-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LztrsFLCZboCYUWQB7NFCcoqzomhBIPvTw9nmGLBk6EcWkr2PFc9mDZNLViQSF0e moAj4M5CH5WgFJsKMkiPqQ== 0000916641-96-000981.txt : 19961118 0000916641-96-000981.hdr.sgml : 19961118 ACCESSION NUMBER: 0000916641-96-000981 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INTERNATIONAL PETROLEUM CORP /NV/ CENTRAL INDEX KEY: 0000799119 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 133130236 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14905 FILM NUMBER: 96664288 BUSINESS ADDRESS: STREET 1: 444 MADISON AVE STE 3203 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129563333 MAIL ADDRESS: STREET 1: 444 MADISON AVE STE 3203 CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 AMERICAN INTERNATIONAL PETROLEUM CORP. 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20449 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission File number No. 0-14905 AMERICAN INTERNATIONAL PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) Nevada 13-3130236 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 444 MADISON AVENUE, SUITE 3203, NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) (212) 688-3333 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No________ The number of shares outstanding of the registrant's common stock, $.08 par value, as of November 13, 1996 is 34,450,503 shares. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1996 1995 ------------- ------------- Assets Current Assets: Cash and cash equivalents $ 173,272 $ 162,218 Cash - restricted 128,970 226,223 Accounts receivable 1,347,485 1,073,553 Inventory 246,432 504,953 Prepaid expenses 695,290 547,509 -------------- ------------ Total current assets 2,591,449 2,514,456 -------------- ------------ Property, plant and equipment: Unevaluated property not subject to amortization 5,577,628 4,998,824 Oil and gas properties pursuant to the full cost method 32,109,893 31,566,297 Refinery property and equipment 16,578,904 15,521,995 Other 519,862 506,445 -------------- ------------ 54,786,287 52,593,561 Less - accumulated depreciation, depletion and amortization (23,434,061) (22,502,472) -------------- ------------ Total property, plant and equipment 31,352,226 30,091,089 -------------- ------------ Other long-term assets, net 169,279 34,817 -------------- ------------ Total Assets $ 34,112,954 $ 32,640,362 ============= ============
See notes to consolidated financial statements -2- AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1996 1995 ------------- ------------ Liabilities and Stockholders' Equity Current Liabilities: Notes payable $ 101,352 $ 66,759 Current installments of long-term debt 1,848,500 1,870,000 Accounts payable 2,960,534 2,363,562 Accrued expenses and other liabilities 1,252,806 1,616,678 ------------- ------------- Total current liabilities 6,163,192 5,916,999 Long term debt 4,739,496 5,432,671 ------------- ------------- Total Liabilities 10,902,688 11,349,670 Stockholders' equity: Preferred stock, par value $.01, authorized 7,000,000 shares, none issued (Note 3) - - Common stock, par value $.08, 100,000,000 shares authorized, 34,431,828 shares issued and outstanding at September 30, 1996 and 24,705,926 shares issued and outstanding at December 31, 1995 (Note 3) 2,754,546 1,976,474 Additional paid-in capital 77,434,941 74,768,272 Stock purchase warrants 1,297,754 1,297,754 Accumulated Deficit (58,276,975) (56,751,808) ------------- ------------- Total Stockholders' Equity 23,210,266 21,290,692 ------------- ------------- Commitments and Contingencies - - ------------- ------------- Total Liabilities and Stockholders' Equity $ 34,112,954 $ 32,640,362 ============= =============
See notes to consolidated financial statements -3- AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (Unaudited)
1996 1995 ------------- -------------- Revenues: Oil and gas sales $ 300,514 $ 304,870 Refinery lease fees 662,962 399,933 Interest Income 378 (15,128) Other 36,120 80,966 -------------- ------------- Total revenues 999,974 770,641 -------------- ------------- Expenses: Operating 176,220 70,068 General and Administrative 923,270 835,088 Depreciation, depletion and amortization 284,251 303,432 Interest 359,013 237,005 -------------- ------------- Total expenses 1,742,754 1,445,593 -------------- ------------- Net Loss $ (742,780) $ (674,952) ============== ============= Loss per share of common stock $ (0.02) $ (0.03) ============== ============= Weighted average number of shares outstanding 32,884,064 22,417,001 ============== =============
See notes to consolidated financial statements -4- AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited) 1996 1995 --------- -------- Revenues: Oil and gas sales $ 941,760 $ 929,799 Refinery lease fees 1,780,280 779,860 Interest Income 3,851 21,074 Other 164,022 116,938 -------------- ------------- Total revenues 2,889,913 1,847,671 -------------- ------------- Expenses: Operating 392,885 278,089 General and Administrative 2,210,298 2,583,460 Depreciation, depletion and amortization 931,704 931,885 Interest 880,193 757,452 -------------- ------------ Total expenses 4,415,080 4,550,886 -------------- ------------ Net Loss $ (1,525,167) $ (2,703,215) ============== ============ Loss per share of common stock $ (0.05) $ (0.12) ============== ============ Weighted average number of shares outstanding 30,406,476 21,832,299 ============== ============ See notes to consolidated financial statements -5- AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited)
1996 1995 ------------- --------------- Cash flows from operating activities: Net loss $ (1,525,167) $ (2,682,902) ------------- --------------- Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and depletion 931,704 931,885 Amortization of bond/loan costs 52,425 67,997 Non-cash provision for services 421,875 Gain on sale of assets - (25,165) Changes in current assets & liabilities: (Increase) decrease in accounts receivable (273,932) (109,157) Decrease in inventory 258,521 322,070 (Increase) decrease in prepaid expenses 48,430 (140,276) Increase (decrease) in accounts payable and accrued expense 486,557 846,230 ------------ ------------- Total adjustments 1,925,580 1,893,584 -------------- ---------------- Net cash used by operating activities 400,413 (789,318) -------------- ---------------- Cash flows from investing activities: Additions to oil and gas properties (1,122,400) (1,998,272) Additions to refinery property and equipment (1,056,909) - (Additions) retirements to other assets (200,023) (22,571) -------------- ---------------- Net cash used in investing activities (2,379,332) (2,020,843) -------------- ---------------- Cash flows from financing activities: Cash - restricted 97,253 (8,920) Increase (decrease) in notes payable 34,593 82,237 Payments on long-term debt (714,675) (467,500) Proceeds from issuance of debentures, net 1,810,000 - Proceeds from issuance of common stock, net of offering expenses 762,802 2,324,361 Proceeds from exercise of stock warrants - 32 -------------- ---------------- Net cash provided by financing activities 1,989,973 1,930,210 -------------- ---------------- Net (decrease) increase in cash and cash equivalents 11,054 (879,951) Cash and cash equivalents at beginning of period 162,218 943,371 -------------- ---------------- Cash and cash equivalents at end of period $ 173,272 $ 63,420 ============== ================
See notes to consolidated financial statements -6- AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (Unaudited)
Additional Stock Common Stock paid-in purchase Shares Amount capital warrants Deficit Total ---------- ----------- ----------- ----------- ------------- ----------- Balance, December 31, 1995 24,705,926 $1,976,474 $74,768,272 $1,297,754 ($56,751,808) $21,290,692 Stock issued in lieu of accounts payable 457,447 36,596 223,468 - - 260,064 Stock issued in lieu of services 900,000 72,000 349,875 - - 421,875 Conversion of debentures 6,535,122 522,810 1,477,190 - - 2,000,000 Sale of common stock - net 1,833,333 146,666 616,136 - - 762,802 Net loss for the period - - - - (1,525,167) (1,525,167) ---------- ---------- ----------- ----------- ------------- ----------- Balance, September 30, 1996 34,431,828 $2,754,546 $77,434,941 $1,297,754 ($58,276,975) $23,210,266 ========== ========== =========== =========== ============= ===========
See notes to consolidated financial statements. -7- AMERICAN INTERNATIONAL PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 1. Statement of Information Furnished The accompanying unaudited consolidated financial statements of American International Petroleum Corporation and Subsidiaries (the "Company") have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 1996, the results of operations for the three and nine month periods ended September 30, 1996 and 1995 and cash flows for the nine months ended September 30, 1996 and 1995. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company's 1995 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that the accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1995 Annual Report on Form 10-K. 2. Contingencies IRS Excise Tax Dispute In May 1992, a Company subsidiary, American International Refinery, Inc. ("AIRI"), was notified by the Internal Revenue Service ("IRS") that the IRS was considering an assessment of excise taxes, penalties and interest of approximately $3,500,000 related to the sale of fuel products during 1989. The IRS claims that AIRI failed to comply with an administrative procedure that required sellers, and buyers in tax-free transactions, to obtain certification from the IRS. The Company believes that AIRI complied with the substance of the existing requirements and such sales were either tax-free or such excise taxes were paid by the end-users of such products. The Company has submitted a formal response, and has been negotiating with the IRS regarding a settlement since 1993. The IRS has recently indicated a willingness to waive all of the penalties and 75% of the proposed tax liability. The Company expects to meet with the IRS before year-end in order to finalize a settlement. Therefore, it now appears that this dispute may be resolved by year-end. Although settlement discussions are continuing, the Company has provided an allowance during 1995 of $250,000 for estimated costs, either in the form of legal expenses 8 or payments to the IRS, or some combination of both. Although, the Company believes that this allowance may not be sufficient to cover the total settlement amount, it is unable to determine precisely what liability may arise from this assessment at this time. Legal Proceedings The Company and its subsidiaries are party to various legal proceedings, including environmental matters. Although the ultimate disposition of these proceedings is not presently determinable, in the opinion of the Company, any liability that might ensue would not be material in relation to the consolidated financial position or results of operations of the Company. In October 1995, Rio Bravo S.A., the operator of the Company's Lot IV Block in Peru, locked-out the personnel of Pan American International Petroleum Corporation ("PAIPC"), a wholly-owned Company subsidiary, from access thereto and filed a legal action in Peru against PAIPC claiming damages of $11,695,000 and alleging that PAIPC's License Contract with the government to explore Block IV (the "License Contract") was cancelled by the government due to the fact PAIPC did not complete the minimum work program required under the License Contract. However, because the minimum work program was completed and was certified as complete by the government (the performance bond placed by PAIPC to assure its compliance with the minimum work program has, in fact, been released by the government) and, since the License Contract with the government is still in effect and has not been cancelled, the Company expects the legal action by Rio Bravo will be decided in PAIPC's favor. PAIPC has also filed counterclaims and liens against Rio Bravo to defend its interests in the Block and License Contract and continues to participate in meetings with the government related to the activities in the Block and in all matters of administration of the License Contract. The Company is currently negotiating with Rio Bravo to resolve the dispute. At this time, the Company is unable to determine if such negotiations will result in a successful settlement of the dispute or what liability, if any, may arise from this action. 3. Changes in Securities At the Company's Annual Meeting of Shareholders on July 11, 1996, the Shareholders approved an amendment to the Company's Articles of Incorporation to increase the authorized capital stock of the Company to 107 million shares, including 100 million shares of Common Stock, par value $.08, and 7 million shares of "blank check" preferred stock, par value $.01. 9 4. Subsequent Events Convertible Debentures - In November 1996, the Company received aggregate net proceeds of $326,000 from the sale of $389,000 principal amount of 10% Senior Subordinated Convertible Redeemable Debentures in two offerings of up to an aggregate of approximately $2 million in principal amount of these debentures (the "Senior Debentures"), issued under Regulation S. The Senior Debentures are convertible after 180 days after the closing of the offering into common stock of the Company at a conversion price equal to 80% of the average closing bid price of the common stock for the five business days immediately preceding the date of the conversion notice. Should the Company pay the Senior Debentures in full prior to conversion, the Company would be required to issue two-year options to the holders, to acquire common stock of the Company equal to 5% of the principal amount of the Senior Debentures at 80% of the average closing bid price of the common stock for the five consecutive trading days preceding the date of issuance of the option. 8% Notes - In November 1996, the Company initiated the offering under Regulation D of an aggregate of up to $1.6 million of subordinated notes (the "Notes"), which consist of 64 units, each unit consisting of a $25,000 principal amount 8% Subordinated Note, maturing in 90 days from the respective issuance of each Note and 10,000 five-year warrants with each warrant exercisable at any time after funding at $.50 per share. The Company expects to sell all of the units by mid-December 1996, however, there is no certainty that it will be successful in doing so. The proceeds from the sale of the Senior Debentures and the Notes will be used primarily to fund in part the construction of asphalt tanks, a truck-loading facility and a polymerization unit to allow for storing, heating, blending and polymerization of asphalt at the Company's refinery, as well as for working capital purposes. In October and November 1996, the Company issued an aggregate 18,675 shares of common stock pursuant to Regulation S in lieu of a cash interest payment and services rendered totalling an aggregate of $8,055 to a non U.S. persons overseas. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources This report includes forward-looking statements that involve risks and uncertainties detailed from time to time in the Company's SEC reports. The actual results of the Company, other than historical results, could differ materially from those discussed below. The Company significantly increased its revenues and reduced its general and administrative expenditures during 1996; it also issued shares of its common stock and convertible debentures for aggregate net cash proceeds of approximately $3.3 million. As a result, the Company reduced its year-end 1995 long-term debt by approximately 13% to $4.7 million and increased its oil and gas properties, refinery, and other assets by $2.4 million at September 30, 1996. The proceeds from increased cash flow from operations and the sale of stock and debentures were utilized to pay approximately $715,000 of current portions of debt and related interest, and approximately $2,379,000 was utilized by the Company in investing activities during this period, primarily for oil and gas development in Colombia. The Company also utilized approximately $400,000 for operations. Net loss for the first nine months totalled $1,525,000 including non-cash provisions for depreciation, depletion, and amortization of $932,000. Approximately $33,000 was provided during the quarter by the reduction of current assets other than cash and approximately $487,000 was provided by an increase in accounts payable. The Company's 12% Secured Debentures (the "12% Debentures") require certain principal payments and contain certain restrictive covenants and conditions with which the Company must comply. During the next twelve months approximately $1,229,000 and $358,000 in principal and interest, respectively, are due for payment, of which all of the principal is payable on December 31, 1996 and one-half of the interest is payable in each of December 1996 and June 1997. The Company is currently seeking alternative financing to repay the 12% Debentures in full prior to the next scheduled redemption date. However, in the event that the Company is unable to meet its obligations pursuant to the 12% Debentures in a timely manner, the Company's oil and gas reserves and its operations may be severely affected. The Company has an outstanding Loan Agreement (the "MGTF Note") with MG Trade Finance Corp. ("MGTF"), which is secured by its Lake Charles, Louisiana refinery (the "Refinery"). As of November 12, 1996, the outstanding principal balance of the MGTF Note was approximately $2.3 million, which is due in full on March 31, 1998. 50% of the lease fee proceeds the Company receives from the lessee of the Refinery, Gold Line Refining, Ltd. ("Gold Line") is utilized 11 to pay interest and amortize the principal on the MGTF Note. If lease fees are not sufficient to satisfy all accrued interest when due, the Company is obligated to satisfy any shortfall. The Company may be required to fund future working capital requirements that arise from Refinery operations, including any liability that may arise from any claims or settlements related to the Refinery. From June through October 1996, Gold Line processed an average of almost 15,000 barrels of feedstock per day, which provides the Company with $225,000 per month in lease fees, a significant increase over the monthly average during the previous twelve months. Should Gold Line continue to maintain this level of operation, the combination of the increased lease fees and payment of its scheduled quarterly principal and interest note payments to the Company could provide the Company with approximately $1.7 million more cash flow during the next twelve months than during the last year. However, even at increased levels of processing, Gold Line has had problems in the past in meeting its payment obligations to the Company on a timely basis, and continues to do so. Although Gold Line has indicated it plans to pay all past due lease fees (approximately $300,000) by year-end, there is no assurance it will do so. Nor is there any assurance it will be able to repay the principal balance and accrued interest on its note payable to the Company totalling an aggregate of approximatley $1,075,000 at September 30, 1996. During March 1996, the Company sold $1.5 million worth of 10% convertible subordinated redeemable debentures due April 1, 1998 for net proceeds of $1.34 million (the 10% "Debentures"). The proceeds were utilized primarily to repay debt and for working capital purposes. The 10% Debentures, issued in accordance with Regulation S, were convertible 45 days after closing of the offering into common stock of the Company at 65% of the average closing bid price of the Company's common stock for the five business days immediately preceding the date of the conversion notice or the date of Subscription, whichever was lower. As of September 30, 1996 all of the 10% Debentures had been converted prior to redemption into 4,994,181 shares of the Company's common stock. During April 1996, the Company sold $500,000 worth of 9% Convertible Subordinated Redeemable Debentures due April 1, 2000 for net proceeds of $460,000 (the "9% Debentures"), issued in accordance with Regulation S. The proceeds were utilized primarily to repay debt and for working capital purposes. Fifty percent of the 9% Debentures were convertible into the Company's common stock 45 days after closing of the offering with the remainder convertible 75 days after the closing of the offering. The 9% Debentures were convertible at 75% of the average closing bid price of the Company's common stock for the five business days immediately preceding the date of the conversion notice or the date of Subscription, whichever was lower. As of September 30, 1996 all 12 of the 9% Debentures had been converted prior to redemption into 1,540,941 shares of the Company's common stock. During the third quarter of 1996, the Company issued 129,241 shares of its common stock pursuant to Regulation S in lieu of $60,000 worth of cash interest payments to non-U.S. persons overseas. In August 1996 the Company signed an agreement with Carbopetrol S.A. ("Carbopetrol"), one of the purchasers of its crude oil production in Colombia, wherein Carbopetrol paid the Company an up- front payment of $200,000 for an option to acquire a 1% overriding royalty interest ("override") of the Company's new Chicoral oil discovery and any formation below the Company's currently-producing Doima formation in the Toqui-Toqui field in Colombia. Carbopetrol also received an option to purchase an additional 4% of the Company's interest in the Chicoral at $200,000 per point, which option must be exercised by June, 1997. Since the Chicoral is not yet producing oil, the initial $200,000 payment is being considered an advance royalty for which the Company is paying 14% in annual interest, payable in crude oil from the Company's current production. In the event the Chicoral does not attain certain levels of future production, the advance royalty paid to date would be repaid by the Company in the form of crude oil at a minimum rate of 200 barrels per day from its then-existing production. The proceeds from the transaction are being utilized by the Company to work over and service existing Toqui-Toqui producing wells and to develop the Chicoral discovery. Negotiations are continuing with various other oil companies regarding a possible farmout of the Company's Chicoral discovery and its other Colombian properties in return for cash and drilling obligations in the Company's Toqui-Toqui field. Such a transaction would ensure that the Company's Chicoral discovery would be fully exploited in the shortest time practicable with little or no cost to the Company. Although a farmout would result in a lower overall Company ownership interest of its Colombian reserves, the net result to the Company could be an increase in its oil and gas reserve base, a stronger balance sheet and greater potential for earnings and cash-flow growth. The Company is also seeking development financing to exploit its South American properties. However, there is no assurance that the Company will succeed in obtaining a farmout partner or development financing. The Company has no drilling or work obligations in Colombia or Peru. Depending upon available funds, or whether the Company is successful with its farmout efforts or development financing, the Company estimates it could utilize up to $4,000,000 for exploration and development of its properties and prospects in South America during the next twelve months, a significant portion of which could be provided by a farmout partner in Colombia. Between July and September 1996, the Company received net proceeds 13 of $392,000 from $426,000 in principal amount of 12.5% Convertible Redeemable Subordinated Debentures,issued in accordance with Regulation S (the "12.5% Debentures"). The proceeds are being utilized to expand the Company's VDU and for working capital purposes. The 12.5% Debentures are convertible after 180 days from the closing of the offering into common stock of the Company at 65% of the average closing bid price of the Company for the five business days immediately preceding the date of the conversion. The 12.5% Debentures are redeemable at any time and if they are redeemed in full prior to conversion the Company will issue to the holder(s) two-year options to acquire shares of common stock equal to 18% of the total remaining principal amount of the Debenture at 80% of the average closing bid price of the Company's common stock for the five consecutive trading days prior to issuance of the option. The Company had an independent engineering firm perform an analysis to determine the viability of operating its 16,500 barrel per day Vacuum Distillation Unit ("VDU") to produce asphalt, vacuum gas oil, and diesel fuel in addition to, but separate from, the operations currently being performed by Gold Line. Preliminary studies utilizing actual pricing scenarios from 1994 and 1995 indicated that such a project could provide the Company with significant amounts of revenues and profits, if appropriate feedstock and end-product contracts and adequate financing could be secured. After considerable study and discussion, the Company decided to move forward with the project and obtained commitments for various forms of financing for this purpose (the "Private Placements"), including, the 12.5% Debentures and other potential financings (See "Notes to Consolidated Financial Statements Subsequent Events"). The total capital required to prepare the VDU for operation is estimated at approximately $4.5 million, which includes construction of additional storage tanks, a polymerization unit, a laboratory, a truck-rack facility, a barge dock, and other miscellaneous items. Approximately one-half of this amount will be required to implement the terminalling agreement discussed below. In July 1996, the Company utilized some internally-generated cash flow and borrowed funds to commence with the project. Some of the storage tanks have been delivered and one large tank has been installed. The majority of the funding for the VDU project is expected to be needed in November and December 1996 and should be supplied by the Private Placements, although other forms of financing could be used. In June 1996, the Company entered into two renewable agreements with Coastal Refining & Marketing, Inc. ("Coastal"), a subsidiary of The Coastal Corporation. The first agreement with Coastal is an asphalt terminalling agreement, whereby the Company will store, heat, blend, and polymerize Coastal's asphalt. The second agreement is an asphalt purchase agreement whereby the Company is to sell all of its truck-rack asphalt to Coastal. The terminalling operation was scheduled to begin in November 1996 and terminate sometime during the second quarter of 1997, when the Company had 14 planned to commence the production and sale of its own asphalt, in addition to vacuum gas oil ("VGO") and diesel fuel. Due to the lack of timely financing, the Company has not been able to complete the first stage of the construction to allow for the terminalling agreement to start in November 1996. The Company is having discussions with Coastal to extend the construction completion date to approximately January 31, 1997 and is seeking additional modifications to the asphalt sales agreement with Coastal. In the event the Company is able to secure adequate financing on a timely basis, it plans to initially operate the VDU at 7,000 to 10,000 barrels per day to produce primarily conventional paving asphalt, VGO, and diesel. At these levels, the Company expects its annual revenues from the sale of the various products to range between $40 million and $50 million. As polymerized asphalt manufacturing levels increase, revenues could be substantially higher, as could the Company's margins which, in any event, are expected to be favorable. The new facility will include a state of the art polymerizing unit capable of processing in excess of 7,500 barrels/day of polymerized asphalt. Because of recently revised state and federal government highway specifications requiring some form of polymer modification, the demand for the longer lasting, more-expensive, polymerized asphalt is expected to increase. The favorable margins are anticipated mainly because the Company's facility has the flexibility to utilize lower-cost heavy crudes as feedstock and the ability to provide polymerized, as well as conventional, asphalt. In addition, the closest established asphalt manufacturer is located over 100 miles from the Company's facility. Most of the Company's competition in its asphalt manufacturing business will come from refiners who do not have processing flexibility such as the Company's. Management believes that the favorable margins from the VDU operation should be sufficient to provide the Company with the capital necessary to repay its debts and to provide funding for future development and exploration of its existing oil and gas properties. However, the Company is currently having discussions with various entities which have expressed an interest in providing the Company with financing (the "Replacement Financing") to prepay loans from the Private Placements, as well as its other existing long-term liabilities, and to provide working capital for other operating needs until the Company's internally-generated cash flows are sufficient to support all of its operations. If the Company is unable to secure the Replacement Financing, management believes loan proceeds from the Private Placements, in addition to the anticipated cash flows from the VDU operations, will be sufficient to satisfy these requirements. At this time, however, there is no certainty that the Company's VDU project will be successful, that the Company will obtain all of the funds expected from the Private 15 Placements or the Replacement Financing, or that such funds, if obtained, will be sufficient for the needs of the Company. The Company intends to meet its capital and operating funds requirements in the near term from revenues generated from operations, and from additional financing as necessary. However, there is no assurance of success of any farmout or financing efforts the Company may pursue or the timing or success of the exploitation of its discoveries in South America. 