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 September 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 November 5, 1997 is 48,286,137 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,209,388 $ 11,058
Cash - restricted -- 161,022
Marketable Securities 2,565,246 --
Accounts and notes receivable, net 1,594,667 1,073,140
Inventory -- 459,961
Prepaid expenses 399,073 838,104
------------ ------------
Total current assets 7,768,374 2,543,285
------------ ------------
Property, plant and equipment:
Unevaluated oil and gas property 6,305,691 5,648,630
Oil and gas properties -- 32,506,656
Refinery property and equipment 19,993,977 17,235,183
Other 212,970 499,971
------------ ------------
26,512,638 55,890,440
Less - accumulated depreciation, depletion,
amortization and impairments (4,150,005) (23,959,191)
------------ ------------
Total property, plant and equipment 22,362,633 31,931,249
------------ ------------
Other long-term assets, net 2,657,101 17,897
------------ ------------
Total assets $ 32,788,108 $ 34,492,431
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ -- $ 237,162
Current portion of long-term debt 2,399,993 5,968,393
Accounts payable 1,164,343 3,636,765
Accrued liabilities 2,122,384 2,524,194
------------ ------------
Total current liabilities 5,686,720 12,366,514
Long-term debt 6,208,333 798,199
------------ ------------
Total liabilities 11,895,053 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, 43,877,092 shares issued and outstanding
at September 30, 1997 and 34,458,921 shares at December 31, 1996 3,510,167 2,756,714
Additional paid-in capital 90,195,834 78,677,265
Stock purchase warrants 1,297,754 1,297,754
Accumulated deficit (74,110,700) (61,404,015)
------------ ------------
Total stockholders' equity 20,893,055 21,327,718
------------ ------------
Commitments and contingent liabilities -- --
------------ ------------
Total liabilities and stockholders' equity $ 32,788,108 $ 34,492,431
============ ============
</TABLE>
2
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1997 1996
------------ ------------
Restated
Revenues:
Oil and gas production and
pipeline fees $ -- $ 300,514
Refinery lease fees -- 662,962
Other 103,738 36,498
------------ ------------
Total revenues 103,738 999,974
------------ ------------
Expenses:
Operating -- 176,220
General and administrative 553,073 923,270
Depreciation, depletion and
amortization 183,410 284,251
Interest 3,583,757 439,420
Unrealized loss on marketable securities 405,038 --
------------ ------------
Total expenses 4,725,278 1,823,161
------------ ------------
Net loss $ (4,621,540) $ (823,187)
============ ============
Net loss per share of common stock $ (0.11) $ (0.03)
============ ============
Weighted-average number of shares
of common stock outstanding 42,252,140 32,884,064
============ ============
3
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
1997 1996
------------ ------------
Restated
Revenues:
Oil and gas production and
pipeline fees $ 260,579 $ 941,760
Refinery lease fees 442,714 1,780,280
Other 192,080 167,873
------------ ------------
Total revenues 895,373 2,889,913
------------ ------------
Expenses:
Operating 98,765 392,885
General and administrative 3,128,085 2,210,298
Depreciation, depletion and
amortization 565,776 931,704
Interest 4,999,168 1,934,958
Unrealized loss on marketable securities 3,798,765 --
Provision for bad debts 447,832 --
Loss on sale of subsidiaries 563,667 --
------------ ------------
Total expenses 13,602,058 5,469,845
------------ ------------
Net loss $(12,706,685) $ (2,579,932)
============ ============
Net loss per share of common stock $ (0.32) $ (0.08)
============ ============
Weighted-average number of shares
of common stock outstanding 39,140,084 30,406,476
============ ============
4
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,706,685) $(2,579,932)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 3,918,639 2,038,894
Unrealized loss on marketable securities 3,798,765 --
Provision for bad debts 447,832 --
Loss on sale of subsidiaries 563,667 --
Non-cash provision for services 174,219 421,875
Changes in assets and liabilities:
Accounts and notes receivable (153,656) (273,932)
Inventory 56,974 258,521
Prepaid and other (63,431) 48,430
Accounts payable and accrued liabilities (157,577) 486,557
------------ -----------
Net cash provided by (used in) operating activities (4,121,253) 400,413
------------ -----------
Cash flows from investing activities:
Additions to oil and gas properties (939,805) (1,122,400)
Additions to refinery property and equipment (2,758,794) (1,056,909)
Proceeds from sale of marketable securities 2,404,739 --
Proceeds from sale of subsidiaries 1,729,287 --
-----------
Other (605,791) (200,023)
------------ -----------
Net cash used in investing activities (170,364) (2,379,332)
------------ -----------
Cash flows from financing activities:
Cash - restricted, loan collateral 35,261 97,253
Net increase (decrease) in notes payable (237,162) 34,593
Proceeds from long-term debt 10,536,600 1,810,000
Repayments of long-term debt (3,675,657) (714,675)
Proceeds from issuance of common stock and
warrants, net 442,270 762,802
Proceeds from exercise of stock warrants
and options 388,635 --
------------ -----------
Net cash provided by financing activities 7,489,947 1,989,973
------------ -----------
Net increase (decrease) in cash and
cash equivalents 3,198,330 11,054
Cash and cash equivalents at beginning of year 11,058 162,218
------------ -----------
Cash and cash equivalents at end of year $ 3,209,388 $ 173,272
============ ===========
</TABLE>
5
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AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Stock
Common 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 4,674,311 373,943 2,379,279 -- -- 2,753,222
Issuance of stock for interest in oil &
gas properties 1,750,000 140,000 4,955,313 -- -- 5,095,313
Issuance of stock for services 250,000 20,000 116,719 -- -- 136,719
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
Issuance of stock purchase warrants with debentures -- -- 1,539,071 -- -- 1,539,071
Exercise of warrants 784,221 62,739 325,896 -- -- 388,635
Issuance of common stock 1,635,593 130,847 308,923 -- -- 439,770
Imputed interest on debentures
convertible at a discount to market -- -- 1,763,459 -- -- 1,763,459
Net loss for the period -- -- -- -- (12,706,685) (12,706,685)
---------- ---------- ----------- ---------- ------------ ------------
Balance, September 30, 1997 43,877,092 $3,510,167 $90,195,834 $1,297,754 $(74,110,700) $ 20,893,055
========== ========== =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30,
1997, the results of operations for the three and nine month periods ended
September 30, 1997 and 1996 and cash flows for the nine months ended September
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.
The unaudited results of operations for the three and nine months ended
September 30, 1996 have been restated to reflect accounting for the imputed
interest of various convertible debentures issued during those periods, which
were convertible at a discount to market, as reflected in Note 7 of the
Company's Form 10-K for the fiscal year ended December 31,1996.
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 held by the Company are available-for-sale securities
carried at lower of cost or market value.
Marketable securities acquired by the Company at a basis of $2.00 per share had
a market value of $1.60, $1.10, and $.95 per share at March 31, 1997, June 30,
1997, and September 30, 1997 respectively, resulting in an aggregate unrealized
loss during 1997 of $3,799,000.
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
The effective interest rate as stated for each of the debt instruments below
does not necessarily reflect the actual cash cost to the Company for that
specific debt instrument. The effective interest rate reflects the presumed
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incremental yield the holder of the debt instrument may derive from the
discounted conversion rate of such instrument issued by the Company.
September 30, 1997
------------------
8% - $291,600 Subordinated Debentures - due
from September 24 to December 6, 1997,
effective interest rate - 28.7% $ 291,600
8% - $75,000 Convertible Debenture - due
May 19, 1999, effective interest rate - 63.6% $ 75,000
8% - $6,400,000 Convertible Debenture - due
August 6, 1999, effective interest rate - 25.7% $ 6,133,333
Note payable to MG Trade Finance Corporation $ 2,108,393
------------
$ 8,608,326
Less Current portion $ 2,399,993
------------
Long-Term Debt $ 6,208,333
============
As of November 5, 1997 all of the above current and long-term debt had been
retired.
In October 1997, the Company issued an aggregate $10 million in 14% Convertible
Notes. (See Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.)
5. Contingencies
In May 1992, the Company's wholly-owned subsidiary, American International
Refinery, Inc. ("AIRI") was notified by the Internal Revenue Service ("IRS")
that the IRS was considering an assessment of excise taxes, penalties and
interest of approximately $3,500,000 related to the sale of fuel products during
1989. The IRS claims that AIRI failed to comply with an administrative procedure
that required sellers, and buyers in tax-free transactions, to obtain
certification from the IRS. The Company believes that AIRI complied with the
substance of the existing requirements and such sales were either tax-free or
such excise taxes were paid by the end-users of such products.
AIRI has offered to negotiate a settlement of this matter with IRS Appeals since
early 1993. Such negotiations included face-to-face meetings, numerous phone
calls and written transmittals and several offers of settlement by both the
Company and the IRS. During these negotiations, the IRS Appeals officers offered
to waive all of the penalties and 75% of the amount of the proposed tax
liability. However, AIRI rejected this offer and requested the IRS' National
Office provide technical advice to its Appeal officers. After numerous
conferences and discussions with the National Office in 1995, the National
Office issued an adverse Technical Advice Memorandum ("TAM") to the effect that
AIRI should be liable for the tax on the sale of diesel fuel for the first three
quarters of 1989. However, subsequent to the issuance of the TAM, the IRS
Appeals officer indicated to AIRI that the IRS still wants to negotiate a
settlement. Recent meetings with the IRS indicate that a settlement should be in
place by the end of this year, although there can be
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no assurance at this time that such a settlement will be reached, nor of the
resultant amount of such settlement, if any.
The Company accrues an estimated loss from a loss contingency when a liability
has been incurred and the amount of such loss can be reasonably estimated. Such
accruals are based on developments to date and the Company's estimate of the
liability. In this instance, the Company has provided an aggregate allowance
during 1996 and 1995 of $1,250,000 and $250,000, respectively.
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, approximately 4.4 million shares of MIP Common
Stock, valued in the MIP Transaction at $2.00 per share (the "MIP Shares"), debt
in the form of a $3 million exchangeable debenture (the "Exchangeable
Debenture), and deferred compensation.
However, the market value of the MIP Shares has declined since the closing of
the MIP Transaction to $.95 on September 30, 1997. The Company recorded the MIP
Shares at lower of cost or market, which resulted in a cumulative unrealized
loss during 1997 of $3,799,000.
In October 1997, the Company issued an aggregate $10 million of one-year 14%
convertible notes (the "Notes") to two foreign entities pursuant to Regulation
S, for net proceeds of approximately $9,579,000. The Company may prepay all, but
not less than all of, the Notes six months after closing (the "Call Date") at
the greater of (x) 100% of the principal amount of the Notes and (y) the number
of shares into which the Notes are convertible on the Call Date plus accrued
interest, minus one-third of the difference between (x) and (y). Although the
Holders of the Notes may convert the outstanding principal of the Notes at any
time after November 27, 1997 into the Company's Common Stock at $6.25 per share
(approximately 112% of the average closing bid price for the five trading days
preceding the closing), no conversions may take place before February 12, 1998
(120 days after close) unless the market price of the Company's Common Stock
exceeds approximately $8.33 per share (145% of the Closing Price). After six
months, the Notes may be converted at the lesser of (i) $6.25 per share, (ii)
85% of the Market price at conversion and (iii) the daily weighted-average sales
price reported for the lowest five consecutive trading days during any 40-day
period following the Call Date. The proceeds will be used for start-up capital
for the refinery and for other Company projects and general corporate purposes.
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Also in October 1997, in lieu of cash, the Company issued 11,754 restricted
shares of its common stock, pursuant to Regulation S, to a foreign individual as
full payment of an aggregate of $67,659 in principal and interest owed by the
Company to this individual.
During the nine months ended September 30, 1997, the Company incurred a net loss
of $12,707,000, which reflects approximately $8,903,000 in non-cash provisions,
including depreciation, depletion and amortization of $3,919,000, unrealized
loss on write-down of marketable securities acquired in the MIP Transaction of
$3,799,000, provision for bad debts of $448,000, stock issuances for services
and compensation of $174,000, and loss on sale of subsidiaries of $564,000.
Approximately $160,000 was used during the period to increase current assets
other than cash, and $158,000 was used to decrease accounts payable and accrued
liabilities. Cash for operations was provided, in part, by the sale and
distribution of marketable securities of $2,405,000, the issuance of Common
Stock and a net increase in long-term debt in an aggregate amount of $7,689,000,
and from the sale of subsidiaries of $1,729,000.
In the past, 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. The Company pledged
1,000,000 shares of the MIP Shares to further secure the Loan Agreement with
MGTF. On October 1, 1997 the Company paid the remaining principal and interest
due on the Loan Agreement with some of the proceeds it received from the sale of
debentures during the third quarter of 1997. The MIP Shares, as well as all of
the outstanding shares of its wholly-owned subsidiary, American International
Refinery, Inc., also pledged to MGTF as collateral, have been returned
to the Company by MGTF and the liens and mortgages related thereto are in the
process of being released.
Because of non-payment of lease fees and other items of default under the terms
of its lease agreement with the Company (the "Lease Agreement"), 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.
In April 1997, the Company 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.
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
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resulted in an increase in the working interest to 70%. As consideration for its
70% interest in MSUP, the Company issued an additional 2,950,000 shares of its
Common Stock and warrants to purchase an aggregate of 500,000 shares of its
Common Stock, at an exercise price of $2.00 per share, pursuant to Regulation S.
MED receives 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 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 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.
Development of the License database has begun and the initial seismic lines are
being reprocessed for orientation of the seismic program and selection of
possible drilling sites. The Company has requested bids for survey crews to
begin work to lay out the initial 1,250 kilometer seismic program, which is
expected to begin by year end. Preliminary discussions have been held with
potential drilling contractors and work on the first well is planned for the
second quarter of 1998, depending on rig availability.
The Company will be responsible for managing 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 participating in the exploitation of the License area.
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 expenditures in Kazakstan. The first
phase of construction of the Refinery expansion, necessary to implement
operations, has been completed and the Company plans to commence asphalt
terminalling in November 1997. The final phase is expected to be completed by
year-end 1997, at which point the Company can implement the manufacturing of its
asphalt, vacuum gas oil, and other products. Although the Refinery will be
capable of processing up to 30,000 barrels per day of feedstock, the Company
currently expects to process an average of
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approximately 10,000 barrels per day during 1998, however it may process at
higher rates if the market dictates. 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.
The Company is also having discussions with various financing entities regarding
non-equity financing arrangements to provide funding for upcoming operations,
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. At November 4, 1997, the
Company had approximately $11 million of cash and marketable securities.
However, as a result of the MIP Transaction and the cancellation of the Lease
Agreement, 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.
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Results of Operations
For the Three Months Ended September 30, 1997 as compared
to the Three Months Ended September 30, 1996
The following table highlights the Company's results of operations for the three
months ended September 30, 1997 and 1996.
For The Three Months
Ended September 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties:
Revenues - Oil Sales (000's) (1) $301
Lease Operating Expenses (000's) (1) $180
Production Volume - Bbls (1) 25,971
Average Price per Bbl (1) $11.57
Production Cost per Bbl (1) $6.92
DD&A per Bbl (1) $3.77
Peru Properties: (1) (2)
Refinery Operations:
Refinery Lease Fees (000') (3) $663
Average Daily Throughput (3) 14,112
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.
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 September
30, 1997 compared to three full months of operations reflected in 1996.
Refinery Operations:
The Company evicted it's lessee on March 20, 1997, therefore there were no
operations for the three months ended September 30, 1997 compared to three full
months of operations reflected in 1996.
Other Revenue:
Other revenues increased approximately $67,000 during the current quarter
compared to the same quarter of 1996. The increase is primarily due to an
increase in interest income on long term interest bearing notes receivable and
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an increase in cash during the current period compared to the same period in
1996.
General and Administrative:
General and Administrative ("G&A") expenses decreased approximately $370,000
compared to the same period during 1996 due to the following reasons: a net
decrease of $248,000 as a result of a $174,000 charge during current quarter for
non-cash charges related to the issuance of stock for services and compensation
compared to a non-cash charge of $422,000 during the third quarter of 1996,
related to an issuance of stock to a Company officer in exchange for certain
Company obligations under the officer's employment contract; a gain of
approximately $122,000 on the sale and disposition of certain marketable
securities held by the Company; office rents, supplies, and telephone expenses
decreased by an aggregate of $40,000 during the current period, primarily as a
result of the MIP Transaction, as previously discussed above.
Depreciation, Depletion, and Amortization decreased approximately $101,000
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 by approximately $3,114,000 to $3,584,000 for the
current quarter compared to the third quarter of 1996. Approximately $1,598,000
of this increase is due primarily to an imputed interest calculated on the
Company's issued convertible debt instruments (see related discussions above).
Approximately $197,000 in additional interest expense was incurred during the
current period to redeem approximately $765,000 of the Company's outstanding
convertible debentures that were otherwise convertible into the Company's stock.
Approximately $1,610,000 of amortized bond and discount costs were 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 quarter.
Unrealized Loss on Marketable Securities
Marketable securities held by the Company at September 30, 1997, and carried at
a lower of cost or market value of $1.10 since June 30, 1997, had a market price
at September 30, 1997 of $0.95 per share, resulting in a net unrealized loss of
$405,000 during the current quarter.
14
<PAGE>
Results of Operations
For the Nine Months Ended September 30, 1997 as compared
to the Nine Months Ended September 30, 1996
The following table highlights the Company's results of operations for the nine
months ended September 30, 1997 and 1996.
For The Nine Months
Ended September 30,
1997 1996
---- ----
Exploration and Production Activity:
Colombia Properties: (1)
Revenues - Oil Sales (000's) $261 $942
Lease Operating Expenses (000's) $ 99 $391
Production Volume - Bbls 18,625 99,069
Average Price per Bbl $14.01 $9.51
Production Cost per Bbl $5.31 $3.95
DD&A per Bbl $3.77 $3.77
Peru Properties: (2) (2)
Refinery Operations: (3)
Refinery Lease Fees (000') $443 $1,780
Average Daily Throughput 9,838 12,531
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 to Mercantile International Petroleum Inc. ("MIP") (the "MIP
Transaction"), compared to nine full months of operations reflected in 1996.
Refinery Operations:
The results of operations for the Company's Lake Charles, Louisiana refinery
(the "Refinery") for 1997 reflect results for the period through March 20, 1997,
the date the Company terminated its lease agreement with Gold Line Refining Ltd.
("Gold Line"), the lessee of the Refinery, compared to nine full months of
operations reflected in 1996. The first phase of construction of the Refinery
expansion, necessary to implement operations, has been completed and the Company
plans to commence asphalt processing in November 1997. The
15
<PAGE>
second phase of construction is expected to be complete in December 1997 which
should enable the Company to manufacture its own asphalt with the beginning of
the asphalt season in April 1998.
Other Revenue:
Other revenues increased approximately $24,000, or 14%, during the current
period compared to the same period in 1996. The increase is primarily due to
increased interest income on other long term interest bearing notes receivable
and an increase in cash balances during the current period compared to the same
period last year.
General and Administrative:
General and Administrative ("G&A") expenses increased approximately $918,000
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 $112,000 on the sale and disposition of a portion of the
MIP Shares, a non-cash charge of $134,000 related to the issuance of the
Company's common stock for services, and a one-time $695,000 compensation
adjustment. The Company realized a decrease in other G&A costs during the
current period compared to the same period last year in the following areas:
professional consulting fees decreased approximately $132,000, payroll expenses
decreased $122,000, and office rents, supplies and telephone expenses have
decreased approximately $61,000.
Depreciation, Depletion, and Amortization decreased approximately $366,000
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.
Interest expense increased to approximately $4,999,000 during the first nine
months of 1997 from approximately $1,935,000 in the same period last year, of
which approximately $878,000 is due primarily to an increase in imputed interest
calculated on the Company's convertible debt instruments. Approximately $235,000
in additional interest expense was incurred during the current period to redeem
approximately $915,000 of the Company's outstanding convertible debentures that
were otherwise convertible into the Company's stock. Approximately $2,585,000 of
amortized bond costs and discounts were 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
As partial proceeds from the MIP Transaction, the Company received approximately
$4.4 million shares of MIP common stock valued at $2.00 per share. However,
since the closing, the market value of MIP's shares have declined to $0.95/share
at September 30, 1997, resulting in an aggregate net unrealized loss of
$3,799,000 during this period.
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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
See Part I, Item 2, above, with the respect to the sale of an
aggregate $10 million of 14% convertible notes, the issuance of
restricted shares of common stock as consideration for the
acquisition of a 70% ownership interest in an oil and gas concession
in Kazakstan, and the issuance of restricted shares of common stock
in exchange for debt, all pursuant to Regulation S.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of 14% Convertible Notes due October 15, 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 Rights Agreement used in connection with
the offering of the Registrants' debentures, the form of which
is attached hereto as Exhibit 4.1.
4.5 Form of Subscription Agreement used in connection with the
repayment of debt to a foreign individual.
4.6 Form of Subscription Agreement used in connection with the
Registrant's purchase of a 70% interest of MED Shipping Usturt
Petroleum Company Ltd.
4.7 Form of Warrant to purchase shares of the Registrant's Common
Stock issued in connection with the purchase referenced in
Exhibit 4.6.
10.1 Agreement dated April 22, 1997 between the Registrant and MED
Shipping and Trading S.A. used in connection with the
Registrant's purchase of a 70% interest of MED Shipping Usturt
Petroleum Company Ltd.
10.2 Amendment dated May 9, 1997 to the Agreement attached hereto
as Exhibit 10.1.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
17
<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: November 5, 1997
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
------------------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
(principal financial and accounting officer)
18
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Form of 14% Convertible Notes due October 15, 1998.
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 Rights Agreement used in connection with the
offering of the Registrants' debentures, the form of which is
attached hereto as Exhibit 4.1.
4.5 Form of Subscription Agreement used in connection with the repayment
of debt to a foreign individual.
4.6 Form of Subscription Agreement used in connection with the
Registrant's purchase of a 70% interest of MED Shipping Usturt
Petroleum Company Ltd.
4.7 Form of Warrant to purchase shares of the Registrant's Common Stock
issued in connection with the purchase referenced in Exhibit 4.6.
10.1 Agreement dated April 22, 1997 between the Registrant and MED
Shipping and Trading S.A. used in connection with the Registrant's
purchase of a 70% interest of MED Shipping Usturt Petroleum Company
Ltd.
10.2 Amendment dated May 9, 1997 to the Agreement attached hereto as
Exhibit 10.1.
27.1 Financial Data Schedule.
19
Exhibit 4.1
THIS CONVERTIBLE NOTE HAS BEEN ISSUED PURSUANT TO REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND HAS NOT BEEN REGISTERED UNDER THE
1933 ACT OR ANY APPLICABLE STATE SECURITIES LAWS. THIS CONVERTIBLE NOTE MAY NOT
BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OF A "U.S.
