x) $100 for each $100,000 of Convertible Notes then
outstanding per day in cash, for each of the first ten (10) days beyond
the Deadline, and $200 for each $100,000 of Convertible Notes then
outstanding per day in cash for each day thereafter that the Company fails
to deliver such Common Stock and (y) $500 per day in cash, for each of the
first ten (10) days beyond the Deadline, and $1,000 per day in cash for
each day thereafter that the Company fails to deliver such Common Stock.
Such cash amount shall be paid to each Purchaser by the fifth day of the
month following the month in which it has accrued or, at the option of the
Purchaser (by written notice to the Company by the first day of the month
following the month in which it has accrued), shall be added to the
principal amount of the Convertible Note (if then outstanding) payable to
such Purchaser, in which event interest shall accrue thereon in accordance
with the terms of the Convertible Notes and such additional principal
amount shall be convertible into Common Stock in accordance with the terms
of the Convertible Notes.
SECTION 10.2. Conversion Notice. The Company agrees that, in addition to
any other remedies which may be available to the Purchasers, including, but not
limited to, the remedies available under Section 10.1, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates with
or without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Notes or exercise of any Warrant, such Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion or Notice of Exercise, as applicable, by delivering a notice to
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(American International Petroleum Corporation) 85478.4
such effect to the Company whereupon the Company and the Purchaser shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion or Notice of Exercise.
SECTION 10.3 Conversion Limit.
(a) Notwithstanding the conversion rights under the Convertible
Notes and exercise rights under the Warrants, unless the Purchaser
delivers a waiver in accordance with the immediately following sentence,
in no event shall the Purchaser be entitled to convert any portion of the
Convertible Notes (or exercise any portion of the Warrants) in excess of
that portion of the Convertible Notes or Warrants upon conversion and
exercise, as applicable, of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Purchaser and its Affiliates (other
than shares of Common Stock which may be deemed beneficially owned through
the ownership of the unconverted portion of the Convertible Note and
exercised portion of the Warrants) and (ii) the number of shares of Common
Stock issuable upon the conversion of the portion of the Convertible Note
(or issuable upon exercise the portion of the Warrants) with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Purchaser and its Affiliates of more than 4.9%
of the outstanding shares of Common Stock. For purposes of the first
proviso to the immediately preceding sentence, (i) beneficial ownership
shall be determined in accordance with Section 13(d)-3 of the Exchange Act
and Regulation 13 D-G thereunder, except as otherwise provided in clause
(1) of such proviso and (ii) the Holder may waive the limitations set
forth therein by written notice to the Company upon not less than
sixty-one (61) days prior notice (with such waiver taking effect only upon
the expiration of such 61 day notice period). The foregoing limitation
shall not apply and shall be of no further force or effect (i) upon the
occurrence of any voluntary or mandatory redemption transaction described
herein or in the Convertible Notes, (ii) on the Maturity Date or (iii)
following the occurrence of any Event of Default which is not cured within
the greater of the applicable time period specified in either (A) such
written notice of Purchaser or (B) Section 12.1 hereof.
(b) Upon the occurrence of a Nasdaq Redemption Event, if the Company
is obligated to repay the Convertible Notes as described in Section 4.3
thereof, the Company shall, in addition thereto, redeem the Warrants
contemporaneous with the repayment of the Convertible Notes at the Warrant
Redemption Price. The term "Warrant Redemption Price" shall mean the
greater of (x) the appraised value of the Warrants on the date they are
called for redemption (determined with reference to the "Black Scholes" or
similar option pricing model) and (y) the product of the excess of (i) the
Market Value of the Common Stock on the date that the Warrants are
redeemed over (ii) the exercise price of the Warrants.
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(American International Petroleum Corporation) 85478.4
SECTION 10.4 Registration Rights.
