FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File number No. 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 13-3130236
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
(212) 688-3333
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No________
The number of shares outstanding of the registrant's common stock, $.08 par
value, as of November 13, 1996 is 34,450,503 shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 173,272 $ 162,218
Cash - restricted 128,970 226,223
Accounts receivable 1,347,485 1,073,553
Inventory 246,432 504,953
Prepaid expenses 695,290 547,509
-------------- ------------
Total current assets 2,591,449 2,514,456
-------------- ------------
Property, plant and equipment:
Unevaluated property not subject
to amortization 5,577,628 4,998,824
Oil and gas properties pursuant
to the full cost method 32,109,893 31,566,297
Refinery property and equipment 16,578,904 15,521,995
Other 519,862 506,445
-------------- ------------
54,786,287 52,593,561
Less - accumulated depreciation,
depletion and amortization (23,434,061) (22,502,472)
-------------- ------------
Total property, plant and equipment 31,352,226 30,091,089
-------------- ------------
Other long-term assets, net 169,279 34,817
-------------- ------------
Total Assets $ 34,112,954 $ 32,640,362
============= ============
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 101,352 $ 66,759
Current installments of long-term debt 1,848,500 1,870,000
Accounts payable 2,960,534 2,363,562
Accrued expenses and other liabilities 1,252,806 1,616,678
------------- -------------
Total current liabilities 6,163,192 5,916,999
Long term debt 4,739,496 5,432,671
------------- -------------
Total Liabilities 10,902,688 11,349,670
Stockholders' equity:
Preferred stock, par value $.01,
authorized 7,000,000 shares, none
issued (Note 3) - -
Common stock, par value $.08, 100,000,000
shares authorized, 34,431,828 shares issued
and outstanding at September 30, 1996 and
24,705,926 shares issued and outstanding at
December 31, 1995 (Note 3) 2,754,546 1,976,474
Additional paid-in capital 77,434,941 74,768,272
Stock purchase warrants 1,297,754 1,297,754
Accumulated Deficit (58,276,975) (56,751,808)
------------- -------------
Total Stockholders' Equity 23,210,266 21,290,692
------------- -------------
Commitments and Contingencies - -
------------- -------------
Total Liabilities and
Stockholders' Equity $ 34,112,954 $ 32,640,362
============= =============
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C>
Revenues:
Oil and gas sales $ 300,514 $ 304,870
Refinery lease fees 662,962 399,933
Interest Income 378 (15,128)
Other 36,120 80,966
-------------- -------------
Total revenues 999,974 770,641
-------------- -------------
Expenses:
Operating 176,220 70,068
General and Administrative 923,270 835,088
Depreciation, depletion and amortization 284,251 303,432
Interest 359,013 237,005
-------------- -------------
Total expenses 1,742,754 1,445,593
-------------- -------------
Net Loss $ (742,780) $ (674,952)
============== =============
Loss per share of common stock $ (0.02) $ (0.03)
============== =============
Weighted average number of shares
outstanding 32,884,064 22,417,001
============== =============
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1996 1995
--------- --------
Revenues:
Oil and gas sales $ 941,760 $ 929,799
Refinery lease fees 1,780,280 779,860
Interest Income 3,851 21,074
Other 164,022 116,938
-------------- -------------
Total revenues 2,889,913 1,847,671
-------------- -------------
Expenses:
Operating 392,885 278,089
General and Administrative 2,210,298 2,583,460
Depreciation, depletion and amortization 931,704 931,885
Interest 880,193 757,452
-------------- ------------
Total expenses 4,415,080 4,550,886
-------------- ------------
Net Loss $ (1,525,167) $ (2,703,215)
============== ============
Loss per share of common stock $ (0.05) $ (0.12)
============== ============
Weighted average number of shares
outstanding 30,406,476 21,832,299
============== ============
See notes to consolidated financial statements
-5-
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- ---------------
<S> <C>
Cash flows from operating activities:
Net loss $ (1,525,167) $ (2,682,902)
------------- ---------------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and depletion 931,704 931,885
Amortization of bond/loan costs 52,425 67,997
Non-cash provision for services 421,875
Gain on sale of assets - (25,165)
Changes in current assets & liabilities:
(Increase) decrease in accounts receivable (273,932) (109,157)
Decrease in inventory 258,521 322,070
(Increase) decrease in prepaid expenses 48,430 (140,276)
Increase (decrease) in accounts payable
and accrued expense 486,557 846,230
------------ -------------
Total adjustments 1,925,580 1,893,584
-------------- ----------------
Net cash used by operating activities 400,413 (789,318)
-------------- ----------------
Cash flows from investing activities:
Additions to oil and gas properties (1,122,400) (1,998,272)
Additions to refinery property and equipment (1,056,909) -
(Additions) retirements to other assets (200,023) (22,571)
-------------- ----------------
Net cash used in investing activities (2,379,332) (2,020,843)
-------------- ----------------
Cash flows from financing activities:
Cash - restricted 97,253 (8,920)
Increase (decrease) in notes payable 34,593 82,237
Payments on long-term debt (714,675) (467,500)
Proceeds from issuance of debentures, net 1,810,000 -
Proceeds from issuance of common stock, net of
offering expenses 762,802 2,324,361
Proceeds from exercise of stock warrants - 32
-------------- ----------------
Net cash provided by financing activities 1,989,973 1,930,210
-------------- ----------------
Net (decrease) increase in cash
and cash equivalents 11,054 (879,951)
Cash and cash equivalents at beginning of period 162,218 943,371
-------------- ----------------
Cash and cash equivalents at end of period $ 173,272 $ 63,420
============== ================
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common Stock paid-in purchase
Shares Amount capital warrants Deficit Total
---------- ----------- ----------- ----------- ------------- -----------
<S> <C>
Balance, December 31, 1995 24,705,926 $1,976,474 $74,768,272 $1,297,754 ($56,751,808) $21,290,692
Stock issued in lieu of accounts payable 457,447 36,596 223,468 - - 260,064
Stock issued in lieu of services 900,000 72,000 349,875 - - 421,875
Conversion of debentures 6,535,122 522,810 1,477,190 - - 2,000,000
Sale of common stock - net 1,833,333 146,666 616,136 - - 762,802
Net loss for the period - - - - (1,525,167) (1,525,167)
---------- ---------- ----------- ----------- ------------- -----------
Balance, September 30, 1996 34,431,828 $2,754,546 $77,434,941 $1,297,754 ($58,276,975) $23,210,266
========== ========== =========== =========== ============= ===========
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements of American
International Petroleum Corporation and Subsidiaries (the "Company") have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1996, the results of operations for the three and nine month periods ended
September 30, 1996 and 1995 and cash flows for the nine months ended September
30, 1996 and 1995. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with those
used in the preparation of the Company's 1995 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1995 Annual Report on Form 10-K.
2. Contingencies
IRS Excise Tax Dispute
In May 1992, a Company subsidiary, American International Refinery, Inc.
("AIRI"), was notified by the Internal Revenue Service ("IRS") that the IRS was
considering an assessment of excise taxes, penalties and interest of
approximately $3,500,000 related to the sale of fuel products during 1989. The
IRS claims that AIRI failed to comply with an administrative procedure that
required sellers, and buyers in tax-free transactions, to obtain certification
from the IRS. The Company believes that AIRI complied with the substance of the
existing requirements and such sales were either tax-free or such excise taxes
were paid by the end-users of such products. The Company has submitted a formal
response, and has been negotiating with the IRS regarding a settlement since
1993. The IRS has recently indicated a willingness to waive all of the penalties
and 75% of the proposed tax liability. The Company expects to meet with the IRS
before year-end in order to finalize a settlement. Therefore, it now appears
that this dispute may be resolved by year-end. Although settlement discussions
are continuing, the Company has provided an allowance during 1995 of $250,000
for estimated costs, either in the form of legal expenses
8
<PAGE>
or payments to the IRS, or some combination of both. Although, the Company
believes that this allowance may not be sufficient to cover the total settlement
amount, it is unable to determine precisely what liability may arise from this
assessment at this time.
Legal Proceedings
The Company and its subsidiaries are party to various legal proceedings,
including environmental matters. Although the ultimate disposition of these
proceedings is not presently determinable, in the opinion of the Company, any
liability that might ensue would not be material in relation to the consolidated
financial position or results of operations of the Company.
In October 1995, Rio Bravo S.A., the operator of the Company's Lot IV Block in
Peru, locked-out the personnel of Pan American International Petroleum
Corporation ("PAIPC"), a wholly-owned Company subsidiary, from access thereto
and filed a legal action in Peru against PAIPC claiming damages of $11,695,000
and alleging that PAIPC's License Contract with the government to explore Block
IV (the "License Contract") was cancelled by the government due to the fact
PAIPC did not complete the minimum work program required under the License
Contract. However, because the minimum work program was completed and was
certified as complete by the government (the performance bond placed by PAIPC to
assure its compliance with the minimum work program has, in fact, been released
by the government) and, since the License Contract with the government is still
in effect and has not been cancelled, the Company expects the legal action by
Rio Bravo will be decided in PAIPC's favor. PAIPC has also filed counterclaims
and liens against Rio Bravo to defend its interests in the Block and License
Contract and continues to participate in meetings with the government related to
the activities in the Block and in all matters of administration of the License
Contract. The Company is currently negotiating with Rio Bravo to resolve the
dispute. At this time, the Company is unable to determine if such negotiations
will result in a successful settlement of the dispute or what liability, if any,
may arise from this action.
3. Changes in Securities
At the Company's Annual Meeting of Shareholders on July 11, 1996, the
Shareholders approved an amendment to the Company's Articles of Incorporation to
increase the authorized capital stock of the Company to 107 million shares,
including 100 million shares of Common Stock, par value $.08, and 7 million
shares of "blank check" preferred stock, par value $.01.
9
<PAGE>
4. Subsequent Events
Convertible Debentures - In November 1996, the Company received aggregate net
proceeds of $326,000 from the sale of $389,000 principal amount of 10% Senior
Subordinated Convertible Redeemable Debentures in two offerings of up to
an aggregate of approximately $2 million in principal amount of these debentures
(the "Senior Debentures"), issued under Regulation S. The Senior Debentures are
convertible after 180 days after the closing of the offering into common stock
of the Company at a conversion price equal to 80% of the average closing bid
price of the common stock for the five business days immediately preceding the
date of the conversion notice. Should the Company pay the Senior Debentures in
full prior to conversion, the Company would be required to issue two-year
options to the holders, to acquire common stock of the Company equal to 5% of
the principal amount of the Senior Debentures at 80% of the average closing bid
price of the common stock for the five consecutive trading days preceding the
date of issuance of the option.
8% Notes - In November 1996, the Company initiated the offering under Regulation
D of an aggregate of up to $1.6 million of subordinated notes (the "Notes"),
which consist of 64 units, each unit consisting of a $25,000 principal amount 8%
Subordinated Note, maturing in 90 days from the respective issuance of each Note
and 10,000 five-year warrants with each warrant exercisable at any time after
funding at $.50 per share. The Company expects to sell all of the units by
mid-December 1996, however, there is no certainty that it will be successful in
doing so.
The proceeds from the sale of the Senior Debentures and the Notes will be used
primarily to fund in part the construction of asphalt tanks, a truck-loading
facility and a polymerization unit to allow for storing, heating, blending and
polymerization of asphalt at the Company's refinery, as well as for working
capital purposes.
In October and November 1996, the Company issued an aggregate 18,675 shares of
common stock pursuant to Regulation S in lieu of a cash interest payment and
services rendered totalling an aggregate of $8,055 to a non U.S. persons
overseas.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
This report includes forward-looking statements that involve risks and
uncertainties detailed from time to time in the Company's SEC reports. The
actual results of the Company, other than historical results, could differ
materially from those discussed below.
The Company significantly increased its revenues and reduced its general and
administrative expenditures during 1996; it also issued shares of its common
stock and convertible debentures for aggregate net cash proceeds of
approximately $3.3 million. As a result, the Company reduced its year-end 1995
long-term debt by approximately 13% to $4.7 million and increased its oil and
gas properties, refinery, and other assets by $2.4 million at September 30,
1996. The proceeds from increased cash flow from operations and the sale of
stock and debentures were utilized to pay approximately $715,000 of current
portions of debt and related interest, and approximately $2,379,000 was utilized
by the Company in investing activities during this period, primarily for oil and
gas development in Colombia. The Company also utilized approximately $400,000
for operations. Net loss for the first nine months totalled $1,525,000 including
non-cash provisions for depreciation, depletion, and amortization of $932,000.
Approximately $33,000 was provided during the quarter by the reduction of
current assets other than cash and approximately $487,000 was provided by an
increase in accounts payable.
The Company's 12% Secured Debentures (the "12% Debentures") require certain
principal payments and contain certain restrictive covenants and conditions with
which the Company must comply. During the next twelve months approximately
$1,229,000 and $358,000 in principal and interest, respectively, are due for
payment, of which all of the principal is payable on December 31, 1996 and
one-half of the interest is payable in each of December 1996 and June 1997. The
Company is currently seeking alternative financing to repay the 12% Debentures
in full prior to the next scheduled redemption date. However, in the event that
the Company is unable to meet its obligations pursuant to the 12% Debentures in
a timely manner, the Company's oil and gas reserves and its operations may be
severely affected.
The Company has an outstanding Loan Agreement (the "MGTF Note") with MG Trade
Finance Corp. ("MGTF"), which is secured by its Lake Charles, Louisiana refinery
(the "Refinery"). As of November 12, 1996, the outstanding principal balance of
the MGTF Note was approximately $2.3 million, which is due in full on March 31,
1998. 50% of the lease fee proceeds the Company receives from the lessee of the
Refinery, Gold Line Refining, Ltd. ("Gold Line") is utilized
11
<PAGE>
to pay interest and amortize the principal on the MGTF Note. If lease fees are
not sufficient to satisfy all accrued interest when due, the Company is
obligated to satisfy any shortfall. The Company may be required to fund future
working capital requirements that arise from Refinery operations, including any
liability that may arise from any claims or settlements related to the Refinery.
From June through October 1996, Gold Line processed an average of almost 15,000
barrels of feedstock per day, which provides the Company with $225,000 per month
in lease fees, a significant increase over the monthly average during the
previous twelve months. Should Gold Line continue to maintain this level of
operation, the combination of the increased lease fees and payment of its
scheduled quarterly principal and interest note payments to the Company could
provide the Company with approximately $1.7 million more cash flow during the
next twelve months than during the last year. However, even at increased levels
of processing, Gold Line has had problems in the past in meeting its payment
obligations to the Company on a timely basis, and continues to do so. Although
Gold Line has indicated it plans to pay all past due lease fees (approximately
$300,000) by year-end, there is no assurance it will do so. Nor is there any
assurance it will be able to repay the principal balance and accrued interest on
its note payable to the Company totalling an aggregate of approximatley
$1,075,000 at September 30, 1996.
During March 1996, the Company sold $1.5 million worth of 10% convertible
subordinated redeemable debentures due April 1, 1998 for net proceeds of $1.34
million (the 10% "Debentures"). The proceeds were utilized primarily to repay
debt and for working capital purposes. The 10% Debentures, issued in accordance
with Regulation S, were convertible 45 days after closing of the offering into
common stock of the Company at 65% of the average closing bid price of the
Company's common stock for the five business days immediately preceding the date
of the conversion notice or the date of Subscription, whichever was lower. As of
September 30, 1996 all of the 10% Debentures had been converted prior to
redemption into 4,994,181 shares of the Company's common stock.
During April 1996, the Company sold $500,000 worth of 9% Convertible
Subordinated Redeemable Debentures due April 1, 2000 for net proceeds of
$460,000 (the "9% Debentures"), issued in accordance with Regulation S. The
proceeds were utilized primarily to repay debt and for working capital purposes.
Fifty percent of the 9% Debentures were convertible into the Company's common
stock 45 days after closing of the offering with the remainder convertible 75
days after the closing of the offering. The 9% Debentures were convertible at
75% of the average closing bid price of the Company's common stock for the five
business days immediately preceding the date of the conversion notice or the
date of Subscription, whichever was lower. As of September 30, 1996 all
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<PAGE>
of the 9% Debentures had been converted prior to redemption into 1,540,941
shares of the Company's common stock.
During the third quarter of 1996, the Company issued 129,241 shares of its
common stock pursuant to Regulation S in lieu of $60,000 worth of cash interest
payments to non-U.S. persons overseas.
In August 1996 the Company signed an agreement with Carbopetrol S.A.
("Carbopetrol"), one of the purchasers of its crude oil production in Colombia,
wherein Carbopetrol paid the Company an up- front payment of $200,000 for an
option to acquire a 1% overriding royalty interest ("override") of the Company's
new Chicoral oil discovery and any formation below the Company's
currently-producing Doima formation in the Toqui-Toqui field in Colombia.
Carbopetrol also received an option to purchase an additional 4% of the
Company's interest in the Chicoral at $200,000 per point, which option must be
exercised by June, 1997. Since the Chicoral is not yet producing oil, the
initial $200,000 payment is being considered an advance royalty for which the
Company is paying 14% in annual interest, payable in crude oil from the
Company's current production. In the event the Chicoral does not attain certain
levels of future production, the advance royalty paid to date would be repaid by
the Company in the form of crude oil at a minimum rate of 200 barrels per day
from its then-existing production. The proceeds from the transaction are being
utilized by the Company to work over and service existing Toqui-Toqui producing
wells and to develop the Chicoral discovery.
Negotiations are continuing with various other oil companies regarding a
possible farmout of the Company's Chicoral discovery and its other Colombian
properties in return for cash and drilling obligations in the Company's
Toqui-Toqui field. Such a transaction would ensure that the Company's Chicoral
discovery would be fully exploited in the shortest time practicable with little
or no cost to the Company. Although a farmout would result in a lower overall
Company ownership interest of its Colombian reserves, the net result to the
Company could be an increase in its oil and gas reserve base, a stronger balance
sheet and greater potential for earnings and cash-flow growth. The Company is
also seeking development financing to exploit its South American properties.
However, there is no assurance that the Company will succeed in obtaining a
farmout partner or development financing.
The Company has no drilling or work obligations in Colombia or Peru. Depending
upon available funds, or whether the Company is successful with its farmout
efforts or development financing, the Company estimates it could utilize up to
$4,000,000 for exploration and development of its properties and prospects in
South America during the next twelve months, a significant portion of which
could be provided by a farmout partner in Colombia.
Between July and September 1996, the Company received net proceeds
13
<PAGE>
of $392,000 from $426,000 in principal amount of 12.5% Convertible Redeemable
Subordinated Debentures,issued in accordance with Regulation S (the "12.5%
Debentures"). The proceeds are being utilized to expand the Company's VDU and
for working capital purposes. The 12.5% Debentures are convertible after 180
days from the closing of the offering into common stock of the Company at 65% of
the average closing bid price of the Company for the five business days
immediately preceding the date of the conversion. The 12.5% Debentures are
redeemable at any time and if they are redeemed in full prior to conversion the
Company will issue to the holder(s) two-year options to acquire shares of common
stock equal to 18% of the total remaining principal amount of the Debenture at
80% of the average closing bid price of the Company's common stock for the five
consecutive trading days prior to issuance of the option.
The Company had an independent engineering firm perform an analysis to determine
the viability of operating its 16,500 barrel per day Vacuum Distillation Unit
("VDU") to produce asphalt, vacuum gas oil, and diesel fuel in addition to, but
separate from, the operations currently being performed by Gold Line.
Preliminary studies utilizing actual pricing scenarios from 1994 and 1995
indicated that such a project could provide the Company with significant amounts
of revenues and profits, if appropriate feedstock and end-product contracts and
adequate financing could be secured. After considerable study and discussion,
the Company decided to move forward with the project and obtained commitments
for various forms of financing for this purpose (the "Private Placements"),
including, the 12.5% Debentures and other potential financings (See "Notes to
Consolidated Financial Statements Subsequent Events"). The total capital
required to prepare the VDU for operation is estimated at approximately $4.5
million, which includes construction of additional storage tanks, a
polymerization unit, a laboratory, a truck-rack facility, a barge dock, and
other miscellaneous items. Approximately one-half of this amount will be
required to implement the terminalling agreement discussed below. In July 1996,
the Company utilized some internally-generated cash flow and borrowed funds to
commence with the project. Some of the storage tanks have been delivered and one
large tank has been installed. The majority of the funding for the VDU project
is expected to be needed in November and December 1996 and should be supplied by
the Private Placements, although other forms of financing could be used.
In June 1996, the Company entered into two renewable agreements with Coastal
Refining & Marketing, Inc. ("Coastal"), a subsidiary of The Coastal Corporation.
The first agreement with Coastal is an asphalt terminalling agreement, whereby
the Company will store, heat, blend, and polymerize Coastal's asphalt. The
second agreement is an asphalt purchase agreement whereby the Company is to sell
all of its truck-rack asphalt to Coastal. The terminalling operation was
scheduled to begin in November 1996 and terminate sometime during the second
quarter of 1997, when the Company had
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<PAGE>
planned to commence the production and sale of its own asphalt, in addition to
vacuum gas oil ("VGO") and diesel fuel.
Due to the lack of timely financing, the Company has not been able to complete
the first stage of the construction to allow for the terminalling agreement to
start in November 1996. The Company is having discussions with Coastal to extend
the construction completion date to approximately January 31, 1997 and is
seeking additional modifications to the asphalt sales agreement with Coastal.
