SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20449
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File number No. 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 13-3130236
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022
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(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 August 11, 1997 is 42,991,892 shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 19,196 $ 11,058
Cash - restricted -- 161,022
Marketable securities 3,617,954 --
Accounts and notes receivable, net 1,660,651 1,073,140
Inventory -- 459,961
Prepaid expenses 321,163 838,104
------------ ------------
Total current assets 5,618,964 2,543,285
------------ ------------
Property, plant and equipment:
Unevaluated property 871,754 5,648,630
Oil and gas properties -- 32,506,656
Refinery property and equipment 18,912,633 17,235,183
Other 212,970 499,971
------------ ------------
19,997,357 55,890,440
Less - accumulated depreciation, depletion,
amortization and impairments (3,966,595) (23,959,191)
------------ ------------
Total property, plant and equipment 16,030,762 31,931,249
------------ ------------
Other long-term assets, net 2,154,612 17,897
------------ ------------
Total assets $ 23,804,338 $ 34,492,431
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ -- $ 237,162
Current portion of long-term debt 2,390,793 5,968,393
Accounts payable 1,422,703 3,636,765
Accrued liabilities 2,077,782 2,524,194
------------ ------------
Total current liabilities 5,891,278 12,366,514
Long-term debt 2,961,109 798,199
------------ ------------
Total liabilities 8,852,387 13,164,713
------------ ------------
Stockholders' equity:
Preferred stock, par value $0.01, 7,000,000 shares
authorized, none issued -- --
Common stock, par value $.08, 100,000,000 shares
authorized, 39,559,188 shares issued and outstanding
at June 30, 1997 and 34,458,921 shares at December 31, 1996 3,164,735 2,756,714
Additional paid-in capital 79,978,622 78,677,265
Stock purchase warrants 1,297,754 1,297,754
Accumulated deficit (69,489,160) (61,404,015)
------------ ------------
Total stockholders' equity 14,951,951 21,327,718
------------ ------------
Commitments and contingent liabilities (Note 10) -- --
------------ ------------
Total liabilities and stockholders' equity $ 23,804,338 $ 34,492,431
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(Unaudited)
1997 1996
------------ ------------
Revenues:
Oil and gas production and
pipeline fees $ -- $ 337,054
Refinery lease fees -- 548,722
Other 53,092 80,557
------------ ------------
Total revenues 53,092 966,333
------------ ------------
Expenses:
Operating -- 104,567
General and administrative 926,474 688,523
Depreciation, depletion and
amortization 131,623 322,908
Interest 842,370 320,545
Unrealized loss on marketable securities 1,639,977 --
Provision for bad debts -- --
Loss on sale of subsidiaries -- --
------------ ------------
Total expenses 3,540,444 1,436,543
------------ ------------
Net loss $ (3,487,352) $ (470,210)
============ ============
Net loss per share of common stock $ (0.09) $ (0.02)
============ ============
Weighted-average number of shares
of common stock outstanding 39,034,729 26,767,464
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
1997 1996
------------ ------------
Revenues:
Oil and gas production and
pipeline fees $ 260,579 $ 641,246
Refinery lease fees 442,714 1,117,318
Other 88,342 131,375
------------ ------------
Total revenues 791,635 1,889,939
------------ ------------
Expenses:
Operating 98,765 216,665
General and administrative 2,575,012 1,287,028
Depreciation, depletion and
amortization 382,366 647,453
Interest 1,415,411 521,180
Unrealized loss on marketable securities 3,393,727 --
Provision for bad debts 447,832 --
Loss on sale of subsidiaries 563,667 --
------------ ------------
Total expenses 8,876,780 2,672,326
------------ ------------
Net loss $ (8,085,145) $ (782,387)
============ ============
Net loss per share of common stock $ (0.22) $ (0.03)
============ ============
Weighted-average number of shares
of common stock outstanding 37,558,266 25,961,481
============ ============
The accompanying notes are an integral part of these statements.
4
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,085,145) $ (782,387)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 831,599 682,666
Unrealized loss on marketable securities 3,393,727 --
Provision for bad debts 447,832 --
Loss on sale of subsidiaries 563,667 --
Changes in assets and liabilities:
Accounts and notes receivable (219,640) (27,537)
Marketable securities -- --
Inventory 56,974 52,525
Prepaid and other 47,070 22,699
Accounts payable and accrued liabilities 98,681 (718,652)
----------- -----------
Net cash provided by (used in) operating activities (2,865,235) (770,686)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (451,181) (779,664)
Additions to refinery property and equipment (1,677,450) (20,431)
Other (212,547) (169,661)
----------- -----------
Net cash used in investing activities (2,341,178) (969,756)
----------- -----------
Cash flows from financing activities:
Cash - restricted, loan collateral 35,261 201,223
Net increase (decrease) in notes payable (237,162) (45,533)
Proceeds from long-term debt 3,405,000 1,810,000
Repayments of long-term debt (1,915,234) (1,035,178)
Proceeds from sale of marketable securities 1,757,069 --
Proceeds from issuance of common stock and
warrants, net 439,770 762,803
Proceeds from exercise of stock warrants
and options 560 --
Proceeds from sale of subsidiaries 1,729,287 --
----------- -----------
Net cash provided by financing activities 5,214,551 1,693,315
----------- -----------
Net increase (decrease) in cash and
cash equivalents 8,138 (47,127)
Cash and cash equivalents at beginning of year 11,058 162,218
----------- -----------
Cash and cash equivalents at end of year $ 19,196 $ 115,091
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common stock Additional Stock
------------ paid-in purchase Accumulated
Shares Amount capital warrants deficit Total
---------- ---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 34,458,921 $2,756,714 $ 78,677,265 $1,297,754 $(61,404,015) 21,327,718
Conversions of Debentures 2,590,488 207,239 667,761 -- -- 875,000
Issuance of stock for interest in oil &
gas properties 300,000 24,000 126,000 -- -- 150,000
Issuance of stock for services 250,000 20,000 (17,500) -- -- 2,500
Issuance of stock for compensation 100,000 8,000 32,000 -- -- 40,000
Issuance of stock in lieu of accounts payable 224,046 17,924 97,909 -- -- 115,833
Exercise of warrants 140 11 549 -- -- 560
Issuance of common stock 1,635,593 130,847 308,923 -- -- 439,770
Imputed interest on debentures
convertible at a discount to market -- -- 85,715 -- -- 85,715
Net loss for the period -- -- -- -- (8,085,145) (8,085,145)
---------- ---------- ------------ ---------- ------------ ------------
Balance, June 30, 1997 39,559,188 $3,164,735 $ 79,978,622 $1,297,754 $(69,489,160) $ 14,951,951
========== ========== ============ ========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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 June 30,
1997, the results of operations for the three month periods ended June 30, 1997
and 1996 and cash flows for the six months ended June 30, 1997 and 1996. 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 1996 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
1996 Annual Report on Form 10-K.
2. Marketable Securities
Marketable securities acquired by the Company at a basis of $2.00 per share had
a market value of $1.60 and $1.10 per share at March 31, 1997 and June 30, 1997,
respectively, resulting in an unrealized loss of $1,754,000 and $1,640,000, for
the two periods, respectively.
3. Other Long Term Assets
Notes totaling $4,400,000 acquired by the Company have been discounted and
recorded as $3,600,000, less current portion of $1,500,000.
4. Long-Term Debt
During the first six months of 1997, the Company received aggregate net proceeds
of $3,405,000 from the sale of Convertible Redeemable Subordinated Debentures,
issued in accordance with Regulation S as promulgated by the Securities and
Exchange Commission, of which approximately $235,000 in principal remains
outstanding as of August 12, 1997. In addition, on August 8, 1997, the Company
issued an
7
<PAGE>
aggregate $6.4 million in 8% Convertible Subordinated Debentures
pursuant to Regulation S. (See Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
During the last three years, the Company has had difficulty generating
sufficient cash flow to fund its operations, capital expenditures and required
principal payments. As a result, the Company has from time to time operated with
limited liquidity or negative working capital. In order to continue operations
under such circumstances, the Company has historically relied on outside sources
of capital.
On February 25, 1997, the Company sold all of the issued and outstanding shares
of Common Stock of two of its wholly-owned subsidiaries, American International
Petroleum Corporation of Colombia ("AIPCC") and Pan American International
Petroleum Corporation ("PAIPC") (the "Purchased Shares") in an arms length
transaction (the "MIP Transaction") to Mercantile International Petroleum, Inc.
("MIP") in exchange for cash, shares of MIP Common Stock (the "MIP Shares"),
debt in the form of a $3 million exchangeable debenture (the "Exchangeable
Debenture), and deferred compensation, improving its working capital position
from a net working capital deficit of $9.8 million at December 31, 1996, to a
positive working capital of $2.9 million at March 31, 1997.
However, the market value of the MIP Shares has declined since the closing of
the MIP Transaction to a low of $1.10 on June 30, 1997. Since the Company must
record the MIP Shares at lower of cost or market, the resultant cumulative
unrealized loss of $3,394,000 recorded by the Company was the primary cause of
the decline in the Company's working capital position to a negative $272,000 as
of June 30, 1997. (Since June 30, 1997 MIP Common Stock has traded as high as
$1.49 per share.)
In order to repay the MGTF Note (discussed below) in full, redeem certain
outstanding convertible debentures prior to their conversion by the holders
thereof into the Company's Common Stock, and to continue the expansion of the
Company's refinery to enable the implementation of asphalt blending operations,
on August 6, 1997, the Company issued an aggregate $6.4 million of two-year 8%
Convertible Subordinated Debentures pursuant to Regulation S (the "Debentures")
for net proceeds of $6,016,000. As a result, the Company's working capital
improved to approximately $6 million as of August 11, 1997.
One half of the principal amount of the Debentures is convertible into shares of
the Company's Common Stock on or after October 6, 1997, the remainder 30 days
thereafter, all at a conversion price based on 85%
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<PAGE>
of the average closing bid price of the Company's Common Stock for the five
trading days prior to the date of conversion. The Company may redeem all or a
portion of the Debentures at any time prior to conversion by paying 110% of the
redemption amount to the holder on or before November 5, 1997, or 115%
thereafter. Like the majority of its recent convertible debenture issuances, the
Company intends, to the extent possible, to redeem the Debentures prior to their
conversion into Common Stock. During the past four months, the Company has
redeemed certain convertible debentures which would have otherwise been
converted into approximately 7 million shares of the Company's Common Stock.
During the six months ended June 30, 1997, the Company utilized $8,085,000 for
operations, which reflects approximately $5,237,000 in non-cash provisions,
including depreciation, depletion an amortization of $832,000, loss on
write-down of marketable securities acquired in the MIP Transaction of
$3,394,000, provision for bad debts of $448,000, and loss on sale of
subsidiaries of $564,000. Approximately $116,000 was used during the period to
increase current assets other than cash, and $99,000 was provided by an increase
in accounts payable and accrued liabilities. Cash for operations was provided,
in part, by the sale and distribution of marketable securities of $1,757,000 and
the issuance of Common Stock and net increase in long-term debt in an aggregate
amount of $1,930,000, and from the sale of subsidiaries of $1,729,000.
The Company has borrowed funds from MG Trade Finance Corp. ("MGTF"). As part of
the MIP Transaction, the Company agreed to change the maturity date for payment
of the unpaid balance due to MGTF (currently $2,108,000) to September 30, 1997
from March 31, 1998. In addition, the Company pledged 1,000,000 shares of the
MIP Shares to further secure the Loan Agreement with MGTF. The Company expects
to pay the balance due on the Loan Agreement by the revised due date with some
of the proceeds it received from the Debentures.
Because of non-payment of lease fees and other items of default under the terms
of its lease agreement with the Company, Gold Line was evicted from the Refinery
premises on March 20, 1997. The Company filed suit against Gold Line to recover
unpaid lease fees and other items totaling approximately $1.8 million and
received a judgment related thereto of approximately $1.5 million. All past
amounts due from Gold Line have been previously reserved, including a charge to
the reserve for bad debts during the first quarter of 1997 for $443,000
representing the unpaid processing fees for that period. On August 8, 1997, Gold
Line filed for protection under Chapter 11 of the U.S. Bankruptcy Code;
therefore no assurance can be given that the Company will be able to collect on
this judgment.
The Company has sufficient capital, or access thereto, to complete the expansion
of the Refinery to enable the implementation of its asphalt operations and to
make any preliminary oil and gas related
9
<PAGE>
expenditures in Kazakstan (See discussion below). The asphalt and other
operations at the Refinery are expected to provide the Company with the future
capital necessary to fund its oil and gas operations, or place the Company in a
position where it is able to access conventional financing for such projects.
During the next twelve months, the Company plans to spend up to $2 million for
the Refinery expansion, which it expects to fund in part by proceeds from the
Debentures, internally-generated cash flow from refinery operations, and/or with
the principal ($1.5 million is callable by the Company in February 1998) and
interest payments it receives from the Exchangeable Debenture. The Company is
also having discussions with other financing entities who have expressed
interest in financing further expansion and future operations at the Refinery.
The phase one construction of the Refinery expansion, necessary to implement
operations, should be completed this month. By the fourth quarter of this year,
the Company plans to commence asphalt processing.
The Company recently signed an agreement with a German-based company, MED
Shipping & Trading S.A. ("MED") for the purchase of a 70% working interest in a
4.7 million acre oil and gas concession (the "License") in the Usturt Basin of
Western Kazakstan. The License has been transferred by the Kazakstan government
to MED Shipping Usturt Petroleum Company Limited ("MSUP"), a joint venture
limited liability company, which has been formed to manage the License
operations. The Company owns 70% of MSUP through its newly-formed and
wholly-owned subsidiary American International Petroleum Kazakstan ("AIPK"),
which will handle all of the Company's operations in Kazakstan.