16 Results of Operations For the Three Months Ended September 30, 1996 as compared to the Three Months Ended September 30, 1995 The following table highlights the Company's results of operations for the three months ended September 30, 1996 and 1995. For The Three Months Ended September 30, 1996 1995 Exploration and Production Activity: Colombia Properties: Revenues - Oil Sales (000's) $301 $253 Lease Operating Expenses (000's) $180 $81 Production Volume - Bbls 25,971 30,843 Average Price per Bbl $11.57 $8.19 Production Cost per Bbl $6.92 (4) $2.62 DD&A per Bbl $3.77 $3.86 Peru Properties: Revenues - Oil Sales (000's) (1) $52 Lease Operating Expenses (000's) (1) ($12) (3) Production Volume - Bbls (1) 4,312 Average Price per Bbl (1) $11.96 Production Cost per Bbl (1) ($2.73) (3) DD&A per Bbl (2) - - Refinery Operations: Refinery Lease Fees (000's) $663 $400 Average Daily Throughput(Bbls) 14,112 11,109 Average Throughput Fee $0.50 $0.40 (1) Information for 1996 is not available. See Note 2 to "Notes to Consolidated Financial Statements September 30, 1996 - Legal Proceedings". (2) Excludes Peruvian activity since all related properties are currently considered "unevaluated". (3) Reflects adjustments for over-accrued lease operating expenses. (4) Variance from 1995 results primarily from overlifting by Ecopetrol during the third quarter of 1996, as discussed below. 17 Oil and Gas Operations: Although Colombia gross oil and gas production only decreased approximately 2% during the current quarter compared to the same period last year, barrels sold decreased 16%, due primarily to the Company taking an excess of its working interest share of produced oil, relative to its partner, Ecopetrol at the rate of approximately 17% during the third quarter of 1995. Ecopetrol has the right to make up the deficiency over time by taking up to 10% more, or greater by mutual consent, of its working interest share of production until the imbalance is cured. During the third quarter of 1996, Ecopetrol took its 10% excess in order to make up the imbalance and continues to do so in the fourth quarter as well. An increase in current oil prices of approximately 41%, which is directly related to the Company renegotiating its oil sales contracts earlier in 1996 and an increase in the world market price of oil over the same period last year, more than offset the decrease in sales volumes as discussed above, and accounts for the net increase of approximately $48,000, or 19%, in oil and gas revenues for the current period compared to the same period last year. Overall production costs increased by approximately $106,000 during the three months ended September 30, 1996 compared to the same period last year. Colombia production costs increased by approximately $99,000 during the current quarter compared to the same period last year primarily due to an adjustment during the third quarter to recognize the currency fluctuation with regard to joint venture transactions and an increase in joint venture overhead allocation. These increases in production costs are directly offset by an increase in the capitalized and reimbursed general and administrative costs during the current quarter. Production costs per barrel reflects an increase of $4.30 per barrel during the current period compared to the same period last year. Approximately $1.10 is attributable to the adjustment discussed above. The additional increase gives effect to the production rates remaining relatively constant compared to last year and the barrels sold used to calculate the cost per barrel decreasing due to the overlifting by Ecopetrol during the current quarter as discussed above. Refinery Operations: Refinery lease fees increased by approximately $263,000, or 66% in the third quarter of 1996 compared to the third quarter of 1995. The increase is due to Gold Line processing at a higher capacity to fulfill obligations under newly obtained government contracts. Gold Line is currently operating under several government contracts compared to the same period last year when it had only one government contract. Gold Line has increased its actual daily processing rate by 5%, from 13,696 barrels per day in the third quarter of 1995 to 14,412 barrels per day during the current 18 quarter, and increased the number of days it actually processed during the current period from 73 days for the same period last year to 92 days for the current quarter. On January 1, 1996, the throughput fees increased 25%, from $0.40 per barrel to $0.50 per barrel over the same period last year. Other Revenue: Other revenues decreased approximately $45,000 during the current quarter due primarily to the decrease in foreign exchange gains in this period compared to the third quarter 1995. General and Administrative: Excluding a non-recurring non-cash charge of approximately $422,000 related to a shareholder-approved issuance of stock to a Company officer during the third quarter of 1996 (in exchange for removal of certain Company obligations from the officer's employment contract), G&A decreased by approximately $334,000, or 40%, in the third quarter of 1996 compared to the same period last year, due to the Company's continued cost reduction efforts. An increase in capitalized and reimbursed G&A of $85,000 for the three months ended September 30, 1996, compared to the same period last year, accounted for 10% of the decrease and was related to the increased recoverability of joint venture costs related to Colombia operations during the current quarter compared to the same period last year. Actual decreases in G&A totalling $249,000 realized in this period compared to the same period last year were in the following areas: payroll & payroll-related expenses decreased approximately $190,000 and certain other employee costs decreased approximately $7,000, legal expenses decreased by approximately $20,000 and property taxes decreased $12,000. Interest Expense Interest expense increased approximately $122,000, or 51%, for the three months ended September 30, 1996, compared to the same period in 1995, due to an increase in outstanding debenture principal of $2,000,000 related to the March and April 1996 sale of the 10% and 9% Debentures discussed above. As of September 30, 1996, 100% of the 10% and 9% Debentures had been converted into common stock of the Company. Depreciation, Depletion, and Amortization decreased approximately $19,000, or 6%, compared the same period last year. The decrease was primarily due to the decrease in the sale of barrels of oil during the current quarter as discussed above. 19 Results of Operations For the Nine Months Ended September 30, 1996 as compared to the Nine Months Ended September 30, 1995 The following table highlights the Company's results of operations for the nine months ended September 30, 1996 and 1995. For The Nine Months Ended September 30, 1996 1995 ---- ---- Exploration and Production Activity: Colombia Properties: Revenues - Oil Sales (000's) $942 $793 Lease Operating Expenses (000's) $391 $223 Production Volume - Bbls 99,069 98,009 Average Price per Bbl $9.51 $8.10 Production Cost per Bbl $3.95 (4) $2.28 DD&A per Bbl $3.77 $3.86 Peru Properties: Revenues - Oil Sales (000's) (1) $136 Lease Operating Expenses (000's) (1) $52 (3) Production Volume - Bbls (1) 15,861 Average Price per Bbl (1) $8.60 Production Cost per Bbl (1) $3.26 (3) DD&A per Bbl (2) - - Refinery Operations: Refinery Lease Fees (000's) $1,780 $780 Average Daily Throughput(Bbls) 12,531 10,539 Average Throughput Fee $0.50 $0.40 (1) Information for 1996 is not available. See Note 5 to "Notes to Consolidated Financial Statements September 30, 1996 - Legal Proceedings". (2) Excludes Peruvian activity since all related properties are currently considered "unevaluated". (3) Reflects adjustments for over-accrued lease operating expenses. (4) Variance from 1995 reflects overlifting by Ecopetrol during the third quarter of 1996, as discussed above. 20 Oil and Gas Operations: Overall oil revenues increased approximately $12,000, or 1%, during the nine months ended September 30, 1996 compared to the same period during 1995. Colombia's oil and gas revenues increased by $149,000, or 19%, compared to the same period in the prior year. Actual Colombian oil production decreased 1% from the same period last year due to a natural decrease in production rates of older wells, which decrease was offset by a corresponding increase in production from two new wells put in service during the third quarter of 1995 and an increase of 17% in the average price of the Company's oil over the same period last year. This increase is directly related to the Company renegotiating its oil sales contracts earlier in 1996 and the increased price of oil on the world market. The increase in Colombian oil revenues is offset by the decrease in oil production and sales from the Peru operations as previously discussed herein. Colombia production costs increased approximately $168,000, or 75% compared to the same period in the prior year, due primarily to Joint Venture production overhead allocations in Colombia increasing by $151,000, 68% of the increase, compared to the same period in 1995, resulting primarily from an increase in joint venture overhead allocations and from a currency fluctuation adjustment. This increase is offset by an increase in reimbursed general and administrative costs. In Peru, a decrease in production costs of approximately $52,000 over the same period last year is attributable to the non-recorded Peruvian activity in 1996, as previously discussed herein. Refinery Operations: Refinery lease fees increased by $1,000,000, or 128%, during the nine month period of 1996 compared to the same period in 1995. The increase is due to several factors involving the Company's Lessee, Gold Line Refining, Ltd ("Gold Line"). During the first nine months of 1995, Gold Line was operational for only 147 days compared to being operational for 227 days during the same period in 1996. During the first quarter of 1995, Gold Line had been negotiating feedstock contracts and performing start-up maintenance, operating only seven days during the first quarter of 1995 and 140 days during the second and third quarters of 1995. During the first nine months of 1996, Gold Line was operational 227 days out of 273 days of this period. The increase is also due to Gold Line processing at a higher capacity to fulfill several Defense Fuel Supply Center contracts during this period compared to servicing only one contract during this same period last year. During the second quarter of this year, Gold Line processed a daily high of approximately 19,000 barrels of throughput and has been processing an average of 14,864 barrels per day since June 30, 1996. On January 1, 1996 the throughput fees increased 25%, from 21 $0.40 per barrel to $0.50 per barrel over the same period last year. Other Revenue: Other Revenue increased approximately $47,000 during the current quarter due primarily to the increase in foreign exchange gains in this period compared to the same period in 1995. General and Administrative: G&A decreased approximately $373,000, or 14% compared to the same period during 1995. An increase in capitalized and reimbursed G&A of $245,000 for the nine months ended September 30, 1996, compared to the to the same period last year, accounted for 8% of the decrease and was directly related primarily to the increased recoverability of G&A costs related to joint venture expenditures for the current period compared to the same period last year. Net of a non-recurring non-cash charge of $422,000 related to the stock issuance referred to above, G&A expenditures decreased during the current period compared to the same period last year by $550,000 and occurred primarily in the following areas: payroll and payroll related expenses decreased approximately $263,000 and certain other employee costs decreased approximately $52,000. Investor/public relations costs decreased during the current period compared to same period last year by approximately $17,000. Legal expenses and accounting and consulting expenses declined by $51,000 and $50,000, respectively. Property taxes and insurance expenses decreased $30,000 and $38,000, respectively, during the current period compared to the same period last year. Interest Expense Interest expense increased by approximately $123,000, or 16%, during the current period compared to the same period last year, due to an increase in outstanding debt principal of $2,000,000 related to the March and April 1996 sale of the 10% and 9% Debentures discussed above. As of September 30, 1996, all of these 10% and 9% Debentures had been converted into common stock of the Company. Depreciation, Depletion, and Amortization remained approximately the same for the nine months ended September 30, 1996 compared to the same period last year. 22 PART II: OTHER INFORMATION Item 2. Changes in Securities See Part 1. Item 1. "Notes to Consolidated Financial Statements Note 4. Subsequent Events" and "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources" regarding the sale of convertible debentures and the issuance of subordinated notes and warrants (for the purchase of up to 640,000 shares of common stock) under Regulation D. Upon conversion of the debentures, the number of shares to be issued varies inversely with the market price of the Company's common stock at the date of conversion. Although there is no assurance that all of these convertible debentures will be sold and/or converted, and conversion can only occur 180 days after closing of the related offerings, at the current market price if all of these debentures were converted the Company would issue approximately 5 million shares, or approximately 15% of its currently issued and outstanding shares. Depending upon the circumstances, isuance of additional shares of common stock could affect the existing holders of shares by diluting the voting power of the outstanding shares. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Form of Warrant to purchase shares of the Registrant's Common Stock issued to Venture Guarantee, Ltd. as partial compensation in connection with offerings of the Registrant's debentures, the forms of which are attached hereto as Exhibits 4.2 and 4.3. 4.2 Form of 12.5% Series X Senior Convertible Subordinated Redeemable Debenture due January 2, 1998. 4.3 Form of 10% Series L Senior Subordinated Convertible Subordinated Redeemable Debenture due April 1, 1998. 4.4 Form of 10% Series M Senior Subordinated Convertible Redeemable Debenture due April 1, 1998. 4.5 Form of 8% Promissory Note. 4.6 Form of Warrant to purchase shares of the Registrant's Common Stock to be issued to various purchasers of the Registrant's 8% promissory notes, the form of which is attached hereto as Exhibit 4.5. 23 10.1 Form of Subscription Agreement used in connection with the offering of the Registrant's debentures, the form of which is attached hereto as Exhibits 4.2. 10.2 Form of Subscription Agreement used in connection with the offering of the Registrant's debentures in the form attached hereto as Exhibit 4.3. 10.3 Form of Subscription Agreement used in connection with the offering of the Registrant's debentures in the form attached hereto as Exhibit 4.4. 10.4 Form of Subscription Agreement used in connection with the Registrant's 8% Promissory Notes, the form of which is attached hereto as Exhibit 4.5. 27.1 Financial Data Schedule. (b) Reports on Form 8-K 1. A Form 8-K dated August 13, 1996 was filed in connection with a Change in the Registrant's Certifying Accountant. 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 1996 AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:/s/ Denis J. Fitzpatrick ------------------------ Denis J. Fitzpatrick Chief Financial Officer By:/s/ William L. Tracy -------------------- William L. Tracy Treasurer and Controller 25 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 4.1 Form of Warrant to purchase shares of the Registrant's Common Stock issued to Venture Guarantee, Ltd. as partial compensation in connection with offerings of the Registrant's debentures, the forms of which are attached hereto as Exhibits 4.2 and 4.3. 4.2 Form of 12.5% Series X Senior Convertible Subordinated Redeemable Debenture due January 2, 1998. 4.3 Form of 10% Series L Senior Subordinated Convertible Subordinated Redeemable Debenture due April 1, 1998. 4.4 Form of 10% Series M Senior Subordinated Convertible Redeemable Debenture due April 1, 1998. 4.5 Form of 8% Promissory Note. 4.6 Form of Warrant to purchase shares of the Registrant's Common Stock to be issued to various purchasers of the Registrant's 8% promissory note, the form of which is attached hereto as Exhibit 4.5. 10.1 Form of Subscription Agreement used in connection with the offering of the Registrant's debentures, the form of which is attached hereto as Exhibits 4.2. 10.2 Form of Subscription Agreement used in connection with the offering of the Registrant's debentures in the form attached hereto as Exhibit 4.3. 10.3 Form of Subscription Agreement used in connection with the offering of the Registrant's debentures in the form attached hereto as Exhibit 4.4. 10.4 Form of Subscription Agreement used in connection with the Registrant's 8% Promissory Notes, the form of which is attached hereto as Exhibit 4.5. 27.1 Financial Data Schedule. EX-4 2 EXHIBIT 4.1 EXHIBIT 4.1 ************************************************************************** - ------------------------------------------ No. - ------------------------------------------ Warrant to Purchase STOCK PURCHASE WARRANT To Purchase Common Stock of AMERICAN INTERNATIONAL PETROLEUM CORPORATION Expires__________, unless extended pursuant to the terms hereof. ************************************************************************** THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Void after 5:00 p.m. New York Time, on ____________. WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK OF AMERICAN INTERNATIONAL PETROLEUM CORPORATION This Is To Certify That, FOR VALUE RECEIVED, ________________________ (the "Holder"), is entitled to purchase, subject to the provisions of this Warrant, from AMERICAN INTERNATIONAL PETROLEUM CORPORATION, a Nevada corporation (the "Company"), up to ____________________ (_______) fully paid, validly issued and non-assessable shares of Common Stock ("Common Stock") of the Company, par value $.08 per share, at an exercise price of $________ per share at any time during the period from the date hereof until 5:00 p.m. Eastern Time, on __________. The shares of Common Stock deliverable upon such exercise are hereinafter sometimes referred to as "Warrant Shares", and the exercise price of a Warrant Share, as the same may be adjusted pursuant to Section (f) below, is hereinafter sometimes referred to as the "Exercise Price". (a) EXERCISE OF WARRANT. This Warrant may be exercised in whole on or after the date hereof and until __________; provided, however, that if such day is a day on which banking institutions in the State of New York are authorized by law to close, then this Warrant may be exercised on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office or to the Company's warrant agent, if any has been so appointed, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price, in cash or by certified or bank cashier's check, for the number of Warrant Shares specified in such form. The Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of any such exercise, provided that such exercise is in accordance with the provisions set forth herein. As soon as practicable after each such exercise of the Warrant, the Company shall issue or cause to be issued and delivered to the Holder a certificate or certificates for the Warrant Shares, registered in the name of the Holder. Upon exercise, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be physically delivered to the Holder. (b) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. (c) FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share remaining upon the full exercise hereof, the Company shall pay to the Holder in lieu of the issuance of any fractional share which is otherwise issuable an amount of cash based on the market value of the Common Stock on the last trading day prior to the exercise date. (d) LOSS OF WARRANT. Upon receipt by the Company or its warrant agent, if any, of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. The acceptance of this Warrant by the Holder shall be deemed consent by the Holder for the Company to enter into any warrant agreement with a warrant agent, provided such warrant agreement does not adversely affect any of the rights of the Holder set forth in this Warrant. (f) ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to adjustment as set forth below: (i) (a) In case the Company shall hereafter (A) pay a dividend or make a distribution on its Common Stock in shares of its Common Stock, (B) subdivide its outstanding shares of Common Stock, or (C) combine its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such action shall be adjusted so that the Holder, upon exercise, shall be entitled to receive the number of shares of Common Stock of the Company which the Holder would have owned immediately following such action had such Warrant been exercised immediately prior thereto. An adjustment made pursuant to this subsection shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or combination. (b) After each adjustment of the Exercise Price pursuant to this subsection (i), the number of shares of Common Stock purchasable upon the exercise of the Warrant shall be the number of Warrant Shares receivable upon exercise hereof prior to such 3 adjustment multiplied by a fraction, the numerator of which shall be the original Exercise Price as defined above and the denominator of which shall be such adjusted Exercise Price. (c) In the event the Company at any time or from time to time after the date hereof and prior to the exercise of this warrant shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event provision shall be made so that the Holder shall receive upon exercise of this Warrant in addition to the number of shares of Common Stock receivable hereupon, the amount of such other securities of the Company that it would have received had the Warrant been exercised on the date of such event and had thereafter, during the period form the date of such event to and including the exercise date, retained such securities receivable by it as aforesaid during such period giving application to all adjustments called for during such period under this Warrant with respect to the rights of the Holder. (ii) No adjustment in the Exercise Price shall be required to be made unless such adjustment would require an increase or decrease of at least $.05; provided, however, that any adjustments which by reason of this subsection are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section (f) shall be made to the nearest cent or to the nearest tenth of a share, as the case may be, but in no event shall the Company be obligated to issue fractional shares upon the exercise of any Warrant. (iii) No adjustment of the Exercise Price shall be made except on the conditions set forth in this Section (f). Without limitation of the foregoing, there shall be no adjustment pursuant to this Section (f) should the Company issue any capital stock for cash or other consideration on terms approved by the Board of Directors. (iv) In case of any (A) reclassification or change of outstanding shares of Common Stock issuable upon exercise of this Warrant, (B) consolidation or merger of the Company with or into another corporation where the Company is not the surviving entity or (C) sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the Holder of the Warrant shall have the right thereafter to receive on exercise of such Warrant the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided elsewhere in this Section (f). The above provisions of this Section (f) shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. 4 (v) In each case of an adjustment or readjustment of the Exercise Price, the Company, at its expense, shall prepare a certificate showing such adjustment or readjustment signed by the duly elected Treasurer or Chief Financial Officer of the Company (the "Adjustment Certificate") and shall mail the Adjustment Certificate, by first class mail, postage prepaid, to the Holder. The Adjustment Certificate shall set forth such adjustment or readjustment, including a brief summary of the facts upon which such adjustment or readjustment is based including a statement of the Exercise Price and the number of shares of Common Stock or other securities issuable upon exercise of each Warrant immediately before and after giving effect to the applicable adjustment or readjustment. No failure to mail the Adjustment Certificate nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the Holder to whom the Company failed to mail such Adjustment Certificate, or except as to the Holder whose Adjustment Certificate was defective. (g) TRANSFERABILITY; INVESTMENT REPRESENTATIONS. The Holder shall not give, grant, sell, exchange, transfer legal title, pledge, assign or otherwise encumber or dispose of this Warrant unless the Company first receives an opinion of counsel satisfactory to the Company that the Warrant may be transferred to the proposed transferee in compliance with an exemption under the Securities Act or a safe harbor provision of Regulation S under the Securities Act. The Holder, by acceptance hereof, represents and warrants that (a) it is acquiring this Warrant for its own account for investment purposes only and not with a view to its resale or distribution and (b) it has no present intention to resell or otherwise dispose of all or part of this Warrant. The Company may condition the exercise hereof and the issuance or transfer of Warrant Shares on the receipt of such representations and agreements as may be requested by the Company in order to permit such issuance or transfer to be made pursuant to exemptions from registration under federal and applicable state securities laws. Each certificate representing this Warrant (or any part thereof) and any Warrant Shares shall bear appropriate legends setting forth these restrictions on transferability. (h) REGISTRATION RIGHTS. (i) In the event that the Company proposes to file a registration statement with respect to any class of securities (other than pursuant to a registration statement on Forms S-4 or S-8 or any successor form) under the Securities Act of 1933, as amended (the "Securities Act") the Company shall notify the Holder at least twenty (20) days prior to the filing of such registration statement and will offer to include in such registration statement all or any portion of the Warrant Shares. At the written request of the Holder, delivered to the Company within ten (10) days after receipt of the Company's notice, the Holder shall state the number of Warrant Shares that it wishes to sell or distribute publicly under the proposed registration statement. The Company will use its best efforts, through its officers, directors, auditors and counsel in all matters necessary or advisable, to cause such registration statement to become effective as promptly as practicable. In that regard, the Company makes no representations or warranties as to its ability to have the registration statement declared effective. In the event the Company is advised by the staff of the Securities and Exchange Commission, NASDAQ or any self-regulatory or state securities agency that the inclusion of the Warrant Shares will prevent, preclude or 5 materially delay the effectiveness of a registration statement filed by the Company with respect to any securities other than the Warrant Shares, the Company, in good faith, may amend such registration statement to exclude the Warrant Shares without otherwise affecting the Holder's rights herein with respect to any other registration statement. (ii) Underwriter's Restrictions. If a registration statement is filed with respect to an underwritten registration on behalf of the Company, and if the underwriter thereof advises the Company in writing that, in its opinion, the number of Warrant Shares requested to be included in such registration statement exceeds the number that can be sold in such offering without materially adversely affecting the distribution of securities by the underwriter, then the Holder shall delay his offering and sale for such period ending on the earliest of (a) 180 days following the effective date of the Company's registration statement or (b) such date as the Company, managing underwriter and Holder shall otherwise agree. In the event of such delay, the Company shall file such supplements, post-effective amendments and take any such other steps as may be necessary to permit such Holder to make his proposed offering and sale for a minimum period of ninety (90) days immediately following the end of such period of delay. (iii) Indemnification. In the event of any registration of the Warrant Shares (or any of them) security pursuant to this Warrant, the Company shall indemnify the Holder and its officers and directors against all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (and as amended or supplemented) relating to such registration, or caused by any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made, unless such statement or omission was made in reliance upon and in conformity with information furnished to the Company in writing by the Holder expressly for use therein. The Holder shall notify the Company as soon as practicable following receipt of notice of any action or proceeding or threatened action or proceeding related to any alleged liability in respect of which indemnity may be sought against the Company, and the Company shall, at its sole option, assume the defense of such action or proceeding (employing counsel reasonably satisfactory to the Holder); provided, however, failure to so notify the Company shall not relieve the Company of its indemnification obligations hereunder unless such failure materially adversely affects the Company's defense of such action or proceeding. The Holder shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company unless the employment of such counsel has been specifically authorized by the Company. The Company shall not be liable to indemnify any person for any settlement of any such action or proceeding effected without the Company's written consent. The Holder shall also indemnify the Company, its officers and directors and each underwriter of the offering so registered with respect to losses, claims, damages and liabilities caused by any untrue statement of a material fact or omission to state a material fact required to be stated therein made in reliance upon and in conformity with information furnished by the Holder to the Company in writing expressly for use in such registration statement or prospectus. 