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 March 31, 2000
Commission File number No. 0-14905
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 13-3130236
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2950 NORTH LOOP WEST, HOUSTON, TEXAS 77092
(Address of principal executive offices) (Zip Code)
(713) 802-0087
(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 May 3, 2000 is 107,116,261 shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 336,033 $ 1,753,707
Accounts and notes receivable, net 713,216 497,553
Inventory 300,049 723,088
Deferred financing costs 103,700 130,727
Prepaid expenses 1,071,418 793,956
------------- -------------
Total current assets 2,524,416 3,899,031
------------- -------------
Property, plant and equipment:
Unevaluated oil and gas property 32,407,559 31,556,376
Refinery property and equipment 38,016,375 37,999,682
Other 1,020,319 1,005,886
------------- -------------
71,444,253 70,561,944
Less - accumulated depreciation, depletion,
and amortization (6,988,836) (6,470,672)
------------- -------------
Net property, plant and equipment 64,455,417 64,091,272
Notes receiviable, less current portion 1,205,112 1,252,696
Other long-term assets, net 128,258 415,270
------------- -------------
Total assets $ 68,313,203 $ 69,658,269
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debentures $ 3,953,933 $ 2,223,500
Notes payable - trade 1,903,297 1,736,831
Accounts payable 1,896,425 3,641,886
Accrued liabilities 1,017,582 1,301,472
------------- -------------
Total current liabilities 8,771,237 8,903,689
Long-term debt 6,501,448 11,984,592
------------- -------------
Total liabilities 15,272,685 20,888,281
------------- -------------
Commitments and contingent liabilities -- --
Minority Interest Liability 305,956 305,956
Stockholders' equity:
Preferred stock, par value $0.01, 7,000,000 shares
authorized, none issued
Common stock, par value $.08, 200,000,000 shares authorized,
106,746,114 and 91,282,773 shares issued outstanding
at March 31, 2000 and December 31, 1999, respectively 8,539,688 7,302,621
Additional paid-in capital 152,056,546 145,605,966
Common stock issued as collateral, held in escrow (1,000,000) (1,065,938)
Accumulated deficit (106,861,672) (103,378,617)
------------- -------------
Total stockholders' equity 52,734,562 48,464,032
------------- -------------
Total liabilities and stockholders' equity $ 68,313,203 $ 69,658,269
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Refinery operating revenues $ 1,182,957 $ 1,863,506
Other 27,873 41,382
------------ ------------
Total revenues 1,210,830 1,904,888
------------ ------------
Expenses:
Costs of goods sold - refinery 1,391,929 1,633,491
General and administrative 1,891,355 1,584,163
Depreciation, depletion and
amortization 518,164 332,210
Interest 892,437 1,392,169
------------ ------------
Total expenses 4,693,885 4,942,033
------------ ------------
Net loss $ (3,483,055) $ (3,037,145)
============ ============
Net loss per share of common stock - basic and diluted $ (0.04) $ (0.05)
============ ============
Weighted-average number of shares
of common stock outstanding 97,670,153 66,059,813
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,483,055) $ (3,037,145)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion, amortization and accretion of
discount on debt 1,096,891 678,350
Accretion of premium on notes receivable (22,416) (12,651)
Non-cash provision for services -- 131,251
Issuance of stock for compensation expense 11,250 --
Changes in assets and liabilities:
Accounts and notes receivable (215,663) (388,329)
Inventory 423,039 (20,311)
Prepaid and other (474,343) (30,986)
Accounts payable and accrued liabilities (398,067) (2,580,270)
------------ ------------
Net cash used in operating activities (3,062,364) (5,260,091)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (851,183) (854,878)
Additions to refinery property and equipment (16,693) (673,162)
Increase (decrease) to other long term assets 342,579 (183,651)
------------ ------------
Net cash used in investing activities (525,297) (1,711,691)
------------ ------------
Cash flows from financing activities:
Net increase in short-term debt 1,812,083 --
Net increase in notes payable 166,466 414,547
Repayments of long-term debt -- (5,300,000)
Proceeds from exercise of stock warrants
and options 191,438 --
Proceeds from issuance of debentures, net -- 11,800,000
------------ ------------
Net cash provided by financing activities 2,169,987 6,914,547
------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,417,674) (57,235)
Cash and cash equivalents at beginning of year 1,753,707 376,745
------------ ------------
Cash and cash equivalents at end of year $ 336,033 $ 319,510
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Common stock Additional Stock
------------------------ paid-in Held Accumulated
Shares Amount capital In Escrow deficit Total
----------- ---------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 91,282,773 $7,302,621 $145,605,966 (1,065,938) $(103,378,617) $48,464,032
Conversions of debentures 12,091,697 967,336 4,847,779 -- -- 5,815,115
Issuance of stock in lieu of current
liabilities 1,793,303 143,464 1,050,322 -- -- 1,193,786
Issuance of stock for compensation 20,000 1,600 9,650 -- -- 11,250
Issuance of stock options and warrants -- -- 104,496 -- -- 104,496
Options and warrants exercised 1,558,341 124,667 66,771 -- -- 191,438
Adjustment to value of stock previously
issued for collateral on debt -- -- 371,562 65,938 -- 437,500
Net loss for the year -- -- -- -- (3,483,055) (3,483,055)
----------- ---------- ------------ ---------- ------------- -----------
Balance, March 31, 2000 106,746,114 $8,539,688 $152,056,546 (1,000,000) $(106,861,672) $52,734,562
=========== ========== ============ ========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
AMERICAN INTERNATIONAL PETROLEUM CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 March 31,
2000, the results of operations for the three month period ended March 31, 2000
and 1999 and cash flows for the three months ended March 31, 2000 and 1999.