In the event the Company is able to secure adequate financing on a timely basis,
it plans to initially operate the VDU at 7,000 to 10,000 barrels per day to
produce primarily conventional paving asphalt, VGO, and diesel. At these levels,
the Company expects its annual revenues from the sale of the various products to
range between $40 million and $50 million. As polymerized asphalt manufacturing
levels increase, revenues could be substantially higher, as could the Company's
margins which, in any event, are expected to be favorable. The new facility will
include a state of the art polymerizing unit capable of processing in excess of
7,500 barrels/day of polymerized asphalt. Because of recently revised state and
federal government highway specifications requiring some form of polymer
modification, the demand for the longer lasting, more-expensive, polymerized
asphalt is expected to increase.
The favorable margins are anticipated mainly because the Company's facility has
the flexibility to utilize lower-cost heavy crudes as feedstock and the ability
to provide polymerized, as well as conventional, asphalt. In addition, the
closest established asphalt manufacturer is located over 100 miles from the
Company's facility. Most of the Company's competition in its asphalt
manufacturing business will come from refiners who do not have processing
flexibility such as the Company's.
Management believes that the favorable margins from the VDU operation should be
sufficient to provide the Company with the capital necessary to repay its debts
and to provide funding for future development and exploration of its existing
oil and gas properties. However, the Company is currently having discussions
with various entities which have expressed an interest in providing the Company
with financing (the "Replacement Financing") to prepay loans from the Private
Placements, as well as its other existing long-term liabilities, and to provide
working capital for other operating needs until the Company's
internally-generated cash flows are sufficient to support all of its operations.
If the Company is unable to secure the Replacement Financing, management
believes loan proceeds from the Private Placements, in addition to the
anticipated cash flows from the VDU operations, will be sufficient to satisfy
these requirements. At this time, however, there is no certainty that the
Company's VDU project will be successful, that the Company will obtain all of
the funds expected from the Private
15
<PAGE>
Placements or the Replacement Financing, or that such funds, if obtained, will
be sufficient for the needs of the Company.
The Company intends to meet its capital and operating funds requirements in the
near term from revenues generated from operations, and from additional financing
as necessary. However, there is no assurance of success of any farmout or
financing efforts the Company may pursue or the timing or success of the
exploitation of its discoveries in South America.
16
<PAGE>
Results of Operations
For the Three Months Ended September 30, 1996 as compared to the Three Months
Ended September 30, 1995
The following table highlights the Company's results of operations for the three
months ended September 30, 1996 and 1995.
For The Three Months
Ended September 30,
1996 1995
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) $301 $253
Lease Operating Expenses (000's) $180 $81
Production Volume - Bbls 25,971 30,843
Average Price per Bbl $11.57 $8.19
Production Cost per Bbl $6.92 (4) $2.62
DD&A per Bbl $3.77 $3.86
Peru Properties:
Revenues - Oil Sales (000's) (1) $52
Lease Operating Expenses (000's) (1) ($12) (3)
Production Volume - Bbls (1) 4,312
Average Price per Bbl (1) $11.96
Production Cost per Bbl (1) ($2.73) (3)
DD&A per Bbl (2) - -
Refinery Operations:
Refinery Lease Fees (000's) $663 $400
Average Daily Throughput(Bbls) 14,112 11,109
Average Throughput Fee $0.50 $0.40
(1) Information for 1996 is not available. See Note 2 to "Notes to
Consolidated Financial Statements September 30, 1996 - Legal
Proceedings".
(2) Excludes Peruvian activity since all related properties are currently
considered "unevaluated".
(3) Reflects adjustments for over-accrued lease operating expenses.
(4) Variance from 1995 results primarily from overlifting by Ecopetrol
during the third quarter of 1996, as discussed below.
17
<PAGE>
Oil and Gas Operations:
Although Colombia gross oil and gas production only decreased approximately 2%
during the current quarter compared to the same period last year, barrels sold
decreased 16%, due primarily to the Company taking an excess of its working
interest share of produced oil, relative to its partner, Ecopetrol at the rate
of approximately 17% during the third quarter of 1995. Ecopetrol has the right
to make up the deficiency over time by taking up to 10% more, or greater by
mutual consent, of its working interest share of production until the imbalance
is cured. During the third quarter of 1996, Ecopetrol took its 10% excess in
order to make up the imbalance and continues to do so in the fourth quarter as
well. An increase in current oil prices of approximately 41%, which is directly
related to the Company renegotiating its oil sales contracts earlier in 1996 and
an increase in the world market price of oil over the same period last year,
more than offset the decrease in sales volumes as discussed above, and accounts
for the net increase of approximately $48,000, or 19%, in oil and gas revenues
for the current period compared to the same period last year.
Overall production costs increased by approximately $106,000 during the three
months ended September 30, 1996 compared to the same period last year. Colombia
production costs increased by approximately $99,000 during the current quarter
compared to the same period last year primarily due to an adjustment during the
third quarter to recognize the currency fluctuation with regard to joint venture
transactions and an increase in joint venture overhead allocation. These
increases in production costs are directly offset by an increase in the
capitalized and reimbursed general and administrative costs during the current
quarter. Production costs per barrel reflects an increase of $4.30 per barrel
during the current period compared to the same period last year. Approximately
$1.10 is attributable to the adjustment discussed above. The additional increase
gives effect to the production rates remaining relatively constant compared to
last year and the barrels sold used to calculate the cost per barrel decreasing
due to the overlifting by Ecopetrol during the current quarter as discussed
above.
Refinery Operations:
Refinery lease fees increased by approximately $263,000, or 66% in the third
quarter of 1996 compared to the third quarter of 1995. The increase is due to
Gold Line processing at a higher capacity to fulfill obligations under newly
obtained government contracts. Gold Line is currently operating under several
government contracts compared to the same period last year when it had only one
government contract. Gold Line has increased its actual daily processing rate by
5%, from 13,696 barrels per day in the third quarter of 1995 to 14,412 barrels
per day during the current
18
<PAGE>
quarter, and increased the number of days it actually processed during the
current period from 73 days for the same period last year to 92 days for the
current quarter. On January 1, 1996, the throughput fees increased 25%, from
$0.40 per barrel to $0.50 per barrel over the same period last year.
Other Revenue:
Other revenues decreased approximately $45,000 during the current quarter due
primarily to the decrease in foreign exchange gains in this period compared to
the third quarter 1995.
General and Administrative:
Excluding a non-recurring non-cash charge of approximately $422,000 related to a
shareholder-approved issuance of stock to a Company officer during the third
quarter of 1996 (in exchange for removal of certain Company obligations from the
officer's employment contract), G&A decreased by approximately $334,000, or 40%,
in the third quarter of 1996 compared to the same period last year, due to the
Company's continued cost reduction efforts. An increase in capitalized and
reimbursed G&A of $85,000 for the three months ended September 30, 1996,
compared to the same period last year, accounted for 10% of the decrease and was
related to the increased recoverability of joint venture costs related to
Colombia operations during the current quarter compared to the same period last
year. Actual decreases in G&A totalling $249,000 realized in this period
compared to the same period last year were in the following areas: payroll &
payroll-related expenses decreased approximately $190,000 and certain other
employee costs decreased approximately $7,000, legal expenses decreased by
approximately $20,000 and property taxes decreased $12,000.
Interest Expense
Interest expense increased approximately $122,000, or 51%, for the three months
ended September 30, 1996, compared to the same period in 1995, due to an
increase in outstanding debenture principal of $2,000,000 related to the March
and April 1996 sale of the 10% and 9% Debentures discussed above. As of
September 30, 1996, 100% of the 10% and 9% Debentures had been converted into
common stock of the Company.
Depreciation, Depletion, and Amortization decreased approximately $19,000, or
6%, compared the same period last year. The decrease was primarily due to the
decrease in the sale of barrels of oil during the current quarter as discussed
above.
19
<PAGE>
Results of Operations
For the Nine Months Ended September 30, 1996 as compared to the Nine Months
Ended September 30, 1995
The following table highlights the Company's results of operations for the nine
months ended September 30, 1996 and 1995.
For The Nine Months
Ended September 30,
1996 1995
---- ----
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) $942 $793
Lease Operating Expenses (000's) $391 $223
Production Volume - Bbls 99,069 98,009
Average Price per Bbl $9.51 $8.10
Production Cost per Bbl $3.95 (4) $2.28
DD&A per Bbl $3.77 $3.86
Peru Properties:
Revenues - Oil Sales (000's) (1) $136
Lease Operating Expenses (000's) (1) $52 (3)
Production Volume - Bbls (1) 15,861
Average Price per Bbl (1) $8.60
Production Cost per Bbl (1) $3.26 (3)
DD&A per Bbl (2) - -
Refinery Operations:
Refinery Lease Fees (000's) $1,780 $780
Average Daily Throughput(Bbls) 12,531 10,539
Average Throughput Fee $0.50 $0.40
(1) Information for 1996 is not available. See Note 5 to "Notes to
Consolidated Financial Statements September 30, 1996 - Legal
Proceedings".
(2) Excludes Peruvian activity since all related properties are currently
considered "unevaluated".
(3) Reflects adjustments for over-accrued lease operating expenses.
(4) Variance from 1995 reflects overlifting by Ecopetrol during the third
quarter of 1996, as discussed above.
20
<PAGE>
Oil and Gas Operations:
Overall oil revenues increased approximately $12,000, or 1%, during the nine
months ended September 30, 1996 compared to the same period during 1995.
Colombia's oil and gas revenues increased by $149,000, or 19%, compared to the
same period in the prior year. Actual Colombian oil production decreased 1% from
the same period last year due to a natural decrease in production rates of older
wells, which decrease was offset by a corresponding increase in production from
two new wells put in service during the third quarter of 1995 and an increase of
17% in the average price of the Company's oil over the same period last year.
This increase is directly related to the Company renegotiating its oil sales
contracts earlier in 1996 and the increased price of oil on the world market.
The increase in Colombian oil revenues is offset by the decrease in oil
production and sales from the Peru operations as previously discussed herein.
Colombia production costs increased approximately $168,000, or 75% compared to
the same period in the prior year, due primarily to Joint Venture production
overhead allocations in Colombia increasing by $151,000, 68% of the increase,
compared to the same period in 1995, resulting primarily from an increase in
joint venture overhead allocations and from a currency fluctuation adjustment.
This increase is offset by an increase in reimbursed general and administrative
costs. In Peru, a decrease in production costs of approximately $52,000 over the
same period last year is attributable to the non-recorded Peruvian activity in
1996, as previously discussed herein.
Refinery Operations:
Refinery lease fees increased by $1,000,000, or 128%, during the nine month
period of 1996 compared to the same period in 1995. The increase is due to
several factors involving the Company's Lessee, Gold Line Refining, Ltd ("Gold
Line"). During the first nine months of 1995, Gold Line was operational for only
147 days compared to being operational for 227 days during the same period in
1996. During the first quarter of 1995, Gold Line had been negotiating feedstock
contracts and performing start-up maintenance, operating only seven days during
the first quarter of 1995 and 140 days during the second and third quarters of
1995. During the first nine months of 1996, Gold Line was operational 227 days
out of 273 days of this period. The increase is also due to Gold Line processing
at a higher capacity to fulfill several Defense Fuel Supply Center contracts
during this period compared to servicing only one contract during this same
period last year. During the second quarter of this year, Gold Line processed a
daily high of approximately 19,000 barrels of throughput and has been processing
an average of 14,864 barrels per day since June 30, 1996. On January 1, 1996 the
throughput fees increased 25%, from
21
<PAGE>
$0.40 per barrel to $0.50 per barrel over the same period last year.
Other Revenue:
Other Revenue increased approximately $47,000 during the current quarter due
primarily to the increase in foreign exchange gains in this period compared to
the same period in 1995.
General and Administrative:
G&A decreased approximately $373,000, or 14% compared to the same period during
1995. An increase in capitalized and reimbursed G&A of $245,000 for the nine
months ended September 30, 1996, compared to the to the same period last year,
accounted for 8% of the decrease and was directly related primarily to the
increased recoverability of G&A costs related to joint venture expenditures for
the current period compared to the same period last year. Net of a non-recurring
non-cash charge of $422,000 related to the stock issuance referred to above, G&A
expenditures decreased during the current period compared to the same period
last year by $550,000 and occurred primarily in the following areas: payroll and
payroll related expenses decreased approximately $263,000 and certain other
employee costs decreased approximately $52,000. Investor/public relations costs
decreased during the current period compared to same period last year by
approximately $17,000. Legal expenses and accounting and consulting expenses
declined by $51,000 and $50,000, respectively. Property taxes and insurance
expenses decreased $30,000 and $38,000, respectively, during the current period
compared to the same period last year.
Interest Expense
Interest expense increased by approximately $123,000, or 16%, during the current
period compared to the same period last year, due to an increase in outstanding
debt principal of $2,000,000 related to the March and April 1996 sale of the 10%
and 9% Debentures discussed above. As of September 30, 1996, all of these 10%
and 9% Debentures had been converted into common stock of the Company.
Depreciation, Depletion, and Amortization remained approximately the same for
the nine months ended September 30, 1996 compared to the same period last year.
22
<PAGE>
PART II: OTHER INFORMATION
Item 2. Changes in Securities
See Part 1. Item 1. "Notes to Consolidated Financial Statements Note 4.
Subsequent Events" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources" regarding
the sale of convertible debentures and the issuance of subordinated notes and
warrants (for the purchase of up to 640,000 shares of common stock) under
Regulation D. Upon conversion of the debentures, the number of shares to be
issued varies inversely with the market price of the Company's common stock at
the date of conversion. Although there is no assurance that all of these
convertible debentures will be sold and/or converted, and conversion can only
occur 180 days after closing of the related offerings, at the current market
price if all of these debentures were converted the Company would issue
approximately 5 million shares, or approximately 15% of its currently issued and
outstanding shares. Depending upon the circumstances, isuance of additional
shares of common stock could affect the existing holders of shares by diluting
the voting power of the outstanding shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of Warrant to purchase shares of the Registrant's Common Stock
issued to Venture Guarantee, Ltd. as partial compensation in connection
with offerings of the Registrant's debentures, the forms of which are
attached hereto as Exhibits 4.2 and 4.3.
4.2 Form of 12.5% Series X Senior Convertible Subordinated Redeemable
Debenture due January 2, 1998.
4.3 Form of 10% Series L Senior Subordinated Convertible Subordinated
Redeemable Debenture due April 1, 1998.
4.4 Form of 10% Series M Senior Subordinated Convertible Redeemable
Debenture due April 1, 1998.
4.5 Form of 8% Promissory Note.
4.6 Form of Warrant to purchase shares of the Registrant's Common Stock to
be issued to various purchasers of the Registrant's 8% promissory
notes, the form of which is attached hereto as Exhibit 4.5.
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<PAGE>
10.1 Form of Subscription Agreement used in connection with the offering of
the Registrant's debentures, the form of which is attached hereto as
Exhibits 4.2.
10.2 Form of Subscription Agreement used in connection with the offering of
the Registrant's debentures in the form attached hereto as Exhibit 4.3.
10.3 Form of Subscription Agreement used in connection with the offering of
the Registrant's debentures in the form attached hereto as Exhibit 4.4.
10.4 Form of Subscription Agreement used in connection with the Registrant's
8% Promissory Notes, the form of which is attached hereto as Exhibit
4.5.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
1. A Form 8-K dated August 13, 1996 was filed in connection with a Change
in the Registrant's Certifying Accountant.
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1996
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:/s/ Denis J. Fitzpatrick
------------------------
Denis J. Fitzpatrick
Chief Financial Officer
By:/s/ William L. Tracy
--------------------
William L. Tracy
Treasurer and Controller
25
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
4.1 Form of Warrant to purchase shares of the Registrant's Common
Stock issued to Venture Guarantee, Ltd. as partial compensation
in connection with offerings of the Registrant's debentures, the
forms of which are attached hereto as Exhibits 4.2 and 4.3.
4.2 Form of 12.5% Series X Senior Convertible Subordinated
Redeemable Debenture due January 2, 1998.
4.3 Form of 10% Series L Senior Subordinated Convertible
Subordinated Redeemable Debenture due April 1, 1998.
4.4 Form of 10% Series M Senior Subordinated Convertible Redeemable
Debenture due April 1, 1998.
4.5 Form of 8% Promissory Note.
4.6 Form of Warrant to purchase shares of the Registrant's Common
Stock to be issued to various purchasers of the Registrant's 8%
promissory note, the form of which is attached hereto as Exhibit
4.5.
10.1 Form of Subscription Agreement used in connection with the
offering of the Registrant's debentures, the form of which is
attached hereto as Exhibits 4.2.
10.2 Form of Subscription Agreement used in connection with the
offering of the Registrant's debentures in the form attached
hereto as Exhibit 4.3.
10.3 Form of Subscription Agreement used in connection with the
offering of the Registrant's debentures in the form attached
hereto as Exhibit 4.4.
10.4 Form of Subscription Agreement used in connection with the
Registrant's 8% Promissory Notes, the form of which is attached
hereto as Exhibit 4.5.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 4.1
**************************************************************************
- ------------------------------------------
No.
- ------------------------------------------
Warrant to Purchase
STOCK PURCHASE WARRANT
To Purchase Common Stock of
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
Expires__________, unless extended
pursuant to the terms hereof.
**************************************************************************
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE COMPANY OR
ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. New York Time, on ____________.
WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK
OF
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
This Is To Certify That, FOR VALUE RECEIVED,
________________________ (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a
Nevada corporation (the "Company"), up to ____________________ (_______) fully
paid, validly issued and non-assessable shares of Common Stock ("Common Stock")
of the Company, par value $.08 per share, at an exercise price of $________ per
share at any time during the period from the date hereof until 5:00 p.m. Eastern
Time, on __________. The shares of Common Stock deliverable upon such exercise
are hereinafter sometimes referred to as "Warrant Shares", and the exercise
price of a Warrant Share, as the same may be adjusted pursuant to Section (f)
below, is hereinafter sometimes referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole
on or after the date hereof and until __________; provided, however, that if
such day is a day on which banking institutions in the State of New York are
authorized by law to close, then this Warrant may be exercised on the next
succeeding day which shall not be such a day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office or to
the Company's warrant agent, if any has been so appointed, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price, in cash or by certified or bank cashier's check, for the number of
Warrant Shares specified in such form. The Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of any such
exercise, provided that such exercise is in accordance with the provisions set
forth herein. As soon as practicable after each such exercise of the Warrant,
the Company shall issue or cause to be issued and delivered to the Holder a
certificate or certificates for the Warrant Shares, registered in the name of
the Holder. Upon exercise, the Holder shall be deemed to be the holder of record
of the Warrant Shares issuable upon such exercise, notwithstanding that the
stock
<PAGE>
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be physically delivered to the
Holder.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share remaining upon the full
exercise hereof, the Company shall pay to the Holder in lieu of the issuance of
any fractional share which is otherwise issuable an amount of cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
(d) LOSS OF WARRANT. Upon receipt by the Company or its warrant
agent, if any, of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein. The acceptance of this Warrant by the Holder shall be deemed
consent by the Holder for the Company to enter into any warrant agreement with a
warrant agent, provided such warrant agreement does not adversely affect any of
the rights of the Holder set forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price shall be
subject to adjustment as set forth below:
(i) (a) In case the Company shall hereafter (A) pay a dividend
or make a distribution on its Common Stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock, or (C) combine its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such action shall be adjusted so that the Holder,
upon exercise, shall be entitled to receive the number of shares of Common Stock
of the Company which the Holder would have owned immediately following such
action had such Warrant been exercised immediately prior thereto. An adjustment
made pursuant to this subsection shall become effective immediately after the
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(b) After each adjustment of the Exercise Price
pursuant to this subsection (i), the number of shares of Common Stock
purchasable upon the exercise of the Warrant shall be the number of Warrant
Shares receivable upon exercise hereof prior to such
3
<PAGE>
adjustment multiplied by a fraction, the numerator of which shall be the
original Exercise Price as defined above and the denominator of which shall be
such adjusted Exercise Price.
(c) In the event the Company at any time or from time
to time after the date hereof and prior to the exercise of this warrant shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then and in each
such event provision shall be made so that the Holder shall receive upon
exercise of this Warrant in addition to the number of shares of Common Stock
receivable hereupon, the amount of such other securities of the Company that it
would have received had the Warrant been exercised on the date of such event and
had thereafter, during the period form the date of such event to and including
the exercise date, retained such securities receivable by it as aforesaid during
such period giving application to all adjustments called for during such period
under this Warrant with respect to the rights of the Holder.
(ii) No adjustment in the Exercise Price shall be required
to be made unless such adjustment would require an increase or decrease of at
least $.05; provided, however, that any adjustments which by reason of this
subsection are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section (f)
shall be made to the nearest cent or to the nearest tenth of a share, as the
case may be, but in no event shall the Company be obligated to issue fractional
shares upon the exercise of any Warrant.
(iii) No adjustment of the Exercise Price shall be made
except on the conditions set forth in this Section (f). Without limitation of
the foregoing, there shall be no adjustment pursuant to this Section (f) should
the Company issue any capital stock for cash or other consideration on terms
approved by the Board of Directors.