PERSON" AS THAT TERM IS DEFINED IN REGULATION S DURING THE PERIOD COMMENCING ON
THE SALE OF THIS CONVERTIBLE NOTE AND ENDING ON THE 40TH DAY FOLLOWING
COMPLETION OF THE REGULATION S OFFERING PURSUANT TO WHICH THIS NOTE HAS BEEN
ISSUED (THE "RESTRICTED PERIOD"). IN ADDITION, A SECURITIES PURCHASE AGREEMENT,
DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT
ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE
PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE
CONVERSION RIHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT,
PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE
ACCELERATED.
$_________
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
14% Convertible Note due October 15, 1998
AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
(together with its successors, the "Company"), for value received hereby
promises to pay to:
----------------------------------------------------------
(the "Holder") and registered assigns, the principal sum of __________ Dollars
($__________) or, if less, the principal amount of this Note then outstanding,
on the Maturity Date by wire transfer of immediately available funds to the
Holder in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
and to pay interest, semi-annually in arrears, on (i) the last day of June and
December of each year until the Maturity Date, commencing December 31, 1997
(unless such day is not a Business Day, in which event on the next succeeding
Business Day) (each an "Interest Payment Date"), (ii) the Maturity Date, (iii)
each Conversion Date, as hereafter defined,
- ------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 1 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
and (iv) the date the principal amount of the Convertible Notes shall be
declared to be or shall automatically become due and payable, on the principal
sum hereof outstanding in like coin or currency, at the rates per annum set
forth below, from the most recent Interest Payment Date to which interest has
been paid on this Convertible Note, or if no interest has been paid on this
Convertible Note, from the date of this Convertible Note until payment in full
of the principal sum hereof has been made.
The interest rate shall be fourteen percent (14%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of a 360-day
year of twelve 30 day months. All payments of principal and interest hereunder
shall be made for the benefit of the Holder pursuant to the terms of the
Agreement (hereafter defined). At the option of the Company, interest may be
paid in cash or in shares of Common Stock. If the Company determines to pay
interest in shares of Common Stock, it shall be required to notify the Holder of
such election at least five (5) Business Days prior to the applicable Interest
Payment Date. The number of shares of Common Stock issued as interest shall be
determined by dividing the dollar amount of interest due on the applicable
Interest Payment Date by the Conversion Price then in effect.
This Convertible Note is one of a duly authorized issuance of $10,000,000
aggregate principal amount of Convertible Notes of the Company (the "Convertible
Note") referred to in that certain Securities Purchase Agreement dated as of the
date hereof between the Company and the Purchasers named therein (the
"Agreement"). The Agreement contains certain additional agreements among the
parties with respect to the terms of this Convertible Note, including, without
limitation, provisions which (A) limit the conversion rights of the Holder, (B)
specify voluntary and mandatory repayment, prepayment and redemption rights and
obligations and (C) specify Events of Default following which the remaining
balance due and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein by reference.
This Convertible Note is transferable and assignable to one or more purchasers
(in minimum denominations of $100,000 or larger multiples of $1,000), in
accordance with the limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as the registered holder of such
Convertible Notes. The ownership of this Convertible Note shall be proven by the
Register.
1. Certain Terms Defined. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for therein.
- ------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 2 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
2. Covenants. Unless the Majority Holders otherwise consent in writing,
the Company covenants and agrees to observe and perform each of its obligations
and undertakings contained in the Agreement, which obligations and undertakings
are expressly assumed herein by the Company and made for the benefit of the
holder hereof.
3. Payment of Principal. The Company shall repay the remaining unpaid
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreement.
4.1 Conversion of Convertible Note.
(a) The Holder shall have the right, at its option, at any time, and
from time to time, after the Restricted Period to convert the principal
amount of this Convertible Note, or any portion of such principal amount,
into that number of fully paid and nonassessable shares of Common Stock
(as such shares shall then be constituted) determined pursuant to this
Section 4.1. The number of shares of Common Stock to be issued upon each
conversion of this Convertible Note shall be determined by dividing the
Conversion Amount (as defined below) by the Conversion Price in effect on
the date (the "Conversion Date") a Notice of Conversion is delivered to
the Company by the Holder by facsimile or other reasonable means of
communication dispatched prior to 5:00 p.m., New York City Time. The term
"Conversion Amount" means, with respect to any conversion of this
Convertible Note, the sum of (1) the principal amount of this Convertible
Note to be converted in such conversion plus (2) accrued and unpaid
interest, if any, on such principal amount at the interest rates provided
in this Convertible Note to the Conversion Date plus (3) Default Interest,
if any, on the interest referred to in the immediately preceding clause
(2) plus (4) at the Holder's option, any amounts owed to the Holder
pursuant to Section 4.3 hereof, Section 10.1 of the Agreement or Section
10.4 of the Agreement.
(b) Notwithstanding the foregoing, during the first 120 days
following the date hereof, the Holder shall not be entitled to convert the
principal amount of this Convertible Note unless the highest Trading Price
(as hereafter defined) for any Trading Day during such 120 day period
exceeds the product of 133-1/3% multiplied by the Initial Conversion
Price. As used herein, Trading Price means the price at which the Common
Stock has been traded, as reported by Bloomberg, L.P. ("Bloomberg") on the
Nasdaq Market or, if not reported by Bloomberg on the Nasdaq Market, as
reported by such other exchange or market where the Common Stock is then
traded.
4.2 Conversion Price. The Conversion Price of this Convertible Note (the
"Conversion Price") shall be $_______ per share (the "Initial Conversion Price")
provided that, if (x) the Company shall have declined to repay in full this
Convertible Note on the Call Date or (y) if an Event of Default (including,
without limitation, the failure to pay interest or principal when due) shall
have occurred, then following each such event the Conversion Price shall be the
lesser of (i) the Initial Conversion Price, (ii) 0.85 times the Market Price and
(iii) the 40-Day
- ------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 3 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
DWASP (as hereafter defined) (subject, in each case, to equitable adjustments
for stock splits, stock dividends or rights offerings by the Company relating to
the Company's securities or the securities of any subsidiary of the Company,
combinations, recapitalization, reclassifications, extraordinary distributions
and similar events). The term "40-Day DWASP" means, for any security as of any
date, the daily-weighted average sales price on the Nasdaq Market as reported by
Bloomberg or, if the Nasdaq Market is not the principal trading market for such
security, the daily-weighted average sales price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
daily-weighted average sales price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no daily-weighted average sales price is reported for such
security by Bloomberg, then the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc., in each case for the lowest five (5) consecutive Trading Day
period during such 40-day period. If the 40-Day DWASP cannot be calculated for
such security on such date on any of the foregoing bases, the 40-Day DWASP of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holders of a majority in interest of Convertible Notes
being converted for which the calculation of the closing bid price is required
in order to determine the Conversion Price of such Convertible Notes.
4.3 Authorized Shares.
(a) Consistent with Section 9.2 of the Agreement, the Company (i)
acknowledges that it has irrevocably instructed its transfer agent to
issue certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this Convertible
Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Convertible Note.
(b) If at any time a Holder of this Convertible Note submits a
Notice of Conversion (x) the Company does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
full in accordance with the provisions of this Article 4 or (y) the
Company is prohibited by the applicable rules of the Nasdaq Market to
effect such conversion in full as provided in subsection (d) below,
without stockholder approval (each, a "Conversion Default"), the Company
shall issue to the Holder all of the shares of Common Stock which are then
available to effect such conversion. The portion of this Convertible Note
which the Holder included in its Conversion Notice and which exceeds the
amount which is then convertible into available shares of Common Stock
(the "Excess Amount") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with
the terms hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the Company, or
its stockholders, as applicable, at which time the Conversion Price in
respect thereof shall be the lower of (i) the
- ------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 4 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
Conversion Price on the Conversion Default Date (as defined below) and
(ii) the Conversion Price on the Conversion Date thereafter elected by the
Holder in respect thereof. The Company shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(N/365) x .24 x the Excess Amount on the Conversion Date in respect of the
Conversion Default (the "Conversion Default Date"), where N = the number
of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company, or its stockholders, as applicable, authorizes a
sufficient number of shares of Common Stock to effect conversion of the
full outstanding principal balance of this Convertible Note. The Company
shall use its best efforts to authorize, or cause its stockholders to
authorize within 90 days of the occurrence of a Conversion Default, as
applicable, a sufficient number of shares of Common Stock as soon as
practicable following the earlier of (i) such time that the Holder
notifies the Company or that the Company otherwise becomes aware that
there are or likely will be insufficient shares to allow full conversion
thereof and (ii) a Conversion Default. The Company shall send notice to
the Holder of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month
shall be paid in cash or shall be convertible into Common Stock (at such
time as there are sufficient authorized shares of Common Stock) at the
Market Price, at the Holder's option, as follows:
(i) In the event the Holder elects to take such payment in
cash, cash payment shall be made to Holder by the fifth day of the
month following the month in which it has accrued; and
(ii) In the event the Holder elects to take such payment in
Common Stock, the Holder may convert such payment amount into Common
Stock at the Conversion Price (as in effect at the time of
conversion) at any time after the fifth day of the month following
the month in which it has accrued (at such time as there are
sufficient authorized shares of Common Stock) in accordance with the
terms of this Article 4.
(c) The Holder's election pursuant to this Section 4.3 shall be made
in writing to the Company at any time prior to 5:00 p.m., New York City
Time, on the third day of the month following the month in which
Conversion Default payments have accrued. If no election is made, the
Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holders right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) due to the Company's failure to
maintain a sufficient number of authorized shares of Common Stock.
(d) In no event shall the Company issue more than the Maximum Number
of Shares upon conversion of this Convertible Note, unless the Company
shall have obtained Stockholder Approval (as defined below) or a waiver of
such requirement by the Nasdaq Market. As used herein, Stockholder
Approval means approval by the
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14% CONVERTIBLE NOTE - Page 5 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
stockholders of the Company in accordance with Rule 4460(i) of the rules
of the Nasdaq Market. Once the Maximum Number of Shares has been issued
(the date of which is hereinafter referred to as the "Maximum Conversion
Date"), unless the Company shall have obtained Stockholder Approval or a
waiver of such requirement by the Nasdaq Market within 90 days of the
Maximum Conversion Date, the Company shall pay to the Holder within five
(5) Business Days of the Maximum Conversion Date (or, if the Company is,
in good faith, using its best efforts to obtain Stockholder Approval, then
the earlier of (x) 90 days following the Maximum Conversion Date, and (y)
such date that it becomes reasonably apparent that Stockholder Approval
will not be obtained within such 90 day period), the greater of (x) the
Formula Amount plus accrued and unpaid Default Interest, if any, and (y)
the Par Value Redemption Amount plus accrued and unpaid Default Interest,
if any. The Maximum Number of Shares shall be subject to adjustment from
time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring
after the date hereof as contemplated by Article XI of the Agreement. With
respect to each Holder of Convertible Notes, the Maximum Number of Shares
shall refer to such Holder's pro rata share thereof based upon the
aggregate principal balance of the convertible Notes then outstanding. In
the event that the Company obtains Stockholder Approval, the approval of
the Nasdaq Market or otherwise is able to increase the number of shares to
be issued above the Maximum Number of Shares (such increased number being
the "New Maximum Number of Shares"), the references to Maximum Number of
Shares above shall be deemed to be, instead, references to the New Maximum
Number of Shares.
4.4 Method of Conversion
(a) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Convertible Note in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Convertible Note to the Company unless the entire
unpaid principal amount of this Convertible Note is so converted.
The Company and the Holder shall maintain records showing the
principal amount so converted and the date of such conversions or
shall use such other method, reasonably satisfactory to the Holder
and the Company, so as not to require physical surrender of this
Convertible Note upon each such conversion. In the event of any
dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Convertible
Note is converted as aforesaid, the Company may not transfer this
Convertible Note unless the Holder first physically surrenders this
Convertible Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new note
of like tenor, registered as the Holder (upon payment by the Holder
of any applicable transfer taxes), may request, representing in the
aggregate the remaining unpaid principal amount of this Convertible
Note. The Holder and any assignee, by acceptance of this Convertible
Note, acknowledge and agree that, by
- ------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 6 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
reason of the provisions of this paragraph, following conversion of
a portion of this Convertible Note, the unpaid and unconverted
principal amount of this Convertible Note represented by this
Convertible Note may be less than the amount stated on the face
hereof.
(b) The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property
on conversion of this Convertible Note in a name other than that of
the Holder (or in street name), and the Company shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be
held for the Holder's account) requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(c) Upon receipt by the Company of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this
Convertible Note shall be reduced to reflect such conversion, and,
unless the Company defaults on its obligations under this Article 4,
all rights with respect to the portion of this Convertible Note
being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets,
as herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Company's
obligation to issue and deliver the certificates for shares of
Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the
recovery of any judgment against any person or any action by the
Holder to enforce the same, any failure or delay in the enforcement
of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Company, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with such conversion. The date of receipt (including
receipt via telecopy) of such Notice of Conversion shall be the
Conversion Date so long as it is received before 5:00 p.m., New York
City Time, on such date.
(d) Notwithstanding the foregoing, if a Holder has not
received certificates for all shares of Common Stock prior to the
expiration of the Deadline with respect to a conversion of any
portion of this Convertible Note for any reason, then (unless the
Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Company), the Holder shall regain the
rights of a Holder of this Convertible Note with respect to such
unconverted portions of
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(American International Petroleum Corporation - No. 1)
<PAGE>
this Convertible Note and the Company shall, as soon as practicable,
return such unconverted Convertible Note to the holder or, if the
Convertible Note has not been surrendered, adjust its records to
reflect that such portion of this Convertible Note has not been
converted. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to
receive Conversion Default Payments to the extent required thereby
for such Conversion Default and any subsequent Conversion Default
and (ii) the right to have the Conversion Price with respect to
subsequent conversions determined in accordance with Section 4.3 for
the Company's failure to convert this Convertible Note.
(e) In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of
the Holder and its compliance with the provisions contained in
Section 4.1 and in this Section 4.4, the Company shall use its best
efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the
account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
5. Miscellaneous. This Convertible Note shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State. The parties
hereto, including all guarantors or endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of the time of
payment, or forbearance or other indulgence without notice. The Company hereby
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York state court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Convertible Note. The Company irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum. The Company hereby irrevocably waives any and all right to trial by jury
in any legal proceeding arising out of or relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
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14% CONVERTIBLE NOTE - Page 8 85427.3
(American International Petroleum Corporation - No. 1)
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: October __, 1997
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
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14% CONVERTIBLE NOTE - Page 9 85427.3
(American International Petroleum Corporation - No. 1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: October __, 1997
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
- ------------------------------------------------------------------------------
14% CONVERTIBLE NOTE - Page 9 85427.3
(American International Petroleum Corporation - No. 1
Exhibit 4.2
SECURITIES PURCHASE AGREEMENT
dated as of
October 15, 1997
by and among
AMERICAN INTERNATIONAL PETROLEUM CORPORATION,
as the Issuer,
and
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of October 15, 1997, among American International
Petroleum Corporation (the "Company") and the Purchasers listed on Schedule I
attached hereto (each a "Purchaser" and collectively, the "Purchasers").
R E C I T A L S:
WHEREAS, the Company is currently contemplating raising up to $10,000,000
in a private placement of debt securities pursuant to Regulation S ("Regulation
S") promulgated under the Securities Act of 1933, as amended (the "Securities
Act") (the "Offering"); and
WHEREAS, the Company desires to sell and issue to the Purchasers, and the
Purchasers wish to purchase from the Company, $10,000,000 aggregate principal
amount of the Company's 14% Convertible Notes due October 15, 1998 (the
"Convertible Notes"), with terms and conditions as set forth in the form of
Convertible Note attached hereto as Exhibit A (with such changes and
modifications as may be approved by the Purchasers) as a part of the Offering;
and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, par value $.08 per share (the "Common Stock"); and
WHERAS, the Purchasers will have certain registration rights with respect
to such shares of Common Stock issuable upon conversion of the Convertible Notes
(the "Conversion Shares"); and
WHEREAS, in order to induce the Purchasers to enter into the transactions
described in this Agreement, the Company desires to issue to the Purchasers an
aggregate of 1,500,000 warrants to purchase shares of Common Stock on the terms
and conditions described in the form of the common stock purchase warrant
attached hereto as Exhibit B (with such changes and modifications as may be
approved by the Purchasers) (the "Warrants"); and
WHEREAS, the Purchasers and other holders of Warrants will have certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
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SECURITIES PURCHASE AGREEMENT - Page 1
(American International Petroleum Corporation) 85478.4
<PAGE>
I. DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Asset Sale" has the meaning set forth in Section 8.5.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Call Date" means the date with is six (6) months following the Closing
Date; specifically April 10, 1998.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Closing Bid Price" shall mean the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. on the Nasdaq Market or, if not
reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other
exchange or market where the Common Stock is then traded.
"Closing Date" means the date on which all of the conditions set forth in
Sections 6.1 and 6.2 shall have been satisfied and the Securities have been
issued by the Company and the Purchase Price paid by the Purchasers.
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SECURITIES PURCHASE AGREEMENT - Page 2
(American International Petroleum Corporation) 85478.4
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $.08 par value per share, of the
Company.
"Company" means American International Petroleum Corporation, a Nevada
corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation
and by-laws of the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person any
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise .
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible Note
by the holder thereof to the Company as specified in each Convertible Note.
"Conversion Price" has the meaning set forth in the Convertible Notes.
"Conversion Shares" has the meaning set forth in the Recitals.
"Convertible Notes" means the Company's 14% Convertible Notes
substantially in the form set forth as Exhibit A hereto.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
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SECURITIES PURCHASE AGREEMENT - Page 3
(American International Petroleum Corporation) 85478.4
<PAGE>
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Fee" has the meaning set forth in the Section 10.4.
"Derivative Securities" has the meaning set forth in Section 10.5.
"Discounted Equity Offerings" has the meaning set forth in Section 10.5.
"Directors" means the individuals then serving on the Board of Directors
or similar such management council of the Company.
"Disposition" has the meaning set forth in Section 7.13.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" shall mean $25,000 to be paid by the Company
to the Purchasers as reimbursement for the fees and expenses incurred by the
Purchasers in connection with the preparation, negotiation and delivery of the
Transaction Agreements.
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SECURITIES PURCHASE AGREEMENT - Page 4
(American International Petroleum Corporation) 85478.4
<PAGE>
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"Formula Price" shall mean a dollar amount equal to the greater of (i) the
aggregate principal amount of the Convertible Notes then outstanding, together
with all accrued and unpaid interest thereon, and (ii) the sum of (A) the
product of (x) the number of shares of Common Stock into which the Convertible
Notes being redeemed are then convertible at the then current Conversion Price
and (y) the Market Price as reported by Bloomberg, L.P. on the applicable date
the Convertible Notes are redeemed, plus (B) accrued and unpaid interest on the
Convertible Notes through the date of repayment.
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Initial Conversion Price" has the meaning set forth in the Convertible
Notes.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
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SECURITIES PURCHASE AGREEMENT - Page 5
(American International Petroleum Corporation) 85478.4
<PAGE>
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Liquidity Event" has the meaning set forth in Section 10.4(b).
"Listing Applications" has the meaning set forth in Section 4.4.
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"Market Price" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" shall mean the date of maturity of the Convertible Notes;
specifically, October 15, 1998.
"Maximum Number of Shares" shall mean 19.9% of the then issued and
outstanding shares of Common Stock of the Company as of the applicable date of
determination, which, as of the date hereof, is 9,397,477 shares of Common
Stock, or such greater number of shares as the stockholders of the Company may
have previously approved pursuant to Section 4.3 of each Convertible Note.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System.
"Nasdaq Redemption Event" has the meaning set forth in Section 3.3.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
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SECURITIES PURCHASE AGREEMENT - Page 6
(American International Petroleum Corporation) 85478.4
<PAGE>
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit B attached hereto.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit C attached hereto.
"Offering" has the meaning set forth in the Recitals.
"Officer's Certificate" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of Exhibit G attached hereto.
"Other Taxes" has the meaning set forth in Section 3.5(b).
"Par Value Redemption Price" means a price equal to 100% of the aggregate
principal amount of the Convertible Notes then outstanding, together with all
accrued and unpaid interest thereon through and including the date of receipt of
payment.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry n the business of the Company and the Subsidiaries.
"Permitted Debt" has the meaning set forth in Section 8.1.
"Permitted Financings" shall mean (i) Permitted Debt, (ii) any Financing
(other than Discounted Equity Offerings) incurred after the Closing Date not to
exceed $20,000,000 in the aggregate, (iii) the issuance of equity securities in
connection with (I) the acquisition (including by merger) of a business or of
assets otherwise permitted under this Agreement or (II) stock options or other
compensatory plans, and (iv) any Financing or Debt associated with the
acquisition and/or operation of the ________________.
"Person" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
group for employees of any member of the ERISA group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA group.
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SECURITIES PURCHASE AGREEMENT - Page 7
(American International Petroleum Corporation) 85478.4
<PAGE>
"Purchase Price" means the purchase price for the Securities set forth in
Section 2.2 hereof.
"Purchasers" means, collectively, those entities listed on the signature
page hereto and their successors and assigns, including holders from time to
time of the Convertible Notes.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(c).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company
and the Purchasers dated the date hereof substantially in the form set forth in
Exhibit D attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section
10.4(b).
"Restricted Payment" means, with respect to any Person, (i) any dividend
or other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person's capital stock or (b) any option, warrant or other right to acquire
shares of such Person's capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation.
"Restricted Period" means the period from the Closing Date through and
including the fortieth (40th) day after the Closing Date.
"Rights Offering" has the meaning set forth in Section 11.3.
"SEC Reports" shall have the meaning set forth in Section 4.7.
"Securities" means the Convertible Notes, the Warrants and, as applicable,
the Conversion Shares and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth Section 11.2.
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SECURITIES PURCHASE AGREEMENT - Page 8
(American International Petroleum Corporation) 85478.4
<PAGE>
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Notes and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith), which such Solvency Certificate shall be in the form of Exhibit F
attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary, "Subsidiary"
means a Subsidiary of the Company.
"Subsidiary Corporate Documents" means the certificates of
incorporation and by-laws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.5.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Warrants, the
Registration Rights Agreement, and the Convertible Notes.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Common Stock Purchase Warrants issued to the
Purchasers for 1,500,000 shares of Common Stock in the aggregate on the Closing
Date in the form of Exhibit I hereto.
"Warrant Restricted Period" has the meaning set forth in Section 5.1(f).
"Warrant Shares" has the meaning set forth in Section 4.5.
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SECURITIES PURCHASE AGREEMENT - Page 9
(American International Petroleum Corporation) 85478.4
<PAGE>
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"); provided that if the Company notifies
each of the Purchasers that it wishes to amend any covenant in Article VII to
eliminate the effect of any change in GAAP on the operation of such covenant (or
if any of the Purchasers notify the Company that the Majority Holders wish to
amend Article VII for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Majority Holders. All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Purchase and Sale of Convertible Notes. Subject to the terms
and conditions set forth herein, the Company agrees to issue and sell to each
Purchaser, and each Purchaser severally agrees to purchase from the Company,
such principal amount of Convertible Notes as is set forth opposite each
Purchaser's name on Schedule 2.1 attached hereto.