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 1999 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1999 Annual Report on Form 10-K.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company has two major segments of its business, refining and oil and gas
exploration and development, although the Company has had no oil and gas
production operations since the first quarter of 1997 when it sold its South
American wholly-owned oil and gas subsidiaries. Since this sale, the Company's
oil and gas activities have included, but were not limited to, geological and
geophysical acquisition, reprocessing and/or analysis of data, acquisition of
additional licenses or projects, drilling, and marketing analysis and
negotiation. The Company has yet to implement oil and/or gas production
operations in Kazakhstan, where it has two gas and oil concessions, or
elsewhere. For the three months ending March 31, 2000, the Company's refining
segment, located in the United States, had sales revenues of $1,183,000 and
costs and operating expenses of $1,990,000. Intrest income and other corporate
revenues totaled $28,000 with general corporate expense, interest expense, and
depreciation being $1,294,000 and $892,000, and $518,000 respectively. The
Company's identifiable assets at March 31, 2000 total $30,666,847 operating
assets in the United States, $32,579,000 for Kazakhstan, and $1,867,575 of
corporate assets.
6
<PAGE>
For the Three Months Ended March 31, 2000 as compared
to the Three Months Ended March 31, 1999
Refinery Operations:
During the first quarter of 2000, the Company recorded revenues of approximately
$1,183,000 compared to $1,864,000 during the same period in 1999. Asphalt sales
accounted for all the sales in the first quarter of 2000 compared to
approximately $1,450,000 in 1999 with the remaining revenues of approximately
$414,000 in 1999 being light-end petroleum product sales. Cost of sales for
asphalt products, excluding non asphalt operating costs, for 2000 and 1999,
approximated $1,184,000 and $1,160,000, respectively. Asphalt sales volumes
decreased approximately 36%, although asphalt sales revenues decreased only
approximately 18%. The decrease in sales volumes is attributable to the
Company's difficulties in acquiring sufficient asphalt material to supply its
customers during the first quarter of 2000. The shortage of product is due to
the decrease in the supply of crude oil and related petroleum products due to
the significant increase in world oil prices over the past twelve months. The
Company has made significant efforts to change its sales mix from low margin,
lower grade conventional asphalt to high margin, higher grade polymerized
performance ("PG") grade asphalt products. Approximately 79% of the Company's
asphalt sales during the first quarter of 2000 were PG-grade products compared
to approximately 66% during the same period in 1999. With the decision of the
oil producing nations during the first quarter of 2000 to increase petroleum
output, the Company does not anticipate a continued shortage of product during
the remainder of 2000. The Company currently has a backlog of asphalt sales
orders of approximately 60,000 tons. Due to the increased oil prices that were
in effect during most of 1999, the Company chose to purchase less expensive
wholesale asphalt on the spot market as opposed to purchasing crude oil and
operating its refining unit. The Company is continuing to purchase its asphalt
materials on the spot market. Because the Company did not operate its refining
unit during the first quarter of 2000, there were no light-end products produced
or sold compared to approximately $414,000 of light-end revenues in the first
quarter of 1999.
The Company's St. Marks, Florida refinery facility has not been in operation
since the last quarter of 1998. Because of the high cost of asphalt products due
to the shortage of petroleum products since early 1999, the higher demand for
the higher margin, PG-grade polymerized products in the Louisiana and Texas
markets, the lack thereof in the St. Marks markets, and the additional cost
which would be incurred to transport products to St. Marks from Lake Charles,
the Company has not operated in the St. Marks market during that time. These
conditions have continued and, thus, St Marks was not operated during the first
quarter of 2000. Operating the St. Marks facility will depend on the future
price and availability of petroleum products.
Other Revenues:
Other revenues decreased approximately $14,000, which is attributable to a
decrease of interest income due to fewer funds being on deposit during the
current quarter compared to the same period last year.
7
<PAGE>
General and administrative:
General and administrative expenses, ("G&A") increased approximately $307,000
compared to the first quarter of 1999. Financing costs, included in G&A,
increased approximately $270,000 due to the write off of prepaid bond costs
associated with the conversions of approximately $5.8 million dollars of
debentures during the first quarter of 2000. Payroll and employee related costs
increased approximately $214,000 and public relations decreased approximately
$184,000.