(iv) In case of any (A) reclassification or change of
outstanding shares of Common Stock issuable upon exercise of this Warrant, (B)
consolidation or merger of the Company with or into another corporation where
the Company is not the surviving entity or (C) sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of the Warrant shall have the right thereafter to receive on
exercise of such Warrant the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided elsewhere in this
Section (f). The above provisions of this Section (f) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
4
<PAGE>
(v) In each case of an adjustment or readjustment of the
Exercise Price, the Company, at its expense, shall prepare a certificate showing
such adjustment or readjustment signed by the duly elected Treasurer or Chief
Financial Officer of the Company (the "Adjustment Certificate") and shall mail
the Adjustment Certificate, by first class mail, postage prepaid, to the Holder.
The Adjustment Certificate shall set forth such adjustment or readjustment,
including a brief summary of the facts upon which such adjustment or
readjustment is based including a statement of the Exercise Price and the number
of shares of Common Stock or other securities issuable upon exercise of each
Warrant immediately before and after giving effect to the applicable adjustment
or readjustment. No failure to mail the Adjustment Certificate nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the Holder to whom the Company failed to mail such Adjustment Certificate, or
except as to the Holder whose Adjustment Certificate was defective.
(g) TRANSFERABILITY; INVESTMENT REPRESENTATIONS. The Holder
shall not give, grant, sell, exchange, transfer legal title, pledge, assign or
otherwise encumber or dispose of this Warrant unless the Company first receives
an opinion of counsel satisfactory to the Company that the Warrant may be
transferred to the proposed transferee in compliance with an exemption under the
Securities Act or a safe harbor provision of Regulation S under the Securities
Act. The Holder, by acceptance hereof, represents and warrants that (a) it is
acquiring this Warrant for its own account for investment purposes only and not
with a view to its resale or distribution and (b) it has no present intention to
resell or otherwise dispose of all or part of this Warrant. The Company may
condition the exercise hereof and the issuance or transfer of Warrant Shares on
the receipt of such representations and agreements as may be requested by the
Company in order to permit such issuance or transfer to be made pursuant to
exemptions from registration under federal and applicable state securities laws.
Each certificate representing this Warrant (or any part thereof) and any Warrant
Shares shall bear appropriate legends setting forth these restrictions on
transferability.
(h) REGISTRATION RIGHTS.
(i) In the event that the Company proposes to file a
registration statement with respect to any class of securities (other than
pursuant to a registration statement on Forms S-4 or S-8 or any successor form)
under the Securities Act of 1933, as amended (the "Securities Act") the Company
shall notify the Holder at least twenty (20) days prior to the filing of such
registration statement and will offer to include in such registration statement
all or any portion of the Warrant Shares. At the written request of the Holder,
delivered to the Company within ten (10) days after receipt of the Company's
notice, the Holder shall state the number of Warrant Shares that it wishes to
sell or distribute publicly under the proposed registration statement. The
Company will use its best efforts, through its officers, directors, auditors and
counsel in all matters necessary or advisable, to cause such registration
statement to become effective as promptly as practicable. In that regard, the
Company makes no representations or warranties as to its ability to have the
registration statement declared effective. In the event the Company is advised
by the staff of the Securities and Exchange Commission, NASDAQ or any
self-regulatory or state securities agency that the inclusion of the Warrant
Shares will prevent, preclude or
5
<PAGE>
materially delay the effectiveness of a registration statement filed by the
Company with respect to any securities other than the Warrant Shares, the
Company, in good faith, may amend such registration statement to exclude the
Warrant Shares without otherwise affecting the Holder's rights herein with
respect to any other registration statement.
(ii) Underwriter's Restrictions. If a registration
statement is filed with respect to an underwritten registration on behalf of the
Company, and if the underwriter thereof advises the Company in writing that, in
its opinion, the number of Warrant Shares requested to be included in such
registration statement exceeds the number that can be sold in such offering
without materially adversely affecting the distribution of securities by the
underwriter, then the Holder shall delay his offering and sale for such period
ending on the earliest of (a) 180 days following the effective date of the
Company's registration statement or (b) such date as the Company, managing
underwriter and Holder shall otherwise agree. In the event of such delay, the
Company shall file such supplements, post-effective amendments and take any such
other steps as may be necessary to permit such Holder to make his proposed
offering and sale for a minimum period of ninety (90) days immediately following
the end of such period of delay.
(iii) Indemnification. In the event of any
registration of the Warrant Shares (or any of them) security pursuant to this
Warrant, the Company shall indemnify the Holder and its officers and directors
against all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented) relating
to such registration, or caused by any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they are made,
unless such statement or omission was made in reliance upon and in conformity
with information furnished to the Company in writing by the Holder expressly for
use therein. The Holder shall notify the Company as soon as practicable
following receipt of notice of any action or proceeding or threatened action or
proceeding related to any alleged liability in respect of which indemnity may be
sought against the Company, and the Company shall, at its sole option, assume
the defense of such action or proceeding (employing counsel reasonably
satisfactory to the Holder); provided, however, failure to so notify the Company
shall not relieve the Company of its indemnification obligations hereunder
unless such failure materially adversely affects the Company's defense of such
action or proceeding. The Holder shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of the Company unless the
employment of such counsel has been specifically authorized by the Company. The
Company shall not be liable to indemnify any person for any settlement of any
such action or proceeding effected without the Company's written consent. The
Holder shall also indemnify the Company, its officers and directors and each
underwriter of the offering so registered with respect to losses, claims,
damages and liabilities caused by any untrue statement of a material fact or
omission to state a material fact required to be stated therein made in reliance
upon and in conformity with information furnished by the Holder to the Company
in writing expressly for use in such registration statement or prospectus.
6
<PAGE>
(iv) Expenses. All expenses of any registration
referred to in this Warrant, except any fees and disbursements of counsel to the
Holder, underwriting commissions or discounts, any transfer or other taxes
applicable to the Warrant and/or Warrant Shares, shall be borne by the Company.
(i) NOTICES. All notices and other communications which are
required or may be given under this Warrant shall be in writing and shall be
deemed to have been duly given when delivered in person or transmitted by fax,
one (1) day after being sent by overnight courier service or three (3) days
after being mailed, first-class postage prepaid, in the case of the Company to
444 Madison Avenue, New York, New York, and in the case of the Holder to the
address previously given to the Company by the Holder, or to such address as
either party shall have specified by notice to the other party hereto. If notice
is given by registered or certified first class mail, postage prepaid, return
receipt requested, the return receipt shall be conclusive evidence of the notice
having been mailed on the date set forth.
(j) MISCELLANEOUS. This Warrant contains the entire agreement
and supersedes all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Warrant may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement is sought; provided however, that this Warrant may be
amended or modified without the consent of the Holder if such amendment or
modification does not adversely affect the rights of the Holder hereunder. This
Warrant will not be assigned by either party hereto and shall be interpreted
under the laws of the State of New York without application to the principles of
conflicts of laws.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:
---------------------------------------------
Denis J. Fitzpatrick, Chief Financial Officer
Dated: _______________
7
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________________________ shares of Common
Stock and hereby makes payment of _______________________ in payment of the
actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _________________________________________________________________
(Please typewrite or print in block letters)
Address_______________________________________________________________
Signature___________________________________________________
ASSIGNMENT FORM
FOR VALUED RECEIVED, __________________________________________________
hereby sells, assigns and transfers unto
Name__________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
____________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date_____________________________, 19_______
Signature________________________________________________________________
8
<PAGE>
EXHIBIT 4.2
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE
ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No.______________ US$___________
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
12.5% SERIES X SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE JANUARY 2, 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures
of American International Petroleum Corporation, a corporation duly organized
and existing under the laws of the State of Nevada (the "Company") designated as
its 12.5% Series X Senior Subordinated Convertible Redeemable Debentures Due
January 2, 1998, in an aggregate principal amount not exceeding Two Million
Dollars (U.S. $2,000,000).
FOR VALUE RECEIVED, the Company promises to pay to
________________ the registered holder hereof and its successors and assigns
(the "Holder"), the principal sum of _____________ (U.S.$________) on January 2,
1998 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 12.5% per annum due and payable monthly commencing
__________, 1996 pursuant to paragraph 4(b) herein. Accrual of interest shall
commence on the date hereof and shall continue until payment in full of the
outstanding principal sum has been made or duly provided for. The interest so
payable will be paid to the person in whose name this Debenture (or one or more
predecessor debentures) is registered on the records of the Company regarding
registration and transfer of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Offshore Securities Subscription
Agreement dated as of _______, 1996 between the Company and
____________________________ (the "Subscription Agreement"). The principal of,
and interest on, this Debenture are payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder hereof from time
to time. The Company will pay the outstanding principal due upon this Debenture
before or on the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder of this Debenture no later than the tenth (10th) day
prior to the Maturity Date by check or on the Maturity Date by wire transfer and
addressed to such Holder at the last address appearing on the Debenture
Register. The forwarding of such check or wire transfer shall constitute a
payment of outstanding principal hereunder and shall satisfy and discharge the
liability for principal on this Debenture to the extent of the sum represented
by such check or wire transfer plus any amounts so deducted.
<PAGE>
Interest shall be payable in Common Stock (as defined below) pursuant to
paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Hundred Thousand
Dollars (US$100,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the holders surrendering the same but
not less than U.S. $25,000. No service charge will be made for such registration
or transfer or exchange, except that transferee shall pay any tax or other
governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to the
contrary. Any holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, is also
required to give the Company (i) written confirmation that it is not a U.S.
Person and the Debenture is not being converted on behalf of a U.S. Person
("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that
the Debenture and shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is not
provided the Holder hereof will not be entitled to exercise the right to convert
or transfer the Debentures.
4. (a) The Holder of this Debenture is entitled, at its option, at any
time commencing 180 days after closing of the Offering hereof to convert all or
any amount over $25,000 of the principal amount of this Debenture then
outstanding into shares of common stock, $0.08 par value per share, of the
Company (the "Common Stock"), at a conversion price for each share of Common
Stock equal to 65% of the average closing bid price of the Common Stock for the
five (5) business days immediately preceding the date of receipt by the Company
of notice of conversion ("Conversion Shares") as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") (the
"Conversion Price"). If the number of resultant Conversion Shares would as a
matter of law or pursuant to regulatory authority require the Company to seek
shareholder approval of such issuance, the Company shall, as soon as
practicable, take the necessary steps to seek such approval. If such approval is
not received within 30 days then Company shall be required to redeem the
Debenture pursuant to paragraph 4(c) herein. Such conversion shall be
effectuated by surrendering the Debenture to be converted (with a copy, by
facsimile or courier, to the Company) to the Company with the form of conversion
notice attached hereto as Exhibit I, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied by proper assignment hereof
in blank. Accrued but unpaid interest shall be subject to conversion. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The transferee or issuee shall execute such investment
representations or other documents as are respectively required by counsel in
order to ascertain
<PAGE>
the available registration exemption. The date on which notice of conversion is
given shall be deemed to be the date on which the Holder has delivered this
Debenture, with the assignment and conversion notice duly executed, to the
Company or, if earlier, the date set forth in such notice of conversion if the
Debenture is received by the Company and Escrow Agent within five (5) business
days thereafter. The transferee or issuee shall execute such investment
representations or other documents as are reasonably required by counsel in
order to ascertain the available registration exemption.
(b) Interest at the rate of 12.5% per annum shall be payable
in arrears, monthly commencing ___________, 1996. However, at Closing, the
Company shall prepay the first 3 months interest by issuing in Common Stock of
the Company as follows: Based on the closing bid prices of the Common Stock for
the last 5 consecutive trading days prior to Closing ("Market Price") the
Company shall issue to the Holder shares of Common stock in an amount equal to
the total monthly interest accrued and due divided by the Market Price (the
"Interest Shares"). Common stock issued pursuant hereto shall be issued pursuant
to Regulation S in accordance with the terms of the Subscription Agreement.
Thereafter, on a monthly basis commencing October 1, 1996 the Company shall pay
interest on a monthly basis in cash (or Common Stock, based on the above
formula, at the Company's option, only if an effective Registration Statement
has been filed in connection with the Common Stock).
(c) If the Company shall pay to the Holder the principal
amount of the Debenture, in full, at any time prior to conversion pursuant to
Paragraph 4(a) herein, or upon maturity, the Company shall issue to the Holder
options to acquire shares of Common Stock equal to 18% of the principal amount
of the Debenture i.e. $2,000,000 Debenture would receive options to acquire
360,000 shares of Common Stock. Each option shall be exercisable at any time
within 2 years from their date of issuance for a share of Common stock at 80% of
the average of the closing bid price of the common stock for the 5 consecutive
trading days prior to the date of issuance of the option. Any shares issued
pursuant to the option shall be issued pursuant to Regulation S or a
Registration Statement.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder.
7. The Company agrees to pay all costs and expenses, including
reasonable attorney's fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default" shall
occur and continue for 30 days:
(a) The Company shall default in the payment of principal
or interest on this Debenture; or
3
<PAGE>
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written
statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the
execution and delivery of this Debenture or the
Subscription Agreement shall be false or misleading
in any material respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture [and such failure shall
continue uncured for a period of thirty (30) days
after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as
they mature; (3) make an assignment for benefit of
creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the
appointment of a trustee, liquidator or receiver for
its or for a substantial part of its property or
business; or
(e) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process, excluding those processes, if any,
related to the Company existing Excise Tax dispute
with the Internal Revenue Service and its ongoing
litigation with Thibideaux, et al., in excess of One
Hundred Thousand ($100,000) Dollars in the aggregate
shall be entered or filed against the Company or any
of its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a period
of fifteen (15) days or in any event later than five
(5) days prior to the date of any proposed sale
thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within thirty (30) days after such
instruction of the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
(i) The Company shall have its Common Stock delisted from
the over-the-counter market.
4
<PAGE>
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration), all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law.
9. (a) This Debenture represents a general unsecured obligation of the
Company. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
(b) The rights of any Holder to receive the principal sum or
any part thereof, and to receive the interest due on this Debenture is and shall
remain subordinate in priority to the payment of the principal of and interest
on (i) all future obligations and guarantees of the Issuer for money borrowed
from bank, trust company, insurance company or other financial institution
engaged in the business of lending money, for which the Issuer 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 this Debenture; (iv) indebtedness under the MG Trade Finance Corp.
("MGTF") loan agreement (the "Loan Agreement") or any indebtedness incurred to
refinance such obligations; (v) other indebtedness of the Company existing on
the date of this Debenture; and (vi) trade payables incurred in the ordinary
course of business of the Company or its subsidiaries.
(c) Notwithstanding the foregoing, no encumbrances, liens or
other security interests shall be placed on the Company's refinery located at
Lake Charles, Louisiana without the express written consent of 51% of the Series
X Debentures Holders.
10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
11. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
5
<PAGE>
12. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
13. This Debenture shall be governed by and construed in accordance
with the laws of New York. Holder hereby waives trial by jury and consents to
exclusive jurisdiction and venue in the State of New York.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:___________________________
AMERICAN INTERNATIONAL PETROLEUM
CORPORATION
By:______________________________________
Title:___________________________________
6
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $_________________
of the above Debenture No. _______ into shares of Common Stock of American
International Petroleum Corporation (the "Company") according to the conditions
set forth in such Debenture, as of the date written below:
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and is
not converting the Debenture on behalf of any U.S. person and the
representations contained in the Subscription Agreement are true. If Shares are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Date of Conversion*_____________________________________________________________
Applicable Conversion Price_____________________________________________________
Signature_______________________________________________________________________
(Print Name of Holder and Title of Signature)
Address:________________________________________________________________________
________________________________________________________________________
____________________________
Medallion Signature Guaranty
*This original Debenture and Notice of Conversion must be received by the
Company by the fifth date following the Date of Conversion.
7
<PAGE>
EXHIBIT 4.3
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE
ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No.______________ US$___________
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
10% SERIES L SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE APRIL 1, 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures
of American International Petroleum Corporation, a corporation duly organized
and existing under the laws of the State of Nevada (the "Company") designated as
its 10% Series L Senior Subordinated Convertible Redeemable Debentures Due April
1, 1998, in an aggregate principal amount not exceeding Three Million Dollars
(U.S. $3,000,000) which Debentures are being purchased at 90% of the face amount
of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to
________________ the registered holder hereof and its successors and assigns
(the "Holder"), the principal sum of _____________ (U.S.$________) on April 1,
1998 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 10% per annum due and payable quarterly commencing
______________ pursuant to paragraph 4(b) herein. Accrual of interest shall
commence on the date hereof and shall continue until payment in full of the
outstanding principal sum has been made or duly provided for. The interest so
payable will be paid to the person in whose name this Debenture (or one or more
predecessor debentures) is registered on the records of the Company regarding
registration and transfer of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Offshore Securities Subscription
Agreement dated as of ______________________________, 1996 between the Company
and ________________________________ (the "Subscription Agreement"). The
principal of, and interest (with the exception of the prepaid interest set forth
in Section 4(b) herein) on, this Debenture are payable in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder hereof
from time to time. The Company will pay the outstanding principal due upon this
Debenture before or on the Maturity Date, less any amounts required by law to be
deducted or withheld, to the Holder of this Debenture no later than the tenth
(10th) day prior to the Maturity Date by check or on the Maturity Date by wire
transfer and addressed to such Holder at the last address appearing on the
Debenture Register. The forwarding of such check or wire transfer shall
constitute a payment of outstanding principal hereunder and shall satisfy and
discharge the liability for principal on this Debenture to the extent of the sum
represented by such check or wire transfer plus any amounts so deducted.
Interest shall be payable in Common Stock (as defined below pursuant to
paragraph
<PAGE>
4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Hundred Thousand
Dollars (US$100,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the holders surrendering the same but
not less than U.S. $25,000. No service charge will be made for such registration
or transfer or exchange, except that transferee shall pay any tax or other
governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to the
contrary. Any holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, is also
required to give the Company (i) written confirmation that it is not a U.S.
Person and the Debenture is not being converted on behalf of a U.S. Person
("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that
the Debenture and shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is not
provided the Holder hereof will not be entitled to exercise the right to convert
or transfer the Debentures.
4. (a) The Holder of this Debenture is entitled, at its option, at any
time commencing 180 days after closing of the Offering hereof to convert all or
any amount over $25,000 of the principal amount of this Debenture then
outstanding into shares of common stock, $0.08 par value per share, of the
Company to be issued pursuant to Regulation S as promulgated by the Securities
and Exchange Commission (the "Common Stock"), at a conversion price for each
share of Common Stock equal to 80% of the average closing bid price of the
Common Stock for the five (5) business days immediately preceding the date of
receipt by the Company of notice of conversion ("Conversion Shares") as reported
by the National Association of Securities Dealers Automated Quotation System
("NASDAQ") (the "Conversion Price"). If the number of resultant Conversion
Shares would as a matter of law or pursuant to regulatory authority require the
Company to seek shareholder approval of such issuance, the Company shall, as
soon as practicable, take the necessary steps to seek such approval. If such
approval is not received within 30 days then Company shall be required to redeem
the Debenture pursuant to paragraph 4(c) herein. Such conversion shall be
effectuated by surrendering the Debenture to be converted (with a copy, by
facsimile or courier, to the Company) to the Company with the form of conversion
notice attached hereto as Exhibit I, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied by proper assignment hereof
in blank. Accrued but unpaid interest shall be subject to conversion. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The transferee or issuee shall execute such investment
representations or other documents as are respectively required by counsel in
order to ascertain the available registration exemption. The date on which
notice of conversion is given shall be deemed
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<PAGE>
to be the date on which the Holder has delivered this Debenture, with the
assignment and conversion notice duly executed, to the Company or, if earlier,
the date set forth in such notice of conversion if the Debenture is received by
the Company within five (5) business days thereafter. The transferee or issuee
shall execute such investment representations or other documents as are
reasonably required by counsel in order to ascertain the available registration
exemption.
(b) Interest at the rate of 10% per annum shall be payable in
arrears, monthly commencing on ____________. However, at Closing, the Company
shall prepay the first 3 months interest by issuing in Common Stock of the
Company as follows: Based on the closing bid prices of the Common stock for the
last 5 consecutive trading days prior to Closing ("Market Price") the Company
shall issue to the Holder shares of Common stock in an amount equal to the total
monthly interest accrued and due divided by the Market Price (the "Interest
Shares"). Common Stock issued pursuant hereto shall be issued pursuant to
Regulation S in accordance with the terms of the Subscription Agreement.
Thereafter, commencing 181 days after Closing, the Company shall pay interest on
a quarterly basis in cash (or Common Stock, based on the above formula, at the
Company's option, only if an effective Registration Statement has been filed in
connection with the Common Stock.
(c) If the Company shall pay to the Holder the principal
amount of the Debenture, in full, at any time prior to conversion pursuant to
Paragraph 4(a) herein, or upon maturity, the Company shall issue to the Holder
options to acquire shares of Common Stock equal to 5% of the principal amount of
the Debenture i.e. $2,000,000 Debenture would receive options to acquire 100,000
shares of Common Stock. Each option shall be exercisable at any time within 2
years from their date of issuance for a share of Common stock at 80% of the
average of the closing bid price of the Common Stock for the 5 consecutive
trading days prior to the date of issuance of the option. Any shares issued
pursuant to the option shall be issued pursuant to Regulation S or a
Registration Statement.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder.