6 (iv) Expenses. All expenses of any registration referred to in this Warrant, except any fees and disbursements of counsel to the Holder, underwriting commissions or discounts, any transfer or other taxes applicable to the Warrant and/or Warrant Shares, shall be borne by the Company. (i) NOTICES. All notices and other communications which are required or may be given under this Warrant shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by fax, one (1) day after being sent by overnight courier service or three (3) days after being mailed, first-class postage prepaid, in the case of the Company to 444 Madison Avenue, New York, New York, and in the case of the Holder to the address previously given to the Company by the Holder, or to such address as either party shall have specified by notice to the other party hereto. If notice is given by registered or certified first class mail, postage prepaid, return receipt requested, the return receipt shall be conclusive evidence of the notice having been mailed on the date set forth. (j) MISCELLANEOUS. This Warrant contains the entire agreement and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Warrant may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement is sought; provided however, that this Warrant may be amended or modified without the consent of the Holder if such amendment or modification does not adversely affect the rights of the Holder hereunder. This Warrant will not be assigned by either party hereto and shall be interpreted under the laws of the State of New York without application to the principles of conflicts of laws. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: --------------------------------------------- Denis J. Fitzpatrick, Chief Financial Officer Dated: _______________ 7 PURCHASE FORM The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ________________________ shares of Common Stock and hereby makes payment of _______________________ in payment of the actual exercise price thereof. INSTRUCTIONS FOR REGISTRATION OF STOCK Name _________________________________________________________________ (Please typewrite or print in block letters) Address_______________________________________________________________ Signature___________________________________________________ ASSIGNMENT FORM FOR VALUED RECEIVED, __________________________________________________ hereby sells, assigns and transfers unto Name__________________________________________________________________ (Please typewrite or print in block letters) Address________________________________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of ____________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint _____________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Date_____________________________, 19_______ Signature________________________________________________________________ 8 EX-4 3 EXHIBIT 4.2 EXHIBIT 4.2 FORM OF DEBENTURE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS. No.______________ US$___________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION 12.5% SERIES X SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE DUE JANUARY 2, 1998 THIS DEBENTURE is one of a duly authorized issue of Debentures of American International Petroleum Corporation, a corporation duly organized and existing under the laws of the State of Nevada (the "Company") designated as its 12.5% Series X Senior Subordinated Convertible Redeemable Debentures Due January 2, 1998, in an aggregate principal amount not exceeding Two Million Dollars (U.S. $2,000,000). FOR VALUE RECEIVED, the Company promises to pay to ________________ the registered holder hereof and its successors and assigns (the "Holder"), the principal sum of _____________ (U.S.$________) on January 2, 1998 (the "Maturity Date"), and to pay interest on the principal sum outstanding, at the rate of 12.5% per annum due and payable monthly commencing __________, 1996 pursuant to paragraph 4(b) herein. Accrual of interest shall commence on the date hereof and shall continue until payment in full of the outstanding principal sum has been made or duly provided for. The interest so payable will be paid to the person in whose name this Debenture (or one or more predecessor debentures) is registered on the records of the Company regarding registration and transfer of the Debentures (the "Debenture Register"); provided, however, that the Company's obligation to a transferee of this Debenture arises only if such transfer, sale or other disposition is made in accordance with the terms and conditions of the Offshore Securities Subscription Agreement dated as of _______, 1996 between the Company and ____________________________ (the "Subscription Agreement"). The principal of, and interest on, this Debenture are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder hereof from time to time. The Company will pay the outstanding principal due upon this Debenture before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Debenture no later than the tenth (10th) day prior to the Maturity Date by check or on the Maturity Date by wire transfer and addressed to such Holder at the last address appearing on the Debenture Register. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Debenture to the extent of the sum represented by such check or wire transfer plus any amounts so deducted. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of One Hundred Thousand Dollars (US$100,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the holders surrendering the same but not less than U.S. $25,000. No service charge will be made for such registration or transfer or exchange, except that transferee shall pay any tax or other governmental charges payable in connection therewith. 2. The Company shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax or other applicable laws at the time of such payments. 3. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged in the U.S. only in compliance with the Securities Act of 1933, as amended (the "Act") and applicable state securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any holder of this Debenture, electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Debenture, is also required to give the Company (i) written confirmation that it is not a U.S. Person and the Debenture is not being converted on behalf of a U.S. Person ("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that the Debenture and shares of common stock issuable upon conversion or transfer thereof have been registered under the 1933 Act or are exempt from such registration. In the event a Notice of Conversion or opinion of counsel is not provided the Holder hereof will not be entitled to exercise the right to convert or transfer the Debentures. 4. (a) The Holder of this Debenture is entitled, at its option, at any time commencing 180 days after closing of the Offering hereof to convert all or any amount over $25,000 of the principal amount of this Debenture then outstanding into shares of common stock, $0.08 par value per share, of the Company (the "Common Stock"), at a conversion price for each share of Common Stock equal to 65% of the average closing bid price of the Common Stock for the five (5) business days immediately preceding the date of receipt by the Company of notice of conversion ("Conversion Shares") as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") (the "Conversion Price"). If the number of resultant Conversion Shares would as a matter of law or pursuant to regulatory authority require the Company to seek shareholder approval of such issuance, the Company shall, as soon as practicable, take the necessary steps to seek such approval. If such approval is not received within 30 days then Company shall be required to redeem the Debenture pursuant to paragraph 4(c) herein. Such conversion shall be effectuated by surrendering the Debenture to be converted (with a copy, by facsimile or courier, to the Company) to the Company with the form of conversion notice attached hereto as Exhibit I, executed by the Holder of this Debenture evidencing such Holder's intention to convert this Debenture or a specified portion (as above provided) hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The transferee or issuee shall execute such investment representations or other documents as are respectively required by counsel in order to ascertain the available registration exemption. The date on which notice of conversion is given shall be deemed to be the date on which the Holder has delivered this Debenture, with the assignment and conversion notice duly executed, to the Company or, if earlier, the date set forth in such notice of conversion if the Debenture is received by the Company and Escrow Agent within five (5) business days thereafter. The transferee or issuee shall execute such investment representations or other documents as are reasonably required by counsel in order to ascertain the available registration exemption. (b) Interest at the rate of 12.5% per annum shall be payable in arrears, monthly commencing ___________, 1996. However, at Closing, the Company shall prepay the first 3 months interest by issuing in Common Stock of the Company as follows: Based on the closing bid prices of the Common Stock for the last 5 consecutive trading days prior to Closing ("Market Price") the Company shall issue to the Holder shares of Common stock in an amount equal to the total monthly interest accrued and due divided by the Market Price (the "Interest Shares"). Common stock issued pursuant hereto shall be issued pursuant to Regulation S in accordance with the terms of the Subscription Agreement. Thereafter, on a monthly basis commencing October 1, 1996 the Company shall pay interest on a monthly basis in cash (or Common Stock, based on the above formula, at the Company's option, only if an effective Registration Statement has been filed in connection with the Common Stock). (c) If the Company shall pay to the Holder the principal amount of the Debenture, in full, at any time prior to conversion pursuant to Paragraph 4(a) herein, or upon maturity, the Company shall issue to the Holder options to acquire shares of Common Stock equal to 18% of the principal amount of the Debenture i.e. $2,000,000 Debenture would receive options to acquire 360,000 shares of Common Stock. Each option shall be exercisable at any time within 2 years from their date of issuance for a share of Common stock at 80% of the average of the closing bid price of the common stock for the 5 consecutive trading days prior to the date of issuance of the option. Any shares issued pursuant to the option shall be issued pursuant to Regulation S or a Registration Statement. 5. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the time, place, and rate, and in the coin currency, herein prescribed. 6. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. 7. The Company agrees to pay all costs and expenses, including reasonable attorney's fees, which may be incurred by the Holder in collecting any amount due under this Debenture. 8. If one or more of the following described "Events of Default" shall occur and continue for 30 days: (a) The Company shall default in the payment of principal or interest on this Debenture; or 3 (b) Any of the representations or warranties made by the Company herein, in the Subscription Agreement, or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Debenture or the Subscription Agreement shall be false or misleading in any material respect at the time made; or (c) The Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under this Debenture [and such failure shall continue uncured for a period of thirty (30) days after notice from the Holder of such failure]; or (d) The Company shall (1) become insolvent; (2) admit in writing its liability to pay its debts generally as they mature; (3) make an assignment for benefit of creditors or commence proceedings for its dissolution; or (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or (e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or (f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within (30) days thereafter; or (g) Any money judgment, writ or warrant of attachment, or similar process, excluding those processes, if any, related to the Company existing Excise Tax dispute with the Internal Revenue Service and its ongoing litigation with Thibideaux, et al., in excess of One Hundred Thousand ($100,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or (h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within thirty (30) days after such instruction of the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or (i) The Company shall have its Common Stock delisted from the over-the-counter market. 4 Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. 9. (a) This Debenture represents a general unsecured obligation of the Company. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. (b) The rights of any Holder to receive the principal sum or any part thereof, and to receive the interest due on this Debenture is and shall remain subordinate in priority to the payment of the principal of and interest on (i) all future obligations and guarantees of the Issuer for money borrowed from bank, trust company, insurance company or other financial institution engaged in the business of lending money, for which the Issuer is at the time of determination responsible or liable as obligor or guarantor; (ii) all existing or future obligations of the Company secured by a lien, mortgage, pledge or other encumbrance against real or personal property (including common stock of the Company or any of its subsidiaries) of the Company; (iii) any modifications, renewals, extensions or refunding of the foregoing, except for any of such obligations of the Company the payment of which is made expressly subordinate and junior to this Debenture; (iv) indebtedness under the MG Trade Finance Corp. ("MGTF") loan agreement (the "Loan Agreement") or any indebtedness incurred to refinance such obligations; (v) other indebtedness of the Company existing on the date of this Debenture; and (vi) trade payables incurred in the ordinary course of business of the Company or its subsidiaries. (c) Notwithstanding the foregoing, no encumbrances, liens or other security interests shall be placed on the Company's refinery located at Lake Charles, Louisiana without the express written consent of 51% of the Series X Debentures Holders. 10. The Holder of this Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common stock issuable upon exercise thereof except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky law or similar laws relating to the sale of securities. 11. In case any provision of this Debenture is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Debenture will not in any way be affected or impaired thereby. 5 12. This Debenture and the agreements referred to in this Debenture constitute the full and entire understanding and agreement between the Company and the Holder with respect to the subject hereof. Neither this Debenture nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder. 13. This Debenture shall be governed by and construed in accordance with the laws of New York. Holder hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized. Dated:___________________________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Title:___________________________________ 6 EXHIBIT I NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Debenture) The undersigned hereby irrevocably elects to convert $_________________ of the above Debenture No. _______ into shares of Common Stock of American International Petroleum Corporation (the "Company") according to the conditions set forth in such Debenture, as of the date written below: The undersigned represents that it is not a U.S. Person as defined in Regulation S promulgated under the Securities Act of 1933, as amended, and is not converting the Debenture on behalf of any U.S. person and the representations contained in the Subscription Agreement are true. If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date of Conversion*_____________________________________________________________ Applicable Conversion Price_____________________________________________________ Signature_______________________________________________________________________ (Print Name of Holder and Title of Signature) Address:________________________________________________________________________ ________________________________________________________________________ ____________________________ Medallion Signature Guaranty *This original Debenture and Notice of Conversion must be received by the Company by the fifth date following the Date of Conversion. 7 EX-4 4 EXHIBIT 4.3 EXHIBIT 4.3 FORM OF DEBENTURE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS. No.______________ US$___________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION 10% SERIES L SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE DUE APRIL 1, 1998 THIS DEBENTURE is one of a duly authorized issue of Debentures of American International Petroleum Corporation, a corporation duly organized and existing under the laws of the State of Nevada (the "Company") designated as its 10% Series L Senior Subordinated Convertible Redeemable Debentures Due April 1, 1998, in an aggregate principal amount not exceeding Three Million Dollars (U.S. $3,000,000) which Debentures are being purchased at 90% of the face amount of such Debentures. FOR VALUE RECEIVED, the Company promises to pay to ________________ the registered holder hereof and its successors and assigns (the "Holder"), the principal sum of _____________ (U.S.$________) on April 1, 1998 (the "Maturity Date"), and to pay interest on the principal sum outstanding, at the rate of 10% per annum due and payable quarterly commencing ______________ pursuant to paragraph 4(b) herein. Accrual of interest shall commence on the date hereof and shall continue until payment in full of the outstanding principal sum has been made or duly provided for. The interest so payable will be paid to the person in whose name this Debenture (or one or more predecessor debentures) is registered on the records of the Company regarding registration and transfer of the Debentures (the "Debenture Register"); provided, however, that the Company's obligation to a transferee of this Debenture arises only if such transfer, sale or other disposition is made in accordance with the terms and conditions of the Offshore Securities Subscription Agreement dated as of ______________________________, 1996 between the Company and ________________________________ (the "Subscription Agreement"). The principal of, and interest (with the exception of the prepaid interest set forth in Section 4(b) herein) on, this Debenture are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder hereof from time to time. The Company will pay the outstanding principal due upon this Debenture before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Debenture no later than the tenth (10th) day prior to the Maturity Date by check or on the Maturity Date by wire transfer and addressed to such Holder at the last address appearing on the Debenture Register. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Debenture to the extent of the sum represented by such check or wire transfer plus any amounts so deducted. Interest shall be payable in Common Stock (as defined below pursuant to paragraph 4(b) herein. This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of One Hundred Thousand Dollars (US$100,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the holders surrendering the same but not less than U.S. $25,000. No service charge will be made for such registration or transfer or exchange, except that transferee shall pay any tax or other governmental charges payable in connection therewith. 2. The Company shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax or other applicable laws at the time of such payments. 3. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged in the U.S. only in compliance with the Securities Act of 1933, as amended (the "Act") and applicable state securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any holder of this Debenture, electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Debenture, is also required to give the Company (i) written confirmation that it is not a U.S. Person and the Debenture is not being converted on behalf of a U.S. Person ("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that the Debenture and shares of common stock issuable upon conversion or transfer thereof have been registered under the 1933 Act or are exempt from such registration. In the event a Notice of Conversion or opinion of counsel is not provided the Holder hereof will not be entitled to exercise the right to convert or transfer the Debentures. 4. (a) The Holder of this Debenture is entitled, at its option, at any time commencing 180 days after closing of the Offering hereof to convert all or any amount over $25,000 of the principal amount of this Debenture then outstanding into shares of common stock, $0.08 par value per share, of the Company to be issued pursuant to Regulation S as promulgated by the Securities and Exchange Commission (the "Common Stock"), at a conversion price for each share of Common Stock equal to 80% of the average closing bid price of the Common Stock for the five (5) business days immediately preceding the date of receipt by the Company of notice of conversion ("Conversion Shares") as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") (the "Conversion Price"). If the number of resultant Conversion Shares would as a matter of law or pursuant to regulatory authority require the Company to seek shareholder approval of such issuance, the Company shall, as soon as practicable, take the necessary steps to seek such approval. If such approval is not received within 30 days then Company shall be required to redeem the Debenture pursuant to paragraph 4(c) herein. Such conversion shall be effectuated by surrendering the Debenture to be converted (with a copy, by facsimile or courier, to the Company) to the Company with the form of conversion notice attached hereto as Exhibit I, executed by the Holder of this Debenture evidencing such Holder's intention to convert this Debenture or a specified portion (as above provided) hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The transferee or issuee shall execute such investment representations or other documents as are respectively required by counsel in order to ascertain the available registration exemption. The date on which notice of conversion is given shall be deemed 2 to be the date on which the Holder has delivered this Debenture, with the assignment and conversion notice duly executed, to the Company or, if earlier, the date set forth in such notice of conversion if the Debenture is received by the Company within five (5) business days thereafter. The transferee or issuee shall execute such investment representations or other documents as are reasonably required by counsel in order to ascertain the available registration exemption. (b) Interest at the rate of 10% per annum shall be payable in arrears, monthly commencing on ____________. However, at Closing, the Company shall prepay the first 3 months interest by issuing in Common Stock of the Company as follows: Based on the closing bid prices of the Common stock for the last 5 consecutive trading days prior to Closing ("Market Price") the Company shall issue to the Holder shares of Common stock in an amount equal to the total monthly interest accrued and due divided by the Market Price (the "Interest Shares"). Common Stock issued pursuant hereto shall be issued pursuant to Regulation S in accordance with the terms of the Subscription Agreement. Thereafter, commencing 181 days after Closing, the Company shall pay interest on a quarterly basis in cash (or Common Stock, based on the above formula, at the Company's option, only if an effective Registration Statement has been filed in connection with the Common Stock. (c) If the Company shall pay to the Holder the principal amount of the Debenture, in full, at any time prior to conversion pursuant to Paragraph 4(a) herein, or upon maturity, the Company shall issue to the Holder options to acquire shares of Common Stock equal to 5% of the principal amount of the Debenture i.e. $2,000,000 Debenture would receive options to acquire 100,000 shares of Common Stock. Each option shall be exercisable at any time within 2 years from their date of issuance for a share of Common stock at 80% of the average of the closing bid price of the Common Stock for the 5 consecutive trading days prior to the date of issuance of the option. Any shares issued pursuant to the option shall be issued pursuant to Regulation S or a Registration Statement. 5. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the time, place, and rate, and in the coin currency, herein prescribed. 6. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. 7. The Company agrees to pay all costs and expenses, including reasonable attorney's fees, which may be incurred by the Holder in collecting any amount due under this Debenture. 8. If one or more of the following described "Events of Default" shall occur and continue for 30 days: (a) The Company shall default in the payment of principal or interest on this Debenture; or (b) Any of the representations or warranties made by the Company herein, in the Subscription Agreement, or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Debenture or the Subscription 3 Agreement shall be false or misleading in any material respect at the time made; or (c) The Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under this Debenture [and such failure shall continue uncured for a period of thirty (30) days after notice from the Holder of such failure]; or (d) The Company shall (1) become insolvent; (2) admit in writing its liability to pay its debts generally as they mature; (3) make an assignment for benefit of creditors or commence proceedings for its dissolution; or (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or (e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or (f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within (30) days thereafter; or (g) Any money judgment, writ or warrant of attachment, or similar process, excluding those processes, if any, related to the Company existing Excise Tax dispute with the Internal Revenue Service and its ongoing litigation with Thibideaux, et al., in excess of One Hundred Thousand ($100,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or (h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within thirty (30) days after such instruction of the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding. (i) The Company shall have its Common Stock delisted from the over-the-counter market. Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies 4 provided herein or any other rights or remedies afforded by law. 9. (a) This Debenture represents a general unsecured obligation of the Company. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. (b) The rights of any Holder to receive the principal sum or any part thereof, and to receive the interest due on this Debenture is and shall remain subordinate in priority to the payment of the principal of and interest on (i) all future obligations and guarantees of the Issuer for money borrowed from bank, trust company, insurance company or other financial institution engaged in the business of lending money, for which the Issuer is at the time of determination responsible or liable as obligor or guarantor; (ii) all existing or future obligations of the Company secured by a lien, mortgage, pledge or other encumbrance against real or personal property (including common stock of the Company or any of its subsidiaries) of the Company; (iii) any modifications, renewals, extensions or refunding of the foregoing, except for any of such obligations of the Company the payment of which is made expressly subordinate and junior to this Debenture; (iv) indebtedness under the MG Trade Finance Corp. ("MGTF") loan agreement (the "Loan Agreement") or any indebtedness incurred to refinance such obligations; (v) other indebtedness of the Company existing on the date of this Debenture; and (vi) trade payables incurred in the ordinary course of business of the Company or its subsidiaries. (c) Not withstanding the foregoing, no encumbrances, liens or other security interests or covenants, with the exception of those relating to the existing debt thereon, shall be placed on the Company's refinery located at Lake Charles, Louisiana without the express written consent of 51% of the Series L Debenture Holders, other than existing debt of $2,800,000. 10. The Holder of this Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common stock issuable upon exercise thereof except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky law or similar laws relating to the sale of securities. 11. In case any provision of this Debenture is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Debenture will not in any way be affected or impaired thereby. 12. This Debenture and the agreements referred to in this Debenture constitute the full and entire understanding and agreement between the Company and the Holder with respect to the subject hereof. Neither this Debenture nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder. 13. This Debenture shall be governed by and construed in accordance with the laws of New York. Holder hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. 5 14. As set forth herein, the Company shall use all reasonable efforts to issue and deliver, within three business days after the Holder has fulfilled all conditions and submitted all necessary documents duly executed and in proper form required for conversion (the "Deadline"), to the Holder or any part receiving a Debenture by transfer from the Holder (together, a "Holder"), at the address of the Holder on the books of the Company, a certificate or certificates for the number of Shares of Common stock to which the Holder shall be entitled. The Company understands that a delay in the issuance of the Shares of Common Stock beyond the Deadline could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay liquidated damages to the Holder for late issuance of Shares upon conversion in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond seven (7) business days from the date of receipt by the Company of a Notice of Conversion and the transfer agent of all necessary documentation duly executed and in proper from required for conversion, including the original Debenture to be converted, all in accordance with the Debenture, Subscription Agreement and the requirements of the transfer agent): No Business Days Late Liquidated Damages 1 $500 2 $1,000 3 $1,500 4 $2,000 5 $2,500 6 $3,000 7 $3,500 8 $4,000 9 $4,500 10 $5,000 10 $5,000 + $1,000 each Business Day Late beyond 10 days The Company shall pay the Holder any liquidated damages incurred under this Section by check upon the earlier to occur of (i) issuance of the Shares to the Holder or (ii) each monthly anniversary of the receipt of the company of such Holder's Notice of Conversion. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to issue and deliver shares of Common Stock to the Subscriber in accordance with the terms of the Debenture. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized. Dated:___________________________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Title:___________________________________ 6 EXHIBIT I NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Debenture) The undersigned hereby irrevocably elects to convert $_________________ of the above Debenture No. _______ into shares of Common Stock of American International Petroleum Corporation (the "Company") according to the conditions set forth in such Debenture, as of the date written below: The undersigned represents that it is not a U.S. Person as defined in Regulation S promulgated under the Securities Act of 1933, as amended, and is not converting the Debenture on behalf of any U.S. person and the representations contained in the Subscription Agreement are true. If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date of Conversion*_____________________________________________________________ Applicable Conversion Price_____________________________________________________ Signature_______________________________________________________________________ (Print Name of Holder and Title of Signature) Address:________________________________________________________________________ ________________________________________________________________________ ______________________________ Medallion Signature Guaranty *This original Debenture and Notice of Conversion must be received by the Company by the fifth date following the Date of Conversion. 7 EX-4 5 EXHIBIT 4.4 EXHIBIT 4.4 FORM OF DEBENTURE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS. No.______________ US$___________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION 10% SERIES M SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE DUE APRIL 1, 1998 THIS DEBENTURE is one of a duly authorized issue of Debentures of American International Petroleum Corporation, a corporation duly organized and existing under the laws of the State of Nevada (the "Company") designated as its 10% Series M Senior Subordinated Convertible Redeemable Debentures Due April 1, 1998, in an aggregate principal amount not exceeding Three Million Dollars (U.S. $3,000,000). FOR VALUE RECEIVED, the Company promises to pay to ________________ the registered holder hereof and its successors and assigns (the "Holder"), the principal sum of _____________ (U.S.$________) on April 1, 1998 (the "Maturity Date"), and to pay interest on the principal sum outstanding, at the rate of 10% per annum due and payable quarterly. Accrual of interest shall commence on the date hereof and shall continue until payment in full of the outstanding principal sum has been made or duly provided for. The interest so payable will be paid to the person in whose name this Debenture (or one or more predecessor debentures) is registered on the records of the Company regarding registration and transfer of the Debentures (the "Debenture Register"); provided, however, that the Company's obligation to a transferee of this Debenture arises only if such transfer, sale or other disposition is made in accordance with the terms and conditions of the Offshore Securities Subscription Agreement dated as of ______________________________, 1996 between the Company and ________________________________ (the "Subscription Agreement"). The principal of, and interest on, this Debenture are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder hereof from time to time. The Company will pay the outstanding principal due upon this Debenture before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Debenture no later than the tenth (10th) day prior to the Maturity Date by check or on the Maturity Date by wire transfer and addressed to such Holder at the last address appearing on the Debenture Register. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Debenture to the extent of the sum represented by such check or wire transfer plus any amounts so deducted. This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of One Hundred Thousand Dollars (US$100,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the holders surrendering the same but not less than U.S. $25,000. No service charge will be made for such registration or transfer or exchange, except that transferee shall pay any tax or other governmental charges payable in connection therewith. 2. The Company shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax or other applicable laws at the time of such payments. 3. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged in the U.S. only in compliance with the Securities Act of 1933, as amended (the "Act") and applicable state securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any holder of this Debenture, electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Debenture, is also required to give the Company (i) written confirmation that it is not a U.S. Person and the Debenture is not being converted on behalf of a U.S. Person ("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that the Debenture and shares of common stock issuable upon conversion or transfer thereof have been registered under the 1933 Act or are exempt from such registration. In the event a Notice of Conversion or opinion of counsel is not provided the Holder hereof will not be entitled to exercise the right to convert or transfer the Debentures. 4. (a) The Holder of this Debenture is entitled, at its option, at any time commencing 180 days after closing of the Offering hereof to convert all or any amount over $25,000 of the principal amount of this Debenture then outstanding into shares of common stock, $0.08 par value per share, of the Company to be issued pursuant to Regulation S as promulgated by the Securities and Exchange Commission (the "Common Stock"), at a conversion price for each share of Common Stock equal to 80% of the average closing bid price of the Common Stock for the five (5) business days immediately preceding the date of receipt by the Company of notice of conversion ("Conversion Shares") as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") (the "Conversion Price"). If the number of resultant Conversion Shares would as a matter of law or pursuant to regulatory authority require the Company to seek shareholder approval of such issuance, the Company shall, as soon as practicable, take the necessary steps to seek such approval. If such approval is not received within 30 days then Company shall be required to redeem the Debenture pursuant to paragraph 4(c) herein. Such conversion shall be effectuated by surrendering the Debenture to be converted (with a copy, by facsimile or courier, to the Company) to the Company with the form of conversion notice attached hereto as Exhibit I, executed by the Holder of this Debenture evidencing such Holder's intention to convert this Debenture or a specified portion (as above provided) hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The transferee or issuee shall execute such 2 investment representations or other documents as are respectively required by counsel in order to ascertain the available registration exemption. The date on which notice of conversion is given shall be deemed to be the date on which the Holder has delivered this Debenture, with the assignment and conversion notice duly executed, to the Company or, if earlier, the date set forth in such notice of conversion if the Debenture is received by the Company within five (5) business days thereafter. The transferee or issuee shall execute such investment representations or other documents as are reasonably required by counsel in order to ascertain the available registration exemption. (b) Interest at the rate of 10% per annum shall be payable in arrears, quarterly commencing on the date hereof. However, at Closing, the Company shall prepay the first 3 months interest by issuing in cash or, at the option of the Company, in Common Stock of the Company as follows: Based on the closing bid prices of the Common stock for the last 5 consecutive trading days prior to Closing ("Market Price") the Company shall issue to the Holder shares of Common stock in an amount equal to the total monthly interest accrued and due divided by the Market Price (the "Interest Shares"). Common Stock issued pursuant hereto shall be issued pursuant to Regulation S in accordance with the terms of the Subscription Agreement. Thereafter, commencing 181 days after Closing, the Company shall pay interest on a quarterly basis in cash. (c) If the Company shall pay to the Holder the principal amount of the Debenture, in full, at any time prior to conversion pursuant to Paragraph 4(a) herein, or upon maturity, the Company shall issue to the Holder options to acquire shares of Common Stock equal to 5% of the principal amount of the Debenture e.g. $3,000,000 Debenture would receive options to acquire 150,000 shares of Common Stock. Each option shall be exercisable at any time within 2 years from their date of issuance for a share of Common stock at 80% of the average of the closing bid price of the Common Stock for the 5 consecutive trading days prior to the date of issuance of the option. Any shares issued pursuant to the option shall be issued pursuant to Regulation S or a Registration Statement. 5. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the time, place, and rate, and in the coin currency, herein prescribed. 6. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. 7. The Company agrees to pay all costs and expenses, including reasonable attorney's fees, which may be incurred by the Holder in collecting any amount due under this Debenture. 8. If one or more of the following described "Events of Default" shall occur and continue for 30 days: (a) The Company shall default in the payment of principal or interest on this Debenture; or (b) Any of the representations or warranties made by the Company herein, in the 3 Subscription Agreement, or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Debenture or the Subscription Agreement shall be false or misleading in any material respect at the time made; or (c) The Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under this Debenture [and such failure shall continue uncured for a period of thirty (30) days after notice from the Holder of such failure]; or (d) The Company shall (1) become insolvent; (2) admit in writing its liability to pay its debts generally as they mature; (3) make an assignment for benefit of creditors or commence proceedings for its dissolution; or (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or (e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or (f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within (30) days thereafter; or (g) Any money judgment, writ or warrant of attachment, or similar process, excluding those processes, if any, related to the Company existing Excise Tax dispute with the Internal Revenue Service and its ongoing litigation with Thibideaux, et al., in excess of One Hundred Thousand ($100,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or (h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within thirty (30) days after such instruction of the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding. Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in 4 any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. 9. (a) This Debenture represents a general unsecured obligation of the Company. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. (b) The rights of any Holder to receive the principal sum or any part thereof, and to receive the interest due on this Debenture is and shall remain subordinate in priority to the payment of the principal of and interest on (i) all future obligations and guarantees of the Issuer for money borrowed from bank, trust company, insurance company or other financial institution engaged in the business of lending money, for which the Issuer is at the time of determination responsible or liable as obligor or guarantor; (ii) all existing or future obligations of the Company secured by a lien, mortgage, pledge or other encumbrance against real or personal property (including common stock of the Company or any of its subsidiaries) of the Company; (iii) any modifications, renewals, extensions or refunding of the foregoing, except for any of such obligations of the Company the payment of which is made expressly subordinate and junior to this Debenture; (iv) indebtedness under the MG Trade Finance Corp. ("MGTF") loan agreement (the "Loan Agreement") or any indebtedness incurred to refinance such obligations; (v) other indebtedness of the Company existing on the date of this Debenture; and (vi) trade payables incurred in the ordinary course of business of the Company or its subsidiaries. (c) Not withstanding the foregoing, no encumbrances, liens or other security interests or covenants, with the exception of those relating to the existing debt thereon, shall be placed on the Company's refinery located at Lake Charles, Louisiana without the express written consent of 51% of the Series M Debenture Holders. 10. The Holder of this Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common stock issuable upon exercise thereof except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky law or similar laws relating to the sale of securities. 11. In case any provision of this Debenture is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Debenture will not in any way be affected or impaired thereby. 12. This Debenture and the agreements referred to in this Debenture constitute the full and entire understanding and agreement between the Company and the Holder with respect to the subject hereof. Neither this Debenture nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder. 5 13. This Debenture shall be governed by and construed in accordance with the laws of New York. Holder hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized. Dated:___________________________ AMERICAN INTERNATIONAL PETROLEUM CORPORATION By:______________________________________ Title:___________________________________ 6 EXHIBIT I NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Debenture) The undersigned hereby irrevocably elects to convert $_________________ of the above Debenture No. _______ into shares of Common Stock of American International Petroleum Corporation (the "Company") according to the conditions set forth in such Debenture, as of the date written below: The undersigned represents that it is not a U.S. Person as defined in Regulation S promulgated under the Securities Act of 1933, as amended, and is not converting the Debenture on behalf of any U.S. person and the representations contained in the Subscription Agreement are true. If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date of Conversion*____________________________________________________________ Applicable Conversion Price____________________________________________________ Signature______________________________________________________________________ (Print Name of Holder and Title of Signature) Address:_______________________________________________________________________ _______________________________________________________________________ ____________________________ Medallion Signature Guaranty *This original Debenture and Notice of Conversion must be received by the Company by the fifth date following the Date of Conversion. 7 EX-4 6 EXHIBIT 4.5 EXHIBIT 4.5 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MUST BE HELD INDEFINITELY UNLESS SO REGISTERED OR TRANSFERRED IN A TRANSACTION EXEMPT FROM REGISTRATION. PROMISSORY NOTE $ New York, New York _______________ ___________ , 1996 FOR VALUE RECEIVED, the undersigned, AMERICAN INTERNATIONAL PETROLEUM CORPORATION (the "Company" or "Maker"), promises to pay to the order of ________________ ("Payee"), its successors and assigns, at Payee's office at _____, or such other place as the holder may designate in writing from time to time, the principal sum of __________($_______ ), in lawful money of the United States, together with simple interest in the amount of 8% of such principal sum. All outstanding principal and interest on this Note shall be due and payable on __________, 1997; provided, however, that the Company shall pay to the holder of this Promissory Note and the holders of all other Promissory Notes issued in connection with the Company's offering dated November 6, 1996 of an aggregate of up to $1,600,000 principal amount of Subordinated Notes and 640,000 Warrants exercisable into 640,000 Shares of Common Stock (the "Offering"), on a pro-rata basis, to the extent of any principal and accrued interest outstanding thereon, the net cash proceeds in excess of $1.5 million received on or prior to January 7, 1997 and all net cash proceeds received thereafter from any source of additional financing, other than (i) the Offering, (ii) the refinancing of any existing financing to the extent the Company does not receive additional net proceeds therefrom and (iii) Capitalized Leases, as defined below, provided, however that the Company does not receive any cash proceeds therefrom which are not used in connection with the property to which such Capitalized Lease relates. The Company covenants that it will not at anytime while this Note is outstanding, have encumbrances on or grant security interests in the Company's refinery (the "Refinery") located in Lake Charles, Louisiana, except for Permitted Liens, as defined below, in excess of Four Million Dollars without the express written consent of 51% in interest of the Notes issued in connection with the Offering to the extent outstanding and Robert M. Cohen & Co., Inc. Subject to the rights of the holders of the Senior Debt, as defined below, and as otherwise expressly provided herein, the Company's breach of this covenant will result in the immediate acceleration of the amounts due hereunder. This Note may be prepaid in whole or in part at any time and from time to time without premium or penalty. All prepayments on this Note and all notes of like tenor issued to other noteholders by the Company with respect to the Offering shall be applied pro rata in the same proportion that the original principal amount of this Note and each such note bears to the aggregate original principal amount of all such notes, and in the case of this Note, such prepayments shall be applied first to the payment of any costs of collection that may be due hereunder, then to the payment of interest, and the balance shall be applied to principal. Other than pursuant to registration under federal and any applicable state securities laws or any exemption from such registration, the availability of which the Company shall determine in its sole discretion, this Note may not be sold, pledged, assigned or otherwise disposed of (whether voluntarily or involuntarily). The Company may condition such sale, pledge, assignment or other disposition on the receipt from the party to whom this Note is to be so transferred of any representations and agreements requested by the Company in order to permit such transfer to be made pursuant to exemptions from registration under federal and applicable state securities laws. Payee, by acceptance hereof, agrees to give written notice to the Company, before transferring this Note, of Payee's intention to do so, describing the manner of any proposed transfer. Within thirty (30) days after receiving such written notice, the Company shall notify Payee as to whether such transfer may be effected and of the conditions to any such transfer. The Maker hereby agrees, and the holder of this Note by the holder's acceptance hereof agrees, that the payment of the principal of and interest on this Note is hereby expressly made subordinate and junior in right of payment to the prior payment in full of all Senior Debt, Capitalized Leases or Permitted Liens, (each as hereinafter defined) of the Maker. The holder of this Note agrees, as part of such subordination, as follows: (a) In the event of insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Maker or to any of the property of the Maker, or in the event of any proceedings for voluntary liquidation, dissolution or other winding-up of the Maker, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt, Capitalized Leases and Permitted Liens shall be entitled to receive payment in full of all principal of and premium, if any, and interest on all Senior Debt, Capitalized Leases and Permitted Liens before the holder of this Note shall be entitled to receive any payment on account of principal or interest on this Note, and to that end the holders of Senior Debt shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of this Note. (b) In the event that the holder of this Note shall have received written notice to the effect that an event of default shall have occurred on any Senior Debt, Capitalized Leases or Permitted Liens and be continuing (under circumstances in which the provisions of the foregoing paragraph (a) are not applicable), then, during the continuance of any such event of default, all principal of and premium, if any, and interest on all Senior Debt Capitalized Leases or Permitted Liens outstanding at the time of such notice shall first be paid in full, before any payment on account of principal or interest is made upon this Note. -2- The provisions of this paragraph are for the purpose of defining the relative rights of the holders of Senior Debt, Capitalized Leases or Permitted Liens on the one hand, and the holder of this Note on the other hand, against the Maker and its property; and nothing herein shall impair, as between the Maker and the holder of this Note, the obligation of the Maker, which is unconditional and absolute, to pay to the holder hereof the principal hereof and the interest hereon in accordance with the terms and provisions hereof; nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this paragraph of holders of Senior Debt, Capitalized Leases or Permitted Liens to receive cash, property, stock or obligations otherwise payable or deliverable to the holder of this Note. For the purpose of this Note: (a) "Debt" of any corporation shall mean, at any date, all indebtedness of such corporation which would, in accordance with generally accepted accounting principles, be classified as indebtedness, whether funded or current, but in any event including: (i) all indebtedness guaranteed, directly or indirectly, in any manner by such corporation or in effect guaranteed directly or indirectly by such corporation through an agreement, contingent or otherwise, to supply funds to or in any other manner invest in the debtor, to purchase indebtedness or to purchase goods, supplies or services for the purpose of enabling the debtor to make payment of the indebtedness or to assure the owner of the indebtedness against loss, or otherwise; (ii) all indebtedness for the payment of purchase of which such corporation has agreed, contingently or otherwise, to advance or supply funds; (ii) all indebtedness secured by any mortgage, lien, pledge, charge or encumbrance of any kind upon property owned by such corporation, even though such corporation has not assumed or become liable for the payment of such indebtedness; and (iv) all indebtedness of such corporation created or arising under any conditional sale or other title retention agreement with respect to property acquired by such corporation, even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; and (b) "Senior Debt" shall mean the principal of and interest on Debt outstanding for money borrowed by the Maker from any bank, insurance company or other institutional lender before or after the date of this Note created or evidenced by notes, bonds, debentures or similar instruments or by a loan agreement or loan agreements under which the indebtedness is reflected in a loan account and all purchase money Debt incurred by the Maker before or after the date of this Note created or evidenced by notes, bonds, mortgages, deeds of trust or similar instruments (excluding any of such Debt which by the terms of the instrument creating or evidencing the same is subordinated to or pari passu with this Note). -3- (c) "Capitalized Lease" shall mean items of equipment or machinery acquired by the Maker so long as the lender's security is limited to such equipment or machinery, and any proceeds from the sale thereof. (d) "Permitted Liens" shall mean (i) any lien securing a tax, assessment or other governmental charge or levy or the claim of a materialman, mechanic, carrier, warehouseman or landlord for labor, materials, supplies or rentals incurred in the ordinary course of business; and (ii) any lien constituting an encumbrance in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property that does not materially detract from the value of such property or impair the use thereof in the business of the Maker. Subject to the rights of the holder of the Senior Debt and as otherwise expressly provided herein, Maker hereby waives demand, protest, presentment for payment, notice of dishonor , notice of protest, diligence in bringing suit against any party, and hereby consents that the time for payment of all or any part of the principal amount, and of the interest thereon, may be extended from time to time by Payee without notice, and that any such extension shall not discharge or otherwise impair the obligations represented by this Note. The foregoing waivers shall not be deemed to waive the requirement of any notice, demand or cure periods expressly provided for in this Note. THE COMPANY AND ANY HOLDER OF THIS NOTE HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION, OR PROCEEDING IN ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THIS NOTE OR THE ENFORCEMENT OF ANY OF THE HOLDER'S RIGHTS AND REMEDIES. THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, EACH HOLDER OF THIS NOTE, ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER THOROUGH CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEY. NEITHER THE COMPANY NOR ANY HOLDER OF THIS NOTE HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. All demands and notices to be given hereunder shall be delivered personally or sent by recognized national overnight courier; in the case of the Company, addressed to its corporate office at 444 Madison Avenue, , Suite 3202, New York, New York 10022, and in the case of Lender, addressed to the address written above, in either case, until a new address shall have been substituted by like notice. This Note shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the successors and assigns of the Maker and inure to the benefit of the Payee, its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. -4- IN WITNESS WHEREOF, the Company has caused this Note to be executed on its behalf by its duly authorized officer on the day and year first above written. AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: ------------------------------ George N. Faris, Chairman & CEO -5- EX-4 7 EXHIBIT 4.6 EXHIBIT 4.6 Warrant No. NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE TRANSFERRED EXCEPT IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THAT ACT. VOID AFTER 5:00 P.M. NEW YORK TIME, ON ,2001 AMERICAN INTERNATIONAL PETROLEUM, INC. Warrant to Purchase Shares of Common Stock _______ Shares THIS CERTIFIES that, for good and valuable consideration received, (the "Holder"), with an office/residence at , is entitled to subscribe for and purchase from AMERICAN INTERNATIONAL PETROLEUM, INC., a Nevada corporation (the "Company"), upon the terms and conditions set forth herein, at any time or from time to time until 5:00 P.M. New York City time on _______ , 2001 (the "Expiration Date"), all or any portion of _______ thousand ( ) shares of the Company's Common Stock, par value $.08 per share, subject to adjustment as provided herein (the "Warrant Shares"), at a price of fifty cents ($.50) per share, subject to adjustment as provided herein (the "Exercise Price"). This Warrant shall not be redeemable by the Company. The term "Common Stock" as used herein shall mean the Company's Common Stock, par value $.08 per share. This Warrant may not be sold, transferred, assigned or hypothecated at any time, except as permitted by applicable law and the terms of this Warrant, and the term the "Holder" as used herein shall include any transferee to whom this Warrant has been transferred. 