(a) The Company shall grant the Purchasers registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable
Securities") on the terms set forth in the Registration Rights Agreement
and herein. In the event that Regulation S is amended or modified (x) to
increase the number of days contained in the Restricted Period or Warrant
Restricted Period or (y) so that the Conversion Shares or Warrant Shares
would be deemed "restricted securities" pursuant to the Securities Act (a
"Liquidity Event"), the Purchasers will be entitled to demand registration
rights in respect of the Registerable Securities.
(b) The Company shall prepare and file within 30 days of the
occurrence of a Liquidity Event a registration statement (the
"Registration Statement") on Form S-3 (or such other form as is then
available for registration) covering the sale of the Registrable
Securities. The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission no later
than 90 days following the Liquidity Event (the "Required Effectiveness
Date"). The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such Registration Statement by the
Purchasers).
(c) If the Registration Statement is (x) not declared effective by
the Commission by the Required Effectiveness Date, or (y) such
effectiveness is not maintained for a period of three (3) years after the
Closing, which period shall be reduced to two (2) years if the Convertible
Notes have been repaid in full (subject to the right of the Company to
suspend the effectiveness thereof for not more than 10 consecutive days or
an aggregate of 30 days during such three year period) (the "Registration
Maintenance Period"), the Company shall pay to each Purchaser monthly, as
liquidated damages and not as a penalty, the greater of (x) its pro rata
portion of an amount equal to 0.5% of the aggregate outstanding principal
amount of the Convertible Notes, which monthly amount will be increased to
1% in the event that the Registration Statement is not declared effective
by the Commission the Required Effectiveness Date, or (y) $500 for each
day the Registration Statement (i) is not declared effective by the
Commission by the Required Effectiveness Date or such effectiveness is not
maintained for the Required Maintenance Period (the "Default Fee").
(d) Any such Default Fee shall be paid in cash by the Company to the
Purchasers by wire transfer in immediately available funds on the last day
of each calendar week following the event requiring its payment.
(e) If, for any reason (including but not limited to the issuance of
all shares of Common Stock covered by the prospectus included in the
Registration Statement), the Default Fee is incurred for a period of
thirty (30) days (a "Registration Default"), the holders of a majority of
the Convertible Notes then outstanding may elect to cause the Company to
repay the Convertible Notes in full at the Formula Price.
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(American International Petroleum Corporation) 85478.4
SECTION 10.5 Prohibition on Discounted Equity Offerings.
(a) Until such time as all of the Convertible Notes have been repaid
or converted in full, the Company agrees that it will not issue (or,
unless such issuance would, upon the closing thereof, result in the
repayment in full of the Convertible Notes, agree to 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
(other than the Convertible Notes), 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 (each such event, a
"Discounted Equity Offering"). As used herein, "discount" shall include,
but not be limited to, (1) 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 (2) any commissions, fees or other allowances paid in connection with
such issuances (other than customary underwriter or placement agent
commissions, fees or allowances). For the purposes of determining the
Market Price at which Common Stock is acquired under this Section, normal
underwriting commissions and placement fees (including underwriters'
warrants) shall be excluded.
(b) Until such time as all of the Convertible Notes have been repaid
or converted in full, the Company agrees it will not issue (or, unless
such issuance would, upon the closing thereof, result in the repayment in
full of the Convertible Notes, agree to issue) any of its equity
securities (or Derivative Securities), unless any shares of Common Stock
issued or issuable in connection therewith are "restricted securities". As
used herein "restricted securities" shall mean securities which may not be
sold by virtue of contractual restrictions imposed by the Company either
pursuant to an exemption from registration under the Securities Act or
pursuant to a registration statement filed by the Company with the
Commission, in each case prior to twelve (12) months following the date of
issuance of such securities.
(c) The restrictions contained in this Section 10.5 shall not apply
to the issuance by the Company of (or the agreement to issue) Common Stock
or Derivative Securities in connection with (x) the acquisition (including
by merger) of a business or of assets otherwise permitted under this
Agreement, (y) stock option or other compensatory plans, or (z) up to
1,500,000 shares of Common Stock issued in connection with the acquisition
of the ________________.