7. The Company agrees to pay all costs and expenses, including
reasonable attorney's fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default" shall
occur and continue for 30 days:
(a) The Company shall default in the payment of principal
or interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written
statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the
execution and delivery of this Debenture or the
Subscription
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<PAGE>
Agreement shall be false or misleading in any
material respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture [and such failure shall
continue uncured for a period of thirty (30) days
after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as
they mature; (3) make an assignment for benefit of
creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the
appointment of a trustee, liquidator or receiver for
its or for a substantial part of its property or
business; or
(e) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process, excluding those processes, if any,
related to the Company existing Excise Tax dispute
with the Internal Revenue Service and its ongoing
litigation with Thibideaux, et al., in excess of One
Hundred Thousand ($100,000) Dollars in the aggregate
shall be entered or filed against the Company or any
of its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a period
of fifteen (15) days or in any event later than five
(5) days prior to the date of any proposed sale
thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within thirty (30) days after such
instruction of the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding.
(i) The Company shall have its Common Stock delisted from
the over-the-counter market.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration), all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies
4
<PAGE>
provided herein or any other rights or remedies afforded by law.
9. (a) This Debenture represents a general unsecured obligation of the
Company. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
(b) The rights of any Holder to receive the principal sum or
any part thereof, and to receive the interest due on this Debenture is and shall
remain subordinate in priority to the payment of the principal of and interest
on (i) all future obligations and guarantees of the Issuer for money borrowed
from bank, trust company, insurance company or other financial institution
engaged in the business of lending money, for which the Issuer 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 this Debenture; (iv) indebtedness under the MG Trade Finance Corp.
("MGTF") loan agreement (the "Loan Agreement") or any indebtedness incurred to
refinance such obligations; (v) other indebtedness of the Company existing on
the date of this Debenture; and (vi) trade payables incurred in the ordinary
course of business of the Company or its subsidiaries.
(c) Not withstanding the foregoing, no encumbrances, liens or
other security interests or covenants, with the exception of those relating to
the existing debt thereon, shall be placed on the Company's refinery located at
Lake Charles, Louisiana without the express written consent of 51% of the Series
L Debenture Holders, other than existing debt of $2,800,000.
10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
11. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
12. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
13. This Debenture shall be governed by and construed in accordance
with the laws of New York. Holder hereby waives trial by jury and consents to
exclusive jurisdiction and venue in the State of New York.
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<PAGE>
14. As set forth herein, the Company shall use all reasonable efforts
to issue and deliver, within three business days after the Holder has fulfilled
all conditions and submitted all necessary documents duly executed and in proper
form required for conversion (the "Deadline"), to the Holder or any part
receiving a Debenture by transfer from the Holder (together, a "Holder"), at the
address of the Holder on the books of the Company, a certificate or certificates
for the number of Shares of Common stock to which the Holder shall be entitled.
The Company understands that a delay in the issuance of the Shares of Common
Stock beyond the Deadline could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Company agrees to pay liquidated
damages to the Holder for late issuance of Shares upon conversion in accordance
with the following schedule (where "No. Business Days Late" is defined as the
number of business days beyond seven (7) business days from the date of receipt
by the Company of a Notice of Conversion and the transfer agent of all necessary
documentation duly executed and in proper from required for conversion,
including the original Debenture to be converted, all in accordance with the
Debenture, Subscription Agreement and the requirements of the transfer agent):
No Business Days Late Liquidated Damages
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond 10 days
The Company shall pay the Holder any liquidated damages incurred under
this Section by check upon the earlier to occur of (i) issuance of the Shares to
the Holder or (ii) each monthly anniversary of the receipt of the company of
such Holder's Notice of Conversion. Nothing herein shall limit the Holder's
right to pursue actual damages for the Company's failure to issue and deliver
shares of Common Stock to the Subscriber in accordance with the terms of the
Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:___________________________
AMERICAN INTERNATIONAL PETROLEUM
CORPORATION
By:______________________________________
Title:___________________________________
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<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $_________________
of the above Debenture No. _______ into shares of Common Stock of American
International Petroleum Corporation (the "Company") according to the conditions
set forth in such Debenture, as of the date written below:
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and is
not converting the Debenture on behalf of any U.S. person and the
representations contained in the Subscription Agreement are true. If Shares are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Date of Conversion*_____________________________________________________________
Applicable Conversion Price_____________________________________________________
Signature_______________________________________________________________________
(Print Name of Holder and Title of Signature)
Address:________________________________________________________________________
________________________________________________________________________
______________________________
Medallion Signature Guaranty
*This original Debenture and Notice of Conversion must be received by the
Company by the fifth date following the Date of Conversion.
7
<PAGE>
EXHIBIT 4.4
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE
ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No.______________ US$___________
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
10% SERIES M SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE APRIL 1, 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures
of American International Petroleum Corporation, a corporation duly organized
and existing under the laws of the State of Nevada (the "Company") designated as
its 10% Series M Senior Subordinated Convertible Redeemable Debentures Due April
1, 1998, in an aggregate principal amount not exceeding Three Million Dollars
(U.S. $3,000,000).
FOR VALUE RECEIVED, the Company promises to pay to
________________ the registered holder hereof and its successors and assigns
(the "Holder"), the principal sum of _____________ (U.S.$________) on April 1,
1998 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 10% per annum due and payable quarterly. Accrual of
interest shall commence on the date hereof and shall continue until payment in
full of the outstanding principal sum has been made or duly provided for. The
interest so payable will be paid to the person in whose name this Debenture (or
one or more predecessor debentures) is registered on the records of the Company
regarding registration and transfer of the Debentures (the "Debenture
Register"); provided, however, that the Company's obligation to a transferee of
this Debenture arises only if such transfer, sale or other disposition is made
in accordance with the terms and conditions of the Offshore Securities
Subscription Agreement dated as of ______________________________, 1996 between
the Company and ________________________________ (the "Subscription Agreement").
The principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture Register of the Company as designated in writing by the Holder
hereof from time to time. The Company will pay the outstanding principal due
upon this Debenture before or on the Maturity Date, less any amounts required by
law to be deducted or withheld, to the Holder of this Debenture no later than
the tenth (10th) day prior to the Maturity Date by check or on the Maturity Date
by wire transfer and addressed to such Holder at the last address appearing on
the Debenture Register. The forwarding of such check or wire transfer shall
constitute a payment of outstanding principal hereunder and shall satisfy and
discharge the liability for principal on this Debenture to the extent of the sum
represented by such check or wire transfer plus any amounts so deducted.
<PAGE>
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Hundred Thousand
Dollars (US$100,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the holders surrendering the same but
not less than U.S. $25,000. No service charge will be made for such registration
or transfer or exchange, except that transferee shall pay any tax or other
governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to the
contrary. Any holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, is also
required to give the Company (i) written confirmation that it is not a U.S.
Person and the Debenture is not being converted on behalf of a U.S. Person
("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that
the Debenture and shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is not
provided the Holder hereof will not be entitled to exercise the right to convert
or transfer the Debentures.
4. (a) The Holder of this Debenture is entitled, at its option, at any
time commencing 180 days after closing of the Offering hereof to convert all or
any amount over $25,000 of the principal amount of this Debenture then
outstanding into shares of common stock, $0.08 par value per share, of the
Company to be issued pursuant to Regulation S as promulgated by the Securities
and Exchange Commission (the "Common Stock"), at a conversion price for each
share of Common Stock equal to 80% of the average closing bid price of the
Common Stock for the five (5) business days immediately preceding the date of
receipt by the Company of notice of conversion ("Conversion Shares") as reported
by the National Association of Securities Dealers Automated Quotation System
("NASDAQ") (the "Conversion Price"). If the number of resultant Conversion
Shares would as a matter of law or pursuant to regulatory authority require the
Company to seek shareholder approval of such issuance, the Company shall, as
soon as practicable, take the necessary steps to seek such approval. If such
approval is not received within 30 days then Company shall be required to redeem
the Debenture pursuant to paragraph 4(c) herein. Such conversion shall be
effectuated by surrendering the Debenture to be converted (with a copy, by
facsimile or courier, to the Company) to the Company with the form of conversion
notice attached hereto as Exhibit I, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied by proper assignment hereof
in blank. Accrued but unpaid interest shall be subject to conversion. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The transferee or issuee shall execute such
2
<PAGE>
investment representations or other documents as are respectively required by
counsel in order to ascertain the available registration exemption. The date on
which notice of conversion is given shall be deemed to be the date on which the
Holder has delivered this Debenture, with the assignment and conversion notice
duly executed, to the Company or, if earlier, the date set forth in such notice
of conversion if the Debenture is received by the Company within five (5)
business days thereafter. The transferee or issuee shall execute such investment
representations or other documents as are reasonably required by counsel in
order to ascertain the available registration exemption.
(b) Interest at the rate of 10% per annum shall be payable in
arrears, quarterly commencing on the date hereof. However, at Closing, the
Company shall prepay the first 3 months interest by issuing in cash or, at the
option of the Company, in Common Stock of the Company as follows: Based on the
closing bid prices of the Common stock for the last 5 consecutive trading days
prior to Closing ("Market Price") the Company shall issue to the Holder shares
of Common stock in an amount equal to the total monthly interest accrued and due
divided by the Market Price (the "Interest Shares"). Common Stock issued
pursuant hereto shall be issued pursuant to Regulation S in accordance with the
terms of the Subscription Agreement. Thereafter, commencing 181 days after
Closing, the Company shall pay interest on a quarterly basis in cash.
(c) If the Company shall pay to the Holder the principal
amount of the Debenture, in full, at any time prior to conversion pursuant to
Paragraph 4(a) herein, or upon maturity, the Company shall issue to the Holder
options to acquire shares of Common Stock equal to 5% of the principal amount of
the Debenture e.g. $3,000,000 Debenture would receive options to acquire 150,000
shares of Common Stock. Each option shall be exercisable at any time within 2
years from their date of issuance for a share of Common stock at 80% of the
average of the closing bid price of the Common Stock for the 5 consecutive
trading days prior to the date of issuance of the option. Any shares issued
pursuant to the option shall be issued pursuant to Regulation S or a
Registration Statement.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder.
7. The Company agrees to pay all costs and expenses, including
reasonable attorney's fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default" shall
occur and continue for 30 days:
(a) The Company shall default in the payment of principal
or interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the
3
<PAGE>
Subscription Agreement, or in any certificate or
financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this
Debenture or the Subscription Agreement shall be
false or misleading in any material respect at the
time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture [and such failure shall
continue uncured for a period of thirty (30) days
after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as
they mature; (3) make an assignment for benefit of
creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the
appointment of a trustee, liquidator or receiver for
its or for a substantial part of its property or
business; or
(e) A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process, excluding those processes, if any,
related to the Company existing Excise Tax dispute
with the Internal Revenue Service and its ongoing
litigation with Thibideaux, et al., in excess of One
Hundred Thousand ($100,000) Dollars in the aggregate
shall be entered or filed against the Company or any
of its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a period
of fifteen (15) days or in any event later than five
(5) days prior to the date of any proposed sale
thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within thirty (30) days after such
instruction of the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration), all of which
are hereby expressly waived, anything herein or in
4
<PAGE>
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law.
9. (a) This Debenture represents a general unsecured obligation of the
Company. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
(b) The rights of any Holder to receive the principal sum or
any part thereof, and to receive the interest due on this Debenture is and shall
remain subordinate in priority to the payment of the principal of and interest
on (i) all future obligations and guarantees of the Issuer for money borrowed
from bank, trust company, insurance company or other financial institution
engaged in the business of lending money, for which the Issuer 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 this Debenture; (iv) indebtedness under the MG Trade Finance Corp.
("MGTF") loan agreement (the "Loan Agreement") or any indebtedness incurred to
refinance such obligations; (v) other indebtedness of the Company existing on
the date of this Debenture; and (vi) trade payables incurred in the ordinary
course of business of the Company or its subsidiaries.
(c) Not withstanding the foregoing, no encumbrances, liens or
other security interests or covenants, with the exception of those relating to
the existing debt thereon, shall be placed on the Company's refinery located at
Lake Charles, Louisiana without the express written consent of 51% of the Series
M Debenture Holders.
10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
11. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
12. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
5
<PAGE>
13. This Debenture shall be governed by and construed in accordance
with the laws of New York. Holder hereby waives trial by jury and consents to
exclusive jurisdiction and venue in the State of New York.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:___________________________
AMERICAN INTERNATIONAL PETROLEUM
CORPORATION
By:______________________________________
Title:___________________________________
6
<PAGE>
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $_________________
of the above Debenture No. _______ into shares of Common Stock of American
International Petroleum Corporation (the "Company") according to the conditions
set forth in such Debenture, as of the date written below:
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and is
not converting the Debenture on behalf of any U.S. person and the
representations contained in the Subscription Agreement are true. If Shares are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Date of Conversion*____________________________________________________________
Applicable Conversion Price____________________________________________________
Signature______________________________________________________________________
(Print Name of Holder and Title of Signature)
Address:_______________________________________________________________________
_______________________________________________________________________
____________________________
Medallion Signature Guaranty
*This original Debenture and Notice of Conversion must be received by the
Company by the fifth date following the Date of Conversion.
7
<PAGE>
EXHIBIT 4.5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MUST BE HELD INDEFINITELY
UNLESS SO REGISTERED OR TRANSFERRED IN A TRANSACTION
EXEMPT FROM REGISTRATION.
PROMISSORY NOTE
$ New York, New York
_______________ ___________ , 1996
FOR VALUE RECEIVED, the undersigned, AMERICAN INTERNATIONAL PETROLEUM
CORPORATION (the "Company" or "Maker"), promises to pay to the order of
________________ ("Payee"), its successors and assigns, at Payee's office at
_____, or such other place as the holder may designate in writing from time to
time, the principal sum of __________($_______ ), in lawful money of the United
States, together with simple interest in the amount of 8% of such principal sum.
All outstanding principal and interest on this Note shall be due and payable on
__________, 1997; provided, however, that the Company shall pay to the holder of
this Promissory Note and the holders of all other Promissory Notes issued in
connection with the Company's offering dated November 6, 1996 of an aggregate of
up to $1,600,000 principal amount of Subordinated Notes and 640,000 Warrants
exercisable into 640,000 Shares of Common Stock (the "Offering"), on a pro-rata
basis, to the extent of any principal and accrued interest outstanding thereon,
the net cash proceeds in excess of $1.5 million received on or prior to January
7, 1997 and all net cash proceeds received thereafter from any source of
additional financing, other than (i) the Offering, (ii) the refinancing of any
existing financing to the extent the Company does not receive additional net
proceeds therefrom and (iii) Capitalized Leases, as defined below, provided,
however that the Company does not receive any cash proceeds therefrom which are
not used in connection with the property to which such Capitalized Lease
relates.
The Company covenants that it will not at anytime while this Note is
outstanding, have encumbrances on or grant security interests in the Company's
refinery (the "Refinery") located in Lake Charles, Louisiana, except for
Permitted Liens, as defined below, in excess of Four Million Dollars without the
express written consent of 51% in interest of the Notes issued in connection
with the Offering to the extent outstanding and Robert M. Cohen & Co., Inc.
Subject to the rights of the holders of the Senior Debt, as defined below, and
as otherwise expressly provided herein, the Company's breach of this covenant
will result in the immediate acceleration of the amounts due hereunder.
This Note may be prepaid in whole or in part at any time and from time
to time without premium or penalty. All prepayments on this Note and all notes
of like tenor issued to other noteholders by the Company with respect to the
Offering shall be applied pro rata in the same
<PAGE>
proportion that the original principal amount of this Note and each such note
bears to the aggregate original principal amount of all such notes, and in the
case of this Note, such prepayments shall be applied first to the payment of any
costs of collection that may be due hereunder, then to the payment of interest,
and the balance shall be applied to principal.
Other than pursuant to registration under federal and any applicable
state securities laws or any exemption from such registration, the availability
of which the Company shall determine in its sole discretion, this Note may not
be sold, pledged, assigned or otherwise disposed of (whether voluntarily or
involuntarily). The Company may condition such sale, pledge, assignment or other
disposition on the receipt from the party to whom this Note is to be so
transferred of any representations and agreements requested by the Company in
order to permit such transfer to be made pursuant to exemptions from
registration under federal and applicable state securities laws. Payee, by
acceptance hereof, agrees to give written notice to the Company, before
transferring this Note, of Payee's intention to do so, describing the manner of
any proposed transfer. Within thirty (30) days after receiving such written
notice, the Company shall notify Payee as to whether such transfer may be
effected and of the conditions to any such transfer.
The Maker hereby agrees, and the holder of this Note by the holder's
acceptance hereof agrees, that the payment of the principal of and interest on
this Note is hereby expressly made subordinate and junior in right of payment to
the prior payment in full of all Senior Debt, Capitalized Leases or Permitted
Liens, (each as hereinafter defined) of the Maker. The holder of this Note
agrees, as part of such subordination, as follows:
(a) In the event of insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Maker or to any of the property of the
Maker, or in the event of any proceedings for voluntary liquidation, dissolution
or other winding-up of the Maker, whether or not involving insolvency or
bankruptcy, then the holders of Senior Debt, Capitalized Leases and Permitted
Liens shall be entitled to receive payment in full of all principal of and
premium, if any, and interest on all Senior Debt, Capitalized Leases and
Permitted Liens before the holder of this Note shall be entitled to receive any
payment on account of principal or interest on this Note, and to that end the
holders of Senior Debt shall be entitled to receive for application in payment
thereof any payment or distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in any such
proceedings in respect of this Note.
(b) In the event that the holder of this Note shall have
received written notice to the effect that an event of default shall have
occurred on any Senior Debt, Capitalized Leases or Permitted Liens and be
continuing (under circumstances in which the provisions of the foregoing
paragraph (a) are not applicable), then, during the continuance of any such
event of default, all principal of and premium, if any, and interest on all
Senior Debt Capitalized Leases or Permitted Liens outstanding at the time of
such notice shall first be paid in full, before any payment on account of
principal or interest is made upon this Note.
-2-
<PAGE>
The provisions of this paragraph are for the purpose of defining the
relative rights of the holders of Senior Debt, Capitalized Leases or Permitted
Liens on the one hand, and the holder of this Note on the other hand, against
the Maker and its property; and nothing herein shall impair, as between the
Maker and the holder of this Note, the obligation of the Maker, which is
unconditional and absolute, to pay to the holder hereof the principal hereof and
the interest hereon in accordance with the terms and provisions hereof; nor
shall anything herein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this paragraph of holders of Senior Debt,
Capitalized Leases or Permitted Liens to receive cash, property, stock or
obligations otherwise payable or deliverable to the holder of this Note.
For the purpose of this Note:
(a) "Debt" of any corporation shall mean, at any date, all
indebtedness of such corporation which would, in accordance with generally
accepted accounting principles, be classified as indebtedness, whether funded or
current, but in any event including:
(i) all indebtedness guaranteed, directly or
indirectly, in any manner by such corporation or in effect guaranteed directly
or indirectly by such corporation through an agreement, contingent or otherwise,
to supply funds to or in any other manner invest in the debtor, to purchase
indebtedness or to purchase goods, supplies or services for the purpose of
enabling the debtor to make payment of the indebtedness or to assure the owner
of the indebtedness against loss, or otherwise;
(ii) all indebtedness for the payment of purchase
of which such corporation has agreed, contingently or otherwise, to advance or
supply funds;
(ii) all indebtedness secured by any mortgage, lien,
pledge, charge or encumbrance of any kind upon property owned by such
corporation, even though such corporation has not assumed or become liable for
the payment of such indebtedness; and
(iv) all indebtedness of such corporation created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such corporation, even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession of such property; and
(b) "Senior Debt" shall mean the principal of and interest on
Debt outstanding for money borrowed by the Maker from any bank, insurance
company or other institutional lender before or after the date of this Note
created or evidenced by notes, bonds, debentures or similar instruments or by a
loan agreement or loan agreements under which the indebtedness is reflected in a
loan account and all purchase money Debt incurred by the Maker before or after
the date of this Note created or evidenced by notes, bonds, mortgages, deeds of
trust or similar instruments (excluding any of such Debt which by the terms of
the instrument creating or evidencing the same is subordinated to or pari passu
with this Note).
-3-
<PAGE>
(c) "Capitalized Lease" shall mean items of equipment or
machinery acquired by the Maker so long as the lender's security is limited to
such equipment or machinery, and any proceeds from the sale thereof.
(d) "Permitted Liens" shall mean (i) any lien securing a tax,
assessment or other governmental charge or levy or the claim of a materialman,
mechanic, carrier, warehouseman or landlord for labor, materials, supplies or
rentals incurred in the ordinary course of business; and (ii) any lien
constituting an encumbrance in the nature of zoning restrictions, easements and
rights or restrictions of record on the use of real property that does not
materially detract from the value of such property or impair the use thereof in
the business of the Maker.
Subject to the rights of the holder of the Senior Debt and as otherwise
expressly provided herein, Maker hereby waives demand, protest, presentment for
payment, notice of dishonor , notice of protest, diligence in bringing suit
against any party, and hereby consents that the time for payment of all or any
part of the principal amount, and of the interest thereon, may be extended from
time to time by Payee without notice, and that any such extension shall not
discharge or otherwise impair the obligations represented by this Note. The
foregoing waivers shall not be deemed to waive the requirement of any notice,
demand or cure periods expressly provided for in this Note.