The License area is located in western Kazakstan approximately 125 kilometers
southeast of Chevron's multi-billion barrel Tengiz Oil Field and the Caspian
Sea. The area is bordered to the south by Elf Acquitain's license and to the
west by both Oryx/Exxon and Amoco licenses. Evaluation by the Company's
independent petroleum engineers indicates that preliminary estimates of
potential recoverable reserves on seven structures, located in the western half
of the License near major pipeline systems, could be up to 1.1 billion barrels
of oil equivalent. Additional structures have been identified in the License
area, but have not been evaluated. Regional seismic data on the eastern half of
the License area indicates additional structures, the largest of which, the
"Chikuduk", measures approximately 50 kilometers in length. This structure,
whose reserves are not yet estimated, could provide the largest potential
deposits in the License area. The Company plans to continue its evaluation of
the area and expects to expand its evaluation program as additional data is
released to the Company by the government.
The License area provides various commercial options for oil or gas production,
since there are several oil and gas pipelines which cross
10
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the area. The existing infrastructure permits rapid development and marketing of
production and flexibility in securing acceptable markets for same. Production
can be sold north to Russia, Finland and the Atyrau Refinery, and/or south
through the Caspian Sea at Aktau for export abroad.
As previously reported, the Company paid $100,000 in cash and 300,000 shares of
its Common Stock, issued pursuant to Regulation S, to MED in return for the
option to acquire a 40% working interest in the License. Further negotiations
resulted in an increase in the working interest to 70%. As consideration for its
70% interest in MSUP, the Company issued 1,250,000 shares of its Common Stock,
pursuant to Regulation S, warrants to purchase 500,000 shares of its Common
Stock at an exercise price of $2.00 per share. An additional 1,500,000 shares of
its Common Stock will be issued if and when the Company's Common Stock trades
for five consecutive days at a price of $5.00 per share. MED will receive a
monthly consulting fee of $23,000 to be used to establish contacts for the
development and marketing of production, administrative and other activities
related to the enhancement of the License, and for AIPK operations in Kazakstan.
The Company will be responsible for operating the License operations and funding
all obligations therefor. Such obligations could amount to $13.5 million during
the next five years, approximately one-half of which must be expended during the
next three years for seismic and drilling. The Company is currently having
discussions with various oil companies who have expressed a preliminary interest
in the License area.
The Company is having discussions with various financing entities regarding
non-equity financing arrangements to provide funding for upcoming operations,
the repayment of the Debenture, and other capital it may require. However, there
is no assurance of success of any financing efforts the Company may pursue or
the timing or success of its Refinery projects and/or its other potential
projects. In the event that the Company is not able to fund its projects on its
own in a timely manner, management believes it will be able to obtain partners
for certain projects, however, such projects could be delayed or curtailed. As a
result of the sale of two of its subsidiaries and the eviction of Gold Line, the
Company has no current operating cash flows. Therefore, until the implementation
of new operations at its Refinery, or elsewhere, and absent any new financing it
may obtain, the Company will rely on its existing working capital and principal
and interest payments from the Exchangeable Debenture to sustain its business
operations.
11
<PAGE>
Results of Operations
For the Six Months Ended June 30, 1997 as compared
to the Six Months Ended June 30, 1996
The following table highlights the Company's results of operations for the six
months ended June 30, 1997 and 1996.
For The Six Months
Ended June 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties: (1)
Revenues - Oil Sales (000's) $ 261 $ 641
Lease Operating Expenses (000's) $ 99 $ 212
Production Volume - Bbls 18,625 73,098
Average Price per Bbl $ 14.01 $ 8.77
Production Cost per Bbl $ 5.31 $ 2.90
DD&A per Bbl $ 3.77 $ 3.77
Peru Properties: (2) (2)
Refinery Operations: (3)
Refinery Lease Fees (000') $ 443 $ 1,047
Average Daily Throughput 9,838 11,574
Average Throughput Fee $ 0.50 $ 0.50
- --------------------------------------------------------------------------------
(1) Reflects activity through February 25, 1997
(2) Information for 1997 and 1996 is not available due to a dispute with the
Company's partner.
(3) Reflects refinery activities through March 20, 1997.
Oil and Gas Operations:
The results of operations for Colombia and Peru for 1997 reflect results for the
period through February 25, 1997, the date of the sale of the Colombia and Peru
subsidiaries, compared to six full months of operations reflected in 1996.
Refinery Operations:
The results of operations for the Refinery for 1997 reflect results for the
period through March 20, 1997, the date the Company evicted
12
<PAGE>
it's tenant, compared to six full months of operations reflected in 1996.
Other Revenue:
Other revenues decreased approximately $42,000, or 33%, during the current
period compared to the same period in 1996. The decrease is primarily due to a
decrease in other revenues previously attributable to the Colombia operations
prior to the sale as previously discussed.
General and Administrative:
General and Administrative ("G&A") expenses increased approximately $1,287,984
compared to the same period during 1996 primarily due to approximately $230,000
in non-recurring expenses related to the legal proceedings against Gold Line, a
loss of approximately $234,000 on the sale and disposition of a portion of the
MIP Shares, and a non-recurring $695,000 adjustment to partially compensate key
employees whose salaries have remained unchanged for the past five years and
additionally as an incentive to ensure that the Company maintains a competitive
position in the industry regarding the continuity of the employment of its
employees.
Depreciation, Depletion, and Amortization decreased approximately $265,000
during the current period compared to the same period last year due primarily to
the decrease in oil production from Colombia during the current period as
compared to the same period last year.
Interest expense increased approximately $894,000, during the first six months
of 1997 compared to the same period last year of 1996 of which approximately
$287,000 is due primarily to imputed interest calculated on the Company's issued
convertible debt instruments. The calculation is a result of a new position
adopted by the Securities and Exchange Commission, ("SEC"), for convertible debt
instruments which are convertible into a company's stock at a discount to the
market price. Additionally, approximately $109,000 of interest expense was
incurred during the current period to redeem certain outstanding convertible
debentures. Approximately $224,000 of amortized bond costs was charged during
the current period as interest expense which is attributable to Company's
outstanding and retired debentures during the current period.
Unrealized Loss on Marketable Securities
Marketable securities of MIP, 4,384,375 shares, held by the Company were valued
at $2.00 per share when acquired. At March 31, 1997 the current market price was
$1.60 per share, resulting in a net unrealized loss of $1,754,000. At June 30,
1997 the market price was $1.10 per share, resulting in a net unrealized loss of
$1,640,000 on shares held at June 30, 1997. Total unrealized loss for the period
ended June 30, 1997 was $3,393,727.
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Loss on Sale of Assets
The Company recorded an aggregate $564,000 to reflect the current discounted
fair value of the Exchangeable Debenture and the $1.4 million performance
earn-out received in the MIP Transaction.
Results of Operations
For the Three Months Ended June 30, 1997 as compared
to the Three Months Ended June 30, 1996
The following table highlights the Company's results of operations for the three
months ended June 30, 1997 and 1996.
For The Three Months
Ended June 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) (1) $ 337
Lease Operating Expenses (000's) (1) $ 101
Production Volume - Bbls (1) 36,332
Average Price per Bbl (1) $ 9.28
Production Cost per Bbl (1) $ 2.78
DD&A per Bbl (1) $ 3.77
Peru Properties: (1) (2)
Refinery Operations:
Refinery Lease Fees (000') (3) $ 479
Average Daily Throughput (3) 10,641
Average Throughput Fee (3) $ 0.50
- --------------------------------------------------------------------------------
(1) Colombia and Peru properties were sold as of February 25, 1997
(2) Information for 1996 is not available due to a dispute with the Company's
partner.
(3) The refinery's tenant was evicted as of March 20, 1997.
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Oil and Gas Operations:
The date of the sale of the Colombia and Peru subsidiaries was February 25,
1997, therefore there were no operations for the three months ended June 30,
1997.
Refinery Operations:
The Company evicted it's lessee on March 20, 1997, therefore there were no
operations for the three months ended June 30, 1997.
Other Revenue:
Other revenues decreased approximately $27,000, or 34%, during the current
quarter compared to the same quarter of 1996. The decrease is primarily due to a
decrease in other revenue as a result of the sale of the Colombia operations.
General and Administrative:
General and Administrative ("G&A") expenses increased approximately $238,000
compared to the same period during 1996 primarily due to the following reasons:
non-recurring legal fees of approximately $31,000 incurred during the current
period which were attributable to the Company's legal proceedings against Gold
Line, as previously discussed above; during the current period the Company
recognized a loss of approximately $234,000 on the sale and disposition of
certain marketable securities it held; and property taxes and insurance cost
increased approximately $85,000 during the current quarter compared to the same
period in in 1996 due to the Company having to absorb additional costs as a
result of the eviction of the refinery lessee, as previously discussed.
Depreciation, Depletion, and Amortization decreased approximately $191,000
during the current period compared to the same period last year due to the lack
of any oil production from Colombia during the current quarter as a result of
the sale of this subsidiary as previously discussed.
Interest expense increased approximately $492,000 during the second quarter of
1997 compared to the same period last year, of which approximately $16,000 is
due primarily to imputed interest calculated on the Company's issued convertible
debt instruments. Additionally, approximately $37,500 in interest expense was
incurred during the current period to redeem certain convertible debentures.
Approximately $138,000 of amortized bond costs was charged as interest expense
during the current period compared to $38,000 charged in the same period last
year, which is attributable to Company's outstanding and retired debentures
during the current period.
15
<PAGE>
Unrealized Loss on Marketable Securities
Marketable securities held by the Company at June 30, 1997, and carried at a
lower of cost or market value of $1.60 since March 31, 1997, had a market price
at June 30, 1997 of $1.10 per share, resulting in a net unrealized loss of
$1,640,000 during the current quarter.
Loss on Sale of Assets
The Company recorded an aggregate of $564,000 to reflect the current discounted
fair value of the Exchangeable Debenture and the $1.4 million performance
earn-out received in the MIP Transaction.
PART II. OTHER INFORMATION
Item 5. Other Information
See Part I, Item 2, above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of 8% Convertible Subordinated Debentures due August 1,
1999.
4.2 Form of Subscription Agreement used in connection
with the offering of the Registrants' debentures, the
form of which is attached hereto as Exhibit 4.1.
4.3 Form of Warrant to purchase shares of the
Registrants' Common Stock issued in connection with
the offering of the Registrants' debentures, the form
of which is attached hereto as Exhibit 4.1.
4.4 Form of Registration Agreement used in connection
with the offering of the Registrants' debentures, the
form of which is attached hereto as Exhibit 4.1.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1997
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
---------------------------
Denis J. Fitzpatrick
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Form of 8% Convertible Subordinated Debentures due August 1,
1999.
4.2 Form of Subscription Agreement used in
connection with the offering of the
Registrants' debentures, the form of which
is attached hereto as Exhibit 4.1.
4.3 Form of Warrant to purchase shares of the
Registrants' Common Stock issued in
connection with the offering of the
Registrants' debentures, the form of which
is attached hereto as Exhibit 4.1.
4.4 Form of Registration Agreement used in
connection with the offering of the
Registrants' debentures, the form of which
is attached hereto as Exhibit 4.1.
27.1 Financial Data Schedule.
17
Exhibit 4.1
THE CONVERTIBLE DEBENTURE OF AMERICAN INTERNATIONAL PETROLEUM CORPORATION.
("ISSUER") REPRESENTED HEREBY HAS BEEN ISSUED PURSUANT TO REGULATION S,
PROMULGATED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO OR FOR THE ACCOUNT OF A "U.S. PERSON" (AS THAT TERM IS DEFINED IN
REGULATION S) DURING THE PERIOD COMMENCING ON THE DATE HEREOF AND ENDING ON THE
FORTIETH (40TH) DAY FOLLOWING THE DATE HEREOF (THE "RESTRICTED PERIOD"). THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY FIRST BE CONVERTED INTO COMMON
STOCK OF THE ISSUER ON THE 60TH DAY AFTER THE DATE HEREOF. THE ISSUER WILL
NOTIFY THE TRANSFER AGENT OF THE EXPIRATION OF SUCH RESTRICTED PERIOD.
$____________
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE AUGUST 1, 1999
THIS DEBENTURE, issued this 6th day of August, 1997, 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 8% Convertible Debentures Due August 1, 1999,
in an aggregate original principal amount not exceeding $6,400,000 (the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
__________________________ corporation, the registered holder hereof (the
"Holder"), the principal sum of ___________________Dollars (________), on or
prior to August 1, 1999 (the "Maturity Date"), and to pay interest on the
principal sum outstanding from time to time on the last day of each November,
Feburary, May and August (each an "Interest Payment Date"), commencing August 6,
1997, up to and including the Maturity Date, at the rate of eight percent (8%)
per annum, calculated based upon the actual number of days elapsed during any
interest period in a year comprised of 360 days. Accrual of interest on this
Debenture shall commence on the date of this Debenture and shall continue to
accrue until the next Interest Payment Date. The interest so payable will be
paid on each Interest Payment Date 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 transfers of the Debentures (the "Debenture
Register") on the first business day prior to such Interest Payment Date. All
past due,accrued and unpaid interest shall bear interest at the rate of 8% per
annum from the date of default until the date of payment. 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. The Debenture Register shall represent the record of
ownership and right to receive principal and interest on this Debenture.
Interest and principal shall be payable only to the registered Holder as
reflected in the Debenture Register. The right to receive principal and interest
under this Debenture shall be transferable only through an appropriate entry in
the Debenture Register as provided herein. The forwarding of such payment to the
Holder, subject to collestion, shall constitute a payment of interest hereunder
and shall satisfy and discharge the liability for principal and interest on this
Debenture to the extent of the sum represented by such payment.
This Debenture is subject to the following additional provisions:
1. The Debenture is issuable in mimimum denominations of One Hundred Thousand US
Dollars (USD$100,000.00) and in integral multiples thereof. The Debenture is
exchangeable for like Debentures in equal aggregate principal amount of
different authorized denominations, as requested by the Holder surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
2. Withholding. 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 laws or
other applicable laws at the time of such payments. The Holder shall pay any
other taxes, charges, or levies in connection with
<PAGE>
the issuance or transfer thereof. The Holder agrees to provide the Company a
Form W-8, a Certification Under Penalty of Perjury, or a certificate from a
financial institution described in Section 871(h)(4)(B) of the Internal Revenue
Code of 1986 demonstrating that the Holder is not a United States person.