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(American International Petroleum Corporation) 85478.4
SECTION 10.6. Covenants of the Purchasers.
(a) Each Purchaser covenants that neither it nor any of its
Affiliates nor any Person acting on its or their behalf has the intention
of entering, or will enter from the Closing through the end of the
Restricted Period applicable to the Convertible Notes, into any put
option, short position or any hedging transaction or other similar
instrument or position with respect to the Company's Common Stock and
neither it nor any of its Affiliates nor any Person acting on its or their
behalf will use at any time the Company's Common Stock to settle any put
option, short position or other similar instrument or position that may
have been entered into prior to the execution of this Agreement.
(b) Each Purchaser further covenants that it will not make any sale,
transfer or other disposition of the Securities in violation of the
Securities Act (including Regulation S) or the rules and regulations of
the Commission promulgated thereunder. Each Purchaser acknowledges and
agrees that the Securities may and will only be resold (i) in compliance
with Regulation S; (ii) pursuant to a Registration Statement under the
Securities Act; or (iii) pursuant to an exemption from registration under
the Securities Act.
ARTICLE XI
ADJUSTMENT OF FIXED PRICE
SECTION 11.1. Reorganization. The exercise price of the Warrants
set forth therein and the Initial Conversion Price (collectively, the "Fixed
Prices") shall be adjusted as hereafter provided.
SECTION 11.2. Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
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(American International Petroleum Corporation) 85478.4
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
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(American International Petroleum Corporation) 85478.4
purchase may be converted or exchanged and the conversion or exchange
price of such securities,
or, as the case may be, by
(B) the Market Price of the Common Stock on such record date;
and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such record
date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities, the
maximum number of shares of Common Stock for or into which the securities
so offered for subscription or purchase may be converted or exchanged).
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
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(American International Petroleum Corporation) 85478.4
(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 Notes or
exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock to which such holder was theretofore entitled
upon conversion; provided, however, that no such Capital Reorganization shall be
consummated in effect unless all necessary steps shall have been taken so that
such holders shall thereafter be entitled to receive such number of shares or
other securities of the Company or of the body corporate resulting from such
Capital Reorganization, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained above.
SECTION 11.6. 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
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(American International Petroleum Corporation) 85478.4
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) no adjustment in the applicable Fixed Price shall be made
pursuant to this Article XI in respect of the issue from time to time of
Common Stock to holders of Common Stock who exercise an option to receive
substantially equivalent dividends in Common Stock in lieu of receiving
cash dividends in the ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding upon
the Company and Purchasers.
SECTION 11.7. Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the applicable Fixed Price deliver to the Purchasers a certificate specifying
the nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 11.8. Notice to Noteholders. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering.,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(e) 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 the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
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(American International Petroleum Corporation) 85478.4
ARTICLE XII
EVENTS OF DEFAULT
SECTION 12.1. Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or any
part of the principal or on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the Convertible
Notes);
(b) failure by the Company to pay (i) within five (5) Business Days
of the due date thereof any interest on any Convertible Notes or (ii)
within five (5) Business Days following the delivery of notice to the
Company of any fees or any other amount payable (not otherwise referred to
in (a) above or this clause (b)) by the Company under this Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 9.2 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(d) an event of default shall have occurred and is continuing under
any Transaction Agreement;
(e) failure on the part of the Company to observe or perform any
covenant contained in Sections 7.11 or 7.12 or Article VIII of this
Agreement;
(f) failure on the part of the Company to observe or perform any
covenant contained in any Transaction Agreement (other than those covered
by clauses (a), (b), (c), (d) or (e) above) for 30 days from the date of
such occurrence;
(g) the trading in the Common Stock shall have been suspended by the
Commission or by the Nasdaq Market (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension
on the Nasdaq Market, the Common Stock is then listed and approved for
trading on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock market's Small Cap Market, or the Nasdaq
National Market within ten (10) Trading Days thereof);
(h) failure of the Company to file the Listing Applications within
twenty (20) Business Days of the Closing Date, which failure is not cured
within five (5) Business Days of such failure;
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(American International Petroleum Corporation) 85478.4
(i) the Company shall have its Common Stock delisted from the Nasdaq
Market for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock market's Small Cap Market or the Nasdaq Stock
Market's National Market within such ten (10) Trading Days;
(j) the Registration Statement shall not have been declared
effective by the Commission by the Required Effectiveness Date, with such
effectiveness maintained for the Registration Maintenance Period, which
results in the Company incurring the Default Fee for a period in excess of
thirty (30) days;
(k) the Company or 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;
(l) an involuntary case or other proceeding has been commenced
against the Company 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 under the federal bankruptcy laws as now or hereafter
in effect;
(m) default in respect of any Debt in excess of $1,000,000 of the
Company or any Subsidiary, or the Company or any Subsidiary has failed to
pay at maturity or within any applicable period of grace any such Debt;
(n) 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
(o) 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
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(American International Petroleum Corporation) 85478.4
with any Transaction Agreement shall prove to have been untrue in any
material respect when made.