Depreciation, depletion and amortization:
Depreciation, depletion and amortization expense increased approximately
$186,000 during the current period compared to the same period last year due to
assets having been placed in service during the first quarter of 1999 having a
full quarter of depreciation in 2000 compared to a partial depreciation in the
same period last year.
Interest expense:
Interest expense decreased approximately $500,000 during the current quarter
compared to the same quarter in 1999, primarily due to a $525,000 interest
payment paid on a prepaid principal payment on long-term debt during the first
quarter of 1999. Non-cash charges of approximately $382,000 were recorded during
the first quarter of 2000 for financing costs related to the Company's
convertible debentures outstanding during the current quarter compared to
$1,000,000 of non-cash charges recorded in 1999. No interest was capitalized in
the first quarter of 2000 compared to $548,000 of non-cash interest capitalized
during the same period last year.
Liquidity and Capital Resources
During the first quarter ended March 31, 2000, the Company used a net amount of
approximately $3,062,000 for operations, which reflects approximately $1,086,000
in non-cash provisions, including $579,000 in loan costs, issuance of stock in
lieu of cash payments of $11,000 and depreciation and amortization of $518,000.
Approximately $423,000 was provided during the period to decrease product and
feedstock inventory and $292,000 was used to decrease accounts payable and
accrued liabilities and to increase current assets other than cash. Additional
uses of funds during the quarter included additions to oil and gas properties
and Refinery property and equipment of $851,000 and $17,000, respectively. Cash
for operations was provided, in part, by proceeds from a short-term bridge note,
issued in February 2000, and net of expenses, of approximately $1,812,000 and an
increase in notes payable of approximately $166,000.
In February 1999, Mercantile International Petroleum, Inc. ("MIP") failed to pay
the $1.6 million outstanding balance due to the Company of the 5% convertible
debenture it issued to the Company as partial payment for the purchase of the
Company's oil and gas properties in
8
<PAGE>
Columbia and Peru, South America in February 1997. In January 2000, the parties
reached an agreement (the "MIP Agreement"), whereby MIP acknowledged its
indebtedness to the Company in the amount of $1,581,000 for the outstanding
balance of the 5% convertible debenture and an additional amount of $1,306,000
in connection with the "earnout" provision" of the original purchase agreement.
MIP also agreed to repay the aggregate debt due to the Company of $2,888,000 by
issuing a new 11.5% convertible debenture to the Company, which is secured by
MIP's Colombian oil production. Beginning in February 2000, MIP agreed to pay
monthly to the Company the greater of $70,000 or 80% of its Colombian
subsidiary's net income during the calendar year 2000. Thereafter, MIP will pay
monthly the greater of $80,000 or 80% of the subsidiary's net income until the
debt is retired. The unpaid portion of the debt is convertible into MIP common
stock at the option of the Company, at any time at $1.50 per share.
MIP also agreed to issue the Company warrants entitling it at any time prior to
December 31, 2002 to purchase an aggregate of 2,347,000 common shares of MIP:
(i) during the year 2000, at the greater of $.25 per share or the weighted
average trading price for the first 10 days after MIP's shares resume
trading (MIP was delisted from the Toronto Exchange in 1999), to a
maximum of $.50;
(ii) during the year 2001, at $1.00 per share; and
(iii) during the year 2002, at $1.50 per share.
A dedicated bank account has been set up in Bogota, Columbia for deposit of oil
sales proceeds and disbursement of payments due to the Company pursuant to the
MIP Agreement. The Company began receiving the monthly payments in March of this
year and expects no interruption in the future.
The Company plans to begin its Shagryly-Shomysmty gas field ("Shagryly" or
"License 1551") development in Kazakhstan in the summer of 2000. The initial
phase of the development will cost approximately $4.5 million and is expected to
be funded from the proceeds derived from the sale of a portion of Shagryly and
from financing to be provided by the purchaser, which financing is expected to
also be provided to fund the Company's remaining interest in the project
subsequent to the sale. The total development cost for the project is estimated
at approximately $160 million to $180 million. The Company is also having
discussions with other financing entities, suppliers and export credit agencies
regarding project financing for the development of Shagryly. However, the
Company's strategy is to sell a minimum of 50% of Shagryly prior to commencing
the main phase of development. If the Company is unable to sell a portion of
Shagryly, the development could be delayed until adequate financing is
appropriated.
In April, 2000 the Company signed a protocol (letter of intent) for the
potential sale of a working interest in its License 1551 to Itera International
Energy LLC ("Itera"), a conglomerate principally engaged in owning and operating
natural gas properties in the Russian Federal Republic and Central Asia, and
marketing natural gas throughout the Commonwealth of Independent States (CIS).
The protocol represents progress in Itera's continuing evaluation in connection
with acquiring
9
<PAGE>
a working interest in License 1551, and follows their review of the technical,
economic and contract data during their recent visit to AIPC's office in Almaty,
Kazakhstan. Commercial terms are yet to be finalized. AIPC would continue as the
operator of the License and Itera would provide marketing assistance and
financial support. This is the second protocol that AIPC has entered into.