3. Transfer. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), including Regulation S promulgated thereunder. Any Holder of this
Debenture, by acceptance hereof, agrees to the representations, warranties and
covenants herein. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company and the Transfer Agent 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 by notice to the contrary.
4. Conversion. The record Holders of this Debenture shall have conversion rights
as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of this Debenture shall be
entitled, at the option of the Holder, to convert up to fifty (50) percent of
the aggregate principal amount of Debentures held by such Holder at any time
commencing Sixty (60) days after the date of this Debenture (the "First
Conversion Date") and the remaining fifty (50) percent of the aggregate
principal amount of Debentures held by such Holder at any time commencing thirty
(30) days following the First Conversion Date, in each case into that number of
fully-paid and non-assessable shares of common stock, par value $.08 per share,
of the Company (the "Common Stock") calculated in accordance with the following
formula: Number of shares issued upon conversion = Principal/Conversion Price,
where
o Principal = The principal amount of the Debenture(s) to be converted.
o Conversion Price = the lesser of (x) eighty-five (85) percent of the average
Closing Bid Prices of the Company's Common Stock for the five days immediately
preceding the Notice of Conversion, or (y) the lowest of the daily Weighted
Average Sale Prices of the Company's Common Stock for the tewnty (20) trading
days immediately preceding the Date of Conversion. For purposes hereof, the term
"Closing Bid Price" shall mean the closing bid price of the Company's Common
Stock as reported by Bloomberg LP for the NASDAQ (or, if not reported by NASDAQ,
as reported by such other exchange or market where traded), subject to
adjustment pursuant to Subsection (d) below.
(b) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of this Debenture. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall pay cash to such
Holder in an amount equal to such fraction multiplied by the Conversion Price
then in effect. The Company shall also pay in cash to the Holder through the
date of conversion all accrued and unpaid interest. In order to convert all or a
portion of this Debenture into shares of Common Stock, the Holder shall give
written notice via facsimile to the Company of the portion of this Debenture it
elects to so convert and a calculation of the number of shares of Common Stock
to be issued upon conversion. The Holder shall also provide to the Company the
original Debenture within five (5) days from the date Holder gives written
notice to the Company of its intent to the convert. Notwithstanding the
foregoing, the conversion right of the Holder set forth above shall be limited,
solely to the extent required, from time to time, such that in no instance shall
the maximum number of shares of Common Stock which the Holder may receive in
respect of any conversion of any portion of this Debenture exceed, at any one
time, an amount equal to the remainder of (i) 4.99% of the then issued and
outstanding shares of Common Stock of the Company following such conversion,
minus (ii) the number of shares of Common Stock of the Company then owned
(beneficially or of record) by the Holder (the "Limitation on Conversion");
provided, however, the Limitation on Conversion shall not apply, and shall be of
no further force or effect following the occurrence of any Event of Default
described in Section 9 below and for which the Holder has provided written
notice thereof and which is not cured within the greater of the applicable time
period specified in either (I) such written notice of the Holder or (II) Section
9 below. Notwithstanding the foregoing,The Company shall not be obligated to
issue any Common Stock as dividends or upon conversion of the Debentures or
exercise of the Warrants if, after giving effect to such issuance, more than an
aggregate of 19.9% shares of Common Stock issued and outstanding as of the
Closing (the "Maximum Number of Shares") shall have been previously issued in
respect thereof. In the event that the ISSUER issues the Maximum Number of
Shares, the ISSUER
<PAGE>
shall (i) immediately give notice to the Holder that such event has occured
(the"Maximum Share Notice"), (ii) take either of the following actions within
Ninety (90) days of such notice:(a)obtain shareholder approval for the issuance
of Common Stock in excess of 20% of the issued and outstanding shares or
(b)repay the Debentures, at the redemption price specified in Sec.5,in cash,
within two (2) days, and redeem the Warrants with the Warrant redemption price
equal to either (i) if the Common Stock is above the exercise price of the
Warrant, then the Redemption Price of the Warrant is the difference of the
Common Stock minus the Exercise Price of the Warrant multiplied by the number
Warrants owned by the Holder, or (ii) if the Common Stock price is below the
exercise price of the Warrant, then the redemption price is equal to the value
of the Warrants based on Black-Scholes model.For purposes of this redemption,
Common Stock price is defined as the average of the Closing Bid Prices of the
Common Stock for the five (5) trading days immediately preceding the Payment
Date.
The Company shall issue, and shall use its best efforts to cause the
Transfer Agent to issue, within three (3) trading days after delivery to the
Company of a Notice of Conversion of the number of shares of Common Stock to
which the Holder shall be entitled as aforesaid. The date on which Notice of
Conversion is given, including notice by facsimile signature, shall be deemed to
be the "Date of Conversion". The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Date of Conversion. If the shares of Common Stock issuable upon such conversion
are not received by the Holder, or Holders United States Agent, within five (5)
trading days after the Date of Conversion, the Notice of Conversion shall
become, at the option of the Holder, null and void.
As contemplated by the Subscription Agreement, the Holder shall be
required to deliver this Debenture within five (5) days to the Company upon the
delivery of any Notice of Conversion. The Company shall retain an accounting
record of the portion of the principal balance of this Debenture which is deemed
to be paid upon the conversion of any portion of this Debenture by the Holder
hereof. Following conversion of this Debenture, or a portion thereof, the
principal and, upon payment thereof in cash, the interest owed on that Debenture
or portion of the Debenture so converted will be deemed paid in full and
satisfied, and such Debenture or portion thereof will no longer be outstanding.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Debentures, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all then outstanding Debentures; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
Debentures, the Company will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Price.
(i) If, prior to the conversion of all of the Debentures at the time
of conversion there is a stock split, stock dividend or other similar event
which occurs during the five-day period utilized to compute the Conversion
Price, then the Closing Bid Price used to compute the Conversion Price shall be
appropriately adjusted to reflect, as deemed equitable and appropriate by the
Company, such stock split, stock dividend or other similar event.
(ii) No adjustment need be made if it would result in a change of
less than 1% of the Conversion Price (whether the Fixed Conversion Price or the
Floating Conversion Price). Any adjustments required to be made by this
subsection shall be rounded up to the right to acquire the nearest whole number
of shares of Common Stock.
5. Redemption. The Company, at its sole option, may redeem any or all of the
outstanding Debentures that remain unconverted at any time from the date of
issuance hereof through the Ninetieth day following the issuance hereof at One
Hundred and Ten (110) percent of the Face Amount of the Debentures, plus accrued
and unpaid interest, which are being redeemed. Beginning on day 91 after the
issuance hereof, and continuing until the entire Debenture has been Converted or
redeemed, the Redemption Price is equal to One Hundred Fifteen (115)percent of
the Face Amount of the Debentures,plus accrued and unpaid interest, which are
being redeemed, provided that no event of default by the ISSUER has occured or
is continuing. Such redemption shall take place upon Ten (10) business days
written notice to the HOLDER . Proceeds of the redemption will be paid to the
HOLDER within Ten business days from the Notice of the Redemption. The Company
<PAGE>
will process any Conversion Noticereceived prior to the issuance of a Notice of
Redemption. After an issuance of Notice of Redemption ahs been issued, the
Holder may Issue a Notice of Conversion which will not be honored unless the
Company fails to make the Redemption Payment, when due. In the event of such
failure, the notice of Conversion will be honored as of the date of the Notice
of Conversion. Additionally, if the Company fail to make full payment of the
Redemption Price by the tenth day following the Notice then, the Company waives
its right to redeem any of the remaining then outstanding Debentures, unless a
redemption is approved by the Holder.
6. No Impairment. Except as expressly provided herein, 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 or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
7. Protective Provisions. This Debenture may not be amended without the prior
written consent of the Holder hereof.
8. Costs and Expenses. The Company agrees to pay all reasonable costs and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Debenture.
9. Events of Default; Remedies. If one or more of the following described
"Events of Default" shall occur and be continuing:
(a) The Company shall default in the payment of principal or interest on
this Debenture (or any other Debentures issued pursuant to the terms of the
Subscription Agreement), and such failure shall continue uncured for seven(7)
days after notice from the Holder of such failure; or
(b) Any of the representations or warranties made by the Company herein,
in the Subscription Agreement dated the date hereof pursuant to which this
Debenture has been issued 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 the Subscription Agreement, this Debenture, or under any of the
other Debentures issued pursuant to the Subscription Agreement, or under any
other documents executed and delivered in connection with the closing of the
Subscription Agreement (including, without limitation, the failure to deliver
shares of Common Stock upon conversion of all or any portion of this Debenture
in accordance with the terms hereof), and such failure shall continue uncured
for a period of seven (7) days after notice from Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for
the 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 (5) adopt a plan
of liquidation or dissolution; 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 appointments; 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 sixty (60) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) 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 sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
<PAGE>
(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 sixty (60) days after such
instruction or if 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 Common Stock shall (i) be delisted from NASDAQ without being
listed on another exchange or over-the-counter market within two (2) days of
such delisting, or (ii) cease to trade on an exchange or over-the-counter market
for more than ten (10) successive trading days.
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,at the Redemption Price specified in Sec.
5 above, without presentment, demand protest or notice of any kind, all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
with 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.
10. Mergers, Consolidations, Etc. The Company shall not consolidate or merge
into, or transfer all or substantially all of its assets to, any person, unless
such person assumes the obligations of the Company under this Debenture and
immediately after such transaction no Event of Default exists. Any reference of
the Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such assumption. If the Company
merges or consolidates with another corporation or sells or transfers all or
substantially all of its assets to another person and the holders of the Common
Stock of the Company are entitled to receive stock, securities or property in
respect of or in exchange for such Common Stock, then as a condition of such
merger, consolidation, sale or transfer, the Company and any such successor,
purchaser or transferee shall amend this Debenture to provide that it may
thereafter be converted at the option of the Holder on the terms and subject to
the conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
Holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer. The Conversion Price shall be the same as the applicable Conversion
Price defined in Section 4 above.
11. No Dividends. For so long as the Debenture remains outstanding, the Company
will not, without the prior consent of a majority of the Holders, make any
distributions in cash to its holders of Common Stock, any preferred stock or
with respect to any subordinated indebtedness.
12. Lost or Destroyed Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver to the Holder, in
exchange and substitution for and upon cancellation of a mutilated Debenture, or
in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost, stolen
or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership thereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
13. Sales in Compliance with Applicable Law. Any Holder of this Debenture, by
acceptance hereof, agrees 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.
14. Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of Nevada, without giving effect to the
principles of conflicts of laws. Any action brought to enforce, or otherwise
arising out of this Debenture shall be heard and determined in either a federal
or state court sitting in the County of Dallas, State of Texas.
15. Business Day and Trading Day Definition. For purposes hereof, the term
"business day" shall mean any day on which banks are generally open for business
in the State of New York, USA and excluding any Saturday and Sunday and a
"trading day" shall mean any business day in which the NASDAQ or other automated
quotation system or exchange on
<PAGE>
which the Common Stock is traded is open for trading for at least four (4)
hours.
16. Notices. Any notice, demand or request required or permitted to be given by
either the Company or the Subscriber pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally, or by
facsimile, addressed to the Company at 444 Madison Ave.,Suite 3203, New York NY
10022, Facsimile: 212/688-6657, Attn: President, or to the Subscriber at 38
Hertford St. London, England WIY 7TG, Facsimile: 011-441-71-355-4975, Attn:
James Loughran, with a copy to HW Finance Partners, L.P., 4000 Thanksgiving
Tower, 1601 Elm Street, Dallas, Texas 75201, Facsimile: (214) 720-1662, Attn:
Barrett Wissman, or such other addresses as a party may request by notifying the
other in writing.
17. Waiver. Any waiver by the Company or the Holder hereof of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder hereof to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Debenture.
Any waiver must be in writing.
18. Unenforceable Provisions. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
19. Subordination.The rights of any Holder to receive the principal sum or any
part thereof, and to receive the interest due on this Debenture, other than by
conversion into Common Stock or reciept of Common Stock as interest, 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 any 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 Issuer secured by a lien, mortgage,
pledge or other encumbrance against real or personal property (including common
stock of the Issuer or any of its subsidiaries) of the Issuer, (iii) any
modifications, renewals, extensions or refunding of the foregoing, except for
any of such obligations of the Issuer 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 Issuer
existing on the date of this Debenture; and (vi) trade payables incurred in the
ordinary course of the Issuer or its subsidiaries. Notwithstanding the
foregoing, provisions of this Sec. 19 will be of no force or effect so long as
none of the Companys obligations described above have been accelerated by their
terms.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by an officer thereof duly authorized.
American International
Petroleum Corporastion
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Exhibit 4.2
REGULATION S SECURITIES SUBSCRIPTION AGREEMENT
By and between
AMERICAN INTERNATIONAL PETROLEUM CORPORATION.
and
---------------------------
as Subscribers
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE"ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE
SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE ACT. THE
SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS REGULATION S SECURITIES SUBSCRIPTION AGREEMENT (the "Agreement" or
the "Subscription Agreement") is executed by each of the undersigned (each a
"Subscriber" and collectively, the "Subscribers") in connection with the
subscription by the Subscribers for Convertible Debentures of AMERICAN
INTERNATIONAL PETROLEUM CORPORATION a Nevada corporation (the "Company").
WHEREAS, the Company is offering for sale (the "Offering") pursuant to
Regulation S ("Regulation S") under the United States Securities Act of 1933, as
amended (the "Act") an aggregate principal amount of $_________ of Convertible
Debentures, at an aggregate purchase price of $_________ (the "Purchase Price"),
in the form attached hereto as Exhibit A (the "Convertible Debentures");
WHEREAS, each Subscriber wishes to subscribe for the Convertible
Debentures set forth opposite such Subscriber's name on Schedule 1 hereto, in
accordance with the terms and conditions of this Agreement; and
WHEREAS, in connection with the Offering, the Company shall grant to the
Subscribers a warrant to acquire shares of common stock of the Company, as
described in Section 9.1 hereof (the "Warrant").