then, and in every such occurrence, any Purchaser may, with respect to an Event
of Default specified in paragraphs (a) or (b), and the Majority Holders may,
with respect to any other Event of Default, by notice to the Company, declare
the Convertible Notes to be, and the Convertible Notes shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (k) or (l) above with respect the Company or any
Subsidiary, then, without any notice to the Company or any other act by any
Purchaser, the entire amount of the Convertible Notes shall become immediately
due and payable, provided further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible Note has been declared
immediately due and payable hereunder, any Purchaser of Convertible Notes may
proceed to protect and enforce the rights of such Purchaser by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default, the amount
declared due and payable on the Convertible Notes shall be the Formula Price
thereof.
SECTION 12.2. Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchasers is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Purchasers.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
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(American International Petroleum Corporation) 85478.4
SECTION 13.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Majority Holders; provided, that
without the consent of each holder of any Convertible Note affected
thereby, an amendment or waiver may not (a) reduce the aggregate principal
amount of Convertible Notes whose holders must consent to an amendment or
waiver, (b) reduce the rate or extend the time for payment of interest on
any Convertible Note, (c) reduce the principal amount of or extend the
stated maturity of any Convertible Note or (d) make any Convertible Note
payable in money or property other than as stated in such Convertible
Note. In determining whether the holders of the requisite principal amount
of Convertible Notes have concurred in any direction, consent, or waiver
as provided in any Transaction Agreement, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the
Convertible Notes, or by any Person Controlling, Controlled by, or under
Common Control with any of the foregoing, shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; and
provided further that no such amendment, supplement or waiver which
affects the rights of the Purchasers and their affiliates otherwise than
solely in their capacities as holders of Convertible Notes shall be
effective with respect to them without their prior written consent.
SECTION 13.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
Purchaser, or any of its Affiliates, within the meaning of the Securities
Act or the Exchange Act (each, a "Controlling Person"), and the respective
partners, agents, employees, officers and Directors of each Purchaser,
their Affiliates and any such Controlling Person (each an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against any
and all losses, claims, damages, liabilities and expenses (including,
without limitation and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than the
Purchasers unless it has received from such Indemnified Party an
undertaking to repay to the Company the costs so advanced if it should be
determined by final judgment of a court of competent jurisdiction that
such Indemnified Party was not entitled to indemnification hereunder with
respect to such costs) which may be incurred by such Indemnified Party in
connection with any investigative, administrative or judicial proceeding
brought or
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(American International Petroleum Corporation) 85478.4
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 the
Purchasers. The Company shall not be liable for any settlement of any such
action effected without the written consent of the Company (which shall
not be unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability by
reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of the Purchasers, settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened
action, claim, suit or proceeding in respect to which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Party
is a party thereto) unless such settlement, compromise, consent or
termination includes an express unconditional release of the Purchasers
and the other Indemnified Parties, satisfactory in form and substance to
the Purchasers, from all liability arising out of such action, claim, suit
or proceeding.