The Company signed a separate protocol in December, 1999 with Tyumen Oil
Company, one of the leading oil and gas companies in Russia to form a joint
venture for the financing and development of License 1551. Tyumen would make an
up-front cash payment to AIPC and receive a one-half interest in the License and
assume responsibility for providing one-half of the cost of its development.
AIPC would be the operator of the License and Tyumen would provide key technical
and supervisory personnel to facilitate the low cost and expedient development
and operation of the gas field and associated facilities. Tyumen would also
provide financing guarantees for the Company's share of development costs. The
Company is working with both Itera and Tyumen to negotiation equitable terms for
all the parties to participate.
The Company met its minimum work and monetary obligations on its License 953 in
Kazakhstan during 1999. Its year 2000 obligation amounts to approximately $1.7
million, which it expects to fund with proceeds derived from the partial sale of
Shagryly and/or from supplemental financing. The Company has no current plans to
spend any additional amounts on License 953 during the year 2000, other than its
year 2000 obligations.
The Company is currently engaged in negotiations with Gasprom, the Russian gas
transport company, for the transportation and sale of its anticipated Shagryly
gas production. The Company expects that a U.S. Dollar or Eurodollar-based gas
sales and transportation contract to be concluded in the second quarter of 2000.
In the event the contract is consummated, the Company expects to have a
significant amount of proved gas reserves, which it could utilize as a borrowing
base for various Company capital requirements, including the development of the
Shagryly gas field. It has also been having discussions with the drilling
subsidiary of Gasprom regarding a drilling contract to develop the Shagryly gas
field.
In February 2000, AIRI entered into lease and service agreements (the "Maretech
Agreements") with Maretech Corporation ("Maretech"), an independent refinery
whereby Maretech will lease AIRI's ADU and process condensate crude oil
utilizing AIRI's personnel to operate the daily processing functions. Maretech
plans to produce naphtha and gas oil to be sold as feedstocks and diesel and JP8
to be marketed as finished products. The term of the Maretech Agreements is one
year renewable. Maretech will pay AIRI $.20 per barrel of feedstock run through
the ADU as a lease fee, which lease fees shall not be lower than $45,000 per
month. In addition, Maretech will pay all expenses directly associated with the
operation of the ADU including, but not limited to, wages, office expense,
normal maintenance, property taxes, utilities, fuel, chemicals, and insurance.
All payments will be made directly to each vendor by Maretech for services and
materials. The Agreement also calls for AIRI to receive 25% of Maretech's
profits from the operations.
10
<PAGE>
Maretech has obtained financing guarantees for its feedstock supplies from a
large financial institution and has also provided AIRI with an Irrevocable
Letter of Credit in the amount of $400,000 to protect AIRI in the event of a
default by Maretech.
Since the Maretech Agreements only involve the ADU (although there is some
shared usage of other AIRI facilities provided for in the Maretech Agreements,
such as the dock facilities), AIRI will still operate its asphalt processing
facilities. As of March 31, 2000, AIRI had approximately $10.5 million in firm
backlog of orders and sales agreements, of which approximately 95% are for
higher-margin polymerized asphalt products. Asphalt prices, particularly
polymerized asphalts, have begun to rise in response to high crude oil prices
incurred in 1999 and early 2000, therefore the Company expects its asphalt
margins to improve in 2000 as compared to 1999, when only 60% of its asphalt
sales volumes were polymerized asphalts and asphalt prices were significantly
lower. In addition, the Company has implemented the use of escalation clauses in
its asphalt sales contracts, which enable it to increase its contracted sales
price by 5% per quarter if its feedstock prices rise to certain levels. This
should mitigate the problem the Company incurred in 1999 by committing to
long-term supply contracts at fixed prices.
As long as crude oil prices continue at current high levels, AIRI plans to
purchase wholesale asphalt to utilize as feedstock for blending and polymer
enhancement. The Company's strategy is to sell only higher-margin polymerized
asphalt products, which asphalts are expected approximate 75%-95% of its asphalt
sales during 2000. The Company has a $2 million credit facility for its
feedstock purchases, which it has utilized since June 1999.
The combination of the proceeds to be derived from the MIP Agreement, the
Maretech Agreements and the Company's asphalt operations are expected to provide
sufficient cash flows to support all of the Company's domestic operations
through the year 2000 and beyond.
The Company is seeking additional financing to supplement its cash flow from
operations during 2000. If the Company is unable to derive the necessary working
capital from the Refinery, St. Marks and AIM, or from a joint venture partner in
Kazakhstan, to support its operations during 2000, or obtain the necessary
financing to adequately supplement or provide all of its funding needs, its
ability to continue operations at current levels could be materially and
adversely effected.