AIPN Subscription Agreement August 6, 1997
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Subscription and Closing; Escrow
A Subscription. Subject to the terms and conditions of this Agreement,
each Subscriber hereby subscribes for, and the Company hereby agrees to issue
and sell to each such Subscriber, Convertible Debentures in the principal amount
and at the aggregate price set forth opposite each Subscriber's name as
indicated on Schedule 1 to this Agreement.
B Closing. On August 6, 1997 (the "Closing Date"), the parties shall
exchange countersignatures to this Agreement and the Company shall deliver to
the Escrow Agent (as defined in the Convertible Debenture Escrow Agreement
attached hereto as Exhibit B) the Convertible Debentures and the Warrant, each
dated August 6, 1997, and the Subscriber shall wire transfer the Purchase Price
to the Escrow Agent.
C Multiple Subscribers. This Agreement may be executed by one or more
Subscribers. In the event that this Agreement pertains to a subscription by a
single Subscriber only, all references to the "Subscribers" or "each Subscriber"
shall be deemed to refer to such single Subscriber.
2. Representations with Respect to the Company
The Company represents and warrants to and covenants with the Subscribers
as follows:
A Organization, Good Standing, and Qualification.
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company is duly qualified
to transact business and is in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the
business or properties of the Company and its subsidiaries taken as a
whole.
(ii) Each subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to carry
on its business as now conducted and as proposed to be conducted. Each
such subsidiary is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on the business or properties of such
subsidiary.
B. Authorization. All corporate action on the part of the Company, its
officers,
AIPN Subscription Agreement August 6, 1997
2
<PAGE>
directors and shareholders have been taken necessary for the (i) authorization,
execution and delivery of this Agreement, the Convertible Debentures, the Escrow
Agent Agreement (as hereafter defined) and the Warrant (the Agreement, together
with each of such documents, being referred to collectively as the "Transaction
Documents"), (ii) performance of all obligations of the Company under each
Transaction Document and (iii) authorization, issuance and delivery of shares of
the common stock, par value $.008 per share (the "Common Stock") of the Company
issuable upon (x) conversion of the Convertible Debentures (such shares of
Common Stock are hereinafter referred to as the "Debenture Shares"), and (y)
exercise of the rights of the Subscribers (the "Warrant Rights") under the
Warrant (such shares of Common Stock are hereinafter referred to as the "Warrant
Shares"). The Debenture Shares and Warrant Shares are hereinafter referred to as
the "Shares", and the Shares, together with the Convertible Debentures and
Warrant are hereinafter referred to as the "Securities".
C. Agreement. Each Transaction Document has been (or will be as of the
Closing) duly executed and delivered by the Company and, assuming due
authorization, execution and delivery thereof by each Subscriber, is (or will be
as of the Closing) a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
D. Capital Stock. The Company has an authorized and outstanding
capitalization as set forth on Schedule 2.4. All outstanding shares of capital
stock of the Company have been duly authorized and are fully paid and
non-assessable. Other than as set forth in Section 2.4 or as disclosed in the
SEC Reports (as such term is defined in Section 2.6 below), there are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of capital stock of the Company.
E. Valid Issuance of Securities. When issued and delivered in accordance
with the terms of this Agreement, the Convertible Debentures and Warrant will
constitute legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, and will have been issued in compliance, based upon
reliance on Subscriber's representations set forth herein, with all applicable
federal and state securities laws of the United States. The Company makes no
representations as to whether such issuance and delivery shall comply with the
laws of any foreign country. Assuming the representations and warranties of each
Subscriber are accurate in all material respects, the Debenture Shares, when
issued upon conversion in accordance with the terms of the Convertible
Debentures, and the Warrant Shares, when issued upon exercise of the Warrant
Rights (assuming payment of the exercise price set forth in the Warrant), shall
be duly and validly issued and outstanding, fully paid and nonassessable free
and clear of any claims or preemptive rights, and will have been issued in
compliance with all applicable U.S. federal and state securities laws.
F. SEC Reports; Financial Statements. The Company has filed all forms,
reports and documents with the Securities and Exchange Commission (the
"Commission") since May 15, 1997, required to be filed by it under the
Securities Exchange Act of 1934, as amended (the "1934 Act") through the date
hereof. None of the SEC Reports, including without limitation any financial
AIPN Subscription Agreement August 6, 1997
3
<PAGE>
statements or schedules included therein, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. There have been no material adverse changes in the Company's
business, properties, results of operations or condition (financial or
otherwise) since May 15, 1997. The audited consolidated balance sheets of the
Company and its subsidiaries contained in the 1996 10-K, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended (the consolidated balance sheet of the
Company and its subsidiaries as of May 15, 1997 is hereinafter referred to as
the "Balance Sheet"), including the footnotes thereto, except as indicated
therein, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods indicated. The Balance
Sheet fairly presents the financial condition of the Company and its
subsidiaries at the date thereof and, except as indicated therein, reflects all
claims against and all debts and liabilities of the Company and its
subsidiaries, fixed or contingent, as at the date thereof and the related
statements of income, stockholders' equity and changes in cash flows fairly
present the results of the operations of the Company and its subsidiaries and
the changes in their financial position for the period indicated. Since May 15,
1997 (the "Balance Sheet Date"), except as contemplated by this transaction,
there has been (x) no material adverse change in the assets or liabilities, or
in the business or condition, financial or otherwise, or in the results of
operations of the Company and its subsidiaries, whether as a result of any
legislative or regulatory change, revocation of any license or rights to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation, act of God, public force or otherwise and (y) no
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of the Company and its
subsidiaries except in the ordinary course of business; and no fact or condition
exists or is contemplated or threatened which might cause such a change in the
future. Except as disclosed in the SEC Reports, neither the Company nor any of
its subsidiaries has any material debts, guarantees, liabilities or obligations
required by generally accepted accounting principles to be provided for in the
Balance Sheet, whether accrued or absolute, contingent or otherwise, and whether
due or to become due, and there is no basis for the assertion against the
Company or any of its subsidiaries of any such debt, guarantee, liability or
obligation, that were not accrued or reserved against in the financial
statements included as part of the SEC Reports.
G. Current Public Information. Subject to the disclosures set forth in
Section 11 hereof, the Company is a "reporting issuer" as defined in Rule 902(l)
of Regulation S and it has a class of securities registered under Section 12(b)
or 12(g) of the 1934 Act. The Company has delivered to the Subscribers copies of
the Company's Form 10-K Annual Report for the most recent fiscal year ended,
Form 10-Q for the most recent fiscal quarter ended, most recent proxy statement
for its Annual Meeting of Shareholders, and each interim report on Form 8-K
filed by the Company since the date of its most recent Annual Report on Form
10-K.
H. No Directed Selling Efforts in Regard to this Transaction; Compliance
with Regulation S. The Company has not, and to the best of the Company's
knowledge no Subscriber nor any distributor, if any, participating in the
offering of the Securities nor any person acting for the Company or any such
distributor has conducted any "directed selling efforts" as that term is
AIPN Subscription Agreement August 6, 1997
4
<PAGE>
defined in Rule 902 of Regulation S. The Company has not offered the Securities
to the Subscribers in the U.S. or to any person in the United States or any U.S.
person. The Company represents and warrants that the Offering by the Company of
the Securities to the Subscribers as contemplated in this Agreement is not part
of a plan or scheme to evade the registration provisions of the Act.
J. No Conflicts and Consents.
(i) The execution and delivery of each Transaction Document and the
consummation of the transactions contemplated by each Transaction Document
do not and will not conflict with or result in a material breach by the
Company of any of the terms or provisions of, or constitute a material
default under, the Certificate of Incorporation or Bylaws of the Company,
or any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any existing applicable decree, judgment or order of
any court, Federal or State regulatory body, administrative agency or
other governmental body having jurisdiction over the Company or any of its
properties or assets.
(ii) Neither the Company nor any subsidiary is required to obtain
any material consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal, state, local or
other governmental authority or other person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, except for (i) the filing (if any) of the registration
statements contemplated by the Registration Rights Agreement with the
Commission, (ii) the applications for the listing of the Warrant Shares
and the Debenture Shares with NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed),
and (iii) the filing (if applicable), following the Closing, of a report
on Form 8-K summarizing the terms of this Agreement (which report shall,
to the extent permitted by applicable law, refer to the Subscribers by
classification as "accredited investors" and without designation by name).
K. No Action. The Company has not taken and will not take any action that
will affect in any way the running of the Restricted Period or Warrant
Restricted Period (each as hereafter defined) or the ability of any Subscriber
to resell freely the Securities in accordance with applicable securities laws
and this Agreement.
L. Compliance with Laws. As of the date hereof, the conduct of the
business of the Company and each of its subsidiaries complies in all material
respects with all statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto, except for non compliance which would not
have a material adverse effect on the business, properties, condition (financial
or otherwise), results of operations or prospects of the Company and each of its
subsidiaries taken as a whole (a "Material Adverse Effect"). Neither the Company
nor any subsidiary has received notice of any alleged violation of any statute,
law, regulation, ordinance, rule, judgement, order or decree from any
governmental authority, which would have a Material Adverse Effect.
AIPN Subscription Agreement August 6, 1997
5
<PAGE>
M. Litigation. Except as disclosed in the SEC Reports, there is no action,
suit or proceeding before or by any court or governmental agency or body,
domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company or its subsidiaries, or any of
their properties, which could reasonably be expected to have a Material Adverse
Effect.
N. Disclosures. There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been disclosed
in writing to the Subscribers that (a) could reasonably be expected to have a
Material Adverse Effect or (b) could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement (and the issuance of the Securities hereunder).
O. Prior Issuances under Regulation S; Private Placements. Except as set
forth in the SEC Reports or for prior issuances reflected in the capitalization
of the Company described on Schedule 2.4, the Company has not issued any shares
of its Common Stock (or securities convertible into or exercisable for shares of
Common Stock) (i) under Regulation S ("Regulation S Securities"), except for
shares of Common Stock issued as an adjustment to, or in connection with a
conversion or exercise of, Regulation S Securities or (ii) pursuant to any other
exemption from registration under the Act. Assuming that the representations of
the Subscribers are true and correct in all material respects, the offer and
sale of the Convertible Debentures and Warrant are exempt from registration
under Section 5 of the Act. Neither the Company nor any person acting on its
behalf has taken or will take any action (including, without limitation, any
offering of any securities of the Company under circumstances which would
require the integration of such offering with the offering of the Warrant and
Debentures or the shares of Common Stock issuable upon conversion or exercise
respectively thereof) which subject the offering or issuance or sale of the
Debentures and Warrant (or the shares of Common Stock issuable upon conversion
or exercise respectively thereof) to the registration requirements of Section 5
of the Act.
P. Commissions. Except for the LKB Fee of US$256,000.00, no person, firm
or corporation will be entitled to receive any brokerage fee, commission or
other similar payment from the Company in connection with the consummation of
the transactions contemplated hereby and the Company shall not make any such
payment to any person, firm or corporation.
3. Representations and Warranties of Subscriber; Access to Information;
Independent Information; Independent Investigation
Each Subscriber represents and warrants to the Company as follows:
A. Offshore Transaction.
(i) no Subscriber is a "U.S. person" as that term is defined in Rule
902(o) of Regulation S (a copy of which definition is attached as Exhibit
C), and no Subscriber is an entity organized or incorporated under the
laws of any foreign jurisdiction by any "U.S.
AIPN Subscription Agreement August 6, 1997
6
<PAGE>
person" principally for the purpose of investing in securities not
registered under the Act, unless the Subscriber is or was organized or
incorporated by "U.S. persons" who are accredited investors (as defined in
Rule 501(a) under the Act) and who are not natural persons, estates or
trusts;
(ii) the Convertible Debentures and Warrant were not offered to any
Subscriber in the United States and at the time of execution of this
Subscription Agreement and the time the buy order was originated, and of
any offer to such Subscriber to purchase the Convertible Debentures and
Warrant hereunder, such Subscriber was outside the United States;
(iii) each Subscriber is purchasing the Securities for its own
account and not on behalf of or for the benefit of any U.S. person and the
resale of the Securities has not been prearranged with any buyer in the
United States;
(iv) each Subscriber agrees that all offers and sales of the
Convertible Debentures and Debenture Shares prior to the expiration of a
period (the "Restricted Period") commencing on the Closing of this
Offering and ending forty (40) days after the Closing Date shall not be
made to U.S. persons or for the account or benefit of U.S. persons or
within the United States and shall otherwise be made in compliance with
the provisions of Regulation S. No Subscriber has been engaged or acted as
or on behalf of a distributor or dealer (and is not an affiliate of a
distributor or dealer) with respect to this transaction;
(v) each Subscriber agrees that all offers and sales of the Warrant
Shares prior to the expiration of a period commencing on the date of
issuance of the Warrant Shares under the Warrant following the exercise of
the Warrant Rights and ending forty (40) days thereafter (the "Warrant
Restricted Period") shall not be made to U.S. persons or for the account
or benefit of U.S. persons and shall otherwise be made in compliance with
provisions of Regulation S; and
(vi) each Subscriber 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 or Warrant
Restricted Period, as applicable, a confirmation or other notice to the
purchaser stating that the purchaser is subject to the same restrictions
on offers and sales as the Subscriber pursuant to Section 901(c)(2)(iv) of
Regulation S.