THE COMPANY AND ANY HOLDER OF THIS NOTE HEREBY WAIVES TRIAL BY JURY IN
ANY COURT IN ANY SUIT, ACTION, OR PROCEEDING IN ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS NOTE OR THE ENFORCEMENT OF ANY OF THE
HOLDER'S RIGHTS AND REMEDIES. THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, EACH
HOLDER OF THIS NOTE, ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
VOLUNTARILY AND ONLY AFTER THOROUGH CONSIDERATION OF THE RAMIFICATIONS OF THIS
WAIVER WITH ITS ATTORNEY. NEITHER THE COMPANY NOR ANY HOLDER OF THIS NOTE HAS
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
All demands and notices to be given hereunder shall be delivered
personally or sent by recognized national overnight courier; in the case of the
Company, addressed to its corporate office at 444 Madison Avenue, , Suite 3202,
New York, New York 10022, and in the case of Lender, addressed to the address
written above, in either case, until a new address shall have been substituted
by like notice.
This Note shall be governed by and construed in accordance with the
laws of the State of New York and shall be binding upon the successors and
assigns of the Maker and inure to the benefit of the Payee, its successors,
endorsees and assigns. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its duly authorized officer on the day and year first above
written.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:
------------------------------
George N. Faris, Chairman & CEO
-5-
<PAGE>
EXHIBIT 4.6
Warrant No.
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF MAY BE TRANSFERRED EXCEPT IN A TRANSACTION REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR WHICH IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THAT ACT.
VOID AFTER 5:00 P.M. NEW YORK TIME, ON ,2001
AMERICAN INTERNATIONAL PETROLEUM, INC.
Warrant to Purchase Shares of Common Stock
_______ Shares
THIS CERTIFIES that, for good and valuable consideration received, (the
"Holder"), with an office/residence at , is entitled to subscribe for and
purchase from AMERICAN INTERNATIONAL PETROLEUM, INC., a Nevada corporation (the
"Company"), upon the terms and conditions set forth herein, at any time or from
time to time until 5:00 P.M. New York City time on _______ , 2001 (the
"Expiration Date"), all or any portion of _______ thousand ( ) shares of the
Company's Common Stock, par value $.08 per share, subject to adjustment as
provided herein (the "Warrant Shares"), at a price of fifty cents ($.50) per
share, subject to adjustment as provided herein (the "Exercise Price"). This
Warrant shall not be redeemable by the Company. The term "Common Stock" as used
herein shall mean the Company's Common Stock, par value $.08 per share. This
Warrant may not be sold, transferred, assigned or hypothecated at any time,
except as permitted by applicable law and the terms of this Warrant, and the
term the "Holder" as used herein shall include any transferee to whom this
Warrant has been transferred.
1. Method of Exercise. This Warrant Certificate may
be exercised at any time prior to the Expiration Date, as to the whole or any
lesser number of Warrant Shares, by presentation and surrender of this Warrant
to the Company at its office at 444 Madison Avenue, Suite 3203, New York, New
York 10022 or at such other place as may be designated in writing by the
Company, or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed (with signature guaranteed if required by the
Company or its stock transfer agent) and accompanied by the payment of the
aggregate Exercise Price in cash or certified or bank cashier's check payable to
the order of the Company in an amount equal to the Exercise Price multiplied by
the number of Warrant Shares for which this Warrant is being exercised and any
applicable tax withholding amount due.
<PAGE>
2. Issuance of Certificates. Upon receipt by the Company of the Warrant
at its office, or by the stock transfer agent of the Company at its office, in
proper form for exercise, together with the Exercise Price thereof and taxes as
aforesaid and the investment letter described below, the Holder shall be deemed
to be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing such Warrant Shares shall not then have been actually
delivered to the Holder. It shall be a condition of the exercise of the Warrant
that the Holder shall deliver to the Company an investment letter in the form
customarily used by the Company from time-to-time in connection with the
exercise of non-registered options and warrants which are issued by the Company.
As soon as practicable after each such exercise of this Warrant, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Warrant Shares issuable upon such exercise, registered in the name of the Holder
or his designee. It is further understood that certificates for the Warrant
shares shall contain a restrictive legend in accordance with Section 9 hereof.
If this Warrant should be exercised in part only, upon surrender of this Warrant
for cancellation, the Company shall execute and deliver a new Warrant
certificate evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. Recording of Transfer. Subject to the last sentence of this Section
3, the Holder may transfer or assign all of his Warrants to one person,
provided, however, that such Warrant may be transferred to more than one person
with the Company's consent. Upon surrender of this Warrant to the Company at its
principal office or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed (with signature guaranteed, if
required by the Company or its stock transfer agent) and funds sufficient to pay
any transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall be promptly cancelled. Any warrants issued upon the transfer
or exercise in part of this Warrant shall be numbered and shall be registered in
a Warrant Register as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person.
Notwithstanding the foregoing, the Company shall have no obligation to cause
this Warrant to be transferred on its books to any person if, in the written
opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
-2-
<PAGE>
4. Reservation of Common Stock. The Company currently has and shall at
all times reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of providing for the exercise of the warrants,
such number of shares of Common Stock as shall, from time to time, be sufficient
therefor. The Company covenants that all shares of Common Stock issuable upon
exercise of this Warrant, upon receipt by the Company of the full payment
therefor, shall be validly issued, fully paid, nonassessable and free of
preemptive rights.
5. Exercise Price Adjustments. Subject to the provisions of this
Section 5, the Exercise Price in effect from time to time shall be subject to
adjustment, as follows:
(a) In case the Company shall at any time after the date
hereof (i) declare a dividend or make a distribution on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, but including any such
reclassification in connection with the consolidation or merger of the Company
with or into another corporation (other than a merger in which the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the warrants), then, in each case, the Exercise Price
in effect, and the number of shares of Common Stock issuable upon exercise of
the warrants outstanding, at the time of the record date for such dividend or at
the effective date of such subdivision, combination or reclassification, shall
be proportionately adjusted so that the holder of the Warrants after such time
shall be entitled to receive the aggregate number and kind of shares which, if
such Warrants had been exercised immediately prior to such time, such holders
would have owned upon such exercise and immediately thereafter been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Whenever there shall be an adjustment as provided in
this Section 5, the Company shall within 15 days thereafter cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder, at his
address set forth above or any different address as may appear from time to time
in the Warrant Register, which notice shall be accompanied by an officer's
certificate setting forth the number of Warrant Shares issuable hereunder and
the exercise price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof,
which officer's certificate
-3-
<PAGE>
shall be conclusive evidence of the correctness of any such adjustment absent
manifest error.
(c) The Company shall not be required to issue fractions
of shares of Common Stock or fractions of shares of other capital stock of the
Company upon the exercise of this Warrant. If any fraction of a share would be
issuable upon the exercise of this Warrant (or specified portions thereof), the
Company may issue a whole share in lieu of such fraction or the Company may
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
(d) The Current Market Price per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
thirty (30) consecutive trading days immediately preceding the date in question.
The closing price for each day shall be the last reported sales price regular
way or, in case no such reported sale takes place on such day, the closing bid
price regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the highest reported bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or a similar organization
if NASDAQ is no longer reporting such information. If on any such date the
Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted by NASDAQ or any similar organization, the fair value
of a share of Common Stock on such date, as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive
absent manifest error, shall be used.
(e) No adjustment in the Exercise Price shall be required
if such adjustment is less than $0.05; provided, however, that any adjustments
which by reason of this Section 5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent.
(f) Upon each adjustment of the Exercise Price as a result
of the calculations made in this Section 5, the Warrants shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares of Common Stock (calculated to the nearest hundredth) obtained by
dividing (i) the product obtained by multiplying (X) the number of shares of
Common Stock purchasable upon exercise of the Warrants prior to the adjustment
of the number of shares of Common Stock by (Y) the Exercise Price in effect
prior to the adjustment of the Exercise Price by (ii) the Exercise Price in
effect after such adjustment of the Exercise Price.
-4-
<PAGE>
6. (a) Consolidations and Mergers. In case of any
consolidation with or merger of the Company with or into another corporation
(other than a merger or consolidation in which the Company is the surviving or
continuing corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
in case of any sale, lease or conveyance to another corporation of the property
and assets of any nature of the Company as an entirety or substantially as an
entirety (such actions being hereinafter collectively referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of this
Warrant (in lieu of the number of shares of Common Stock theretofore
deliverable) the kind and amount of shares of stock or other securities, cash or
other property which would otherwise have been deliverable to a holder of the
number of shares of Common Stock upon the exercise of this Warrant upon such
Reorganization if this Warrant had been exercised in full immediately prior to
such Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of this Warrant. Any such
adjustment shall be made by and set forth in a supplemental agreement between
the Company, or any successor thereto, and the Holder and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization unless upon or prior to the consummation
thereof the successor corporation, or if the Company shall be the surviving
corporation in any such Reorganization and is not the issuer of the shares of
stock or other securities or property to be delivered to holders of shares of
the Common Stock outstanding at the effective time thereof, then such issuer,
shall assume by written instrument the obligation to deliver to the Holder such
shares of stock, securities, cash or other property as the Holder shall be
entitled to purchase in accordance with the foregoing provisions.
(b) In case of any reclassification or change of the
shares of Common Stock issuable upon exercise of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a
-5-
<PAGE>
specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such reclassification,
change, consolidation or merger by a holder of the number of shares of Common
Stock for which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales, leases, or conveyances.
7. Notice of Certain Events. In case at any time any of the following
occur:
(a) The Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) The Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) The Company shall take any action to effect any
reclassification or change of outstanding shares of Common Stock or any
consolidation, merger, sale, lease or conveyance of property, described in
Section 6; or
(d) The Company shall take any action to effect any
liquidation, dissolution or winding-up of the Company or a sale of all or
substantially all of its property, assets and business;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it appears above, or if different, as it appears in the
Warrant Register, mailed at least fifteen (15) days prior to (i) the date as of
which the holders of record of shares of Common Stock to be entitled to receive
any such dividend, distribution, rights, warrants or other securities are to
-6-
<PAGE>
be determined, (ii) the date on which any such offer to holders of Common Stock
is made, or (iii) the date on which any such reclassification, change of
outstanding shares of Common Stock, consolidation, merger, sale, lease,
conveyance of property, liquidation, dissolution or winding-up is expected to
become effective and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution or winding-up.
8. Taxes. The issuance of any shares or other securities upon the
exercise of this Warrant and the delivery of certificates or other instruments
representing such shares or other securities shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall neither be liable for any withholding taxes due as a result of such
exercise nor be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder. Furthermore, the Company shall not be required to issue
or deliver any such certificate unless and until the person requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid or
not required to be withheld.
9. Legend. Unless registered under the Securities Act of 1933, the
Warrant Shares issued upon exercise of the Warrant shall bear the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THESE SHARES MAY NOT BE OFFERED OR SOLD, EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) IN A TRANSACTION
WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
10. Registration Rights.
(a) Commencing on the date hereof and through such date as the
holder of the Warrant or Warrant Shares can transfer the Warrant Shares pursuant
to Rule 144 or Rule 144A (or any successor provisions) under the Act or such
public transfer would otherwise be exempt from the registration requirements of
the Act, the Company shall advise the Holder of the Warrant or of the Warrant
Shares, by written notice at least 45 days prior to the filing of any
registration statement or post-effective amendment thereto ("Registration
Statement") under the Act, covering a public offering of securities of the
Company (other than a registration relating solely to the sale of securities to
participants in a
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<PAGE>
stock plan of the Company, or a registration on any other form which does not
permit secondary sales) and shall, except as otherwise provided herein, register
in any such Registration Statement the number of Warrant Shares that the Holder
shall notify the Company within twenty (20) days after mailing of such notice by
the Company that it desires to register and shall include in any such
Registration Statement such information as may be required to permit a public
offering of such Warrant Shares, provided, however, that the Holder notify the
Company that it desires to register all of his Warrant Shares. The Company shall
supply prospectuses and other documents as the Holder may reasonably request in
order to facilitate the public sale or other disposition of the Warrant Shares.
The Company shall bear the entire cost and expense of a registration of
securities initiated by it under this subsection (a). The Holder shall, however,
bear any transfer taxes and underwriting discounts or commissions applicable to
the Warrant Shares sold by it and any legal fees incurred by it. The Company may
include other securities in any such Registration Statement. The Company shall
do any and all other acts and things which may be necessary or desirable to
enable the Holder to consummate the public sale or other disposition of the
Warrant Shares, and furnish indemnification in the manner as set forth in
subsection (c) of this Section 10, but shall not be required to qualify as a
foreign corporation to qualify the Warrant Shares for sale under the securities
laws of any state. The Holder shall furnish information and indemnification as
set forth in subsection (c)(1) of this Section 10. All decisions as to whether
and when to proceed with any Registration Statement shall be made solely by the
Company.
In connection with any offering involving an underwriting of shares of
the Company's securities, the Company shall not be required to include any of
the Warrant Shares in such underwriting unless the Holders accept the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it (or by other persons entitled to select the underwriters).
(b) Notwithstanding the foregoing subsection (a), in the event that
there is an underwritten offering of the Company's securities offered pursuant
to said Registration Statement, the underwriters shall have the right to refuse
to permit any Warrant Shares, or to limit the amount of Warrant Shares, to be
sold by the Holder to such underwriters as such underwriter(s) may determine in
its discretion and at the reasonable discretion of the underwriter, the Holder
shall refrain from selling such Warrant Shares covered by such Registration
Statement at the market for the period of days following the effective date,
which period shall not exceed six (6) months, and shall also refrain at any time
when notified by the Company that an amendment or supplement to the prospectus
is required. The Company shall not be obligated to keep any Registration
Statement effective for a continuous period of the greater of 120 days or 45
days after the end of the aforementioned lock-up period, provided, however, the
Company shall not be required to keep such Registration Statement effective
beyond such time as all Warrant Shares included in the Registration Statement
have been sold.
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<PAGE>
(c)(1) Whenever pursuant to this Section 10 a Registration Statement
relating to the Warrant Shares is filed under the Act or amended or supplemented
thereto, the Company will indemnify and hold harmless the Holder if covered by
such Registration Statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any who
controls (within the meaning of the Act) the Distributing Holder, against any
losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder or any such controlling person may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any such
Registration Statement or any preliminary prospectus or final prospectus
constituting a part thereof or any amendment or supplement thereto or arise out
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading and
will reimburse the Distributing Holder and each such controlling person for any
legal or other expenses reasonably incurred by the Distributing Holder and each
such controlling person for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action, provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement, in reliance upon and in conformity
with written information furnished by the Distributing Holder or underwriter for
use in the preparation thereof.
(2) To the extent permitted by law, the Distributing Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed said Registration Statement and such amendments and
supplements thereto, each person, if any, who controls the Company (within the
meaning of the Act) and the Company's underwriters) and each person, if any, who
controls such underwriters (within the meaning of the Act) against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, underwriter or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in said Registration Statement, preliminary prospectus, final
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<PAGE>
prospectus, or amendment or supplement, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
Registration Statement, preliminary prospectus, final prospectus or amendment or
supplement, in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof and
will reimburse the Company or underwriter or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(3) Promptly after receipt by an indemnified party under this
subsection c of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party, otherwise than under this
subsection c.
(4) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and to the extent that it
may wish, jointly with any other indemnifying party similarly notified to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this subsection c for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
(5) The Company's agreements with respect to Warrant Shares in this
Section 10 shall continue in effect regardless of the exercise or surrender of
the Warrant.
(6) The Holder shall not have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 10.
11. Replacement of Warrants. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of any Warrant (and
upon surrender of any Warrant if mutilated), and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor and denomination.
12. No Rights as Stockholder. The Holder of any Warrant shall not
have, solely on account of such status, any rights of a stockholder of the
Company, either at law or in equity, or to any notice of meetings of
stockholders or of any other proceedings of the Company, except as provided in
this Warrant.
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<PAGE>
13. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the
first page of this Warrant or to such other address as the Company may designate
by notice to the Holder.
14. Successors. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
15. Headings. The Article and Section headings in this Warrant are
inserted for purposes of convenience only and shall have no substantive effect.
16. Governing Law. This Warrant shall be construed in accordance with
the laws of the State of New York applicable to contracts made and performed
within such State, without regard to principles of conflicts of law.
17. Modification of Agreement. This Warrant shall not otherwise be
modified, supplemented or amended in any respect unless such modification,
supplement or amendment is in writing and signed by the Company and the Holder
of this Warrant and Holders of any portion of the Warrant subsequently assigned
or transferred in accordance with the terms of this Warrant.
18. Consent to Jurisdiction. The Company and the Holder irrevocably
consent to the jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Warrant, any document or instrument delivered
pursuant to, in connection with or simultaneously with this Warrant, or a breach
of this Warrant or any such document or instrument. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 13 hereof.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the date set forth below.
Dated: , 1996 AMERICAN INTERNATIONAL
PETROLEUM, INC.
By:____________________
George N. Faris
Chairman & CEO
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the attached Warrant.)
FOR VALUE RECEIVED, _______________________ hereby sells,
assigns, and transfers unto _________________, having an address at
______________________________ _______________________, the attached Warrant
(having an exercise price of $ . per share) to the extent of the right to
purchase shares of Common Stock, $.08 par value per share, of AMERICAN
INTERNATIONAL PETROLEUM, INC. (the "Company"), together with all right, title,
and interest therein, and does hereby irrevocably constitute and appoint
_________________ as attorney to transfer such Warrant on the books of the
Company, with full power of substitution.
Dated: _______________, 199_
______________________________
Print name of holder of Warrant
By:__________________________
Name:
Title:
NOTICE
The signature on the foregoing Assignment must correspond to
the name as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
To: AMERICAN INTERNATIONAL PETROLEUM, INC.
444 Madison Avenue Suite 3203
New York, New York 10022
The undersigned hereby exercises his rights to purchase
_________ Warrant Shares covered by the within Warrant and tenders payment
herewith in the amount of $_____________ in accordance with the terms thereof,
and requests that certificates for such securities be issued in the name of, and
delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:__________________ Name:__________________________
(Print)
_______________________________ ------------------------------
(Signature)
(Signature must conform to
the name of the Warrant
Holder specified on the face
of the Warrant)
_______________________________ Address:___________________________
_______________________________ ___________________________
<PAGE>
EXHIBIT 10.1
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of
___________, 1996 (the "Agreement"), is executed in reliance upon the exemption
from registration afforded by Regulation S ("Regulation S") as promulgated by
the Securities and Exchange Commission ("SEC"), under the Securities Act of
1933, as amended. Capitalized terms used herein and not defined shall have the
meanings given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in
connection with the private placement of 12.5% Series X Senior Subordinated
Convertible Redeemable Debentures of American International Petroleum Corp., a
corporation organized under the laws of the State of Nevada, with its principal
executive offices located at 444 Madison Avenue, Suite 3203, New York, New York
10022 (hereinafter referred to as "Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
1. Agreement To Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby subscribes for
and agrees to purchase the Seller's 12.5% Series X Senior Subordinated
Convertible Redeemable Debentures substantially in the form of the Debentures
attached as Exhibit A hereto and having an aggregate original principal amount
of up to U.S. $2,000,000 (singly, a "Debenture," and collectively, the
"Debentures"), at an aggregate purchase price as set forth in subsection (b)
herein.
(b) Payment. The aggregate Purchase Price for the Debentures
shall be __________________________ United States Dollars (U.S. $___________)
(the "Purchase Price"), which shall be payable pursuant to paragraph C herein by
delivering immediately available funds in United States Dollars by wire transfer
to the designated depository Barry B. Globerman, Esq., as Escrow Agent ("Escrow
Agent") for closing by delivery of securities versus payment.
<PAGE>
(c) Closing. Subject to the satisfaction of the conditions set
forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made
from time to time in denominations of not less than $100,000 but all payments
hereunder, in any event must be completed on or before ___________, or such
earlier or later date as is mutually agreed to in writing by Buyer and Seller.
2. Buyer Representations and Covenants; Access to Information.
Offshore Transaction. In connection with the purchase and
sale of the Debentures, Buyer represents and warrants to, and covenants and
agrees with Seller as follows:
(i) Buyer is not a natural person and is not
organized under the laws of any jurisdiction within the
United States, was not formed by a U.S. Person (as defined in
Section 902(o) of Regulation S) for the purpose of investing
in Regulation S securities and is not otherwise a U.S. Person.