11
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On February 28, 2000, the Company issued a six-month $1.85 million bridge note,
(the "Bridge Note"), in a private placement to a single "accredited investor",
(the "Investor"), within the meaning of Rule 501(a) under the Securities Act of
1933, as amended (the "Securities Act"). In connection with the issuance of this
note, the Company issued a five-year warrant to purchase 500,000 shares of the
Company's common stock at an exercise price of 0.665 per share (the "Bridge
Warrant"). The Bridge Note and Bridge Warrant were issued pursuant to the
exemption from the registration requirements of the Securities Act provided by
Section 4(2) of the Securities Act and Rule 506 of Regulation D.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Form of Securities Purchase Agreement dated February 28, 2000
4.2 Form of Bridge Note issued in connection with Exhibit 4.1
4.3 Form of Warrant issued in connection with Exhibit 4.1
4.4 Form of Security Agreement issued in connection with Exhibit 4.1
4.5 Form of Registration Rights issued in connection with Exhibit 4.1
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
12
<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: May 15, 2000
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By /s/ Denis J. Fitzpatrick
----------------------------------
Denis J. Fitzpatrick
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 Form of Securities Purchase Agreement dated February 28, 2000
4.2 Form of Bridge Note issued in connection with Exhibit 4.1
4.3 Form of Warrant issued in connection with Exhibit 4.1
4.4 Form of Security Agreement issued in connection with Exhibit 4.1
4.5 Form of Registration Rights issued in connection with Exhibit 4.1
27.1 Financial Data Schedule.
14
EXHIBIT 4.2
SECURED BRIDGE NOTE
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. 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) SPECIFY VOLUNTARY AND
MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (B)
SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREUNDER MAY BE ACCELERATED.
No. 2 $1,850,000.00
American International Petroleum Corporation
SECURED BRIDGE NOTE
American International Petroleum Corporation, a Nevada corporation
(together with its successors, the "Company"), for value received hereby
promises to pay to:
GCA Strategic Investment Fund Limited
(the "Holder") and registered assigns, the principal sum of One Million Eight
Hundred Fifty Thousand Dollars ($1,850,000.00) plus accrued Default Interest (as
hereinafter defined), 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 any Default Interest on (i) the Maturity Date, as
hereafter defined, and (ii) the date the principal amount of the Secured Bridge
Notes (the "Bridge 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 date of this Bridge
Note until payment in full of the principal sum hereof has been made.
The Bridge Note will bear no interest, with the except on of an Event of
Default, as hereafter defined, at which time interest will accrue 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"). Default
Interest on this Bridge Note will be calculated on the basis of a 360-day year
<PAGE>
of twelve 30 day months. All payments of principal and Default Interest
hereunder shall be made for the benefit of the Holder pursuant to the terms of
the Agreement (hereafter defined).
This Bridge Note (this "Bridge Note") is secured by a Security Agreement
(the "Security Agreement") dated as of December 1, 1999, as amended and a
Mortgage Agreement made by the Company (or one of its subsidiaries, as
applicable) and Holder creating a security interest in favor of Holder in
certain of the assets described in the Security Agreement and the Mortgage
Agreement (the "Collateral").
This Bridge Note is a duly authorized issuance of $1,850,000.00 aggregate
principal amount of Bridge Notes of the Company dated as of the date hereof
between the Company and the Purchaser named herein. the "Agreement"). The
Agreement, the Security Agreement and the Mortgage contain certain additional
agreements among the parties with respect to the terms of this Bridge Note,
including, without limitation, provisions which (A) specify voluntary and
mandatory repayment, prepayment and redemption rights and obligations and (B)
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
Bridge Note and are incorporated herein by reference. This Bridge Note is
transferable and assignable to one or more Persons, 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 Bridge Note and
particulars of this Bridge Note held by such holder and of all transfers of this
Bridge Note. References to the Holder or "Holders" shall mean the Person listed
in the Register as registered holder of such Bridge Notes. The ownership of this
Bridge 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 in the Agreement.
2. Covenants. Unless the Majority Holders otherwise consent in writing, the
Company covenants and agrees to observe and perform each of its covenants,
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. Subject to Section 4 of this Note, the Company
shall repay the remaining unpaid balance of this Bridge Note, plus accrued
Default Interest, if any, on August 28, 2000 (the "Maturity Date"). The Company
may, and shall be obligated to, prepay all or a portion of this Bridge Note on
the terms specified in the Agreement.
4. Pre-Payment of Principal. The Company may, at its option, pre-pay the
full principal amount of this Bridge Note at any time on or before May 28, 2000
(the "Pre-Payment Deadline Date") at a repayment price of $1,794,500; provided
that no Event of Default has occurred. On any date after May 28, 2000, the
Company shall be required to pay the full principal amount outstanding plus any
accrued Default Interest.
<PAGE>
5. Ranking. This Bridge Note shall be junior in right of payment (but not
with respect to the rights in the Collateral) to the Company's (i) 5% Secured
Convertible Debentures due February 18, 2004, and (ii) 6% Secured Convertible
Debentures due August 19, 2004. This Bridge Note shall rank senior in respect to
any other indebtedness of the Company outstanding as of the date hereof other
than indebtedness to Holder.