B. Independent Investigation. Each Subscriber, in offering to subscribe
for the Securities hereunder, has, prior to the date hereof, been given access
to and the opportunity to examine all books and records of the Company, and all
material contracts and documents of the Company. In making its investment
decision to purchase the Securities, no Subscriber is relying on any oral or
written representations or assurances from the Company or any other person or
any
AIPN Subscription Agreement August 6, 1997
7
<PAGE>
representation of the Company or any other person other than as set forth in
this Agreement, the 1996 10-K or in a document executed by a duly authorized
representative of the Company making reference to this Agreement. Each
Subscriber has such experience in business and financial matters that it is
capable of evaluating the risk of its investment and determining the suitability
of its investment. Each Subscriber is a sophisticated investor, as defined in
Rule 506(b)(2)(ii) of Regulation D under the Act, and an "accredited investor"
as defined in Rule 501 of Regulation D under the Act, a copy of which definition
is attached hereto as Exhibit D. Each Subscriber is qualified to purchase the
Convertible Debentures and Warrants under the laws of the jurisdiction of its
residence. To the best of its knowledge, no Subscriber is an affiliate of the
Company and no Subscriber is a "10 percent shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of the Company. The Subscriber
acknowledges that the Company is not eligible to use Form S-3 under the Act.
C. Economic Risk. Each Subscriber understands and acknowledges that an
investment in the Securities involves a high degree of risk, including a
possible total loss of investment. Each Subscriber represents that it is able to
bear the economic risk of an investment in the Securities. Each Subscriber has
read and understands the risk factor disclosure attached hereto as Schedule 2.C.
D. No Government Recommendation or Approval. Each Subscriber understands
that no United States federal or state agency or similar agency of any other
country has passed upon or made any recommendation or endorsement of the
Company, this transaction or the subscription of the Securities.
E. No Directed Selling Efforts in Regard to this Transaction. No
Subscriber has conducted any "directed selling efforts" as that term is defined
in Rule 902 of Regulation S. Such activity includes, without limitation, the
mailing of printed material to investors residing in the United States, the
holding of promotional seminars in the United States, the placement of
advertisements with radio or television stations broadcasting in the United
States or in publications with a general circulation in the United States, which
discuss the offering of the Securities.
F. No Registration. Each Subscriber understands that the Securities have
not been registered under the Act and are being offered and sold pursuant to an
exemption from registration contained in the Act based in part upon the
representations of such Subscriber contained herein. The Shares do, however,
carry certain registration rights as set forth in the Registration Rights
Agreement executed by the parties hereto in the form attached hereto as Exhibit
E (the "Registration Rights Agreement").
G. No Public Solicitation. Without conducting any independent
investigation, no Subscriber knows of any public solicitation or advertisement
of an offer in connection with the proposed issuance and sale of the Securities.
H. Investment Intent. Each Subscriber is acquiring the Convertible
Debentures
AIPN Subscription Agreement August 6, 1997
8
<PAGE>
and Warrant for such Subscriber's own account, for investment and not with a
view to the distribution thereof. Each Subscriber understands that, except as
set forth in the Registration Rights Agreement, the Company has no present
intention of registering any such sale of the Shares. Each Subscriber represents
and warrants to the Company that it has no present plan or intention of selling
the Securities in the United States, has made no predetermined arrangements to
sell the Securities (other than the registration provisions contained in the
Registration Rights Agreement, which pertain only to a potential method of
disposing of the Shares) and that the Offering, together with any subsequent
resale by any Subscriber of the Securities, is not part of a plan or scheme to
evade the registration provisions of the Act. No Subscriber currently has a
short position in the Company's Common Stock, including any short call position
or any long put position or any contract or arrangement that has the effect of
eliminating or substantially diminishing the risk of ownership of the
Securities, nor has any Subscriber engaged in any hedging transaction with
respect to the Securities.
J. Incorporation and Authority. Each Subscriber has the full power and
authority to execute, deliver and perform each Transaction Document to which it
is a party and to perform its obligations hereunder and thereunder. This
Agreement, and each other Transaction Document to which it is a party, has been
duly approved by all necessary action of each Subscriber, including any
necessary shareholder approval, has been executed by persons duly authorized by
each Subscriber, and constitutes a valid and legally binding obligation of each
Subscriber, enforceable in accordance with its terms.
K. No Reliance on Tax Advice. Each Subscriber has reviewed with his, her
or its own tax advisors the foreign, federal, state and local tax consequences
of this investment, where applicable, and the transactions contemplated by this
Agreement. Each Subscriber is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that such Subscriber (and not the Company) shall be responsible for
the Subscriber's own income tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
L. Independent Legal Advice. Each Subscriber acknowledges that it has had
the opportunity to review each Transaction Document and the transactions
contemplated by this Agreement with his, her or its own legal counsel. Each
Subscriber is relying solely on such counsel and not on any statements or
representations of the Company or any of its agents for legal advice with
respect to this investment or the transactions contemplated by this Agreement,
except for the representations, warranties and covenants set forth herein and on
the opinion provided for in Section 5.G hereof.
4. Legends; Subsequent Transfer of Securities
A. Legends.
(i) The Convertible Debentures shall bear a legend substantially as
set
AIPN Subscription Agreement August 6, 1997
9
<PAGE>
forth below and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law. Assuming that there
are no changes in the material facts represented in Section 3 of this
Agreement or applicable law from the date hereof until the date of
conversion, all certificates representing the Debenture Shares into which
the Convertible Debentures are converted after the Restricted Period shall
not bear a legend.
"The Convertible Debentures of American International Petroleum
Corporation. ("Issuer") represented hereby have been issued pursuant to
Regulation S, promulgated under the United States Securities Act of 1933,
as amended (the "Act"), and have not been registered under the Act or any
applicable state securities laws. These Securities may not be offered or
sold within the United States or to or for the account of a "U.S. Person"
(as that term is defined in Regulation S) during the period commencing on
the sale of these securities and ending on the fortieth (40th) day
following completion of the Regulation S offering of the Issuer pursuant
to which these securities have been issued (the "Restricted Period"). The
Securities represented by this certificate may first be converted into
common stock of the issuer on [60th day after Closing]. The Issuer will
notify the transfer agent of the date of completion of such offering and
of the expiration of such Restricted Period."
(ii) The Warrant Shares, when issued, shall bear a legend
substantially as set forth below and any other legend, if such legend or
legends are reasonably required to comply with state, federal or foreign
law (provided, if as a result of any change in the applicable laws
governing Regulation S transactions, the Warrant Restricted Period is
changed, the Company may alter the legend set forth above for certificates
representing Warrant Shares issued after the effective date of such change
such that the Warrant Restricted Period conforms therewith).
"The shares of Common Stock of American International Petroleum
Corporation represented hereby have been issued pursuant to Regulation S,
promulgated under the United States Securities Act of 1933, as amended
(the "Act"), and have not been registered under the Act or any applicable
state securities laws. These shares may not be offered or sold within the
United States or to or for the account of a "U.S. Person" (as that term is
defined in Regulation S) during the period commencing on the date of
issuance hereof and ending forty (40) days thereafter."
B. Transfers.
(i) The Company agrees, and shall instruct its agents, that the
Convertible Debentures may be transferred to any person or entity who is
not an affiliate of the Company if such transfer occurs after the
Restricted Period, without (a) any further restriction on transfer
(provided the transfer is made in compliance with the Act) or (b) the
entry of a "stop transfer" order against such Convertible Debentures, and
the Convertible Debentures and Debenture Shares issued upon conversion
thereof, delivered to the transferee after the
AIPN Subscription Agreement August 6, 1997
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Restricted Period shall not bear a legend. The Company may place a stop
transfer order on any Convertible Debentures or Debenture Shares during
the Restricted Period for the duration of the Restricted Period. Upon
election by a Subscriber to convert all or a portion of the Convertible
Debentures into Debenture Shares, such Subscriber shall deliver to the
Company the original Debenture, a duly completed and executed Notice of
Conversion (which shall include a statement by the Subscriber of the
continued accuracy of the material representations and warranties set
forth herein; provided, the Subscriber shall not be required to make any
representation concerning its investment intent with respect to the
Debenture Shares) substantially in the form attached hereto as Exhibit F
(a "Notice of Conversion").
(ii) The Company agrees, and shall instruct its agents, that the
Warrant Shares issued upon exercise of the Warrant Rights under the
Warrant may be transferred to any person or entity who is not an affiliate
of the Company if such transfer occurs after the Warrant Restricted
Period, without (i) any further restriction on transfer (provided the
transfer is made in compliance with the Act), or (ii) the entry of a "stop
transfer" order against the Warrant Shares, and the Warrant Shares
delivered to a transferee after the Warrant Restricted Period shall not
bear a legend. At the request of a Subscriber, the Company shall promptly
exchange following the Warrant Restricted Period certificates representing
the Warrant Shares issued with the legend described in Section 4.1(b)
above for certificates representing the Warrant Shares issued without a
legend. The Company may place a stop transfer order on the Warrant Shares
during the Warrant Restricted Period for the duration of the Warrant
Restricted Period. Upon election by a Subscriber to exercise any portion
of the Warrant, such Subscriber shall deliver to the Company a duly
completed Notice of Exercise (which shall include a statement by the
Subscriber of the continued accuracy of the material representations and
warranties set forth herein and that the Subscriber shall not transfer the
Warrant Shares to a U.S. Person during the Warrant Restricted Period)
substantially in the form attached hereto as Exhibit I (a "Notice of
Exercise").
5.. Covenants of the Company
A. Accountants. For as long as any Convertible Debentures and Warrant
remain outstanding, the Company shall maintain as its independent auditors an
accounting firm that is authorized to practice before the Commission.
B. Corporate Existence and Taxes. For as long as any Convertible
Debentures and Warrant remain outstanding, the Company shall maintain its
corporate existence in good standing, and shall pay all its taxes when due
except for taxes which the Company disputes in good faith and for which adequate
reserves are established on the Company's books and records.
C. Reserved Shares and Listings. For so long as any Convertible Debentures
and Warrant remain outstanding:
AIPN Subscription Agreement August 6, 1997
11
<PAGE>
(i) the Company will reserve from its authorized but unissued shares
of Common Stock a sufficient number of shares of Common Stock to permit
the conversion in full of the then outstanding Convertible Debentures and
exercise in full the Warrant Rights under the Warrant;
(ii) the Company will use its best efforts to maintain the listing
of its Common Stock on the NASDAQ Stock Market;
(iii) the Company will not repurchase or otherwise enter into any
other transaction (including stock split, recapitalization or other
transaction), which would cause a decrease in the number of its shares of
Common Stock issued and outstanding (other than transactions that
similarly decrease the number of shares of Common Stock into which the
Convertible Debentures are convertible and Warrant is exercisable); and
D. Issuance of Common Shares. Upon conversion of the Convertible
Debentures in accordance with their terms, and/or exercise of the Warrant
Rights, the Company will, and will use its best lawful efforts to cause the
Transfer Agent to, issue one or more certificates representing shares of Common
Stock in such name or names and in such denominations specified by a Subscriber
in a Notice of Conversion or Notice of Exercise, as applicable. The Shares of
Common Stock to be issued upon conversion of the Convertible Debentures or
exercise of the Warrant Rights shall not bear any restrictive legends (other
than the legend set forth in Section 4.A(ii) for the Warrant Shares) and shall
be freely tradeable upon expiration of the Restricted Period or Warrant
Restricted Period, as applicable,, subject to compliance with Federal and state
securities laws and the terms of the Convertible Debentures and Warrant. The
Company further warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period or
Warrant Restricted Period, as applicable, have been or will be given to the
Transfer Agent and also warrants that the Shares shall otherwise be freely
transferable by Subscriber on the books and records of the Company subject to
compliance with Federal and State securities laws and the terms of the
Convertible Debentures and Warrant. The Company will notify the Transfer Agent
of the date of Closing Date of this Offering and of the date of expiration of
the Restricted Period and of the Warrant Restricted Period upon exercise of any
Warrant Rights. Nothing in this section shall affect in any way a Subscriber's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities.
E. Copies of Information. The Company undertakes to furnish each
Subscriber with copies of such other information as may be reasonably requested
by such Subscriber prior to consummation of this Offering. The Company will
provide the Subscribers with copies of all future filings under the 1934 Act for
so long as any Convertible Debentures and Warrant are outstanding.
AIPN Subscription Agreement August 6, 1997
12
<PAGE>
F. Compliance with Laws. The Company shall comply with all applicable
Federal and state securities laws with respect to the sale of the Securities,
including but not limited to the filing of all reports required to be filed in
connection therewith with the SEC or any stock exchange or the NASDAQ or any
other regulatory authority.
G. Opinion of Counsel. The Company will cause its council to render an
opinion to the Holder in the form attached hereto as Exhibit G.
H. Consultation with Legal Counsel. The Company shall consult with its
legal counsel regarding its 1934 Act filing requirements including, but not
limited to, the possible obligation of the Company to file Form 8-K in
connection with the Offering, and will timely make any and all such filings
deemed necessary by such counsel; provided, if permitted by applicable law, any
such filing shall refer to the Subscribers merely as "accredited investors"
without designation by name.
J. Registration Rights. The Company will grant the Subscribers the
registration rights covering the Shares on the terms of the Registration Rights
Agreement.
6.. Covenants of the Subscribers.
A. Dealings in Common Shares. Each Subscriber covenants that neither it
nor any of its affiliates nor any person acting on its or their behalf has the
intention of entering, or will enter from the Closing through the end of the
Restricted Period applicable to the Convertible Debentures, into any put option,
short position or any hedging transaction or other similar instrument or
position with respect to the Company's Common Stock and neither it nor any of
its affiliates nor any person acting on its or their behalf will use at any time
the Company's Common Stock to settle any put option, short position or other
similar instrument or position that may have been entered into prior to the
execution of this Agreement.
B. No Sale in Violation of the Act. Each Subscriber further covenants that
it will not make any sale, transfer or other disposition of the Securities in
violation of the Act (including Regulation S) or the rules and regulations of
the Commission promulgated thereunder. Each Subscriber acknowledges and agrees
that the Securities may and will only be resold (a) in compliance with
Regulation S; (b) pursuant to a Registration Statement under the Act; or (c)
pursuant to an exemption from registration under the Act.