SECTION 2.2. Purchase Price. The purchase price for the Convertible Notes
shall be 99% of the principal amount thereof. No part of the purchase price of
the Notes shall be allocated to the Warrants. Therefore, the aggregate
consideration payable by the Purchasers to the Company for the Convertible Notes
and the Warrants shall be $____________________ (the "Purchase Price").
SECTION 2.3. Closing and Mechanics of Payment.
(a) On the Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, each of the Purchasers shall deliver by
wire transfer to the Company immediately available funds in an amount
equal to the portion of the Purchase Price of the Convertible Notes to be
purchased by such Purchaser on the Closing Date, in the proportions as set
forth on Schedule 2.1 attached hereto, less such Purchaser's ratable share
of Expense Reimbursement Fee.
(b) On the Closing Date, against payment as set forth in subsection
2.3(a) above, the Company shall deliver to each Purchaser (i) a single
Convertible Note for each Purchaser representing the principal amount of
such Convertible Note issued to such
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SECURITIES PURCHASE AGREEMENT - Page 10
(American International Petroleum Corporation) 85478.4
<PAGE>
Purchaser as of the Closing Date, and (ii) a single Warrant for each
Purchaser representing the aggregate Warrants issued to such Purchaser as
of the Closing Date.
(c) The Company and the Purchasers hereby agree to consummation of
the closing and deliveries set forth herein in accordance with the terms
of the Escrow Agreement attached hereto as Exhibit G, with Sutherland,
Asbill & Brennan as escrow agent.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. Payment of Principal and Interest; Payment Mechanics. The
Company will pay all sums becoming due on each Convertible Note by the method
and at the address specified for such purpose as the applicable Purchaser shall
have from time to time specified to the Company in writing for such purpose,
without the presentation or surrender of any Convertible Note or the making of
any notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
this Convertible Note, the holder shall surrender the Convertible Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office. Prior to any sale or other disposition of any
Convertible Note, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the Company in
exchange for a new Convertible Note or Convertible Notes. The Company will
afford the benefits of this Section 3.1 to any direct or indirect transferee of
the Convertible Note purchased under this Agreement and that has made the same
agreement relating to this Convertible Note as the Purchaser has in this Section
3.1; provided that such transferee is an "accredited investor" under Rule 501 of
the Securities Act.
SECTION 3.2. Voluntary Prepayment. The Company shall have the one time
right, exercisable by delivery of written notice to the Purchaser on the Call
Date, to redeem the remaining unpaid balance of each Convertible Note in its
entirety at the Par Value Redemption Price. Except as provided in this Section
3.2, the Company shall not have the unilateral right to voluntarily repay the
Convertible Notes.
SECTION 3.3. Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change of Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company
to any Person in a single transaction or series of related transactions,
(iii) a consolidation or merger of the Company with or into another Person
in which the Company is not the surviving entity (other than a merger (x)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or (y) which is
effected solely to change the jurisdiction of incorporation of the Company
and results in a
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SECURITIES PURCHASE AGREEMENT - Page 11
(American International Petroleum Corporation) 85478.4
<PAGE>
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of Common Stock), or (iv) the occurrence of a
Registration Default which continues uncured for a period of thirty (30)
days, then, in each case, the Company shall redeem this Convertible Note
in cash for the Par Value Redemption Price.
(b) Upon the consummation of one or more Financings other than
Permitted Financings, the Company shall use 100% of the Net Cash Proceeds
therefrom (unless such Net Cash Proceeds from each such Financing is less
than $250,000) to redeem the Convertible Notes. The redemption price
payable upon any such redemption shall be the Formula Price.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days of such issuance to obtain shareholder approval to
issue additional shares of Common Stock (the "Nasdaq Redemption Event"),
the Company shall redeem each Convertible Note as set forth in Section 4.3
of the Convertible Notes.
SECTION 3.4. Prepayment Procedures.
(a) Any prepayment or redemption of the Convertible Notes pursuant
to Sections 3.2 or 3.3 above shall be deemed to be effective and
consummated (for purposes of determining the Formula Price and the time at
which the Purchasers shall thereafter not be entitled to deliver a Notice
of Conversion for the Convertible Notes) as follows:
(I) A redemption pursuant to Section 3.2, on the tenth (10th)
Trading Day after the Call Date;
(II) A redemption pursuant to Section 3.3(a), the date of
consummation of the applicable Change of Control, merger, asset
sale, or the Registration Default; and
(III) A redemption pursuant to Section 3.3(b), three (3)
Business Days following the date of consummation of the applicable
Financing (meaning closing and funding).
(b) On the Maturity Date and on the effective date of a repayment
or redemption of the Convertible Notes as specified in Section 3.4(a)
above, the Company shall deliver by wire transfer of funds the
repayment/redemption price to each Purchaser of the Convertible Notes
subject to redemption. Should any Purchaser not receive payment of any
amounts due on redemption of its Convertible Notes by reason of the
Company's failure to make payment at the times prescribed above for any
reason, the Company shall pay to the applicable holder on demand (x)
interest on the sums not paid when due at an annual rate equal to the
lesser of (I) the maximum lawful rate and (II) the
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then applicable interest rate on the Convertible Notes being redeemed plus
four percent (4%) compounded at the end of each thirty (30) days, until
the applicable holder is paid in full and (y) all costs of collection,
including, but not limited to, reasonable attorneys' fees and costs,
whether or not suit or other formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed in
any redemption in which not all of the Convertible Notes are to be
redeemed so that the ratio of the Convertible Notes of each holder
selected for redemption to the total Convertible Notes owned by that
holder shall be the same as the ratio of all such Convertible Notes
selected for redemption bears to the total of all then outstanding
Convertible Notes. Should any Convertible Notes required to be redeemed
under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Convertible Notes shall be redeemed on the
earliest possible dates thereafter to the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (x) Maturity Date or
(y) effective date of a redemption specified in Section 3.4(a) above,
shall be honored by the Company and the conversion of the Convertible
Notes shall be deemed effected on the Conversion Date. In addition,
between the effective date of redemption specified in Section 3.4(a) above
and the date the Company is required to deliver the redemption proceeds to
the Purchasers, the Purchasers may deliver a Notice of Conversion to the
Company. Such notice will be (x) of no force or effect if the Company
timely pays the redemption proceeds to the Purchasers when due or (y)
honored on or as of the date the Notice of Conversion if the Company fails
to timely pay the redemption proceeds to the Purchasers when due.
SECTION 3.5 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee" thereof
shall be made free and clear of and without deduction or withholding for
any and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto (all such taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes") unless such Taxes are required by law
or the administration thereof to be deducted or withheld. If the Company
shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the
Convertible Notes (i) the holders of convertible Notes subject to such
Taxes shall have the right, but not the obligation, following the
Restricted Period, and for a period of thirty (30) days commencing upon
the day it shall have received written notice form the Company that it is
required to withhold Taxes to transfer all or any portion of the
Convertible Notes to a qualified assignee to the extent such transfer can
be effected in accordance with the other provisions of this Agreement and
applicable law; (ii) the Company shall make such deductions or
withholdings; (iii) the sum payable
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shall be increased as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid under this Section 3.5) such
Purchaser receives an amount equal to the sum it would have received if no
such deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable law. A
"qualified assignee" of a Purchaser is a Person that is organized under
the laws of (I) the United States or (II) any jurisdiction other than the
United States or any political subdivision thereof and that (y) represents
and warrants to each of the Company that payments of the company to such
assignee under the laws in existence on the date of this Agreement would
not be subject to any Taxes and (z) from time to time, as and when
requested by the company, executes and delivers to the Company and the
Internal Revenue Service forms, and provides the Company with any
information necessary to establish such assignee's continued exemption
from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter referred to
as "Other Taxes") which arise from any payment made under any of the
Transaction Agreements or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement other than Taxes payable
solely as a result of the transfer from the Purchasers to a Person of any
Security.
(c) The Company shall indemnify each Purchaser, or qualified
assignee, for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.5) paid by each Purchaser, or
qualified assignee, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. Payment under
this indemnification shall be made within 30 days from the date such
Purchaser or assignee makes written demand therefor. A certificate as to
the amount of such Taxes or Other Taxes submitted to the Company by such
Purchaser or assignee shall be conclusive evidence of the amount due from
the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to each Purchaser the original or a certified copy of
a receipt evidencing payment thereof.
(e) Each Purchaser shall provide to the Company a Form W-8, stating
that it is a non-U.S. person, together with any additional tax forms which
may be required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
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SECTION 3.6 Ranking.
(a) The Convertible Notes will rank as unsecured obligations of the
Company senior in right of payment to all indebtedness of the Company
except as hereafter provided.
(b) The rights of any Purchaser to receive the principal sum or any
part thereof, and to receive the interest due, on each Convertible Note,
other than by conversion into Common Stock or receipt of Common Stock as
interest, is and shall remain subordinate in priority to the payment of
the principal and interest on (i) all future obligations and guarantees of
the Company for money borrowed from any bank, trust company, insurance
company or other financial institution engaged in the business of lending
money, for which the Company is at the time of determination responsible
or liable as obligor or guarantor; (ii) all existing or future obligations
of the Company secured by a lien, mortgage, pledge or other encumbrance
against real or personal property (including Common Stock of the Company
or any of its Subsidiaries) of the Company; (iii) any modifications,
renewals, extensions or refunding of the foregoing, except for any of such
obligations of the Company the payment of which is made expressly
subordinate and junior to the Convertible Notes; (iv) Debt incurred in
connection with the acquisition and/or operation of the ________________;
or (v) other Debt of the Company existing on the Closing Date.
Notwithstanding the foregoing, the subordination provisions of this
Section 3.6(b) shall be of no force or effect so long as none of the
Company's obligations described above have been accelerated by their
terms.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers, and each of them,
as of the Closing Date the following:
SECTION 4.1. Organization and Qualification. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. Schedule 4.1 sets forth a list of all Subsidiaries and
the jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified to conduct business as a foreign corporation and
is in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where such failure
would not have a Material Adverse Effect. A "Material Adverse Effect" means any
material adverse effect on the operations, results of operations, properties,
assets, condition (financial or otherwise) or prospects of the Company or the
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Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith.
SECTION 4.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities
in accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its shareholders
is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective terms.
SECTION 4.3. Capitalization. As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and no other shares of capital stock of the Company will be outstanding
as of the Closing Date. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or similar rights of the stockholders of the Company or any
liens or encumbrances imposed through the actions or failure to act of the
Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof,
(i) there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Convertible Notes, Conversion Shares, Warrants or Warrant Shares. The Company
has furnished to Purchasers true and correct copies of the Company's Corporate
Documents, and the
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terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
SECTION 4.4. Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect and
(c) listing applications ("Listing Applications") to be filed relating to the
Conversion Shares and Warrant Shares of Common Stock issuable upon conversion of
the Convertible Notes and exercise of the Warrants.
SECTION 4.5. Issuance of Shares. Upon conversion in accordance with the
terms of the Convertible Notes, or upon exercise in accordance with the terms of
the Warrants (assuming the payment of the exercise price set forth in the
Warrants), the Conversion Shares and Warrant Shares shall be duly and validly
issued and outstanding, fully paid and nonassessable, free and clear of any
Taxes, Liens and charges with respect to issuance and shall not be subject to
preemptive rights or similar rights of any other stockholders of the Company.
Assuming the representations and warranties of the Purchasers herein are true
and correct in all material respects, each of the Securities will have been
issued in material compliance with all applicable U.S. federal and state
securities laws. The Company understands and acknowledges that, in certain
circumstances, the issuance of Conversion Shares and Warrant Shares could dilute
the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Notes, and Warrant Shares upon exercise of the
Warrants, is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
SECTION 4.6. No Conflicts. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the
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conduct of its businesses or the ownership of its properties, except where such
failure would not have a Material Adverse Effect.
SECTION 4.7. Financial Information and SEC Reports. Since January 1, 1996,
the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered to each
Purchaser true and complete copies of the SEC Reports, except for such exhibits
and incorporated documents. Such SEC Reports, at the time filed, complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such SEC Reports. None of
the SEC Reports, including without limitation, any financial statements or
schedules included therein, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. There
have been no material adverse changes in the Company's business, properties,
results of operations, condition (financial or otherwise) or prospects since the
date of the Company's most recent Report on Form 10-K for the year ended
December 31, 1996 which have not been disclosed to the Purchasers in writing.
The audited and unaudited consolidated balance sheets of the Company and its
Subsidiaries contained in the SEC Reports, and the related consolidated
statements of income, changes in stockholders' equity and changes in cash flows
for the periods then ended, including the footnotes thereto, except as indicated
therein, (i) complied in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto and (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods indicated, except that the unaudited financial
statements do not contain notes and may be subject to normal audit adjustments
and normal annual adjustments. Such financial statements fairly present the
financial condition of the Company and its Subsidiaries at the dates indicated
and the consolidated results of their operations and cash flows for the periods
then ended and, except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company and its Subsidiaries, fixed or contingent.
Since June 30, 1997 (the "Balance Sheet Date"), except as disclosed in the SEC
Reports, there has been (x) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Company and its Subsidiaries, whether
as a result of any legislative or regulatory change, revocation of any license
or rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation, act of God, public force or otherwise
and (y) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects, of the Company and its Subsidiaries except in the ordinary course
of business; and no fact or condition exists or is contemplated or threatened
which might cause such a change in the future.
SECTION 4.8. Litigation. Except as set forth in the SEC Reports, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the
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Company or any Subsidiary, before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Company or which challenges the validity of any Transaction Agreements.
SECTION 4.9. Plans. The Company and the Subsidiaries do not have any
Plans.
SECTION 4.10. Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 4.11. Taxes. All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes or other governmental charges have been established in accordance with
GAAP.
SECTION 4.12. Investments, Joint Ventures. Other than Med Shipping Usturt
Petroleum Limited, in which the Company owns 70% of the equity interests, the
Company has no Subsidiaries or other direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders' or joint venture or similar agreement.
SECTION 4.13. Not an Investment Company. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.14. Full Disclosure. The information heretofore furnished by the
Company to the Purchasers for purposes of or in connection with this Agreement
or any transaction contemplated hereby does not, and all such information
hereafter furnished by the Company or any Subsidiary to the Purchasers will not
(in each case taken together and on the date as of which such information is
furnished), contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they are made, not misleading.
SECTION 4.15. No Solicitation; No Integration with Other Offerings. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual
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knowledge, any other Person acting on behalf of the Company, in connection with
the offer and sale of the Securities. Neither the Company, nor, to its
knowledge, any Person acting on behalf of the Company, has, either directly or
indirectly, sold or offered for sale to any Person (other than the Purchasers)
any of the Securities or, within the six months prior to the date hereof, any
other similar security of the Company except as contemplated by this Agreement,
and the Company represents that neither itself nor any Person authorized to act
on its behalf (except that the Company makes no representation as to the
Purchasers and their Affiliates) will sell or offer for sale any such security
to, or solicit any offers to buy any such security from, or otherwise approach
or negotiate in respect thereof with, any Person or Persons so as thereby to
cause the issuance or sale of any of the Securities to be in violation of any of
the provisions of Section 5 of the Securities Act. The issuance of the
Securities to the Purchasers will not be integrated with any other issuance of
the Company's securities (past, current or future) which requires stockholder
approval under the rules of the Nasdaq Market.
SECTION 4.16. Permits. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; (c) no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit.
SECTION 4.17. Leases. Except as disclosed on Schedule 4.17 hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 4.18. Absence of Any Undisclosed Liabilities or Capital Calls.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 4.7 hereof and (ii) other undisclosed liabilities which, individually or
in the aggregate, would not have a Material Adverse Effect.
SECTION 4.19. Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Transaction
Agreement.
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SECTION 4.20. Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 4.21. Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
SECTION 4.22. Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7.
SECTION 4.23. Current Public Information. The Company is a "reporting
issuer" as defined in Rule 902(l) of Regulation S and it has a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act.
SECTION 4.24. No Directed Selling Efforts in Regard to this Transaction;
Compliance with Regulation S. The Company has not, and to the best of the
Company's knowledge no Purchaser nor any distributor, if any, participating in
the Offering of the Securities nor any Person acting for the Company or any such
distributor has conducted any "directed selling efforts" in connection wit the
Offering as that term is defined in Rule 902 of Regulation S. The Company has
not offered the Securities to the Purchaser in the United States or to any
Person in the United States or any U.S. person (as defined in Regulation S). The
Company represents and warrants that the Offering by the Company of the
Securities to the Purchaser as contemplated in this Agreement is not part of a
plan or scheme to evade the registration provisions of the Securities Act.
SECTION 4.25. No Action. The Company has not taken and will not take any
action that will affect in any way the running of the Restricted Period or
Warrant Restricted Period (each as hereafter defined) or the ability of any
Subscriber to resell freely the Securities in accordance with applicable
securities laws and this Agreement.
SECTION 4.26. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed
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in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 5.1. Purchase for Investment; Authority; Binding Agreement. Each
Purchaser severally (and not jointly) hereby represents and warrants to the
Company solely as to such Purchaser that:
(a) the Purchaser is not a "U.S. person" as that term is defined in
Rule 902(o) of Regulation S, and no Purchaser is an entity organized or
incorporated under the laws of any foreign jurisdiction by any U.S. person
principally for the purpose of investing in securities not registered
under the Securities Act, unless the Purchaser is or was organized or
incorporated by "U.S. persons" who are accredited investors (as defined in
Rule 501(a) under the Securities Act) and who are not natural persons,
estates or trusts;
(b) the Convertible Notes and Warrants were not offered to the
Purchaser in the United States and at the time of execution of this
Agreement and at the time the buy order was originated, and of any offer
to such Purchaser to purchase the Convertible Notes and Warrants
hereunder, such Purchaser was outside the United States;
(c) the Purchaser is purchasing the Convertible Notes and Warrants
for its own account and not on behalf of or for the benefit of any U.S.
person and the resale of the Convertible Notes and Warrants has not been
prearranged with any buyer in the United States;
(d) the Purchaser agrees that all offers and sales of the
Convertible Notes and Conversion Shares prior to the expiration of the
Restricted Period shall not be made to U.S. persons or for the account or
benefit of U.S. persons or within the United States and shall otherwise be
made in compliance with the provisions of Regulation S;
(e) Purchaser has been engaged or acted as or on behalf of a
distributor or dealer (and is not an affiliate of a distributor or dealer)
with respect to the Offering;
(f) the Purchaser agrees that all offers and sales of the Warrant
Shares prior to the expiration of a period commencing on the date of
issuance of the Warrant Shares following the exercise of the Warrant and
payment to the Company of the exercise price
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associated therewith and ending forty (40) days thereafter (the "Warrant
Restricted Period") shall not be made to U.S. persons or for the account
or benefit of U.S. persons and shall otherwise be made in compliance with
provisions of Regulation S;
(g) the Purchaser shall take all reasonable steps to ensure its
compliance with Regulation S and shall promptly send to each Person who
acts as a distributor, dealer or a Person receiving a selling concession,
fee or other remuneration in respect of any of the Convertible Notes and
Warrants, who purchases prior to the expiration of the Restricted Period
or Warrant Restricted Period, as applicable, a confirmation or other
notice to the Person stating that the Person is subject to the same
restrictions on offers and sales as the Person pursuant to Section
901(c)(2)(iv) of Regulation S;
(h) the Purchaser has no present plan or intention of selling the
Securities in the United States, has made no predetermined arrangements to
sell the Securities (other than the registration provisions contained in
the Registration Rights Agreement, which pertain only to a potential
method of disposing of the shares of Common Stock) and that the Offering,
together with any subsequent resale by any Purchaser of the Securities, is
not part of a plan or scheme on the part of Purchaser to evade the
registration provisions of the Securities Act;
(i) the Purchaser currently does not have a short position in the
Company's Common Stock, including any short call position or any long put
position or any contract or arrangement that has the effect of eliminating
or substantially diminishing the risk of ownership of the Securities, nor
has any Purchaser engaged in any hedging transaction with respect to the
Securities;
(j) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act;
(k) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant hereto are within the Purchaser's
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(l) this Agreement and the remaining Transaction Agreement have been
duly executed and delivered in London, England by the Purchaser.
(m) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon such Purchaser;
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(n) the Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement;
(o) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
(p) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing
the economic risks of such investment; and
(q) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient
to enable it to evaluate its investment in the Securities; the Purchaser
has been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and the Purchaser
has been afforded the opportunity to obtain such additional information
which the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to the Purchaser
concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall
not limit any Purchaser's ability to rely thereon.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. Conditions Precedent to the Purchasers' Obligation to
Purchase. The obligation of each Purchaser hereunder to purchase the Convertible
Notes at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Purchasers;
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(b) The Company shall have delivered to the Purchasers duly executed
certificates representing the Convertible Notes and the Warrants in
accordance with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as
of a specified date) and the Company shall have performed, satisfied and
complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it
at or prior to the Closing Date. The Purchasers shall have received a
certificate, executed by the chief executive officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by the Purchasers, including but
not limited to certificates with respect to the Company Corporate
Documents, resolutions relating to the transactions contemplated hereby
and the incumbencies of certain officers and Directors of the Company. The
form of such certificate is attached hereto as Exhibit G;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary
or desirable in connection with the issuance and sale of the Securities;
(f) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been
taken by any competent authority that could restrain, prevent or impose
any materially adverse conditions thereon or that could seek or threaten
any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchasers, could adversely affect the transactions
set forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchasers could reasonably have any such effect;
(h) Each of the Purchasers shall have received an opinion, dated the
Closing Date, of counsel to the Company, substantially in the form
attached as Exhibit J hereto;
(i) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall
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have been amended, waived or otherwise modified without the prior written
consent of the Purchasers;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since June 30,
1997;
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports
to affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or the Purchasers hereunder;
(m) The Purchasers shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in the
denominations and registered in the names of the Purchasers specified in
or pursuant to Schedule 2.1;
(n) There shall not have occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for the
Common Stock (including but not limited to any suspension or delisting),
which the Purchasers reasonably deem material in connection with the
purchase of the Securities;
(o) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing; and
(p) The Purchasers shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as
they shall reasonably request.
SECTION 6.2. Conditions to the Company's Obligations. The obligations of
the Company to issue and sell the Securities to the Purchasers pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the Closing
Date and the Purchasers shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by the Purchasers at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
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(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by the Purchasers;
and
(d) The Company shall have received payment of the Purchase Price,
less the Expense Reimbursement Fee.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding (except for Sections 7.1(a) and (d),
7.11 and 7.12, which shall apply for so long as any Convertible Notes or
Warrants remain outstanding) and for the benefit of the Purchasers:
SECTION 7.1. Information. The Company will deliver to each holder of the
Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent), (ii) all reports on Forms 10-K,
10-Q and 8-K (or their equivalents) which the Company or any Subsidiary
has filed with the Commission and (iii) any material press releases issued
by the Company or any Subsidiary;
(b) simultaneously with the delivery of each item referred to in
clause (a) above, a certificate from the chief financial officer of the
Company stating that no Default or Event of Default has occurred and is
continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting forth
the details of such Default or Event of Default and the action which the
Company is taking or proposes to take with respect thereto;
(c) within two (2) days after any officer of the Company obtains
knowledge of a Default or Event of Default , a certificate of the chief
financial officer of the Company setting forth the details thereof and the
action which the Company is taking or proposes to take with respect
thereto;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(e) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Convertible Notes
under Section 3.3, notice
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<PAGE>
thereof together with a summary of all material terms thereof and copies
of all documents and instruments associated therewith; and
(f) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any Subsidiary is a party in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought.