6. Miscellaneous. This Bridge 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 Bridge Note, except as
specifically provided herein, and asset 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 Courts of New York and
of any New York state court sitting in New York for purposes of all legal
proceedings arising out of or relating to this Bridge 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 Bridge Note.
The Holder of this Bridge Note by acceptance of this Bridge Note agrees to
be bound by the provisions of this Bridge Note which are expressly binding on
such Holder.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: February __, 2000
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By:
----------------------------------
Name: Denis J. Fitzpatrick
Title: Chief Financial Officer
<PAGE>
ANNEX A
REPAYMENT LEDGER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date Principal Balance Interest Paid Principal Paid New Principal Balance Issuer Initials Holder Initials
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS: ___________________________________________
EXHIBIT 4.3
FORM OF COMMON STOCK PURCHASE WARRANT
<PAGE>
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("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.
------------------------------
COMMON STOCK PURCHASE WARRANT
- --------------------------------------------------------------------------------
Number of shares: 500,000 Holder:
Strike Price: US$_____
Expiration: February 28, 2005
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, GCA Strategic Investment
Fund Limited 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, Five Hundred Thousand (500,000) shares of
the fully paid and nonassessable shares of 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 equal to USD$____; provided,
however, that the Purchase Price shall be adjusted from time to time as provided
herein.
<PAGE>
Capitalized terms used herein not otherwise defined shall have the meanings
ascribed thereto in the Purchase Agreement. 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 such corporation hereunder.
(b) The term "Common Stock" includes (a) the Company's common stock,
par value $0.08 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.
(a) 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 delivery of a notice of
exercise (a "Notice of Exercise") substantially in the form attached hereto
as Exhibit A via facsimile to the Company. Promptly thereafter the Holder
shall surrender this Warrant 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, at the
option of the Holder, (i) by check or bank draft payable to the order of
the Company, (ii) by wire transfer to the account of the Company, (iii) in
shares of Common Stock having a Market Value on the Exercise Date (as
hereinafter defined) equal to the aggregate Exercise Price or (iv) by
presentation and surrender of this Warrant to the Company for cashless
exercise (a "Cashless Exercise"), which such surrender being deemed a
waiver of the
2
<PAGE>
Holder's obligation to pay all or any portion of the Exercise Price. In the
event the Holder elects a Cashless Exercise (which such election shall be
irrevocable) the Holder shall exchange this Warrant for that number of
shares of Common Stock determined by multiplying the number of shares of
Common Stock being exercised by a fraction, the numerator of which shall be
the difference between the then current Market Value of the Common Stock
and the Purchase Price, and the denominator of which shall be the then
current Market Value of the Common Stock. 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 promptly refund the excess to the Holder. Upon
exercise, the Holder shall be entitled to receive, promptly refund the
excess to the Holder. Upon exercise, the Holder shall be entitled to
receive, promptly after payment in full, one or more certificates, issued
in the Holder's name or in such name or names as the Holder may direct,
subject to the limitations on transfer contained herein, for the number of
shares of Common Stock so purchased. The shares of Common Stock so
purchased shall be deemed to be issued as of the close of business on the
date on which the Company shall have received from the Holder payment in
full of the Exercise Price (the "Exercise Date").
(b) Notwithstanding anything to the contrary set forth herein, upon
exercise of all or a portion of this Warrant in accordance with the terms
hereof, the Holder shall not be required to physically surrender this
Warrant to the Company. Rather, records showing the amount so exercised and
the date of exercise shall be maintained on a ledger substantially in the
form of Annex B attached hereto (a copy of which shall be delivered to the
Company or transfer agent with each Notice of Exercise). It is specifically
contemplated that the Holder hereof shall act as the calculation agent for
all exercises of this Warrant. In the event of any dispute or
discrepancies, such records maintained by the Holders shall be controlling
and determinative in the absence of manifest error. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following an exercise of a
portion of this Warrant, the number of shares of Common Stock represented
by this Warrant will be the amount indicated on Annex B attached hereto
(which may be less than the amount stated on the face hereof).
1.2 Regulation D Restrictions. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and anticipates
acquiring the shares of Common Stock issuable upon exercise of the Warrant
solely for its own account for investment purposes and not with a view to
or for resale of such securities unless such resale has been registered
with the Commission or an applicable exemption is available therefor. At
the time this Warrant is exercised, the Company may require the Holder to
state in the Notice of Exercise such representations concerning the Holder
as are necessary or appropriate to assure compliance by the Holder with the
Securities Act.
1.3 Company Acknowledgment. The Company will, at the time of the
exercise of this Warrant, upon request of the Holder hereof, acknowledge in
writing its continuing
3
<PAGE>
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
(the "Registration Rights Agreement"). If the Holder shall fail to make any
such request, such failure shall not affect the continuing obligation of
the Company to afford 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. In addition, the number of shares of Common Stock issuable upon
exercise of this Warrant is subject to reduction as specified in Section
10.3 of the Purchase Agreement.