7. Issuance of Further Securities
A Restriction on Issuance. For so long as at least 20% of the principal
balance of the Convertible Debentures remain outstanding, the Company agrees not
to engage in or enter into any agreement to engage in any transaction to secure
additional capital through the use of discounted securities under Regulation S
or Regulation D of the Act, without the prior written consent of the
AIPN Subscription Agreement August 6, 1997
13
<PAGE>
Subscriber.
8.. Liquidated Damages for Late Conversion.
A. Liquidated Damages. As set forth in the Convertible Debentures and
Warrant, the Company shall issue and deliver, and use its best efforts to cause
the Transfer Agent to issue and deliver, within five (5) New York Stock Exchange
trading days after a Subscriber has fulfilled all conditions, a Notice of
Conversion or Notice of Exercise, as applicable (the "Deadline"), to such
Subscriber or any party receiving the Convertible Debentures or Warrant by
transfer from such Subscriber (together with such Subscriber, a "Holder"), at
the address of the Holder set forth in the Notice of Conversion or Notice of
Exercise, as applicable, 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 after the Deadline
could result in economic loss to the Holder. If for any reason other than (x) a
failure of any material representation or warranty of any Subscriber herein to
be true and correct or (y) a change in law or administrative rules governing
Regulation S that would prevent the Company from issuing Debenture Shares
following the Restricted Period, without restrictive legend, or Warrant Shares
solely with the legend specified in Section 4.A(ii), as applicable, the Company
fails to issue the shares of Common Stock, then as compensation to the Holder
for such loss, and not as a penalty, the Company agrees to pay liquidated
damages to the Holder for late issuance of shares of Common Stock upon
conversion $2,500 for each day for which the delivery occurs past the Deadline.
The Company shall pay the Holder any liquidated damages incurred under this
Section by wire transfer of immediately available funds to an account designated
by Holder upon the earlier to occur of (i) issuance of the shares of Common
Stock to the Holder of the required shares of Common Stock that were not issued,
or (ii) each monthly anniversary of the receipt by the Company of such Holder's
Notice of Conversion or Notice of Exercise, as applicable. Nothing herein shall
waive the Company's obligations to deliver shares of Common Stock upon a
conversion of the Convertible Debentures or exercise of the Warrant Rights or
limit any Subscriber's right to pursue actual damages for the Company's failure
to issue and deliver shares of Common Stock to such Subscriber in accordance
with the terms of the Convertible Debentures and Warrant.
B. Conversion Notice. The Company agrees that, in addition to any other
remedies which may be available to the Subscribers, including, but not limited
to the remedies available under Section 8.A, in the event the Company fails for
any reason to effect delivery to a Subscriber of certificates representing
Common Stock on or prior to the Deadline, such Subscriber will be entitled to
revoke the Notice of Conversion or Notice of Exercise, as applicable, by
delivering a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion or Notice of Exercise, as
applicable.
9. Additional Agreements.
A. Warrants. The Company hereby grants the Subscriber warrants to purchase
AIPN Subscription Agreement August 6, 1997
14
<PAGE>
in the aggregate 800,000 shares of Common Stock for a Two (2) year period at an
exercise price equal to the five day average Closing Bid Price (as defined in
the Convertible Debenture) of the Company's Common Stock immediately preceding
the Closing Date, pursuant to the form of Warrant attached hereto as Exhibit H
(collectively, the "Warrant"). The shares of Common Stock issued upon exercise
of the Warrant (the "Warrant Shares") shall be issued pursuant to Regulation S,
and shall contain a legend upon issuance solely in the form set forth in Section
4.A(ii). Each Subscriber shall be entitled to exercise the Warrant Rights for
the Warrant Shares in accordance with the proportionate amount of Convertible
Debentures purchased by Subscribers as set forth on Schedule 1 hereto.
10. Conditions to Closing; Deliveries at Closing.
A. Conditions to Subscribers' Obligations to Close. The obligations of the
Subscribers to effect the Closing are conditioned on the fulfillment or waiver
of the following:
(i) the execution and delivery of each Transaction Document by the
Company;
(ii) the execution and delivery of the Escrow Agent Agreement by the
Escrow Agent; and
(iii) all the representations and warranties of the Company in this
Agreement as of the date hereof shall be true and correct at the Closing of this
Offering as if made on such date, and the Company shall have performed all
actions required hereunder.
B. Conditions to the Company's Obligation to Close. The obligation of the
Company to effect the Closing is conditioned on the fulfillment or waiver of the
following:
(i) the execution and delivery of this Agreement, the Registration Rights
Agreement and the Escrow Agent Agreement by the Subscribers;
(ii) the execution and delivery of the Escrow Agreement by the Escrow
Agent; and
(iii) all the representations and warranties of each Subscriber made in
this Agreement as of the date hereof shall be true and correct at the Closing of
the Offering as if made on such date, and each Subscriber shall have performed
all actions required hereunder.
AIPN Subscription Agreement August 6, 1997
15
<PAGE>
11. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada, U.S.A., applicable to agreements made in and wholly
to be performed in that jurisdiction without regards to the choice of law rules
of such state, except for matters arising under the Act or the 1934 Act which
matters shall be construed and interpreted in accordance with such laws. Any
action brought to enforce, or otherwise arising out of, this Agreement shall be
heard and determined in either a Federal or state court sitting in the County of
Dallas, State of Texas, U.S.A.
12. Entire Agreement; Amendment
This Agreement, the Convertible Debentures, the Registration Rights
Agreement, the Escrow Agent Agreement, the Warrant and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
13. Notices, Etc.
Any notice, demand or request required or permitted to be given by either
the Company or any Subscriber pursuant to the terms of this Agreement shall be
in writing and shall be deemed given when delivered personally or by facsimile
to the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
14. Confidentiality.
The Subscribers will keep confidential all non-public information
regarding the Company that they receive from the Company unless disclosure of
such information is compelled by a court or other administrative body or
otherwise necessary, in the opinion of Subscribers' counsel, to comply with
applicable law. Neither party shall disclose any information regarding any of
the transactions contemplated hereby without the prior consent of the other
party, unless such disclosure is required by applicable law and consistent with
Sections 2.J(ii) and 5.H hereof.
15. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument. A
facsimile transmission of a signature hereto shall be valid as if an original
and binding on all parties.
AIPN Subscription Agreement August 6, 1997
16
<PAGE>
16. Severability
In the event that any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
17. Titles and Subtitles
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
18. Parties in Interest Cited
This Agreement may not be transferred, assigned, pledged or hypothecated
by any party hereto, other than by operation of law. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective heirs, executors, administrators, successors and permitted assigns.
All representations, warranties, covenants and agreements of each party hereto
shall survive the closing contemplated herein and pursuant to the Exhibits
hereto.
[Signature page follows]
AIPN Subscription Agreement August 6, 1997
17
<PAGE>
The undersigned Subscribers acknowledge that this subscription shall not
be effective unless accepted by the Company as indicated below.
Dated this 6th day of AUGUST, 1997.
Signature Signature
----------------------------- -----------------------------
Place of Execution: Place of Execution:
Signature
-----------------------------
Place of Execution:
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ___TH DAY OF
_____________, 1997.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION.
444 Madison Ave. Ste 3203
New York, NY 10022
Telefax: 212/688-6657
By:
---------------------------
Print Name:___________________
Title:________________________
AIPN Subscription Agreement August 6, 1997
18
<PAGE>
SCHEDULE 1
SUBSCRIBERS
Name Principal Balance of Convertible Debentures Aggregate Purchase Price
AIPN Subscription Agreement August 6, 1997
19
<PAGE>
SCHEDULE 2.4A
Capitalization (as of August 4, 1997)
Shares of Common Stock:
Authorized:
----------
Issued/Outstanding:
----------
Held in Treasury:
----------
Shares of Preferred Stock:
Authorized:
----------
Issued:
----------
Outstanding:
----------
Convertible Securities:
Options:
----------
Warrants:
----------
AIPN Subscription Agreement August 6, 1997
20
THIS WARRANT HAS BEEN OFFERED AND SOLD OUTSIDE OF THE UNITED STATES IN A
TRANSACTION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT. THIS WARRANT MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED IN THE UNITED STATES
OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE WARRANT
IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH
OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO THE AVAILABLE EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
AMERICAN INTERNATIONAL PETROLEUM CORP.
COMMON STOCK PURCHASE WARRANT
- --------------------------------------------------------------------------------
No. 080797-01
Number of Shares: 625,000 Holder:
Purchase Price: $2.7125
Expiration Date: August 6, 1999
For identification only. The governing terms of this
Warrant are set forth below.
- --------------------------------------------------------------------------------
American International Petroleum Corp., a Nevada corporation (the
"Company"), hereby certifies that, for value received, or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time after the date hereof and prior to the fourth anniversary
hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth,
625,000 shares of the fully paid and nonassessable Common Stock of the Company.
The number and character of such shares of Common Stock and the Purchase Price
are subject to adjustment as provided herein.
The purchase price per share of Common Stock issuable upon exercise of
this Warrant (the "Purchase Price") shall initially be $2.7125; provided,
however, that the Purchase Price shall be adjusted from time to time as provided
in Section 5, below.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
COMMON STOCK PURCHASE WARRANT - Page 1
(American International Petroleum Corp.)
<PAGE>
(a) The term "Company" shall include American International
Petroleum Corp. and any corporation that shall succeed or assume the
obligations of the Company hereunder.
(b) The term "Common Stock" includes (a) the Company's common stock,
par value $.08 per share, (b) any other capital stock of any class or
classes (however designated) of the Company, authorized on or after such
date, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends
and liquidating dividends after the payment of dividends and distributions
on any shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even though the right
so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities
described in (a) or (b) may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) that the holder of this Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or that at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise.
1. Exercise of Warrant.
1.1. Method of Exercise. This Warrant may be exercised in whole or
in part (but not as to a fractional share of Common Stock), at any time
and from time to time during the Exercise Period, by the holder hereof by
surrender of this Warrant, with the form of subscription at the end hereof
duly executed by such holder, to the Company at its principal office,
accompanied by payment of the Purchase Price multiplied by the number of
shares of Common Stock for which this Warrant is being exercised (the
"Exercise Price"). Payment of the Exercise Price shall be made by check or
bank draft payable to the order of the Company or by wire transfer to the
account of the Company. If the amount of the payment received by the
Company is less than the Exercise Price, the holder will be notified of
the deficiency and shall make payment in that amount within five (5)
business days. In the event the payment exceeds the Exercise Price, the
Company will refund the excess to the holder within three (3) business
days of receipt. Exercise Notice is not deemed effective until Exercise
Price is received in full. Upon exercise, the holder shall be entitled to
receive, promptly after payment in full, one or more certificates, issued
in the holder's name or in such name or names as the holder may direct,
subject to the limitations on transfer contained herein, for the number of
shares of Common Stock so purchased. The shares so purchased shall be
deemed to be issued within 24 hours of the close of business on the date
on which this Warrant shall have been exercised (the "Exercise Date").
COMMON STOCK PURCHASE WARRANT - Page 2
(American International Petroleum Corp.)
<PAGE>
1.2. Regulation S Restrictions. Exercise of this Warrant and
acceptance of shares of Common Stock upon such exercise shall constitute
an agreement by the holder not to offer or sell such shares in the United
States, to a U.S. Person (as such term is defined in Regulation S
promulgated under the Securities Act of 1933, as amended ("Regulation S"))
or for the account or benefit of a U.S. Person during the period
commencing on the date on which it exercises the Warrant and ending on the
day following any applicable restrictive period under Regulation S. At the
time this Warrant is exercised, the Company may require the holder to
restate in the Notice of Exercise the representations set forth in a
Subscription Agreement between the Company and the holder dated the date
hereof (the "Subscription Agreement"). All certificates for the shares of
Common Stock issuable upon exercise of this Warrant shall bear a legend
stating as follows:
"The shares of Common Stock of American International Petroleum
Corp. represented hereby have been issued pursuant to Regulation S,
promulgated under the United States Securities Act of 1933, as
amended (the "Act") and have not been registered under the Act or
any applicable state securities laws. These shares may not be
offered or sold within the United States or to or for the account of
a "U.S. Person" as that term is defined Regulation S during the
period commencing on the date of issuance hereof and ending [add
then applicable Restricted Period for Nonaffiliates] days
thereafter."
1.3. Company Acknowledgment. The Company will, at the time of the
exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder
the registration rights to which such holder shall continue to be entitled
after such exercise in accordance with the provisions of a Registration
Rights Agreement dated the date hereof. If the holder shall fail to make
any such request, such failure shall not affect the continuing obligation
of the Company to afford to such holder any such rights.
1.4. Limitation on Exercise.. Notwithstanding the rights of the
holder to exercise all or a portion of this Warrant as described herein,
such exercise rights shall be limited, solely to the extent required, from
time to time, such that in no instance shall the maximum number of shares
of Common Stock which the holder may receive in respect of any exercise of
all or a portion of this Warrant exceed, at any one time, an amount equal
to the remainder of (i) 4.99% of the then issued and outstanding shares of
Common Stock of the Company following such exercise, minus (ii) the number
of shares of Common Stock of the Company then owned (beneficially or of
record) by the holder (the "Limitation on Conversion"); provided, however,
the Limitation on Conversion shall not apply, and shall be of no further
force and effect following the occurrence of any Event or Default (as
described in Section 9 of the Convertible Debentures of the Company issued
the date hereof pursuant to the Subscription Agreement) pursuant to which
this Warrant is issued and for which the holder hereof has provided
written notice thereof and which is not cured within the greater of the
applicable time period specified in either (I) such written notice of the
holder or (II) such Convertible Debenture. The Company shall not be
obligated to issue any Common Stock as dividends or upon conversion of the
COMMON STOCK PURCHASE WARRANT - Page 3
(American International Petroleum Corp.)