SECTION 7.2. Payment of Obligations. The Company and its Subsidiaries will
pay and discharge, at or before maturity, all their respective material
obligations, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings and will
maintain, in accordance with GAAP, appropriate reserves for the accrual of any
of the same.
SECTION 7.3. Maintenance of Property; Insurance. The Company and each
Subsidiary will keep, all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted. In addition, the
Company and each Subsidiary will maintain insurance in at least such amounts and
against such risks as it has insured against as of the Closing Date.
SECTION 7.4. Maintenance of Existence. The Company will continue, and each
Subsidiary will continue, to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
SECTION 7.5. Compliance with Laws. The Company and each Subsidiary will
comply, in all material respects, with all federal, state, municipal, local or
foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings or (ii) where non-compliance therewith could not
reasonably be expected, in the aggregate, to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or such Subsidiary.
SECTION 7.6. Inspection of Property, Books and Records. The Company and
each Subsidiary will keep proper books of record and account in which full, true
and correct entries shall be made of all dealings and transactions in relation
to their respective businesses and activities; and will permit, during normal
business hours, the Purchasers' Representative or an affiliate thereof, as
representatives of the Purchasers, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with
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<PAGE>
their respective executive officers and independent public accountants, all at
such reasonable times.
SECTION 7.7. Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 7.8. Supplemental Information. If at any time the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 7.9. Use of Proceeds. The proceeds from the issuance and sale of
the Securities by the Company shall be used to provide start-up capital for the
Company's existing oil refinery in Lake Charles, Louisiana and for general
corporate purposes. None of the proceeds from the issuance and sale of
Securities by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
SECTION 7.10. Compliance with Terms and Conditions of Material Contracts.
The Company will comply, in all material respects, with all terms and conditions
of all material contracts to which it is subject.
SECTION 7.11. Reserved Shares and Listings
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time), and the exercise in full
of the Warrants and the issuance of the Warrant Shares (based on the
exercise price of the Warrants). The Company shall not reduce the number
of shares of Common Stock reserved for issuance upon conversion of the
Convertible Notes and exercise of the Warrants without the prior written
consent of each Purchaser. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for
issuance at no less than two (2) times the number that is then actually
issuable upon full conversion of the outstanding Convertible Notes and
issuance of the Conversion Shares (based on the conversion price of the
Convertible Notes in effect from time to time) and full exercise of the
Warrants and the issuance of the Warrant Shares (based on the exercise
price of the Warrants). If at any time the number of shares of Common
Stock authorized and reserved for issuance is below the number of
Conversion Shares issued and issuable upon conversion of the Convertible
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<PAGE>
Notes and exercise of the Warrants, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, either (x) calling a special
meeting of shareholders to authorize additional shares, in the case of an
insufficient number of authorized shares, and using its best efforts to
obtain shareholder approval within 90 days of an increase in such
authorized number of shares or (y) in lieu thereof, consummating the
immediate repurchase of the Convertible Notes and Warrants contemplated
Section 4.3 of each Convertible Note and Section 10.3 hereof,
respectively.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Conversion Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice
of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and
Warrant Shares from time to time issuable upon conversion or exercise of
the Convertible Notes and Warrants. The Company will obtain and maintain
the listing and trading of its Common Stock on the Nasdaq Market, the
Nasdaq SmallCap Market, the New York Stock Exchange, Inc., or the American
Stock Exchange Inc., and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers and such exchanges, as
applicable. The Company shall promptly provide to each Purchaser copies of
any notices it receives regarding the continued eligibility of the Common
Stock for listing on the Nasdaq Market
SECTION 7.12. Irrevocable Instructions. Upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, the Company shall immediately
issue irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares or Warrant Shares, as applicable, in such amounts as specified from time
to time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of any
Convertible Notes in accordance with their terms, and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. All such shares shall be issued with or without
restrictive legend as provided in Article IX below.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Notes remain outstanding and for the benefit of the
Purchasers:
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SECTION 8.1. Limitation on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities) any Debt if, following the incurrence
thereof, the ratio of the Company's Debt to its Consolidated Net worth is
greater than 1.5 to 1.0; provided, the following items of Debt shall be excluded
from such calculation(such Debt being referred to as "Permitted Debt"):
(i) Debt incurred in connection with equipment leases to which the Company
or its Subsidiaries are a party incurred in the ordinary course of business; and
(ii) Debt incurred in connection with trade accounts payable, imbalances
and refunds arising in the ordinary course of business.
(iii) Debt associated with the acquisition and/or operation of the
________________.
SECTION 8.2. Restricted Payments. Neither the Company nor any Subsidiary
will declare or make Restricted Payments in excess of $50,000 during any
calendar year.
SECTION 8.3. Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition of stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.3 attached hereto
(with a copy of such agreements annexed to such Schedule 8.3) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
SECTION 8.4. Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions, (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation.
SECTION 8.5. Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of the Purchasers, which
consent shall not be unreasonably withheld; provided, no consent of the
Purchasers will be required for the disposition or farm-out of the Company's
interest in Kazakstan. As used herein, "Asset Sale" means any sale, lease,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) of shares
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<PAGE>
of capital stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition"), including any disposition by means of a merger,
consolidation or similar transaction other than a disposition of property or
assets at fair market value in the ordinary course of business.
SECTION 8.6. Limitation on Stock Repurchases. The Company shall not,
without the written consent of the Majority Holders, redeem, repurchase or
otherwise acquire (whether for cash or in exchange for property or other
securities or otherwise) any shares of capital stock of the Company or any
warrants, rights or options to purchase or acquire any such shares.
SECTION 8.7. Pension Plans. The Company shall not, without the written
consent of the Majority Holders, which shall not be unreasonably withheld,
create any Plan.
SECTION 8.8. Consolidated Net Worth. Beginning with the fiscal quarter
ending September 30, 1997, the Company will not permit its Consolidated Net
Worth at the end of any of its fiscal quarters to be less than $15 million.
ARTICLE IX
RESTRICTIVE LEGENDS
SECTION 9.1. Restrictive Legends.
(a) The Convertible Notes shall bear a legend substantially as set
forth below and any other legend, if such legend or legends are reasonably
required to comply with state, federal or foreign law. Assuming that there
are no changes in the material facts represented by the Purchasers in
Section 5.1 of this Agreement or applicable law from the date hereof until
the date of conversion, all certificates representing the Conversion
Shares into which the Convertible Notes are converted after the Restricted
Period shall be issued without any restrictive legend.
"The Convertible Note of American International Petroleum Corporation
represented hereby has been issued pursuant to Regulation S, promulgated
under the United States Securities Act of 1933, as amended (the "Act"),
and has not been registered under the Act or any applicable state
securities laws. This Convertible Note may not be offered or sold within
the United States or to or for the account of a "U.S. Person" (as that
term is defined in Regulation S) during the period commencing on the date
of sale of this Convertible Note and ending on the fortieth (40th) day
following completion of the Regulation S offering pursuant to which this
Convertible Note has been issued (the "Restricted Period"). This
Convertible Note may first be converted into common stock on [41st day
after Closing]."
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(b) The Warrant Shares, when issued, shall bear a legend
substantially as set forth below and any other legend, if such legend or
legends are reasonably required to comply with state, federal or foreign
law (provided, if as a result of any change in the applicable laws
governing Regulation S transactions, the Warrant Restricted Period is
changed, the Company may alter the legend set forth below for certificates
representing Warrant Shares issued after the effective date of such change
such that the Warrant Restricted Period conforms therewith).
"The shares of Common Stock of American International Petroleum
Corporation. represented hereby have been issued pursuant to Regulation S,
promulgated under the United States Securities Act of 1933, as amended
(the "Act"), and have not been registered under the Act or any applicable
state securities laws. These shares may not be offered or sold within the
United States or to or for the account of a "U.S. Person" (as that term is
defined in Regulation S) during the period commencing on the date of
issuance hereof and ending forty (40) days thereafter."
(c) At the request of a Purchaser, the Company shall promptly
exchange following the Warrant Restricted Period certificates representing
the Warrant Shares issued with the legend described in Section 9.1(b)
above for certificates representing the Warrant Shares issued without a
legend. The Company may place a stop transfer order on the Warrant Shares
during the Warrant Restricted Period for the duration of the Warrant
Restricted Period.
SECTION 9.2. Issuance of Common Shares; Transfers. Upon conversion of the
Convertible Debentures and/or exercise of the Warrants, the Company will, and
will use its best lawful efforts to cause its transfer agent to, issue one or
more certificates representing shares of Common Stock in such name or names and
in such denominations specified by a Purchaser in a Notice of Conversion or
Notice of Exercise, as applicable. The shares of Common Stock to be issued upon
conversion of the Convertible Notes or exercise of the Warrants shall not bear
any restrictive legends (other than the legend set forth in Section 9.1(b) for
the Warrant Shares) and shall be freely transferable upon expiration of the
Restricted Period or Warrant Restricted Period, as applicable, subject to
compliance with Federal and state securities laws and the terms of the
Convertible Notes and Warrants. The Company agrees that no instructions other
than these instructions, and instructions for a "stop transfer" until the end of
the Restricted Period or Warrant Restricted Period, as applicable, have been or
will be given to its transfer agent and also agrees that the Convertible Notes,
Warrants, Conversion Shares and/or Warrant Shares, as applicable, shall
otherwise be freely transferable by Purchaser on the books and records of the
Company subject to compliance with Federal and state securities laws and the
terms of the Convertible Notes and Warrants. The Company will notify its
transfer agent of the date of Closing of this Offering and of the date of
expiration of the Restricted Period and of the Warrant Restricted Period upon
exercise of any Warrants. Nothing in this section shall affect in any way a
Purchaser's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities.
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ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause its
transfer agent to, issue and deliver shares of Common Stock consistent
with Article IX hereof within five (5) New York Stock Exchange Trading
Days of delivery of a Notice of Conversion or Notice of Exercise, as
applicable (the "Deadline") to the Purchaser (or any party receiving
Securities by transfer from such Purchaser) at the address of the
Purchaser set forth in the Notice of Conversion or Notice of Exercise, as
the case may be. The Company understands that a delay in the issuance of
such certificates after the Deadline could result in economic loss to the
Purchaser.
(b) Without in any way limiting the Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the
Company agrees that if delivery of the Conversion Shares or Warrant Shares
is more than one (1) Business Day after the Deadline (other than a failure
due to the circumstances described in Section 4.3 of the Convertible
Notes, which failure shall be governed by such Section) the Company shall
pay to each Purchaser, as liquidated damages and not as a penalty, the
greater of (x) $100 for each $100,000 of Convertible Notes then
outstanding per day in cash, for each of the first ten (10) days beyond
the Deadline, and $200 for each $100,000 of Convertible Notes then
outstanding per day in cash for each day thereafter that the Company fails
to deliver such Common Stock and (y) $500 per day in cash, for each of the
first ten (10) days beyond the Deadline, and $1,000 per day in cash for
each day thereafter that the Company fails to deliver such Common Stock.
Such cash amount shall be paid to each Purchaser by the fifth day of the
month following the month in which it has accrued or, at the option of the
Purchaser (by written notice to the Company by the first day of the month
following the month in which it has accrued), shall be added to the
principal amount of the Convertible Note (if then outstanding) payable to
such Purchaser, in which event interest shall accrue thereon in accordance
with the terms of the Convertible Notes and such additional principal
amount shall be convertible into Common Stock in accordance with the terms
of the Convertible Notes.
SECTION 10.2. Conversion Notice. The Company agrees that, in addition to
any other remedies which may be available to the Purchasers, including, but not
limited to, the remedies available under Section 10.1, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates with
or without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after conversion of any
Convertible Notes or exercise of any Warrant, such Purchaser will be entitled,
if prior to the delivery of such certificates, to revoke the Notice of
Conversion or Notice of Exercise, as applicable, by delivering a notice to
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such effect to the Company whereupon the Company and the Purchaser shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion or Notice of Exercise.
SECTION 10.3 Conversion Limit.
(a) Notwithstanding the conversion rights under the Convertible
Notes and exercise rights under the Warrants, unless the Purchaser
delivers a waiver in accordance with the immediately following sentence,
in no event shall the Purchaser be entitled to convert any portion of the
Convertible Notes (or exercise any portion of the Warrants) in excess of
that portion of the Convertible Notes or Warrants upon conversion and
exercise, as applicable, of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Purchaser and its Affiliates (other
than shares of Common Stock which may be deemed beneficially owned through
the ownership of the unconverted portion of the Convertible Note and
exercised portion of the Warrants) and (ii) the number of shares of Common
Stock issuable upon the conversion of the portion of the Convertible Note
(or issuable upon exercise the portion of the Warrants) with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Purchaser and its Affiliates of more than 4.9%
of the outstanding shares of Common Stock. For purposes of the first
proviso to the immediately preceding sentence, (i) beneficial ownership
shall be determined in accordance with Section 13(d)-3 of the Exchange Act
and Regulation 13 D-G thereunder, except as otherwise provided in clause
(1) of such proviso and (ii) the Holder may waive the limitations set
forth therein by written notice to the Company upon not less than
sixty-one (61) days prior notice (with such waiver taking effect only upon
the expiration of such 61 day notice period). The foregoing limitation
shall not apply and shall be of no further force or effect (i) upon the
occurrence of any voluntary or mandatory redemption transaction described
herein or in the Convertible Notes, (ii) on the Maturity Date or (iii)
following the occurrence of any Event of Default which is not cured within
the greater of the applicable time period specified in either (A) such
written notice of Purchaser or (B) Section 12.1 hereof.
(b) Upon the occurrence of a Nasdaq Redemption Event, if the Company
is obligated to repay the Convertible Notes as described in Section 4.3
thereof, the Company shall, in addition thereto, redeem the Warrants
contemporaneous with the repayment of the Convertible Notes at the Warrant
Redemption Price. The term "Warrant Redemption Price" shall mean the
greater of (x) the appraised value of the Warrants on the date they are
called for redemption (determined with reference to the "Black Scholes" or
similar option pricing model) and (y) the product of the excess of (i) the
Market Value of the Common Stock on the date that the Warrants are
redeemed over (ii) the exercise price of the Warrants.
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SECTION 10.4 Registration Rights.
(a) The Company shall grant the Purchasers registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable
Securities") on the terms set forth in the Registration Rights Agreement
and herein. In the event that Regulation S is amended or modified (x) to
increase the number of days contained in the Restricted Period or Warrant
Restricted Period or (y) so that the Conversion Shares or Warrant Shares
would be deemed "restricted securities" pursuant to the Securities Act (a
"Liquidity Event"), the Purchasers will be entitled to demand registration
rights in respect of the Registerable Securities.
(b) The Company shall prepare and file within 30 days of the
occurrence of a Liquidity Event a registration statement (the
"Registration Statement") on Form S-3 (or such other form as is then
available for registration) covering the sale of the Registrable
Securities. The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission no later
than 90 days following the Liquidity Event (the "Required Effectiveness
Date"). The Company shall pay all expenses of registration (other than
underwriting fees and discounts, if any, in respect of Registrable
Securities offered and sold under such Registration Statement by the
Purchasers).
(c) If the Registration Statement is (x) not declared effective by
the Commission by the Required Effectiveness Date, or (y) such
effectiveness is not maintained for a period of three (3) years after the
Closing, which period shall be reduced to two (2) years if the Convertible
Notes have been repaid in full (subject to the right of the Company to
suspend the effectiveness thereof for not more than 10 consecutive days or
an aggregate of 30 days during such three year period) (the "Registration
Maintenance Period"), the Company shall pay to each Purchaser monthly, as
liquidated damages and not as a penalty, the greater of (x) its pro rata
portion of an amount equal to 0.5% of the aggregate outstanding principal
amount of the Convertible Notes, which monthly amount will be increased to
1% in the event that the Registration Statement is not declared effective
by the Commission the Required Effectiveness Date, or (y) $500 for each
day the Registration Statement (i) is not declared effective by the
Commission by the Required Effectiveness Date or such effectiveness is not
maintained for the Required Maintenance Period (the "Default Fee").
(d) Any such Default Fee shall be paid in cash by the Company to the
Purchasers by wire transfer in immediately available funds on the last day
of each calendar week following the event requiring its payment.
(e) If, for any reason (including but not limited to the issuance of
all shares of Common Stock covered by the prospectus included in the
Registration Statement), the Default Fee is incurred for a period of
thirty (30) days (a "Registration Default"), the holders of a majority of
the Convertible Notes then outstanding may elect to cause the Company to
repay the Convertible Notes in full at the Formula Price.
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SECTION 10.5 Prohibition on Discounted Equity Offerings.
(a) Until such time as all of the Convertible Notes have been repaid
or converted in full, the Company agrees that it will not issue (or,
unless such issuance would, upon the closing thereof, result in the
repayment in full of the Convertible Notes, agree to issue) any of its
equity securities (or securities convertible into or exchangeable or
exercisable for equity securities (the "Derivative Securities"), on terms
that allow a holder thereof to acquire such equity securities (or
Derivative Securities) at a discount to the Market Price of the Common
Stock at the time of issuance or, in the case of Derivative Securities
(other than the Convertible Notes), at a conversion price based on any
formula (other than standard anti-dilution provisions) based on the Market
Price on a date later than the date of issuance (each such event, a
"Discounted Equity Offering"). As used herein, "discount" shall include,
but not be limited to, (1) any warrant, right or other security granted or
offered in connection with such issuance which, on the applicable date of
grant, is offered with an exercise or conversion price, as the case may
be, at less than the then current Market Price of the Common Stock or, if
such security has an exercise or conversion price based on any formula
(other than standard anti-dilution provisions) based on the Market Price
on a date later than the date of issuance, then at a price below the
Market Price on such date of exercise or conversion, as the case may be,
or (2) any commissions, fees or other allowances paid in connection with
such issuances (other than customary underwriter or placement agent
commissions, fees or allowances). For the purposes of determining the
Market Price at which Common Stock is acquired under this Section, normal
underwriting commissions and placement fees (including underwriters'
warrants) shall be excluded.
(b) Until such time as all of the Convertible Notes have been repaid
or converted in full, the Company agrees it will not issue (or, unless
such issuance would, upon the closing thereof, result in the repayment in
full of the Convertible Notes, agree to issue) any of its equity
securities (or Derivative Securities), unless any shares of Common Stock
issued or issuable in connection therewith are "restricted securities". As
used herein "restricted securities" shall mean securities which may not be
sold by virtue of contractual restrictions imposed by the Company either
pursuant to an exemption from registration under the Securities Act or
pursuant to a registration statement filed by the Company with the
Commission, in each case prior to twelve (12) months following the date of
issuance of such securities.
(c) The restrictions contained in this Section 10.5 shall not apply
to the issuance by the Company of (or the agreement to issue) Common Stock
or Derivative Securities in connection with (x) the acquisition (including
by merger) of a business or of assets otherwise permitted under this
Agreement, (y) stock option or other compensatory plans, or (z) up to
1,500,000 shares of Common Stock issued in connection with the acquisition
of the ________________.
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SECTION 10.6. Covenants of the Purchasers.
(a) Each Purchaser covenants that neither it nor any of its
Affiliates nor any Person acting on its or their behalf has the intention
of entering, or will enter from the Closing through the end of the
Restricted Period applicable to the Convertible Notes, into any put
option, short position or any hedging transaction or other similar
instrument or position with respect to the Company's Common Stock and
neither it nor any of its Affiliates nor any Person acting on its or their
behalf will use at any time the Company's Common Stock to settle any put
option, short position or other similar instrument or position that may
have been entered into prior to the execution of this Agreement.
(b) Each Purchaser further covenants that it will not make any sale,
transfer or other disposition of the Securities in violation of the
Securities Act (including Regulation S) or the rules and regulations of
the Commission promulgated thereunder. Each Purchaser acknowledges and
agrees that the Securities may and will only be resold (i) in compliance
with Regulation S; (ii) pursuant to a Registration Statement under the
Securities Act; or (iii) pursuant to an exemption from registration under
the Securities Act.
ARTICLE XI
ADJUSTMENT OF FIXED PRICE
SECTION 11.1. Reorganization. The exercise price of the Warrants
set forth therein and the Initial Conversion Price (collectively, the "Fixed
Prices") shall be adjusted as hereafter provided.
SECTION 11.2. Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
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<PAGE>
any of such events being herein called a "Share Reorganization", then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including,
in the case of a distribution of securities convertible into or
exchangeable for shares of Common Stock, the number of shares of Common
Stock that would have been outstanding if such securities had been
converted into or exchanged for Common Stock on such record or effective
date.
SECTION 11.3. Rights Offering. If and whenever the Company shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of securities convertible into or exchangeable for Common Stock, at an
exchange or conversion price per share at the date of issue of such securities)
of less than 95% of the Market Price of the Common Stock on such record date
(any such event being herein called a "Rights Offering"), then in each such case
the applicable Fixed Price shall be adjusted, effective immediately after the
record date at which holders of Common Stock are determined for the purposes of
the Rights Offering, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date;
and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common Stock
so offered for subscription or purchase and the price at which such shares
are so offered, or
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable securities so
offered for subscription or
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<PAGE>
purchase may be converted or exchanged and the conversion or exchange
price of such securities,
or, as the case may be, by
(B) the Market Price of the Common Stock on such record date;
and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such record
date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities, the
maximum number of shares of Common Stock for or into which the securities
so offered for subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
SECTION 11.4. Special Distribution. If and whenever the Company shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary
course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock outstanding
on such record date and the Market Price of the Common Stock on such date;
and
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<PAGE>
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other
assets issued or distributed in the Special Distribution (net of any
consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
SECTION 11.5. Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares, other
than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes or
exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock to which such holder was theretofore entitled
upon conversion; provided, however, that no such Capital Reorganization shall be
consummated in effect unless all necessary steps shall have been taken so that
such holders shall thereafter be entitled to receive such number of shares or
other securities of the Company or of the body corporate resulting from such
Capital Reorganization, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained above.
SECTION 11.6. Adjustment Rules. The following rules and procedures shall
be applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in
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<PAGE>
effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent
adjustment;
(b) no adjustment in the applicable Fixed Price shall be made
pursuant to this Article XI in respect of the issue from time to time of
Common Stock to holders of Common Stock who exercise an option to receive
substantially equivalent dividends in Common Stock in lieu of receiving
cash dividends in the ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding upon
the Company and Purchasers.