Buyer is not, and on the closing date will not be, an
affiliate of Seller;
(ii) At the time the buy order was originated, Buyer
was outside the United States and is outside of the United
States as of the date of the execution and delivery of this
Agreement;
(iii) No offer to purchase the Debentures or the
common stock of Seller issuable upon conversion of the
Debentures (collectively, the "Securities"), was made by Buyer
in the United States;
(iv) Buyer is purchasing the Securities for its own
account and Buyer is qualified to purchase the Securities
under the laws of its jurisdiction of residence, and the offer
and sale of the Securities will not violate the securities or
other laws of such jurisdiction;
(v) All offers and sales of any of the Securities by
Buyer prior to the end of the Restricted Period (as
hereinafter defined) shall be made in compliance with any
applicable securities laws of any applicable jurisdiction and
in accordance with Rule 903 and 904, as applicable, of
Regulation S or pursuant to registration of securities under
the 1933 Act or pursuant to an exemption from registration. In
any case, none of the Securities have been or will be
encumbered, offered, sold or otherwise transferred by Buyer
to, or for the account or benefit of, a U.S. Person or within
the United States until after the end of the forty (40) day
period commencing on the later of (x) the date of closing of
the offering of the Securities or (y) the date of the first
offer of the Securities to persons other than distributors
(the "Restricted Period"), as calculated pursuant to
Regulation S and certified by Buyer to Seller and thereafter
only pursuant to a Registration Statement or an applicable
exemption from the registration provision of the 1933 Act;
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<PAGE>
(vi) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Buyer with a
purchaser located in the United States or a purchaser which is
a U.S. Person, and (b) are not and will not be part of a plan
or scheme by Buyer, to evade the registration provisions of
the 1933 Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold
to it in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of Buyer set forth herein in order to determine
the applicability of such exclusions and the suitability of
Buyer and any purchaser from Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to
ensure its compliance with Regulation S and shall promptly
send to each purchaser who acts as a distributor, dealer or a
person receiving a selling concession, fee or other
remuneration in respect of any of the Securities, who
purchases prior to the expiration of the Restricted Period
referred to in subparagraph (v) above, a confirmation or other
notice to the purchaser stating that the purchaser is subject
to the same restrictions on offers and sales as Buyer pursuant
to Section 109(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted or permitted and shall
not conduct or permit on its behalf any "directed selling
efforts" as that term is defined in Rule 902(b) of Regulation
S; nor has Buyer conducted any general solicitation relating
to the offer and sale of any of the Securities in the United
States or elsewhere;
(x) Buyer has the full right, power and authority to
enter into this Agreement and to consummate the transaction
contemplated herein. This Agreement has been duly authorized,
validly executed and delivered on behalf of Buyer and is a
valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights
generally;
(xi) The execution and delivery of this Agreement and
the consummation of the purchase of the Securities, and the
transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by Buyer of any of the
terms of provisions of, or constitute a default under, the
articles of incorporation or by-laws (or similar constitutive
documents) of Buyer or any indenture, mortgage, deed of trust,
or other material agreement or instrument to which Buyer is a
party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of
the United States or any State thereof or any applicable
decree, judgment or order of any Federal or State court,
Federal or State regulatory body, administrative agency or
other United States
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<PAGE>
governmental body having jurisdiction over Buyer or any of its
properties or assets;
(xii) All invitation, offers and sales of or in
respect of, any of the Securities, by Buyer and any
distribution by Buyer of any documents relating to any offer
by it of any of the Securities will be in compliance with
applicable laws and regulations and will be made in such a
manner that no prospectus need be filed and no other filing
need be made by Seller with any regulatory authority or stock
exchange in any country or any political sub-division of any
country;
(xiii) Buyer will not make any offer or sale of the
Securities by any means which would not comply with the laws
and regulations of the territory in which such offer or sale
takes place or to which such offer or sale is subject or which
would in connection with any such offer or sale impose upon
Seller any obligation to satisfy any public filing or
registration requirement or provide or publish any information
of any kind whatsoever or otherwise undertake or become
obligated to do any act; and
(xiv) Neither the Buyer nor any of its affiliates has
entered, has the intention of entering, or will during the
Restricted Period enter into any put option, short position or
other similar instrument or position with respect to any of
the Securities or securities of the same class as the
Securities.
(xv) the Buyer (or others for whom it is contracting
hereunder) has been advised to consult its own legal and tax
advisors with respect to applicable resale restrictions and
applicable tax considerations and it (or others for whom it is
contracting hereunder) is solely responsible (and the Company
is not in any way responsible) for compliance with applicable
resale restrictions and applicable tax legislation.
(xvi) No Government Recommendation or Approval. Buyer
understands that no Federal or State or foreign government
agency has passed on or made any recommendation or endorsement
of the Securities.
(xvii) Current Public Information. Buyer acknowledges
that it and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of
Seller and all materials relating to the offer and sale of the
Securities which have been requested by Buyer, all of which
contain a legend as required under Section 10 hereof. Buyer
further acknowledges that it and its advisors, if any, have
received complete and satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of
risk, including the total loss of Buyer's investment. Buyer
has such knowledge and experience in financial and business
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<PAGE>
matters that it is capable of evaluating the merits and risks
of purchasing the Securities. Buyer understands that the
Securities are not being registered under the 1933 Act, and
therefore Buyer must bear the economic risk of this investment
for an indefinite period of time.
(xix) Tax Status. Buyer is not a "10-percent
Shareholder" (as defined in Section 871(h)(3)(B) of the U.S.
Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
(a) Reporting Company Status. Seller is a "Reporting Issuer"
as defined by Rule 902 of Regulation S. Seller has registered its Common Stock,
$.08 par value per share (the "Common Stock"), pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common
Stock is listed and trades on NASDAQ. Seller has filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Securities (or for such shorter
period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer
with copies of its most recent reports, as amended, filed under the Exchange Act
referred to in Section 2(xvii) above, and other publicly available documents
requested by Buyer.
(c) Offshore Transaction. Seller has not offered any of the
Securities to any person in the United States, any identifiable groups of U.S.
citizens abroad, or to any U.S. Person, as such terms are used in Regulation S.
(i) At the time the buy order was originated, Seller
and/or its agents reasonably believe the Buyer was outside of
the United States and was not a U.S. person, based on the
representations of Buyer.
(ii) Seller and/or its agents reasonably believe that
the transaction has not been pre-arranged with a buyer in the
United States, based on the representations of Buyer.
(iii) No offer to buy or sell the Securities was or
will be made by Seller to any person in the United States.
(iv) The sale of the Securities by Seller pursuant to
this Agreement will be made in accordance with the provisions
and requirements of Regulation S provided that the
representations and warranties of Buyer in Section 2 hereof
are true and correct.
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<PAGE>
(v) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Seller with
a purchaser located in the United States or a purchaser which
is a U.S. Person, and (b) are not and will not be part of a
plan or scheme by Seller to evade the registration provisions
of the 1933 Act.
(d) No Directed Selling Efforts. In regard to this
transaction, Seller has not conducted any "directed selling efforts" as that
term is defined in Rule 902 of Regulation S nor has Seller conducted any general
solicitation relating to the offer and sale of any of the Securities in the
United States or elsewhere.
(e) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid and non-assessable. The Common Stock
issuable upon conversion of the Debenture has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Debentures,
shall be duly and validly issued, fully paid, and non-assessable and will not
subject the holders thereof, if such persons are non-U.S. persons, to personal
liability by reason of being such holders. There are no pre-emptive rights of
any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(g) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of the United States
or any State thereof or any applicable decree, judgment or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any U.S. governmental body which is legally required for
the issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement. Seller is relying entirely upon Buyer and Distributor with respect to
foreign consents and approvals.
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<PAGE>
4. Exemption; Reliance on Representations. Buyer understands that the
offer and sale of the Securities are not being registered under the 1933 Act.
Seller and Buyer are relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S.
5. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture together with a notice of conversion
to the Seller and the Seller shall instruct it's transfer agent to issue one or
more Certificates representing that number of shares of Common Stock into which
the Debenture or Debentures are convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller shall act as
Debenture Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
(b) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debenture up to the total of the "Conversion Amount" (as
defined in the Debenture) and 40 days after the issuance of any "Interest
Shares" (as defined in the Debenture) by a person who is a non-U.S. Person,
Seller shall instruct Seller's transfer agent to issue Stock Certificates up to
the total of the "Conversion Amount" (as defined in the Debenture) and 40 days
after the "Interest Shares" (as defined in the Debenture) without restrictive
legend in the name of Buyer upon receipt of an opinion of Buyer's Counsel to
remove such legend (or its nominee (being a non-U.S. Person) or such non-U.S.
Persons as may be designated by Buyer prior to the closing) and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. Seller warrants that
no instructions other than these instructions and instructions to impose a "stop
transfer" instruction with respect to the certificates until the end of the
respective Restricted Period of the Conversion Shares and Interest Shares, if
any, have been given or will be given to the transfer agent and that the Common
Stock shall otherwise be freely transferable on the books and records of Seller.
Nothing in this Section 5, however, shall affect in any way Buyer's or such
nominee's obligations and agreements to comply with all applicable securities
laws upon resale of the Securities.
6. Registration. If upon conversion of Debentures effected by the Buyer
pursuant to the terms of this Agreement or payment of interest pursuant to the
Debenture the Company fails to issue certificates for shares of Common Stock
issuable upon such conversion (the "Underlying Shares") or the Interest Shares
to the Buyer bearing no restrictive legend (after the applicable Restrictive
Period of the Conversion Shares or Interest Shares) for any reason other than
the Company's reasonable good faith belief that the representations and
warranties made by the Buyer in this Agreement or the Notice of Conversion were
untrue when made, or if the restricted period under Regulation S is extended
then the Company shall be required, at the request of the Buyer and at the
Company's expense, to effect the registration of the Underlying Shares and/or
Interest Shares issuable upon conversion of the Debentures and payment of
interest under the Act and relevant Blue Sky laws
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as promptly as is practicable. The Company and the Buyer shall cooperate in good
faith in connection with the furnishing of information required for such
registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. The Company shall
file such a registration statement within 30 days of Buyer's demand therefor and
shall use its best efforts to cause such registration statement to become
effective as soon as practicable thereafter. Such best efforts shall include,
but not be limited to, promptly responding to all comments received from the
staff of the Securities and Exchange Commission, providing Buyer's counsel with
a contemporaneous copy of all written communications from and to the staff of
the Securities and Exchange Commission with respect to such registration
statement and promptly preparing and filing amendments to such registration
statement which are responsive to the comments received from the staff of the
Securities and Exchange Commission. Once declared effective by the Securities
and Exchange Commission, the Company shall cause such registration statement to
remain effective until the earlier of (i) the sale by the Buyer of all
Underlying Shares registered or (ii) 120 days after the effective date of such
registration statement. In the event the Company undertakes to file a
Registration Statement on Form S-3 in connection with the Common Stock, upon the
effectiveness of such Registration, Buyer shall have the option to sell the
Common Stock pursuant thereto. The foregoing shall not in any way limit Buyer's
rights in connection with the Common Stock pursuant to Regulation S.
7. Delivery Instructions. The Debentures being purchased hereunder
shall be delivered to the Escrow Agent at such time and place as shall be
mutually agreed by Seller and Buyer.
8. Conditions To Seller's Obligation To Sell. Seller's obligation to
sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as
executed by Buyer.
(b) Delivery into the closing depository of good funds by
Buyer as payment in full of the purchase price of the Debentures.
(c) All of the representations and warranties of the
Subscriber contained in this Agreement shall be true and correct on the Payment
Date with the same force and effect as if made on and as of the Payment Date.
The Subscriber shall have performed or complied with all agreements and
satisfied all conditions on its part to be performed, complied with or satisfied
at or prior to the Payment Date.
(d) No order asserting that the transactions contemplated by
this Agreement are subject to the registration requirements of the Act shall
have been issued, and no proceedings for that purpose shall have been commenced
or shall be pending or, to the knowledge of the
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Company, be contemplated. No stop order suspending the sale of the Debentures
shall have been issued, and no proceedings for that purpose shall have been
commenced or shall be pending or, to the knowledge of the Company, be
contemplated.
(e) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would prevent the issuance of the Debentures. No
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction shall have been issued that would prevent the issuance
of the Debentures.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to
purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of
this Agreement as evidenced by execution of this Agreement by the duly
authorized officer of Seller.
(b) Delivery of the Debentures to the Escrow Agent.
10. Offering Materials. All offering materials and documents used in
connection with offers and sales of the Securities prior to the expiration of
the Restricted Period referred to in Section 2(a)(v) hereof shall include
statements to the effect that the Securities have not been registered under the
1933 Act or applicable state securities laws, and that neither Buyer, nor any
direct or indirect purchaser of the Securities from Buyer, may directly or
indirectly offer or sell the Securities in the United States or to U.S. Persons
(other than distributors) unless that Securities are registered under the 1933
Act any applicable state securities laws, or any exemption from the registration
requirements of the 1933 Act or such state securities laws is available. Such
statements shall appear (1) on the cover of any prospectus or offering circular
used in connection with the offer or sale of the Securities, (2) in the
underwriting section of any prospectus or offering circular used in connection
with the offer or sale of the Securities, and (3) in any advertisement made or
issued by Seller, Buyer, any other distributor, any of their respective
affiliates, or any person acting on behalf of any of the foregoing.
11. No Shareholder Approval. Seller hereby agrees that from the
Closing Date until the issuance of Common Stock upon the conversion of the
Debentures, Seller will not take any action which would require Seller to seek
shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the NASDAQ
Stock Market, Inc.) as a result of the issuance of the Securities hereunder.
12. Miscellaneous.
(a) Except as specifically referenced herein or in the
Distribution Agreement, this Agreement constitutes the entire contract between
the parties, and neither party shall be liable or bound to the other in any
manner by any warranties, representations or covenants except as specifically
set forth herein. Any previous agreement among the parties related to the
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transactions described herein is superseded hereby. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Nothing in this Agreement, express
or impled, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
(b) Buyer is an independent contractor, and is not the agent
of Seller. Buyer is not authorized to bind Seller, or to make any
representations or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect
to Seller, its finances, assets, business prospects or otherwise. Buyer will
advise each purchaser, if any, and potential purchaser of the Securities, of the
foregoing sentence, and that such purchaser is relying on its own investigation
with respect to all such matters, and that such purchaser will be given access
to any and all documents and Seller personnel as it may reasonably request for
such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the transactions
contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with the
laws of New York applicable to contracts made and wholly to be performed within
the State of New York and shall be binding upon the successors and assigns of
each party hereto. Buyer hereby waives trial by jury and consents to exclusive
jurisdiction and venue in the State of New York. This Agreement may be executed
in counterparts, and the facsimile transmission of an executed counterpart to
this Agreement shall be effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless from
any and all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
AMOUNT SUBSCRIBED FOR
$
---------------------------------
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first set forth above.
Official Signatory of Seller:
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American International Petroleum
Corp.
By:
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Accepted this ____ day of _______, 1996 Title:
-------------------------
Official Signatory of Buyer:
-------------------------------
By:
----------------------------
Title:
-------------------------
Address of Buyer:
-------------------------------
-------------------------------
-------------------------------
Fax No.:
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Tel No.:
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EXHIBIT 10.2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of
___________, 1996 (the "Agreement"), is executed in reliance upon the exemption
from registration afforded by Regulation S ("Regulation S") as promulgated by
the Securities and Exchange Commission ("SEC"), under the Securities Act of
1933, as amended. Capitalized terms used herein and not defined shall have the
meanings given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in
connection with the private placement of 10% Series L Senior Subordinated
Convertible Redeemable Debentures of American International Petroleum Corp., a
corporation organized under the laws of the State of Nevada, with its principal
executive offices located at 444 Madison Avenue, Suite 3203, New York, New York
10022 (hereinafter referred to as "Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
1. Agreement To Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby subscribes for
and agrees to purchase the Seller's 10% Series L Senior Subordinated Convertible
Redeemable Debentures substantially in the form of the Debentures attached as
Exhibit A hereto and having an aggregate original principal amount of up to U.S.
3,000,000 (singly, a "Debenture," and collectively, the "Debentures"), at an
aggregate purchase price of 90% of the face amount of such Debentures as set
forth in subsection (b) herein.
(b) Payment. The aggregate Purchase Price for the portion of
the Debentures purchased by Buyer shall be __________________________ United
States Dollars (U.S. $___________) which represents a discount of 10% of the
face amount of the Debenture purchased by the Buyer (the "Purchase Price"),
which shall be payable pursuant to paragraph C herein by delivering immediately
available funds in United States Dollars by wire transfer to the following
designated depository Barry B. Globerman, Esq., as Escrow Agent ("Escrow Agent")
for closing by delivery of securities versus payment.
<PAGE>
(c) Closing. Subject to the satisfaction of the conditions set
forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made
from time to time in denominations of not less than $100,000 but all payments
hereunder, in any event must be completed on or before _____________, or such
earlier or later date as is mutually agreed to in writing by Buyer and Seller.
2. Buyer Representations and Covenants; Access to Information.
Offshore Transaction. In connection with the purchase and
sale of the Debentures, Buyer represents and warrants to, and covenants and
agrees with Seller as follows:
(i) Buyer is not a natural person and is not
organized under the laws of any jurisdiction within the
United States, was not formed by a U.S. Person (as defined in
Section 902(o) of Regulation S) for the purpose of investing
in Regulation S securities and is not otherwise a U.S. Person.
Buyer is not, and on the closing date will not be, an
affiliate of Seller;
(ii) At the time the buy order was originated, Buyer
was outside the United States and is outside of the United
States as of the date of the execution and delivery of this
Agreement;
(iii) No offer to purchase the Debentures or the
common stock of Seller issuable upon conversion of the
Debentures (collectively, the "Securities"), was made by Buyer
in the United States;
(iv) Buyer is purchasing the Securities for its own
account and Buyer is qualified to purchase the Securities
under the laws of its jurisdiction of residence, and the offer
and sale of the Securities will not violate the securities or
other laws of such jurisdiction;
(v) All offers and sales of any of the Securities by
Buyer prior to the end of the Restricted Period (as
hereinafter defined) shall be made in compliance with any
applicable securities laws of any applicable jurisdiction and
in accordance with Rule 903 and 904, as applicable, of
Regulation S or pursuant to registration of securities under
the 1933 Act or pursuant to an exemption from registration. In
any case, none of the Securities have been or will be
encumbered, offered, sold or otherwise transferred by Buyer
to, or for the account or benefit of, a U.S. Person or within
the United States until after the end of the forty (40) day
period commencing on the later of (x) the date of closing of
the offering of the Securities or (y) the date of the first
offer of the Securities to persons other than distributors
(the "Restricted Period"), as calculated pursuant to
Regulation S and certified by Buyer to Seller and thereafter
only pursuant to a Registration Statement or an applicable
exemption from the registration provision of the 1933 Act;
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(vi) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Buyer with a
purchaser located in the United States or a purchaser which is
a U.S. Person, and (b) are not and will not be part of a plan
or scheme by Buyer, to evade the registration provisions of
the 1933 Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold
to it in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of Buyer set forth herein in order to determine
the applicability of such exclusions and the suitability of
Buyer and any purchaser from Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to
ensure its compliance with Regulation S and shall promptly
send to each purchaser who acts as a distributor, dealer or a
person receiving a selling concession, fee or other
remuneration in respect of any of the Securities, who
purchases prior to the expiration of the Restricted Period
referred to in subparagraph (v) above, a confirmation or other
notice to the purchaser stating that the purchaser is subject
to the same restrictions on offers and sales as Buyer pursuant
to Section 109(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted or permitted and shall
not conduct or permit on its behalf any "directed selling
efforts" as that term is defined in Rule 902(b) of Regulation
S; nor has Buyer conducted any general solicitation relating
to the offer and sale of any of the Securities in the United
States or elsewhere;
(x) Buyer has the full right, power and authority to
enter into this Agreement and to consummate the transaction
contemplated herein. This Agreement has been duly authorized,
validly executed and delivered on behalf of Buyer and is a
valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights
generally;
(xi) The execution and delivery of this Agreement and
the consummation of the purchase of the Securities, and the
transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by Buyer of any of the
terms of provisions of, or constitute a default under, the
articles of incorporation or by-laws (or similar constitutive
documents) of Buyer or any indenture, mortgage, deed of trust,
or other material agreement or instrument to which Buyer is a
party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of
the United States or any State thereof or any applicable
decree, judgment or order of any Federal or State court,
Federal or State regulatory body, administrative agency or
other United States governmental body having jurisdiction over
Buyer or any of its properties or assets;
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(xii) All invitation, offers and sales of or in
respect of, any of the Securities, by Buyer and any
distribution by Buyer of any documents relating to any offer
by it of any of the Securities will be in compliance with
applicable laws and regulations and will be made in such a
manner that no prospectus need be filed and no other filing
need be made by Seller with any regulatory authority or stock
exchange in any country or any political sub-division of any
country;
(xiii) Buyer will not make any offer or sale of the
Securities by any means which would not comply with the laws
and regulations of the territory in which such offer or sale
takes place or to which such offer or sale is subject or which
would in connection with any such offer or sale impose upon
Seller any obligation to satisfy any public filing or
registration requirement or provide or publish any information
of any kind whatsoever or otherwise undertake or become
obligated to do any act; and
(xiv) Neither the Buyer nor any of its affiliates has
entered, has the intention of entering, or will during the
Restricted Period enter into any put option, short position or
other similar instrument or position with respect to any of
the Securities or securities of the same class as the
Securities.
(xv) the Buyer (or others for whom it is contracting
hereunder) has been advised to consult its own legal and tax
advisors with respect to applicable resale restrictions and
applicable tax considerations and it (or others for whom it is
contracting hereunder) is solely responsible (and the Company
is not in any way responsible) for compliance with applicable
resale restrictions and applicable tax legislation.
(xvi) No Government Recommendation or Approval. Buyer
understands that no Federal or State or foreign government
agency has passed on or made any recommendation or endorsement
of the Securities.
(xvii) Current Public Information. Buyer acknowledges
that it and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of
Seller and all materials relating to the offer and sale of the
Securities which have been requested by Buyer, all of which
contain a legend as required under Section 10 hereof. Buyer
further acknowledges that it and its advisors, if any, have
received complete and satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of
risk, including the total loss of Buyer's investment. Buyer
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks
of purchasing the Securities. Buyer understands that the
Securities are not being registered under the 1933 Act, and
therefore Buyer must bear the economic risk of this investment
for an indefinite period of time.
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(xix) Tax Status. Buyer is not a "10-percent
Shareholder" (as defined in Section 871(h)(3)(B) of the U.S.
Internal Revenue Code) of Seller.