<PAGE>
Debentures or exercise of the Warrants if, after giving effect to such
issuance, more than an aggregate of 19.9% shares of Common stock issued
and outstanding as of the Closing (the "Maximum Number of Shares") shall
have been previously issued in respect thereof. In the event that the
ISSUER issues the Maximum Number of Shares, the ISSUER take all actions to
cause the remedy as specified in Sec 4(b) of the Convertible Debenture
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the Exercise Date, and receipt of Exercise Price, and in any
event within three (3) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue, stamp or transfer taxes)
will cause to be issued in the name of and delivered to the holder thereof, or,
to the extent permissible hereunder, to such other person as such holder may
direct, a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then applicable Purchase Price, together with any other stock
or other securities and property (including cash, where applicable) to which
such holder is entitled upon such exercise pursuant to Section 1 or otherwise.
The Company covenants that upon the expiration of the applicable restrictive
period relating to the shares of Common Stock underlying this Warrant, if any,
it will use its best lawful efforts to issue or cause the transfer agent of the
Company to issue one or more certificates representing such shares of Common
Stock (or Other Securities) without any restrictive legend such that such shares
shall be freely tradable, subject only to compliance with Federal and state
securities laws. The Company acknowledges that "best lawful efforts" as used
herein shall, among other things, require the Company to cooperate with the
holder hereof in obtaining an opinion of counsel satisfactory to the holder
regarding certain Federal securities law implications in connection with
removing the restrictive legend on the shares of Common Stock issuable upon
exercise of this Warrant.
3. Adjustment for Dividends in Other Stock Property, etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock split (adjustments in respect of which are provided
for in Section 5), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be
COMMON STOCK PURCHASE WARRANT - Page 4
(American International Petroleum Corp.)
<PAGE>
entitled to receive the amount of stock and other securities and property
(including cash in the cases referred to in subdivisions (b) and (c) of this
Section 3) that such holder would hold on the date of such exercise if on the
date hereof it had been the holder of record of the number of shares of Common
Stock called for on the face of this Warrant and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and all such other or additional stock and other securities and
property (including cash in the cases referred to in subdivisions (b) and (c) of
this Section 3) receivable by him as aforesaid during such period, giving effect
to all adjustments called for during such period by Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization, etc. In case at any time or from time to time,
the Company shall (a) effect a reorganization, (b) consolidate with or
merge into any other person, or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
holder of this Warrant, on the exercise hereof as provided in Section 1 at
any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be,
shall receive, in lieu of the Common Stock (or Other Securities) issuable
on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection
with such dissolution, as the case may be, if such holder had so exercised
this Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense
deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the holder of
this Warrant after the effective date of such dissolution pursuant to this
Section 4 to a bank or trust company, as trustee for the holder or holders
of this Warrant.
4.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred
to in this Section 4, this Warrant shall continue in full force and effect
and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may
be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms
of this Warrant as provided in Section 6.
5. Adjustment for Extraordinary Events. In the event that the Company
shall (i) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, or (iii) combine its outstanding shares of the Common stock
into a smaller number of shares of the Common Stock,
COMMON STOCK PURCHASE WARRANT - Page 5
(American International Petroleum Corp.)
<PAGE>
then, in each such event, the Purchase Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then Purchase Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after such
event, and the product so obtained shall thereafter be the Purchase Price then
in effect. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein in
this Section 5. The holder of this Warrant shall thereafter, on the exercise
hereof as provided in Section 1, be entitled to receive that number of shares of
Common Stock determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 5) be issuable on such
exercise by a fraction of which (i) the numerator is the Purchase Price that
would otherwise (but for the provisions of this Section 5) be in effect, and
(ii) the denominator is the Purchase Price in effect on the date of such
exercise.
6. Adjustments to Conversion Price for Diluting Issues.
6.1. Special Definitions. For purposes of this Section 6, the
following definitions shall apply:
(a) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(b) "Convertible Securities" shall mean any evidences of
indebtedness, shares of preferred stock or other securities directly
or indirectly convertible into or exchangeable for Common Stock.
(c) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Company after the first day of the
Exercise Period, other than shares of Common Stock issued or
issuable to officers, employees or directors of the Company or any
subsidiary of the Company, pursuant to a stock purchase or option
plan or other employee stock bonus arrangement (collectively, the
"Plans") approved by the Board of Directors and shareholders of the
Company.
6.2. Issuance of Additional Shares. In the event the Company shall
issue Additional Shares of Common Stock (pursuant to an Option or
otherwise) other than in an Excluded Transaction (as hereafter defined),
for a period of six (6) months after the issuance hereof or until eighty
(80) percent of the Debenture has been converted or redeemed, without
consideration or for a consideration per share less than the applicable
fair market value t hereof (as determined based upon an average trading
price of not more than 10 days preceding the issuance) in effect on the
date of and immediately prior to such issue, then and in such event, the
Exercise Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Exercise
Price by a fraction, the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to such issue plus
(ii) the number of shares of Common Stock which the aggregate
consideration received or deemed to have been received by the Company for
the total number of Additional Shares of Common Stock so
COMMON STOCK PURCHASE WARRANT - Page 6
(American International Petroleum Corp.)
<PAGE>
issued would purchase at the fair market value thereof, and the
denominator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue plus (ii) the number of
Additional Shares of Common Stock so issued or deemed to be issued. For
the purposes of the foregoing calculation, the number of shares of Common
stock deemed to be outstanding immediately prior to the issuance of any
securities described in either clause of the preceding sentence shall be
the sum of (i) the total number of shares of Common Stock issued and
outstanding at such time, plus (ii) the total number of shares of Common
Stock issuable upon conversion in full of all Convertible Securities
issued and outstanding at such time, plus (iii) the total number of shares
of Common Stock issuable upon conversion in full of all Convertible
Securities issuable upon exercise of Options for Convertible Securities
issued and outstanding at such time. An Excluded Transaction means any
issuance of shares of Common Stock (or securities convertible into or
exchangeable or exercisable for shares of Common Stock) (i) pursuant to
the acquisition by the Company of operating assets or stock of entities
from other than affiliates of the Company to be owned and operated by the
Company or a subsidiary of the Company following such acquisition; (ii)
upon the exercise of the currently outstanding options and warrants listed
in Schedule 2.4 of the Subscription Agreement; (iii) upon the exercise of
options issued pursuant to the Company's Stock Option Plans, and any
amendments or substitutions thereof; and (iv) upon the exercise of the
Warrants issued pursuant to the Subscription Agreement.
7. No Impairment. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant, and (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly assume in
writing and will be bound by all the terms of this Warrant.
8. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause independent certified public accountants selected by the Company
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or receivable by
the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock (or Other Securities) outstanding or deemed to be outstanding,
and (c) the Purchase Price and the number of shares of Common
COMMON STOCK PURCHASE WARRANT - Page 7
(American International Petroleum Corp.)
<PAGE>
Stock to be received upon exercise of this Warrant, in effect immediately prior
to such issue or sale and as adjusted and readjusted as provided in this
Warrant. The Company will forthwith mail a copy of each such certificate to the
holder of this Warrant, and will, on the written request at any time of the
holder of this Warrant, furnish to such holder a like certificate setting forth
the Purchase Price at the time in effect and showing how it was calculated.
9. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of
any class or securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to or consolidation or merger of the Company with or
into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any action is to be taken.
4. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
5. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed and in compliance with the restrictions on transfer set forth
in the legend on the face of this Warrant, to the Company, the Company at its
expense will issue and deliver to or on the order of the holder thereof a new
Warrant of like tenor, in the name of such holder or as such holder (on payment
by such holder of any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face of the Warrant so surrendered.
COMMON STOCK PURCHASE WARRANT - Page 8
(American International Petroleum Corp.)
<PAGE>
6. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
7. Remedies. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
8. Negotiability, etc. This Warrant is issued upon the following terms, to
all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by endorsement
(by the holder hereof executing the form of assignment at the end
hereof) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery.
(b) Any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each
prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser,
and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice
to the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be
sold, transferred or assigned except pursuant to an effective
registration statement under the Securities Act of 1933, as amended
or, pursuant to an applicable exemption therefrom or in accordance
with Regulation S promulgated under such Act.
9. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
10. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which
COMMON STOCK PURCHASE WARRANT - Page 9
(American International Petroleum Corp.)
<PAGE>
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with and governed by the
internal laws of the State of New York. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
DATED as of August 6, 1997.
AMERICAN INTERNATIONAL PETROLEUM CORP.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
[Corporate Seal]
Attest:
By:
------------------------
Secretary
Exhibit 4.4
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
August 6th, 1997, by and among AMERICAN INTERNATIONAL PETROLEUM CORP., a Nevada
corporation (the "Company"), and _____________________________________________
("Investor").
RECITALS:
WHEREAS, pursuant to a Subscription Agreement (the "Subscription
Agreement"), by and between the Company and the Investor, the Company agreed to
sell and the Investor agreed to purchase the Company's Convertible Debentures
(the "Debentures"), convertible into shares of the Company's common stock, par
value $.08 per share of the Company (the "Common Stock"); and
WHEREAS, pursuant to the Subscription Agreement, the Company agreed to
issue to the Investor one or more warrants (collectively, the "Warrant") to
purchase shares of Common Stock; and
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Subscription Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the shares of Common Stock into which the Debentures may be converted, and
issued upon exercise of the Warrant from time to time (the shares of Common
Stock issued upon conversion of the Debentures or exercise of the Warrant being
hereinafter referred to as the "Shares").
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Investors agree as follows:
AGREEMENT:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
REGISTRATION RIGHTS AGREEMENT - Page 1
(American International Petroleum Corp.)
<PAGE>
"Common Stock" shall mean the Company's Common Stock, par value $.08 per
share.
"Initiating Holders" shall mean holders of more than 50% of the
outstanding balance of the Debentures or of the Warrant.
"Other Registrable Shares" shall mean those shares of Common Stock
heretofore or hereafter issued pursuant to one or more agreements granting the
purchasers of such securities the right to have the Company register such
securities or include such securities in any other registration of the Company's
equity securities.
"Registrable Shares" shall mean (i) the Shares, and (ii) any Common Stock
of the Company issued or issuable in respect of the Shares or upon any stock
split, stock dividend, recapitalization or similar event; provided, however,
that Registrable Shares or other securities shall no longer be treated as
Registrable Shares if (A) they have been registered or sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction, (B) they have been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon consummation of such sale, or (C) the Shares are available for sale
under the Securities Act (including Rule 144), in the opinion of counsel to the
Company, without compliance with the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends with respect thereto may be removed upon the consummation of
such sale.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 2 hereof, including, without limitation all registration
and filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, reasonable fees and disbursements (not to
exceed $10,000) of one counsel for all the selling holders of Registrable Shares
for a limited "due diligence" examination of the Company incident to such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company, and excluding all
underwriting discounts and selling commissions applicable to the sale of the
Registrable Shares).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all reasonable fees
and disbursements of one counsel for the
REGISTRATION RIGHTS AGREEMENT - Page 2
(American International Petroleum Corp.)
<PAGE>
selling holders of Registrable Shares (other than the fees and disbursements of
such counsel included in Registration Expenses).
2. Requested Registration.
The following registration rights will apply (i) as described in Section
11 of the Subscription Agreement, and (ii) if, and only if, at any time prior to
the termination of this Agreement, Regulation S promulgated under the Securities
Act is rescinded or modified so as to preclude Initiating Holders from reselling
in the United States public securities markets Shares received from the Company
upon conversion of the Debentures or exercise of the Warrant following
expiration of the Restricted Period or Warrant Restricted Period, as applicable
(as defined in the Subscription Agreement), or if, for any other reason, the
Company refuses or is unable to issue Shares at the times required by the
Subscription Agreement Debentures or Warrant bearing no restrictive legend to
Initiating Holders after expiration of the Restricted Period, or Warrant
Restricted Period, as applicable; provided, however, that no Investor shall be
entitled to request registration pursuant to this Agreement (and such Investor
shall not be considered an Initiating Holder pursuant to this Agreement, and the
securities held by such Investor shall not be considered Registrable Shares
pursuant to this Agreement) if a representation or warranty of such Investor in
the Subscription Agreement is inaccurate or was inaccurate when made, or such
Investor has failed to comply with the covenants and agreements of such Investor
set forth in the Subscription Agreement:
(a) Request for Registration. If the Company shall receive from
Initiating Holders, at any time after five (5) days and prior to
thirty-six (36) months following the final closing of the sale of the
Debentures pursuant to the Subscription Agreement, a written request that
the Company effect a registration with respect to all, but not less than
all, of the Registrable Shares held by such Initiating Holders (which
notice shall specify the intended method of disposition), the Company
shall:
(i) promptly give written notice of the proposed registration
to all other holders of Registrable Shares; and
(ii) as soon as practicable (A) cause to be filed a
Registration Statement on Form S-3 under the Securities Act (or such
other form as is then appropriate for use by the Company under the
Securities Act) and (B) use its best efforts to cause such
registration statement to be declared effective by the Commission
(including, without limitation, undertaking the actions described in
Section 4), all as may be so requested by the Initiating Holders so
as to permit or facilitate the sale and distribution of all or such
portion of such Registrable Shares as are specified in such request,
together with all or such portion of the Registrable Shares of any
holder or holders of Registrable Shares joining in such request as
are specified in a written request given within thirty (30) days
after receipt of such written notice from the Company; provided that
the Company shall not be obligated to effect, or to take any action
to effect, any such registration pursuant to this Section 2:
REGISTRATION RIGHTS AGREEMENT - Page 3
(American International Petroleum Corp.)
<PAGE>
(A) after the Company has effected one (1) such
registrations pursuant to this Section 2(a), and each
registration has been declared or ordered effective by the
Commission and remained effective for a continuous period of
three (3) years hereof; or
(B) within the period starting with the date sixty (60)
days prior to the Company's good faith estimated date of
filing of, and ending ninety (90) days following the effective
date of, any registered public offering of the Company's
securities.