SECTION 11.7. Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the applicable Fixed Price deliver to the Purchasers a certificate specifying
the nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 11.8. Notice to Noteholders. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering.,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(e) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
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<PAGE>
ARTICLE XII
EVENTS OF DEFAULT
SECTION 12.1. Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or any
part of the principal or on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement or the Convertible
Notes);
(b) failure by the Company to pay (i) within five (5) Business Days
of the due date thereof any interest on any Convertible Notes or (ii)
within five (5) Business Days following the delivery of notice to the
Company of any fees or any other amount payable (not otherwise referred to
in (a) above or this clause (b)) by the Company under this Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 9.2 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(d) an event of default shall have occurred and is continuing under
any Transaction Agreement;
(e) failure on the part of the Company to observe or perform any
covenant contained in Sections 7.11 or 7.12 or Article VIII of this
Agreement;
(f) failure on the part of the Company to observe or perform any
covenant contained in any Transaction Agreement (other than those covered
by clauses (a), (b), (c), (d) or (e) above) for 30 days from the date of
such occurrence;
(g) the trading in the Common Stock shall have been suspended by the
Commission or by the Nasdaq Market (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company and except if, at the time there is any suspension
on the Nasdaq Market, the Common Stock is then listed and approved for
trading on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock market's Small Cap Market, or the Nasdaq
National Market within ten (10) Trading Days thereof);
(h) failure of the Company to file the Listing Applications within
twenty (20) Business Days of the Closing Date, which failure is not cured
within five (5) Business Days of such failure;
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(i) the Company shall have its Common Stock delisted from the Nasdaq
Market for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on either the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock market's Small Cap Market or the Nasdaq Stock
Market's National Market within such ten (10) Trading Days;
(j) the Registration Statement shall not have been declared
effective by the Commission by the Required Effectiveness Date, with such
effectiveness maintained for the Registration Maintenance Period, which
results in the Company incurring the Default Fee for a period in excess of
thirty (30) days;
(k) the Company or has commenced a voluntary case or other
proceeding seeking liquidation, winding-up, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or has consented
to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
it, or has made a general assignment for the benefit of creditors, or has
failed generally to pay its debts as they become due, or has taken any
corporate action to authorize any of the foregoing;
(l) an involuntary case or other proceeding has been commenced
against the Company seeking liquidation, winding-up, reorganization or
other relief with respect to it or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days, or an order for relief has been entered
against the Company under the federal bankruptcy laws as now or hereafter
in effect;
(m) default in respect of any Debt in excess of $1,000,000 of the
Company or any Subsidiary, or the Company or any Subsidiary has failed to
pay at maturity or within any applicable period of grace any such Debt;
(n) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days; or
(o) any representation, warranty, certification or statement made by
the Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any
time under or in connection
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with any Transaction Agreement shall prove to have been untrue in any
material respect when made.
then, and in every such occurrence, any Purchaser may, with respect to an Event
of Default specified in paragraphs (a) or (b), and the Majority Holders may,
with respect to any other Event of Default, by notice to the Company, declare
the Convertible Notes to be, and the Convertible Notes shall thereon become
immediately due and payable; provided that in the case of any of the Events of
Default specified in paragraph (k) or (l) above with respect the Company or any
Subsidiary, then, without any notice to the Company or any other act by any
Purchaser, the entire amount of the Convertible Notes shall become immediately
due and payable, provided further, if any Event of Default has occurred and is
continuing, and irrespective of whether any Convertible Note has been declared
immediately due and payable hereunder, any Purchaser of Convertible Notes may
proceed to protect and enforce the rights of such Purchaser by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Convertible Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and provided further, in the case of any Event of Default, the amount
declared due and payable on the Convertible Notes shall be the Formula Price
thereof.
SECTION 12.2. Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchasers is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Purchasers.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
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SECTION 13.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Majority Holders; provided, that
without the consent of each holder of any Convertible Note affected
thereby, an amendment or waiver may not (a) reduce the aggregate principal
amount of Convertible Notes whose holders must consent to an amendment or
waiver, (b) reduce the rate or extend the time for payment of interest on
any Convertible Note, (c) reduce the principal amount of or extend the
stated maturity of any Convertible Note or (d) make any Convertible Note
payable in money or property other than as stated in such Convertible
Note. In determining whether the holders of the requisite principal amount
of Convertible Notes have concurred in any direction, consent, or waiver
as provided in any Transaction Agreement, Convertible Notes which are
owned by the Company or any other obligor on or guarantor of the
Convertible Notes, or by any Person Controlling, Controlled by, or under
Common Control with any of the foregoing, shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; and
provided further that no such amendment, supplement or waiver which
affects the rights of the Purchasers and their affiliates otherwise than
solely in their capacities as holders of Convertible Notes shall be
effective with respect to them without their prior written consent.
SECTION 13.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
Purchaser, or any of its Affiliates, within the meaning of the Securities
Act or the Exchange Act (each, a "Controlling Person"), and the respective
partners, agents, employees, officers and Directors of each Purchaser,
their Affiliates and any such Controlling Person (each an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against any
and all losses, claims, damages, liabilities and expenses (including,
without limitation and as incurred, reasonable costs of investigating,
preparing or defending any such claim or action, whether or not such
Indemnified Party is a party thereto, provided that the Company shall not
be obligated to advance such costs to any Indemnified Party other than the
Purchasers unless it has received from such Indemnified Party an
undertaking to repay to the Company the costs so advanced if it should be
determined by final judgment of a court of competent jurisdiction that
such Indemnified Party was not entitled to indemnification hereunder with
respect to such costs) which may be incurred by such Indemnified Party in
connection with any investigative, administrative or judicial proceeding
brought or
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SECURITIES PURCHASE AGREEMENT - Page 46
(American International Petroleum Corporation) 85478.4
<PAGE>
threatened that relates to or arises out of, or is in connection with any
activities contemplated by any Transaction Agreement or any other services
rendered in connection herewith; provided that the Company will not be
responsible for any claims, liabilities losses, damages or expenses that
are determined by final judgment of a court of competent jurisdiction to
result from such Indemnified Party's gross negligence, willful misconduct
or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party, unless: (i) the Company has failed to assume the
defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are
different from or additional to those available to the Company, in which
case, if such Indemnified Party notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the
Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, provided, however, that
the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the reasonable
fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Purchasers. The Company shall not be liable for any settlement of any such
action effected without the written consent of the Company (which shall
not be unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability by
reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of the Purchasers, settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened
action, claim, suit or proceeding in respect to which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Party
is a party thereto) unless such settlement, compromise, consent or
termination includes an express unconditional release of the Purchasers
and the other Indemnified Parties, satisfactory in form and substance to
the Purchasers, from all liability arising out of such action, claim, suit
or proceeding.
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SECURITIES PURCHASE AGREEMENT - Page 47
(American International Petroleum Corporation) 85478.4
<PAGE>
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and by the Purchasers on the other
from the transactions contemplated by this Agreement or (ii) if the
allocation provided by clause (i) is not permitted under applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchasers on the
other, but also the relative fault of the Company and the Purchasers as
well as any other relevant equitable considerations. Notwithstanding the
provisions of this Section 13.3, the aggregate contribution of all
Indemnified Parties shall not exceed the amount of interest and fees
actually received by the Purchasers pursuant to this Agreement. It is
hereby further agreed that the relative benefits to the Company on the one
hand and the Purchasers on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact related to
information supplied by the Company or by the Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Convertible
Notes and (iii) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Purchasers or
any other Indemnified Party.
SECTION 13.4. Expenses: Documentary Taxes. The Company agrees to pay (i)
(i) the Expense Reimbursement Fee, (ii) all reasonable out-of-pocket expenses of
the Purchasers, including fees and disbursements of counsel, in connection with
any waiver or consent hereunder or under any other Transaction Agreement or any
amendment hereof or thereof and (iii) all reasonable out-of-pocket expenses of
the Purchasers and each holder of Securities, including fees and disbursements
of counsel, in connection with any collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom. In addition, the Company agrees to
pay any and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any Transaction
Agreement or the issuance of the Securities to the Purchasers, excluding their
assigns.
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SECURITIES PURCHASE AGREEMENT - Page 48
(American International Petroleum Corporation) 85478.4
<PAGE>
SECTION 13.5. Payment. The Company agrees that, so long as a Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to such Purchaser of all amounts due thereon by wire
transfer by 4:00 P.M. (New York City time).
SECTION 13.6. Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchasers and their respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchasers and their affiliates or to holders of Securities are for
the express benefit of such Persons and their successors and assigns.
SECTION 13.7. Brokers. Except for a cash fee of 3% of the aggregate
principal amount of the Convertible Notes (and Warrants equal to 2% of the
funded amount of the Convertible Notes) payable to LKB Financial, LLC, the
Company represents and warrants that it has not employed any broker, finder,
financial advisor or investment banker who would be entitled to any brokerage,
finder's or other fee or commission payable by the Company or the Purchasers in
connection with the sale of the Securities. Each Purchaser hereby warrants that
it has not employed any broker, finder, financial advisor or investment banker
who would be entitled to any brokerage, finder's or other fee or commission
payable by the Company in connection with the sale of the Securities.
SECTION 13.8. New York Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 13.9. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in
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SECURITIES PURCHASE AGREEMENT - Page 49
(American International Petroleum Corporation) 85478.4
<PAGE>
full force and effect and shall in no way be affected, impaired or invalidated
unless a failure of consideration would result thereby.
SECTION 13.10 Survival. All provisions contained in this Agreement (unless
specifically noted to the contrary) shall survive the payment in full of the
Convertible Notes and shall remain operative and in full force and effect.
SECTION 13.11. Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[Signature Pages Follow]
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SECURITIES PURCHASE AGREEMENT - Page 50
(American International Petroleum Corporation) 85478.4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:
---------------------------------
Name: ________________________________
Title: _______________________________
Address: 444 Madison Avenue
New York, New York 10022
Fax: (212) 688-6657
Attn: George Faris
By:
---------------------------------
Name: ________________________________
Title: _______________________________
Address:
Fax:
Attn:
With copy to:
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SECURITIES PURCHASE AGREEMENT - Page 51
(American International Petroleum Corporation) 85478.4
<PAGE>
SCHEDULES
2.1 Allocation of Securities Among Purchasers
4.1 List of Subsidiaries
4.3 Capitalization
4.17 Leases
8.3 Affiliates Agreements
EXHIBITS
Exhibit A - Form of Convertible Note
Exhibit B - Form of Notice of Conversion
Exhibit C - Form of Notice of Exercise
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Solvency Certificate
Exhibit F - Form of Officer's Certificate
Exhibit G - Form of Escrow Agreement
Exhibit H - Form of Warrant
Exhibit I - Form of Company Counsel's Opinion
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 52
(American International Petroleum Corporation) 85478.4
<PAGE>
SCHEDULE 2.1
SECURITIES
- --------------------------------------------------------------------------------
Aggregate Principal Number of
Name/Address Amount of Notes Purchase Price Warrant Shares
- --------------------------------------------------------------------------------
$ $(1)
- --------------------------------------------------------------------------------
$ $
- --------------------------------------------------------------------------------
TOTAL $ $(1)
- --------------------------------------------------------------------------------
(1). Includes deduction of $25,000 as the Expense Reimbursement Fee
EXHIBIT 4.3
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. IN ADDITION, A SECURITITES PURCHASE
AGREEMENT, DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL
AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH
LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION
OBLIGATIONS OF THE COMPANY (THE "PURCHASE AGREEMENT").
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
COMMON STOCK PURCHASE WARRANT
- --------------------------------------------------------------------------------
Number of Shares:
Holder:
Purchase Price:
Expiration Date: October 15, 2002
For identification only. The governing terms of this Warrant
are set forth below.
- --------------------------------------------------------------------------------
AMERICAN INTERNATIONAL PETROLEUM CORPORATION, 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 fifth anniversary hereof (the
"Exercise Period"), at the Purchase Price hereinafter set forth, 1,350,000
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 $_______; provided,
however, that the Purchase Price shall be adjusted from time to time as provided
in Section 5, below.
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COMMON STOCK PURCHASE WARRANT - Page 1 (American International Petroleum
Corporation - No. 1)
<PAGE>
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include American International
Petroleum Corporation 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 five (5) Business Days of receipt.
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
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COMMON STOCK PURCHASE WARRANT - Page 2
(American International Petroleum Corporation - No. 1)
<PAGE>
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 as of the close of business on the date on which this Warrant shall
have been exercised and the Purchaser Price therefor has been paid to the
Company (the "Exercise Date").
1.2. Regulation S Restrictions.
(a) Exercise of this Warrant and acceptance of shares of Common
Stock upon such exercise shall constitute a representation by the holder
(on which the Company shall have the right to rely in issuing the Common
Stock upon such exercise) that the holder is not a U.S. Person (as such
term is defined in Regulation S promulgated under the Securities Act of
1933, as amended ("Regulation S")) and an agreement by the holder not to
offer or sell such shares in the United States to a U.S. Person 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. 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 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 [complete as applicable restricted period].
(b) 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 obtain an opinion of counsel of the Company
reasonably 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.
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
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COMMON STOCK PURCHASE WARRANT - Page 3
(American International Petroleum Corporation - No. 1)
<PAGE>
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 set forth in the Purchase
Agreement as if such provisions were specifically set forth herein.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within five (5)
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.
3. Adjustment for Extraordinary Events. The Purchase Price to be paid by
the Holder upon exercise of this Warrant shall be adjusted in case at any time
or from time to time the Company should (i) subdivide the outstanding shares of
Common Stock into a greater number of shares, (ii) consolidate the outstanding
shares of Common Stock into a smaller number of shares, (iii) issue shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock as a dividend to all or substantially all holders of shares of Common
Stock or (iv) issue by reclassification of shares of Common Stock, any shares of
capital stock of the Company, in each event pursuant to Article XI of the
Purchase Agreement as if such provisions were specifically set forth herein.
4. 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
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 4
(American International Petroleum Corporation - No. 1)
<PAGE>
(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.
5. 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 of national standing
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 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.
6. 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,
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 5
(American International Petroleum Corporation - No. 1)
<PAGE>
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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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,
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 6
(American International Petroleum Corporation - No. 1)
<PAGE>
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.
12. Registration Rights. The Company is obligated to register the shares
of Common Stock issuable upon exercise of this Warrant in accordance with the
terms of a Registration Rights Statement dated the date hereof.
13. 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.
14. 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 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 Delaware. 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.
[Signature Page Follows]
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT - Page 7
(American International Petroleum Corporation - No. 1)
<PAGE>
DATED as of October 15, 1997.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
[Corporate Seal]
Attest:
By:___________________________
Secretary
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COMMON STOCK PURCHASE WARRANT - Page 8
(American International Petroleum Corporation - No. 1)
<PAGE>
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DATED as of October __, 1997.
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AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
[Corporate Seal]
Attest:
By:_________________________
Secretary
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COMMON STOCK PURCHASE WARRANT - Page 8
(American International Petroleum Corporation - No. 1)
Exhibit 4.4
Exhibit D to Security Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October 15,
1997, among AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
(the "Company"), and the other undersigned parties hereto (collectively, the
"Funds").
1. Introduction. The Company and the Funds have today executed that
certain Securities Purchase Agreement (the "Note Purchase Agreement"), pursuant
to which the Company has agreed, among other things, to issue an aggregate of
$10,000,000 (U.S.) principal amount of 14% Convertible Notes of the Company (the
"Notes") to the Funds or their successors, assigns or transferees (collectively,
the "Holders"). The Notes are convertible into an indeterminable number of
shares (the "Note Conversion Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock"), pursuant to the terms of the Notes. In
addition, pursuant to the terms of the Note Purchase Agreement and the
transactions contemplated thereby, the Company has issued to the Funds Common
Stock Purchase Warrants exercisable for an aggregate 1,500,000 shares of Common
Stock (the "Warrant Shares"). The number of Note Conversion Shares and Warrant
Shares (collectively, the "Securities") is subject to adjustment upon the
occurrence of stock splits, recapitalizations and similar events occurring after
the date hereof. The Company represents and warrants that the Company's Common
Stock is currently eligible for trading on the Nasdaq Stock Market's National
Market ("National Market") under the symbol "AIPN". Certain capitalized terms
used in this Agreement are defined in Section 3 hereof; references to sections
shall be to sections of this Agreement.
2. Registration under Securities Act, etc.
2.1 Registration on Liquidity Event.
(a) Registration of Registrable Securities. As soon as is
practicable after the occurrence of a Liquidity Event (as defined in the Note
Purchase Agreement), but in no event later than thirty (30) days thereafter, the
Company shall prepare and file a registration statement to effect the
registration under the Securities Act of all, but not less than all, of the
Registrable Securities which relate (or, because of the indeterminable number
thereof, which could reasonably be deemed to relate) to the Securities; all to
the extent requisite to permit the public disposition of such Registrable
Securities so to be registered. The Company shall use its best efforts to cause
the Registration Statement which is the subject of this Section 2.1(a) (the
"Registration Statement") to be declared effective by the Commission upon the
earlier to occur of (i) 90 days after the occurrence of a Liquidity Event or
(ii) five (5) business days after receipt of a "no review" or similar letter
from the Commission (the "Required Effectiveness Date").
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(American International Petroleum Corporation)
<PAGE>
Nothing contained herein shall be deemed to limit the number of Registrable
Securities to be registered by the Company hereunder. As a result, should the
Registration Statement not relate to the maximum number of Registrable
Securities acquired by (or potentially acquirable by) the holders thereof upon
conversion of the Notes, or exercise of the Warrants, the Company shall be
required to file a separate registration statement (utilizing Rule 462
promulgated under the Exchange Act, where applicable) relating to such
Registrable Securities which then remain unregistered. The provisions of this
Agreement shall relate to such separate registration statement as if it were an
amendment to the Registration Statement.
(b) Registration Statement Form. Registrations under this Section
2.1 shall be on Form S-3 or such other appropriate registration form of the
Commission as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified by the
Funds; provided, however, such intended method of disposition shall not include
an underwritten offering of the Registrable Securities.
(d) Expenses. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
(e) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective within
the time period specified herein, provided that a registration which does not
become effective after the Company has filed a registration statement with
respect thereto solely by reason of the refusal to proceed of any holder of
Registrable Securities (other than a refusal to proceed based upon the advice of
counsel in the form of a letter signed by such counsel and provided to the
Company relating to a disclosure matter unrelated to such holder) shall be
deemed to have been effected by the Company unless the holders of the
Registrable Securities shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other order or
extraordinary requirement of the Commission or other governmental agency or
court for any reason or (iii) if, after it has become effective, such
registration ceases to be effective for more than an aggregate of ninety (90)
days.
(f) [Intentionally Left Blank]
(g) [Intentionally Left Blank]
(h) Plan of Distribution. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section reasonably
acceptable to the Funds and substantially in the form annexed hereto; provided,
however, such plan of distribution section shall be modified by the Company so
as to not provide for the disposition of the Registrable Securities on the basis
of an underwritten offering.
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REGISTRATION RIGHTS AGREEMENT - Page 2
(American International Petroleum Corporation)
<PAGE>
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. Following the
occurrence of a Liquidity Event, if (1) any principal or interest shall be
outstanding under the Notes (whether or not then due and owing) and (2) the
Company proposes to register any of its securities under the Securities Act
(other than by a registration in connection with an acquisition in a manner
which would not permit registration of Registrable Securities for sale to the
public, on Form S-8, or any successor form thereto, on Form S-4, or any
successor form thereto and other than pursuant to Section 2.1), on an
underwritten basis (either best-efforts or firm-commitment), then, the Company
will each such time give prompt written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 2.2. Upon the written
request of any such Holder made within twenty (20) days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such Holder and the intended method of disposition thereof),
the Company will, subject to the terms of this Agreement, effect the
registration under the Securities Act of up to that number of Registrable
Securities equal to that number of Note Conversion Shares acquirable upon
conversion of up to 75% of the original principal amount of the Notes which the
Company has been so requested to register by the Holders thereof, to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of such Registrable Securities so to be registered, by
inclusion of such Registrable Securities in the registration statement which
covers the securities which the Company proposes to register, provided that if,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
either not to register or to delay registration of such securities, the Company
may, at its election, give written notice of such determination to each Holder
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice, however, to the rights of
any holder or holders of Registrable Securities entitled to do so to request
that such registration be effected as a registration under Section 2.1, and (ii)
in the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall relieve the Company of its obligation to effect any registration upon
request under Section 2.1, nor shall any such registration hereunder be deemed
to have been effected pursuant to Section 2.1. The Company will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2. The right provided the
Holders of the Registrable Securities pursuant to this Section shall be
exercisable at their sole discretion and will in no way limit any of the
Company's obligations to pay the Securities according to their terms.
(b) Priority in Incidental Registrations. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2 shall
inform the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in
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REGISTRATION RIGHTS AGREEMENT - Page 3
(American International Petroleum Corporation)
<PAGE>
such offering, then the Company will include in such registration, to the extent
of the number which the Company is so advised can be sold in such offering, (i)
first securities proposed by the Company to be sold for its own account, and
(ii) second Registrable Securities and securities of other selling security
holders requested to be included in such registration pro rata on the basis of
the number of shares of such securities so proposed to be sold and so requested
to be included; provided, however, the holders of Registrable Securities shall
have priority to all shares sought to be included by officers and directors of
the Company as well as holders of ten percent (10%) or more of the Company's
Common Stock.
2.3 Registration Procedures. If and whenever the Company is required to
effect the registration of any Registrable Securities under the Securities Act
as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as
expeditiously as possible:
(i) prepare and file with the Commission the Registration Statement
to effect such registration (including such audited financial statements
as may be required by the Securities Act or the rules and regulations
promulgated thereunder) and thereafter use its best efforts to cause such
registration statement to be declared effective by the Commission, as soon
as practicable, but in any event no later than the Required Effectiveness
Date; provided, however, that before filing such registration statement or
any amendments thereto, the Company will furnish to the counsel selected
by the holders of Registrable Securities which are to be included in such
registration, copies of all such documents proposed to be filed;
(ii) with respect to any Registration Statement pursuant to Section
2.1, prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement until the earlier to occur of three (3) years after
the date of this Agreement (subject to the right of the Company to suspend
the effectiveness thereof for not more than 10 consecutive days or an
aggregate of 30 days in such three (3) years period) or such time as all
of the securities which are the subject of such registration statement
cease to be Registrable Securities (such period, in each case, the
"Registration Maintenance Period"); provided, however, that if the Common
Stock Purchase Warrants have been exercised in full, the Registration
Maintenance Period shall be reduced to two (2) years;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as
such seller and underwriter, if any, may
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REGISTRATION RIGHTS AGREEMENT - Page 4
(American International Petroleum Corporation)
<PAGE>
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(iv) use its reasonable efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws as any seller
thereof shall reasonably request, to keep such registrations or
qualifications in effect for so long as such registration statement
remains in effect, and take any other action which may be reasonably
necessary to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;
(v) [Intentionally Left Blank]
(vi) [Intentionally Left Blank]
(vii) notify the Sellers' Representative and its counsel promptly
and confirm such advice in writing promptly after the Company has
knowledge thereof:
(v) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the registration statement has been filed, and, with respect to the
registration statement or any post-effective amendment thereto, when
the same has become effective;
(w) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
(x) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings by any Person for that purpose; and
(y) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(viii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of
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REGISTRATION RIGHTS AGREEMENT - Page 5
(American International Petroleum Corporation)
<PAGE>
the circumstances then existing, and at the request of any such seller
promptly prepare and furnish to such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(ix) use its reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the
earliest possible moment;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(xi) enter into such agreements and take such other actions as the
Sellers' Representative shall reasonably request in writing (at the
expense of the requesting or benefiting sellers) in order to expedite or
facilitate the disposition of such Registrable Securities; and
(xii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on which
any of the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to Section
2.1, or amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference and proposed to be filed after the
initial filing of the registration statement) to which the Sellers'
Representative shall reasonably object, provided that the Company may file such
document in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Note Purchase Agreement.