4. Seller Representations and Covenants.
(a) Reporting Company Status. Seller is a "Reporting Issuer"
as defined by Rule 902 of Regulation S. Seller has registered its Common Stock,
$.08 par value per share (the "Common Stock"), pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common
Stock is listed and trades on NASDAQ. Seller has filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Securities (or for such shorter
period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer
with copies of its most recent reports, as amended, filed under the Exchange Act
referred to in Section 2(xvii) above, and other publicly available documents
requested by Buyer.
(c) Offshore Transaction. Seller has not offered any of the
Securities to any person in the United States, any identifiable groups of U.S.
citizens abroad, or to any U.S. Person, as such terms are used in Regulation S.
(i) At the time the buy order was originated, Seller
and/or its agents reasonably believe the Buyer was outside of
the United States and was not a U.S. person, based on the
representations of Buyer.
(ii) Seller and/or its agents reasonably believe that
the transaction has not been pre-arranged with a buyer in the
United States, based on the representations of Buyer.
(iii) No offer to buy or sell the Securities was or
will be made by Seller to any person in the United States.
(iv) The sale of the Securities by Seller pursuant to
this Agreement will be made in accordance with the provisions
and requirements of Regulation S provided that the
representations and warranties of Buyer in Section 2 hereof
are true and correct.
(v) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Seller with
a purchaser located in the United States or a purchaser which
is a U.S. Person, and (b) are not and will not be part of a
plan or scheme by Seller to evade the registration provisions
of the 1933 Act.
(d) No Directed Selling Efforts. In regard to this
transaction, Seller has not conducted any "directed selling efforts" as that
term is defined in Rule 902 of Regulation S nor has Seller conducted any general
solicitation relating to the offer and sale of any of the Securities in the
United States or elsewhere.
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(e) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid and non-assessable. The Common Stock
issuable upon conversion of the Debenture has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Debentures,
shall be duly and validly issued, fully paid, and non-assessable and will not
subject the holders thereof, if such persons are non-U.S. persons, to personal
liability by reason of being such holders. There are no pre-emptive rights of
any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(g) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of the United States
or any State thereof or any applicable decree, judgment or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any U.S. governmental body which is legally required for
the issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement. Seller is relying entirely upon Buyer and Distributor with respect to
foreign consents and approvals.
5. Exemption; Reliance on Representations. Buyer understands that the
offer and sale of the Securities are not being registered under the 1933 Act.
Seller and Buyer are relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S.
6. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture together with a notice of conversion
to the Seller and the Seller shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock into which
the Debenture or Debentures are convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller shall act as
Debenture Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
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(b) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debenture up to the total of the "Conversion Amount" (as
defined in the Debenture) and 40 days after the issuance of any "Interest
Shares" (as defined in the Debenture) by a person who is a non-U.S. Person,
Seller shall instruct Seller's transfer agent to issue Stock Certificates up to
the total of the "Conversion Amount" (as defined in the Debenture) and 40 days
after the "Interest Shares" (as defined in the Debenture), if any, without
restrictive legend in the name of Buyer upon receipt of an opinion of Buyer's
Counsel to remove such legend (or its nominee (being a non-U.S. person) or such
non- U.S. Persons as may be designated by Buyer prior to the closing) and in
such denominations to be specified at conversion representing the number of
shares of Common Stock issuable upon such conversion, as applicable. Seller
warrants that no instructions other than these instructions and instructions to
impose a "stop transfer" instruction with respect to the certificates until the
end of the respective Restricted Period of the Conversion Shares and Interest
Shares, if any, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the books and records
of Seller. Nothing in the this Section 5, however, shall affect in any way
Buyer's or such nominee's obligations and agreements to comply with all
applicable securities laws upon resale of the Securities.
6. Registration. If upon conversion of the Debentures effected by the
Buyer pursuant to the terms of this agreement or payment of interest pursuant to
the Debenture the Company fails to issue certificates for shares of Common Stock
issuable upon such conversion (the "Underlying Shares") or the Interest Shares,
if any, to the Buyer bearing no restrictive legend (after the applicable
restrictive Period of the Conversion Shares or Interest Shares) for any reason
other than the Company's reasonable good faith belief that the representations
and warranties made by the Buyer in the Agreement or the Notice of Conversion
were untrue when made, or if the restricted period under Regulation S is
extended, then the Company shall be required, at the request of the Buyer and at
the Company's expense, to effect the registration of the Underlying Shares
and/or Interest Shares issuable upon conversion of the Debentures and payment of
interest under the Act and relevant Blue Sky laws as promptly as is practicable.
The Company and the Buyer shall cooperate in good faith in connection with the
furnishing of information required for such registration and the taking of such
other actions as may be legally or commercially necessary in order to effect
such registration. The Company shall file such a registration statement within
30 days of buyer's demand therefor and shall use its best efforts to cause such
registration statement to become effective as soon as practicable thereafter.
such best efforts shall include, but not be limited to, promptly responding to
all comments received from the staff of the Securities and Exchange commission,
providing Buyer's counsel with a contemporaneous copy of all written
communications from and to the staff of the Securities and Commission with
respect to such registration statement and promptly preparing and filing
amendments to such registration statement which are responsive to the comments
received from the staff of the Securities and Commission. Once declared
effective by the Securities and Exchange Commission, the Company shall cause
such registration statement to remain effective until the earlier of (i) the
sale of the Buyer of all Underlying Shares registered or (ii) 120 days after the
effective date of such registration statement. In the event the Company
undertakes to file a Registration Statement on Form S-3 in connection with the
Common Stock, upon the effectiveness of such Registration, Buyer shall have the
option to sell the Common Stock pursuant thereto. The foregoing shall not in any
way limit Buyer's rights in connection with the Common Stock pursuant to
Regulation S.
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7. Delivery Instructions. The Debentures being purchased hereunder
shall be delivered to the Buyer at such time and place as shall be mutually
agreed by Seller and Buyer.
8. Conditions To Seller's Obligation To Sell. Seller's obligation to
sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as
executed by Buyer.
(b) Delivery into the closing depository of good funds by
Buyer as payment in full of the purchase price of the Debentures.
(c) All of the representations and warranties of the
Subscriber contained in this Agreement shall be true and correct on the Payment
Date with the same force and effect as if made on and as of the Payment Date.
The Subscriber shall have performed or complied with all agreements and
satisfied all conditions on its part to be performed, complied with or satisfied
at or prior to the Payment Date.
(d) No order asserting that the transactions contemplated by
this Agreement are subject to the registration requirements of the Act shall
have been issued, and no proceedings for that purpose shall have been commenced
or shall be pending or, to the knowledge of the Company, be contemplated. No
stop order suspending the sale of the Debentures shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(e) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would prevent the issuance of the Debentures. No
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction shall have been issued that would prevent the issuance
of the Debentures.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation
to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of
this Agreement as evidenced by execution of this Agreement by the duly
authorized officer of Seller.
(b) Delivery of the Debentures to the Buyer.
10. Offering Materials. All offering materials and documents used in
connection with offers and sales of the Securities prior to the expiration of
the Restricted Period referred to in Section 2(a)(v) hereof shall include
statements to the effect that the Securities have not been registered under the
1933 Act or applicable state securities laws, and that neither Buyer, nor any
direct or indirect purchaser of the Securities from Buyer, may directly or
indirectly offer or sell the Securities in the United States or to U.S. Persons
(other than distributors) unless that Securities are registered under the 1933
Act any applicable state securities laws, or any exemption from the registration
requirements of the 1933 Act or such state securities laws is
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available. Such statements shall appear (1) on the cover of any prospectus or
offering circular used in connection with the offer or sale of the Securities,
(2) in the underwriting section of any prospectus or offering circular used in
connection with the offer or sale of the Securities, and (3) in any
advertisement made or issued by Seller, Buyer, any other distributor, any of
their respective affiliates, or any person acting on behalf of any of the
foregoing.
11. No Shareholder Approval. Seller hereby agrees that from the
Closing Date until the issuance of Common Stock upon the conversion of the
Debentures, Seller will not take any action which would require Seller to seek
shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the NASDAQ
Stock Market, Inc.) as a result of the issuance of the Securities hereunder.
12. Miscellaneous.
(a) Except as specifically referenced herein, this Agreement
constitutes the entire contract between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or impled, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor, and is not the agent
of Seller. Buyer is not authorized to bind Seller, or to make any
representations or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect
to Seller, its finances, assets, business prospects or otherwise. Buyer will
advise each purchaser, if any, and potential purchaser of the Securities, of the
foregoing sentence, and that such purchaser is relying on its own investigation
with respect to all such matters, and that such purchaser will be given access
to any and all documents and Seller personnel as it may reasonably request for
such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the transactions
contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with the
laws of New York applicable to contracts made and wholly to be performed within
the State of New York and shall be binding upon the successors and assigns of
each party hereto. Buyer hereby waives trial by jury and consents to exclusive
jurisdiction and venue in the State of New York. This Agreement may be executed
in counterparts, and the facsimile transmission of an executed counterpart to
this Agreement shall be effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless from
any and all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first set forth above.
AMOUNT SUBSCRIBED FOR
$
-----------------------
Official Signatory of Buyer:
----------------------------------------
By:
-------------------------------------
Title:
----------------------------------
Address of Buyer:
----------------------------------------
----------------------------------------
----------------------------------------
Fax No.:
--------------------------------
Tel No.:
--------------------------------
Accepted this ____ day of _______, 1996
Official Signatory of Seller:
American International Petroleum Corp.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE>
EXHIBIT 10.3
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of
___________, 1996 (the "Agreement"), is executed in reliance upon the exemption
from registration afforded by Regulation S ("Regulation S") as promulgated by
the Securities and Exchange Commission ("SEC"), under the Securities Act of
1933, as amended. Capitalized terms used herein and not defined shall have the
meanings given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in
connection with the private placement of 10% Series M Senior Subordinated
Convertible Redeemable Debentures of American International Petroleum Corp., a
corporation organized under the laws of the State of Nevada, with its principal
executive offices located at 444 Madison Avenue, Suite 3203, New York, New York
10022 (hereinafter referred to as "Seller"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
1. Agreement To Subscribe; Purchase Price.
(a) Subscription. The undersigned Buyer hereby subscribes for
and agrees to purchase the Seller's 10% Series M Senior Subordinated Convertible
Redeemable Debentures substantially in the form of the Debentures attached as
Exhibit A hereto and having an aggregate original principal amount of up to U.S.
3,000,000 (singly, a "Debenture," and collectively, the "Debentures"), at an
aggregate purchase price as set forth in subsection (b) herein.
(b) Payment. The aggregate Purchase Price for the portion of
the Debentures purchased by Buyer shall be __________________________ United
States Dollars (U.S. $___________) which represents a discount of 10% of the
face amount of the Debenture purchased by the Buyer (the "Purchase Price"),
which shall be payable pursuant to paragraph C herein by delivering immediately
available funds in United States Dollars by wire transfer to the following
designated depository for closing by delivery of securities versus payment:
NationsBank
P.O. Box 2518
<PAGE>
Houston, TX 77252-2518
Attn: Jackie McKay
ABA #111000025
Credit Acct. American International Petroleum Corporation
Acct. #266-237-3736
(c) Closing. Subject to the satisfaction of the conditions set
forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made
from time to time in denominations of not less than $100,000 but all payments
hereunder, in any event must be completed on or before _____________, or such
earlier or later date as is mutually agreed to in writing by Buyer and Seller.
2. Buyer Representations and Covenants; Access to Information.
Offshore Transaction. In connection with the purchase and
sale of the Debentures, Buyer represents and warrants to, and covenants and
agrees with Seller as follows:
(i) Buyer is not a natural person and is not
organized under the laws of any jurisdiction within the
United States, was not formed by a U.S. Person (as defined in
Section 902(o) of Regulation S) for the purpose of investing
in Regulation S securities and is not otherwise a U.S. Person.
Buyer is not, and on the closing date will not be, an
affiliate of Seller;
(ii) At the time the buy order was originated, Buyer
was outside the United States and is outside of the United
States as of the date of the execution and delivery of this
Agreement;
(iii) No offer to purchase the Debentures or the
common stock of Seller issuable upon conversion of the
Debentures (collectively, the "Securities"), was made by Buyer
in the United States;
(iv) Buyer is purchasing the Securities for its own
account and Buyer is qualified to purchase the Securities
under the laws of its jurisdiction of residence, and the offer
and sale of the Securities will not violate the securities or
other laws of such jurisdiction;
(v) All offers and sales of any of the Securities by
Buyer prior to the end of the Restricted Period (as
hereinafter defined) shall be made in compliance with any
applicable securities laws of any applicable jurisdiction and
in accordance with Rule 903 and 904, as applicable, of
Regulation S or pursuant to registration of securities under
the 1933 Act or pursuant to an exemption from registration. In
any case, none of the Securities have been or will be
encumbered, offered, sold or otherwise transferred by Buyer
to, or for the account or benefit of, a U.S. Person or within
the United States until after the end of the forty (40) day
period commencing on the later of (x) the date of closing of
the offering of the Securities or (y) the date of the first
offer of the Securities to persons other than distributors
(the "Restricted Period"), as calculated pursuant to
Regulation S and certified by Buyer to Seller and thereafter
only pursuant to a Registration Statement or an applicable
exemption from the registration provision of the 1933 Act;
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<PAGE>
(vi) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Buyer with a
purchaser located in the United States or a purchaser which is
a U.S. Person, and (b) are not and will not be part of a plan
or scheme by Buyer, to evade the registration provisions of
the 1933 Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold
to it in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that
Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of Buyer set forth herein in order to determine
the applicability of such exclusions and the suitability of
Buyer and any purchaser from Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to
ensure its compliance with Regulation S and shall promptly
send to each purchaser who acts as a distributor, dealer or a
person receiving a selling concession, fee or other
remuneration in respect of any of the Securities, who
purchases prior to the expiration of the Restricted Period
referred to in subparagraph (v) above, a confirmation or other
notice to the purchaser stating that the purchaser is subject
to the same restrictions on offers and sales as Buyer pursuant
to Section 109(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted or permitted and shall
not conduct or permit on its behalf any "directed selling
efforts" as that term is defined in Rule 902(b) of Regulation
S; nor has Buyer conducted any general solicitation relating
to the offer and sale of any of the Securities in the United
States or elsewhere;
(x) Buyer has the full right, power and authority to
enter into this Agreement and to consummate the transaction
contemplated herein. This Agreement has been duly authorized,
validly executed and delivered on behalf of Buyer and is a
valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights
generally;
(xi) The execution and delivery of this Agreement and
the consummation of the purchase of the Securities, and the
transactions contemplated by this Agreement do not and will
not conflict with or result in a breach by Buyer of any of the
terms of provisions of, or constitute a default under, the
articles of incorporation or by-laws (or similar constitutive
documents) of Buyer or any indenture, mortgage, deed of trust,
or other material agreement or instrument to which Buyer is a
party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of
the United States or any State thereof or any applicable
decree, judgment or order of any Federal or State court,
Federal or State regulatory body, administrative agency or
other United States governmental body having jurisdiction over
Buyer or any of its properties or assets;
-3-
<PAGE>
(xii) All invitation, offers and sales of or in
respect of, any of the Securities, by Buyer and any
distribution by Buyer of any documents relating to any offer
by it of any of the Securities will be in compliance with
applicable laws and regulations and will be made in such a
manner that no prospectus need be filed and no other filing
need be made by Seller with any regulatory authority or stock
exchange in any country or any political sub-division of any
country;
(xiii) Buyer will not make any offer or sale of the
Securities by any means which would not comply with the laws
and regulations of the territory in which such offer or sale
takes place or to which such offer or sale is subject or which
would in connection with any such offer or sale impose upon
Seller any obligation to satisfy any public filing or
registration requirement or provide or publish any information
of any kind whatsoever or otherwise undertake or become
obligated to do any act; and
(xiv) Neither the Buyer nor any of its affiliates has
entered, has the intention of entering, or will during the
Restricted Period enter into any put option, short position or
other similar instrument or position with respect to any of
the Securities or securities of the same class as the
Securities.
(xv) the Buyer (or others for whom it is contracting
hereunder) has been advised to consult its own legal and tax
advisors with respect to applicable resale restrictions and
applicable tax considerations and it (or others for whom it is
contracting hereunder) is solely responsible (and the Company
is not in any way responsible) for compliance with applicable
resale restrictions and applicable tax legislation.
(xvi) No Government Recommendation or Approval. Buyer
understands that no Federal or State or foreign government
agency has passed on or made any recommendation or endorsement
of the Securities.
(xvii) Current Public Information. Buyer acknowledges
that it and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of
Seller and all materials relating to the offer and sale of the
Securities which have been requested by Buyer, all of which
contain a legend as required under Section 10 hereof. Buyer
further acknowledges that it and its advisors, if any, have
received complete and satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of
risk, including the total loss of Buyer's investment. Buyer
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks
of purchasing the Securities. Buyer understands that the
Securities are not being registered under the 1933 Act, and
therefore Buyer must bear the economic risk of this investment
for an indefinite period of time.
-4-
<PAGE>
(xix) Tax Status. Buyer is not a "10-percent
Shareholder" (as defined in Section 871(h)(3)(B) of the U.S.
Internal Revenue Code) of Seller.
3. Seller Representations and Covenants.
(a) Reporting Company Status. Seller is a "Reporting Issuer"
as defined by Rule 902 of Regulation S. Seller has registered its Common Stock,
$.08 par value per share (the "Common Stock"), pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common
Stock is listed and trades on NASDAQ. Seller has filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Securities (or for such shorter
period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer
with copies of its most recent reports, as amended, filed under the Exchange Act
referred to in Section 2(xvii) above, and other publicly available documents
requested by Buyer.
(c) Offshore Transaction. Seller has not offered any of the
Securities to any person in the United States, any identifiable groups of U.S.
citizens abroad, or to any U.S. Person, as such terms are used in Regulation S.
(i) At the time the buy order was originated, Seller
and/or its agents reasonably believe the Buyer was outside of
the United States and was not a U.S. person, based on the
representations of Buyer.
(ii) Seller and/or its agents reasonably believe that
the transaction has not been pre-arranged with a buyer in the
United States, based on the representations of Buyer.
(iii) No offer to buy or sell the Securities was or
will be made by Seller to any person in the United States.
(iv) The sale of the Securities by Seller pursuant to
this Agreement will be made in accordance with the provisions
and requirements of Regulation S provided that the
representations and warranties of Buyer in Section 2 hereof
are true and correct.
(v) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Seller with
a purchaser located in the United States or a purchaser which
is a U.S. Person, and (b) are not and will not be part of a
plan or scheme by Seller to evade the registration provisions
of the 1933 Act.
-5-
<PAGE>
(d) No Directed Selling Efforts. In regard to this
transaction, Seller has not conducted any "directed selling efforts" as that
term is defined in Rule 902 of Regulation S nor has Seller conducted any general
solicitation relating to the offer and sale of any of the Securities in the
United States or elsewhere.
(e) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid and non-assessable. The Common Stock
issuable upon conversion of the Debenture has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Debentures,
shall be duly and validly issued, fully paid, and non-assessable and will not
subject the holders thereof, if such persons are non-U.S. persons, to personal
liability by reason of being such holders. There are no pre-emptive rights of
any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(g) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of the United States
or any State thereof or any applicable decree, judgment or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any U.S. governmental body which is legally required for
the issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement. Seller is relying entirely upon Buyer and Distributor with respect to
foreign consents and approvals.
4. Exemption; Reliance on Representations. Buyer understands that the
offer and sale of the Securities are not being registered under the 1933 Act.
Seller and Buyer are relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S.
5. Transfer Agent Instructions.
(a) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture together with a notice of conversion
to the Seller and the Seller shall instruct its transfer agent to issue one or
more Certificates representing that number of shares of Common Stock into which
the Debenture or Debentures are convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller shall act as
Debenture Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
-6-
<PAGE>
(b) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debenture up to the total of the "Conversion Amount" (as
defined in the Debenture) and 40 days after the issuance of any "Interest
Shares" (as defined in the Debenture) by a person who is a non-U.S. Person,
Seller shall instruct Seller's transfer agent to issue Stock Certificates up to
the total of the "Conversion Amount" (as defined in the Debenture) and 40 days
after the "Interest Shares" (as defined in the Debenture), if any, without
restrictive legend in the name of Buyer upon receipt of an opinion of Buyer's
Counsel to remove such legend (or its nominee (being a non-U.S. person) or such
non- U.S. Persons as may be designated by Buyer prior to the closing) and in
such denominations to be specified at conversion representing the number of
shares of Common Stock issuable upon such conversion, as applicable. Seller
warrants that no instructions other than these instructions and instructions to
impose a "stop transfer" instruction with respect to the certificates until the
end of the respective Restricted Period of the Conversion Shares and Interest
Shares, if any, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the books and records
of Seller. Nothing in the this Section 5, however, shall affect in any way
Buyer's or such nominee's obligations and agreements to comply with all
applicable securities laws upon resale of the Securities.
6. Registration. If upon conversion of the Debentures effected by the
Buyer pursuant to the terms of this agreement or payment of interest pursuant to
the Debenture the Company fails to issue certificates for shares of Common Stock
issuable upon such conversion (the "Underlying Shares") or the Interest Shares,
if any, to the Buyer bearing no restrictive legend (after the applicable
restrictive Period of the Conversion Shares or Interest Shares) for any reason
other than the Company's reasonable good faith belief that the representations
and warranties made by the Buyer in the Agreement or the Notice of Conversion
were untrue when made, or if the restricted period under Regulation S is
extended, then the Company shall be required, at the request of the Buyer and at
the Company's expense, to effect the registration of the Underlying Shares
and/or Interest Shares issuable upon conversion of the Debentures and payment of
interest under the Act and relevant Blue Sky laws as promptly as is practicable.