1. Method of Exercise. This Warrant Certificate may be exercised at any time prior to the Expiration Date, as to the whole or any lesser number of Warrant Shares, by presentation and surrender of this Warrant to the Company at its office at 444 Madison Avenue, Suite 3203, New York, New York 10022 or at such other place as may be designated in writing by the Company, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed (with signature guaranteed if required by the Company or its stock transfer agent) and accompanied by the payment of the aggregate Exercise Price in cash or certified or bank cashier's check payable to the order of the Company in an amount equal to the Exercise Price multiplied by the number of Warrant Shares for which this Warrant is being exercised and any applicable tax withholding amount due. 2. Issuance of Certificates. Upon receipt by the Company of the Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, together with the Exercise Price thereof and taxes as aforesaid and the investment letter described below, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Warrant Shares shall not then have been actually delivered to the Holder. It shall be a condition of the exercise of the Warrant that the Holder shall deliver to the Company an investment letter in the form customarily used by the Company from time-to-time in connection with the exercise of non-registered options and warrants which are issued by the Company. As soon as practicable after each such exercise of this Warrant, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or his designee. It is further understood that certificates for the Warrant shares shall contain a restrictive legend in accordance with Section 9 hereof. If this Warrant should be exercised in part only, upon surrender of this Warrant for cancellation, the Company shall execute and deliver a new Warrant certificate evidencing the right of the Holder to purchase the balance of the Warrant Shares (or portions thereof) subject to purchase hereunder. 3. Recording of Transfer. Subject to the last sentence of this Section 3, the Holder may transfer or assign all of his Warrants to one person, provided, however, that such Warrant may be transferred to more than one person with the Company's consent. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed (with signature guaranteed, if required by the Company or its stock transfer agent) and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall be promptly cancelled. Any warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a Warrant Register as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person. Notwithstanding the foregoing, the Company shall have no obligation to cause this Warrant to be transferred on its books to any person if, in the written opinion of counsel to the Company, such transfer does not comply with the provisions of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations thereunder. -2- 4. Reservation of Common Stock. The Company currently has and shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full payment therefor, shall be validly issued, fully paid, nonassessable and free of preemptive rights. 5. Exercise Price Adjustments. Subject to the provisions of this Section 5, the Exercise Price in effect from time to time shall be subject to adjustment, as follows: (a) In case the Company shall at any time after the date hereof (i) declare a dividend or make a distribution on the outstanding Common Stock payable in shares of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, but including any such reclassification in connection with the consolidation or merger of the Company with or into another corporation (other than a merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the warrants), then, in each case, the Exercise Price in effect, and the number of shares of Common Stock issuable upon exercise of the warrants outstanding, at the time of the record date for such dividend or at the effective date of such subdivision, combination or reclassification, shall be proportionately adjusted so that the holder of the Warrants after such time shall be entitled to receive the aggregate number and kind of shares which, if such Warrants had been exercised immediately prior to such time, such holders would have owned upon such exercise and immediately thereafter been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (b) Whenever there shall be an adjustment as provided in this Section 5, the Company shall within 15 days thereafter cause written notice thereof to be sent by registered mail, postage prepaid, to the Holder, at his address set forth above or any different address as may appear from time to time in the Warrant Register, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares issuable hereunder and the exercise price thereof after such adjustment and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate -3- shall be conclusive evidence of the correctness of any such adjustment absent manifest error. (c) The Company shall not be required to issue fractions of shares of Common Stock or fractions of shares of other capital stock of the Company upon the exercise of this Warrant. If any fraction of a share would be issuable upon the exercise of this Warrant (or specified portions thereof), the Company may issue a whole share in lieu of such fraction or the Company may purchase such fraction for an amount in cash equal to the same fraction of the Current Market Price of such share of Common Stock on the date of exercise of this Warrant. (d) The Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the thirty (30) consecutive trading days immediately preceding the date in question. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the highest reported bid price for the Common Stock as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting such information. If on any such date the Common Stock is not listed or admitted to trading on any national securities exchange and is not quoted by NASDAQ or any similar organization, the fair value of a share of Common Stock on such date, as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive absent manifest error, shall be used. (e) No adjustment in the Exercise Price shall be required if such adjustment is less than $0.05; provided, however, that any adjustments which by reason of this Section 5 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest cent. (f) Upon each adjustment of the Exercise Price as a result of the calculations made in this Section 5, the Warrants shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock (calculated to the nearest hundredth) obtained by dividing (i) the product obtained by multiplying (X) the number of shares of Common Stock purchasable upon exercise of the Warrants prior to the adjustment of the number of shares of Common Stock by (Y) the Exercise Price in effect prior to the adjustment of the Exercise Price by (ii) the Exercise Price in effect after such adjustment of the Exercise Price. -4- 6. (a) Consolidations and Mergers. In case of any consolidation with or merger of the Company with or into another corporation (other than a merger or consolidation in which the Company is the surviving or continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock or the conversion of such outstanding shares of Common Stock into shares of other stock or other securities or property), or in case of any sale, lease or conveyance to another corporation of the property and assets of any nature of the Company as an entirety or substantially as an entirety (such actions being hereinafter collectively referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of this Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the kind and amount of shares of stock or other securities, cash or other property which would otherwise have been deliverable to a holder of the number of shares of Common Stock upon the exercise of this Warrant upon such Reorganization if this Warrant had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of Directors of the Company, shall be made in the application of the provisions herein set forth with respect to the rights and interests of the Holder so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of this Warrant. Any such adjustment shall be made by and set forth in a supplemental agreement between the Company, or any successor thereto, and the Holder and shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The Company shall not effect any such Reorganization unless upon or prior to the consummation thereof the successor corporation, or if the Company shall be the surviving corporation in any such Reorganization and is not the issuer of the shares of stock or other securities or property to be delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or other property as the Holder shall be entitled to purchase in accordance with the foregoing provisions. (b) In case of any reclassification or change of the shares of Common Stock issuable upon exercise of this Warrant (other than a change in par value or from no par value to a specified par value, or as a result of a subdivision or combination, but including any change in the shares into two or more classes or series of shares), or in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from no par value to a -5- specified par value, or as a result of a subdivision or combination, but including any change in the shares into two or more classes or series of shares), the Holder shall have the right thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by a holder of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such reclassification, change, consolidation or merger. Thereafter, appropriate provision shall be made for adjustments which shall be as nearly equivalent as practicable to the adjustments in Section 5. (c) The above provisions of this Section 6 shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales, leases, or conveyances. 7. Notice of Certain Events. In case at any time any of the following occur: (a) The Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) The Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) The Company shall take any action to effect any reclassification or change of outstanding shares of Common Stock or any consolidation, merger, sale, lease or conveyance of property, described in Section 6; or (d) The Company shall take any action to effect any liquidation, dissolution or winding-up of the Company or a sale of all or substantially all of its property, assets and business; then, and in any one or more of such cases, the Company shall give written notice thereof, by registered mail, postage prepaid, to the Holder at the Holder's address as it appears above, or if different, as it appears in the Warrant Register, mailed at least fifteen (15) days prior to (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants or other securities are to -6- be determined, (ii) the date on which any such offer to holders of Common Stock is made, or (iii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution or winding-up is expected to become effective and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution or winding-up. 8. Taxes. The issuance of any shares or other securities upon the exercise of this Warrant and the delivery of certificates or other instruments representing such shares or other securities shall be made without charge to the Holder for any tax or other charge in respect of such issuance. The Company shall neither be liable for any withholding taxes due as a result of such exercise nor be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder. Furthermore, the Company shall not be required to issue or deliver any such certificate unless and until the person requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or not required to be withheld. 9. Legend. Unless registered under the Securities Act of 1933, the Warrant Shares issued upon exercise of the Warrant shall bear the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SHARES MAY NOT BE OFFERED OR SOLD, EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) IN A TRANSACTION WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT. 10. Registration Rights. (a) Commencing on the date hereof and through such date as the holder of the Warrant or Warrant Shares can transfer the Warrant Shares pursuant to Rule 144 or Rule 144A (or any successor provisions) under the Act or such public transfer would otherwise be exempt from the registration requirements of the Act, the Company shall advise the Holder of the Warrant or of the Warrant Shares, by written notice at least 45 days prior to the filing of any registration statement or post-effective amendment thereto ("Registration Statement") under the Act, covering a public offering of securities of the Company (other than a registration relating solely to the sale of securities to participants in a -7- stock plan of the Company, or a registration on any other form which does not permit secondary sales) and shall, except as otherwise provided herein, register in any such Registration Statement the number of Warrant Shares that the Holder shall notify the Company within twenty (20) days after mailing of such notice by the Company that it desires to register and shall include in any such Registration Statement such information as may be required to permit a public offering of such Warrant Shares, provided, however, that the Holder notify the Company that it desires to register all of his Warrant Shares. The Company shall supply prospectuses and other documents as the Holder may reasonably request in order to facilitate the public sale or other disposition of the Warrant Shares. The Company shall bear the entire cost and expense of a registration of securities initiated by it under this subsection (a). The Holder shall, however, bear any transfer taxes and underwriting discounts or commissions applicable to the Warrant Shares sold by it and any legal fees incurred by it. The Company may include other securities in any such Registration Statement. The Company shall do any and all other acts and things which may be necessary or desirable to enable the Holder to consummate the public sale or other disposition of the Warrant Shares, and furnish indemnification in the manner as set forth in subsection (c) of this Section 10, but shall not be required to qualify as a foreign corporation to qualify the Warrant Shares for sale under the securities laws of any state. The Holder shall furnish information and indemnification as set forth in subsection (c)(1) of this Section 10. All decisions as to whether and when to proceed with any Registration Statement shall be made solely by the Company. In connection with any offering involving an underwriting of shares of the Company's securities, the Company shall not be required to include any of the Warrant Shares in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters). (b) Notwithstanding the foregoing subsection (a), in the event that there is an underwritten offering of the Company's securities offered pursuant to said Registration Statement, the underwriters shall have the right to refuse to permit any Warrant Shares, or to limit the amount of Warrant Shares, to be sold by the Holder to such underwriters as such underwriter(s) may determine in its discretion and at the reasonable discretion of the underwriter, the Holder shall refrain from selling such Warrant Shares covered by such Registration Statement at the market for the period of days following the effective date, which period shall not exceed six (6) months, and shall also refrain at any time when notified by the Company that an amendment or supplement to the prospectus is required. The Company shall not be obligated to keep any Registration Statement effective for a continuous period of the greater of 120 days or 45 days after the end of the aforementioned lock-up period, provided, however, the Company shall not be required to keep such Registration Statement effective beyond such time as all Warrant Shares included in the Registration Statement have been sold. -8- (c)(1) Whenever pursuant to this Section 10 a Registration Statement relating to the Warrant Shares is filed under the Act or amended or supplemented thereto, the Company will indemnify and hold harmless the Holder if covered by such Registration Statement, amendment or supplement (such Holder being hereinafter called the "Distributing Holder"), and each person, if any who controls (within the meaning of the Act) the Distributing Holder, against any losses, claims, damages or liabilities, joint or several, to which the Distributing Holder or any such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such Registration Statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Distributing Holder and each such controlling person for any legal or other expenses reasonably incurred by the Distributing Holder and each such controlling person for any legal or other expenses reasonably incurred by the Distributing Holder or such controlling person or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, preliminary prospectus, final prospectus or amendment or supplement, in reliance upon and in conformity with written information furnished by the Distributing Holder or underwriter for use in the preparation thereof. (2) To the extent permitted by law, the Distributing Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said Registration Statement and such amendments and supplements thereto, each person, if any, who controls the Company (within the meaning of the Act) and the Company's underwriters) and each person, if any, who controls such underwriters (within the meaning of the Act) against any losses, claims, damages or liabilities to which the Company or any such director, officer, underwriter or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in said Registration Statement, preliminary prospectus, final -9- prospectus, or amendment or supplement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in said Registration Statement, preliminary prospectus, final prospectus or amendment or supplement, in reliance upon and in conformity with written information furnished by such Distributing Holder for use in the preparation thereof and will reimburse the Company or underwriter or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. (3) Promptly after receipt by an indemnified party under this subsection c of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party, otherwise than under this subsection c. (4) In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and to the extent that it may wish, jointly with any other indemnifying party similarly notified to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this subsection c for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. (5) The Company's agreements with respect to Warrant Shares in this Section 10 shall continue in effect regardless of the exercise or surrender of the Warrant. (6) The Holder shall not have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 10. 11. Replacement of Warrants. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company's reasonable incidental expenses, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor and denomination. 12. No Rights as Stockholder. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant. -10- 13. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of this Warrant, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth on the first page of this Warrant or to such other address as the Company may designate by notice to the Holder. 14. Successors. All the covenants, agreements, representations and warranties contained in this Warrant shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors and assigns. 15. Headings. The Article and Section headings in this Warrant are inserted for purposes of convenience only and shall have no substantive effect. 16. Governing Law. This Warrant shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed within such State, without regard to principles of conflicts of law. 17. Modification of Agreement. This Warrant shall not otherwise be modified, supplemented or amended in any respect unless such modification, supplement or amendment is in writing and signed by the Company and the Holder of this Warrant and Holders of any portion of the Warrant subsequently assigned or transferred in accordance with the terms of this Warrant. 18. Consent to Jurisdiction. The Company and the Holder irrevocably consent to the jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action or proceeding arising out of or relating to this Warrant, any document or instrument delivered pursuant to, in connection with or simultaneously with this Warrant, or a breach of this Warrant or any such document or instrument. In any such action or proceeding, the Company waives personal service of any summons, complaint or other process and agrees that service thereof may be made in accordance with Section 13 hereof. -11- IN WITNESS WHEREOF, the undersigned has executed this instrument as of the date set forth below. Dated: , 1996 AMERICAN INTERNATIONAL PETROLEUM, INC. By:____________________ George N. Faris Chairman & CEO -12- FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, _______________________ hereby sells, assigns, and transfers unto _________________, having an address at ______________________________ _______________________, the attached Warrant (having an exercise price of $ . per share) to the extent of the right to purchase shares of Common Stock, $.08 par value per share, of AMERICAN INTERNATIONAL PETROLEUM, INC. (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint _________________ as attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: _______________, 199_ ______________________________ Print name of holder of Warrant By:__________________________ Name: Title: NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. To: AMERICAN INTERNATIONAL PETROLEUM, INC. 444 Madison Avenue Suite 3203 New York, New York 10022 The undersigned hereby exercises his rights to purchase _________ Warrant Shares covered by the within Warrant and tenders payment herewith in the amount of $_____________ in accordance with the terms thereof, and requests that certificates for such securities be issued in the name of, and delivered to: (Print Name, Address and Social Security or Tax Identification Number) and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Dated:__________________ Name:__________________________ (Print) _______________________________ ------------------------------ (Signature) (Signature must conform to the name of the Warrant Holder specified on the face of the Warrant) _______________________________ Address:___________________________ _______________________________ ___________________________ EX-10 8 EXHIBIT 10.1 EXHIBIT 10.1 OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of ___________, 1996 (the "Agreement"), is executed in reliance upon the exemption from registration afforded by Regulation S ("Regulation S") as promulgated by the Securities and Exchange Commission ("SEC"), under the Securities Act of 1933, as amended. Capitalized terms used herein and not defined shall have the meanings given to them in Regulation S. This Agreement has been executed by the undersigned "Buyer" in connection with the private placement of 12.5% Series X Senior Subordinated Convertible Redeemable Debentures of American International Petroleum Corp., a corporation organized under the laws of the State of Nevada, with its principal executive offices located at 444 Madison Avenue, Suite 3203, New York, New York 10022 (hereinafter referred to as "Seller"). Buyer hereby represents and warrants to, and agrees with Seller: THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. 1. Agreement To Subscribe; Purchase Price. (a) Subscription. The undersigned Buyer hereby subscribes for and agrees to purchase the Seller's 12.5% Series X Senior Subordinated Convertible Redeemable Debentures substantially in the form of the Debentures attached as Exhibit A hereto and having an aggregate original principal amount of up to U.S. $2,000,000 (singly, a "Debenture," and collectively, the "Debentures"), at an aggregate purchase price as set forth in subsection (b) herein. (b) Payment. The aggregate Purchase Price for the Debentures shall be __________________________ United States Dollars (U.S. $___________) (the "Purchase Price"), which shall be payable pursuant to paragraph C herein by delivering immediately available funds in United States Dollars by wire transfer to the designated depository Barry B. Globerman, Esq., as Escrow Agent ("Escrow Agent") for closing by delivery of securities versus payment. (c) Closing. Subject to the satisfaction of the conditions set forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made from time to time in denominations of not less than $100,000 but all payments hereunder, in any event must be completed on or before ___________, or such earlier or later date as is mutually agreed to in writing by Buyer and Seller. 