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, and the consideration to be received
upon exercise of this Warrant, shall be adjusted in case at any time or from
time to time 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 unassessable shares of
stock on the exercise of this Warrant, and (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly assume in
writing and will be bound by all the terms of this Warrant.
4
<PAGE>
5. Accountant's 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 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 of 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
5
<PAGE>
place, and the time, if any, as of which the Holders of record of Common Stock
(or Other Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 days prior to the date specified in such notice on which any action is
to be taken.
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.
(a) 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.
(b) Upon written notice from the Purchasers pursuant to Section
2.5(b)(iii) of the Purchase Agreement that the Purchasers have elected to
transfer amongst each other a portion of this Warrant, and on surrender for
amendment and restatement of this Warrant, 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 as the Purchasers (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 as set forth in such notice reflecting such transfer.
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:
6
<PAGE>
(a) title to this Warrant may be transferred by endorsement 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 such
bona fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company, the
Company may treat the registered Holder hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption
therefrom.
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 the Registration Rights Agreement.
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 any 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 New York. The headings in this
Warrant are for the purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[Signature Page Follows]
7
<PAGE>
DATED as of February __, 2000.
AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
By: ____________________________
Name: __________________________
Title: _________________________
[Corporate Seal]
Attest:
By: ______________________
Secretary
8
<PAGE>
EXHIBIT A
FORM OF NOTICE EXERCISE - WARRANT
(To be executed only upon exercise
of the Warrant in whole or in part)
To ____________________________________________
The undersigned registered Holder of the accompanying Warrant, hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
__________(1) shares of Common Stock (as defined in such Warrant) and herewith
makes payment therefor in the amount and manner set forth below, as of the date
written below. The undersigned requests that the certificates for such shares of
Common Stock be issued in the name of, and delivered to, whose address is _____.
The Exercise Price is paid as follows:
[_] Bank draft payable to the Company in the amount of $_____________.
[_] Wire transfer to the account of the Company in the amount of
$___________.
[_] Delivery of __________________ previously held shares of Common Stock
having an aggregate Market Price of $_____________.
[_] Cashless exercise. Surrender of ___________ shares purchasable under
this Warrant for such shares of Common Stock issuable in exchange
therefor pursuant to the Cashless Exercise provisions of the Warrant,
as provided in Section 1.1(iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the Holder will be in
compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Date: ________________ _______________________________________
(Name must conform to name of Holder as
specified on the face of the Warrant)
By: ___________________________________
Name: _________________________________
Title: ________________________________
Address of Holder: ___________________
___________________
Date of exercise: _____________________
- ----------
(1) Insert the number of shares of Common Stock as to which the
accompanying Warrant is being exercised. In the case of a partial exercise, a
new Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the accompanying Warrant, to the Holder surrendering the
same.
<PAGE>
ANNEX B
WARRANT EXERCISE LEDGER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Original Number of Warrants Exercise Price New Balance Issuer Holder
Date Warrants Exercised Paid of Warrants Initials Initials
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
EXHIBIT 4.5
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
1. Introduction...............................................................2
i. Securities Purchase Agreement.........................................2
ii. Definition of Securities..............................................2
iii. National Market Representation........................................2
2. Registration under Securities Act, etc.....................................2
a. Mandatory Registration................................................2
i. Registration of Registrable Securities...........................2
ii. Registration Statement Form......................................2
iii. Expenses.........................................................3
iv. Effective Registration Statement.................................3
v. Plan of Distribution.............................................3
b. Incidental Registration...............................................3
i. Right to Include Registrable Securities..........................3
ii. Priority in Incidental Registrations.............................4
c. Registration Procedures...............................................4
d. Underwritten Offerings................................................8
i. Incidental Underwritten Offerings................................8
ii. Holdback Agreements..............................................8
iii. Participation in Underwritten Offerings..........................8
e. Preparation; Reasonable Investigation.................................9
f. Registration Default Fee..............................................9
g. Indemnification.......................................................9
i. Indemnification by the Company...................................9
ii. Indemnification by the Sellers..................................10
iii. Notices of Claims, etc..........................................11
iv. Other Indemnification...........................................11
v. Indemnification Payments........................................11
vi. Contribution....................................................11
3. Definitions...............................................................11
4. Rule 144..................................................................11
5. Amendments and Waivers....................................................11
6. Nominees for Beneficial Owners............................................11
7. Notices...................................................................11
8. Assignment................................................................11
i
<PAGE>
9. Descriptive Headings......................................................11
10. GOVERNING LAW.............................................................11
11. Counterparts..............................................................11
12. Entire Agreement..........................................................11
13. Severability..............................................................11
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 28,
2000, among American International Petroleum Corporation, a Nevada corporation
(the "Company"), and GCA Strategic Investment Fund Limited (the "Fund").