The Company and the Buyer shall cooperate in good faith in connection with the
furnishing of information required for such registration and the taking of such
other actions as may be legally or commercially necessary in order to effect
such registration. The Company shall file such a registration statement within
30 days of buyer's demand therefor and shall use its best efforts to cause such
registration statement to become effective as soon as practicable thereafter.
such best efforts shall include, but not be limited to, promptly responding to
all comments received from the staff of the Securities and Exchange commission,
providing Buyer's counsel with a contemporaneous copy of all written
communications from and to the staff of the Securities and Commission with
respect to such registration statement and promptly preparing and filing
amendments to such registration statement which are responsive to the comments
received from the staff of the Securities and Commission. Once declared
effective by the Securities and Exchange Commission, the Company shall cause
such registration statement to remain effective until the earlier of (i) the
sale of the Buyer of all Underlying Shares registered or (ii) 120 days after the
effective date of such registration statement. In the event the Company
undertakes to file a Registration Statement on Form S-3 in connection with the
Common Stock, upon the effectiveness of such Registration, Buyer shall have the
option to sell the Common Stock pursuant thereto. The foregoing shall not in any
way limit Buyer's rights in connection with the Common Stock pursuant to
Regulation S.
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<PAGE>
7. Delivery Instructions. The Debentures being purchased hereunder
shall be delivered to the Buyer at such time and place as shall be mutually
agreed by Seller and Buyer.
8. Conditions To Seller's Obligation To Sell. Seller's obligation to
sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as
executed by Buyer.
(b) Delivery into the closing depository of good funds by
Buyer as payment in full of the purchase price of the Debentures.
(c) All of the representations and warranties of the
Subscriber contained in this Agreement shall be true and correct on the Payment
Date with the same force and effect as if made on and as of the Payment Date.
The Subscriber shall have performed or complied with all agreements and
satisfied all conditions on its part to be performed, complied with or satisfied
at or prior to the Payment Date.
(d) No order asserting that the transactions contemplated by
this Agreement are subject to the registration requirements of the Act shall
have been issued, and no proceedings for that purpose shall have been commenced
or shall be pending or, to the knowledge of the Company, be contemplated. No
stop order suspending the sale of the Debentures shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(e) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would prevent the issuance of the Debentures. No
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction shall have been issued that would prevent the issuance
of the Debentures.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation
to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of
this Agreement as evidenced by execution of this Agreement by the duly
authorized officer of Seller.
(b) Delivery of the Debentures to the Buyer.
10. Offering Materials. All offering materials and documents used in
connection with offers and sales of the Securities prior to the expiration of
the Restricted Period referred to in Section 2(a)(v) hereof shall include
statements to the effect that the Securities have not been registered under the
1933 Act or applicable state securities laws, and that neither Buyer, nor any
direct or indirect purchaser of the Securities from Buyer, may directly or
indirectly offer or sell the Securities in the United States or to U.S. Persons
(other than distributors) unless that Securities are registered under the 1933
Act any applicable state securities laws, or any exemption from the registration
requirements of the 1933 Act or such state securities laws is
-8-
<PAGE>
available. Such statements shall appear (1) on the cover of any prospectus or
offering circular used in connection with the offer or sale of the Securities,
(2) in the underwriting section of any prospectus or offering circular used in
connection with the offer or sale of the Securities, and (3) in any
advertisement made or issued by Seller, Buyer, any other distributor, any of
their respective affiliates, or any person acting on behalf of any of the
foregoing.
11. No Shareholder Approval. Seller hereby agrees that from the
Closing Date until the issuance of Common Stock upon the conversion of the
Debentures, Seller will not take any action which would require Seller to seek
shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the NASDAQ
Stock Market, Inc.) as a result of the issuance of the Securities hereunder.
12. Miscellaneous.
(a) Except as specifically referenced herein, this Agreement
constitutes the entire contract between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or impled, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor, and is not the agent
of Seller. Buyer is not authorized to bind Seller, or to make any
representations or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect
to Seller, its finances, assets, business prospects or otherwise. Buyer will
advise each purchaser, if any, and potential purchaser of the Securities, of the
foregoing sentence, and that such purchaser is relying on its own investigation
with respect to all such matters, and that such purchaser will be given access
to any and all documents and Seller personnel as it may reasonably request for
such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the transactions
contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with the
laws of New York applicable to contracts made and wholly to be performed within
the State of New York and shall be binding upon the successors and assigns of
each party hereto. Buyer hereby waives trial by jury and consents to exclusive
jurisdiction and venue in the State of New York. This Agreement may be executed
in counterparts, and the facsimile transmission of an executed counterpart to
this Agreement shall be effective as an original.
-9-
<PAGE>
(f) Buyer agrees to indemnify and hold Seller harmless from
any and all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first set forth above.
AMOUNT SUBSCRIBED FOR
$
--------------------------------
Official Signatory of Buyer:
----------------------------------------
By:
-------------------------------------
Title:
----------------------------------
Address of Buyer:
----------------------------------------
----------------------------------------
----------------------------------------
Fax No.:
--------------------------------
Tel No.:
--------------------------------
Accepted this ____ day of _______, 1996
Official Signatory of Seller:
American International Petroleum Corp.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE>
EXHIBIT 10.4
- ------------------------------------------------------------------------------
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
64 Units with each Unit comprised of
the Company's $25,000 principal amount Subordinated
Note maturing 90 days from the respective issuance
of each Note
and
10,000 Warrants with each Warrant exercisable into
a Share of Common Stock at $.50
(an aggregate of $1,600,000 principal amount of Subordinated Notes
and 640,000 Warrants exercisable into 640,000 Shares of Common
Stock)
SUBSCRIPTION AGREEMENT
- ------------------------------------------------------------------------------
<PAGE>
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD
IN THE UNITED STATES OR TO U.S. PERSONS UNLESS THE SECURITIES ARE REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE.
SUBSCRIPTION AGREEMENT
THIS AGREEMENT has been executed by the undersigned,
____________________, whose address is
_____________________________________________________________, (herein referred
to as the "Subscriber"), in connection with the placement of 64 Units with each
Unit comprised of the Company's $25,000 principal amount Subordinated Note
maturing 90 days from the respective issuance of each Note and 10,000 Warrants
with each Warrant exercisable into a Share of Common Stock at $.50 (hereinafter
referred to as the "Units") of AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(hereinafter referred to as the "Company") located at 444 Madison Avenue, Suite
3203, New York, New York 10022
WHEREAS, the Company proposes to issue and sell the Units by means of
an Offering Memorandum with respect to which Robert M. Cohen & Co. is the
Placement Agent on a best efforts basis, with no minimum number of Units
required to be subscribed for ;
WHEREAS, the Units will be offered and sold pursuant to an exemption
from registration under the Securities Act of 1933, as amended (the "Act") by
virtue of the Company's compliance with Section 4(6) of the Securities Act and
Rule 505 of Regulation D promulgated under Section 4(2) of the Act and
corresponding exemption provisions of states in which this Offering is being
made. Units may be purchased only by "Accredited Investors" as such term is
defined in Rule 501 of Regulation D. The Company has prepared an offering
memorandum dated November 6, 1996, which has as exhibits thereto and
incorporates by reference therein the Form 10-K of the Company for the year
ended December 31, 1995, the Form 10-Q of the Company for the quarterly period
ended June 30, 1996, the Form 10-Q of the Company for the quarterly period ended
March 31, 1996, Annual Report of the Company for the Fiscal Year Ended December
31, 1995, Proxy Statement of the Company for its Annual Meeting held on July 11,
1996 and Current Report on Form 8-K of the Company with respect to August 13,
1996 Date of Report (collectively, the "Offering Memorandum"), relating to the
Company and the Units.
NOW THEREFORE, the Subscriber agrees with the Company as follows:
1. Subscription. Subject to its terms and conditions and further
subject to acceptance of this Agreement by the Company, the Subscriber agrees to
purchase from the Company the amount of Units set forth on the signature page
hereof
2. Delivery and Payment. Delivery of and payment for the Units shall
be made upon
2
<PAGE>
the execution of this Subscription Agreement in accordance with the instruction
sheet attached hereto.
3. Representations and Warranties of the Subscriber. The Subscriber
hereby represents and warrants to the Company as follows:
(a) The Subscriber has received a copy of the Offering
Memorandum, and the Subscriber has carefully reviewed the Offering Memorandum
and this Agreement. The Subscriber also acknowledges that he has received a copy
of the Company's Form 10-K of the Company for the year ended December 31, 1995,
the Form 10-Q of the Company for the quarterly period ended June 30, 1996, the
Form 10-Q of the Company for the quarterly period ended March 31, 1996, Annual
Report of the Company for the Fiscal Year Ended December 31, 1995, Proxy
Statement of the Company for its Annual Meeting held on July 11, 1996 and
Current Report on Form 8-K of the Company with respect to August 13, 1996 Date
of Report and is acquainted with the business and financial condition of the
Company. The Subscriber further acknowledges that he has had an opportunity to
ask questions of and receive answers from the Company's executive officers
concerning the Company and the terms and conditions of this investment, and all
such questions have been answered to the full satisfaction of the Subscriber.
The Subscriber hereby further represents and warrants that it is aware that
there are substantial risks incident to an investment in the Company and that no
Federal or State agency has passed upon the Units or made any finding or
determination as to the fairness of an investment in the Company.
(b) The Subscriber has the full right, power and authority to
enter into this Agreement and to carry out and consummate the transactions
contemplated herein. This Agreement constitutes the legal, valid and binding
obligation of the Subscriber enforceable in accordance with its terms.
(c) The Subscriber is acquiring Units for its own account and
risk and not as part of any plan or scheme to evade the registration
requirements of the Act The Subscriber understands and agrees that it must bear
the economic risk of its investment in the Units for an indefinite period of
time. Neither the Units, the Subordinated Note, Warrants or Common Stock
underlying the Warrants have been registered under the Act and can not be
transferred unless an exemption from registration under the United States and
applicable state securities law is available. The Subscriber also understands
that the Company is under no obligation to register any of the aforementioned on
behalf of the Subscriber (other than with respect to the piggyback registration
rights granted under the Warrants) or to assist it in complying with any
exemption from registration.
(d) The Subscriber is an Accredited Investor, as such term is
defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended
and set out in the Purchaser Questionnaire attached hereto..
(e) Neither the Subscriber, nor any officer, director or 5% or
more shareholder thereof, has been:
3
<PAGE>
(i) Convicted within the preceding ten years of
any felony or misdemeanor in connection with the offer, purchase or sale of any
security or commodity involving the making of a false filing with the
Commission.
(ii) Subject to any order, judgment or decree of
any court of competent jurisdiction temporarily or preliminary enjoining or
restraining, or subject to any order, judgment or decree of any court of
competent jurisdiction, entered within the preceding five years, permanently
enjoining or restraining the investor from engaging in or continuing any conduct
or practice in connection with the purchase or sale of any security or commodity
or involving the making or a false filing with the Commission or any state, or
arising out of the conduct of the business of any underwriter, broker, dealer,
municipal securities dealer or investment advisor.
(iii) Subject to an order of the Commission
entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Securities Exchange
Act of l934, as amended (the "Exchange Act"); or subject to an order or the
Commission entered pursuant to Section 203(e) or (f) of the Investment Advisers
Act of l940.
(iv) Suspended or expelled from membership in, or
suspended or barred from association with a member of, an exchange registered as
a national securities exchange pursuant to Section 6 of the Exchange Act, an
association registered as a national securities association under Section 15A of
the Exchange Act or a Canadian securities exchange or association for any act or
omission to act constituting conduct inconsistent with just and equitable
principles of trade.
(v) Filed a registration statement which is the
subject of a registration stop order entered pursuant to the Act or any State
Act within the preceding five years.
(vi) Subject to any state's administrative
enforcement order or judgment which prohibits, denies or revokes the use of any
exemption from registration in connection with the offer, purchase or sale of
securities.
(f) If the Subscriber is a corporation or trust or other
entity, the officer or trustee or other person executing this Agreement
represents and warrants that he is authorized to so sign and that the entity is
authorized by the governing documents of the entity, to make this investment;
(g) The Subscriber understands that the offer and sale of the
Units is being made only by means of this Agreement and the Offering Memorandum.
In deciding to subscribe for the Units, the Subscriber has not considered any
information other than that contained in this Agreement and the Offering
Memorandum and any documents provided to the Subscriber by the Company. The
Subscriber acknowledges that each of such documents contain on the cover thereof
a legend as to the absence of registration of the Units under the Act and the
restrictions arising under the Act. The Subscriber acknowledges and agrees that
the purchase of the Units involves a high degree of risk and that the Subscriber
may sustain, and has the financial ability to sustain, the loss of its entire
investment.
(h) The Subscriber acknowledges that Robert M. Cohen & Co.
(the "Placement
4
<PAGE>
Agent") and any other such duly registered broker-dealers utilized in connection
with this Offering will receive from the Company aggregate commissions equal to
5% of the proceeds received by the Company in connection with the sale of Units
and 500 Warrants (exercisable into 500 shares of Common Stock at $.50 per share)
for each Unit sold. The Placement Agent shall also receive a $2,000
non-accountable expense allowance in connection with acting as Placement Agent.
4. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber, except as otherwise disclosed in the
Offering Memorandum, that:
(a) This Agreement has been duly authorized by the Company
and, when accepted and delivered, will be a legally valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms.
(b) The Subordinated Notes and Warrants and the shares of
Common Stock to be issued upon exercise of the Warrants have been duly
authorized and, when issued and delivered against payment therefor in accordance
with the terms of this Agreement in the case of the Warrants, or upon exercise,
with respect to the Common Stock, will be, in the case of the Subordinated Notes
and Warrants, validly issued and outstanding and will constitute valid and legal
obligations of the Company enforceable against it in accordance with their
terms, and in the case of the Common Stock, validly issued, fully paid,
nonassessable and free of preemptive or similar rights.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Nevada. The Company has the corporate power and authority necessary to enter
into and perform its obligations under this Agreement, and to issue, sell and
deliver the Units, and to issue the shares of Common Stock upon exercise of the
Warrants.
(d) There is (i) no action, suit or proceeding before or by
any court, arbitrator or governmental agency, body or official, domestic or
foreign, now pending, threatened or, to the knowledge of the Company,
contemplated to which the Company is or may be a party or to which the business
or property of the Company is or may be subject and (ii) no statute, rule,
regulation or order that has been enacted, adopted or issued by any governmental
agency or that has been proposed by any governmental body which might prevent
the issuance of the Units or the consummation of any of the transactions
contemplated by this Agreement. No injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction has been issued
that would prevent the issuance of the Units.
(e) The execution, delivery and performance of, and the
consummation of the transactions contemplated by, this Agreement, will not
conflict with or constitute a material breach of any of the terms or provisions
of, or constitute a material default (with notice, the passage of time or
otherwise) under, or result in the imposition of a lien or encumbrance on any
properties of the Company or an acceleration of indebtedness pursuant to (i) the
charter or
5
<PAGE>
bylaws, or other equivalent instrument, of the Company, (ii) any bond,
debenture, note or any other evidence of indebtedness or any indenture,
mortgage, deed of trust or any other material agreement instrument to which the
Company is a party or to which it or its properties or assets are subject,
except such as have been waived or (iii) any law, regulation or order of any
court or governmental agency or authority applicable to the Company, or any of
its material properties or assets.
(f) No consents or waivers from any person are required to
consummate the transactions contemplated by this Agreement, other than such
consents and waivers as have been obtained. (g) The Company is in full
compliance, to the extent applicable, with applicable reporting obligations
under either Section 12(b), 12(g) or 15(d) of the Securities and Exchange Act of
1934, as amended.
(h) The Company shall either accept or reject this
subscription, in whole or in part, within three (3) business days of being
notified that the Placement Agent has received a completed Agreement and
deposited such funds in the trust account established on behalf of the Placement
Agent.
5. Reliance on Representations.
The Subscriber understands that the Company is relying on the
Subscriber's representations concerning the Subscriber's status as an Accredited
Investor.
6. Notice. Notices given pursuant to any provision of this Agreement
shall be addressed as follows: (i) if to the Company, to American International
Petroleum Corporation, 444 Madison Avenue, Suite 3203, New York, New York 10022,
Attention: Dr. George Faris, with a copy to Snow Becker Krauss P.C., 605 Third
Avenue, New York, New York 10158, (ii) if to the Subscriber at the address set
forth at the signature page of this Agreement, or in any case to such other
address as the person to be notified may have requested in writing.
7. Miscellaneous. Except as otherwise provided, this Agreement has been
and is made solely for the benefit of the Company and shall be binding upon the
Subscriber and its successors and assigns, all as and to the extent provided in
this Agreement, and no other persons shall acquire or have any right under or by
virtue of this Agreement. Subscriber shall not assign this Agreement.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, AND EACH PARTY HEREBY AGREES THAT ALL PERFORMANCE DUE WITH RESPECT
TO TRANSACTIONS UNDERTAKEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE DUE
OR TO HAVE OCCURRED IN NEW YORK. THE EXCLUSIVE VENUE AND PLACE OF JURISDICTION
FOR ANY LITIGATION ARISING FROM OR
6
<PAGE>
RELATED TO THIS AGREEMENT SHALL BE THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK OR THE NEW YORK STATE SUPREME COURT LOCATED IN THE
COUNTY OF NEW YORK. A FACSIMILE TRANSMISSION OF THIS SIGNED AGREEMENT SHALL BE
LEGAL AND BINDING ON ALL PARTIES HERETO.
IN WITNESS WHEREOF, the parties have executed this Agreement, the ____
day of ___________, 1996.
Amount of Units subscribed for:
US$_________________ _______________________
Name of Subscriber
By: ___________________
Name:
Title:
Address:____________________________________________________________
____________________________________________________________________
Telephone Number:____________
Telecopier Number: ____________
Social Security No. or Tax I.D. No. : ________________
Accepted this ________ day of __________ , 1996:
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: _____________________________
Dr. George N. Faris
Chairman
7
<PAGE>
State of )
) ss.:
County of )
On the day of , 1996, before me personally came
to me known, and known to me to be the individual described in, and who executed
the foregoing instrument, and he acknowledged to me that he executed the same.
Notary Public
8
<PAGE>
SPECIAL EXECUTION PAGE FOR SUBSCRIPTION BY AN ENTITY
(Not applicable to subscriptions by individuals)
IN WITNESS WHEREOF, subject to acceptance by the Company, the
undersigned has completed this Subscription Agreement to evidence its
subscription of Units of American International Petroleum Corporation, on this
day of , 1996.
Amount of Subscription
$
---------------------
Number of Units
TRUST -- (Please include copy of trust agreement)
- -----
CORPORATION -- (Attach certified corporate resolution
- ------ authorizing signature and a copy of the
articles of incorporation, unless waived)
PARTNERSHIP -- (Attached copy of the partnership agreement
- ----- unless waived)
(Please print the following information exactly as you wish it to appear on the
Partnership records.)
- ----------------------------- --------------------------
(Name of Subscriber) (Address)
- ----------------------------- --------------------------
(Tax Identification Number)
- ----------------------------- --------------------------
(Telephone)
The undersigned trustee, partner or corporate officer certifies
that he has full power and authority from the beneficiaries, partners or
directors of the entity named below to execute this Subscription Agreement on
behalf of the entity and to make the representations and warranties made herein
on their behalf and that investment in the Company has been affirmatively
authorized by the governing board of such entity and is not prohibited by the
governing documents of the entity.
9
<PAGE>
Dated: , 1996 -----------------------------------
---------------- (Print Name of Entity)
- ---------------------------- By:
---------------------------------
(Print Name and Capacity) (Signature of authorized trustee,
partner, or corporate officer)
10
<PAGE>
CORPORATE ACKNOWLEDGMENT
STATE OF )
)ss.:
COUNTY OF )
On this day of , 1996, before me personally came to be known,
being by me duly sworn, did depose and say that he resides at No. , that he is
the of , the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
board of directors of said corporation, and that he signed his name thereto by
like order.
Notary Public
11
<PAGE>
PARTNERSHIP ACKNOWLEDGMENT
STATE OF )
)ss.:
COUNTY OF )
On this day of , 1996, before me personally came
to be known, to be a partner in , a partnership, and
known to be the person described in and who executed the foregoing instrument in
the partnership name, and said duly acknowledged that he executed the foregoing
instrument on behalf of said partnership.
Notary Public
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 302,242
<SECURITIES> 0
<RECEIVABLES> 1,347,485
<ALLOWANCES> 0
<INVENTORY> 246,432
<CURRENT-ASSETS> 2,591,449
<PP&E> 54,786,287
<DEPRECIATION> 23,434,061
<TOTAL-ASSETS> 34,112,954
<CURRENT-LIABILITIES> 6,163,192
<BONDS> 4,737,496
0
0
<COMMON> 2,754,546
<OTHER-SE> 1,297,754
<TOTAL-LIABILITY-AND-EQUITY> 34,112,954
<SALES> 963,476
<TOTAL-REVENUES> 999,974
<CGS> 0
<TOTAL-COSTS> 176,220
<OTHER-EXPENSES> 1,207,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359,013
<INCOME-PRETAX> (742,780)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742,780)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