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(American International Petroleum Corporation) 85478.4
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and by the Purchasers on the other
from the transactions contemplated by this Agreement or (ii) if the
allocation provided by clause (i) is not permitted under applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchasers on the
other, but also the relative fault of the Company and the Purchasers as
well as any other relevant equitable considerations. Notwithstanding the
provisions of this Section 13.3, the aggregate contribution of all
Indemnified Parties shall not exceed the amount of interest and fees
actually received by the Purchasers pursuant to this Agreement. It is
hereby further agreed that the relative benefits to the Company on the one
hand and the Purchasers on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact related to
information supplied by the Company or by the Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Notes and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Purchasers or
any other Indemnified Party.
SECTION 13.4. Expenses: Documentary Taxes. The Company agrees to pay (i)
(i) the Expense Reimbursement Fee, (ii) all reasonable out-of-pocket expenses of
the Purchasers, including fees and disbursements of counsel, in connection with
any waiver or consent hereunder or under any other Transaction Agreement or any
amendment hereof or thereof and (iii) all reasonable out-of-pocket expenses of
the Purchasers and each holder of Securities, including fees and disbursements
of counsel, in connection with any collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom. In addition, the Company agrees to
pay any and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any Transaction
Agreement or the issuance of the Securities to the Purchasers, excluding their
assigns.
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SECURITIES PURCHASE AGREEMENT - Page 48
(American International Petroleum Corporation) 85478.4
SECTION 13.5. Payment. The Company agrees that, so long as a Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to such Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (New York City time).
SECTION 13.6. Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchasers and their respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchasers and their affiliates or to holders of Securities are for
the express benefit of such Persons and their successors and assigns.
SECTION 13.7. Brokers. Except for a cash fee of 3% of the aggregate
principal amount of the Convertible Notes (and Warrants equal to 2% of the
funded amount of the Convertible Notes) payable to LKB Financial, LLC, the
Company represents and warrants that it has not employed any broker, finder,
financial advisor or investment banker who would be entitled to any brokerage,
finder's or other fee or commission payable by the Company or the Purchasers in
connection with the sale of the Securities. Each Purchaser hereby 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 in connection with the sale of the Securities.
SECTION 13.8. New York Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 13.9. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in
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SECURITIES PURCHASE AGREEMENT - Page 49
(American International Petroleum Corporation) 85478.4
full force and effect and shall in no way be affected, impaired or invalidated
unless a failure of consideration would result thereby.
SECTION 13.10 Survival. All provisions contained in this Agreement (unless
specifically noted to the contrary) shall survive the payment in full of the
Convertible Notes and shall remain operative and in full force and effect.
SECTION 13.11. Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[Signature Pages Follow]
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SECURITIES PURCHASE AGREEMENT - Page 50
(American International Petroleum Corporation) 85478.4
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: 000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attn: Xxxxxx Xxxxx
By:
---------------------------------
Name: ________________________________
Title: _______________________________
Address:
Fax:
Attn:
With copy to:
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SECURITIES PURCHASE AGREEMENT - Page 51
(American International Petroleum Corporation) 85478.4
SCHEDULES
2.1 Allocation of Securities Among Purchasers
4.1 List of Subsidiaries
4.3 Capitalization
4.17 Leases
8.3 Affiliates Agreements
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Notice of Conversion
Exhibit C - Form of Notice of Exercise
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Solvency Certificate
Exhibit F - Form of Officer's Certificate
Exhibit G - Form of Escrow Agreement
Exhibit H - Form of Warrant
Exhibit I - Form of Company Counsel's Opinion
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SECURITIES PURCHASE AGREEMENT - Page 52
(American International Petroleum Corporation) 85478.4
SCHEDULE 2.1
SECURITIES
--------------------------------------------------------------------------------
Aggregate Principal Number of
Name/Address Amount of Notes Purchase Price Warrant Shares
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$ $(1)
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$ $
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TOTAL $ $(1)
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(1). Includes deduction of $25,000 as the Expense Reimbursement Fee