Each Fund agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, such Fund will forthwith
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REGISTRATION RIGHTS AGREEMENT - Page 6
(American International Petroleum Corporation)
<PAGE>
discontinue such Fund's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such Fund's
receipt of the copies of the supplemented or amended prospectus contemplated by
subdivision (viii) of this Section 2.3 and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Fund's possession of the prospectus relating
to such Registrable Securities current at the time of receipt of such notice.
If any such registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
then such holder shall have the right to require (a) the insertion therein of
language, in form and substance reasonably satisfactory to such holder, to the
effect that the holding by such holder of such securities is not to be construed
as a recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (b)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such holder.
2.4 Underwritten Offerings.
(a) [Intentionally Left Blank]
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(b), use its reasonable efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters,
provided that if the managing underwriter of such underwritten offering shall
inform the holders of the Registrable Securities requesting such registration,
in respect of such underwritten offering, by letter of its belief that inclusion
in such underwritten distribution of all or a specified number of such
Registrable Securities to requested to be included would interfere with the
successful marketing of the securities (other than such Registrable Securities
and other securities so requested to be included which may be included in such
underwritten offering without such effect) then, the Company may, upon written
notice to all holders of such Registrable Securities (and of such other shares
so requested to be included) exclude pro rata from such underwritten offering
(if and to the extent stated by such managing underwriter to be necessary to
eliminate such effect) the number of such Registrable Securities and shares of
such other securities so requested to be included in the registration of which
shall have been requested by each holder of Registrable Securities and by the
holders of such other securities so that the resultant aggregate number of such
Registrable Securities and of such other shares or securities to requested to be
included which are included in such underwritten offering shall be equal to the
approximate number of shares stated in such managing underwriter's letter. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters and may, at their option,
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(American International Petroleum Corporation)
<PAGE>
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such other
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representations required by law.
(c) Holdback Agreements. Subject to such other reasonable requirements as
may be imposed by the underwriter as a condition of inclusion of a Fund's
Registrable Securities in the registration statement, each Fund agrees by
acquisition of Registrable Securities, if so required by the managing
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any public sale or distribution of or otherwise dispose of,
except as part of such underwritten registration, any equity securities of the
Company, during such reasonable period of time requested by the underwriter;
provided however, such period shall not exceed the 120 day period commencing 30
days prior to the commencement of such underwritten offering and ending 90 days
following the completion of such underwritten offering.
(d) Participation in Underwritten Offerings. No holder of Registrable
Securities may participate in any underwritten offering under Section 2.2 unless
such holder of Registrable Securities (i) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved,
subject to the terms and conditions hereof, by the holders of a majority of
Registrable Securities to be included in such underwritten offering and (ii)
completes and executes all questionnaires, indemnities, underwriting agreements
and other documents (other than powers of attorney) required under the terms of
such underwriting arrangements. Notwithstanding the foregoing, no underwriting
agreement (or other agreement in connection with such offering) shall require
any holder of Registrable Securities to make any representations or warranties
to or agreements with the Company or the underwriters other than representations
and warranties contained in a writing furnished by such holder expressly for use
in the related registration statement or representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders' and such
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(American International Petroleum Corporation)
<PAGE>
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
2.6 Registration Default Fee. If the Registration Statement contemplated
in Section 2.1 is (x) not declared effective by the Required Effectiveness Date
or (y) such effectiveness is not maintained for the Registration Maintenance
Period, then the Company shall pay to the fund the Default Fee specified in
Section 10.2 of the Note Purchase Agreement.
2.7 Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act, the Company will, and
hereby does agree to, indemnify and hold harmless the holder of any Registrable
Securities covered by such registration statement, its directors and officers,
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such holder or any
such underwriter within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which such holder or any
such director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or 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, and the Company will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, provided that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
holder or underwriter stating that it is for use in the preparation thereof and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or to any other Person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any
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(American International Petroleum Corporation)
<PAGE>
investigation made by or on behalf of such holder or any such director, officer,
underwriter or controlling person and shall survive the transfer of such
securities by such holder.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.7) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such seller.
(c) Notices of Claims. etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action 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, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
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(American International Petroleum Corporation)
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(d) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities (but only if and to the extent required pursuant to the terms of
2.7(b)) with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in the
preceding subdivisions of this Section 2.7 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the holder or underwriter, as the case may be, on the other
in connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by the Company from the
initial sale of the Registrable Securities by the Company to the purchasers
pursuant to the Note Purchase Agreement and the Warrants bear to the gain, if
any, realized by all selling holders participating in such offering or the
underwriting discounts and commissions received by the underwriter, as the case
may be. The relative fault of the Company on the one hand and of the holder or
underwriter, as the case may be, on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission to state a material fact relates to information
supplied by the Company, by the holder or by the underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, provided that the foregoing contribution
agreement shall not inure to the benefit of any indemnified party if
indemnification would be unavailable to such indemnified party by reason of the
provisions contained in the first sentence of subdivision (a) of this Section
2.7, and in no event shall the obligation of any indemnifying party to
contribute under this subdivision (f) exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under subdivisions (b) of this Section 2.7 had been
available under the circumstances.
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REGISTRATION RIGHTS AGREEMENT - Page 11
(American International Petroleum Corporation)
<PAGE>
The Company and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (f) were
determined by pro rata allocation (even if the holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
Section 2.7, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
'Commission": The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this Agreement.
"Conversion Shares": As defined in Section 1.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"Notes": As defined in Section 1, such term to include any securities
issued in substitution of or in addition to such Notes.
"Note Purchase Agreement": As defined in Section 1.
"Person": A corporation, association, partnership, organization, business,
individual, governmental or political subdivision thereof or a governmental
agency.
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REGISTRATION RIGHTS AGREEMENT - Page 12
(American International Petroleum Corporation)
<PAGE>
"Preferred Stock": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Preferred Stock.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, (d) they shall have ceased to be outstanding, (e) on the second or third
anniversary of this Agreement as specified in Section 2.3(iii)or (f) any and all
legends restricting transfer thereof have been removed in accordance with the
provisions of Rule 144(k) (or any successor provision) under the Securities Act.
"Registration Expenses": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing and NASD fees, all stock exchange and SmallCap Market
listing fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of not more than one law firm
(not to exceed $25,000) retained by the holder or holders of more than 50% of
the Registrable Securities, premiums and other costs of policies of insurance of
the Company against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the Company
or other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business or which
the Company would have incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Required Effectiveness Date": As defined in Section 2.1.
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REGISTRATION RIGHTS AGREEMENT - Page 14
(American International Petroleum Corporation)
<PAGE>
"Securities Act": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"Sellers' Representative": Infinity Investors Limited, as long as one or
more of the Funds shall be a Holder or such Person designated by Infinity
Investors Limited (or subsequent Sellers' Representative) at the time of
disposition of the last of the Notes held by one or more of the Funds (or
subsequent Sellers' Representative).
4. Rule 144. The Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with the requirements of this Section 4.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent is sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be
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REGISTRATION RIGHTS AGREEMENT - Page 14
(American International Petroleum Corporation)
<PAGE>
given to such Person (a) in the case of a party hereto other than the Company,
addressed to such party in the manner set forth in the Note Purchase Agreement
or at such other address as such party shall have furnished to the Company in
writing, or (b) in the case of any other holder of Registrable Securities, at
the address that such holder shall have furnished to the Company in writing, or,
until any such other holder so furnishes to the Company an address, then to and
at the address of the last holder of such Registrable Securities who has
furnished an address to the Company, or (c) in the case of the Company, at the
address set forth on the signature page hereto, to the attention of its
President, or at such other address, or to the attention of such other officer,
as the Company shall have furnished to each holder of Registrable Securities at
the time outstanding. Each such notice, request or other communication shall be
effective (i) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (ii) if
given by any other means (including, without limitation, by fax or air courier),
when delivered at the address specified above, provided that any such notice,
request or communication shall not be effective until received.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
or percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions. contained herein. Each of
the Holders of the Registrable Securities agrees, by accepting any portion of
the Registrable Securities after the date hereof, to the provisions of this
Agreement including, without limitation, appointment of the Sellers'
Representative to act on behalf of such Holder pursuant to the terms hereof
which such actions shall be made in the good faith discretion of the Sellers'
Representative and be binding on all persons for all purposes.
9. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. Counterparts. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
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REGISTRATION RIGHTS AGREEMENT - Page 15
(American International Petroleum Corporation)
<PAGE>
13. Severability. If any provision of this Agreement, or the application
of such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
[Signature Page Follows]
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REGISTRATION RIGHTS AGREEMENT - Page 16
(American International Petroleum Corporation)
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
Address: 444 Madison Avenue
New York, New York 10022
Telephone:______________________________
Fax: (212)688-6657
Attn: George Faris
_________________________________________
By:______________________________________
Name:____________________________________
Title:___________________________________
Address:
With copy to: _________________________________________
_________________________________________
_________________________________________
Exhibit 4.5
================================================================================
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
REGULATION S SUBSCRIPTION AGREEMENT
================================================================================
<PAGE>
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE.
REGULATION S SUBSCRIPTION AGREEMENT
THIS AGREEMENT has been executed by the undersigned, ___________________,
whose address is _______________________________________________ (the
"Subscriber"), in connection with the purchase of _____ shares (the "Shares") of
common stock, $.08 par value (the "Common Stock") of AMERICAN INTERNATIONAL
PETROLEUM CORPORATION (the "Company") located at 444 Madison Avenue, Suite 3203,
New York, New York 10022, a corporation organized under the laws of Nevada,
United States of America.
WHEREAS, the Company proposes to issue _____ Shares pursuant to Regulation
S, ("Regulation S") promulgated under the Securities Act of the 1933, as amended
(the "Act") as payment in ful1 for $_________ of principal and interest due from
the Company to the Subscriber ("Payment") effective on the acceptance of this
subscription by the Company, and
WHEREAS, the Shares will be offered and issued pursuant to an exemption
from registration provided by Regulation S, and
WHEREAS, upon original issuance thereof, and until such time as the same
is no longer required under the applicable requirements of the Act, the Share
Certificates shall bear the following legend:
THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED PURSUANT TO
REGULATION S ("REGULATION S") UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT, AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN
REGULATION S) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM AND IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION.
2
<PAGE>
NOW THEREFORE, the Subscriber agrees with the Company as follows:
1. Subscription. Subject to its terms and conditions and further subject
to acceptance of this Agreement by the Company, the Subscriber agrees to
purchase from the Company _____ Shares for an aggregate purchase price of U.S.
$_________, in an offering of _____ Shares ending at the close of business on
_________, 1997 (the "Payment Date").
2. Delivery and Payment. Delivery of and payment for the Shares shall be
made at such time and place as the Company and the Subscriber shall agree.
Shares shall be registered in the Subscriber's name and issued not later
than three full business days after the acceptance of this Agreement by the
Company. Shares shall be registered in the Subscriber's name and not in nominee
or other names.
3. Representations and Warranties of the Subscriber. The Subscriber hereby
represents and warrants to the Company as follows:
(a) The Subscriber acknowledges that he has received a copy of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the Company's Form 10-Q for the quarterly
period ended June 30, 1997, and a Proxy Statement of the
Company dated July 18, 1997 and is acquainted with the
business and financial condition of the Company. The
Subscriber further acknowledges that he has had an opportunity
to ask questions of and receive answers from the Company's
executive officers concerning the Company and the terms and
conditions of this investment and all such questions have been
answered to the full satisfaction of the Subscriber. The
Subscriber hereby further represents and warrants that it is
aware that there are substantial risks incident to an
investment in the Company and that no Federal or State agency
has passed upon the Shares or made any finding or
determination as to the fairness of an investment in the
Company.
(b) The Subscriber has the full right, power and authority to
enter into this Agreement and to carry out and consummate the
transactions contemplated herein. This Agreement constitutes
the legal, valid and binding obligation of the Subscriber
enforceable in accordance with its terms.
(c) The Subscriber is acquiring Shares for its own account and
risk and not as part of any plan or scheme to evade the
registration requirements of the Act, and no other person has
or will have at the Payment Date any interest in or
participation in the Subscriber's Shares or any right, option,
security interest, pledge or other interest in or to such
Shares. The Subscriber understands and agrees that it must
bear the economic risk of its investment in the Shares for an
indefinite period of time. The Shares have not been registered
under the Act. The Shares may not be offered or sold, directly
or indirectly, in the United States or to any natural person
who is a resident of the United States
3
<PAGE>
or to any U.S. person, as defined in Regulation S, or for the
account or benefit of any U.S. person unless registered or
exempt from registration under the Act and any applicable
state securities or blue sky laws (the "State Acts"). The
Subscriber also understands that the Company is under no
obligation to register any Shares on behalf of the Subscriber
or to assist it in complying with any exemption from
registration.
(d) The Subscriber is not a U.S. person, and is not acquiring the
Shares, directly or indirectly, for the account or benefit of
any U.S. person in violation of Regulation S pursuant to which
regulation the Shares are being sold.
(e) The Subscriber agrees to dispose of or encumber its Shares
only if (i) such Shares are duly registered under the Act and
all applicable State Acts, or (ii) an exemption from
registration under the Act, including any exemption from the
registration requirements of the Act pursuant to Regulation S,
and all applicable State Acts, is available.
(f) This Agreement has not been executed or delivered by the
Subscriber in the United States, and neither the Subscriber
nor any person acting on behalf of the Subscriber engaged
directly or indirectly in any negotiations with respect to
this Agreement in the United States or was located in the
United States at the time of the buy order or offer to
purchase the securities.
(g) Neither the Subscriber, nor any officer, director or 5% or
more shareholder thereof, has been:
(i) Convicted within the preceding ten years of any felony
or misdemeanor in connection with the offer, purchase or
sale of any security or commodity involving the making
of a false filing with the Commission.
(ii) Subject to any order, judgment or decree of any court of
competent jurisdiction temporarily or preliminary
enjoining or restraining, or subject to any order,
judgment or decree of any court of competent
jurisdiction, entered within the preceding five years,
permanently enjoining or restraining the investor from
engaging in or continuing any conduct or practice in
connection with the purchase or sale of any security or
commodity or involving the making or a false filing with
the Commission or any state, or arising out of the
conduct of the business of any underwriter, broker,
dealer, municipal securities dealer or investment
advisor.
(iii) Subject to an order of the Commission entered pursuant
to Section 15(b), 15B(a) or 15B(c) of the Securities
Exchange Act of l934, as amended (the "Exchange Act");
or subject to an order or the
4
<PAGE>
Commission entered pursuant to Section 203(e) or (f) of
the Investment Advisers Act of l940.
(iv) Suspended or expelled from membership in, or suspended
or barred from association with a member of, an exchange
registered as a national securities exchange pursuant to
Section 6 of the Exchange Act, an association registered
as a national securities association under Section 15A
of the Exchange Act or a Canadian securities exchange or
association for any act or omission to act constituting
conduct inconsistent with just and equitable principles
of trade.
(v) Filed a registration statement which is the subject of a
registration stop order entered pursuant to the Act or
any State Act within the preceding five years.
(vi) Subject to any state's administrative enforcement order
or judgment which prohibits, denies or revokes the use
of any exemption from registration in connection with
the offer, purchase or sale of securities.
(h) The offer leading to the sale evidenced hereby was made in an
"offshore transaction", for purposes of Regulation S.
Subscriber is familiar with the provision of Regulation S.
(i) Neither the Subscriber nor any affiliate of the Subscriber or
any person acting on their behalf, has made or is aware of any
"directed selling efforts" in the United States, which is
defined in Regulation S to be any activity undertaken for the
purpose of, or that could reasonably be expected to have the
effect of, conditioning the market in the United States for
any of the securities being purchased hereby.
(j) The Subscriber understands that the Company is the issuer of
the securities which are the subject of this Agreement. The
Subscriber shall not, during the 40-day restricted period set
forth under Rule 903(c)(2) of Regulation S, act as a
distributor, either directly or through any affiliate, nor
shall he sell, transfer, hypothecate or otherwise convey the
securities offered hereby or any interest therein, other than
to a non U.S. person, or in any other manner offer or sell
securities of the Company in violation of Regulation S or the
Act. Such 40-day restricted period shall not begin until the
closing of the Offering at the end of business on the Payment
Date and, otherwise, as provided in Regulation S.
(k) If the Subscriber is a corporation or trust or other entity,
the officer or trustee or other person executing this
Agreement represents and warrants that he is
5
<PAGE>
authorized to so sign and that the entity is authorized by the
governing documents of the entity, to make this investment;
(l) The Subscriber understands that the offer and sale of the
Shares is being made only by means of this Agreement. In
deciding to subscribe for the Shares, the Subscriber has not
considered any information other than that contained in this
Agreement and all documents provided to the Subscriber by the
Company. The Subscriber acknowledges that each of such
documents contain on the cover thereof a legend as to the
absence of registration of the Shares under the Act and the
restrictions arising under the Act. The Subscriber
acknowledges and agrees that the purchase of the Shares
involves a high degree of risk and that the Subscriber may
sustain, and has the financial ability to sustain, the loss of
its entire investment.
4. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber, that:
(a) This Agreement has been duly authorized by the Company.
(b) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Nevada. The
Company has the corporate power and authority necessary to enter into and
perform its obligations under this Agreement, and to issue, sell and deliver the
Shares.
(c) There is no statute, rule, regulation or order that has been
enacted, adopted or issued by any governmental agency or that has been proposed
by any governmental body which might prevent the issuance of the Shares. No
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction has been issued that would prevent the issuance of the
Shares.
(d) No form of general solicitation or general advertising was used
by the Company or any of its representatives in connection with the offer and
sale of the Shares, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, and no seminar or meeting whose attendees
have been invited by any general advertising was used by the Company or any of
its representatives in connection with the offer and sale of the Shares.
(e) Reporting Company Status. The Company is a "Reporting Company"
as ]defined by Rule 902 of Regulation S. The Company is in full compliance, to
the extent applicable, with applicable reporting obligations under either
Section 12(b), 12(g) or 15(d) of the Securities and Exchange Act of 1934, as
amended.
5. Reliance on Representations. The Subscriber understands that the
Company is relying on the Subscriber's representations concering the
Subscriber's compliance with the rules governing
6
<PAGE>
offers and sales made outside the United States pursuant to Regulation S.
6. Conditions of the Subscriber's Obligations. The Subscriber's obligation
to purchase the Shares subject to the satisfaction of each and every one of the
following conditions as of the Payment Date:
(a) No order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Act shall have
been issued, and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Company, be contemplated. No stop
order suspending the sale of the Shares shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(b) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
that would prevent the issuance of the Shares. No injunction, restraining order
or order of any nature by a federal or state court of competent jurisdiction
shall have been issued that would prevent the issuance of the Shares.
7. Conditions of the Company's Obligations. The Company's obligations to
sell the Shares under this Agreement on the Payment Date, is subject to the
satisfaction of each and every one of the following conditions as of the Payment
Date:
(a) All of the representations and warranties of the Subscriber
contained in this Agreement shall be true and correct on the Payment Date with
the same force and effect as if made on and as of the Payment Date. The
Subscriber shall have performed or complied with all agreements and satisfied
all conditions on its part to be performed, complied with or satisfied at or
prior to the Payment Date.
(b) No order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Act shall have
been issued, and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Company, be contemplated. No stop
order suspending the sale of the Shares shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
that would prevent the issuance of the Shares. No injunction, restraining order
or order of any nature by a federal or state court of competent jurisdiction
shall have been issued that would prevent the issuance of the Shares.
8. Subsequent Transfers of the Securities. The Subscriber further agrees
that, in connection with the resale of the Shares it will offer to sell the
Shares only after 41 days from the date of the closing of the last purchase
under the Offering, and only to, and will solicit offers to buy the Shares only
from, persons who in purchasing such Shares will have represented and agreed
that (1) they are
7
<PAGE>
purchasing the Shares for their own account, (2) all requirements of Regulation
S have been satisfied, (3) if sold outside the United States, the sale shall be
to a foreign person in a transaction meeting the requirements of Rule 904 of
Regulation S under the Act, and (4) the holder will, and each subsequent holder
is required to, notify any purchaser from it of the security evidenced thereby
of the resale restrictions set forth in Regulation S.
9. Notice. Notices given pursuant to any provision of this Agreement shall
be addressed as follows: (i) if to the Company, to American International
Petroleum Corporation, 444 Madison Avenue, Suite 3203, New York, New York 10022,
Attention: Denis J. Fitzpatrick, with a copy to Snow Becker Krauss P.C., 605
Third Avenue, New York, New York 10158, (ii) if to the Subscriber at the address
set forth at the signature page of this Agreement, or in any case to such other
address as the person to be notified may have requested in writing.
10. Miscellaneous. Except as otherwise provided, this Agreement has been
and is made solely for the benefit of the Company and shall be binding upon the
Subscriber and its successors and assigns, all as and to the extent provided in
this Agreement, and no other persons shall acquire or have any right under or by
virtue of this Agreement. Subscriber shall not assign this Agreement. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in various counterparts, which
together shall constitute one and the same instrument.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, AND EACH PARTY HEREBY AGREES THAT ALL PERFORMANCE DUE WITH RESPECT
TO TRANSACTIONS UNDERTAKEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE DUE
OR TO HAVE OCCURRED IN NEW YORK. THE EXCLUSIVE VENUE AND PLACE OF JURISDICATION
FOR ANY LITIGATION ARISING FROM OR RELATED TO THIS AGREEMENT SHALL BE THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE NEW YORK
STATE SUPREME COURT LOCATED IN THE COUNTY OF NEW YORK. THE PARTIES HERETO WAIVE
TRIAL BY JURY OF ANY DISPUTES BETWEEN THEM.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, the _____
day of ______, 1997.