2. Buyer Representations and Covenants; Access to Information. Offshore Transaction. In connection with the purchase and sale of the Debentures, Buyer represents and warrants to, and covenants and agrees with Seller as follows: (i) Buyer is not a natural person and is not organized under the laws of any jurisdiction within the United States, was not formed by a U.S. Person (as defined in Section 902(o) of Regulation S) for the purpose of investing in Regulation S securities and is not otherwise a U.S. Person. Buyer is not, and on the closing date will not be, an affiliate of Seller; (ii) At the time the buy order was originated, Buyer was outside the United States and is outside of the United States as of the date of the execution and delivery of this Agreement; (iii) No offer to purchase the Debentures or the common stock of Seller issuable upon conversion of the Debentures (collectively, the "Securities"), was made by Buyer in the United States; (iv) Buyer is purchasing the Securities for its own account and Buyer is qualified to purchase the Securities under the laws of its jurisdiction of residence, and the offer and sale of the Securities will not violate the securities or other laws of such jurisdiction; (v) All offers and sales of any of the Securities by Buyer prior to the end of the Restricted Period (as hereinafter defined) shall be made in compliance with any applicable securities laws of any applicable jurisdiction and in accordance with Rule 903 and 904, as applicable, of Regulation S or pursuant to registration of securities under the 1933 Act or pursuant to an exemption from registration. In any case, none of the Securities have been or will be encumbered, offered, sold or otherwise transferred by Buyer to, or for the account or benefit of, a U.S. Person or within the United States until after the end of the forty (40) day period commencing on the later of (x) the date of closing of the offering of the Securities or (y) the date of the first offer of the Securities to persons other than distributors (the "Restricted Period"), as calculated pursuant to Regulation S and certified by Buyer to Seller and thereafter only pursuant to a Registration Statement or an applicable exemption from the registration provision of the 1933 Act; -2- (vi) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Buyer with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Buyer, to evade the registration provisions of the 1933 Act; (vii) Buyer understands that the Securities are not registered under the 1933 Act and are being offered and sold to it in reliance on specific exclusions from the registration requirements of Federal and State securities laws, and that Seller is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the applicability of such exclusions and the suitability of Buyer and any purchaser from Buyer to acquire the Securities; (viii) Buyer shall take all reasonable steps to ensure its compliance with Regulation S and shall promptly send to each purchaser who acts as a distributor, dealer or a person receiving a selling concession, fee or other remuneration in respect of any of the Securities, who purchases prior to the expiration of the Restricted Period referred to in subparagraph (v) above, a confirmation or other notice to the purchaser stating that the purchaser is subject to the same restrictions on offers and sales as Buyer pursuant to Section 109(c)(2)(iv) of Regulation S; (ix) Buyer has not conducted or permitted and shall not conduct or permit on its behalf any "directed selling efforts" as that term is defined in Rule 902(b) of Regulation S; nor has Buyer conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere; (x) Buyer has the full right, power and authority to enter into this Agreement and to consummate the transaction contemplated herein. This Agreement has been duly authorized, validly executed and delivered on behalf of Buyer and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally; (xi) The execution and delivery of this Agreement and the consummation of the purchase of the Securities, and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Buyer of any of the terms of provisions of, or constitute a default under, the articles of incorporation or by-laws (or similar constitutive documents) of Buyer or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Buyer is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States -3- governmental body having jurisdiction over Buyer or any of its properties or assets; (xii) All invitation, offers and sales of or in respect of, any of the Securities, by Buyer and any distribution by Buyer of any documents relating to any offer by it of any of the Securities will be in compliance with applicable laws and regulations and will be made in such a manner that no prospectus need be filed and no other filing need be made by Seller with any regulatory authority or stock exchange in any country or any political sub-division of any country; (xiii) Buyer will not make any offer or sale of the Securities by any means which would not comply with the laws and regulations of the territory in which such offer or sale takes place or to which such offer or sale is subject or which would in connection with any such offer or sale impose upon Seller any obligation to satisfy any public filing or registration requirement or provide or publish any information of any kind whatsoever or otherwise undertake or become obligated to do any act; and (xiv) Neither the Buyer nor any of its affiliates has entered, has the intention of entering, or will during the Restricted Period enter into any put option, short position or other similar instrument or position with respect to any of the Securities or securities of the same class as the Securities. (xv) the Buyer (or others for whom it is contracting hereunder) has been advised to consult its own legal and tax advisors with respect to applicable resale restrictions and applicable tax considerations and it (or others for whom it is contracting hereunder) is solely responsible (and the Company is not in any way responsible) for compliance with applicable resale restrictions and applicable tax legislation. (xvi) No Government Recommendation or Approval. Buyer understands that no Federal or State or foreign government agency has passed on or made any recommendation or endorsement of the Securities. (xvii) Current Public Information. Buyer acknowledges that it and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of Seller and all materials relating to the offer and sale of the Securities which have been requested by Buyer, all of which contain a legend as required under Section 10 hereof. Buyer further acknowledges that it and its advisors, if any, have received complete and satisfactory answers to such inquiries. (xviii) Buyer's Sophistication. Buyer acknowledges that the purchase of the Securities involves a high degree of risk, including the total loss of Buyer's investment. Buyer has such knowledge and experience in financial and business -4- matters that it is capable of evaluating the merits and risks of purchasing the Securities. Buyer understands that the Securities are not being registered under the 1933 Act, and therefore Buyer must bear the economic risk of this investment for an indefinite period of time. (xix) Tax Status. Buyer is not a "10-percent Shareholder" (as defined in Section 871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller. 3. Seller Representations and Covenants. (a) Reporting Company Status. Seller is a "Reporting Issuer" as defined by Rule 902 of Regulation S. Seller has registered its Common Stock, $.08 par value per share (the "Common Stock"), pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common Stock is listed and trades on NASDAQ. Seller has filed all material required to be filed pursuant to all reporting obligations under either Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve (12) months immediately preceding the offer or sale of the Securities (or for such shorter period that Seller has been required to file such material). (b) Current Public Information. Seller has furnished Buyer with copies of its most recent reports, as amended, filed under the Exchange Act referred to in Section 2(xvii) above, and other publicly available documents requested by Buyer. (c) Offshore Transaction. Seller has not offered any of the Securities to any person in the United States, any identifiable groups of U.S. citizens abroad, or to any U.S. Person, as such terms are used in Regulation S. (i) At the time the buy order was originated, Seller and/or its agents reasonably believe the Buyer was outside of the United States and was not a U.S. person, based on the representations of Buyer. (ii) Seller and/or its agents reasonably believe that the transaction has not been pre-arranged with a buyer in the United States, based on the representations of Buyer. (iii) No offer to buy or sell the Securities was or will be made by Seller to any person in the United States. (iv) The sale of the Securities by Seller pursuant to this Agreement will be made in accordance with the provisions and requirements of Regulation S provided that the representations and warranties of Buyer in Section 2 hereof are true and correct. -5- (v) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Seller with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Seller to evade the registration provisions of the 1933 Act. (d) No Directed Selling Efforts. In regard to this transaction, Seller has not conducted any "directed selling efforts" as that term is defined in Rule 902 of Regulation S nor has Seller conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere. (e) Concerning the Securities. The issuance, sale and delivery of the Debentures have been duly authorized by all required corporate action on the part of Seller, and when issued, sold and delivered in accordance with the terms hereof and thereof for the consideration expressed herein and therein, will be duly and validly issued, fully paid and non-assessable. The Common Stock issuable upon conversion of the Debenture has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Debentures, shall be duly and validly issued, fully paid, and non-assessable and will not subject the holders thereof, if such persons are non-U.S. persons, to personal liability by reason of being such holders. There are no pre-emptive rights of any shareholder of Seller. (f) Subscription Agreement. This Agreement has been duly authorized, validly executed and delivered on behalf of Seller and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. (g) Non-contravention. The execution and delivery of this Agreement and the consummation of the issuance of the Securities and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Seller of any of the terms or provisions of, or constitute a default under, the articles of incorporation or by-laws of Seller, or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Seller is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Seller or any of its properties or assets. (h) Approvals. Seller is not aware of any authorization, approval or consent of any U.S. governmental body which is legally required for the issuance and sale of the Debentures and the Common Stock issuable upon conversion thereof to persons who are non-U.S. Persons, as contemplated by this Agreement. Seller is relying entirely upon Buyer and Distributor with respect to foreign consents and approvals. -6- 4. Exemption; Reliance on Representations. Buyer understands that the offer and sale of the Securities are not being registered under the 1933 Act. Seller and Buyer are relying on the rules governing offers and sales made outside the United States pursuant to Regulation S. 5. Transfer Agent Instructions. (a) Debentures. Upon the conversion of the Debentures, the holder thereof shall submit such Debenture together with a notice of conversion to the Seller and the Seller shall instruct it's transfer agent to issue one or more Certificates representing that number of shares of Common Stock into which the Debenture or Debentures are convertible in accordance with the provisions regarding conversion set forth in Exhibit A hereto. The Seller shall act as Debenture Registrar and shall maintain an appropriate ledger containing the necessary information with respect to each Debenture. (b) Common Stock to be Issued Without Restrictive Legend. Upon the conversion of any Debenture up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the issuance of any "Interest Shares" (as defined in the Debenture) by a person who is a non-U.S. Person, Seller shall instruct Seller's transfer agent to issue Stock Certificates up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the "Interest Shares" (as defined in the Debenture) without restrictive legend in the name of Buyer upon receipt of an opinion of Buyer's Counsel to remove such legend (or its nominee (being a non-U.S. Person) or such non-U.S. Persons as may be designated by Buyer prior to the closing) and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable. Seller warrants that no instructions other than these instructions and instructions to impose a "stop transfer" instruction with respect to the certificates until the end of the respective Restricted Period of the Conversion Shares and Interest Shares, if any, have been given or will be given to the transfer agent and that the Common Stock shall otherwise be freely transferable on the books and records of Seller. Nothing in this Section 5, however, shall affect in any way Buyer's or such nominee's obligations and agreements to comply with all applicable securities laws upon resale of the Securities. 6. Registration. If upon conversion of Debentures effected by the Buyer pursuant to the terms of this Agreement or payment of interest pursuant to the Debenture the Company fails to issue certificates for shares of Common Stock issuable upon such conversion (the "Underlying Shares") or the Interest Shares to the Buyer bearing no restrictive legend (after the applicable Restrictive Period of the Conversion Shares or Interest Shares) for any reason other than the Company's reasonable good faith belief that the representations and warranties made by the Buyer in this Agreement or the Notice of Conversion were untrue when made, or if the restricted period under Regulation S is extended then the Company shall be required, at the request of the Buyer and at the Company's expense, to effect the registration of the Underlying Shares and/or Interest Shares issuable upon conversion of the Debentures and payment of interest under the Act and relevant Blue Sky laws -7- as promptly as is practicable. The Company and the Buyer shall cooperate in good faith in connection with the furnishing of information required for such registration and the taking of such other actions as may be legally or commercially necessary in order to effect such registration. The Company shall file such a registration statement within 30 days of Buyer's demand therefor and shall use its best efforts to cause such registration statement to become effective as soon as practicable thereafter. Such best efforts shall include, but not be limited to, promptly responding to all comments received from the staff of the Securities and Exchange Commission, providing Buyer's counsel with a contemporaneous copy of all written communications from and to the staff of the Securities and Exchange Commission with respect to such registration statement and promptly preparing and filing amendments to such registration statement which are responsive to the comments received from the staff of the Securities and Exchange Commission. Once declared effective by the Securities and Exchange Commission, the Company shall cause such registration statement to remain effective until the earlier of (i) the sale by the Buyer of all Underlying Shares registered or (ii) 120 days after the effective date of such registration statement. In the event the Company undertakes to file a Registration Statement on Form S-3 in connection with the Common Stock, upon the effectiveness of such Registration, Buyer shall have the option to sell the Common Stock pursuant thereto. The foregoing shall not in any way limit Buyer's rights in connection with the Common Stock pursuant to Regulation S. 7. Delivery Instructions. The Debentures being purchased hereunder shall be delivered to the Escrow Agent at such time and place as shall be mutually agreed by Seller and Buyer. 8. Conditions To Seller's Obligation To Sell. Seller's obligation to sell the Debentures is conditioned upon: (a) The receipt and acceptance by Seller of this Agreement as executed by Buyer. (b) Delivery into the closing depository of good funds by Buyer as payment in full of the purchase price of the Debentures. (c) All of the representations and warranties of the Subscriber contained in this Agreement shall be true and correct on the Payment Date with the same force and effect as if made on and as of the Payment Date. The Subscriber shall have performed or complied with all agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Payment Date. (d) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the -8- Company, be contemplated. No stop order suspending the sale of the Debentures shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (e) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Debentures. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Debentures. 9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to purchase the Debentures is conditioned upon: (a) The confirmation of receipt and acceptance by Seller of this Agreement as evidenced by execution of this Agreement by the duly authorized officer of Seller. (b) Delivery of the Debentures to the Escrow Agent. 10. Offering Materials. All offering materials and documents used in connection with offers and sales of the Securities prior to the expiration of the Restricted Period referred to in Section 2(a)(v) hereof shall include statements to the effect that the Securities have not been registered under the 1933 Act or applicable state securities laws, and that neither Buyer, nor any direct or indirect purchaser of the Securities from Buyer, may directly or indirectly offer or sell the Securities in the United States or to U.S. Persons (other than distributors) unless that Securities are registered under the 1933 Act any applicable state securities laws, or any exemption from the registration requirements of the 1933 Act or such state securities laws is available. Such statements shall appear (1) on the cover of any prospectus or offering circular used in connection with the offer or sale of the Securities, (2) in the underwriting section of any prospectus or offering circular used in connection with the offer or sale of the Securities, and (3) in any advertisement made or issued by Seller, Buyer, any other distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. 11. No Shareholder Approval. Seller hereby agrees that from the Closing Date until the issuance of Common Stock upon the conversion of the Debentures, Seller will not take any action which would require Seller to seek shareholder approval of such issuance unless such shareholder approval is required by law or regulatory body (including but not limited to the NASDAQ Stock Market, Inc.) as a result of the issuance of the Securities hereunder. 12. Miscellaneous. (a) Except as specifically referenced herein or in the Distribution Agreement, this Agreement constitutes the entire contract between the parties, and neither party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. Any previous agreement among the parties related to the -9- transactions described herein is superseded hereby. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. Nothing in this Agreement, express or impled, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. (b) Buyer is an independent contractor, and is not the agent of Seller. Buyer is not authorized to bind Seller, or to make any representations or warranties on behalf of Seller. (c) Seller makes no representations or warranty with respect to Seller, its finances, assets, business prospects or otherwise. Buyer will advise each purchaser, if any, and potential purchaser of the Securities, of the foregoing sentence, and that such purchaser is relying on its own investigation with respect to all such matters, and that such purchaser will be given access to any and all documents and Seller personnel as it may reasonably request for such investigation. (d) All representations and warranties contained in this Agreement by Seller and Buyer shall survive the closing of the transactions contemplated by this Agreement. (e) This Agreement shall be construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. Buyer hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original. (f) Buyer agrees to indemnify and hold Seller harmless from any and all claims, damages and liabilities arising from Buyer's breach of its representations and/or covenants set forth herein. AMOUNT SUBSCRIBED FOR $ --------------------------------- [The remainder of this page is intentionally left blank.] IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. Official Signatory of Seller: -10- American International Petroleum Corp. By: ---------------------------- Accepted this ____ day of _______, 1996 Title: ------------------------- Official Signatory of Buyer: ------------------------------- By: ---------------------------- Title: ------------------------- Address of Buyer: ------------------------------- ------------------------------- ------------------------------- Fax No.: ----------------------- Tel No.: -------------------- -11- EX-10 9 EXHIBIT 10.2 EXHIBIT 10.2 OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of ___________, 1996 (the "Agreement"), is executed in reliance upon the exemption from registration afforded by Regulation S ("Regulation S") as promulgated by the Securities and Exchange Commission ("SEC"), under the Securities Act of 1933, as amended. Capitalized terms used herein and not defined shall have the meanings given to them in Regulation S. This Agreement has been executed by the undersigned "Buyer" in connection with the private placement of 10% Series L Senior Subordinated Convertible Redeemable Debentures of American International Petroleum Corp., a corporation organized under the laws of the State of Nevada, with its principal executive offices located at 444 Madison Avenue, Suite 3203, New York, New York 10022 (hereinafter referred to as "Seller"). Buyer hereby represents and warrants to, and agrees with Seller: THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. 1. Agreement To Subscribe; Purchase Price. (a) Subscription. The undersigned Buyer hereby subscribes for and agrees to purchase the Seller's 10% Series L Senior Subordinated Convertible Redeemable Debentures substantially in the form of the Debentures attached as Exhibit A hereto and having an aggregate original principal amount of up to U.S. 3,000,000 (singly, a "Debenture," and collectively, the "Debentures"), at an aggregate purchase price of 90% of the face amount of such Debentures as set forth in subsection (b) herein. (b) Payment. The aggregate Purchase Price for the portion of the Debentures purchased by Buyer shall be __________________________ United States Dollars (U.S. $___________) which represents a discount of 10% of the face amount of the Debenture purchased by the Buyer (the "Purchase Price"), which shall be payable pursuant to paragraph C herein by delivering immediately available funds in United States Dollars by wire transfer to the following designated depository Barry B. Globerman, Esq., as Escrow Agent ("Escrow Agent") for closing by delivery of securities versus payment. (c) Closing. Subject to the satisfaction of the conditions set forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made from time to time in denominations of not less than $100,000 but all payments hereunder, in any event must be completed on or before _____________, or such earlier or later date as is mutually agreed to in writing by Buyer and Seller. 2. Buyer Representations and Covenants; Access to Information. Offshore Transaction. In connection with the purchase and sale of the Debentures, Buyer represents and warrants to, and covenants and agrees with Seller as follows: (i) Buyer is not a natural person and is not organized under the laws of any jurisdiction within the United States, was not formed by a U.S. Person (as defined in Section 902(o) of Regulation S) for the purpose of investing in Regulation S securities and is not otherwise a U.S. Person. Buyer is not, and on the closing date will not be, an affiliate of Seller; (ii) At the time the buy order was originated, Buyer was outside the United States and is outside of the United States as of the date of the execution and delivery of this Agreement; (iii) No offer to purchase the Debentures or the common stock of Seller issuable upon conversion of the Debentures (collectively, the "Securities"), was made by Buyer in the United States; (iv) Buyer is purchasing the Securities for its own account and Buyer is qualified to purchase the Securities under the laws of its jurisdiction of residence, and the offer and sale of the Securities will not violate the securities or other laws of such jurisdiction; (v) All offers and sales of any of the Securities by Buyer prior to the end of the Restricted Period (as hereinafter defined) shall be made in compliance with any applicable securities laws of any applicable jurisdiction and in accordance with Rule 903 and 904, as applicable, of Regulation S or pursuant to registration of securities under the 1933 Act or pursuant to an exemption from registration. In any case, none of the Securities have been or will be encumbered, offered, sold or otherwise transferred by Buyer to, or for the account or benefit of, a U.S. Person or within the United States until after the end of the forty (40) day period commencing on the later of (x) the date of closing of the offering of the Securities or (y) the date of the first offer of the Securities to persons other than distributors (the "Restricted Period"), as calculated pursuant to Regulation S and certified by Buyer to Seller and thereafter only pursuant to a Registration Statement or an applicable exemption from the registration provision of the 1933 Act; -2- (vi) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Buyer with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Buyer, to evade the registration provisions of the 1933 Act; (vii) Buyer understands that the Securities are not registered under the 1933 Act and are being offered and sold to it in reliance on specific exclusions from the registration requirements of Federal and State securities laws, and that Seller is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the applicability of such exclusions and the suitability of Buyer and any purchaser from Buyer to acquire the Securities; (viii) Buyer shall take all reasonable steps to ensure its compliance with Regulation S and shall promptly send to each purchaser who acts as a distributor, dealer or a person receiving a selling concession, fee or other remuneration in respect of any of the Securities, who purchases prior to the expiration of the Restricted Period referred to in subparagraph (v) above, a confirmation or other notice to the purchaser stating that the purchaser is subject to the same restrictions on offers and sales as Buyer pursuant to Section 109(c)(2)(iv) of Regulation S; (ix) Buyer has not conducted or permitted and shall not conduct or permit on its behalf any "directed selling efforts" as that term is defined in Rule 902(b) of Regulation S; nor has Buyer conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere; (x) Buyer has the full right, power and authority to enter into this Agreement and to consummate the transaction contemplated herein. This Agreement has been duly authorized, validly executed and delivered on behalf of Buyer and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally; (xi) The execution and delivery of this Agreement and the consummation of the purchase of the Securities, and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Buyer of any of the terms of provisions of, or constitute a default under, the articles of incorporation or by-laws (or similar constitutive documents) of Buyer or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Buyer is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Buyer or any of its properties or assets; -3- (xii) All invitation, offers and sales of or in respect of, any of the Securities, by Buyer and any distribution by Buyer of any documents relating to any offer by it of any of the Securities will be in compliance with applicable laws and regulations and will be made in such a manner that no prospectus need be filed and no other filing need be made by Seller with any regulatory authority or stock exchange in any country or any political sub-division of any country; (xiii) Buyer will not make any offer or sale of the Securities by any means which would not comply with the laws and regulations of the territory in which such offer or sale takes place or to which such offer or sale is subject or which would in connection with any such offer or sale impose upon Seller any obligation to satisfy any public filing or registration requirement or provide or publish any information of any kind whatsoever or otherwise undertake or become obligated to do any act; and (xiv) Neither the Buyer nor any of its affiliates has entered, has the intention of entering, or will during the Restricted Period enter into any put option, short position or other similar instrument or position with respect to any of the Securities or securities of the same class as the Securities. (xv) the Buyer (or others for whom it is contracting hereunder) has been advised to consult its own legal and tax advisors with respect to applicable resale restrictions and applicable tax considerations and it (or others for whom it is contracting hereunder) is solely responsible (and the Company is not in any way responsible) for compliance with applicable resale restrictions and applicable tax legislation. (xvi) No Government Recommendation or Approval. Buyer understands that no Federal or State or foreign government agency has passed on or made any recommendation or endorsement of the Securities. (xvii) Current Public Information. Buyer acknowledges that it and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of Seller and all materials relating to the offer and sale of the Securities which have been requested by Buyer, all of which contain a legend as required under Section 10 hereof. Buyer further acknowledges that it and its advisors, if any, have received complete and satisfactory answers to such inquiries. (xviii) Buyer's Sophistication. Buyer acknowledges that the purchase of the Securities involves a high degree of risk, including the total loss of Buyer's investment. Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Securities. Buyer understands that the Securities are not being registered under the 1933 Act, and therefore Buyer must bear the economic risk of this investment for an indefinite period of time. -4- (xix) Tax Status. Buyer is not a "10-percent Shareholder" (as defined in Section 871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller. 4. Seller Representations and Covenants. (a) Reporting Company Status. Seller is a "Reporting Issuer" as defined by Rule 902 of Regulation S. Seller has registered its Common Stock, $.08 par value per share (the "Common Stock"), pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common Stock is listed and trades on NASDAQ. Seller has filed all material required to be filed pursuant to all reporting obligations under either Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve (12) months immediately preceding the offer or sale of the Securities (or for such shorter period that Seller has been required to file such material). (b) Current Public Information. Seller has furnished Buyer with copies of its most recent reports, as amended, filed under the Exchange Act referred to in Section 2(xvii) above, and other publicly available documents requested by Buyer. (c) Offshore Transaction. Seller has not offered any of the Securities to any person in the United States, any identifiable groups of U.S. citizens abroad, or to any U.S. Person, as such terms are used in Regulation S. (i) At the time the buy order was originated, Seller and/or its agents reasonably believe the Buyer was outside of the United States and was not a U.S. person, based on the representations of Buyer. (ii) Seller and/or its agents reasonably believe that the transaction has not been pre-arranged with a buyer in the United States, based on the representations of Buyer. (iii) No offer to buy or sell the Securities was or will be made by Seller to any person in the United States. (iv) The sale of the Securities by Seller pursuant to this Agreement will be made in accordance with the provisions and requirements of Regulation S provided that the representations and warranties of Buyer in Section 2 hereof are true and correct. (v) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Seller with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Seller to evade the registration provisions of the 1933 Act. (d) No Directed Selling Efforts. In regard to this transaction, Seller has not conducted any "directed selling efforts" as that term is defined in Rule 902 of Regulation S nor has Seller conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere. -5- (e) Concerning the Securities. The issuance, sale and delivery of the Debentures have been duly authorized by all required corporate action on the part of Seller, and when issued, sold and delivered in accordance with the terms hereof and thereof for the consideration expressed herein and therein, will be duly and validly issued, fully paid and non-assessable. The Common Stock issuable upon conversion of the Debenture has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Debentures, shall be duly and validly issued, fully paid, and non-assessable and will not subject the holders thereof, if such persons are non-U.S. persons, to personal liability by reason of being such holders. There are no pre-emptive rights of any shareholder of Seller. (f) Subscription Agreement. This Agreement has been duly authorized, validly executed and delivered on behalf of Seller and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. (g) Non-contravention. The execution and delivery of this Agreement and the consummation of the issuance of the Securities and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Seller of any of the terms or provisions of, or constitute a default under, the articles of incorporation or by-laws of Seller, or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Seller is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Seller or any of its properties or assets. (h) Approvals. Seller is not aware of any authorization, approval or consent of any U.S. governmental body which is legally required for the issuance and sale of the Debentures and the Common Stock issuable upon conversion thereof to persons who are non-U.S. Persons, as contemplated by this Agreement. Seller is relying entirely upon Buyer and Distributor with respect to foreign consents and approvals. 5. Exemption; Reliance on Representations. Buyer understands that the offer and sale of the Securities are not being registered under the 1933 Act. Seller and Buyer are relying on the rules governing offers and sales made outside the United States pursuant to Regulation S. 6. Transfer Agent Instructions. (a) Debentures. Upon the conversion of the Debentures, the holder thereof shall submit such Debenture together with a notice of conversion to the Seller and the Seller shall instruct its transfer agent to issue one or more Certificates representing that number of shares of Common Stock into which the Debenture or Debentures are convertible in accordance with the provisions regarding conversion set forth in Exhibit A hereto. The Seller shall act as Debenture Registrar and shall maintain an appropriate ledger containing the necessary information with respect to each Debenture. -6- (b) Common Stock to be Issued Without Restrictive Legend. Upon the conversion of any Debenture up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the issuance of any "Interest Shares" (as defined in the Debenture) by a person who is a non-U.S. Person, Seller shall instruct Seller's transfer agent to issue Stock Certificates up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the "Interest Shares" (as defined in the Debenture), if any, without restrictive legend in the name of Buyer upon receipt of an opinion of Buyer's Counsel to remove such legend (or its nominee (being a non-U.S. person) or such non- U.S. Persons as may be designated by Buyer prior to the closing) and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable. Seller warrants that no instructions other than these instructions and instructions to impose a "stop transfer" instruction with respect to the certificates until the end of the respective Restricted Period of the Conversion Shares and Interest Shares, if any, have been given or will be given to the transfer agent and that the Common Stock shall otherwise be freely transferable on the books and records of Seller. Nothing in the this Section 5, however, shall affect in any way Buyer's or such nominee's obligations and agreements to comply with all applicable securities laws upon resale of the Securities. 6. Registration. If upon conversion of the Debentures effected by the Buyer pursuant to the terms of this agreement or payment of interest pursuant to the Debenture the Company fails to issue certificates for shares of Common Stock issuable upon such conversion (the "Underlying Shares") or the Interest Shares, if any, to the Buyer bearing no restrictive legend (after the applicable restrictive Period of the Conversion Shares or Interest Shares) for any reason other than the Company's reasonable good faith belief that the representations and warranties made by the Buyer in the Agreement or the Notice of Conversion were untrue when made, or if the restricted period under Regulation S is extended, then the Company shall be required, at the request of the Buyer and at the Company's expense, to effect the registration of the Underlying Shares and/or Interest Shares issuable upon conversion of the Debentures and payment of interest under the Act and relevant Blue Sky laws as promptly as is practicable. The Company and the Buyer shall cooperate in good faith in connection with the furnishing of information required for such registration and the taking of such other actions as may be legally or commercially necessary in order to effect such registration. The Company shall file such a registration statement within 30 days of buyer's demand therefor and shall use its best efforts to cause such registration statement to become effective as soon as practicable thereafter. such best efforts shall include, but not be limited to, promptly responding to all comments received from the staff of the Securities and Exchange commission, providing Buyer's counsel with a contemporaneous copy of all written communications from and to the staff of the Securities and Commission with respect to such registration statement and promptly preparing and filing amendments to such registration statement which are responsive to the comments received from the staff of the Securities and Commission. Once declared effective by the Securities and Exchange Commission, the Company shall cause such registration statement to remain effective until the earlier of (i) the sale of the Buyer of all Underlying Shares registered or (ii) 120 days after the effective date of such registration statement. In the event the Company undertakes to file a Registration Statement on Form S-3 in connection with the Common Stock, upon the effectiveness of such Registration, Buyer shall have the option to sell the Common Stock pursuant thereto. The foregoing shall not in any way limit Buyer's rights in connection with the Common Stock pursuant to Regulation S. -7- 7. Delivery Instructions. The Debentures being purchased hereunder shall be delivered to the Buyer at such time and place as shall be mutually agreed by Seller and Buyer. 8. Conditions To Seller's Obligation To Sell. Seller's obligation to sell the Debentures is conditioned upon: (a) The receipt and acceptance by Seller of this Agreement as executed by Buyer. (b) Delivery into the closing depository of good funds by Buyer as payment in full of the purchase price of the Debentures. (c) All of the representations and warranties of the Subscriber contained in this Agreement shall be true and correct on the Payment Date with the same force and effect as if made on and as of the Payment Date. The Subscriber shall have performed or complied with all agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Payment Date. (d) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Debentures shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (e) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Debentures. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Debentures. 9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to purchase the Debentures is conditioned upon: (a) The confirmation of receipt and acceptance by Seller of this Agreement as evidenced by execution of this Agreement by the duly authorized officer of Seller. (b) Delivery of the Debentures to the Buyer. 10. Offering Materials. All offering materials and documents used in connection with offers and sales of the Securities prior to the expiration of the Restricted Period referred to in Section 2(a)(v) hereof shall include statements to the effect that the Securities have not been registered under the 1933 Act or applicable state securities laws, and that neither Buyer, nor any direct or indirect purchaser of the Securities from Buyer, may directly or indirectly offer or sell the Securities in the United States or to U.S. Persons (other than distributors) unless that Securities are registered under the 1933 Act any applicable state securities laws, or any exemption from the registration requirements of the 1933 Act or such state securities laws is -8- available. Such statements shall appear (1) on the cover of any prospectus or offering circular used in connection with the offer or sale of the Securities, (2) in the underwriting section of any prospectus or offering circular used in connection with the offer or sale of the Securities, and (3) in any advertisement made or issued by Seller, Buyer, any other distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. 11. No Shareholder Approval. Seller hereby agrees that from the Closing Date until the issuance of Common Stock upon the conversion of the Debentures, Seller will not take any action which would require Seller to seek shareholder approval of such issuance unless such shareholder approval is required by law or regulatory body (including but not limited to the NASDAQ Stock Market, Inc.) as a result of the issuance of the Securities hereunder. 12. Miscellaneous. (a) Except as specifically referenced herein, this Agreement constitutes the entire contract between the parties, and neither party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. Any previous agreement among the parties related to the transactions described herein is superseded hereby. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. Nothing in this Agreement, express or impled, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. (b) Buyer is an independent contractor, and is not the agent of Seller. Buyer is not authorized to bind Seller, or to make any representations or warranties on behalf of Seller. (c) Seller makes no representations or warranty with respect to Seller, its finances, assets, business prospects or otherwise. Buyer will advise each purchaser, if any, and potential purchaser of the Securities, of the foregoing sentence, and that such purchaser is relying on its own investigation with respect to all such matters, and that such purchaser will be given access to any and all documents and Seller personnel as it may reasonably request for such investigation. (d) All representations and warranties contained in this Agreement by Seller and Buyer shall survive the closing of the transactions contemplated by this Agreement. (e) This Agreement shall be construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. Buyer hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original. (f) Buyer agrees to indemnify and hold Seller harmless from any and all claims, damages and liabilities arising from Buyer's breach of its representations and/or covenants set forth herein. -9- IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. AMOUNT SUBSCRIBED FOR $ ----------------------- Official Signatory of Buyer: ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- Address of Buyer: ---------------------------------------- ---------------------------------------- ---------------------------------------- Fax No.: -------------------------------- Tel No.: -------------------------------- Accepted this ____ day of _______, 1996 Official Signatory of Seller: American International Petroleum Corp. By: ------------------------------------- Title: ---------------------------------- -10- EX-10 10 EXHIBIT 10.3 EXHIBIT 10.3 OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of ___________, 1996 (the "Agreement"), is executed in reliance upon the exemption from registration afforded by Regulation S ("Regulation S") as promulgated by the Securities and Exchange Commission ("SEC"), under the Securities Act of 1933, as amended. Capitalized terms used herein and not defined shall have the meanings given to them in Regulation S. This Agreement has been executed by the undersigned "Buyer" in connection with the private placement of 10% Series M Senior Subordinated Convertible Redeemable Debentures of American International Petroleum Corp., a corporation organized under the laws of the State of Nevada, with its principal executive offices located at 444 Madison Avenue, Suite 3203, New York, New York 10022 (hereinafter referred to as "Seller"). Buyer hereby represents and warrants to, and agrees with Seller: THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. 1. Agreement To Subscribe; Purchase Price. (a) Subscription. The undersigned Buyer hereby subscribes for and agrees to purchase the Seller's 10% Series M Senior Subordinated Convertible Redeemable Debentures substantially in the form of the Debentures attached as Exhibit A hereto and having an aggregate original principal amount of up to U.S. 3,000,000 (singly, a "Debenture," and collectively, the "Debentures"), at an aggregate purchase price as set forth in subsection (b) herein. (b) Payment. The aggregate Purchase Price for the portion of the Debentures purchased by Buyer shall be __________________________ United States Dollars (U.S. $___________) which represents a discount of 10% of the face amount of the Debenture purchased by the Buyer (the "Purchase Price"), which shall be payable pursuant to paragraph C herein by delivering immediately available funds in United States Dollars by wire transfer to the following designated depository for closing by delivery of securities versus payment: NationsBank P.O. Box 2518 Houston, TX 77252-2518 Attn: Jackie McKay ABA #111000025 Credit Acct. American International Petroleum Corporation Acct. #266-237-3736 (c) Closing. Subject to the satisfaction of the conditions set forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made from time to time in denominations of not less than $100,000 but all payments hereunder, in any event must be completed on or before _____________, or such earlier or later date as is mutually agreed to in writing by Buyer and Seller. 2. Buyer Representations and Covenants; Access to Information. Offshore Transaction. In connection with the purchase and sale of the Debentures, Buyer represents and warrants to, and covenants and agrees with Seller as follows: (i) Buyer is not a natural person and is not organized under the laws of any jurisdiction within the United States, was not formed by a U.S. Person (as defined in Section 902(o) of Regulation S) for the purpose of investing in Regulation S securities and is not otherwise a U.S. Person. Buyer is not, and on the closing date will not be, an affiliate of Seller; (ii) At the time the buy order was originated, Buyer was outside the United States and is outside of the United States as of the date of the execution and delivery of this Agreement; (iii) No offer to purchase the Debentures or the common stock of Seller issuable upon conversion of the Debentures (collectively, the "Securities"), was made by Buyer in the United States; (iv) Buyer is purchasing the Securities for its own account and Buyer is qualified to purchase the Securities under the laws of its jurisdiction of residence, and the offer and sale of the Securities will not violate the securities or other laws of such jurisdiction; (v) All offers and sales of any of the Securities by Buyer prior to the end of the Restricted Period (as hereinafter defined) shall be made in compliance with any applicable securities laws of any applicable jurisdiction and in accordance with Rule 903 and 904, as applicable, of Regulation S or pursuant to registration of securities under the 1933 Act or pursuant to an exemption from registration. In any case, none of the Securities have been or will be encumbered, offered, sold or otherwise transferred by Buyer to, or for the account or benefit of, a U.S. Person or within the United States until after the end of the forty (40) day period commencing on the later of (x) the date of closing of the offering of the Securities or (y) the date of the first offer of the Securities to persons other than distributors (the "Restricted Period"), as calculated pursuant to Regulation S and certified by Buyer to Seller and thereafter only pursuant to a Registration Statement or an applicable exemption from the registration provision of the 1933 Act; -2- (vi) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Buyer with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Buyer, to evade the registration provisions of the 1933 Act; (vii) Buyer understands that the Securities are not registered under the 1933 Act and are being offered and sold to it in reliance on specific exclusions from the registration requirements of Federal and State securities laws, and that Seller is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the applicability of such exclusions and the suitability of Buyer and any purchaser from Buyer to acquire the Securities; (viii) Buyer shall take all reasonable steps to ensure its compliance with Regulation S and shall promptly send to each purchaser who acts as a distributor, dealer or a person receiving a selling concession, fee or other remuneration in respect of any of the Securities, who purchases prior to the expiration of the Restricted Period referred to in subparagraph (v) above, a confirmation or other notice to the purchaser stating that the purchaser is subject to the same restrictions on offers and sales as Buyer pursuant to Section 109(c)(2)(iv) of Regulation S; (ix) Buyer has not conducted or permitted and shall not conduct or permit on its behalf any "directed selling efforts" as that term is defined in Rule 902(b) of Regulation S; nor has Buyer conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere; (x) Buyer has the full right, power and authority to enter into this Agreement and to consummate the transaction contemplated herein. This Agreement has been duly authorized, validly executed and delivered on behalf of Buyer and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally; (xi) The execution and delivery of this Agreement and the consummation of the purchase of the Securities, and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Buyer of any of the terms of provisions of, or constitute a default under, the articles of incorporation or by-laws (or similar constitutive documents) of Buyer or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Buyer is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Buyer or any of its properties or assets; -3- (xii) All invitation, offers and sales of or in respect of, any of the Securities, by Buyer and any distribution by Buyer of any documents relating to any offer by it of any of the Securities will be in compliance with applicable laws and regulations and will be made in such a manner that no prospectus need be filed and no other filing need be made by Seller with any regulatory authority or stock exchange in any country or any political sub-division of any country; (xiii) Buyer will not make any offer or sale of the Securities by any means which would not comply with the laws and regulations of the territory in which such offer or sale takes place or to which such offer or sale is subject or which would in connection with any such offer or sale impose upon Seller any obligation to satisfy any public filing or registration requirement or provide or publish any information of any kind whatsoever or otherwise undertake or become obligated to do any act; and (xiv) Neither the Buyer nor any of its affiliates has entered, has the intention of entering, or will during the Restricted Period enter into any put option, short position or other similar instrument or position with respect to any of the Securities or securities of the same class as the Securities. (xv) the Buyer (or others for whom it is contracting hereunder) has been advised to consult its own legal and tax advisors with respect to applicable resale restrictions and applicable tax considerations and it (or others for whom it is contracting hereunder) is solely responsible (and the Company is not in any way responsible) for compliance with applicable resale restrictions and applicable tax legislation. (xvi) No Government Recommendation or Approval. Buyer understands that no Federal or State or foreign government agency has passed on or made any recommendation or endorsement of the Securities. (xvii) Current Public Information. Buyer acknowledges that it and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of Seller and all materials relating to the offer and sale of the Securities which have been requested by Buyer, all of which contain a legend as required under Section 10 hereof. Buyer further acknowledges that it and its advisors, if any, have received complete and satisfactory answers to such inquiries. (xviii) Buyer's Sophistication. Buyer acknowledges that the purchase of the Securities involves a high degree of risk, including the total loss of Buyer's investment. Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Securities. Buyer understands that the Securities are not being registered under the 1933 Act, and therefore Buyer must bear the economic risk of this investment for an indefinite period of time. -4- (xix) Tax Status. Buyer is not a "10-percent Shareholder" (as defined in Section 871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller. 3. Seller Representations and Covenants. (a) Reporting Company Status. Seller is a "Reporting Issuer" as defined by Rule 902 of Regulation S. Seller has registered its Common Stock, $.08 par value per share (the "Common Stock"), pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Common Stock is listed and trades on NASDAQ. Seller has filed all material required to be filed pursuant to all reporting obligations under either Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve (12) months immediately preceding the offer or sale of the Securities (or for such shorter period that Seller has been required to file such material). (b) Current Public Information. Seller has furnished Buyer with copies of its most recent reports, as amended, filed under the Exchange Act referred to in Section 2(xvii) above, and other publicly available documents requested by Buyer. (c) Offshore Transaction. Seller has not offered any of the Securities to any person in the United States, any identifiable groups of U.S. citizens abroad, or to any U.S. Person, as such terms are used in Regulation S. (i) At the time the buy order was originated, Seller and/or its agents reasonably believe the Buyer was outside of the United States and was not a U.S. person, based on the representations of Buyer. (ii) Seller and/or its agents reasonably believe that the transaction has not been pre-arranged with a buyer in the United States, based on the representations of Buyer. (iii) No offer to buy or sell the Securities was or will be made by Seller to any person in the United States. (iv) The sale of the Securities by Seller pursuant to this Agreement will be made in accordance with the provisions and requirements of Regulation S provided that the representations and warranties of Buyer in Section 2 hereof are true and correct. (v) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Seller with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Seller to evade the registration provisions of the 1933 Act. -5- (d) No Directed Selling Efforts. In regard to this transaction, Seller has not conducted any "directed selling efforts" as that term is defined in Rule 902 of Regulation S nor has Seller conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere. (e) Concerning the Securities. The issuance, sale and delivery of the Debentures have been duly authorized by all required corporate action on the part of Seller, and when issued, sold and delivered in accordance with the terms hereof and thereof for the consideration expressed herein and therein, will be duly and validly issued, fully paid and non-assessable. The Common Stock issuable upon conversion of the Debenture has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Debentures, shall be duly and validly issued, fully paid, and non-assessable and will not subject the holders thereof, if such persons are non-U.S. persons, to personal liability by reason of being such holders. There are no pre-emptive rights of any shareholder of Seller. (f) Subscription Agreement. This Agreement has been duly authorized, validly executed and delivered on behalf of Seller and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. (g) Non-contravention. The execution and delivery of this Agreement and the consummation of the issuance of the Securities and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Seller of any of the terms or provisions of, or constitute a default under, the articles of incorporation or by-laws of Seller, or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Seller is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Seller or any of its properties or assets. (h) Approvals. Seller is not aware of any authorization, approval or consent of any U.S. governmental body which is legally required for the issuance and sale of the Debentures and the Common Stock issuable upon conversion thereof to persons who are non-U.S. Persons, as contemplated by this Agreement. Seller is relying entirely upon Buyer and Distributor with respect to foreign consents and approvals. 