Subject to the foregoing limitations in clauses (A) and (B) above,
the Company shall file a registration statement covering the Registrable
Shares so requested to be registered as soon as practicable after receipt
of the request or requests of the Initiating Holders, but no later than
forty-five (45) days following receipt of such request or requests, except
in the event audited financial statements not previously prepared are
required to be prepared prior to the filing of such registration
statement, in which case such registration statement must be filed as soon
as practicable, but in any event within ninety (90) days following receipt
of such request or requests. Nothing contained herein shall be deemed to
limit the number of Registrable Shares to be registered by the Company
hereunder. As a result, should the registration statment filed by the
Company and declared effective by the Commission pursuant toto the terms
hereof not relate to the maximum number of Registrable Shares aquired by (
of potentially aquirable by) the Holders thereof upon conversion of the
Debentures of exercise of the Warrants, the Company shall be Required to
immediately file a separate registration statement or amendment thereto
(utilizing Rule 462 where applicable) relating to such Registrable Shares
which then remain unregistered.
The registration statement filed pursuant to the request of the
Initiating Holders (the "Registration Statement") may, subject to the
provisions of Section 2(b) below, include Other Registrable Shares, other
securities of the Company which are held by officers or directors of the
Company or which are held by other holders of registration rights, and may
include securities of the Company being sold for the account of the
Company.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant
to Section 2 and the Company shall include such information in the written
notice referred to in Section 2(a)(i) above. The right of any holder of
Registrable Shares to registration pursuant to Section 2 shall be
conditioned upon such holder's participation in such underwriting and the
inclusion of such holder's Registrable Shares in such underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating
Holders and such holder with respect to such participation and inclusion)
to the extent provided herein. A holder of Registrable Shares may elect to
include in such underwriting all or a part of the Registrable Shares it
holds.
REGISTRATION RIGHTS AGREEMENT - Page 4
(American International Petroleum Corp.)
<PAGE>
(i) If the Company shall request inclusion in any registration
pursuant to Section 2 of securities being sold for its own account,
or if officers or directors of the Company holding other securities
of the Company or other holders of registration rights, shall
request inclusion in any registration pursuant to Section 2, the
Initiating Holders shall, on behalf of all holders of Registrable
Shares, offer to include Other Registrable Shares and the securities
of the Company, such officers and directors and such other holders
of registration rights in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of
this Agreement. The Company shall (together with all holders of
Registrable Shares, officers and directors, other holders of
registration rights and holders of Other Registrable Shares
proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the
underwriter or representative of the underwriters selected for such
underwriting by the Company, which underwriter(s) shall be
reasonably acceptable to a majority in interest of the Initiating
Holders.
(ii) Notwithstanding any other provision of this Section 2, if
the representative of the underwriters advises the Company in
writing that marketing factors require a limitation on the number of
shares to be underwritten, the Company shall so advise all holders
of Registrable Shares and other shareholders whose securities would
otherwise be underwritten pursuant to such registration, and the
number of Registrable Shares and other securities that may be
included in the registration and underwriting shall be allocated in
the following manner: the securities to be offered by the Company
and the securities of the Company held by officers and directors of
the Company (other than Registrable Shares) shall be excluded from
such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still
required, the Other Registrable Shares shall be excluded pro rata
with Registrable Shares, unless another method of determining such
exclusion is specified in the agreements governing the Other
Registrable Shares, according to the relative number of Other
Registrable Shares requested to be included in such registration and
underwriting, from such registration and underwriting to the extent
required by such limitation, and, if a limitation on the number of
shares is still required, the number of Registrable Shares that may
be included in the registration and underwriting shall be allocated
among all holders of Registrable Shares in proportion, as nearly as
practicable, to the respective amounts of Registrable Shares which
they had requested to be included in such registration at the time
of filing the registration statement. No Registrable Shares or any
other securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall also be included in such
registration.
(iii) If the Company or any officer, director or holder of
Registrable Shares or Other Registrable Shares who has requested
inclusion in such registration and underwriting as provided above
disapproves of the terms of the underwriting, such person may elect
to withdraw therefrom by written notice to the Company, the
REGISTRATION RIGHTS AGREEMENT - Page 5
(American International Petroleum Corp.)
<PAGE>
underwriter and the Initiating Holders. The securities so withdrawn
shall also be withdrawn from registration.
3. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance of the Registrable Shares pursuant to this Agreement. All Selling
Expenses shall be borne by the holders of the securities so registered pro rata
on the basis of the number of their shares so registered (except for the fees
and disbursements of counsel to the Investors).
4. Registration Procedures. Pursuant to this Agreement, the Company will
keep each holder of Registrable Shares advised in writing as to the initiation
of a registration under this Agreement and as to the completion thereof. At its
expense, the Company will:
(a) Use reasonable efforts to keep such registration effective until
three (3) years from the date hereof or until the holder or holders of
Registrable Shares have completed the distribution described in the
registration statement relating thereto or until the securities registered
cease to be Registrable Shares, whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the
prospectus, as a holder of Registrable Shares from time to time may
reasonably request;
(d) use reasonable efforts to (i) register and qualify the
Registrable Shares covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors who
hold a majority in interest of the Registrable Shares being offered
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements, (iii)
take such other actions as may be necessary to maintain such registrations
and qualifications in effect until such date set forth in clause (a) above
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Shares for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or
as a condition thereto to (I) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
4(d), (II) subject itself to general, taxation in any such jurisdiction,
(III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal
expense or burden to the Company or (V) make any change in its charter or
by-laws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
stockholders;
REGISTRATION RIGHTS AGREEMENT - Page 6
(American International Petroleum Corp.)
<PAGE>
(e) in the event Investors who hold a majority in interest of the
Registrable Shares being offered in the offering select underwriters for
the offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the managing
underwriter of such offering;
(f) as promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Shares being sold (or, in the
event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of
effectiveness of the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of
the Registrable Shares being sold to review the Registration Statement and
all amendments and supplements thereto a reasonable period of time prior
to their filing with the Commission, and shall not file any document in a
form to which such counsel reasonably objects;
(i) Reserved
(j) at the request of the Investors who hold a majority in interest
of the Registrable Shares being sold, furnish on the date that Registrable
Shares are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters; and (ii) an opinion, dated such date, from counsel
representing the Company for purposes of such Registration Statement, in
form and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement,
and any attorney, accountant or other agent retained by any such Investor
or underwriter (collectively, the "Inspectors"), all pertinent financial
and other records, pertinent corporate documents and properties of the
REGISTRATION RIGHTS AGREEMENT - Page 7
(American International Petroleum Corp.)
<PAGE>
Company (collectively, the "Records"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of
such due diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other
order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other
agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 4(k). Each Investor
agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 5(e) hereof unless (i) disclosure of such information
is necessary to comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release
of such information is ordered pursuant to a subpoena or other order from
a court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees
that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information;
(l) either (i) cause all the Registrable Shares covered by the
Registration Statement to be listed on a national securities exchange and
on each additional national securities exchange on which similar
securities issued by the, Company are then listed, if any, if the listing
of such Registrable Shares is then permitted under the rules of such
exchange or (ii) secure designation of all the Registrable Shares covered
by the Registration Statement as a NASDAQ security within the meaning of
Rule 11Aa2-1 of the Commission under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the quotation of the Registrable
Shares on the NASDAQ or, if, despite the Company's best efforts to satisfy
the preceding clause (i) or (ii) , the Company is unsuccessful in
satisfying the preceding clause (i) or (ii) , to secure listing on a
national securities exchange or NASDAQ authorization and quotation for
such Registrable Shares and, without limiting the generality of the
foregoing,
REGISTRATION RIGHTS AGREEMENT - Page 8
(American International Petroleum Corp.)
<PAGE>
to arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to
such Registrable Shares;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Shares not later than the effective date of
the Registration Statement;
(n) cooperate with the Investors who hold Registrable Shares being
offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Shares to be
offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the case may be, as
the managing underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may request; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Shares pursuant
to the Registration Statement.
5. Indemnification.
(a) The Company will indemnify each holder of Registrable Shares, each of
its officers, directors and partners, and each person controlling such holder of
Registrable Shares, with respect to which registration has been effected
pursuant to this Agreement, and each underwriter, if any and each person who
controls any underwriter, and their respective counsel against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, or other
document incident to any such registration, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company in connection with any such registration and will reimburse each
such holder of Registrable Shares, each of its officers, directors and partners,
and each person controlling such holder of Registrable Shares, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses as they are reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided, however, that the indemnity contained in this Section 5(a) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Company; and
provided further that the Company shall not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such holder of Registrable Shares or underwriter and
stated to be specifically for use therein. The foregoing indemnity agreement is
further subject to the condition that insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in a
preliminary prospectus, such indemnity agreement shall not inure to the benefit
of the foregoing indemnified parties if copies of a final prospectus correcting
the misstatement, or alleged misstatement, omission
REGISTRATION RIGHTS AGREEMENT - Page 9
(American International Petroleum Corp.)
<PAGE>
or alleged omission upon which such loss, liability, claim or damage is based is
timely delivered to such indemnified party and a copy thereof was not furnished
to the person asserting the loss, liability, claim or damage.
(b) Each holder of Registrable Shares will, if Registrable Shares held by
it are included in the securities as to which such registration is being
effected, indemnify the Company, each of its directors and officers and each
underwriter, if any, of the Company's securities covered by such a Registration
Statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act and the rules and regulations thereunder, each
other such holder of Registrable Shares and each of its officers, directors and
partners, and each person controlling such holder of Registrable Shares, and
their respective counsel (collectively, the "Company, Underwriters and Counsel")
against all claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact relating to such Holder
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein relating to such holder or necessary
to make the statements therein relating to such holder not misleading or any
violation by such holder of any rule or regulation promulgated under the
Securities Act applicable to such holder and relating to action or inaction
required of such holder in connection with any such registration; and will
reimburse the Company, such holders of Registrable Shares, directors, officers,
partners, persons, underwriters or control persons for any legal or any other
expense reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) relating to such holder is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such holder of Registrable Shares and stated to be specifically for
use therein; provided, however, that such indemnification obligations shall not
apply if the Company modifies or changes to a material extent written
information furnished by such Holder. Each holder of Registrable Shares will, if
Registrable Shares held by it are included in the securities as to which such
registration is being effected, indemnify the Company, Underwriters and Counsel
against all claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof), arising out of or based on any sale of
Registrable Shares made by such holder following receipt by such holder of
written notice from the Company, Underwriters or Counsel that the registration
statement filed with respect to such Registrable Shares contains an untrue
statement of material fact or omits to state a material fact necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
(c) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 5 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 5, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section
REGISTRATION RIGHTS AGREEMENT - Page 10
(American International Petroleum Corp.)
<PAGE>
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Shares who was not guilty of such fraudulent misrepresentation
and (c) contribution by any seller of Registrable Shares shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Shares.
(d) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at such Indemnified Party's expense. No Indemnifying Party, in
the defense of any such claim or litigation, shall except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
6. Agreements of Holders of Registrable Shares. Each holder of Registrable
Shares shall promptly furnish to the Company such information regarding such
holder of Registrable Shares and the distribution proposed by such holder of
Registrable Shares as the Company may reasonably request in writing and as shall
be reasonably required in connection with any registration referred to in this
Agreement.
7. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the Commission that may at any time permit
the Investors to sell securities of the Company to the public without
registration and without imposing restrictions arising under the federal
securities laws on the purchases thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner, all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Shares, promptly upon request, (i) a written statement by the
Company as to whether it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as
may be reasonably
REGISTRATION RIGHTS AGREEMENT - Page 11
(American International Petroleum Corp.)
<PAGE>
requested to permit the Investors to sell such securities pursuant to Rule
144 without registration.
8. Miscellaneous.
A. Governing Law. This agreement shall be governed by and construed
in accordance with the laws of the State of Nevada without giving effect to
conflict of laws of such jurisdiction.
B. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
C. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
D. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered by hand or by messenger or courier delivery
service, addressed (a) if to an Investor
at___________________________________________________________or at such other
address as such Investor shall have furnished to the Company in writing, or (b)
if to the Company at 444 Madison Ave, Ste 3202, New York, Ny, 10022, Fax
212/688-6657 or at such other address as the Company shall have furnished to
each Investor and each such other holder in writing.
E. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Registrable Shares, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions of
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
F. Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
REGISTRATION RIGHTS AGREEMENT - Page 12
(American International Petroleum Corp.)
<PAGE>
G. Severability. In the case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
H. Amendments. The provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement may
be waived, with and only with an agreement or consent in writing signed by the
Company and by the Investors currently holding fifty percent (50%) of the
Registrable Shares as of the date of such amendment or waiver.
[Signature page follows]
REGISTRATION RIGHTS AGREEMENT - Page 13
(American International Petroleum Corp.)
<PAGE>
The foregoing Registration Rights Agreement is hereby executed as of the
date first above written.
COMPANY:
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:
-----------------------------------------------
Title:
--------------------------------------------
INVESTOR:
By:
-----------------------------------------------
Title:
--------------------------------------------
By:
-----------------------------------------------
Title:
--------------------------------------------
By:
-----------------------------------------------
Title:
--------------------------------------------
REGISTRATION RIGHTS AGREEMENT - Page 14
(American International Petroleum Corp.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,196
<SECURITIES> 3,617,954
<RECEIVABLES> 4,024,242
<ALLOWANCES> 2,363,591
<INVENTORY> 0
<CURRENT-ASSETS> 5,618,964
<PP&E> 19,997,357
<DEPRECIATION> 2,154,612
<TOTAL-ASSETS> 23,804,338
<CURRENT-LIABILITIES> 5,891,278
<BONDS> 2,961,109
0
0
<COMMON> 3,164,735
<OTHER-SE> 14,951,951
<TOTAL-LIABILITY-AND-EQUITY> 23,804,338
<SALES> 703,293
<TOTAL-REVENUES> 791,635
<CGS> 98,765
<TOTAL-COSTS> 481,131
<OTHER-EXPENSES> 4,405,226
<LOSS-PROVISION> 447,832
<INTEREST-EXPENSE> 1,415,411
<INCOME-PRETAX> (8,085,145)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,085,145)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> 0
</TABLE>