Number of Shares
subscribed for: _______
________________________________________
Name of Subbscriber
Address:______________________________________________________
_________________________________________________________
Country in which this Agreement is executed by Subscriber:_______________
Telephone Number:_____________________
Telecopier Number:____________________
Social Security No. or Tax I.D. No. (if applicable): N/A
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: ____________________________________
Denis J. Fitzpatrick, Vice President
ACCEPTED this ______ day of _________, 1997
9
Exhibit 4.6
================================================================================
AMERICAN INTERNATIONAL PETROELUM CORPORATION
REGULATION S SUBSCRIPTION AGREEMENT
================================================================================
<PAGE>
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD
IN THE UNITED STATES OR TO U.S. PERSONS UNLESS THE SECURITIES ARE REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE.
REGULATION S SUBSCRIPTION AGREEMENT
THIS AGREEMENT has been executed by the undersigned, for
___________________ whose address is _____________________________, (the
"Subscriber"), in connection with the purchase of up to ___________ shares (the
"Shares") of common stock, $.08 par value (the "Common Stock") of AMERICAN
INTERNATIONAL PETROLEUM CORPORATION (the "Company") located at 444 Madison
Avenue, Suite 3203, New York, New York 10022, a corporation organized under the
laws of Nevada, United States of America.
WHEREAS, the Company proposes to issue _________________ Shares pursuant
to Regulation S, ("Regulation S") promulgated under the Securities Act of the
1933, as amended (the "Act") as consideration for a ____________________ partial
prospect fee (the "Fee") effective on the acceptance of this subscription by the
Company, and
WHEREAS, the Shares will be offered and issued pursuant to an exemption
from registration provided by Regulation S, and
WHEREAS, upon original issuance thereof, and until such time as the same
is no longer required under the applicable requirements of the Act, the Share
Certificates shall bear the following legend:
THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED PURSUANT TO
REGULATION S ("REGULATION S") UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT, AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN
REGULATION S) IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM AND IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION.
2
<PAGE>
NOW THEREFORE, the Subscriber agrees with the Company as follows:
1. Subscription. Subject to its terms and conditions and further subject
to acceptance of this Agreement by the Company, the Subscriber agrees to
purchase from the Company _________________ Shares for an aggregate purchase
price of U.S. $______________, in an offering of up to _________________ Shares
ending at the close of business on ___________________ (the "Payment Date").
2. Delivery and Payment. Delivery of and payment for the Shares shall be
made at such time and place as the Company and the Subscriber shall agree.
Shares shall be registered in the Subscriber's name and issued not later
than three full business days after the acceptance of this Agreement by the
Company. Shares shall be registered in the Subscriber's name and not in nominee
or other names.
3. Representations and Warranties of the Subscriber. The Subscriber hereby
represents and warrants to the Company as follows:
(a) The Subscriber acknowledges that he has received a copy of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the Company's Form 10-Q for the quarterly
period ended June 30, 1997, and a Proxy Statement of the
Company dated June 18, 1997 and is acquainted with the
business and financial condition of the Company. The
Subscriber further acknowledges that he has had an opportunity
to ask questions of and receive answers from the Company's
executive officers concerning the Company and the terms and
conditions of this investment and all such questions have been
answered to the full satisfaction of the Subscriber. The
Subscriber hereby further represents and warrants that it is
aware that there are substantial risks incident to an
investment in the Company and that no Federal or State agency
has passed upon the Shares or made any finding or
determination as to the fairness of an investment in the
Company.
(b) The Subscriber has the full right, power and authority to
enter into this Agreement and to carry out and consummate the
transactions contemplated herein. This Agreement constitutes
the legal, valid and binding obligation of the Subscriber
enforceable in accordance with its terms.
3
<PAGE>
(c) The Subscriber is acquiring Shares for its own account and
risk and not as part of any plan or scheme to evade the
registration requirements of the Act, and no other person has
or will have at the Payment Date any interest in or
participation in the Subscriber's Shares or any right, option,
security interest, pledge or other interest in or to such
Shares. The Subscriber understands and agrees that it must
bear the economic risk of its investment in the Shares for an
indefinite period of time. The Shares have not been registered
under the Act. The Shares may not be offered or sold, directly
or indirectly, in the United States or to any natural person
who is a resident of the United States or to any U.S. person,
as defined in Regulation S, or for the account or benefit of
any U.S. person unless registered or exempt from registration
under the Act and any applicable state securities or blue sky
laws (the "State Acts"). The Subscriber also understands that
the Company is under no obligation to register any Shares on
behalf of the Subscriber or to assist it in complying with any
exemption from registration.
(d) The Subscriber is not a U.S. person, and is not acquiring the
Shares, directly or indirectly, for the account or benefit of
any U.S. person in violation of Regulation S pursuant to which
regulation the Shares are being sold.
(e) The Subscriber agrees to dispose of or encumber its Shares
only if (i) such Shares are duly registered under the Act and
all applicable State Acts, or (ii) an exemption from
registration under the Act, including any exemption from the
registration requirements of the Act pursuant to Regulation S,
and all applicable State Acts, is available.
(f) This Agreement has not been executed or delivered by the
Subscriber in the United States, and neither the Subscriber
nor any person acting on behalf of the Subscriber engaged
directly or indirectly in any negotiations with respect to
this Agreement in the United States or was located in the
United States at the time of the buy order or offer to
purchase the securities.
(g) Neither the Subscriber, nor any officer, director or 5% or
more shareholder thereof, has been:
4
<PAGE>
(i) Convicted within the preceding ten years of any felony
or misdemeanor in connection with the offer, purchase or
sale of any security or commodity involving the making
of a false filing with the Commission.
(ii) Subject to any order, judgment or decree of any court of
competent jurisdiction temporarily or preliminary
enjoining or restraining, or subject to any order,
judgment or decree of any court of competent
jurisdiction, entered within the preceding five years,
permanently enjoining or restraining the investor from
engaging in or continuing any conduct or practice in
connection with the purchase or sale of any security or
commodity or involving the making or a false filing with
the Commission or any state, or arising out of the
conduct of the business of any underwriter, broker,
dealer, municipal securities dealer or investment
advisor.
(iii) Subject to an order of the Commission entered pursuant
to Section 15(b), 15B(a) or 15B(c) of the Securities
Exchange Act of l934, as amended (the "Exchange Act");
or subject to an order or the Commission entered
pursuant to Section 203(e) or (f) of the Investment
Advisers Act of l940.
(iv) Suspended or expelled from membership in, or suspended
or barred from association with a member of, an exchange
registered as a national securities exchange pursuant to
Section 6 of the Exchange Act, an association registered
as a national securities association under Section 15A
of the Exchange Act or a Canadian securities exchange or
association for any act or omission to act constituting
conduct inconsistent with just and equitable principles
of trade.
(v) Filed a registration statement which is the subject of a
registration stop order entered pursuant to the Act or
any State Act within the preceding five years.
(vi) Subject to any state's administrative enforcement order
or judgment which prohibits, denies or revokes the use
of any exemption from registration
5
<PAGE>
in connection with the offer, purchase or sale of
securities.
(h) The offer leading to the sale evidenced hereby was made in an
"offshore transaction", for purposes of Regulation S.
Subscriber is familiar with the provision of Regulation S.
(i) Neither the Subscriber nor any affiliate of the Subscriber or
any person acting on their behalf, has made or is aware of any
"directed selling efforts" in the United States, which is
defined in Regulation S to be any activity undertaken for the
purpose of, or that could reasonably be expected to have the
effect of, conditioning the market in the United States for
any of the securities being purchased hereby.
(j) The Subscriber understands that the Company is the issuer of
the securities which are the subject of this Agreement. The
Subscriber shall not, during the 40-day restricted period set
forth under Rule 903(c)(2) of Regulation S, act as a
distributor, either directly or through any affiliate, nor
shall he sell, transfer, hypothecate or otherwise convey the
securities offered hereby or any interest therein, other than
to a non U.S. person, or in any other manner offer or sell
securities of the Company in violation of Regulation S or the
Act. Such 40-day restricted period shall not begin until the
closing of the Offering at the end of business on the Payment
Date and, otherwise, as provided in Regulation S.
(k) If the Subscriber is a corporation or trust or other entity,
the officer or trustee or other person executing this
Agreement represents and warrants that he is authorized to so
sign and that the entity is authorized by the governing
documents of the entity, to make this investment;
(l) The Subscriber understands that the offer and sale of the
Shares is being made only by means of this Agreement. In
deciding to subscribe for the Shares, the Subscriber has not
considered any information other than that contained in this
Agreement and all documents provided to the Subscriber by the
Company. The Subscriber acknowledges that each of such
documents contain on the cover thereof a legend as to the
absence of registration of the Shares under the Act and the
6
<PAGE>
restrictions arising under the Act. The Subscriber
acknowledges and agrees that the purchase of the Shares
involves a high degree of risk and that the Subscriber may
sustain, and has the financial ability to sustain, the loss of
its entire investment.
4. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber, that:
(a) This Agreement has been duly authorized by the Company.
(b) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Nevada. The
Company has the corporate power and authority necessary to enter into and
perform its obligations under this Agreement, and to issue, sell and deliver the
Shares.
(c) There is no statute, rule, regulation or order that has been
enacted, adopted or issued by any governmental agency or that has been proposed
by any governmental body which might prevent the issuance of the Shares. No
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction has been issued that would prevent the issuance of the
Shares.
(d) No form of general solicitation or general advertising was used
by the Company or any of its representatives in connection with the offer and
sale of the Shares, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, and no seminar or meeting whose attendees
have been invited by any general advertising was used by the Company or any of
its representatives in connection with the offer and sale of the Shares.
(e) Reporting Company Status. The Company is a "Reporting Company"
as ]defined by Rule 902 of Regulation S. The Company is in full compliance, to
the extent applicable, with applicable reporting obligations under either
Section 12(b), 12(g) or 15(d) of the Securities and Exchange Act of 1934, as
amended.
5. Reliance on Representations. The Subscriber understands that the
Company is relying on the Subscriber's representations concering the
Subscriber's compliance with the rules governing offers and sales made outside
the United States pursuant to Regulation S.
6. Conditions of the Subscriber's Obligations. The Subscriber's obligation
to purchase the Shares subject to the satisfaction of each and every one of the
following conditions as of the Payment Date:
7
<PAGE>
(a) No order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Act shall have
been issued, and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Company, be contemplated. No stop
order suspending the sale of the Shares shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(b) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
that would prevent the issuance of the Shares. No injunction, restraining order
or order of any nature by a federal or state court of competent jurisdiction
shall have been issued that would prevent the issuance of the Shares.
7. Conditions of the Company's Obligations. The Company's obligations to
sell the Shares under this Agreement on the Payment Date, is subject to the
satisfaction of each and every one of the following conditions as of the Payment
Date:
(a) All of the representations and warranties of the Subscriber
contained in this Agreement shall be true and correct on the Payment Date with
the same force and effect as if made on and as of the Payment Date. The
Subscriber shall have performed or complied with all agreements and satisfied
all conditions on its part to be performed, complied with or satisfied at or
prior to the Payment Date.
(b) No order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Act shall have
been issued, and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Company, be contemplated. No stop
order suspending the sale of the Shares shall have been issued, and no
proceedings for that purpose shall have been commenced or shall be pending or,
to the knowledge of the Company, be contemplated.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
that would prevent the issuance of the Shares. No injunction, restraining order
or order of any nature by a federal or state court of competent jurisdiction
shall have been issued that would prevent the issuance of the Shares.
8. Subsequent Transfers of the Securities. The Subscriber further agrees
that, in connection with the resale of the Shares it will offer to sell the
Shares only after 41 days from the date of the closing of the last purchase
under the Offering, and only to, and will solicit offers
8
<PAGE>
to buy the Shares only from, persons who in purchasing such Shares will have
represented and agreed that (1) they are purchasing the Shares for their own
account, (2) all requirements of Regulation S have been satisfied, (3) if sold
outside the United States, the sale shall be to a foreign person in a
transaction meeting the requirements of Rule 904 of Regulation S under the Act,
and (4) the holder will, and each subsequent holder is required to, notify any
purchaser from it of the security evidenced thereby of the resale restrictions
set forth in Regulation S.
9. Notice. Notices given pursuant to any provision of this Agreement shall
be addressed as follows: (i) if to the Company, to American International
Petroleum Corporation, 444 Madison Avenue, Suite 3203, New York, New York 10022,
Attention: Denis J. Fitzpatrick, with a copy to Snow Becker Krauss P.C., 605
Third Avenue, New York, New York 10158, (ii) if to the Subscriber at the address
set forth at the signature page of this Agreement, or in any case to such other
address as the person to be notified may have requested in writing.
10. Miscellaneous. Except as otherwise provided, this Agreement has been
and is made solely for the benefit of the Company and shall be binding upon the
Subscriber and its successors and assigns, all as and to the extent provided in
this Agreement, and no other persons shall acquire or have any right under or by
virtue of this Agreement. Subscriber shall not assign this Agreement. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in various counterparts, which
together shall constitute one and the same instrument.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, AND EACH PARTY HEREBY AGREES THAT ALL PERFORMANCE DUE WITH RESPECT
TO TRANSACTIONS UNDERTAKEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE DUE
OR TO HAVE OCCURRED IN NEW YORK. THE EXCLUSIVE VENUE AND PLACE OF JURISDICATION
FOR ANY LITIGATION ARISING FROM OR RELATED TO THIS AGREEMENT SHALL BE THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE NEW YORK
STATE SUPREME COURT LOCATED IN THE COUNTY OF NEW YORK. THE PARTIES HERETO WAIVE
TRIAL BY JURY OF ANY DISPUTES BETWEEN THEM.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, the
________day of __________, ______.
Number of Shares
subscribed for: ______________
________________________________________
Name of Subbscriber
By: ___________________________________
Name:
Title:
Address:______________________________________________________
_________________________________________________________
Country in which this Agreement is executed by Subscriber:_______________
Telephone Number:_____________________
Telecopier Number:____________________
Social Security No. or Tax I.D. No. (if applicable): N/A
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: _____________________________
Denis J. Fitzpatrick
Vice President
ACCEPTED this ______ day of _________, ______
10
Exhibit 4.7
********************************************************************************
- ---------------------------------------
No. WT-__________ (WARRANT GROUP _____)
- ---------------------------------------
Warrant to Purchase
___________ Shares
STOCK PURCHASE WARRANT
To Purchase Common Stock of
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
Expires_________________, unless extended
pursuant to the terms hereof.
********************************************************************************
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE COMPANY OR
ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. New York Time, on _______________.
WARRANT TO PURCHASE ______________ SHARES OF COMMON STOCK
OF
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
This Is To Certify That, FOR VALUE RECEIVED, _______________________
(the "Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation
(the "Company"), up to _____________________________ (______________) fully
paid, validly issued and non-assessable shares of Common Stock ("Common Stock")
of the Company, par value $.08 per share, at an exercise price of $_______ per
share at any time during the period from the date hereof until 5:00 p.m. Eastern
Time, on __________. The shares of Common Stock deliverable upon such exercise
are hereinafter sometimes referred to as "Warrant Shares", and the exercise
price of a Warrant Share, as the same may be adjusted pursuant to Section (f)
below, is hereinafter sometimes referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole on
or after the date hereof and until ________________ provided, however, that if
such day is a day on which banking institutions in the State of New York are
authorized by law to close, then this Warrant may be exercised on the next
succeeding day which shall not be such a day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office or to
the Company's warrant agent, if any has been so appointed, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price, in cash or by certified or bank cashier's check, for the number of
Warrant Shares specified in such form. The Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of any such
exercise, provided that such exercise is in accordance with the provisions set
forth herein. As soon as practicable after each such exercise of the Warrant,
the Company shall issue or cause to be issued and delivered to the Holder a
certificate or certificates for the Warrant Shares, registered in the name of
the Holder. Upon exercise, the Holder shall be deemed to be the holder of record
of the Warrant Shares issuable upon such exercise, notwithstanding that the
stock transfer books of the Company
<PAGE>
shall then be closed or that certificates representing such Warrant Shares shall
not then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share remaining upon the full exercise hereof, the
Company shall pay to the Holder in lieu of the issuance of any fractional share
which is otherwise issuable an amount of cash based on the market value of the
Common Stock on the last trading day prior to the exercise date.
(d) LOSS OF WARRANT. Upon receipt by the Company or its warrant
agent, if any, of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
The acceptance of this Warrant by the Holder shall be deemed consent by the
Holder for the Company to enter into any warrant agreement with a warrant agent,
provided such warrant agreement does not adversely affect any of the rights of
the Holder set forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment as set forth below:
(i) (a) In case the Company shall hereafter (A) pay a dividend or
make a distribution on its Common Stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock, or (C) combine its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such action shall be adjusted so that the Holder,
upon exercise, shall be entitled to receive the number of shares of Common Stock
of the Company which the Holder would have owned immediately following such
action had such Warrant been exercised immediately prior thereto. An adjustment
made pursuant to this subsection shall become effective immediately after the
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(b) After each adjustment of the Exercise Price pursuant to
this subsection (i), the number of shares of Common Stock purchasable upon the
exercise of the Warrant shall be the number of Warrant Shares receivable upon
exercise hereof prior to such adjustment multiplied
3
<PAGE>
by a fraction, the numerator of which shall be the original Exercise Price as
defined above and the denominator of which shall be such adjusted Exercise
Price.
(c) In the event the Company at any time or from time to time
after the date hereof and prior to the exercise of this warrant shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that the Holder shall receive upon exercise of this
Warrant in addition to the number of shares of Common Stock receivable hereupon,
the amount of such other securities of the Company that it would have received
had the Warrant been exercised on the date of such event and had thereafter,
during the period form the date of such event to and including the exercise
date, retained such securities receivable by it as aforesaid during such period
giving application to all adjustments called for during such period under this
Warrant with respect to the rights of the Holder.
(ii) No adjustment in the Exercise Price shall be required to be
made unless such adjustment would require an increase or decrease of at least
$.05; provided, however, that any adjustments which by reason of this subsection
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section (f) shall be made
to the nearest cent or to the nearest tenth of a share, as the case may be, but
in no event shall the Company be obligated to issue fractional shares upon the
exercise of any Warrant.
(iii) No adjustment of the Exercise Price shall be made except on
the conditions set forth in this Section (f). Without limitation of the
foregoing, there shall be no adjustment pursuant to this Section (f) should the
Company issue any capital stock for cash or other consideration on terms
approved by the Board of Directors.
(iv) In case of any (A) reclassification or change of outstanding
shares of Common Stock issuable upon exercise of this Warrant, (B) consolidation
or merger of the Company with or into another corporation where the Company is
not the surviving entity or (C) sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Holder of the
Warrant shall have the right thereafter to receive on exercise of such Warrant
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided elsewhere in this Section (f). The above
provisions of this Section (f) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
4
<PAGE>
(v) In each case of an adjustment or readjustment of the Exercise
Price, the Company, at its expense, shall prepare a certificate showing such
adjustment or readjustment signed by the duly elected Treasurer or Chief
Financial Officer of the Company (the "Adjustment Certificate") and shall mail
the Adjustment Certificate, by first class mail, postage prepaid, to the Holder.
The Adjustment Certificate shall set forth such adjustment or readjustment,
including a brief summary of the facts upon which such adjustment or
readjustment is based including a statement of the Exercise Price and the number
of shares of Common Stock or other securities issuable upon exercise of each
Warrant immediately before and after giving effect to the applicable adjustment
or readjustment. No failure to mail the Adjustment Certificate nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the Holder to whom the Company failed to mail such Adjustment Certificate, or
except as to the Holder whose Adjustment Certificate was defective.
(g) TRANSFERABILITY; INVESTMENT REPRESENTATIONS. The Holder shall
not give, grant, sell, exchange, transfer legal title, pledge, assign or
otherwise encumber or dispose of this Warrant and the Warrant Shares unless the
Company first receives an opinion of counsel satisfactory to the Company that
the Warrant and/or the Warrant Shares may be transferred to the proposed
transferee in compliance with an exemption under the Securities Act or a safe
harbor provision of Regulation S under the Securities Act. The Holder, by
acceptance hereof, represents and warrants that (a) it is acquiring this Warrant
for its own account for investment purposes only and not with a view to its
resale or distribution and (b) it has no present intention to resell or
otherwise dispose of all or part of this Warrant. The Company may condition the
exercise hereof and the issuance or transfer of Warrant Shares on the receipt of
such representations and agreements as may be requested by the Company in order
to permit such issuance or transfer to be made pursuant to exemptions from
registration under federal and applicable state securities laws. Each
certificate representing this Warrant (or any part thereof) and any Warrant
Shares shall bear appropriate legends setting forth these restrictions on
transferability.
(h) NOTICES. All notices and other communications which are required
or may be given under this Warrant shall be in writing and shall be deemed to
have been duly given when delivered in person or transmitted by fax, one (1) day
after being sent by overnight courier service or three (3) days after being
mailed, first-class postage prepaid, in the case of the Company to 444 Madison
Avenue, 32nd Floor, New York, New York 10022, and in the case of the Holder to
the address previously given to the Company by the Holder, or to such address as
either party shall have specified by notice to the other party hereto. If notice
is given by registered or certified first class mail, postage prepaid, return
receipt requested, the return receipt shall be conclusive evidence of the notice
having been mailed on the date set forth.
(i) MISCELLANEOUS. This Warrant contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Warrant may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement is sought; provided however, that this Warrant may be
amended or modified without the consent of the Holder if such amendment or
modification does not adversely affect the rights of the Holder hereunder. This
Warrant will not
5
<PAGE>
be assigned by either party hereto and shall be interpreted under the laws of
the State of New York without application to the principles of conflicts of
laws.
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
By:______________________________________
Denis J. Fitzpatrick
Vice President and Chief Financial Officer
Dated: ___________________
6
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________________________ shares of Common
Stock and hereby makes payment of _______________________ in payment of the
actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _________________________________________________________________
(Please typewrite or print in block letters)
Address_______________________________________________________________
Signature___________________________________________________
ASSIGNMENT FORM
FOR VALUED RECEIVED, __________________________________________________
hereby sells, assigns and transfers unto
Name__________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
____________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date_________________, 19_______
Signature______________________________________________________
7
EXHIBIT 10.1
AGREEMENT
This Agreement is entered into and made between: MED SHIPPING AND TRADING S.A.
(MED), a Corporation under the Laws of the Republic of Liberia with office at
Kaiserstrasse 12. c/o Grossmann & Partner, 60311 Frankfurt am Main Germany;
represented by its Chairman Spyridon Armenis and AMERICAN INTERNATIONAL
PETROLEUM CORPORATION (AIPC), a Nevada Corporation with office at 444 Madison
Avenue, New York, NY 10022, represented by its Chairman Dr. George N. Faris.
MED represents that it holds and controls a ninety (90) percent interest in the
undivided interests of Exploration License, dated November 15, 1996 signed by
the Prime Minister of Kazakstan, Serles MG, No. 953 (Oil), issued to Scientific
Industrial Firm DANK TOO (DANK). License and translation attached to Exhibit "A"
(hereforth License). MED also represents that it has the authorization to
transfer or assign all or part of its interest in the License to AIPC in
accordance with its Agreements with the license holder DANK.