1. Introduction.
i. Securities Purchase Agreement. The Company and the Fund have today
executed that certain Securities Purchase Agreement (the "Securities Purchase
Agreement"), pursuant to which the Company has agreed, among other things, to
issue an aggregate of $1,850,000.00 (U.S.) principal amount of Secured Bridge
Notes of the Company (the "Notes") to the Fund or its successors, assigns or
transferees (collectively, the "Holders"). In addition, pursuant to the terms of
the Securities Purchase Agreement and the transactions contemplated thereby, the
Company has issued to the Fund Common Stock Purchase Warrants exercisable for up
to an aggregate of _______ shares of the Company's common stock, $0.08 par value
per share (the "Common Stock") (the "Warrant Shares"). The number of Warrant
Shares is subject to adjustment upon the occurrence of stock splits,
recapitalization and similar events occurring after the date hereof.
ii. Definition of Securities. The Warrant Shares are collectively herein
referred to as the "Securities."
iii. National Market Representation. 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.
a. Mandatory Registration.
i. Registration of Registrable Securities. The Company will file with
the Commission, within thirty (30) days of the issue date of the Warrants,
a Registration Statement on Form S-3 (the "Registration Statement") to
register the resale of the Common Shares issuable upon the exercise of the
Warrants. The Company will use its best efforts to cause the Registration
Statement to become effective within ninety (90) days of the Issue Date
(the"Effective Date").
ii. 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
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methods of disposition specified by the Fund; provided, however, such
intended method of deposition shall not include an underwritten offering of
the Registrable Securities.
iii. Expenses. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
iv. 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 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.
v. Plan of Distribution. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section
reasonable acceptable to the Fund 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.
b. Incidental Registration.
i. Right to Include Registrable Securities. If any time after the date
hereof but before the third anniversary of the date hereof, 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 an 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 the Registrable Securities, 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
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such Registrable Securities in the registration statement which covers the
securities which the Company proposes to register, provided that if, at any
time after 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 this 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.
ii. 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 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 (iii) 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.
c. 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:
(1) 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 (with respect to a registration pursuant to Section 2.1); provided,
however, that before filing such registration
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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;
(2) 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 six (6) 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 six (6) 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");
(3) 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
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(4) 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;
(5) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(6) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, and the underwriters, if any, of:
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(A) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement),reasonably satisfactory in
form and substance to such seller) including that the prospectus and
any prospectus supplement forming a part of the Registration Statement
does not contain an untrue statement of a material fact or omits a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading, and
(B) a "comfort" letter (or, in the case of any Person which does
not satisfy the conditions for receipt of a "comfort" letter specified
in Statement on Auditing Standards No. 72, an "agreed upon procedures"
letter), dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a
letter of like kind dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statement included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities (with, in the case of an "agreed upon
procedures" letter, such modifications or deletions as may be required
under Statement on Auditing Standards No. 35) and, in the case of the
accountants' letter, such other financial matters, and, in the case of
the legal opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
(7) 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 an 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;
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(8) 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 facts
required to be stated therein or necessary to make the statements therein
not misleading in the light of 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;
(9) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(10) 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;
(11) 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
(12) 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
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Statement) to which the Sellers' Representative shall reasonably object,
provided that the Company may file such documents 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 Securities Purchase Agreement.
The 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, the Fund will forthwith discontinue the Fund's disposition of
Registrable Securities pursuant to the Registration Statement relating to such
Registrable Securities until the 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 the
Fund's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
d. Underwritten Offerings.
i. 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(a), 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.
ii. 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.
iii. 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
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(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
an 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.
e. 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 underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
f. 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 applicable Default Fee
specified in Section 10.4 of the Securities Purchase Agreement.
g. Indemnification.
i. 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
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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 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.
ii. 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, 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.
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iii. 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.
iv. 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.
v. 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.
vi. Contribution. If the indemnification provided for in the preceding
subdivision 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
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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 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 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.
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
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by reason of such untrue or allege 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:
"Agreement": As defined in Section 1.
"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.
"National Market": As defined in Section 1.
"Notes": As defined in Section 1, such term to include any securities
issued in substitution of or in addition to such Notes.
"Person": A corporation, association, partnership, organization,
business, individual, governmental or political subdivision thereof or a
governmental agency.
"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
expiration of the applicable Registration Maintenance Period 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.
12
<PAGE>
"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
National 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.
"Securities Act": The Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Securities Purchase Agreement": As defined in Section 1.
"Sellers' Representative": Global Capital Advisors, Ltd. or such
Person designated by Global Capital Advisors, Ltd.
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) o 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
13
<PAGE>
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 if 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 of percentage of shares of Registrable Securities
held by an 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 or 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 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
Securities 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
14
<PAGE>
hereto other than the Company shall also be for the benefit of and enforceable
by any subsequent holder of any Registrable Securities. 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.
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]
15
<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: (212) 688-3333
Fax: (212) 6886657
Attn: Denis J. Fitzpatrick
GCA STRATEGIC INVESTMENT FUND
LIMITED
By: __________________________________
Name: Lewis N. Lester
Title: Director
Address: Mechanics Building
12 Church Street
Hamilton HM II
Bermuda
Telephone: (678) 947-0028
Fax: (678) 947-6499
Attn: Lewis N. Lester
16
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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0
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