4. Exemption; Reliance on Representations. Buyer understands that the offer and sale of the Securities are not being registered under the 1933 Act. Seller and Buyer are relying on the rules governing offers and sales made outside the United States pursuant to Regulation S. 5. Transfer Agent Instructions. (a) Debentures. Upon the conversion of the Debentures, the holder thereof shall submit such Debenture together with a notice of conversion to the Seller and the Seller shall instruct its transfer agent to issue one or more Certificates representing that number of shares of Common Stock into which the Debenture or Debentures are convertible in accordance with the provisions regarding conversion set forth in Exhibit A hereto. The Seller shall act as Debenture Registrar and shall maintain an appropriate ledger containing the necessary information with respect to each Debenture. -6- (b) Common Stock to be Issued Without Restrictive Legend. Upon the conversion of any Debenture up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the issuance of any "Interest Shares" (as defined in the Debenture) by a person who is a non-U.S. Person, Seller shall instruct Seller's transfer agent to issue Stock Certificates up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the "Interest Shares" (as defined in the Debenture), if any, without restrictive legend in the name of Buyer upon receipt of an opinion of Buyer's Counsel to remove such legend (or its nominee (being a non-U.S. person) or such non- U.S. Persons as may be designated by Buyer prior to the closing) and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable. Seller warrants that no instructions other than these instructions and instructions to impose a "stop transfer" instruction with respect to the certificates until the end of the respective Restricted Period of the Conversion Shares and Interest Shares, if any, have been given or will be given to the transfer agent and that the Common Stock shall otherwise be freely transferable on the books and records of Seller. Nothing in the this Section 5, however, shall affect in any way Buyer's or such nominee's obligations and agreements to comply with all applicable securities laws upon resale of the Securities. 6. Registration. If upon conversion of the Debentures effected by the Buyer pursuant to the terms of this agreement or payment of interest pursuant to the Debenture the Company fails to issue certificates for shares of Common Stock issuable upon such conversion (the "Underlying Shares") or the Interest Shares, if any, to the Buyer bearing no restrictive legend (after the applicable restrictive Period of the Conversion Shares or Interest Shares) for any reason other than the Company's reasonable good faith belief that the representations and warranties made by the Buyer in the Agreement or the Notice of Conversion were untrue when made, or if the restricted period under Regulation S is extended, then the Company shall be required, at the request of the Buyer and at the Company's expense, to effect the registration of the Underlying Shares and/or Interest Shares issuable upon conversion of the Debentures and payment of interest under the Act and relevant Blue Sky laws as promptly as is practicable. The Company and the Buyer shall cooperate in good faith in connection with the furnishing of information required for such registration and the taking of such other actions as may be legally or commercially necessary in order to effect such registration. The Company shall file such a registration statement within 30 days of buyer's demand therefor and shall use its best efforts to cause such registration statement to become effective as soon as practicable thereafter. such best efforts shall include, but not be limited to, promptly responding to all comments received from the staff of the Securities and Exchange commission, providing Buyer's counsel with a contemporaneous copy of all written communications from and to the staff of the Securities and Commission with respect to such registration statement and promptly preparing and filing amendments to such registration statement which are responsive to the comments received from the staff of the Securities and Commission. Once declared effective by the Securities and Exchange Commission, the Company shall cause such registration statement to remain effective until the earlier of (i) the sale of the Buyer of all Underlying Shares registered or (ii) 120 days after the effective date of such registration statement. In the event the Company undertakes to file a Registration Statement on Form S-3 in connection with the Common Stock, upon the effectiveness of such Registration, Buyer shall have the option to sell the Common Stock pursuant thereto. The foregoing shall not in any way limit Buyer's rights in connection with the Common Stock pursuant to Regulation S. -7- 7. Delivery Instructions. The Debentures being purchased hereunder shall be delivered to the Buyer at such time and place as shall be mutually agreed by Seller and Buyer. 8. Conditions To Seller's Obligation To Sell. Seller's obligation to sell the Debentures is conditioned upon: (a) The receipt and acceptance by Seller of this Agreement as executed by Buyer. (b) Delivery into the closing depository of good funds by Buyer as payment in full of the purchase price of the Debentures. (c) All of the representations and warranties of the Subscriber contained in this Agreement shall be true and correct on the Payment Date with the same force and effect as if made on and as of the Payment Date. The Subscriber shall have performed or complied with all agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Payment Date. (d) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Debentures shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (e) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Debentures. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Debentures. 9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to purchase the Debentures is conditioned upon: (a) The confirmation of receipt and acceptance by Seller of this Agreement as evidenced by execution of this Agreement by the duly authorized officer of Seller. (b) Delivery of the Debentures to the Buyer. 10. Offering Materials. All offering materials and documents used in connection with offers and sales of the Securities prior to the expiration of the Restricted Period referred to in Section 2(a)(v) hereof shall include statements to the effect that the Securities have not been registered under the 1933 Act or applicable state securities laws, and that neither Buyer, nor any direct or indirect purchaser of the Securities from Buyer, may directly or indirectly offer or sell the Securities in the United States or to U.S. Persons (other than distributors) unless that Securities are registered under the 1933 Act any applicable state securities laws, or any exemption from the registration requirements of the 1933 Act or such state securities laws is -8- available. Such statements shall appear (1) on the cover of any prospectus or offering circular used in connection with the offer or sale of the Securities, (2) in the underwriting section of any prospectus or offering circular used in connection with the offer or sale of the Securities, and (3) in any advertisement made or issued by Seller, Buyer, any other distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. 11. No Shareholder Approval. Seller hereby agrees that from the Closing Date until the issuance of Common Stock upon the conversion of the Debentures, Seller will not take any action which would require Seller to seek shareholder approval of such issuance unless such shareholder approval is required by law or regulatory body (including but not limited to the NASDAQ Stock Market, Inc.) as a result of the issuance of the Securities hereunder. 12. Miscellaneous. (a) Except as specifically referenced herein, this Agreement constitutes the entire contract between the parties, and neither party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. Any previous agreement among the parties related to the transactions described herein is superseded hereby. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. Nothing in this Agreement, express or impled, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. (b) Buyer is an independent contractor, and is not the agent of Seller. Buyer is not authorized to bind Seller, or to make any representations or warranties on behalf of Seller. (c) Seller makes no representations or warranty with respect to Seller, its finances, assets, business prospects or otherwise. Buyer will advise each purchaser, if any, and potential purchaser of the Securities, of the foregoing sentence, and that such purchaser is relying on its own investigation with respect to all such matters, and that such purchaser will be given access to any and all documents and Seller personnel as it may reasonably request for such investigation. (d) All representations and warranties contained in this Agreement by Seller and Buyer shall survive the closing of the transactions contemplated by this Agreement. (e) This Agreement shall be construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. Buyer hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original. -9- (f) Buyer agrees to indemnify and hold Seller harmless from any and all claims, damages and liabilities arising from Buyer's breach of its representations and/or covenants set forth herein. -10- IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. AMOUNT SUBSCRIBED FOR $ -------------------------------- Official Signatory of Buyer: ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- Address of Buyer: ---------------------------------------- ---------------------------------------- ---------------------------------------- Fax No.: -------------------------------- Tel No.: -------------------------------- Accepted this ____ day of _______, 1996 Official Signatory of Seller: American International Petroleum Corp. By: ------------------------------------- Title: ---------------------------------- -11- EX-10 11 EXHIBIT 10.4 EXHIBIT 10.4 - ------------------------------------------------------------------------------ AMERICAN INTERNATIONAL PETROLEUM CORPORATION 64 Units with each Unit comprised of the Company's $25,000 principal amount Subordinated Note maturing 90 days from the respective issuance of each Note and 10,000 Warrants with each Warrant exercisable into a Share of Common Stock at $.50 (an aggregate of $1,600,000 principal amount of Subordinated Notes and 640,000 Warrants exercisable into 640,000 Shares of Common Stock) SUBSCRIPTION AGREEMENT - ------------------------------------------------------------------------------ THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE. SUBSCRIPTION AGREEMENT THIS AGREEMENT has been executed by the undersigned, ____________________, whose address is _____________________________________________________________, (herein referred to as the "Subscriber"), in connection with the placement of 64 Units with each Unit comprised of the Company's $25,000 principal amount Subordinated Note maturing 90 days from the respective issuance of each Note and 10,000 Warrants with each Warrant exercisable into a Share of Common Stock at $.50 (hereinafter referred to as the "Units") of AMERICAN INTERNATIONAL PETROLEUM CORPORATION (hereinafter referred to as the "Company") located at 444 Madison Avenue, Suite 3203, New York, New York 10022 WHEREAS, the Company proposes to issue and sell the Units by means of an Offering Memorandum with respect to which Robert M. Cohen & Co. is the Placement Agent on a best efforts basis, with no minimum number of Units required to be subscribed for ; WHEREAS, the Units will be offered and sold pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Act") by virtue of the Company's compliance with Section 4(6) of the Securities Act and Rule 505 of Regulation D promulgated under Section 4(2) of the Act and corresponding exemption provisions of states in which this Offering is being made. Units may be purchased only by "Accredited Investors" as such term is defined in Rule 501 of Regulation D. The Company has prepared an offering memorandum dated November 6, 1996, which has as exhibits thereto and incorporates by reference therein the Form 10-K of the Company for the year ended December 31, 1995, the Form 10-Q of the Company for the quarterly period ended June 30, 1996, the Form 10-Q of the Company for the quarterly period ended March 31, 1996, Annual Report of the Company for the Fiscal Year Ended December 31, 1995, Proxy Statement of the Company for its Annual Meeting held on July 11, 1996 and Current Report on Form 8-K of the Company with respect to August 13, 1996 Date of Report (collectively, the "Offering Memorandum"), relating to the Company and the Units. NOW THEREFORE, the Subscriber agrees with the Company as follows: 1. Subscription. Subject to its terms and conditions and further subject to acceptance of this Agreement by the Company, the Subscriber agrees to purchase from the Company the amount of Units set forth on the signature page hereof 2. Delivery and Payment. Delivery of and payment for the Units shall be made upon 2 the execution of this Subscription Agreement in accordance with the instruction sheet attached hereto. 3. Representations and Warranties of the Subscriber. The Subscriber hereby represents and warrants to the Company as follows: (a) The Subscriber has received a copy of the Offering Memorandum, and the Subscriber has carefully reviewed the Offering Memorandum and this Agreement. The Subscriber also acknowledges that he has received a copy of the Company's Form 10-K of the Company for the year ended December 31, 1995, the Form 10-Q of the Company for the quarterly period ended June 30, 1996, the Form 10-Q of the Company for the quarterly period ended March 31, 1996, Annual Report of the Company for the Fiscal Year Ended December 31, 1995, Proxy Statement of the Company for its Annual Meeting held on July 11, 1996 and Current Report on Form 8-K of the Company with respect to August 13, 1996 Date of Report and is acquainted with the business and financial condition of the Company. The Subscriber further acknowledges that he has had an opportunity to ask questions of and receive answers from the Company's executive officers concerning the Company and the terms and conditions of this investment, and all such questions have been answered to the full satisfaction of the Subscriber. The Subscriber hereby further represents and warrants that it is aware that there are substantial risks incident to an investment in the Company and that no Federal or State agency has passed upon the Units or made any finding or determination as to the fairness of an investment in the Company. (b) The Subscriber has the full right, power and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein. This Agreement constitutes the legal, valid and binding obligation of the Subscriber enforceable in accordance with its terms. (c) The Subscriber is acquiring Units for its own account and risk and not as part of any plan or scheme to evade the registration requirements of the Act The Subscriber understands and agrees that it must bear the economic risk of its investment in the Units for an indefinite period of time. Neither the Units, the Subordinated Note, Warrants or Common Stock underlying the Warrants have been registered under the Act and can not be transferred unless an exemption from registration under the United States and applicable state securities law is available. The Subscriber also understands that the Company is under no obligation to register any of the aforementioned on behalf of the Subscriber (other than with respect to the piggyback registration rights granted under the Warrants) or to assist it in complying with any exemption from registration. (d) The Subscriber is an Accredited Investor, as such term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended and set out in the Purchaser Questionnaire attached hereto.. (e) Neither the Subscriber, nor any officer, director or 5% or more shareholder thereof, has been: 3 (i) Convicted within the preceding ten years of any felony or misdemeanor in connection with the offer, purchase or sale of any security or commodity involving the making of a false filing with the Commission. (ii) Subject to any order, judgment or decree of any court of competent jurisdiction temporarily or preliminary enjoining or restraining, or subject to any order, judgment or decree of any court of competent jurisdiction, entered within the preceding five years, permanently enjoining or restraining the investor from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or commodity or involving the making or a false filing with the Commission or any state, or arising out of the conduct of the business of any underwriter, broker, dealer, municipal securities dealer or investment advisor. (iii) Subject to an order of the Commission entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Securities Exchange Act of l934, as amended (the "Exchange Act"); or subject to an order or the Commission entered pursuant to Section 203(e) or (f) of the Investment Advisers Act of l940. (iv) Suspended or expelled from membership in, or suspended or barred from association with a member of, an exchange registered as a national securities exchange pursuant to Section 6 of the Exchange Act, an association registered as a national securities association under Section 15A of the Exchange Act or a Canadian securities exchange or association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade. (v) Filed a registration statement which is the subject of a registration stop order entered pursuant to the Act or any State Act within the preceding five years. (vi) Subject to any state's administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration in connection with the offer, purchase or sale of securities. (f) If the Subscriber is a corporation or trust or other entity, the officer or trustee or other person executing this Agreement represents and warrants that he is authorized to so sign and that the entity is authorized by the governing documents of the entity, to make this investment; (g) The Subscriber understands that the offer and sale of the Units is being made only by means of this Agreement and the Offering Memorandum. In deciding to subscribe for the Units, the Subscriber has not considered any information other than that contained in this Agreement and the Offering Memorandum and any documents provided to the Subscriber by the Company. The Subscriber acknowledges that each of such documents contain on the cover thereof a legend as to the absence of registration of the Units under the Act and the restrictions arising under the Act. The Subscriber acknowledges and agrees that the purchase of the Units involves a high degree of risk and that the Subscriber may sustain, and has the financial ability to sustain, the loss of its entire investment. (h) The Subscriber acknowledges that Robert M. Cohen & Co. (the "Placement 4 Agent") and any other such duly registered broker-dealers utilized in connection with this Offering will receive from the Company aggregate commissions equal to 5% of the proceeds received by the Company in connection with the sale of Units and 500 Warrants (exercisable into 500 shares of Common Stock at $.50 per share) for each Unit sold. The Placement Agent shall also receive a $2,000 non-accountable expense allowance in connection with acting as Placement Agent. 4. Representations and Warranties of the Company. The Company represents and warrants to the Subscriber, except as otherwise disclosed in the Offering Memorandum, that: (a) This Agreement has been duly authorized by the Company and, when accepted and delivered, will be a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. (b) The Subordinated Notes and Warrants and the shares of Common Stock to be issued upon exercise of the Warrants have been duly authorized and, when issued and delivered against payment therefor in accordance with the terms of this Agreement in the case of the Warrants, or upon exercise, with respect to the Common Stock, will be, in the case of the Subordinated Notes and Warrants, validly issued and outstanding and will constitute valid and legal obligations of the Company enforceable against it in accordance with their terms, and in the case of the Common Stock, validly issued, fully paid, nonassessable and free of preemptive or similar rights. (c) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Nevada. The Company has the corporate power and authority necessary to enter into and perform its obligations under this Agreement, and to issue, sell and deliver the Units, and to issue the shares of Common Stock upon exercise of the Warrants. (d) There is (i) no action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, now pending, threatened or, to the knowledge of the Company, contemplated to which the Company is or may be a party or to which the business or property of the Company is or may be subject and (ii) no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body which might prevent the issuance of the Units or the consummation of any of the transactions contemplated by this Agreement. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued that would prevent the issuance of the Units. (e) The execution, delivery and performance of, and the consummation of the transactions contemplated by, this Agreement, will not conflict with or constitute a material breach of any of the terms or provisions of, or constitute a material default (with notice, the passage of time or otherwise) under, or result in the imposition of a lien or encumbrance on any properties of the Company or an acceleration of indebtedness pursuant to (i) the charter or 5 bylaws, or other equivalent instrument, of the Company, (ii) any bond, debenture, note or any other evidence of indebtedness or any indenture, mortgage, deed of trust or any other material agreement instrument to which the Company is a party or to which it or its properties or assets are subject, except such as have been waived or (iii) any law, regulation or order of any court or governmental agency or authority applicable to the Company, or any of its material properties or assets. (f) No consents or waivers from any person are required to consummate the transactions contemplated by this Agreement, other than such consents and waivers as have been obtained. (g) The Company is in full compliance, to the extent applicable, with applicable reporting obligations under either Section 12(b), 12(g) or 15(d) of the Securities and Exchange Act of 1934, as amended. (h) The Company shall either accept or reject this subscription, in whole or in part, within three (3) business days of being notified that the Placement Agent has received a completed Agreement and deposited such funds in the trust account established on behalf of the Placement Agent. 5. Reliance on Representations. The Subscriber understands that the Company is relying on the Subscriber's representations concerning the Subscriber's status as an Accredited Investor. 6. Notice. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, to American International Petroleum Corporation, 444 Madison Avenue, Suite 3203, New York, New York 10022, Attention: Dr. George Faris, with a copy to Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158, (ii) if to the Subscriber at the address set forth at the signature page of this Agreement, or in any case to such other address as the person to be notified may have requested in writing. 7. Miscellaneous. Except as otherwise provided, this Agreement has been and is made solely for the benefit of the Company and shall be binding upon the Subscriber and its successors and assigns, all as and to the extent provided in this Agreement, and no other persons shall acquire or have any right under or by virtue of this Agreement. Subscriber shall not assign this Agreement. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, AND EACH PARTY HEREBY AGREES THAT ALL PERFORMANCE DUE WITH RESPECT TO TRANSACTIONS UNDERTAKEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE DUE OR TO HAVE OCCURRED IN NEW YORK. THE EXCLUSIVE VENUE AND PLACE OF JURISDICTION FOR ANY LITIGATION ARISING FROM OR 6 RELATED TO THIS AGREEMENT SHALL BE THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE NEW YORK STATE SUPREME COURT LOCATED IN THE COUNTY OF NEW YORK. A FACSIMILE TRANSMISSION OF THIS SIGNED AGREEMENT SHALL BE LEGAL AND BINDING ON ALL PARTIES HERETO. IN WITNESS WHEREOF, the parties have executed this Agreement, the ____ day of ___________, 1996. Amount of Units subscribed for: US$_________________ _______________________ Name of Subscriber By: ___________________ Name: Title: Address:____________________________________________________________ ____________________________________________________________________ Telephone Number:____________ Telecopier Number: ____________ Social Security No. or Tax I.D. No. : ________________ Accepted this ________ day of __________ , 1996: AMERICAN INTERNATIONAL PETROLEUM CORPORATION By: _____________________________ Dr. George N. Faris Chairman 7 State of ) ) ss.: County of ) On the day of , 1996, before me personally came to me known, and known to me to be the individual described in, and who executed the foregoing instrument, and he acknowledged to me that he executed the same. Notary Public 8 SPECIAL EXECUTION PAGE FOR SUBSCRIPTION BY AN ENTITY (Not applicable to subscriptions by individuals) IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned has completed this Subscription Agreement to evidence its subscription of Units of American International Petroleum Corporation, on this day of , 1996. Amount of Subscription $ --------------------- Number of Units TRUST -- (Please include copy of trust agreement) - ----- CORPORATION -- (Attach certified corporate resolution - ------ authorizing signature and a copy of the articles of incorporation, unless waived) PARTNERSHIP -- (Attached copy of the partnership agreement - ----- unless waived) (Please print the following information exactly as you wish it to appear on the Partnership records.) - ----------------------------- -------------------------- (Name of Subscriber) (Address) - ----------------------------- -------------------------- (Tax Identification Number) - ----------------------------- -------------------------- (Telephone) The undersigned trustee, partner or corporate officer certifies that he has full power and authority from the beneficiaries, partners or directors of the entity named below to execute this Subscription Agreement on behalf of the entity and to make the representations and warranties made herein on their behalf and that investment in the Company has been affirmatively authorized by the governing board of such entity and is not prohibited by the governing documents of the entity. 9 Dated: , 1996 ----------------------------------- ---------------- (Print Name of Entity) - ---------------------------- By: --------------------------------- (Print Name and Capacity) (Signature of authorized trustee, partner, or corporate officer) 10 CORPORATE ACKNOWLEDGMENT STATE OF ) )ss.: COUNTY OF ) On this day of , 1996, before me personally came to be known, being by me duly sworn, did depose and say that he resides at No. , that he is the of , the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation, and that he signed his name thereto by like order. Notary Public 11 PARTNERSHIP ACKNOWLEDGMENT STATE OF ) )ss.: COUNTY OF ) On this day of , 1996, before me personally came to be known, to be a partner in , a partnership, and known to be the person described in and who executed the foregoing instrument in the partnership name, and said duly acknowledged that he executed the foregoing instrument on behalf of said partnership. Notary Public 12 EX-27 12 EXHIBIT 27
5 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 302,242 0 1,347,485 0 246,432 2,591,449 54,786,287 23,434,061 34,112,954 6,163,192 4,737,496 0 0 2,754,546 1,297,754 34,112,954 963,476 999,974 0 176,220 1,207,521 0 359,013 (742,780) 0 0 0 0 0 (742,780) (0.02) 0
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