AIPC represents that it will accept an equity interest to participate in the
License and guarantee the execution and completion of the minimum work program,
and all expenditures related thereto, as specified in Section "B" of the
License, on the following basis.
1. MED will have the License transferred to MSUP in accordance with the
requirements of the Kazakstan government to the Joint Venture Company.
MSUP MED SHIPPING USTURT PETROLEUM Company Limited (MSUP). MED will
provide Financial Statements of MSUP as of March 31, 1997 which have been
signed by the authorized officers of MSUP. The Financial Statements of
MSUP will be prepared by AIPC's accounting representative with
representations from the management that there are no liabilities or
contingent liabilities subsequent to the statement date. The statements
will be made part of this Agreement and will be attached as Exhibit "B".
MED represents that MSUP has no liabilities as of this date, except for a
contingent liability of the annual payments of approximately USD $190,000
each beginning July 1998 for the procurements of the date upon the
transfer of the License to MSUP.
2. The Charter Documents and/or Articles of Incorporation of MSUP will be
modified to reflect the following conditions.
a). Percent of Ownership:
- AIPC 70%
- MED 20%
- DANK 10%
b). Board of Directors. The existing directors will resign and seven new
directors will be appointed to reflect the following distribution:
- AIPC 4
- MED 2
- DANK 1
<PAGE>
c). Authorized Capital: 1,000,000 (US DOLLARS EQUIVALENT)
- AIPC 700,000
- MED 200,000
- DANK 100,00
d). The value of the License No. 953 when assigned to MSUP will be equal
to the respective capital contributions of MED (USD $200,000) and
DANK (USD $100,000) and recorded in the MSUP records as their
respective initial capital contributions. Thereafter all further
valuations will be proportionate to the ownership of MSUP.
e). Revenue: All revenue will first be dedicated tot he liquidation of
all operating and capital expenditures and provisions for
appropriate taxes and required provisions. Eighty-five percent (85%)
of all remaining revenues are to be dedicated to the retirement of
principal and interest on financial loans related to MSUP and the
License Operations.
3. In consideration of the above and purchase of seventy percent (70%)
interest in MSUP from MED, AIPC will issue 700,000 common shares under the
regulation "S" provisions of the U.S. Securities Exchange Commission to
MED. The 700,000 shares will be issued and placed in trust with Stefan
Grossmann. The shares will be issued to the Trustee to coincide with the
effective date of transfer of the seventy percent interest to AIPC in the
joint venture company MSUP, and the above listed modifications to the
company charter are made. The said 700,000 shares will be held in trust by
Stefen Grossmann until the License No. 953 is officially transferred to
MSUP. The modifications to the MSUP charter will be done by AIPC's legal
representative and execution of this Agreement hereby authorizes AIPC's
legal representative to implement the claimer modifications immediately,
limited only to the terms mentioned above. AIPC commits to meet all
reasonable criteria of a "going concern" including demonstration of
financial capability to facilitate the transfer of the License to MSUP.
4. AIPC will make additional payments to MED when the License is transferred
to MSUP. These payments will be made in the following forms within fifteen
(15) days of the official written approval of the transfer of the License
to MSUP by the appropriate government entity; and the money, warrants and
shares mentioned below at a), b) and c) will be sent to Stefan Grossmann,
Trustee:
a) payment of USD 150,000
b) Issuance of five (5) year warrants to purchase 500,000 common shares
of AIPC stock at USD $2/share.
c) Issuance of 500,000 common shares of AIPC stock with a restrictive
legend that prohibits sale unless the five day average bid price of
AIPC stock is quoted on the NASDAQ National Marketing System is
equal to or greater than $2/share.
5. A special bonus will be paid to MED when an Execution License (Production
License), with royalties and bonuses acceptable to AIPC becomes effective.
This bonus will be paid with the Issuance of 1,500,000 shares of AIPC
common stock to be placed to trust with Grossmann & Partner. The Trustee,
Stefan Grossmann understands and agrees NOT to sell or dispose of the
1,500,000
<PAGE>
shares unless the five day average bid price of AIPC stock as quoted on
the NASDAQ National Marketing System is equal to or greater than USD
$5/share. A legend to that effect will be placed on the stock certificate.
6. AIPC warrants that it will be responsible for the planning execution and
evaluation required by the License minimum work programs. This program
will be funded by way of direct interest bearing loans to MSUP in addition
in the formation capital of the joint venture company. These loans will be
made either from AIPC corporate offices directly to MSUP or through the
wholly-owned subsidiary of AIPC established for operations in Kazakstan.
The interest rate will not exceed 3.5 times the U.S. prime interest rate
quoted by Chase Manhattan Bank New York.
7. All MSUP Co., Ltd. operations related to the License Series MG 953, both
in the Exploration and Extraction phases, will be executed and managed by
the wholly-owned subsidiary of AIPC established for operations in
Kazakstan. A standard International Joint Operating Agreement will be
executed between MSUP Co., Ltd. and the subsidiary to govern and control
all aspects of the joint operations related to the License. A draft of
this standard form has been presented to MED and is included herein as
Annex A.
8. The AIPC wholly-owned subsidiary for Kazakstan operations will develop a
Technical Service Contract with DANK to provide the required local
technical support, governmental contracts, and the required interphase
with ministerial and regulatory entities. This Technical Services Contract
will be executed on an "arms length" basis and all fees will be supported
by appropriate documentation of completed work. Contract fee amounts will
not exceed normal local rates for similar services.
9. As additional consideration, AIPC will enter into a separate consulting
agreement with MED, simultaneously with the execution of this Agreement,
for the services of Mr. Spyridon Armenis. A draft of this consulting
agreement is included herein as Annex B. This agreement will provide for
the direct support of Mr. Armenis in the transition of establishing the
local APIC subsidiary's operation in Kazakstan establishment of contracts
for crude sales and marketing, development of production properties, and
other activities related to the enhancement of the License and AIPC's
Kazakstan operations. In addition, Mr. Armenis will be available to
prepare reports and presentations on the project which may be required for
presentation to industry analysts, potential investors and/or business
partners. MED will be pre-paid USD $23,000,000 per month for these
services starting with the execution of this Agreement, which includes all
international travel and related expenses. It is anticipated that Mr.
Armenis will be required to make at least four trips a year to Kazakstan
in execution of these functions reasonable travel expenses for additional
trips by Mr. Armenis will be reimbursed upon submittal of appropriate
documentation of expenditures. AIPC will reimburse Mr. Armenis for all
reasonable travel expenses ____ for trips requested by AIPC in relation to
reports on presentations to the investor community. Said expenses will be
supported by adequate documentation and receipts in accordance with normal
company practices. This Consulting Agreement will continue for a term not
to exceed three years, and will terminate automatically with:
a). the sale, transfer or assignment of any portion of MED or of AIPC's
increase in the License in and/or MSUP Co., Ltd. to an unrelated
entity, subject to the provisions of section 10.a) and 10.b), or
b). Initiation of a production program with the sustained production
rates of 3,000 bbls/day or gas equivalent, and the corresponding
actual distribution of revenue is made to MED in
<PAGE>
replacement of the consulting fee. In the event that the
distribution is less than the stated consulting fee, AIPC shall make
up the difference in cash, or
c). involuntary removal of AIPC as Operator of the License; or
d). Mr. Armenis is not able to comply with the terms of the Consulting
Agreement due to his involvement in other projects, physical
incapability or separation from MED.
10. Each of the shareholders of MSUP Co. Ltd., will have a preferential right
to purchase shares offered by any of the original shareholders or any
proposed sale of transfer of any shares in the company as stipulated in
article 10 of the Charter of MSUP Co., Ltd. The Charter should be revised
to state that any partial sale or transfer of interest will be made in
proportion to the original interest of the parties of AIPC, MED and DANK,
and at each party's option. It is agreed that MED's representative, Mr.
Spyridon Armenis, is appointed as the President of the Executive Operating
Committee as provided in the Join Operating Agreement governing operations
of the License No. 953.
a). In the event that AIPC transfers all of its interest in MSUP, the
receiving party will assume all of the obligations of AIPC related
to the consulting agreement with MED. It will be AIPC's
responsibility to make such arrangements.
b). If AIPC transfers part of its interest in MSUP, the new party will
participate proportionally in the obligations of AIPC related in the
consulting agreement with MED. It will be AIPC's responsibility to
make such arrangements.
11. MED will provide, simultaneously with the execution of this Agreement,
satisfactory disclosure to AIPC on all agreements for payments it has made
with third parties or shareholders of MED in relation to the execution of
the License that could commit AIPC for future payments to maintain the
License. MED represents that it has not made any commitments on AIPC's
behalf, financial or otherwise, as of this date.
12. If MED and DANK are not able to have the License No. 953 transferred to
MSUP within three months from the execution date of this Agreement, AIPC
will receive a 10% interest in the License for the consideration it has
paid MED to date, through a Joint Venture Agreement with MED and DANK. In
this event, AIPC will be responsible only for its proportionate share of
costs related to the development of the Joint Venture and the obligations
under the License No. 953; in addition no payments under sections, 3, 4,
5, 8 and 9 will be due. This date can only be extended at AIPC's option by
evidence in writing of said extension from AIPC reasonable extensions will
be granted if the delay in transfer of the License is due to
non-performance by AIPC or the government's reluctance to transfer the
License to MSUP without a completed Contract as specified under clause 8.1
of the License.
13. The parties assure one another of their good faith. Any disputes shall be
resolved by amicable discussions and negotiations. Any remaining dispute
controversy or claim arising out of or in relation to or in connection
with this Agreement or operations carried out under this Agreement,
including without limitation any dispute as to the contribution, validity,
interpretation, enforceability or breach of this Agreement shall be
exclusively and finally settled by arbitration, and any party may submit
such a dispute, controversy or claim to arbitration; and English law shall
apply. The arbitration shall take place in London, England in the English
language under the rules of the London Court of International Arbitration,
which
<PAGE>
are herewith referred to and declared part of this present Agreement; and
the decision of the arbitration will be binding and final on the parties.
The losing party will pay for the reasonable costs and legal fees of the
other side incurred in reference to the arbitration.
14. No amendments, changes or modifications to this Agreement shall be valid
except if the same are in writing or telefax and signed by a duly
authorized representative of each of the parties. At any time the parties
may unanimously agree to amend this Agreement. This Agreement may be
executed in one or more counterparts, all which when taken together shall
constitute one and the same document. This Agreement may be executed by
facsimile, and such execution shall have the same force and effect as if
executed in the original.
15. This Agreement comprises the full and complete agreement of the parties
hereto with respect to the transfer of interest in the License No. 953 and
related operations, and contracts with MED, and supersedes and cancel all
prior understandings and agreements between the parties hereto, whether
written, oral expressed or implied. In the event of any conflicts between
the provisions of this Agreement and provisions in any other related
documents, the provisions of this Agreement shall control.
16. This Agreement shall inure to the benefit of and be binding upon the
successors, assignees and transferees of the parties; provided, however,
this section shall not be deemed to authorize successions, assignments or
transfers not otherwise expressly permitted herein.
17. During the term of this Agreement, no party shall in respect of its
participation interest create any royalty interest, overriding royalty
interest, net profits interest, or other similar interest, out of its
participating interest hereunder which would in any way effect the
participating interests of any of the other parties.
Both parties represent that their respective Boards have been informed of this
Agreement and approve execution. The parties agree to supply written
documentation of the respective board resolutions authorizing execution of this
Agreement.
Agreed to at Frankfurt and New York, this 22nd day of April 1997.
- ----------------------------- ----------------------------
Spyridon Armenis Dr. George N. Faris
Chairman and President of MED Chairman and CEO of AIPC
- ----------------------------
Stefan Grossmann, Trustee
<PAGE>
ANNEX B
CONSULTING SERVICES
AGREEMENT
1. This CONSULTING SERVICES AGREEMENT ("AGREEMENT") is effective this 22nd
day of April 1997 between American International Petroleum Corporation
("AIPC") with office at 444 Madison Avenue, New York, NY represented by
its President, Dr. George N. Faris, and MED Shipping and Trading S.A.
("MED"), with office c/o Grossmann & Partner, Kaiserstrasse 12, 60311
Frankfurt am Main, Germany, represented by its President Spyridon Armenis.
2. Both parties agree that this AGREEMENT does not form any employer-employee
relationship between them, MED is an independent Consultant for oil and
gas with Spyridon Armenis ("Armenis") as its President. MED represents
that it is not controlled by U.S. citizens as defined in the SEC
regulations. MED herewith waives all benefits that normally are paid or
granted only to an employee in the sense of labor law (for instance,
social security, termination protection, pension rights, etc.).
3. In connection with his Presidency for MED Shipping and Trading S.A., MED
herewith offers his services as an independent non-employed Consultant for
all business questions and problems related to the License dated 16th of
November 1996, signed by the Prime Minister of the Republic of Kazakstan.
Series MG No. 953 (Oil) ("License") and related to the Agreement between
AIPC and MED as shown in Exhibit "A" to this AGREEMENT.
4. AIPC herewith accepts MED's foregoing offer.
5. Both parties agree that ARMENIS shall use his personal contacts with
business people and government officials and government advisors in
Kazakstan, USA and Europe in order to further the profitable development
and exploitation of the License. Specifically:
a). ARMENIS will provide all help and support reasonably at his
disposition for the transition of establishing the local AIPC
subsidiary's operations in Kazakstan, establishment of contacts for
crude sales and marketing, development of production properties, and
other activities related to the enhancement of the License and
AIPC's Kazakstan operations. (Agreement between AIPC and MED , Sect.
9). In addition, ARMENIS will be available to prepare reports and
presentations on the project which may be required for presentation
to industry analysts, potential investors, and/or business partners.
b). In relation to development of production properties, it is
understood that ARMENIS will offer all and any opportunities first
to AIPC and nothing will be interpreted as conflict of interest for
ARMENIS to secure an appropriate interest for MED's benefit.
However, if AIPC decides that it does not wish to pursue any of
these opportunities, ARMENIS will be deemed free to pursue those
opportunities for the full benefit of MED without any obligations or
reimbursements to AIPC.
c). In compensation for ARMENIS's consultant services, MED (c/o
Grossmann & Partners trust account), will be paid US$23,000 (twenty
three thousand US dollars) per month prepaid, which is to start with
the Execution of the Agreement between MED and AIPC and which
includes all international travel and related expenses. It is
anticipated that
<PAGE>
ARMENIS will be required to make at least four trips a year to Kazakstan
in execution of those functions. Reasonable travel expenses for additional
trips by ARMENIS will be reimbursed upon submittal of appropriate
documentation of expenditures (Kazak invoices will be in Russian and Tenge
currency). AIPC will reimburse MED for all reasonable travel expenses
incurred for the trips requested by AIPC in relation to reports or
presentations to the investor community. Said expenses will be supported
by adequate documentation and receipts in accordance with normal company
practices.
d). This AGREEMENT will become effective upon the execution of the
Agreement between MED and AIPC. It will continue for a term not to
exceed three (3) years, and will terminate automatically under the
provisions of sect.8a.), 8b), 8c) and 8d) of the Agreement between
MED and AIPC, which are further repeated and expanded as follows:
(i) the sale, transfer, or assignment of any portion of MED's
interest in the License and/or in MSUP MED Shipping Usturt
Petroleum Co., Ltd. to an unrelated entity or
(ii) Initiation of a production program with sustained production
rates of 3,000 barrels per day or gas equivalent, and the
corresponding actual distribution of revenues flowing to MED
is at least equivalent to the consulting fee, AIPC shall have
the right to make up the difference in cash, or
(iii) ARMENIS is unable to comply with the terms of this Agreement
due to separation from MED, physical incapacity, or
involvement in other projects; however, this clause is not
arbitrary and does not give permission to AIPC to make
unreasonable requests. AIPC shall notify ARMENIS at least
seven (7) days before any travel requests.
6. MED's consultant shall not be construed as an agency of AIPC or its
subsidiaries. Neither MED nor ARMENIS shall have power of attorney to
create legal obligations on behalf of AIPC.
7. Election of law and Arbitration agreements shall be identical with the
respective passages in the Agreement between AIPC and MED (there, sect.
73).
Date: _________
- ---------------------------------------
Dr. George N. Faris
President
American International Petroleum Corporation
- ---------------------------------------
Spyridon Armenis
as President of MED Shipping and Trading S.A. and as Consultant
<PAGE>
Additional, Clause per the handwritten "Note" above:
Consultant and MED expressly agrees to indemnify and hold harmless AIPC and its
agents, directors, officers and employees from and against all losses, expenses
(including, but not limited to, attorney's fees), claims, demands, liabilities
or causes of action arising in connection with the performance of this Agreement
which are the result of illness, injury or loss of life.
Exhibit 10.2
FIRST AMENDMENT
To the AGREEMENT
Between MED and AIPC dated April 22, 1997
This AMENDMENT is entered into and made between: MED SHIPPING AND TRADING S.A.
(MED), a Corporation under the Laws of the Republic of Liberia with office at
Kaiserstrasse 12, c/o Grossmann & Partner, 60311 Frankfurt am Main, Germany,
represented by its chairman Spyridon Armenis, and AMERICAN INTERNATIONAL
PETROLEUM CORPORATION (AIPC), a Nevada Corporation with office at 444 Madison
Avenue, New York, NY 10022, represented by its Chairman Dr. George N. Faris.
Additional parties will be AIPK (see below) and Stefan Grossmann as Trustee.
This AMENDMENT is to be added to and become an integral part of the Agreement
between MED and AIPC dated April 22, 1997 that refers to the License signed by
the Prime Minister of Kazakstan dated November 15, 1996, Series MG.
No. 953 (Oil) (henceforth: AGREEMENT).
AIPC represents that, without delay, it is in the process of forming a new
company under the laws of the Republic of Kazakstan, the names of which shall be
AMERICAN INTERNATIONAL PETROLEUM KAZAKSTAN (AIPK). Regardless of whether this
new company has formally been registered or the registration of said company is
yet to take place, the parties agree to the following:
1. AIPC hereby assigns, transfers and cedes all its rights acquired in the above
stated AGREEMENT and likewise assigns, transfers and cedes all its obligations
and commitments included therein to its wholly owned subsidiary AIPK. AIPK will
be the designated Operator in the Joint Operation Agreement as provided in
section "7" of the AGREEMENT and will perform all other such tasks specified in
the AGREEMENT as the wholly owned subsidiary of AIPC for Kazakstan operations,
including but not limited to sections 8.9 and 10 of the AGREEMENT dated April
22, 1997.
2. It is hereby expressly stated and understood by the parties, without
prejudice to this assignment, transfer and cession of interest in this
AGREEMENT, that AIPC hereby provides a Corporate Guarantee to MED for all the
obligations and commitments assumed by AIPK, and its Kazakstan branch to be duly
registered and established under the laws of the Republic of Kazakstan. Thus,
MED shall not come into the situation to loose the protection of its rights
under the AGREEMENT by the AIPC parent company; and the AIPC parent company
shall likewise at all times be able to claim all of its rights agreed under the
AGREEMENT against MED either directly (through AIPC) or through AIPK.
3. MED and AIPC herewith agree on the following changes of their AGREEMENT dated
April 22, 1997:
<PAGE>
2
a) In section 2.e), third line, the figure "Eighty-five percent (85%)" is
herewith changed to "One hundred percent (100%)";
b) Section 5. is deleted and replaced by a new section 5. that reads as follows:
"A special bonus of 1,500,000 (one point five million) common shares of AIPC
will immediately be issued and transmitted by AIPC to MED (the hands of Trustee
for MED Stefan Grossmann) pursuant to regulation "S" as soon as the average bid
price of AIPC stock (as measured by the five previous trade days average bid
price) as quoted on the NASDAQ National Marketing System reaches or exceeds US$5
per share. All reference to the issuance of a Production License is herewith
canceled and removed from section 5."
c) In section 12., third line, the words and figure "will receive a 10%
interest" are herewith changed into "will receive a 20% (twenty percent)
interest";
d) In consideration for the above and as an incentive to accelerate the transfer
of the License to MSUP, AIPC will issue to MED to the hands of Stefan Grossmann,
Trustee for Med (ledger: "In Trust for Med Shipping and Trading S.A.") pursuant
to regulation "S" 200,000 (two hundred thousand) common shares of AIPC
immediately when the following conditions have been met:
aa) Scientific-Industrial Firm DANK TOO will sign a Release and Waiver Statement
in which DANK waives its right of first refusal pursuant to sect. 10.7 of the
MSUP Charter document; and a copy of this letter will be given by MED to AIPC.
bb) Scientific-Industrial Firm DANK TOO will sign a letter (in English) to the
competent Kazakstan Ministry requesting that the License Series MG, No. 953 be
transferred to MSUP as the new License owner; and a copy of this letter will be
given by MED to AIPC; and the License will have been transferred to MSUP.
Receipt of Ministry Notification of such transfer shall be deemed to fulfill all
of the above conditions.
4. Further, in the event that within ninety (90) days from the date of this
AMENDMENT, MED, through its efforts and its attorney Wayne S. Bishop/Linkage
Group, is able to induce ORYX Energy Company or subsidiary of ORYX to sign an
agreement or binding letter of intent with MSUP acceptable to AIPC, AIPC will
issue immediately in TRUST to MED (to the hand of Stefan Grossmann, Trustee for
MED) 350,000 (three hundred and fifty thousand) regulation "S" common shares of
AIPC upon the execution of such agreement or binding letter of intent.
5. Further, AIPC agrees to share with MED proportionately to the interests under
the AGREEMENT dated April 22, 1997 the 10% (ten percent) fee promised to Wayne
S. Bishop, Esq./Linkage Group if such agreement with ORYX/ORYX subsidiary
referred to above materializes.
6. Upon execution of the AMENDMENT, MED will implement a meeting with ORYX and
include AIPC's representative(s).
<PAGE>
3
7. This AMENDMENT is agreed to and executed this 9th day of May 1997 and is
approved as evidenced by the signatures of the authorized representatives of the
parties below. The signatures of the officers below is an indication of the
approvals of their respective Boards of this Amendment.
- -------------------------------- --------------------------------
Spyridon Armenis Dr. George N. Faris
Chairman and President of MED Chairman and CEO of AIPC
- --------------------------------
Stefan Grossmann
Trustee
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,209,388
<SECURITIES> 2,565,246
<RECEIVABLES> 1,594,667
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,768,374
<PP&E> 26,512,638
<DEPRECIATION> 4,150,005
<TOTAL-ASSETS> 32,788,108
<CURRENT-LIABILITIES> 5,686,720
<BONDS> 0
0
0
<COMMON> 3,510,167
<OTHER-SE> 20,893,055
<TOTAL-LIABILITY-AND-EQUITY> 32,788,108
<SALES> 103,738
<TOTAL-REVENUES> 103,738
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,141,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,583,757
<INCOME-PRETAX> (4,621,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,621,540)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,209,388
<SECURITIES> 2,565,246
<RECEIVABLES> 1,594,667
<ALLOWANCES> 0
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0
0
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</TABLE>
